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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
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
incorporation or organization) Identification No.)
One Allentown Parkway,
Allen, Texas 75002
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (972) 390-9800
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Title of Class
--------------
Common Stock, $.10 Par Value
_______________________
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by nonaffiliates of
the registrant at March 4, 2005 was $72,137,600 based on the last reported sales
price of the common stock on the Nasdaq National Market on such date.
Number of shares of Common Stock outstanding at March 4, 2005: 1,726,807
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
information from the Company's definitive proxy statement relating to the 2005
annual meeting of stockholders, to be filed with the Commission not later than
120 days after the end of the fiscal year covered by this report.
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ATRION CORPORATION
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2004
________
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I........................................................................1
ITEM 1. BUSINESS...........................................................1
ITEM 2. PROPERTIES.........................................................9
ITEM 3. LEGAL PROCEEDINGS..................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................9
EXECUTIVE OFFICERS OF THE COMPANY..................................9
PART II......................................................................10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY
SECURITIES........................................................10
ITEM 6. SELECTED FINANCIAL DATA...........................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................................19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................40
ITEM 9A. CONTROLS AND PROCEDURES...........................................40
ITEM 9B. OTHER INFORMATION.................................................40
PART III.....................................................................40
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................40
ITEM 11. EXECUTIVE COMPENSATION............................................41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS.......................41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................41
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................41
PART IV......................................................................41
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES........................41
SIGNATURES...................................................................45
ATRION CORPORATION
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2004
PART I
ITEM 1. BUSINESS
General
Atrion Corporation ("Atrion" or the "Company") designs, develops, manufactures,
sells and distributes products and components, primarily for the medical and
health care industry. The Company's products range from ophthalmology and
cardiovascular products to fluid delivery devices. The Company has a line of
non-medical components that are sold for use in aviation and marine safety
products. The Company also owns and maintains a gaseous oxygen pipeline that is
small and incidental to the overall operations of the Company.
The Company's ophthalmic products accounted for 24 percent, 30 percent and 29
percent of net revenues for 2004, 2003 and 2002, respectively. Atrion is a
leading manufacturer of soft contact lens storage and disinfection cases. Atrion
produces a complete line of products which are compatible with all solutions for
use with soft or rigid gas permeable lenses. The Company also works with
customers to provide customized distribution of products. As a registered
pharmaceutical reseller, Atrion provides custom packaging, including component
purchasing as well as labeling. Warehousing as well as inventory management is
included in Atrion's complete kitting services. The Company also designs,
manufactures, sells and distributes the LacriCATH(R) product line, a line of
balloon catheters that is used in the treatment of nasolacrimal duct obstruction
in children and adults. Nasolacrimal duct obstruction can cause a condition
called epiphora (chronic tearing). People affected by this condition experience
excessive and uncontrollable tearing and often encounter infection as a result
of the nasolacrimal blockage. LacriCATH balloon catheters are the only balloon
catheters with Food and Drug Administration ("FDA") approval for use in this
application.
The Company's cardiovascular products accounted for 25 percent, 22 percent and
22 percent of net revenues for 2004, 2003 and 2002, respectively. At the heart
of the Company's cardiovascular products is the MPS(R) Myocardial Protection
System ("MPS"), a proprietary technology that delivers essential fluids and
medications to the heart during open-heart surgery. The MPS integrates key
functions relating to the delivery of solutions to the heart, such as varying
the rate and ratio of oxygenated blood, crystalloid, potassium and other
additives, and controlling temperature, pressure and other variables to allow
simpler, more flexible management of this process indicating improved patient
outcomes. The MPS is the only device used in open-heart surgery that allows for
the mixing of drugs into the bloodstream without diluting the blood. The MPS
employs advanced pump, temperature control and microprocessor technologies and
includes a line of disposable products. The Company also develops, manufactures
and markets other cardiovascular products which consist principally of the
following: cardiac surgery vacuum relief valves; Retract-O-Tape(R) silicone
vessel loops for retracting and occluding vessels in minimally invasive surgical
procedures; and Clean-Cut(R) rotating aortic punch, used in heart bypass surgery
to make a precision opening in the heart for attachment of the bypass vessels.
1
The Company's fluid delivery products accounted for 26 percent, 24 percent and
24 percent of net revenues for 2004, 2003 and 2002. The Company develops,
manufactures and markets several specialized intravenous fluid delivery tubing
sets and accessories. The intravenous fluid delivery line includes more than 50
distinct models used for complex therapy procedures employed in anesthesia
administration, intravenous feeding, intensive care and cancer therapy. The
Company is an industry leader in the manufacturing of medical tubing clamps.
These products include clamps offering such features as six match-to-fit sizes
with compatibility to all grades of medical tubing, molding in a variety of
materials, and compatibility with different sterilization processes. The Company
has developed a wide variety of luer syringe check valves and one-way valves
designed to fill, hold and release controlled amounts of fluids or gasses on
demand for use in various intubation, catheter and other applications. The
Company's swabbable luer valve was developed as a substitute for needle ports in
IV applications. These valves provide an economical replacement for needle
access ports in drug delivery and IV applications.
