Blueprint
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 September 30,
2016
or
[
]
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 0-10763
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Atrion Corporation
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(Exact
Name of Registrant as Specified in its Charter)
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Delaware
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63-0821819
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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One Allentown Parkway, Allen, Texas 75002
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(Address
of Principal Executive
Offices) (Zip
Code)
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(972) 390-9800
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(Registrant’s
Telephone Number, Including Area Code)
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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 ☐ No
Indicate
by check whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “accelerated filer.”
“large accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act (Check
one):
| Large accelerated
filer ☐ |
Accelerated
filer ☒
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Non-accelerated
filer ☐
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Smaller reporting
company ☐ |
Indicate
by check 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.
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Title of Each Class
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Number of Shares Outstanding at
October 14, 2016
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Common stock, Par Value $0.10 per share
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1,824,280
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ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I. Financial Information
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2
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Item 1. Financial
Statements
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Consolidated
Statements of Income (Unaudited)
For the
Three and Nine months
Ended
September 30, 2016 and 2015
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3
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Consolidated
Statements of Comprehensive Income (Unaudited)
For the
Three and Nine months Ended
September 30, 2016
and 2015
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4
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Consolidated
Balance Sheets (Unaudited)
September 30, 2016
and December 31, 2015
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5
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Consolidated
Statements of Cash Flows (Unaudited)
For the
Nine months Ended
September 30, 2016
and 2015
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6
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Consolidated
Statement of Changes in Stockholders’
Equity
(Unaudited)
September 30, 2016
and December 31, 2015
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7
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Notes
to Consolidated Financial Statements (Unaudited)
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8
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Item 2. Management's Discussion
and Analysis of Financial Condition and Results of
Operations
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12
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Item 3. Quantitative and
Qualitative Disclosures About Market Risk
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17
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Item 4. Controls and
Procedures
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17
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PART II. Other Information
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17
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Item 1. Legal
Proceedings
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17
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Item 1A. Risk
Factors
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17
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Item 6. Exhibits
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18
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SIGNATURES
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19
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Exhibit Index
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20
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
September 30,
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Nine months Ended
September 30,
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(In
thousands, except per share amounts)
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Revenues
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$37,835
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$37,381
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$110,193
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$113,361
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Cost
of goods sold
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20,211
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18,997
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57,789
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57,668
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Gross
profit
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17,624
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18,384
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52,404
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55,693
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Operating
expenses:
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Selling
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1,471
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1,322
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4,871
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4,525
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General
and administrative
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3,613
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3,926
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11,442
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12,196
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Research
and development
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1,564
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1,563
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4,576
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4,792
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6,648
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6,811
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20,889
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21,513
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Operating
income
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10,976
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11,573
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31,515
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34,180
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Interest
income
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106
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131
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315
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636
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Other
income (expense), net
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1
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--
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(309)
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--
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107
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131
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6
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636
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Income
before provision for income taxes
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11,083
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11,704
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31,521
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34,816
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Provision
for income taxes
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(3,469)
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(3,905)
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(9,511)
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(11,941)
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Net
income
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$7,614
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$7,799
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$22,010
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$22,875
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Net
income per basic share
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$4.17
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$4.25
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$12.07
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$12.34
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Weighted
average basic shares outstanding
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1,825
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1,836
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1,823
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1,853
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Net
income per diluted share
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$4.10
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$4.19
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$11.86
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$12.19
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Weighted
average diluted shares outstanding
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1,858
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1,860
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1,856
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1,876
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Dividends
per common share
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$1.05
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$0.90
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$2.85
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$2.40
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The
accompanying notes are an integral part of these
statements.
