ATRION CORP - Quarter Report: 2008 June (Form 10-Q)
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 June 30,
2008
|
or
|
o
|
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
Atrion
Corporation
(Exact
Name of Registrant as Specified in its Charter)
|
Delaware
|
63-0821819
|
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
One Allentown Parkway,
Allen, Texas 75002
(Address
of Principal Executive Offices) (Zip Code)
(972)
390-9800
(Registrant’s
Telephone Number, Including Area Code)
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. x
Yes
o
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 o | Accelerated filer x | Non-accelerated filer o | Smaller reporting company o |
Indicate
by check whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
o
Yes
x No
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
Title
of Each Class
|
Number
of Shares Outstanding at
July
30, 2008
|
|
|
Common
stock, Par Value $0.10 per share
|
1,967,285
|
TABLE OF
CONTENTS
|
2
|
||
|
Item
1.
|
||
|
3
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
Item
2.
|
8
|
|
|
Item 3.
|
12
|
|
|
Item
4.
|
13
|
|
| PART II. Other Information |
14
|
|
|
Item
1.
|
14
|
|
|
Item
1A.
|
14
|
|
|
Item
4.
|
14
|
|
|
Item
6.
|
14
|
|
|
15
|
||
FINANCIAL
INFORMATION
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
|
Three
Months Ended
June 30,
|
Six
Months Ended
June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(in
thousands, except per share amounts)
|
||||||||||||||||
|
Revenues
|
$ | 24,242 | $ | 23,199 | $ | 48,844 | $ | 46,237 | ||||||||
|
Cost
of goods sold
|
13,137 | 12,880 | 27,059 | 26,258 | ||||||||||||
|
Gross
profit
|
11,105 | 10,319 | 21,785 | 19,979 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling
|
1,646 | 1,672 | 3,345 | 3,323 | ||||||||||||
|
General
and administrative
|
2,505 | 2,471 | 5,245 | 5,088 | ||||||||||||
|
Research
and development
|
823 | 750 | 1,610 | 1,405 | ||||||||||||
| 4,974 | 4,893 | 10,200 | 9,816 | |||||||||||||
|
Operating
income
|
6,131 | 5,426 | 11,585 | 10,163 | ||||||||||||
|
Other
income:
|
||||||||||||||||
|
Interest
income
|
49 | 10 | 85 | 20 | ||||||||||||
|
Interest
expense
|
-- | (77 | ) | -- | (218 | ) | ||||||||||
|
Other
income (expense), net
|
1 | -- | 1 | -- | ||||||||||||
| 50 | (67 | ) | 86 | (198 | ) | |||||||||||
|
Income
before provision for income taxes
|
6,181 | 5,359 | 11,671 | 9,965 | ||||||||||||
|
Provision
for income taxes
|
(2,046 | ) | (1,741 | ) | (3,880 | ) | (3,210 | ) | ||||||||
|
Net
income
|
$ | 4,135 | $ | 3,618 | $ | 7,791 | $ | 6,755 | ||||||||
|
Income
per basic share
|
$ | 2.11 | $ | 1.92 | $ | 4.00 | $ | 3.60 | ||||||||
|
Weighted
average basic shares outstanding
|
1,956 | 1,883 | 1,946 | 1,878 | ||||||||||||
|
Income
per diluted share
|
$ | 2.06 | $ | 1.83 | $ | 3.89 | $ | 3.42 | ||||||||
|
Weighted
average diluted shares outstanding
|
2,005 | 1,978 | 2,004 | 1,977 | ||||||||||||
|
Dividends
per common share
|
$ | 0.24 | $ | 0.20 | $ | 0.48 | $ | 0.40 | ||||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
June 30,
|
December 31,
|
|||||||
|
Assets
|
2008
|
2007
|
||||||
|
(in
thousands, except per share amounts)
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 7,803 | $ | 3,531 | ||||
|
Accounts
receivable
|
12,116 | 9,601 | ||||||
|
Inventories
|
20,231 | 17,387 | ||||||
|
Prepaid
expenses
|
1,167 | 1,483 | ||||||
|
Other
|
607 | 607 | ||||||
| 41,924 | 32,609 | |||||||
|
Property,
plant and equipment
|
92,819 | 89,736 | ||||||
|
Less
accumulated depreciation and amortization
|
38,187 | 35,686 | ||||||
| 54,632 | 54,050 | |||||||