The Company's other medical and non-medical products accounted for 25 percent,
24 percent and 25 percent of net revenues for 2004, 2003 and 2002, respectively.
Atrion is the leading manufacturer of valves and inflation devices used in
marine and aviation safety products. The Company manufactures valves, tubing
flanges, right angle connectors, and closures for life vests, life rafts,
inflatable boats, inflatable toys, survival equipment, and other inflatable
structures. Atrion also produces many one-way and two-way "Breather" valves for
use on electronics cases, munitions cases, pressure vessels, lift bags, space
suits, mattresses, escape slides, and any other application requiring pressure
relief. Atrion provides contract manufacturing services for other major original
equipment manufacturers of medical devices. The Company has the ability to take
a product from concept through design, development and prototype all the way to
full-scale production manufacturing. Core competencies include engineering
product design and development, prototyping, assembly, insert and injection
molding, automation, RF-welding, ultrasonic and heat sealing, and sterile
packaging.
The Company designs, manufactures, sells and distributes a line of pressure
monitoring kits for use in labor and delivery procedures and various critical
care applications. The Company's intrauterine pressure monitoring devices are
used to determine pressure within the mother's uterus primarily during high risk
labor and delivery. The Company's ACTester product line consists of
instrumentation and associated disposables used to measure the activated
clotting time of blood.
The Company owns and maintains a 22-mile high-pressure steel pipeline in north
Alabama that is leased to an industrial gas producer that transports gaseous
oxygen to one of its customers.
Marketing and Major Customers
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. Sales managers working with a
direct sales force, commissioned sales agents, and distributors handle these
sales. The Company's sales managers work closely with major customers in
designing and developing products to meet customer requirements. The Company
sponsors scientific symposia as a means of disseminating product information and
participates in industry trade shows.
2
Company revenues from sales to parties outside the United States totaled
approximately 30 percent, 26 percent and 25 percent of the Company's net
revenues in 2004, 2003 and 2002, respectively. Company revenues from sales to
parties in Canada totaled approximately 14 percent, 14 percent and 12 percent of
the Company's net revenues in 2004, 2003 and 2002, respectively. These sales are
made to various manufacturers and through distributors in over fifty countries
outside the United States.
The Company offers customer service, training and education, and technical
support such as field service, spare parts, maintenance and repair for certain
of its products. The Company periodically advertises its products in trade
journals and routinely attends and participates in trade shows throughout the
United States and internationally. The Company provides supportive literature on
the benefits of its products.
During 2004, Novartis was the Company's only customer accounting for more than
10 percent of the Company's revenues, with various products sold to several
divisions of Novartis accounting for approximately 15 percent of the Company's
revenues. The loss of this customer would have a material adverse impact on the
Company's business, financial condition and results of operations.
Manufacturing
The Company's medical products and other components are produced at plants in
Arab, Alabama, St. Petersburg, Florida and Allen, Texas. The plants in Arab and
St. Petersburg both utilize plastic injection molding and specialized assembly
as their primary manufacturing processes. The Company's other manufacturing
processes consist of the assembly of standard and custom component parts and the
testing of completed products.
The Company devotes significant attention to quality assurance. Its quality
assurance measures begin with the suppliers which participate in the Company's
supplier quality assurance program. It continues at the manufacturing level
where many components are assembled in a "clean room" environment designed and
maintained to reduce product exposure to particulate matter. Products are tested
throughout the manufacturing process for adherence to specifications. Most
finished products are then shipped to outside processors for sterilization by
radiation or ethylene oxide gas. After sterilization, the products are
quarantined and tested before they are shipped to customers.
Skills of assembly workers required for the manufacture of medical products are
similar to those required in typical assembly operations. The Company currently
employs workers with the skills necessary for its assembly operations and
believes that additional workers with these skills are readily available in the
areas where the Company's plants are located.
The Company's medical device operations are ISO13485 certified and are subject
to FDA jurisdiction. The Company's non-medical device operations are ISO
9000-2000 certified.
Research and Development
The Company believes that a well-targeted research and development program is an
essential part of the Company's activities, and the Company is currently engaged
in a number of research and development projects. The objective of the Company's
program is to develop new products in the Company's current product lines,
improve current products and develop new product lines. Recent major development
3
projects include, but are not limited to, a needleless injection site product
designed to eliminate the use of needles by health care providers, a product
designed for safe needle containment, a balloon catheter for use during balloon
incisional dacryocystorhinosotomy surgery, a new inflator system for use with
recreational and commercial life vests, an anti-retrograde flow check valve for
medical infusion and fluid delivery applications and a silicone vessel loop for
retracting and occluding vessels with improved securement capabilities. The
Company expects to incur additional research and development expenses in 2005
for various projects.
The Company's consolidated research and development expenditures for 2004, 2003
and 2002 were $2,374,000, $2,146,000, and $2,180,000, respectively.
