SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 2003 Commission File Number 0-10763
Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0821819
------------------------------ ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Allentown Parkway, Allen, Texas 75002
(Address of Principal Executive Offices) (Zip Code)
(972) 390-9800
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Title of Each Class August 6, 2003
- --------------------------------------- ----------------------------
Common stock, Par Value $0.10 per share 1,682,257
ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information 2
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three and Six Months Ended
June 30, 2003 and 2002 3
Consolidated Balance Sheets
June 30, 2003 (Unaudited) and December 31, 2002 4
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended
June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. Other Information 13
Item 6. Exhibits and Reports on
Form 8-K 13
SIGNATURES 15
1
PART I
FINANCIAL INFORMATION
2
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ----------------------------------
2003 2002 2003 2002
----------- ---------- ----------- -----------
(in thousands, except per share amounts)
Revenues $ 16,175 $ 14,775 $ 31,896 $ 29,600
Cost of goods sold 10,598 9,648 20,723 19,085
----------- ---------- ----------- -----------
Gross profit 5,577 5,127 11,173 10,515
----------- ---------- ----------- -----------
Operating expenses:
Selling 1,390 1,433 2,799 2,836
General and administrative 1,951 1,777 3,885 3,667
Research and development 531 516 1,060 1,057
----------- ---------- ----------- -----------
3,872 3,726 7,744 7,560
----------- ---------- ----------- -----------
Operating income 1,705 1,401 3,429 2,955
----------- ---------- ----------- -----------
Other income:
Interest income 20 24 39 42
Interest expense (54) (112) (114) (241)
Other income (expense), net (14) 1 (5) 2
------------ ---------- ------------ -----------
(48) (87) (80) (197)
------------ ---------- ------------ -----------
Income from continuing operations
before provision for income taxes 1,657 1,314 3,349 2,758
Provision for income taxes 509 384 1,051 821
----------- ---------- ----------- -----------
Income from continuing operations 1,148 930 2,298 1,937
Gain on disposal of discontinued operations, net of income
taxes 165 165 165 165
Cumulative effect of change in accounting principle, net of
income taxes - - - (1,641)
----------- ---------- ----------- -----------
Net income $ 1,313 $ 1,095 $ 2,463 $ 461
=========== ========== =========== ===========
Income per basic share:
Income from continuing operations $ 0.67 $ 0.54 $ 1.33 $ 1.13
Gain on disposal of discontinued operations 0.10 0.10 0.09 0.10
Cumulative effect of change in accounting principle - - - (0.96)
----------- ---------- ----------- ------------
$ 0.77 $ 0.64 $ 1.42 $ 0.27
============= =========== ============= =============
Weighted average basic shares outstanding 1,702 1,719 1,733 1,707
============ ========== =========== =============
Income per diluted share:
Income from continuing operations $ 0.63 $ 0.49 $ 1.25 $ 1.02
Gain on disposal of discontinued operations 0.09 0.09 0.09 0.09
Cumulative effect of change in accounting principle - - - (0.87)
------------ ---------- ----------- ------------
$ 0.72 $ 0.58 $ 1.34 $ 0.24
============== ========== ============= =============
Weighted average diluted shares outstanding 1,812 1,890 1,841 1,894
============ ========== =========== ============
The accompanying notes are an integral part of these statements.
3
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
Assets (unaudited)
- ------ --------------------- --------------------
(in thousands)
Current assets:
Cash and cash equivalents $ 556 $ 353
Accounts receivable 8,083 6,721
Inventories 11,565 10,311
Prepaid expenses 1,875 2,273
Deferred income taxes 1,018 1,018
-------------- --------------
23,097 20,676
-------------- --------------
Property, plant and equipment 43,924 42,661
Less accumulated depreciation and amortization 19,760 18,211
-------------- --------------
24,164 24,450
-------------- --------------
Other assets and deferred charges:
Patents 2,251 2,403
Goodwill 9,730 9,730
Other 3,471 3,548
-------------- --------------
15,452 15,681
-------------- --------------
$ 62,713 $ 60,807
============== ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 6,396 $ 5,030
Accrued income and other taxes 1,059 859
-------------- --------------
7,455 5,889
-------------- --------------
Line of Credit 9,686 10,337
Other noncurrent liabilities 3,216 2,890
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000,000 shares, issued 3,420 shares 342 342
Paid-in capital 9,124 8,222
Retained earnings 66,712 64,249
Treasury shares,1,742 in 2003 and 1,714
in 2002, at cost (33,822) (31,122)
--------------- --------------
Total stockholders' equity 42,356 41,691
-------------- --------------
$ 62,713 $ 60,807
============== ==============
The accompanying notes are an integral part of these statements.