|
Other
assets and deferred charges:
|
||||||||
|
Patents
|
1,853 | 2,011 | ||||||
|
Goodwill
|
9,730 | 9,730 | ||||||
|
Other
|
1,102 | 913 | ||||||
| 12,685 | 12,654 | |||||||
| $ | 109,241 | $ | 99,313 | |||||
|
Liabilities and
Stockholders’ Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 6,473 | $ | 6,349 | ||||
|
Accrued
income and other taxes
|
1,862 | 515 | ||||||
| 8,335 | 6,864 | |||||||
|
Line
of credit
|
-- | -- | ||||||
|
Other
non-current liabilities
|
7,150 | 7,007 | ||||||
|
Stockholders’
equity:
|
||||||||
|
Common
shares, par value $0.10 per share; authorized 10,000 shares, issued 3,420
shares
|
342
|
342
|
||||||
|
Paid-in
capital
|
18,674 | 15,790 | ||||||
|
Accumulated
other comprehensive loss
|
(486 | ) | (486 | ) | ||||
|
Retained
earnings
|
110,865 | 104,021 | ||||||
|
Treasury
shares,1,453 at June 30, 2008 and 1,509 at December 31, 2007, at
cost
|
(35,639
|
) | (34,225 | ) | ||||
|
Total
stockholders’ equity
|
93,756 | 85,442 | ||||||
| $ | 109,241 | $ | 99,313 | |||||
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Six
months Ended
June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
|
(In thousands) | |||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 7,791 | $ | 6,755 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation
and amortization
|
3,054 | 2,637 | ||||||
|
Deferred
income taxes
|
242 | 333 | ||||||
|
Stock-based
compensation
|
327 | 131 | ||||||
|
Other
|
37 | 35 | ||||||
| 11,451 | 9,891 | |||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(2,515 | ) | (1,026 | ) | ||||
|
Inventories
|
(2,844 | ) | 140 | |||||
|
Prepaid
expenses
|
316 | 303 | ||||||
|
Other
non-current assets
|
(189 | ) | (35 | ) | ||||
|
Accounts
payable and current liabilities
|
125 | 294 | ||||||
|
Accrued
income and other taxes
|
1,347 | 572 | ||||||
|
Other
non-current liabilities
|
(98 | ) | 118 | |||||
| 7,593 | 10,257 | |||||||
|
Cash
flows from investing activities:
|
||||||||
|
Property,
plant and equipment additions
|
(3,515 | ) | (3,758 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Line
of credit advances
|
-- | 13,826 | ||||||
|
Line
of credit repayments
|
-- | (20,525 | ) | |||||
|
Exercise
of stock options
|
525 | 499 | ||||||
|
Shares
tendered for employees’ taxes on stock option exercises
|
(870 | ) | (47 | ) | ||||
|
Tax
benefit related to stock options
|
1,481 | 456 | ||||||
|
Dividends
paid
|
(942 | ) | (756 | ) | ||||
| 194 | (6,547 | ) | ||||||
|
Net
change in cash and cash equivalents
|
4,272 | (48 | ) | |||||
|
Cash
and cash equivalents at beginning of period
|
3,531 | 333 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 7,803 | $ | 285 | ||||
|
Cash
paid for:
|
||||||||
|
Interest
(net of capitalization)
|
$ | -- | $ | 258 | ||||
|
Income
taxes
|
$ | 261 | $ | 1,220 | ||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
(1)
|
Basis
of Presentation
|
In the
opinion of management, all adjustments necessary for a fair presentation of
results of operations for the periods presented have been included in the
accompanying unaudited consolidated financial statements of Atrion Corporation
and its subsidiaries (the “Company”). Such adjustments consist of normal
recurring items. The accompanying financial statements have been prepared in
accordance with the instructions to Form 10-Q and include the information and
notes required by such instructions. Accordingly, the consolidated financial
statements and notes thereto should be read in conjunction with the financial
statements and notes included in the Company’s 2007 Annual Report on Form
10-K.