Availability of Supplies and Raw Materials
The Company subcontracts with various suppliers to provide it with the quantity
of component parts necessary to assemble its products. Almost all of these
components are available from a number of different suppliers, although certain
components are purchased from single sources that manufacture these components
using the Company's toolings. The Company believes that there are satisfactory
alternative sources for single-sourced components, although a sudden disruption
in supply from one of these suppliers could adversely affect the Company's
ability to deliver finished products on time. The Company owns the molds used
for production of a majority of its components. Consequently, in the event of
supply disruption, the Company would be able to fabricate its own components or
subcontract with another supplier, albeit after a delay in the production
process. The Company purchases various types of high-grade resins and other
components for its manufacturing processes from various suppliers. The resins
are readily available materials and, while the Company is selective in its
choice of suppliers, it believes that there are no significant restrictions or
limitations on supply.
Patents and License Agreements
The commercial success of the Company is dependent, in part, on its ability to
continue to develop patentable products, to preserve its trade secrets and to
operate without infringing or violating the proprietary rights of third parties.
The Company currently has 214 active patents and patent applications pending on
products that are either being sold or are in development. The Company receives
royalty payments on three patents that are licensed to outside parties. The
Company pays royalties to outside parties for two patents. All of these patents
and patents pending relate to current products being sold by the Company or to
products in evaluation stages.
Others may challenge the validity of any patents issued to the Company, and the
Company could encounter legal and financial difficulties in enforcing its patent
rights against infringers. In addition, there can be no assurance that other
technologies cannot or will not be developed or that patents will not be
obtained by others which would render the Company's patents less valuable or
obsolete. Although the Company does not believe that patents are the sole
determinant in the commercial success of its products, the loss of a significant
percentage of its patents or of its patents relating to a specific major product
line could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has developed technical knowledge which, although non-patentable, is
considered by the Company to be significant in enabling it to compete. However,
4
the proprietary nature of such knowledge may be difficult to protect. The
Company has entered into agreements with key employees prohibiting them from
disclosing any confidential information or trade secrets of the Company. In
addition, these agreements also provide that any inventions or discoveries
relating to the business of the Company by these individuals will be assigned to
the Company and become the Company's sole property.
The medical device industry is characterized by extensive intellectual property
litigation, and companies in the medical products industry sometimes use
intellectual property litigation to gain a competitive advantage. Intellectual
property litigation, regardless of outcome, is often complex and expensive, and
the outcome of this litigation is generally difficult to predict. An adverse
determination in any such proceeding could subject the Company to significant
liabilities to third parties, or require the Company to seek licenses from third
parties or pay royalties that may be substantial. Furthermore, there can be no
assurance that necessary licenses would be available to the Company on
satisfactory terms or at all. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing or selling certain of its products,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Competition
Depending on the product and the nature of the project, the Company competes on
the basis of its ability to provide engineering and design expertise, quality,
service, product and price. As such, successful competitors must have technical
strength, responsiveness and scale. The Company believes that its expertise and
reputation for quality medical products have allowed it to compete favorably
with respect to each such factor and to maintain long-term relationships with
its customers. However, in many of the Company's markets, the Company competes
with numerous other companies that have substantially greater financial
resources and engage in substantially more research and development activities
than the Company. Furthermore, innovations in surgical techniques or medical
practices could have the effect of reducing or eliminating market demand for one
or more of the Company's products.
Numerous companies compete with the Company in the sale of health care products.
These markets are dominated by established manufacturers that have broader
product lines, greater distribution capabilities, substantially greater capital
resources and larger marketing, research and development staffs and facilities
than the Company. Many of these competitors offer broader product lines within
the specific product market and in the general field of medical devices and
supplies. Broad product lines give many of the Company's cardiovascular and
fluid delivery competitors the ability to negotiate exclusive, long-term medical
device supply contracts and, consequently, the ability to offer comprehensive
pricing of their competing products. By offering a broader product line in the
general field of medical devices and supplies, competitors may also have a
significant advantage in marketing competing products to group purchasing
organizations, HMOs and other managed care organizations that are increasingly
seeking to reduce costs through centralization of purchasing functions. In
addition, the Company's competitors may use price reductions to preserve market
share in their product markets.
Depending on the product and the nature of the project, the Company competes in
contract manufacturing on the basis of its ability to provide engineering and
design expertise as well as on the basis of product and price. The Company
frequently designs products for a customer or potential customer prior to
5
entering into long-term development and manufacturing agreements with that
customer. Because these products are somewhat limited in number and normally are
only a component of the ultimate product sold by its customers, the Company is
dependent on its ability to meet the requirements of those major health care
companies and must continually be attentive to the need to manufacture such
products at competitive prices and in compliance with strict manufacturing
standards. The Company competes with a number of contract manufacturers of
medical products. Most of these competitors are small companies that do not
offer the breadth of services offered by the Company to its customers.
The Company competes in the market for inflation devices used in marine and
aviation equipment. The Company is the dominant provider in this market area.
