ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
38,883
|
|
|
$
|
39,274
|
|
|
$
|
120,600
|
|
|
$
|
117,522
|
|
|
Cost of goods sold
|
|
|
20,992
|
|
|
|
21,275
|
|
|
|
65,414
|
|
|
|
61,349
|
|
|
Gross profit
|
|
|
17,891
|
|
|
|
17,999
|
|
|
|
55,186
|
|
|
|
56,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
2,092
|
|
|
|
2,105
|
|
|
|
6,574
|
|
|
|
6,169
|
|
|
General and administrative
|
|
|
3,990
|
|
|
|
3,933
|
|
|
|
12,480
|
|
|
|
12,470
|
|
|
Research and development
|
|
|
1,359
|
|
|
|
1,204
|
|
|
|
3,678
|
|
|
|
4,145
|
|
|
|
|
|
7,441
|
|
|
|
7,242
|
|
|
|
22,732
|
|
|
|
22,784
|
|
|
Operating income
|
|
|
10,450
|
|
|
|
10,757
|
|
|
|
32,454
|
|
|
|
33,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
733
|
|
|
|
439
|
|
|
|
1,896
|
|
|
|
1,157
|
|
|
Other investment income (losses)
|
|
|
(106
|
)
|
|
|
21
|
|
|
|
265
|
|
|
|
(1,153
|
)
|
|
Other income
|
|
|
--
|
|
|
|
20
|
|
|
|
--
|
|
|
|
20
|
|
|
|
|
|
627
|
|
|
|
480
|
|
|
|
2,161
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
11,077
|
|
|
|
11,237
|
|
|
|
34,615
|
|
|
|
33,413
|
|
|
Provision for income taxes
|
|
|
(1,482
|
)
|
|
|
(2,016
|
)
|
|
|
(5,918
|
)
|
|
|
(6,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,595
|
|
|
$
|
9,221
|
|
|
$
|
28,697
|
|
|
$
|
26,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per basic share
|
|
$
|
5.17
|
|
|
$
|
4.98
|
|
|
$
|
15.48
|
|
|
$
|
14.30
|
|
|
Weighted average basic shares outstanding
|
|
|
1,855
|
|
|
|
1,853
|
|
|
|
1,854
|
|
|
|
1,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted share
|
|
$
|
5.15
|
|
|
$
|
4.96
|
|
|
$
|
15.40
|
|
|
$
|
14.27
|
|
|
Weighted average diluted shares outstanding
|
|
|
1,862
|
|
|
|
1,858
|
|
|
|
1,863
|
|
|
|
1,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
1.55
|
|
|
$
|
1.35
|
|
|
$
|
4.25
|
|
|
$
|
3.75
|
|
The accompanying notes are an integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
|
Assets
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(in thousands)
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,673
|
|
|
$
|
58,753
|
|
|
Short-term investments
|
|
|
21,339
|
|
|
|
9,684
|
|
|
Accounts receivable
|
|
|
18,770
|
|
|
|
17,014
|
|
|
Inventories
|
|
|
38,314
|
|
|
|
33,572
|
|
|
Prepaid expenses and other current assets
|
|
|
2,661
|
|
|
|
3,242
|
|
|
|
|
|
144,757
|
|
|
|
122,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
16,830
|
|
|
|
21,048
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
196,250
|
|
|
|
181,582
|
|
|
Less accumulated depreciation and amortization
|
|
|
113,989
|
|
|
|
106,689
|
|
|
|
|
|
82,261
|
|
|
|
74,893
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred charges:
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
1,569
|
|
|
|
1,659
|
|
|
Goodwill
|
|
|
9,730
|
|
|
|
9,730
|
|
|
Other
|
|
|
1,604
|
|
|
|
1,621
|
|
|
|
|
|
12,903
|
|
|
|
13,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
256,751
|
|
|
$
|
231,216
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
9,878
|
|
|
$
|
9,601
|
|
|
Accrued income and other taxes
|
|
|
1,503
|
|
|
|
619
|
|
|
|
|
|
11,381
|
|
|
|
10,220
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
13,065
|
|
|
|
10,229
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock, par value $ per share; authorized shares, issued shares
|
|
|
342
|
|
|
|
342
|
|
|
Paid-in capital
|
|
|
51,660
|
|
|
|
50,391
|
|
|
Retained earnings
|
|
|
312,563
|
|
|
|
291,761
|
|
|
Treasury shares, at September 30, 2019 and 1,567 at December 31, 2018, at cost
|
|
|
(132,260
|
)
|
|
|
(131,727
|
)
|
|
Total stockholders’ equity
|
|
|
232,305
|
|
|
|
210,767
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
256,751
|
|
|
$
|
231,216
|
|
The accompanying notes are an integral part of these financial statements.
ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
|
(In thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,697
|
|
|
$
|
26,506
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,961
|
|
|
|
6,702
|
|
|
Deferred income taxes
|
|
|
1,922
|
|
|
|
17
|
|
|
Stock-based compensation
|
|
|
1,306
|
|
|
|
1,297
|
|
|
Net change in unrealized gains and losses on investments
|
|
|
(257
|
)
|
|
|
1,143
|
|
|
Net change in accrued interest, premiums, and discounts on investments
|
|
|
367
|
|
|
|
(81
|
)
|
|
Other
|
|
|
(6
|
)
|
|
|
(17
|
)
|
|
|
|
|
39,990
|
|
|
|
35,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,756
|
)
|
|
|
(3,690
|
)
|
|
Inventories
|
|
|
(4,742
|
)
|
|
|
(2,818
|
)
|
|
Prepaid expenses
|
|
|
581
|
|
|
|
600
|
|
|
Other non-current assets
|
|
|
17
|
|
|
|
(145
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
277
|
|
|
|
2,240
|
|
|
Accrued income and other taxes
|
|
|
884
|
|
|
|
125
|
|
|
Other non-current liabilities
|
|
|
914
|
|
|
|
812
|
|
|
|
|
|
36,165
|
|
|
|
32,691
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions
|
|
|
(15,239
|
)
|
|
|
(12,671
|
)
|
|
Purchase of investments
|
|
|
(54,539
|
)
|
|
|
(27,001
|
)
|
|
Proceeds from maturities of investments
|
|
|
46,992
|
|
|
|
33,913
|
|
|
|
|
|
(22,786
|
)
|
|
|
(5,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Shares tendered for employees’ withholding taxes on stock-based compensation
|
|
|
(579
|
)
|
|
|
(90
|
)
|
|
Dividends paid
|
|
|
(7,880
|
)
|
|
|
(6,947
|
)
|
|
|
|
|
(8,459
|
)
|
|
|
(7,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
4,920
|
|
|
|
19,895
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
58,753
|
|
|
|
30,136
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
63,673
|
|
|
$
|
50,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
2,630
|
|
|
$
|
2,027
|
|
The accompanying notes are an integral part of these financial statements.
ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months ended September 30, 2019 and 2018
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SharesOutstanding
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Total
|
|
|
Balances, July 1, 2018
|
|
|
1,853
|
|
$
|
342
|
|
|
1,567
|
|
$
|
(131,727
|
)
|
$
|
49,635
|
|
$
|
279,807
|
|
$
|
198,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,221
|
|
|
9,221
|
|
|
Stock-based compensation transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
|
|
387
|
|
|
Shares surrendered in stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,508
|
)
|
|
(2,508
|
)
|
|
Balances, September 30, 2018
|
|
|
1,853
|
|
$
|
342
|
|
|
1,567
|
|
$
|
(131,727
|
)
|
$
|
50,022
|
|
$
|
286,520
|
|
$
|
205,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, July 1, 2019
|
|
|
1,855
|
|
$
|
342
|
|
|
1,565
|
|
$
|
(132,260
|
)
|
$
|
51,332
|
|
$
|
305,846
|
|
$
|
225,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,595
|
|
|
9,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
328
|
|
|
Shares surrendered in stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,878
|
)
|
|
(2,878
|
)
|
|
Balances, September 30, 2019
|
|
|
1,855
|
|
$
|
342
|
|
|
1,565
|
|
$
|
(132,260
|
)
|
$
|
51,660
|
|
$
|
312,563
|
|
$
|
232,305
|
|
ATRION CORPORATION AND SUBSIDIARIES
Consolidated statementS of changes in stockholders’ equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months ended September 30, 2019 and 2018
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Retained Earnings
|
|
Total
|
|
|
Balances, January 1, 2018
|
|
|
1,852
|
|
$
|
342
|
|
|
1,568
|
|
$
|
(131,663
|
)
|
$
|
48,730
|
|
$
|
(1,215
|
)
|
$
|
268,194
|
|
$
|
184,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,506
|
|
|
26,506
|
|
|
Reclass from adopting ASO 2016-01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
(1,215
|
)
|
|
--
|
|
|
Stock-based compensation transactions
|
|
|
1
|
|
|
|
|
|
(1
|
)
|
|
26
|
|
|
1,292
|
|
|
|
|
|
|
|
|
1,318
|
|
|
Shares surrendered in stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,965
|
)
|
|
(6,965
|
)
|
|
Balances, September 30, 2018
|
|
|
1,853
|
|
$
|
342
|
|
|
1,567
|
|
$
|
(131,727
|
)
|
$
|
50,022
|
|
$
|
--
|
|
$
|
286,520
|
|
$
|
205,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2019
|
|
|
1,853
|
|
$
|
342
|
|
|
1,567
|
|
$
|
(131,727
|
)
|
$
|
50,391
|
|
$
|
--
|
|
$
|
291,761
|
|
$
|
210,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,697
|
|
|
28,697
|
|
|
Stock-based compensation transactions
|
|
|
3
|
|
|
|
|
|
(3
|
)
|
|
46
|
|
|
1,269
|
|
|
|
|
|
|
|
|
1,315
|
|
|
Shares surrendered in stock transactions
|
|
|
(1
|
)
|
|
|
|
|
1
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,895
|
)
|
|
(7,895
|
)
|
|
Balances, September 30, 2019
|
|
|
1,855
|
|
$
|
342
|
|
|
1,565
|
|
$
|
(132,260
|
)
|
$
|
51,660
|
|
$
|
--
|
|
$
|
312,563
|
|
$
|
232,305
|
|
The accompanying notes are an integral part of these financial statements
ATRION CORPORATION AND SUBSIDIARIES
(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 normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United 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, 2018 (“2018 Form 10-K”). References herein to “Atrion,” the “Company,” “we,” “our,” and “us” refer to Atrion Corporation and its subsidiaries.
Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Raw materials
|
|
$
|
16,886
|
|
|
$
|
14,994
|
|
|
Work in process
|
|
|
9,231
|
|
|
|
7,214
|
|
|
Finished goods
|
|
|
12,197
|
|
|
|
11,364
|
|
|
Total inventories
|
|
$
|
38,314
|
|
|
$
|
33,572
|
(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,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Net income
|
|
$
|
9,595
|
|
|
$
|
9,221
|
|
|
$
|
28,697
|
|
|
$
|
26,506
|
|
|
Weighted average basic shares outstanding
|
|
|
1,855
|
|
|
|
1,853
|
|
|
|
1,854
|
|
|
|
1,853
|
|
|
Add: Effect of dilutive securities
|
|
|
7
|
|
|
|
5
|
|
|
|
9
|
|
|
|
4
|
|
|
Weighted average diluted shares outstanding
|
|
|
1,862
|
|
|
|
1,858
|
|
|
|
1,863
|
|
|
|
1,857
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.17
|
|
|
$
|
4.98
|
|
|
$
|
15.48
|
|
|
$
|
14.30
|
|
|
Diluted
|
|
$
|
5.15
|
|
|
$
|
4.96
|
|
|
$
|
15.40
|
|
|
$
|
14.27
|
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. There were no anti-dilutive shares of common stock for the quarters ended September 30, 2019 and 2018.