|
(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):
|
June 30,
2008
|
December 31,
2007
|
|||||||
|
Raw
materials
|
$ | 8,384 | $ | 7,452 | ||||
|
Work
in process
|
5,378 | 4,513 | ||||||
|
Finished
goods
|
6,469 | 5,422 | ||||||
|
Total
inventories
|
$ | 20,231 | $ | 17,387 | ||||
|
(3)
|
Income
per share
|
The
following is the computation for basic and diluted income per
share:
|
(1)
|
Three
months ended
June 30,
|
Six
months ended
June 30,
|
||||||||||||||
|
(2)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
(3)
|
(in
thousands, except per share amounts)
|
|||||||||||||||
|
Net
income
|
$ | 4,135 | $ | 3,618 | $ | 7,791 | $ | 6,755 | ||||||||
|
Weighted
average basic shares outstanding
|
1,956 | 1,883 | 1,946 | 1,878 | ||||||||||||
|
Add: Effect
of dilutive securities
|
49 | 95 | 58 | 99 | ||||||||||||
|
Weighted
average diluted shares outstanding
|
2,005 | 1,978 | 2,004 | 1,977 | ||||||||||||
|
Earnings
per share:
|
||||||||||||||||
|
Basic
|
$ | 2.11 | $ | 1.92 | $ | 4.00 | $ | 3.60 | ||||||||
|
Diluted
|
$ | 2.06 | $ | 1.83 | $ | 3.89 | $ | 3.42 | ||||||||
Outstanding
options, restricted stock, and deferred stock units that were not included in
the diluted income per share calculation because their effect would be
anti-dilutive totaled 20,336 for the three-month and the six-month periods ended
June 30, 2008, respectively, and none for the same periods in
2007.
ATRION
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
(4)
|
Pension
Benefits
|
The
components of net periodic pension cost for the Atrion Corporation Cash Balance
Plan (the “Plan”) are as follows (in thousands):
|
Three
Months ended
June 30,
|
Six
Months ended
June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Service
cost
|
$ | -- | $ | 65 | $ | -- | $ | 130 | ||||||||
|
Interest
cost
|
56 | 80 | 112 | 160 | ||||||||||||
|
Expected
return on assets
|
(55 | ) | (123 | ) | (110 | ) | (246 | ) | ||||||||
|
Prior
service cost amortization
|
-- | (9 | ) | -- | (18 | ) | ||||||||||
|
Actuarial
loss
|
8 | 15 | 16 | 30 | ||||||||||||
|
Net
periodic pension cost
|
$ | 9 | $ | 28 | $ | 18 | $ | 56 | ||||||||
In
September 2007, the Company terminated the Plan. Participants accrued pension
benefits through December 31, 2007, but will not accrue any additional benefits
under the Plan after that date. However, participants will continue to earn
interest credits on their account balances until the Plan has settled all its
obligations with respect to termination. The Company believes that the Plan is
adequately funded to cover its settlement obligations. The final payout for the
Plan termination will likely occur in early 2009 after all regulatory approvals
are received.
|
(5)
|
Recent
Accounting Pronouncements
|
In May
2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
162, “The Hierarchy of Generally Accepted Accounting Principles (GAAP)” (SFAS
162). The purpose of the new standard is to provide a consistent framework for
determining what accounting principles should be used when preparing U.S. GAAP
financial statements. Previous guidance did not properly rank the accounting
literature. The new standard is effective 60 days following the Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” The Company expects that the adoption
of SFAS 162 will not have a material effect on the Company’s financial
statements.
From time
to time, new accounting pronouncements applicable to the Company are issued by
the FASB or other standards setting bodies, which the Company will adopt as of
the specified effective date. Unless otherwise discussed, the Company believes
the impact of recently issued standards that are not yet effective will not have
a material impact on its consolidated financial statements upon
adoption.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
The
Company designs, develops, manufactures, sells and distributes products and
components, primarily for the medical and healthcare industry. The Company
markets components to other equipment manufacturers for incorporation in their
products and sells finished devices to physicians, hospitals, clinics and other
treatment centers. The Company’s medical products primarily serve the fluid
delivery, cardiovascular, and ophthalmology markets. The Company’s other medical
and non-medical products include instrumentation and disposables used in
dialysis, contract manufacturing and valves and inflation devices used in marine
and aviation safety products.
The
Company's products are used in a wide variety of applications by numerous
customers. The Company encounters competition in all of its markets and competes
primarily on the basis of product quality, price, engineering, customer service
and delivery time.
The
Company's strategy is to provide a broad selection of products in the areas of
its 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. The Company also focuses on controlling costs
by investing in modern manufacturing technologies and controlling purchasing
processes. The Company has been successful in consistently generating cash from
operations and has used that cash to reduce indebtedness, to fund capital
expenditures, to repurchase stock and to pay dividends.