Government Regulation
Products
- --------
The manufacture and sale of medical products are subject to regulation by
numerous United States governmental authorities, principally the FDA, and
corresponding foreign agencies. The research and development, manufacturing,
promotion, marketing and distribution of medical products in the United States
are governed by the Federal Food, Drug and Cosmetic Act and the regulations
promulgated thereunder ("FDC Act and Regulations"). All manufacturers of medical
devices must register with the FDA and list all medical devices manufactured by
them. The list must be updated annually. The Company's medical product
subsidiaries and certain of their customers are subject to inspection by the FDA
for compliance with such regulations and procedures. The Company's medical
products manufacturing facilities are subject to regulation by the FDA.
The FDA has traditionally pursued a rigorous enforcement program to ensure that
regulated entities comply with the FDC Act and Regulations. A company not in
compliance may face a variety of regulatory actions, including warning letters,
product detentions, device alerts, mandatory recalls or field corrections,
product seizures, total or partial suspension of production, injunctive actions
or civil penalties and criminal prosecutions of the company or responsible
employees, officers and directors. The Company's medical products subsidiaries
and certain of their customers are subject to these inspections. The Company
believes that it has met all FDA requirements, and it also believes that its
medical device OEM customers are in compliance; however, if the Company or its
OEM medical device customers should fail the FDA inspections, it could have a
material adverse impact on the Company's business, financial condition and
results of operations.
Under the FDA's requirements, if a manufacturer can establish that a
newly-developed device is "substantially equivalent" to a legally marketed
device, the manufacturer may seek marketing clearance from the FDA to market the
device by filing a 510(k) premarket notification with the FDA. The 510(k)
premarket notification must be supported by data establishing the claim of
substantial equivalence to the satisfaction of the FDA. The process of obtaining
a 510(k) clearance typically can take several months to a year or longer. If
substantial equivalence cannot be established or if the FDA determines that the
device requires a more rigorous review, the FDA will require that the
manufacturer submit a premarket approval ("PMA") that must be reviewed and
approved by the FDA prior to marketing and sale of the device in the United
States. The process of obtaining a PMA can be expensive, uncertain and lengthy,
frequently requiring anywhere from one to several years from the date of FDA
submission. Both a 510(k) and a PMA, if granted, may include significant
6
limitations on the indicated uses for which a product may be marketed. FDA
enforcement policy strictly prohibits the promotion of approved medical devices
for unapproved uses. In addition, product approvals can be withdrawn for failure
to comply with regulatory requirements or the occurrence of unforeseen problems
following initial marketing. The Company believes that it and all of its current
medical device OEM customers are in compliance with these rules; however, there
is no assurance that the Company or its OEM customers are now, or will continue
to be, in compliance with such rules. If the Company or its customers do not
meet these standards, the Company's financial performance could be adversely
affected. Furthermore, delays by the FDA in approving a product or a customer's
product could delay the Company's expectations for future sales of certain
products.
Certain aviation and marine safety products are also subject to regulation by
the Coast Guard and the Federal Aviation Administration and similar
organizations in foreign countries which regulate the safety of marine and
aviation equipment.
Third-Party Reimbursement and Cost Containment
- ----------------------------------------------
In the United States, health care providers, including hospitals and physicians,
that purchase medical products for treatment of their patients generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or a part of the costs and fees
associated with the procedures performed using these products. Accordingly, the
Company is dependent, in part, upon the ability of health care providers to
obtain satisfactory reimbursement from third-party payors for medical procedures
in which the Company's products are used. Third-party payors may deny
reimbursement if they determine that a prescribed product has not received
appropriate regulatory clearances or approvals, is not used in accordance with
cost-effective treatment methods as determined by the payor, or is experimental,
unnecessary or inappropriate.
Reimbursement systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must be obtained on
a country-by-country basis. Many international markets have government-managed
health care systems that control reimbursement for new products and procedures.
In most markets, there are private insurance systems as well as
government-managed systems. Market acceptance of the Company's products in
international markets depends, in part, on the availability and level of
reimbursement. Implementation of health care reforms in these markets may limit
the price of, or the level at which reimbursement is provided for, the Company's
products.
Medicare and Medicaid reimbursement for hospitals is generally based on a fixed
amount for admitting a patient with a specific diagnosis. Because of this fixed
reimbursement method, hospitals may seek to use less costly methods in treating
Medicare and Medicaid patients. Frequently, reimbursement is reduced to reflect
the availability of a new procedure or technique, and as a result hospitals are
generally willing to implement new cost saving technologies before these
downward adjustments take effect. Likewise, because the rate of reimbursement
for certain physicians who perform certain procedures has been and may in the
future be reduced, physicians may seek greater cost efficiency in treatment to
minimize any negative impact of reduced reimbursement. Third-party payors may
challenge the prices charged for medical products and services and may deny
reimbursement if they determine that a device was not used in accordance with
cost-effective treatment methods as determined by the payor, was experimental or
was used for an unapproved application.