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
September 30,
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Nine months Ended
September 30,
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Net
Income
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$7,614
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$7,799
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$22,010
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$22,875
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Other Comprehensive
Income (Loss):
Unrealized income
(loss) on investments, net of tax (benefit) expense of ($273), $59,
($445) and $238
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(506)
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109
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(827)
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442
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Comprehensive
Income
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$7,108
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$7,908
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$21,183
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$23,317
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The accompanying notes are an integral part of these
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Assets
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Current assets:
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Cash and cash
equivalents
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$23,747
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$28,346
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Short-term
investments
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15,049
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44
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Accounts
receivable
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20,124
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16,620
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Inventories
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30,056
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29,771
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Prepaid expenses
and other current assets
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2,180
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2,934
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Deferred income
taxes
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580
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580
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91,736
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78,295
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Long-term
investments
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9,838
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9,866
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Property, plant and
equipment
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159,301
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150,807
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Less accumulated
depreciation and amortization
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93,618
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87,493
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65,683
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63,314
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Other assets and
deferred charges:
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Patents
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2,005
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2,193
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Goodwill
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9,730
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9,730
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Other
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1,571
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938
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13,306
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12,861
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Total
assets
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$180,563
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$164,336
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Liabilities
and Stockholders’ Equity
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Current
liabilities:
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Accounts payable
and accrued liabilities
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$9,252
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$8,987
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Accrued income and
other taxes
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1,734
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329
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10,986
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9,316
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Line of
credit
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--
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--
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Other non-current
liabilities
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10,556
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10,922
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Stockholders’
equity:
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Common stock, par
value $0.10 per share; authorized10,000 shares, issued 3,420
shares
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342
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342
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Paid-in
capital
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37,197
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35,945
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Accumulated other
comprehensive income (loss)
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(544)
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283
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Retained
earnings
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236,300
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219,516
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Treasury
shares,1,596 at September 30, 2016 and 1,596 at December 31, 2015,
at cost
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(114,274)
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(111,988)
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Total
stockholders’ equity
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159,021
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144,098
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Total
liabilities and stockholders’ equity
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$180,563
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$164,336
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The
accompanying notes are an integral part of these financial
statements.
ATRION
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine months Ended
September 30,
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(In
thousands)
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Cash
flows from operating activities:
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Net
income
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$22,010
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$22,875
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Adjustments
to reconcile net income tonet cash provided by operating
activities:
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Depreciation
and amortization
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6,655
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6,663
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Deferred
income taxes
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(116)
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66
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Stock-based
compensation
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1,323
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1,454
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Bond
impairment
|
345
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--
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Net change in
accrued interest, premiums, and discounts
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on
investments
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(5)
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33
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Other
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--
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17
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30,212
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31,108
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(3,504)
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(2,642)
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Inventories
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(285)
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(1,180)
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Prepaid
expenses
|
754
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1,932
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Other
non-current assets
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(633)
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(212)
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Accounts
payable and accrued liabilities
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265
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(105)
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Accrued
income and other taxes
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1,405
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837
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Other
non-current liabilities
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195
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745
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28,409
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30,483
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Cash
flows from investing activities:
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Property,
plant and equipment additions
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(8,836)
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(6,123)
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Purchase
of investments
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(21,798)
|
--
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Proceeds
from sale of investments
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210
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--
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Proceeds
from maturities of investments
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5,000
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13,400
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(25,424)
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7,277
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Cash
flows from financing activities:
|
|
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Shares tendered for employees’ withholding
taxes on stock-based
compensation
|
(1,112)
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(154)
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Tax
benefit related to stock-based compensation
|
--
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150
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Purchase
of treasury stock
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(1,276)
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(30,698)
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Dividends
paid
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(5,196)
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(4,428)
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(7,584)
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(35,130)
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Net
change in cash and cash equivalents
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(4,599)
|
2,630
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Cash
and cash equivalents at beginning of period
|
28,346
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20,775
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Cash
and cash equivalents at end of period
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$23,747
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$23,405
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Cash
paid for:
|
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Income
taxes
|
$7,568
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$8,278
|
The
accompanying notes are an integral part of these financial
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY
(Unaudited)
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Additional
Paid-in
Capital
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Accumulated
Other
Comprehensive
Income
(Loss)
|
|
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Balances, December
31, 2015
|
1,824
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$342
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1,596
|
$(111,988)
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$35,945
|
$283
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$219,516
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$144,098
|
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Net
income
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22,010
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22,010
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Other
comprehensive income (loss)
|
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(827)
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(827)
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Stock-based
compensation transactions
|
7
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(7)
|
102
|
1,252
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1,354
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Shares
surrendered in stock transactions
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(3)
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3
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(1,112)
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(1,112)
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Purchase
of treasury stock
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(4)
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4
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(1,276)
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(1,276)
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Dividends
|
|
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(5,226)
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(5,226)
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Balances,
September 30, 2016
|
1,824
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$342
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1,596
|
$(114,274)
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$37,197
|
$(544)
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$236,300
|
$159,021
|
The accompanying notes are an integral part of these financial
statements
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of
Atrion Corporation and its subsidiaries have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of
the information and notes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, these statements include
all adjustments necessary to present a fair statement of our
consolidated results of operations, financial position and cash
flows. Operating results for any interim period are not necessarily
indicative of the results that may be expected for the full year.