4
ATRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------------------------
2003 2002
------------------- -------------------
(in thousands)
Cash flows from operating activities:
Net income $ 2,463 $ 461
Adjustments to reconcile net income to
net cash provided by operating activities:
Goodwill impairment, net of income taxes - 1,641
Gain on disposal of discontinued operations (165) (165)
Depreciation and amortization 2,218 2,142
Deferred income taxes 94 119
Tax benefit related to stock plans 170 -
Other 25 52
------------- -------------
4,805 4,250
Change in operating assets and liabilities:
Accounts receivable (1,361) (977)
Inventories (1,254) (42)
Prepaid expenses 397 (22)
Other non-current assets 77 510
Accounts payable and current liabilities 1,365 (441)
Accrued income and other taxes 200 32
Other non-current liabilities 234 (109)
------------- --------------
Net cash provided by continuing operations 4,463 3,201
Net cash provided by discontinued operations 165 165
------------- -------------
4,628 3,366
Cash flows from investing activities:
Property, plant and equipment additions (1,819) (1,002)
Property, plant and equipment sales 14 -
------------- -------------
(1,805) (1,002)
------------- -------------
Cash flows from financing activities:
Net change in line of credit (651) (2,645)
Purchase of treasury stock (4,069) -
Issuance of common stock 2,100 331
------------- -------------
(2,620) (2,314)
-------------- --------------
Net change in cash and cash equivalents 203 50
Cash and cash equivalents at beginning of period 353 542
------------- -------------
Cash and cash equivalents at end of period $ 556 $ 592
============= =============
Cash paid for:
Interest $ 119 $ 215
Income taxes $ 542 $ 191
The accompanying notes are an integral part of these statements.
5
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented have
been included in the accompanying unaudited consolidated financial
statements of Atrion Corporation (the "Company"). Such adjustments
consist of normal recurring items. The accompanying financial
statements have been prepared in accordance with the instructions to
Form 10-Q and include the information and notes required by such
instructions. Accordingly, the consolidated financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's 2002 Annual Report on
Form 10-K.
(2) Intangible Assets
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets". Under SFAS No. 142, goodwill is no longer
subject to amortization, but is now subject to at least an annual
assessment for impairment by applying a fair value-based test. SFAS No.
142 became effective for the Company on January 1, 2002. The Company
completed the process of performing an impairment analysis as required
by SFAS No. 142, resulting in a write-down of goodwill, in the first
quarter of 2002, of $1.6 million, net of income tax. The charge
reflected a reduction in the goodwill resulting from the acquisition of
Quest Medical in February 1998. The impairment loss was recorded as the
cumulative effect of a change in accounting principle.
Intangible assets consist of the following (in thousands, except
average life):
June 30, 2003 December 31, 2002
------------------------------- ------------------------------
Average Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
--------- --------------- --------------- --------------- --------------
Amortized intangible assets:
Patents 12.85 $ 9,250 $ 6,999 $ 9,250 $ 6,847
Intangible assets not
subject to amortization:
Goodwill $ 16,330 $ 6,600 $ 16,330 $ 6,600
Aggregate amortization expense for the six months ended June 30, 2003
and June 30, 2002 was $152,000 and $152,000, respectively.
Estimated amortization expense for each of the following years ending on December 31, is as follows (in thousands):
2003 $ 304
2004 $ 304
2005 $ 271
2006 $ 169
2007 $ 144
6
The change in the carrying amount of goodwill for the six months ended
June 30, 2002 is as follows (in thousands):
Balance as of January 1, 2002 $ 12,216
Impairment loss 2,486
------------------
Balance as of June 30, 2002 $ 9,730
==================
(3) 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 inventory (in thousands):
June 30, December 31,
2003 2002
- --------------------------------- ------------------ -------------------------
Raw materials $ 6,034 $ 6,082
Finished goods 3,498 2,818
Work in process 2,033 1,411
- --------------------------------- ------------------ -------------------------
Total inventories $ 11,565 $ 10,311
- --------------------------------- ------------------ -------------------------
(4) Earnings per share
The following is the computation for basic and diluted earnings per
share from continuing operations:
Three months ended June 30, Six months ended June 30,
2003 2002 2003 2002
---------------- --------------- --------------- -------------
(in thousands, except per share amounts)
Income from continuing operations $1,148 $930 $2,298 $1,937
================ =============== =============== =============
Weighted average basic shares outstanding
1,702 1,719 1,733 1,707
Add: Effect of dilutive securities (options) 110 171 108 187
---------------- --------------- --------------- -------------
Weighted average diluted shares outstanding 1,812 1,890 1,841 1,894
================ =============== =============== =============
Earnings per share from continuing operations:
Basic $ 0.67 $ 0.54 $ 1.33 $ 1.13
================ =============== =============== =============
Diluted $ 0.63 $ 0.49 $ 1.25 $ 1.02
================ =============== =============== =============
Outstanding options that were not included in the diluted earnings per
share calculation because their effect would be anti-dilutive totaled
39,500 and 39,500 for the three month period ended June 30, 2003 and
June 30, 2002, respectively, and 50,500 and 19,750 for the six month
period ended June 30, 2003 and June 30, 2002, respectively.