7
Failure by hospitals and other users of the Company's products to obtain
reimbursement from third-party payors, or adverse changes in government and
private third-party payors' policies toward reimbursement for procedures
employing the Company's products, could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover, the
Company is unable to predict what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future, or what effect such legislation or regulation
would have on the Company.
The Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative health care delivery and payment
systems. Potential approaches that have been considered include mandated basic
health care benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls and
other fundamental changes to the health care delivery system. The Company cannot
predict what impact the adoption of any federal or state health care reform
measures, future private sector reform or market forces may have on its
business.
Product Liability and Insurance
The design, manufacture and marketing of products of the types the Company
produces entail an inherent risk of product liability claims. A problem with one
of the Company's products could result in product liability claims or a recall
of, or safety alert or advisory notice relating to, the product. While the
amount of product liability insurance the Company maintains has been adequate in
the past, there is no assurance that the amount of insurance will be adequate to
satisfy future claims or that the Company will be able to obtain insurance in
the future at satisfactory rates or in adequate amounts. Additionally, product
liability claims may damage the Company's reputation by raising questions about
the safety and efficacy of the Company's products and could interfere with the
Company's efforts to sell and distribute its products.
Advisory Board
Several physicians and perfusionists with substantial expertise in the field of
myocardial protection serve as Clinical Advisors for the Company. These Clinical
Advisors have assisted in the identification of the market need for MPS and its
subsequent design and development. Members of the Company's management and
scientific and technical staff from time to time consult with these Clinical
Advisors to better understand the technical and clinical requirements of the
cardiovascular surgical team and product functionality needed to meet those
requirements. The Company anticipates that these Clinical Advisors will play a
similar role with respect to other products and may assist the Company in
educating other physicians in the use of the MPS and related products.
Certain of the Clinical Advisors are employed by academic institutions and may
have commitments to, or consulting or advisory agreements with, other entities
that may limit their availability to the Company. The Clinical Advisors may also
serve as consultants to other medical device companies. The Clinical Advisors
are not expected to devote more than a small portion of their time to the
Company.
8
People
At March 1, 2005, the Company had 456 full-time employees. Employee relations
are good and there has been no work stoppage due to labor disagreements. None of
the Company's employees is represented by any labor union.
ITEM 2. PROPERTIES
The Company is headquartered in Allen, Texas, and maintains operations at that
location (108,000 square feet facility on 19 acres) as well as in Arab, Alabama
(112,000 square feet on 67 acres), and St. Petersburg, Florida (72,000 square
feet on 7 acres). Each facility houses administrative, engineering,
manufacturing, and warehousing operations. The Texas and Alabama facilities are
Company owned while the Florida facility is occupied under a lease expiring in
May 2006.
The Company owns and maintains a 22-mile high-pressure steel pipeline that
transports gaseous oxygen between Decatur and Courtland, Alabama.
ITEM 3. LEGAL PROCEEDINGS
On May 6, 2004, Halkey-Roberts Corporation, a subsidiary of the Company
("Halkey-Roberts"), filed an action for declaratory judgment against Filtertek
Inc., a subsidiary of ESCO Technologies, Inc. ("Filtertek") in the United States
District Court for the Middle District of Florida, Tampa Division, service of
process for which was effected on Filtertek on August 5, 2004. Halkey-Roberts is
seeking a declaration that a swabable valve that it manufactures and sells does
not infringe on Filtertek's U.S. patent no. 5,360,413 and that the claims of
such patent asserted by Filtertek against Halkey-Roberts are invalid and that
Filtertek be enjoined from asserting that such patent, or any claim thereof, is
infringed by Halkey-Roberts. Filtertek has filed a counterclaim alleging that
Halkey-Roberts's swabable valve infringes on the above-listed patent and seeking
injunctive relief and damages. This litigation is in its early stages, and the
ultimate outcome cannot be determined at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2004, no matters were submitted to a vote of
security holders.
Executive Officers of the Company
Name Age Title
---- --- -----
Emile A. Battat 67 Chairman, President and Chief Executive
Officer of the Company and Chairman or
President of all subsidiaries
Jeffery Strickland 46 Vice President and Chief Financial Officer,
Secretary and Treasurer of the Company
and Vice President or Secretary-Treasurer
of all subsidiaries
9
The persons who are identified as executive officers of the Company currently
serve as officers of the Company and all subsidiaries. The officers of the
Company and its subsidiaries are elected annually by the respective Boards of
Directors of the Company and its subsidiaries at the first meeting of such
Boards of Directors held after the annual meetings of stockholders of such
entities. Accordingly, the terms of office of the current officers of the
Company and its subsidiaries will expire at the time such meetings of the Board
of Directors of the Company and its subsidiaries are held, which is anticipated
to be in May 2005.
There are no arrangements or understandings between any officer and any other
person pursuant to which the officer was elected. There are no family
relationships between any of the executive officers or directors.
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officers during the past five years.
Brief Account of Business Experience During the Past Five Years
Mr. Battat has been a director of the Company since 1987 and has served as
Chairman of the Board of the Company since January 1998. Mr. Battat has served
as President and Chief Executive Officer of the Company and as Chairman or
President of all subsidiaries since October 1998.