The
Company's strategic objective is to further enhance its position in its served
markets by:
|
|
·
|
Focusing
on customer needs;
|
|
|
·
|
Expanding
existing product lines and developing new
products;
|
|
|
·
|
Maintaining
a culture of controlling cost; and
|
|
|
·
|
Preserving
and fostering a collaborative, entrepreneurial management
structure.
|
For the
three months ended June 30, 2008, the Company reported revenues of $24.2
million, operating income of $6.1 million and net income of $4.1 million, up 4
percent, 13 percent and 14 percent, respectively, from the three months ended
June 30, 2007. For the six months ended June 30, 2008, the Company reported
revenues of $48.8 million, operating income of $11.6 million and net income of
$7.8 million, up 6 percent, 14 percent and 15 percent, respectively, from the
six months ended June 30, 2007.
Results
for the three months ended June 30, 2008
Consolidated
net income totaled $4.1 million, or $2.11 per basic and $2.06 per diluted share,
in the second quarter of 2008. This is compared with consolidated net income of
$3.6 million, or $1.92 per basic and $1.83 per diluted share, in the second
quarter of 2007. The income per basic share computations are based on weighted
average basic shares outstanding of 1,955,749 in the 2008 period and 1,883,120
in the 2007 period. The income per diluted share computations are based on
weighted average diluted shares outstanding of 2,004,924 in the 2008 period and
1,977,871 in the 2007 period.
Consolidated
revenues of $24.2 million for the second quarter of 2008 were 4 percent higher
than revenues of $23.2 million for the second quarter of 2007. These increases
were generally attributable to higher sales volumes.
Revenues
by product line were as follows (in thousands):
|
Three
Months ended
June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Fluid
Delivery
|
$ | 8,648 | $ | 7,533 | ||||
|
Cardiovascular
|
7,116 | 6,009 | ||||||
|
Ophthalmology
|
3,588 | 4,863 | ||||||
|
Other
|
4,890 | 4,794 | ||||||
|
Total
|
$ | 24,242 | $ | 23,199 | ||||
Cost of
goods sold of $13.1 million for the second quarter of 2008 was 2 percent higher
than in the comparable 2007 period. Increased sales volume and increased
manufacturing overhead costs were the primary contributors to the increase in
cost of goods sold for the second quarter of 2008.
Gross
profit of $11.1 million in the second quarter of 2008 was $786,000, or 8
percent, higher than in the comparable 2007 period. The Company’s gross profit
percentage in the second quarter of 2008 was 45.8 percent of revenues compared
with 44.5 percent of revenues in the second quarter of 2007. The increase in
gross profit percentage in the 2008 period compared to the 2007 period was
primarily related to improved product mix and improved manufacturing
efficiencies.
The
Company’s second quarter 2008 operating expenses of $5.0 million were $81,000
higher than the operating expenses for the second quarter of 2007. This increase
was comprised of a $34,000 increase in General and Administrative (G&A)
expenses and a $73,000 increase in Research and Development (R&D) expenses
partially offset by a $26,000 decrease in selling (Selling) expenses. The
increase in G&A expenses for the second quarter of 2008 was principally
attributable to increased compensation and benefit costs, and outside services.
The increase in R&D costs was primarily related to prototype expenses, new
product testing costs and increased compensation partially offset by decreased
outside services. The decrease in Selling expenses for the second quarter of
2008 was primarily related to decreased promotion and advertising expenses.
Operating income in the second quarter of 2008 increased $705,000, to $6.1
million, a 13 percent increase over operating income in the quarter ended June
30, 2007. Operating income was 25.3 percent of revenues in the second quarter of
2008 compared to 23.4 percent of revenues in the second quarter of 2007. The
previously mentioned increase in gross profit partially offset by the increase
in operating expenses were the major contributors to the operating income
improvement in the second quarter of 2008.
The
Company had no interest expense for the second quarter of 2008 due to the
retirement of outstanding debt in the third quarter of 2007. Interest expense
was $77,000 for the 2007 period and was attributable to borrowings related to a
new Company facility. Income tax expense for the second quarter of 2008 was $2.0
million compared to income tax expense of $1.7 million for the same period in
the prior year. The effective tax rate for the second quarter of 2008 was 33.1
percent compared with 32.5 percent for the second quarter of 2007. The higher
effective income tax rate for the second quarter of 2008 is primarily a result
of benefits from tax incentives for R&D expenditures being a smaller
percentage of taxable income in 2008 than in 2007.