(4) Investments
As of September 30, 2019, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheet. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheet. These investments are considered Level 1 or Level 2 as detailed in the table below. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months. The fair values of these investments were estimated using recently executed transactions and market price quotations.
The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Level
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
As of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
|
1
|
|
|
|
55,445
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
55,445
|
|
|
Commercial paper
|
|
|
2
|
|
|
|
6,138
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
6,138
|
|
|
Bonds
|
|
|
2
|
|
|
|
30,650
|
|
|
$
|
142
|
|
|
$
|
--
|
|
|
$
|
30,792
|
|
|
Mutual funds
|
|
|
1
|
|
|
|
949
|
|
|
$
|
34
|
|
|
$
|
--
|
|
|
$
|
983
|
|
|
Equity investments
|
|
|
2
|
|
|
|
5,675
|
|
|
$
|
--
|
|
|
$
|
(2,711
|
)
|
|
$
|
2,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
|
1
|
|
|
|
12,319
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
12,319
|
|
|
Commercial paper
|
|
|
2
|
|
|
|
4,393
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
4,393
|
|
|
Bonds
|
|
|
2
|
|
|
|
25,922
|
|
|
$
|
--
|
|
|
$
|
(211
|
)
|
|
$
|
25,711
|
|
|
Mutual funds
|
|
|
1
|
|
|
|
795
|
|
|
$
|
--
|
|
|
$
|
(121
|
)
|
|
$
|
674
|
|
|
Equity investments
|
|
|
2
|
|
|
|
5,675
|
|
|
$
|
--
|
|
|
$
|
(2,814
|
)
|
|
$
|
2,861
|
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The above long-term bonds represent investments in various issuers at September 30, 2019.
The commercial paper has maturities from less than a month to 5 months. The bonds have maturities from less than a month to 37 months.
(5) Patents and Licenses
Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license.
The following tables provide information regarding patents and licenses (dollars in thousands):
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Weighted Average
Original Life
(years)
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Weighted Average
Original Life
(years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
15.67
|
|
$
|
13,840
|
|
|
$
|
12,271
|
|
|
|
15.67
|
|
|
$
|
13,840
|
|
|
$
|
12,181
|
Aggregate amortization expense for patents and licenses was $ in each of the three months ended September 30, 2019 and 2018 and $ in each of the nine months ended September 30, 2019 and 2018.
Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):
(6) Revenues
We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
A summary of revenues by geographic area, based on shipping destination, for the three and nine months ended September 30, 2019 and 2018 is as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
United States
|
|
$
|
24,644
|
|
|
$
|
23,979
|
|
|
$
|
76,640
|
|
|
$
|
73,419
|
|
|
Germany
|
|
|
2,168
|
|
|
|
1,675
|
|
|
|
6,427
|
|
|
|
6,637
|
|
|
Other countries less than 5% of revenues
|
|
|
12,071
|
|
|
|
13,620
|
|
|
|
37,533
|
|
|
|
37,466
|
|
|
Total
|
|
$
|
38,883
|
|
|
$
|
39,274
|
|
|
$
|
120,600
|
|
|
$
|
117,522
|
A summary of revenues by product line for the three and nine months ended September 30, 2019 and 2018 is as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Fluid Delivery
|
|
$
|
17,888
|
|
|
$
|
17,106
|
|
|
$
|
54,334
|
|
|
$
|
54,033
|
|
|
Cardiovascular
|
|
|
14,565
|
|
|
|
13,292
|
|
|
|
44,564
|
|
|
|
39,505
|
|
|
Ophthalmology
|
|
|
1,556
|
|
|
|
2,768
|
|
|
|
5,656
|
|
|
|
8,405
|
|
|
Other
|
|
|
4,874
|
|
|
|
6,108
|
|
|
|
16,046
|
|
|
|
15,579
|
|
|
Total
|
|
$
|
38,883
|
|
|
$
|
39,274
|
|
|
$
|
120,600
|
|
|
$
|
117,522
|
The vast majority (98%) of our revenue is driven by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.