Mr. Strickland has served as Vice President and Chief Financial Officer,
Secretary and Treasurer of the Company since February 1, 1997 and has served as
Vice President or Secretary-Treasurer for all the Company's subsidiaries since
January 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER REPURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the Nasdaq National Market (Symbol
ATRI). As of March 7, 2005, the Company had approximately 1,300 stockholders,
including beneficial owners holding shares in nominee or "street" name. The high
and low closing prices as reported by Nasdaq for each quarter of 2003 and 2004
are shown below.
Year Ended
December 31, 2003: High Low
------------------ ---- ---
First Quarter $ 22.85 $ 17.95
Second Quarter $ 30.80 $ 22.75
Third Quarter $ 45.20 $ 26.80
Fourth Quarter $ 50.00 $ 40.00
Year Ended
December 31, 2004: High Low
------------------ ---- ---
First Quarter $ 46.82 $ 38.51
Second Quarter $ 50.82 $ 40.50
Third Quarter $ 48.77 $ 43.51
Fourth Quarter $ 48.20 $ 41.69
10
In September 2003, the Company announced that its Board of Directors had
approved a policy for the payment of regular quarterly cash dividends on the
Company's common stock. The Company began paying a quarterly cash dividend of
$.12 per common share starting in September of 2003. The quarterly dividend was
increased to $.14 per common share in September of 2004. The Company paid
quarterly dividends totaling $891,000 to its stockholders in 2004.
The following table provides certain information about securities authorized for
issuance under the Company's equity compensation plan as of December 31, 2004:
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants and rights rights reflected in column (a))
(a) (b) (c)
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holder 316,200 $22.72 12,534(1)
Equity compensation plans
not approved by security
holders 12,300(2) $12.25 -
-------------------------------------------------------------------------------------
Total 328,500 $22.33 12,534
=====================================================================================
(1) Consists of shares of the Company's common stock authorized for issuance
under the Company's 1997 Stock Incentive Plan, which provides for the grant of
nonqualified stock options, incentive stock options, stock appreciation rights,
restricted stock and performance shares. The number of shares available for
issuance under the 1997 Stock Incentive Plan is also subject to equitable
adjustment by the Compensation Committee of the Board of Directors in the event
of any change in the Company's capitalization, including, without limitation, a
stock dividend or stock split. Since December 31, 2004, the Company has granted
options for all but 34 of these shares.
(2) Consists of shares of the Company's common stock authorized for issuance
upon exercise of nonqualified options granted to certain of the Company's
clinical advisors on February 10, 1998. All such options are now vested and
expire ten years from the grant date. The exercise price of the options is the
closing price on the Nasdaq National Market of the Company's common stock on the
grant date.
The Company's Common Share Purchase Rights Plan, which was adopted by the
Company in 1990, and all rights thereunder expired on February 1, 2005.
During the year ended December 31, 2004, the Company did not sell any equity
securities that were not registered under the Securities Act of 1933, and during
the fourth quarter of 2004 did not repurchase any of its equity securities.
11
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 66,081 $ 62,803 $ 59,533 $ 57,605 $ 51,447
Income from continuing operations 6,305 4,892 4,065 4,262 2,663
Net income 6,470 5,057 2,589(b) 9,754(c) 2,792
Total assets 67,408 60,050 60,807 65,555 63,690
Long-term debt 2,936 4,287 10,337 17,125 7,400
Income from continuing
operations, per diluted share 3.41 2.66 2.18 1.88 1.25
Net income per diluted share 3.50 2.75 1.39(b) 4.30(c) 1.31
Cash dividends per common share .52 .24(a) -- -- --
Average diluted shares outstanding 1,850 1,839 1,863 2,272 2,135
- -----------------------------------------------------------------------------------------------------------------
(a) Dividends on outstanding common shares paid in the 3rd and 4th quarters at
$.12 per share
(b) Includes a $1.6 million after-tax goodwill impairment charge ($ .88 per
diluted share)
(c) Includes a $5.5 million after-tax gain ($ 2.42 per diluted share) from
discontinued operations
ITEM 7. 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 health care 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 range from
ophthalmology and cardiovascular products to fluid delivery devices. The
Company's other medical and non-medical products include obstetrics products,
instrumentation and disposables used in dialysis, contract manufacturing and
valves and inflation devices used in marine and aviation safety products. In
2004 approximately 30 percent of the Company's sales were outside the United
States.
The Company's products are used in a wide variety of applications by numerous
customers, the largest of which accounted for approximately 14.5 percent of net
sales in 2004. 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
in which it competes. The Company focuses its research and development efforts
on improving current products and developing highly engineered products that
meet customer needs and have the potential for broad market applications and
12
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. Over the past three years, the Company has
continued to be faced with increasing costs associated with insurance, including
group health benefits. 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, starting in 2003, to pay
dividends. During 2004, the Company reduced debt by approximately 31.5%.