7
(5) Stock-Based Compensation
At June 30, 2003, the Company had three stock-based employee
compensation plans. The Company accounts for those plans under the
recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income
and income per share if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board ("FASB")
SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation:
Three Months ended June 30, Six Months ended June 30,
------------------------------ -------------------------------
2003 2002 2003 2002
------------- ------------ ------------- -------------
(in thousands, except per share amounts)
Net income, as reported $ 1,313 $ 1,095 $ 2,463 $ 461
Deduct: Total stock-based employee
compensation expense determined under
fair value-based methods for all
awards, net of tax effects
106 59 211 107
------------- ------------ ------------- -------------
Pro forma net income $ 1,207 $ 1,036 $ 2,252 $ 354
============= ============ ============= =============
Income per share:
Basic - as reported $ 0.77 $ 0.64 $ 1.42 $ 0.27
============= ============ ============= =============
Basic - pro forma $ 0.71 $ 0.60 $ 1.30 $ 0.21
============= ============ ============= =============
============= ============ ============= =============
Diluted - as reported $ 0.72 $ 0.58 $ 1.34 $ 0.24
============= ============ ============= =============
Diluted - pro forma $ 0.67 $ 0.55 $ 1.22 $ 0.19
============= ============ ============= =============
8
ATRION CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results for the three months ended June 30, 2003
Consolidated net income totaled $1.3 million, or $0.77 per basic and
$0.72 per diluted share, in the second quarter of 2003. This is
compared with consolidated net income of $1.1 million, or $0.64 per
basic and $0.58 per diluted share in the second quarter of 2002. The
earnings per basic share computations are based on weighted average
basic shares outstanding of 1,701,627 in the 2003 period and 1,718,881
in the 2002 period. The earnings per diluted share computations are
based on weighted average diluted shares outstanding of 1,811,842 in
the 2003 period and 1,889,949 in the 2002 period.
Consolidated revenues of $16.2 million for the second quarter of 2003
were higher than revenues of $14.8 million for the second quarter of
2002. This 9 percent increase in revenues is primarily attributed to
significant revenue increases of the Company's ophthalmic products.
Cost of goods sold of $10.6 million for the second quarter of 2003 was
10 percent higher than in the comparable 2002 period. The increase in
cost of goods sold is primarily related to increased revenues and
increased insurance costs.
Gross profit of $5.6 million in the second quarter of 2003 was
$450,000, or 9 percent, higher than in the comparable 2002 period. The
Company's gross profit percentage in the second quarter of 2003 was
34.5 percent of revenues compared with 34.7 percent of revenues in the
second quarter of 2002.
The Company's second quarter 2003 operating expenses of $3.9 million
were $146,000 higher than the operating expenses for the second quarter
of 2002, resulting from a $174,000 increase in general and
administrative (G&A) expenses. Selling expenses were $43,000 less in
the second quarter of 2003 as compared to the second quarter of 2002.
The increase in G&A expenses for the second quarter of 2002 is
primarily related to increases in compensation and other taxes.
Operating income of $1.7 million in the second quarter of 2003 was
$304,000, or 22 percent, higher than the operating income in the second
quarter of 2002.
Interest expense for the second quarter of 2003 was $54,000 compared to
interest expense of $112,000 for the same period in the prior year. The
decrease in 2003 from 2002 is primarily related to lower interest rates
and the Company's lower average borrowing level in 2003 as compared to
2002.
Income tax expense for the second quarter of 2003 was $509,000 compared
to income tax expense of $384,000 for the same period in the prior
year. The effective tax rate for the second quarter of 2003 was 30.7
percent compared with 29.2 percent for the second quarter of 2002. The
higher effective tax rate is primarily the result of benefits from tax
incentives for exports and research and development (R&D) expenditures
being a lesser percentage of taxable income in the second quarter of
2003 than in the second quarter of 2002.
The Company recorded a gain on the disposal of discontinued operations
relating to the sale of its natural gas operations of $165,000 after
tax, or $0.10 per basic and $0.09 per diluted share, for the second
quarter of 2003 and the second quarter of 2002, resulting from the
receipt of contingent deferred payments in each year.