Preparation of the Company’s financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts in the financial statements and
notes. Actual results could differ from those estimates. This
Quarterly Report on Form 10-Q should be read in conjunction with
the Company’s consolidated financial statements and notes
included in its Annual Report on Form 10-K for the fiscal year
ended December 31, 2015 ("2015 Form 10-K"). References herein
to "Atrion," the "Company," "we," "our," and "us" refer to Atrion
Corporation and its subsidiaries.
(2)
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out method. The following table details
the major components of inventories (in thousands):
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|
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Raw
materials
|
$13,305
|
$12,775
|
|
Work in
process
|
7,528
|
6,557
|
|
Finished
goods
|
9,223
|
10,439
|
|
Total
inventories
|
$30,056
|
$29,771
|
(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,
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
(in thousands, except per share amounts)
|
|
|
$7,614
|
$7,799
|
$22,010
|
$22,875
|
Weighted average
basic shares outstanding
|
1,825
|
1,836
|
1,823
|
1,853
|
Add:
Effect of dilutive securities
|
33
|
24
|
33
|
23
|
Weighted average
diluted shares outstanding
|
1,858
|
1,860
|
1,856
|
1,876
|
|
|
|
|
|
|
|
|
$4.17
|
$4.25
|
$12.07
|
$12.34
|
|
|
$4.10
|
$4.19
|
$11.86
|
$12.19
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Incremental shares
from stock options and restricted stock units were included in the
calculation of weighted average diluted shares outstanding using
the treasury stock method. Dilutive securities representing 41 and
15 shares of common stock for the quarters ended September 30, 2016
and 2015, respectively, were excluded from the computation of
weighted average diluted shares outstanding because their effect
would have been anti-dilutive.
(4)
Investments
As of
September 30, 2016, we held an investment that is required to be
measured for disclosure purposes at fair value on a recurring
basis. This investment is considered a Level 2 investment and is
considered to be a held-to-maturity security. We consider as
current assets those investments which will mature in the next 12
months. The remaining investments are considered non-current
assets. The amortized cost and fair value of our investments, and
the related gross unrealized gains and losses, were as follows as
of September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
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|
Short-term
Investments:
|
|
|
|
|
|
Corporate
Bonds
|
$30
|
$--
|
$--
|
$30
|
|
|
|
|
|
|
|
Long-term
Investments
|
|
|
|
|
|
Corporate
bonds
|
$5,000
|
$9
|
$--
|
$5,009
|
Included in our
short-term investments are certificates of deposit in the amount of
$15.0 million. These certificates of deposit have maturities
greater than three months but shorter than twelve
months.
The
amortized cost and fair value of our investments, and the related
gross unrealized gains and losses, were as follows as of December
31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
Investments:
|
|
|
|
|
|
Corporate
bonds
|
$44
|
$--
|
$--
|
$44
|
|
|
|
|
|
|
|
Long-term
Investments
|
|
|
|
|
|
Corporate
bonds
|
$5,555
|
$--
|
$(30)
|
$5,525
|
The
above long-term corporate bond represents an investment in one
issuer at September 30, 2016. At September 30, 2016, the length of
time until maturity of this security is 57 months.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
cost and fair value of our Level 2 investments that are being
accounted for as available-for-sale securities, and the related
gross unrealized gain reflected in accumulated other comprehensive
income, were as follows as of the dates shown below (in
thousands):
|
|
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|
|
|
|
|
|
|
|
|
As
of September 30, 2016:
|
|
|
|
|
|
Long-term
Investments:
|
|
|
|
|
|
Equity
investments
|
$5,675
|
$--
|
$(837)
|
$4,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2015:
|
|
|
|
|
|
Long-term
Investments:
|
|
|
|
|
|
Equity
investments
|
$3,876
|
$435
|
$--
|
$4,311
|
The
fair value of these Level 2 investments were estimated using
recently executed transactions and market price
quotations.