We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. On an ongoing basis, the collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts. An account is written off when we determine the receivable will not be collected. Historically, bad debt has been immaterial.
We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.
We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.
We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(7) Recent Accounting Pronouncements
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
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. Changes to the previous guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The primary impact of this change for us relates to our available-for-sale equity investment and resulted in unrecognized gains and losses from this investment being reflected in our income statement beginning in 2018. We adopted ASU 2016-01 as of January 1, 2018, applying the update by means of a cumulative-effect adjustment to the balance sheet by reclassifying the balance of our Accumulated Other Comprehensive Loss in the shareholders’ equity section of the balance sheet to Retained Earnings. The balance reclassified of $1,215,000 was a result of prior-period unrealized losses from our equity investment. This change in accounting is expected to create greater volatility in our investment income each quarter in the future.
From time to time, new accounting pronouncements applicable to us are issued by the FASB, or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.
|
|
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 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 design, product quality, price, 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 serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce and payoff 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, respectful and entrepreneurial culture.
|
For the three months ended September 30, 2019, we reported revenues of $38.9 million, operating income of $10.5 million and net income of $9.6 million, down 1 percent, down 3 percent and up 4 percent, respectively, from the three months ended September 30, 2018. For the nine months ended September 30, 2019, we reported revenues of $120.6 million, operating income of $32.5 million and net income of $28.7 million, up 3 percent, down 3 percent and up 8 percent, respectively, from the nine months ended September 30, 2018.
Results for the three months ended September 30, 2019
Consolidated net income totaled $9.6 million, or $5.17 per basic and $5.15 per diluted share, in the third quarter of 2019. This is compared with consolidated net income of $9.2 million, or $4.98 per basic and $4.96 per diluted share, in the third quarter of 2018. The income per basic share computations are based on weighted average basic shares outstanding of 1,855,000 in the 2019 period and 1,853,000 in the 2018 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,862,000 in the 2019 period and 1,858,000 in the 2018 period.
Consolidated revenues of $38.9 million for the third quarter of 2019 were 1 percent lower than revenues of $39.3 million for the third quarter of 2018. This decrease was primarily attributable to decreased volumes of our ophthalmology products and other non-medical products partially offset by increased volumes of our fluid delivery products and cardiovascular products.
Revenues by product line were as follows (in thousands):
|
|
|
Three Months ended September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid Delivery
|
|
$
|
17,888
|
|
|
$
|
17,106
|
|
|
Cardiovascular
|
|
|
14,565
|
|
|
|
13,292
|
|
|
Ophthalmology
|
|
|
1,556
|
|
|
|
2,768
|
|
|
Other
|
|
|
4,874
|
|
|
|
6,108
|
|
|
Total
|
|
$
|
38,883
|
|
|
$
|
39,274
|
|
Cost of goods sold of $21.0 million for the third quarter of 2019 was 1 percent lower than cost of goods sold of $21.3 million for the third quarter of 2018 primarily due to lower sales volumes and the impact of continued cost improvement projects partially offset by increased depreciation and compensation costs. Our cost of goods sold in the third quarter of 2019 was 54.0 percent of revenues compared with 54.2 percent of revenues in the third quarter of 2018.
Gross profit of $17.9 million in the third quarter of 2019 was $108,000, or 1 percent, lower than in the comparable 2018 period. Our gross profit percentage in the third quarter of 2019 was 46.0 percent of revenues compared with 45.8 percent of revenues in the third quarter of 2018. The increase in gross profit percentage in the 2019 period compared to the 2018 period was primarily related to improved manufacturing efficiencies and cost improvement projects mentioned above partially offset by increased depreciation and compensation costs.