9
Results for the six months ended June 30, 2003
The Company's income from continuing operations for the six months
ended June 30, 2003 was $2.3 million, or $1.33 per basic and $1.25 per
diluted share, compared with income from continuing operations for the
six months ended June 30, 2002 of $1.9 million, or $1.13 per basic and
$1.02 per diluted share. Consolidated net income, including
discontinued operations and the cumulative effect of change in
accounting principle, totaled $2.5 million, or $1.42 per basic and
$1.34 per diluted share, in the first six months of 2003, compared with
$461,000, or $0.27 per basic and $0.24 per diluted share in the first
six months of 2002. The Company adopted SFAS No. 142 effective January
1, 2002. The required adoption of SFAS No. 142 is considered a change
in accounting principle and the cumulative effect of adopting this
standard resulted in a $1.6 million, or $0.96 per basic and $0.87 per
diluted share, non-cash, after tax charge in the first quarter of 2002.
The earnings per basic share computations are based on weighted average
basic shares outstanding of 1,733,127 in the 2003 period and 1,707,314
in the 2002 period. The earnings per diluted share computations are
based on weighted average diluted shares outstanding of 1,841,258 in
the 2003 period and 1,894,034 in the 2002 period.
Consolidated revenues of $31.9 million for the first six months of 2003
were higher than revenues of $29.6 million for the first six months of
2002. This 8 percent increase in revenues is primarily attributed to
significant revenue increases in the Company's ophthalmic products.
Cost of goods sold of $20.7 million for the first six months of 2003
was 9 percent higher than in the comparable 2002 period. The increase
in cost of goods sold is primarily related to increased revenues and
increased insurance costs.
Gross profit of $11.2 million in the first six months of 2003 was
$658,000, or 6 percent, higher than in the comparable 2002 period. The
Company's gross profit percentage in the first six months of 2003 was
35.0 percent of revenues compared with 35.5 percent of revenues in the
first six months of 2002.
The Company's operating expenses of $7.7 million for the six months
ended June 30, 2003 were $184,000 higher than the operating expenses
for the six months ended June 30, 2002, resulting from a $218,000
increase in general and administrative (G&A) expenses partially offset
by a $37,000 decrease in selling expenses in the first six months of
2003 as compared to the first six months of 2002. The increase in G&A
expenses for the six months ended June 30, 2002 is primarily related to
increases in compensation and other taxes. Operating income of $3.4
million in the first six months of 2003 was $474,000, or 16 percent,
higher than the operating income in the first six months of 2002.
Interest expense for the six months ended June 30, 2003 was $114,000
compared to interest expense of $241,000 for the same period in the
prior year. The decrease in 2003 from 2002 is primarily related to
lower interest rates and the Company's lower average borrowing level in
2003 as compared to 2002.
Income tax expense for the six months ended June 30, 2003 was $1.1
million compared to income tax expense of $821,000 for the same period
in the prior year. The effective tax rate for the first six months of
2003 was 31.4 percent compared with 29.8 percent for the first six
months of 2002. The higher effective tax rate is primarily the result
of benefits from tax incentives for exports and R&D expenditures being
a lesser percentage of taxable income in the first six months of 2003
than in the first six months of 2002.
10
The Company recorded a gain on the disposal of discontinued operations
relating to the sale of its natural gas operations of $165,000 after
tax, or $0.09 per basic and $0.09 per diluted share, for the first six
months of 2003 and $165,000 after tax, or $0.10 per basic and $0.09 per
diluted share for the first six months of 2002, resulting from the
receipt of contingent deferred payments in each year.
Liquidity and Capital Resources
At June 30, 2003, the Company had cash and cash equivalents of $556,000
compared with $353,000 at December 31, 2002. The Company had borrowings
of $9.7 million under its $25 million revolving credit facility
("Credit Facility") at June 30, 2003 and $10.3 million at December 31,
2002. The decrease in the Credit Facility in the first six months of
2003 from December 31, 2002 is primarily attributable to the Company's
use of cash flow from operations, after payments for net stock
purchases and equipment additions, to reduce its borrowing level. The
Credit Facility, which expires November 12, 2004, 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, 2003, the Company was in compliance with all
financial covenants.
As of June 30, 2003, the Company had working capital of $15.6 million,
including $556,000 in cash and cash equivalents. Accounts receivable
and inventories were the primary contributors to a $855,000 increase in
working capital during the first six months of 2003. Cash flows from
continuing operations generated $4.5 million for the six months ended
June 30, 2003 as compared to $3.2 million for the six months ended June
30, 2002. During the first six months of 2003, the Company expended
$1.8 million for the addition of property and equipment. During April
2003, the Company completed a tender offer in which it purchased, for
$4.1 million, a total of 173,614 shares of Common Stock, at a price of
$23.00 per share. The Company received net proceeds of $2.1 million
from the exercise of employee stock options during the first six months
of 2003.