(5)
Patents and Licenses
Purchased
patents and licenses 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):
|
|
|
Weighted
Average
Original
Life
(years)
|
|
|
Weighted
Average
Original
Life
(years)
|
|
|
|
15.67
|
$13,840
|
$11,835
|
15.67
|
$13,840
|
$11,647
|
Aggregate
amortization expense for patents and licenses was $63,000 for the
three months ended both September 30, 2016 and 2015, and $188,000
and $282,000 for the nine months ended September 30, 2016 and 2015,
respectively.
Estimated future
amortization expense for each of the years set forth below ending
December 31 is as follows (in thousands):
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6)
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU)
2016-09, Stock Compensation (Topic718):
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). The objective of this update is to simplify
several aspects of the accounting for employee share-based
payments. Under this guidance all excess tax benefits
(“windfalls”) 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 prior
years.
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 impact it may have on our consolidated financial
statements.
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 noncurrent on the balance sheet. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity 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. We do not anticipate a material impact on our
consolidated financial statements at the time we adopt this new
standard.
In May 2014, the FASB issued ASU 2014-09,
Revenue from
Contracts with Customers (ASU
2014-09). ASU 2014-09 requires an entity to recognize the amount of
revenue 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 Accepted 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. We are evaluating the effect
that ASU 2014-09 will have on our consolidated financial statements
and related disclosures. We have not yet selected a transition
method nor have we determined the impact of ASU 2014-09 on our
consolidated financial statements.
From
time to time, new accounting standards updates applicable to us are
issued by the FASB which we will adopt as of the specified
effective date. Unless otherwise discussed, we believe the impact
of recently issued standards updates that are not yet effective
will not have a material impact on our consolidated financial
statements upon adoption.
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
We
develop and manufacture products primarily for medical
applications. We market components to other equipment manufacturers
for incorporation in their products and sell finished devices to
physicians, hospitals, clinics and other treatment centers. Our
medical products primarily serve the fluid delivery,
cardiovascular, and ophthalmology markets. Our other medical and
non-medical products include instrumentation and disposables used
in dialysis and valves and inflation devices used in marine and
aviation safety products.
Our
products are used in a wide variety of applications by numerous
customers. We encounter competition in all of our markets and
compete primarily on the basis of product quality, price,
engineering, customer service and delivery time.
Our
strategy is to provide a broad selection of products in the areas
of our expertise. Research and development efforts are focused on
improving current products and developing highly-engineered
products that meet customer needs and have the potential for broad
market applications and significant sales. Proposed new products
may be subject to regulatory clearance or approval prior to
commercialization and the time period for introducing a new product
to the marketplace can be unpredictable. We also focus on
controlling costs by investing in modern manufacturing technologies
and controlling purchasing processes. We have been successful in
consistently generating cash from operations and have used that
cash to reduce indebtedness, to fund capital expenditures, to
repurchase stock and to pay dividends.
Our
strategic objective is to further enhance our position in our
served markets by:
● Focusing on
customer needs;
● Expanding existing
product lines and developing new products;
● Manufacturing
products to exacting quality standards; and
●
Preserving and fostering a collaborative and entrepreneurial
culture.
For the
three months ended September 30, 2016, we reported revenues of
$37.8 million, operating income of $11.0 million and net income of
$7.6 million, up 1 percent, down 5 percent and down 2 percent,
respectively, from the three months ended September 30, 2015. For
the nine months ended September 30, 2016, we reported revenues of
$110.2 million, operating income of $31.5 million and net income of
$22.0 million, down 3 percent, 8 percent and 4 percent,
respectively, from the nine months ended September 30,
2015.
Results
for the three months ended September 30, 2016
Consolidated net
income totaled $7.6 million, or $4.17 per basic and $4.10 per
diluted share, in the third quarter of 2016. This is compared with
consolidated net income of $7.8 million, or $4.25 per basic and
$4.19 per diluted share, in the third quarter of 2015. The income
per basic share computations are based on weighted average basic
shares outstanding of 1,825,000 in the 2016 period and 1,836,000 in
the 2015 period. The income per diluted share computations are
based on weighted average diluted shares outstanding of 1,858,000
in the 2016 period and 1,860,000 in the 2015 period.
Consolidated
revenues of $37.8 million for the third quarter of 2016 were 1
percent higher than revenues of $37.4 million for the third quarter
of 2015. Revenues were negatively impacted by the strong U.S.
dollar in our international markets, lower sales prices, as well as
reduced sales volumes in the Cardiovascular market.