Our third quarter 2019 operating expenses of $7.4 million were $199,000 higher than the operating expenses for the third quarter of 2018. This increase was attributable to a $155,000 increase in Research and Development, or R&D, expenses and a $57,000 increase in General and Administrative, or G&A, expenses partially offset by a $13,000 decrease in Selling expenses. The increase in R&D expenses was primarily related to increased outside services and increased materials and supplies costs. The increase in G&A expenses was primarily related to increased depreciation and increased information technology costs. The decrease in Selling expenses was principally attributable to decreased travel partially offset by increased compensation and commissions.
Operating income in the third quarter of 2019 decreased $307,000 to $10.5 million, a 3 percent decrease compared to our operating income in the quarter ended September 30, 2018. Operating income was 27 percent of revenues for both the third quarter of 2019 and the third quarter of 2018.
Interest and dividend income in the third quarter of 2019 was $733,000 compared with $439,000 for the same period in the prior year. Increased levels of investment and increased interest rates were the primary reasons for the increase.
Other investment loss in the third quarter of 2019 was $106,000 compared with investment income of $21,000 in the third quarter of 2018. These amounts were attributable to unrealized losses and gains on equity investments resulting from changes in the market values of the investments in each respective quarter.
Income tax expense was $1.5 million for the third quarter of 2019 compared with $2.0 million for the third quarter of 2018. The effective tax rate for the third quarter of 2019 was 13.4 percent compared with 17.9 percent for the third quarter of 2018. The decrease in the 2019 period effective tax rate was primarily related to increased tax benefits from foreign sales transactions and higher tax credits from our research activities. We expect the effective tax rate for the remainder of 2019 to be approximately 19 percent.
Results for the nine months ended September 30, 2019
Consolidated net income totaled $28.7 million, or $15.48 per basic and $15.40 per diluted share, in the first nine months of 2019. This is compared with consolidated net income of $26.5 million, or $14.30 per basic and $14.27 per diluted share, in the first nine months of 2018. The income per basic share computations are based on weighted average basic shares outstanding of 1,854,000 in the 2019 period and 1,853,000 in the 2018 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,863,000 in the 2019 period and 1,857,000 in the 2018 period.
Consolidated revenues of $120.6 million for the first nine months of 2019 were 3 percent higher than revenues of $117.5 million for the first nine months of 2018. This increase was primarily attributable to increased volumes of our cardiovascular products partially offset by decreased volumes of our ophthalmology products.
Revenues by product line were as follows (in thousands):
|
|
|
Nine Months ended September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid Delivery
|
|
$
|
54,334
|
|
|
$
|
54,033
|
|
|
Cardiovascular
|
|
|
44,564
|
|
|
|
39,505
|
|
|
Ophthalmology
|
|
|
5,656
|
|
|
|
8,405
|
|
|
Other
|
|
|
16,046
|
|
|
|
15,579
|
|
|
Total
|
|
$
|
120,600
|
|
|
$
|
117,522
|
|
Cost of goods sold of $65.4 million for the first nine months of 2019 was $4.1 million higher than in the comparable 2018 period. The primary contributor to the increase in our cost of goods sold was increased volumes, a less favorable product sales mix and increased depreciation and compensation costs partially offset by the impact of continued cost improvement projects in the first nine months of 2019. Our cost of goods sold in the first nine months of 2019 was 54.2 percent of revenues compared with 52.2 percent of revenues in the first nine months of 2018.
Gross profit of $55.2 million in the first nine months of 2019 was $987,000, or 2 percent, lower than in the comparable 2018 period. Our gross profit percentage in the first nine months of 2019 was 45.8 percent of revenues compared with 47.8 percent of revenues in the first nine months of 2018. The decrease in gross profit percentage in the 2019 period compared to the 2018 period was primarily related to the less favorable product sales mix and increased depreciation and compensation costs partially offset by cost improvement projects mentioned above.