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. These statements involve risks and
uncertainties. The following are some of the factors that could cause
actual results to differ materially from those expressed in or
underlying the Company's forward-looking statements: changing economic,
market and business conditions; market acceptance of the Company's
products; the effects of governmental regulation; acts of war or
terrorism; competition and new technologies; slower-than-anticipated
introduction of new products or implementation of marketing strategies;
changes in the prices or availability of raw materials; changes in
product mix; product liability claims and product recalls; the ability
to attract and retain qualified personnel and the loss of any
significant customer. In addition, assumptions relating to budgeting,
marketing, product development and other management decisions are
subjective in many respects and thus susceptible to interpretations and
periodic review which may cause the Company to alter its marketing,
capital expenditures or other budgets, which in turn may affect the
Company's results of operations and financial condition.
11
Item 4. Controls and Procedures
The management of the Company with the participation of the Company's
Chief Executive Officer and its Chief Financial Officer, evaluated the
effectiveness of the Company's disclosure controls and procedures as of
June 30. 2003. Based upon this evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to
material information relating to the Company (including its
consolidated subsidiaries) required to be disclosed by the Company in
the reports that the Company files with the Securities and Exchange
Commission.
There has been no change in the Company's internal controls over
financial reporting during the Company's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its 2003 Annual Meeting of Stockholders on May
20, 2003 at its offices in Allen, Texas. At such meeting, the
Company's stockholders ratified the appointment of Grant Thornton
LLP as independent accountants with 1,674,344 shares voted for
ratification, 3,653 voted against and 1,417 abstentions. The
voting with respect to the nominees for election as directors was
as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Richard O. Jacobson 1,659,902 19,512
Hugh J. Morgan, Jr. 1,659,182 20,232
The terms of the following directors continued after the meeting:
Emile A. Battat, John H. P. Maley, Roger F. Stebbing, John P.
Stupp, Jr. and Margaret Maxwell Zagel.
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
13
(a) Exhibits
10.1 Form of Indemnification Agreement between the Company and its Directors and
Executive Officers
31.1 Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2 Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes - Oxley Act Of 2002
32.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes - Oxley Act Of 2002
(b) On May 1, 2003, the Company filed a Report on Form 8-K with the SEC
regarding the public dissemination of a press release announcing the
financial results for the first quarter ended March 31, 2003 (Item 9).
14
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: August 13, 2003 /s/ Emile A. Battat
--------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: August 13, 2003 /s/ Jeffery Strickland
--------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
15
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of __________,
by and between Atrion Corporation, a Delaware corporation (the "Company"), and
___________ (the "Indemnitee").
RECITALS
WHEREAS, the Indemnitee is a director or executive officer of the Company;
WHEREAS, the Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or executive officers of
publicly-held corporations unless they are protected by comprehensive liability
insurance and indemnification, due to the increased exposure to litigation costs
resulting from such service and due to the fact that this exposure frequently
bears no reasonable relationship to the compensation for such service;
WHEREAS, the General Corporation Law of Delaware (the "Law") empowers the
Company to indemnify by agreement its directors and executive officers;
WHEREAS, the Company desires that the Indemnitee continue to serve as a
director or executive officer of the Company; and
WHEREAS, the Indemnitee is willing to continue to serve the Company as a
director on the condition that the Company use reasonable good faith efforts to
maintain liability insurance coverage and that the Indemnitee be indemnified and
afforded rights to the advancement of expenses as provided in this Agreement.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve as a
director or executive officer of the Company and in consideration for his or her
continued service, and of the covenants contained in this Agreement, the parties
agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Claim or Claims" includes without limitation any threatened, pending, or
completed action, suit, or proceeding whether civil, derivative, criminal,
administrative, investigative, or otherwise, and includes any Claims by or in
the right of the Company.
"D&O Insurance" means any directors and officers liability insurance issued
to the Company.
"Expenses" means any reasonable expenses incurred by the Indemnitee as a
result of a Claim or Claims made against him or her for any act or omission
(including, without limitation, any breach of duty, neglect, error,
misstatement, misleading statement or otherwise) by the Indemnitee and any Claim
against the Indemnitee by reason of the fact that the Indemnitee is or was a
director or executive officer of the Company or any subsidiary of the Company
("Subsidiary"), including, without limitation, counsel fees and costs of
investigative, judicial, or administrative proceedings and any appeals.