Revenues
by product line were as follows (in thousands):
|
|
Three Months ended
September 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$16,573
|
$15,743
|
|
Cardiovascular
|
11,389
|
11,930
|
|
Ophthalmology
|
4,386
|
4,199
|
|
Other
|
5,487
|
5,509
|
|
Total
|
$37,835
|
$37,381
|
Cost of
goods sold of $20.2 million for the third quarter of 2016 was 6
percent higher than cost of goods sold of $19.0 million for the
third quarter of 2015 due to an unfavorable product sales mix and
manufacturing inefficiencies partially offset by decreased
manufacturing costs, the impact of continued cost improvement
projects and the suspension of the medical device excise tax. In
December 2015, as part of the Omnibus Appropriations Act,
collection of the medical device excise tax was suspended for 2016
and 2017. Our cost of goods sold in the third quarter of 2016 was
53.4 percent of revenues compared with 50.8 percent of revenues in
the third quarter of 2015.
Gross
profit of $17.6 million in the third quarter of 2016 was $760,000,
or 4 percent, lower than in the comparable 2015 period. Our gross
profit percentage in the third quarter of 2016 was 46.6 percent of
revenues compared with 49.2 percent of revenues in the third
quarter of 2015. The decrease in gross profit percentage in the
2016 period compared to the 2015 period was primarily related to
the unfavorable product sales mix and manufacturing inefficiencies
mentioned above.
Our
third quarter 2016 operating expenses of $6.6 million were $163,000
lower than the operating expenses for the third quarter of 2015.
This decrease was attributable to a $313,000 decrease in General
and Administrative, or G&A, expenses partially offset by a
$149,000 increase in Selling expenses. The increase in Selling
expenses for the third quarter of 2016 was primarily related to
increased compensation, outside services and travel costs. The
decrease in G&A expenses for the third quarter of 2016 was
principally attributable to decreased compensation partially offset
by increased outside services.
Operating income in
the third quarter of 2016 decreased $597,000 to $11.0 million, a 5
percent decrease from our operating income in the quarter ended
September 30, 2015. Operating income was 29 percent of revenues in
the third quarter of 2016 and 31 percent of revenues in the third
quarter of 2015.
Income
tax expense for the third quarter of 2016 was $3.5 million compared
to income tax expense of $3.9 million for the same period in the
prior year. The effective tax rate for the third quarter of 2016
was 31.3 percent, compared with 33.4 percent for the third quarter
of 2015. We expect the effective tax rate for the remainder of 2016
to be approximately 33.0 percent.
Results
for the nine months ended September 30, 2016
Consolidated net
income totaled $22.0 million, or $12.07 per basic and $11.86 per
diluted share, in the first nine months of 2016. This is compared
with consolidated net income of $22.9 million, or $12.34 per basic
and $12.19 per diluted share, in the first nine months of 2015. The
income per basic share computations are based on weighted average
basic shares outstanding of 1,823,000 in the 2016 period and
1,853,000 in the 2015 period. The income per diluted share
computations are based on weighted average diluted shares
outstanding of 1,856,000 in the 2016 period and 1,876,000 in the
2015 period.
Consolidated
revenues of $110.2 million for the first nine months of 2016 were 3
percent lower than revenues of $113.4 million for the first nine
months of 2015. Revenues were negatively impacted by the strong
U.S. dollar in our international markets, lower sales prices, as
well as by the commoditization of an ophthalmic
product.
Revenues
by product line were as follows (in thousands):
|
|
Nine months ended
September 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$47,183
|
$47,971
|
|
Cardiovascular
|
35,649
|
35,534
|
|
Ophthalmology
|
12,417
|
14,505
|
|
Other
|
14,944
|
15,351
|
|
Total
|
$110,193
|
$113,361
|
Cost of
goods sold of $57.8 million for the first nine months of 2016 was
$121,000 higher than in the comparable 2015 period. The primary
contributors to the increase in our cost of goods sold were an
unfavorable product sales mix, manufacturing inefficiencies and
increased manufacturing costs. Increased manufacturing support
personnel costs, increased supplies, repairs and depreciation were
partially offset by reduced utilities, the impact of continued cost
improvement initiatives and the suspension of the medical device
excise tax. Our cost of goods sold in the first nine months of 2016
was 52.4 percent of revenues compared with 50.9 percent of revenues
in the first nine months of 2015.