Results
for the six months ended June 30, 2008
Consolidated
net income totaled $7.8 million, or $4.00 per basic and $3.89 per diluted share,
in the first six months of 2008. This is compared with consolidated net income
of $6.8 million, or $3.60 per basic and $3.42 per diluted share, in the first
six months of 2007. The income per basic share computations are based on
weighted average basic shares outstanding of 1,946,258 in the 2008 period and
1,877,763 in the 2007 period. The income per diluted share computations are
based on weighted average diluted shares outstanding of 2,004,006 in the 2008
period and 1,976,502 in the 2007 period.
Consolidated
revenues of $48.8 million for the first six months of 2008 were 6 percent higher
than revenues of $46.2 million for the first six months of 2007. These increases
were generally attributable to higher sales volumes.
Revenues
by product line were as follows (in thousands):
|
Six
Months ended
June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Fluid
Delivery
|
$ | 16,896 | $ | 14,747 | ||||
|
Cardiovascular
|
14,584 | 12,061 | ||||||
|
Ophthalmology
|
7,368 | 9,517 | ||||||
|
Other
|
9,996 | 9,912 | ||||||
|
Total
|
$ | 48,844 | $ | 46,237 | ||||
Cost of
goods sold of $27.1 million for the first six months of 2008 was 3 percent
higher than in the comparable 2007 period. Increased sales volume and increased
manufacturing overhead costs were the primary contributors to the increase in
cost of goods sold for the first six months of 2008.
Gross
profit of $21.8 million in the first six months of 2008 was $1.8 million, or 9
percent, higher than in the comparable 2007 period. The Company’s gross profit
percentage in the first six months of 2008 was 44.6 percent of revenues compared
with 43.2 percent of revenues in the first six months of 2007. The increase in
gross profit percentage in the 2008 period compared to the 2007 period was
primarily related to improved product mix and improved manufacturing
efficiencies.
The
Company’s first six months 2008 operating expenses of $10.2 million were
$384,000 higher than the operating expenses for the first six months of 2007.
This increase was comprised of a $22,000 increase in Selling expenses, a
$157,000 increase in G&A expenses and a $205,000 increase in R&D
expenses. The increase in Selling expenses for the first six months of 2008 was
primarily related to travel-related expenses. The increase in G&A expenses
for the first six months of 2008 was principally attributable to increased
compensation and benefits costs. The increase in R&D costs was primarily
related to prototype expenses, new product testing costs and increased
compensation and outside services. Operating income in the first six months of
2008 increased $1.4 million to $11.6 million, a 14 percent increase over
operating income in the six months ended June 30, 2007. Operating income was
23.7 percent of revenues in the first six months of 2008 compared to 22.0
percent of revenues in the first six months of 2007. The previously mentioned
increase in gross profit partially offset by the increase in operating expenses
were the major contributors to the operating income improvement in the first six
months of 2008.
The
Company had no interest expense for the first six months of 2008 due to the
retirement of outstanding debt in the third quarter of 2007. Interest expense
was $218,000 for the 2007 period and was attributable to borrowings related to a
new Company facility. Income tax expense for the first six months of 2008 was
$3.9 million compared to income tax expense of $3.2 million for the same period
in the prior year. The effective tax rate for the first six months of 2008 was
33.2 percent compared with 32.2 percent for the first six months of 2007. The
higher effective income tax rate for the first six months of 2008 is primarily a
result of benefits from tax incentives for R&D expenditures being a smaller
percentage of taxable income in 2008 than in 2007.
Liquidity
and Capital Resources
At June
30, 2008, the Company had cash and cash equivalents of $7.8 million compared
with $3.5 million at December 31, 2007. The Company had no outstanding
borrowings under its $25.0 million revolving credit facility (“Credit Facility”)
at June 30, 2008 and December 31, 2007. The Credit Facility, which expires
November 12, 2009, and may be extended under certain circumstances, contains
various restrictive covenants, none of which is expected to impact the Company’s
liquidity or capital resources. At June 30, 2008, the Company was in compliance
with all financial covenants.