The Company's strategic objective is to further enhance its position in its
served markets by:
o Focusing on customer needs
o Expanding existing product lines and developing new products
o Maintaining a culture of controlling cost
o Preserving and fostering a collaborative, entrepreneurial management
structure
For the year ended December 31, 2004, the Company reported revenues of $66.1
million, income from continuing operations of $6.3 million and net income of
$6.5 million, up 5 percent, 29 percent and 28 percent, respectively, from 2003.
Results of Operations
The Company's income from continuing operations was $6.3 million, or $3.68 per
basic and $3.41 per diluted share, in 2004, compared to income from continuing
operations of $4.9 million, or $2.86 per basic and $2.66 per diluted share, in
2003 and $4.1 million, or $2.37 per basic and $2.18 per diluted share, in 2002.
Net income, including discontinued operations and cumulative effect of
accounting change, totaled $6.5 million, or $3.78 per basic and $3.50 per
diluted share, in 2004, compared with $5.1 million, or $2.96 per basic and $2.75
per diluted share, in 2003 and $2.6 million, or $1.51 per basic and $1.39 per
diluted share, in 2002. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142 effective January 1, 2002. The required adoption of
SFAS No. 142 as discussed in Note 2 to the Company's Consolidated Financial
Statements included herein is considered a change in accounting principle and
the cumulative effect of adopting this standard resulted in a $1.6 million, or
$.96 per basic and $.88 per diluted share, non-cash, after-tax charge in 2002.
Revenues were $66.1 million in 2004, compared with $62.8 million in 2003 and
$59.5 million in 2002. The 5 percent revenue increase in 2004 over the prior
year was primarily attributable to a 22 percent increase in the revenues of the
Company's cardiovascular products, a 17 percent increase from the Company's
fluid delivery products and a 7 percent increase from the Company's other
medical and non-medical products. These revenue increases were generally
attributable to higher sales volumes and were partially offset by an 18 percent
decrease in the revenues from the Company's ophthalmic products following the
completion of a contract in 2003. The 5 percent revenue increase in 2003 over
the prior year was primarily attributable to an 8 percent increase in the
revenues of the Company's ophthalmic products, an 8 percent increase in the
revenues of the Company's cardiovascular products, a 3 percent increase in the
Company's fluid delivery products and a 2 percent increase in the Company's
other medical and non-medical products.
13
The Company's cost of goods sold was $40.8 million in 2004, compared with $40.6
million in 2003 and $39.2 million in 2002. The 1 percent increase in cost of
goods sold for 2004 over 2003 was primarily related to the revenue increases
discussed above, offset by favorable manufacturing efficiencies brought on by
increased volumes and manufacturing productivity improvements. The shift in
product mix had a favorable effect on cost of goods sold as the products with
increased revenues had lower costs than the products with lower revenues. The
increase in cost of goods sold for 2003 over 2002 was primarily related to the
increase in revenues discussed above and increased insurance costs partially
offset by an improvement in manufacturing variances resulting from increased
production volumes.
Gross profit was $25.3 million in 2004, compared with $22.2 million in 2003 and
$20.3 million in 2002. The Company's gross profit in 2004 was 38 percent of
revenues compared with 35 percent of revenues in 2003 and 34 percent of revenues
in 2002. The increase in gross profit percentage in 2004 from the prior year was
primarily due to the favorable shift in product mix mentioned above,
productivity improvements and improved manufacturing efficiencies. The increase
in gross profit percentage in 2003 from the prior year was primarily due to the
above-mentioned improvement in manufacturing variances.
Operating expenses were $16.7 million in 2004, compared with $15.3 million in
2003 and $14.5 million in 2002. The increase in operating expenses in 2004 from
2003 was primarily attributable to increased general and administrative ("G&A")
and research and development ("R&D") expenses. G&A expenses consist primarily of
salaries and other related expenses of administrative, executive and financial
personnel and outside professional fees. The increase in G&A expenses in 2004
was primarily attributable to increased legal costs and compensation. The
Company anticipates that G&A expenses are likely to increase in the foreseeable
future but at a rate less than the anticipated rate of increase in revenues. R&D
expenses consist primarily of salaries and other related expenses of the
research and development personnel as well as costs associated with regulatory
expenses. The increase in R&D expenses in 2004 was primarily related to
increased legal costs related to patents. The Company anticipates that R&D
expenses will continue at approximately the current level for the foreseeable
future. Selling ("Selling") expenses consist primarily of salaries, commissions
and other related expenses for sales and marketing personnel, marketing,
advertising and promotional expenses. The Company anticipates that Selling
expenses are likely to increase in the foreseeable future but at a rate less
than the anticipated rate of increase in revenues. The increase in operating
expenses in 2003 from 2002 was primarily attributable to increased G&A and
Selling expenses. The increase in G&A expenses in 2003 was primarily
attributable to increased insurance costs, compensation and other taxes. The
increase in Selling expenses in 2003 was primarily related to increased
compensation costs and travel related expenses.