Gross
profit of $52.4 million in the first nine months of 2016 was $3.3
million, or 6 percent, lower than in the comparable 2015 period.
Our gross profit percentage in the first nine months of 2016 was
47.6 percent of revenues compared with 49.1 percent of revenues in
the first nine months of 2015. The decrease in gross profit
percentage in the 2016 period compared to the 2015 period was
primarily related to the unfavorable product sales mix,
manufacturing inefficiencies and increased manufacturing costs
mentioned above.
Our
operating expenses in the first nine months of 2016 of $20.9
million were $624,000 lower than the operating expenses for the
first nine months of 2015. This decrease was comprised of a
$216,000 decrease in R&D expenses and a $754,000 decrease in
G&A expenses partially offset by a $346,000 increase in Selling
expenses. The decrease in R&D costs was primarily related to
decreased outside services and decreased supplies. The decrease in
G&A expenses for the first nine months of 2016 was principally
attributable to decreased compensation, amortization and travel
costs partially offset by increased outside services. The increase
in Selling expenses is primarily related to increased promotion,
advertising, compensation and outside services partially offset by
reduced depreciation and miscellaneous expenses.
Operating income in
the first nine months of 2016 decreased $2.7 million to $31.5
million, an 8 percent decrease from our operating income in the
nine months ended September 30, 2015. Operating income was 29
percent of revenues in the first nine months of 2016 and 30 percent
of revenues in the first nine months of 2015.
Other
income (expense) is primarily related to an impairment loss on one
of our long-term corporate bonds. In the fourth quarter of 2015, we
determined that, more likely than not, we would be required to sell
or exchange the bond before recovery of its amortized cost.
Therefore, we recorded an impairment on this long-term corporate
bond reducing the carrying value of the bond to its market value at
December 31, 2015. In the first quarter of 2016, the market value
of this corporate bond experienced further declines. Therefore, we
recorded an impairment loss on this bond of $345,000 reducing the
carrying value of the bond to its market value at March 31,
2016.
Income
tax expense for the first nine months of 2016 was $9.5 million
compared to income tax expense of $11.9 million for the same period
in the prior year. The effective tax rate for the first nine months
of 2016 was 30.2 percent, compared with 34.3 percent for the first
nine months of 2015. The first nine months of 2016 had a benefit of
$623,000 from the early adoption of ASU 2016-09 regarding the
accounting for employee share-based compensation. The adoption was
on a prospective basis and therefore had no impact on prior
years.
Liquidity
and Capital Resources
We have
a $40.0 million revolving credit facility with a money center bank
that can be utilized for the funding of operations and for major
capital projects or acquisitions, subject to certain limitations
and restrictions. Borrowings under the credit facility bear
interest that is payable monthly at 30-day, 60-day or 90-day LIBOR,
as selected by us, plus one percent. The bank is obligated to make
advances under the revolving line of credit until October 1, 2021
and, assuming an event of default is not then existing, we can
convert outstanding advances under the revolving line of credit at
any time until October 1, 2021 to term loans with a term of up to
two years. We had no outstanding borrowings under our credit
facility at September 30, 2016 or at December 31, 2015. The credit
facility contains various restrictive covenants, none of which is
expected to impact our liquidity or capital resources. At September
30, 2016, we were in compliance with all financial covenants. We
believe that the bank providing the credit facility is highly-rated
and that the entire $40.0 million under the credit facility is
currently available to us. If that bank were unable to provide such
funds, we believe that such inability would not impact our ability
to fund operations.
At
September 30, 2016, we had a total of $48.6 million in cash and
cash equivalents, short-term investments and long-term investments,
an increase of $10.4 million from December 31, 2015. The principal
contributor to this increase was operating results.
Cash
flows from operating activities of $28.4 million for the nine
months ended September 30, 2016 were primarily comprised of net
income plus the net effect of non-cash expenses. During the first
nine months of 2016, we expended $8.8 million for the addition of
property and equipment, $21.8 million for the purchase of
investments, $1.3 million for treasury stock and $5.2 million for
dividends. During the
same period, maturities and sales of investments generated $5.2
million.