Operating expenses of $22.7 million for the first nine months of 2019 were $52,000 lower than the operating expenses for the first nine months of 2018. This decrease was attributable to a $467,000 decrease in R&D expenses largely offset by a $10,000 increase in G&A expenses and a $405,000 increase in Selling expenses. The decrease in R&D expenses was primarily related to decreased compensation, decreased outside services and decreased materials and supplies costs partially offset by increased regulatory costs. The increase in G&A expenses for the first nine months of 2019 was principally attributable to increased information technology costs partially offset by decreased outside services. The increase in Selling expenses was principally attributable to increased compensation, commissions and promotion costs partially offset by decreased travel and decreased outside services.
Operating income in the first nine months of 2019 decreased $935,000 to $32.5 million, a 3 percent decrease from our operating income in the nine months ended September 30, 2018. Operating income was 27 percent of revenues in the first nine months of 2019 and 28 percent of revenues in the first nine months of 2018.
Interest and dividend income for the first nine months of 2019 was $1.9 million compared with $1.2 million for the same period in the prior year. Increased levels of investment and increased dividend income were the primary reasons for the increase.
Other investment income for the first nine months of 2019 was $265,000 compared with an investment loss of $1.2 million in the first nine months of 2018. These amounts are attributable to unrealized gains and losses on equity investments resulting from changes in the market values of the investments in each respective nine month period.
Income tax expense for the first nine months of 2019 was $5.9 million compared to income tax expense of $6.9 million for the same period in the prior year. The effective tax rate for the first nine months of 2019 was 17.1 percent, compared with 20.7 percent for the first nine months of 2018. The decrease in the 2019 period effective tax rate was primarily related to increased tax benefits from stock compensation and foreign sales transactions.
Liquidity and Capital Resources
As of September 30, 2019, we had a $75.0 million revolving credit facility with a money center bank pursuant to which the lender is obligated to make advances until February 28, 2022. We had no outstanding borrowings under our credit facility at September 30, 2019. Our ability to borrow funds under the credit agreement from time to time is contingent on meeting certain covenants in the loan agreement, the most restrictive of which is the ratio of total debt to earnings before interest, income tax, depreciation and amortization. At September 30, 2019, we were in compliance with all financial covenants.
At September 30, 2019, we had a total of $101.8 million in cash and cash equivalents, short-term investments and long-term investments, an increase of $12.4 million from December 31, 2018. The principal contributor to this increase was operating results.
Cash flows from operating activities of $36.2 million for the nine months ended September 30, 2019 were primarily comprised of net income plus the net effect of non-cash expenses, increases in other non-current liabilities and increases in accrued income and other taxes partially offset by increases in accounts receivable and increases in inventories. During the first nine months of 2019, we expended $15.2 million for the addition of property and equipment, $54.5 million for the purchase of investments and $7.9 million for dividends. During the same period, maturities of investments generated $47.0 million in cash.
At September 30, 2019, we had working capital of $133.4 million, including $63.7 million in cash and cash equivalents and $21.3 million in short-term investments. The $21.3 million increase in working capital during the first nine months of 2019 was primarily related to an increase in cash and cash equivalents, short-term investments and inventories. This increase was partially offset by increases in accrued income and other taxes. The increase in cash and cash equivalents 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 2019 as compared to the fourth quarter of 2018. The increase in inventories was primarily related to replenishment of inventories to levels required for operational effectiveness. The increases in accrued income and other taxes are primarily related to accrued federal and state income taxes relating to operating results.
We believe that our $101.8 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $75.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future, including the costs associated with the planned expansion of one of our manufacturing facilities. 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 2019.
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 2019, 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, our access to equity and debt financing, and the increase in cash, cash equivalents, and investments during the remainder of 2019. 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. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.