"Loss" means any amount which the Indemnitee is legally obligated to pay as
a result of any Claim or Claims made against him or her for any act or omission
(including, without limitation, any breach of duty, neglect, error,
misstatement, misleading statement or otherwise) by the Indemnitee and any Claim
against the Indemnitee by reason of the fact that the Indemnitee is or was a
director or executive officer of the Company or any subsidiary of the Company,
including, without limitation, fines, damages, judgments, and sums paid in
settlement of any Claim or Claims.
16
2. Indemnification. The Company shall, to the fullest extent permitted by
Law and subject to the terms of this Agreement, indemnify and defend the
Indemnitee and hold the Indemnitee harmless from and against any and all Losses
and Expenses.
3. Advances of Expense. In the event the Indemnitee is made party to, or
threatened to be made party to, any Claim, the Company shall pay the Expenses
incurred by the Indemnitee in connection with such Claim in advance of the final
disposition of such Claim to the extent payments for such Expenses are not
promptly received by the Indemnitee from D&O Insurance or other source of
indemnity. Such payments shall be made within thirty (30) days of the
Indemnitee's written requests therefor.
4. Counsel and Defense. The Indemnitee shall promptly notify the Company of
the commencement or threat of commencement of any Claim, and the Company shall
be entitled to assume the defense thereof with counsel reasonably satisfactory
to the Indemnitee unless the Indemnitee reasonably objects to such assumption of
the defense by the Company on the grounds that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of such defense.
The Company shall not be liable to the Indemnitee for any attorneys' fees
incurred by the Indemnitee in connection with the defense of a Claim after the
Indemnitee's receipt of notice of the Company's election to assume the defense
thereof unless the Indemnitee reasonably objects to such assumption of the
defense by the Company on the grounds that there may be a conflict of interest
between the Company and the Indemnitee in the conduct of such defense or the
Company fails in a timely manner to employ counsel to defend such Claim. If the
Indemnitee engages counsel in connection with the defense of a Claim due to a
conflict of interest with the Company or due to the Company's failure to timely
defend such Claim, as authorized pursuant to this Section 4, the reasonable fees
and expenses of such counsel shall be deemed Expenses hereunder, subject to
indemnification and advance by the Company in accordance herewith, provided,
however, that such counsel shall be reasonably acceptable to the Company and, to
the extent reasonably practicable, such counsel shall also represent the other
directors and executive officers of the Company in such Claim who are parties
thereto and similarly situated to the Indemnitee.
5. Settlement. The Company shall not be liable under this Agreement for
amounts paid in any settlement of any Claim without its prior written consent
(which consent shall not be unreasonably withheld, delayed or conditioned). If
the Company shall have assumed the defense of a Claim in accordance with Section
4 hereof, the Company shall be entitled to settle (and the Indemnitee shall
reasonably cooperate with the Company with respect to such settlement) such
Claim unless the Indemnitee reasonably objects to such settlement. For these
purposes, without limiting the possible objections that may be asserted by the
Indemnitee, an objection to any settlement that includes any express or implied
admission of culpability by the Indemnitee or that fails to include the complete
and unqualified general release of the Indemnitee for liability for any Claim
made, or which could be made, by any adverse party to such Claim shall be deemed
reasonable. The Company shall give the Indemnitee not less than twenty (20) days
prior written notice of any proposed settlement, together with true and correct
copies of any proposed agreements relating thereto.
6. Indemnification Procedure. All Losses and Expenses incurred by the
Indemnitee in connection with a Claim which are subject to indemnification by
the Company pursuant to the provisions of this Agreement shall be appropriately
substantiated by the Indemnitee in accordance with the reasonable policies of
the Company in effect from time to time. All payments on account of the
Company's indemnification obligations under this Agreement, other than advances
pursuant to Section 3, shall be made within thirty (30) days of the Indemnitee's
written request therefor unless, prior to the expiration of such thirty (30) day
period, a determination that the Indemnitee is not permitted to be indemnified
under applicable law is made by (i) a majority vote of the disinterested
directors of the Company, even though less than a quorum; (ii) a majority vote
of the disinterested stockholders of the Company; (iii) independent legal
counsel, selected by majority vote of the disinterested directors of the Company
and reasonably acceptable to the Indemnitee, in a written opinion; or (iv) a
final order by a court of competent jurisdiction from which there is no further
right of appeal. Notwithstanding the foregoing provisions of this Section 6, a
determination pursuant to clause (i), (ii) or (iii) above that the Indemnitee is
not entitled to indemnification under applicable law shall not be binding on the
Indemnitee and shall not create any presumption that the Indemnitee has not met
the applicable standard of conduct required by applicable law if, within thirty
(30) days of the Indemnitee's receipt of written notice of such determination,
the Indemnitee commences legal proceedings in a court of competent jurisdiction
seeking a determination that the Indemnitee would be entitled to indemnification
by the Company under applicable law. In such event, the Company shall have the
burden of proving that indemnification of the Indemnitee is not required under
this Agreement, and the final disposition of such proceeding (whether by
settlement or judicial determination as to which all rights of appeal therefrom
have been taken or lapsed) shall be binding on the parties. During the pendency
of any such proceeding (and any appeal therefrom) and until its final
disposition, the Company shall pay the Indemnitee all of the expenses of such
proceeding. In the event that any action is instituted in which the Indemnitee
seeks indemnification under this Agreement, or to enforce or interpret any of
the terms of this Agreement, the Indemnitee shall be entitled to be paid all
costs and expenses, including reasonable attorneys' fees and costs, incurred by
the Indemnitee with respect to such action, unless the court determines that
such action was not brought in good faith or was frivolous. The Indemnitee
hereby undertakes to repay the Company for all advances in connection with such
proceeding if it shall ultimately be determined in such proceeding and all
appeals therefrom that the Indemnitee is not entitled to indemnification
hereunder.