At
September 30, 2016, we had working capital of $80.8 million,
including $23.7 million in cash and cash equivalents and $15
million in short-term investments. The $12.0 million increase in
working capital during the first nine months of 2016 was primarily
related to increases in short-term investments and accounts
receivable. This increase was partially offset by decreases in cash
and cash equivalents and increases in accrued income and other
taxes. The net increase in cash and short-term investments was
primarily related to operating results. The increase in accounts
receivable was primarily related to increased revenues for the
third quarter of 2016 as compared to the fourth quarter of 2015.
The increase in accrued income and other taxes was primarily
attributable to increases in income and property
taxes.
We
believe that our $48.6 million in cash, cash equivalents,
short-term investments and long-term investments, along with cash
flows from operations and available borrowings of up to $40.0
million under our credit facility, will be sufficient to fund our
cash requirements for at least the foreseeable future. We believe
that our strong financial position would allow us to access equity
or debt financing should that be necessary. Additionally, we
believe that our cash and cash equivalents, short-term investments
and long-term investments, as a whole, will continue to increase
during the remainder of 2016.
Forward-Looking Statements
Statements
in this Management’s Discussion and Analysis and elsewhere in
this Quarterly Report on Form 10-Q that are forward looking are
based upon current expectations, and actual results or future
events may differ materially. Therefore, the inclusion of such
forward-looking information should not be regarded as a
representation by us that our objectives or plans will be achieved.
Such statements include, but are not limited to, our effective tax
rate for the remainder of 2016, our ability to fund our cash
requirements for the foreseeable future with our current assets,
long-term investments, cash flow and borrowings under the credit
facility, the impact that the inability of the bank providing the
credit facility to provide funds thereunder would have on our
ability to fund operations, the impact of the restrictive covenants
in our credit facility on our liquidity and capital resources; our
access to equity and debt financing, and the increase in cash, cash
equivalents, and investments in the remainder of 2016. Words such
as “expects,” “believes,”
“anticipates,” “intends,”
“should,” “plans,” and variations of such
words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements contained
herein involve numerous risks and uncertainties, and there are a
number of factors that could cause actual results or future events
to differ materially, including, but not limited to, the following:
changing economic, market and business conditions; acts of war or
terrorism; the effects of governmental regulation; the impact of
competition and new technologies; slower-than-anticipated
introduction of new products or implementation of marketing
strategies; implementation of new manufacturing processes or
implementation of new information systems; our ability to protect
our intellectual property; changes in the prices of raw materials;
changes in product mix; intellectual property and product liability
claims and product recalls; the ability to attract and retain
qualified personnel; and the loss of, or any material reduction in
sales to, any significant customers. In addition, assumptions
relating to budgeting, marketing, product development and other
management decisions are subjective in many respects and thus
susceptible to interpretations and periodic review which may cause
us to alter our marketing, capital expenditures or other budgets,
which in turn may affect our results of operations and financial
condition.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
For
the quarter ended September 30, 2016, we did not experience any
material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented in our 2015 Form
10-K.
Item 4. Controls
and Procedures
Our
management, with the participation of our Chief Executive Officer
and our Chief Financial Officer, evaluated our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of September 30, 2016. Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are
effective. There were no changes in our internal control over
financial reporting for the quarter ended September 30, 2016 that
have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal
Proceedings
From time to time, we may be involved in claims or
litigation that arise in the normal course of business. We are not
currently a party to any legal proceedings, which, if decided
adversely, would have a material adverse effect on our business,
financial condition, or results of operations.
Item 1A. Risk
Factors
There
were no material changes to the risk factors disclosed in our 2015
Form 10-K.
Item 6.
Exhibits
|
Exhibit
Number
|
Description
|
|
|
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Executive
Officer
|
|
|
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Financial
Officer
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
|
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
|
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 3, 2016
|
By:
|
/s/
David
A. Battat
|
|
|
|
|
David
A. Battat
|
|
|
|
|
President and
Chief
Executive Officer
|
|
|
|
|
|
|
|
Date: November 3, 2016
|
By:
|
/s/
Jeffery
Strickland
|
|
|
|
|
Jeffery
Strickland |
|
|
|
|
Vice
President and
Chief
Financial Officer
(Principal Accounting and Financial Officer)
|
|
Exhibit Index
|
Exhibit
Number
|
Description
|
|
|
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Executive
Officer
|
|
|
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Financial
Officer
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
|
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
|
20