As of
June 30, 2008, the Company had working capital of $33.6 million, including $7.8
million in cash and cash equivalents. The $7.8 million increase in working
capital during the first six months of 2008 was primarily related to increases
in cash, accounts receivable, and inventories partially offset by increases in
accrued income and other taxes. The increase in accounts receivable during the
first six months of 2008 was primarily related to the increase in revenues for
the second quarter of 2008 as compared to the fourth quarter of 2007. The change
in inventories is related to increased stocking levels necessary to support
current operations. In addition, the Company began a program to purchase
critical raw material in large volumes to hedge against future price increases
and take advantage of volume discounts. The increase in accrued income and other
taxes is primarily related to federal income taxes and local property taxes.
Cash flows from operating activities generated $7.6 million for the six months
ended June 30, 2008 as compared to $10.3 million for the six months ended June
30, 2007. The 2008 decrease was primarily attributable to increased inventory
and accounts receivable as compared to the 2007 period. During the first six
months of 2008, the Company expended $3.5 million for the addition of property
and equipment. During the first six months of 2008, stock option activities
generated $1.1 million of cash and the Company paid dividends of
$942,000.
The
Company believes that its existing cash and cash equivalents, cash flows from
operations, borrowings available under the Company’s credit facility,
supplemented, if necessary, with equity or debt financing, which the Company
believes would be available, will be sufficient to fund the Company’s cash
requirements for the foreseeable future.
Forward-Looking
Statements
The
statements in this Management’s Discussion and Analysis that are forward-looking
are based upon current expectations, and actual results may differ materially.
Therefore, the inclusion of such forward-looking information should not be
regarded as a representation by the Company that the objectives or plans of the
Company would be achieved. Such statements include, but are not limited to, the
Company’s expectations regarding future liquidity and capital resources. Words
such as “anticipates,” “believes,” “expects,” “estimated” and variations of such
words and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements contained herein involve numerous risks
and uncertainties, and there are a number of factors that could cause actual
results 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; the
Company’s ability to protect its 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 the Company to alter its marketing, capital expenditures
or other budgets, which in turn may affect the Company’s results of operations
and financial condition.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
For the
quarter ended June 30, 2008, the Company did not experience any material changes
in market risk exposures that affect the quantitative and qualitative
disclosures presented in the Company’s 2007 Annual Report on Form
10-K.
|
Controls
and Procedures
|
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and its Chief Financial Officer, evaluated the Company’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of June 30, 2008. Based upon this evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure
controls and procedures are effective. There were no changes in the Company’s
internal control over financial reporting for the quarter ended June 30, 2008
that have materially affected or are reasonably likely to materially affect the
Company’s internal control over financial reporting.
OTHER
INFORMATION
|
Legal
Proceedings
|
From time
to time, the Company may be involved in claims or litigation that arise in the
normal course of business. The Company is not currently a party to any legal
proceedings, which, if decided adversely, would have a material adverse effect
on the Company’s business, financial condition, or results of
operations.
|
Risk
Factors
|
There
were no material changes to Risk Factors disclosed in our annual report on Form
10-K for the year ended December 31, 2007.
|
Submission
of Matters to a Vote of Security
Holders
|
The
Company held its 2008 Annual Meeting of Stockholders on May 9, 2008 at its
offices in Allen, Texas. At such meeting, the Company’s stockholders ratified
the appointment of Grant Thornton LLP as independent accountants with 1,753,436
shares voted for ratification, 6,790 voted against, 15,197 abstentions and zero
broker non-votes. The voting with respect to the nominees for election as
directors was as follows:
|
Nominee
|
Votes
For
|
Votes
Withheld
|
|
Emile A. Battat
|
1,716,449
|
58,975
|
|
Ronald N. Spaulding
|
1,366,343
|
409,081
|
The terms
of the following directors continued after the meeting: Roger F.
Stebbing, John P. Stupp, Jr., and Hugh J. Morgan, Jr.
|
Exhibits
and Reports on Form 8-K
|
|
(a)
|
Exhibits
|
|
|
2006
Equity Incentive Plan (As last amended on May 9, 2008)
|
||
|
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
|
||
|
(b)
|
Reports
on Form 8-K
|
|
On May 8,
2008, the Company filed a report on Form 8-K with the SEC regarding the public
dissemination of a press release announcing its financial results for the first
quarter ended March 31, 2008 (Item 12).
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: August
8, 2008
|
/s/ Emile A. Battat
|
|
Emile A. Battat
|
|
|
Chairman
and
|
|
|
Chief
Executive Officer
|
|
|
Date: August
8, 2008
|
/s/ Jeffery Strickland
|
|
Jeffery
Strickland
|
|
|
Vice
President and
|
|
|
Chief
Financial Officer
|
15