17
7. Indemnification of Successful Party. Notwithstanding the other
provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise (including without limitation, the
dismissal of any action without prejudice) in defense of any Claim, he or she
shall be indemnified by the Company against all Losses and Expenses actually
incurred by him or her or on his or her behalf in connection therewith.
8. Partial Indemnification. If the Indemnitee is entitled to
indemnification hereunder by the Company for a portion of the Losses and
Expenses incurred by him or her in connection with a Claim, but not for the
total amount thereof, the Company shall nevertheless indemnify the Indemnitee
for the portion of such Losses and Expenses for which the Indemnitee is entitled
to indemnification hereunder.
9. Contribution. If, and to the extent that, the Indemnitee is not entitled
to indemnification for Losses and Expenses under this Agreement, then in respect
of any Claim in which the Company or any other person is (or would be, if joined
in such Claim) jointly liable with the Indemnitee, the Company shall contribute
to the amount of such Losses and Expenses, and pay to the Indemnitee, an amount
that is just and equitable in the circumstances, taking into account, among
other things, the relative fault of the parties who are (or would be, if joined
in such Claim) jointly liable with the Indemnitee and contributions by other
parties to the Indemnitee. The Company and the Indemnitee agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in this Section 9. Notwithstanding the
foregoing provisions of this Section 9, the Company and the Indemnitee agree
that, in the absence of bad faith, acts of intentional fraud or dishonesty,
intention not to act in the best interests of the Company or criminal conduct on
the part of the Indemnitee, it would not be just and equitable for the
Indemnitee to contribute to the payment of Losses or Expenses arising out of any
Claim an amount greater than the amount of fees or salary and bonus paid to the
Indemnitee for serving as a director or executive officer, respectively, of the
Company during the twelve (12) months preceding the commencement of such Claim.
18
10. D&O Insurance.
(a) While the Indemnitee is serving as a director or executive officer of
the Company and thereafter so long as the Indemnitee may be subject to any Claim
by reason of the fact that he was a director or executive officer of the
Company, the Company shall, subject to Section 10(b) below, use its reasonable
good faith efforts to provide and maintain D&O Insurance, with the Indemnitee
named as an insured with the same rights and benefits as are accorded to the
most favorably insured of the Company's directors or executive officers, with
coverage amounts not less than, and upon terms no less favorable than, as
provided in the D&O Insurance policy presently in effect and covering the
Indemnitee and with an insurance carrier no less reputable than the insurance
carrier currently issuing such present D&O Insurance policy. The Company shall
give prompt notice to the D&O Insurance carrier of the commencement of any Claim
in accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurer to pay,
on behalf of the Indemnitee, all amounts payable as a result of the Claim in
accordance with the terms of such policy. The Indemnitee shall cooperate in good
faith with the requirements of any D&O Insurance policy maintained by the
Company and insuring the Indemnitee in connection with any Claim. Notice of
termination or failure to renew of the D&O Insurance shall be provided to the
Indemnitee promptly upon the Company's becoming aware of such termination or
failure to renew.
(b) Notwithstanding the provisions of Section 10(a), the Company shall have
no obligation to obtain or maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
(c) Notwithstanding any other provision hereof, the Company shall not be
obligated to make any separate payments to the Indemnitee for Expenses or Losses
to the extent that D&O Insurance covers such Expenses or Losses and the carrier
of the D&O Insurance makes payment for such Expenses or Losses directly to the
Indemnitee. To the extent that any payment payable by the carrier of the D&O
Insurance in respect of such Expenses or Losses has previously been paid or
advanced to the Indemnitee by the Company, the parties agree that the Company
shall be subrogated to the rights of the Indemnitee to receive such payments
from the D&O Insurance carrier and that the Indemnitee will take all actions
reasonably necessary to turn over or otherwise cause the Company to receive such
payment from the D&O Insurance carrier.
11. Repayment of Losses and Expenses. Except as otherwise provided in
Section 10(c), the Indemnitee hereby agrees to repay the Company for all Losses
and Expenses paid by the Company only if, and to the extent that, it shall be
ultimately determined, in accordance with the provisions of Section 6 hereof,
that the Indemnitee is not entitled to indemnification under this Agreement.
12. Nonexclusivity; Exceptions.
(a) The indemnification and advancement of Losses and Expenses provided by
or granted pursuant to this Agreement shall not be deemed exclusive of any other
rights to which the Indemnitee may be entitled under the Certificate of
Incorporation of the Company or any bylaw, agreement, contract, vote of
stockholders or disinterested directors, or pursuant to Delaware law or the
direction of any court of competent jurisdiction.
(b) The Company shall not be obligated to indemnify or advance expenses to
the Indemnitee with respect to any proceeding or claim (i) initiated or brought
voluntarily by the Indemnitee and not by way of defense, except as otherwise
provided in Section 6 above, (ii) brought by the Company against the Indemnitee
for willful misconduct unless a court of competent jurisdiction determines that
such proceeding or claim was not brought or made in good faith or was frivolous,
or (iii) in which a judgment is rendered against the Indemnitee for an
accounting of profits from the purchase or sale by the Indemnitee of securities
of the Company pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto.
19
13. Changes in Law. In the event of any change, after the date of this
Agreement, in any applicable law, statute, or rule which expands the right of a
Delaware corporation to indemnify a member of its board of directors or an
executive officer, such change shall be deemed to be within the purview of the
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a Delaware corporation to indemnify a member of its board of directors
or an executive officer, such change, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' respective rights and obligations hereunder.
14. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall any such waiver constitute a continuing waiver.
15. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable for any reason whatsoever, then:
(a) the validity, legality, and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections of
this Agreement containing any such provision held to be invalid, illegal, or
unenforceable that are not themselves invalid, illegal, or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any sections of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable, that are not themselves invalid, illegal,
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal, or unenforceable.
16. Subrogation. In the event of any payment by the Company under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the Indemnitee's rights of recovery, and the Indemnitee shall execute all
documents required and shall do all acts that may be necessary or desirable to
secure such rights and to enable the Company effectively to bring suit to
enforce such rights.
17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall be deemed to
constitute one and the same agreement.
18. Successors and Assigns. This Agreement shall be binding upon the
Company, its successors and assigns (including, without limitation, any
transferee of all or substantially all of its assets and any successor by merger
or operation of law) and shall inure to the benefit of the Indemnitee, his or
her heirs, personal representatives and assigns.
19. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and signed for by the party addressee; (b) if mailed by
certified mail, with postage prepaid and addressed to the Company at its
principal address or to the Indemnitee at the address shown on the signature
page hereof (or at such other address as provided to the Company by notice
pursuant to this Section 19), on the third business day after the mailing date;
(c) if sent via express overnight courier to the address provided for in clause
(b) above, on the first business day after deposit with such express overnight
courier.
20
20. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
IN WITNESS WHEREOF, the parties have entered into this Agreement effective as of
the date first written above
ATRION CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
INDEMNITEE
Address:
-----------------------------------
21
Exhibit 31.1
Chief Executive Officer Certification
I, Emile A. Battat, certify that:
1. I have reviewed this report of Atrion Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over the financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
22
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
-----------------------
/s/ Emile A. Battat
Emile A. Battat
Chairman, President and
Chief Executive Officer
23
Exhibit 31.2
Chief Financial Officer Certification
I, Jeffery Strickland, certify that:
1. I have reviewed this report of Atrion Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over the financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
24
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
---------------------------
/s/ Jeffery Strickland
Jeffery Strickland
Vice President and
Chief Financial Officer
25
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES - OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Atrion
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(the "Report") fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: August 13, 2003 /s/ Emile A. Battat
--------------------------
Emile A. Battat
Chief Executive Officer
The foregoing certification is made solely for purpose of 18 U.S.C.ss.1350
and not for any other purpose.
26
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Atrion
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(the "Report") fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: August 13, 2003 /s/ Jeffery Strickland
----------------------
Jeffery Strickland
Chief Financial Officer
The foregoing certification is made solely for purpose of 18 U.S.C.ss.1350
and not for any other purpose.
27