The Company's operating income for 2004 was $8.6 million, compared with $6.9
million in 2003 and $5.8 million in 2002. The previously mentioned increase in
gross profit along with cost containment and cost reduction activities were the
major contributors to the operating income improvements in 2004. Revenue growth,
manufacturing efficiency improvements, cost containment and cost reduction
activities were the major contributors to the operating income improvements in
2003.
Interest expense was $93,000 in 2004 compared to $195,000 in 2003 and $432,000
in 2002. The decrease in 2004 was primarily related to lower average borrowings
during 2004 as compared with 2003. The decrease in 2003 was primarily related to
lower average borrowings during 2003 as compared with 2002. The Company's other
income for 2004 was primarily related to the sale of non-operational assets.
14
Income tax expense in 2004 totaled $2.3 million, compared with $1.9 million in
2003 and $1.4 million in 2002. The effective tax rates for 2004, 2003 and 2002
were 26.6 percent, 27.8 percent and 25.7 percent, respectively. Benefits from
tax incentives for exports and R&D expenditures totaled $516,000 in 2004,
$350,000 in 2003 and $408,000 in 2002. The lower effective tax rate in 2004 is
primarily a result of benefits from tax incentives for exports and R&D
expenditures being a larger percentage of taxable income in 2004 than in 2003.
The higher effective tax rate in 2003 is primarily a result of benefits from tax
incentives for exports and R&D expenditures being a lesser percentage of taxable
income in 2003 than in 2002.
The Company believes that 2005 revenues will be higher than 2004 revenues and
that the cost of goods sold, gross profit, operating income and income from
continuing operations will each be higher in 2005 than in 2004. In 2005, the
Company further believes that it will have continuing volume growth in most of
its product lines, complemented by the introduction of new products, and that it
will achieve continued growth in operating income.
Discontinued Operations
During 1997, the Company sold all of its natural gas operations. The financial
statements presented herein reflect the Company's natural gas operations as
discontinued operations for all periods presented. The financial statements also
reflect an after-tax gain on disposal of these discontinued operations of $0.2
million, or $.10 per basic and $.09 per diluted share, in each of 2004, 2003 and
2002.
In addition to the initial consideration received in 1997 upon the sale of the
natural gas operations, certain annual contingent deferred payments of up to
$250,000 per year were to be paid to the Company over an eight-year period which
began in 1999, with the amount paid each year to be dependent upon revenues
received by the purchaser from certain gas transportation contracts. The Company
received deferred payments of $250,000 each, before tax, from the purchaser in
April 2004, 2003 and 2002 which are reflected in each year as a gain from
discontinued operations of $165,000, net of tax.
Liquidity and Capital Resources
The Company has a $25 million revolving credit facility (the "Credit Facility")
with a money center bank to be utilized for the funding of operations and for
major capital projects or acquisitions subject to certain limitations and
restrictions (see Note 4 of Notes to Consolidated Financial Statements).
Borrowings under the Credit Facility bear interest that is payable monthly at
30-day, 60-day or 90-day LIBOR, as selected by the Company, plus 1 percent. At
December 31, 2004, the Company had outstanding borrowings of $2.9 million under
the Credit Facility. At December 31, 2004, the Company was in compliance with
all financial covenants. The Credit Facility, which expires November 12, 2006,
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.
As of December 31, 2004, the Company had cash and cash equivalents of $255,000,
compared with $298,000 at December 31, 2003. The Company had an outstanding
balance under the Credit Facility as of December 31, 2004, of $2.9 million
compared with $4.3 million as of December 31, 2003. The $1.4 million decrease in
15
the Credit Facility balance in 2004 from 2003 was primarily attributable to the
Company's use of cash flows from operating activities to reduce its borrowing
level offset by borrowings to make a deposit required in connection with a
proposed purchase of a parcel of land and to purchase property and equipment.
Cash provided by operating activities decreased to $11.2 million in 2004,
compared to $12.9 million in 2003 and $10.0 million in 2002. Cash provided by
operating activities consists primarily of net income adjusted for certain
non-cash items and changes in working capital items. Non-cash items include
depreciation and amortization and deferred income taxes. Working capital items
consist primarily of accounts receivable, accounts payable, inventories and
other current assets and other current liabilities. The $1.7 million increase in
working capital during 2004 was primarily related to increases in accounts
receivable and inventories offset by increases in current liabilities. The
increase in accounts receivable during 2004 was primarily related to the
increase in revenues for the fourth quarter of 2004 as compared to the fourth
quarter of 2003 and the return of accounts receivable balances to normal,
expected levels. Accounts receivable at December 31, 2003 was lower than
expected primarily as a result of certain customers paying their accounts
receivable earlier than historical norms. The increase in inventories was
primarily attributable to increased stocking levels necessary to improve
customer service and support increased revenues. Additionally, the Company
increased its inventories during 2004 to mitigate future raw material price
increases and take advantage of volume discounts. The increase in current
liabilities was primarily related to standard accruals made in the normal course
of operations and accruals for income and other taxes. Capital expenditures for
property, plant and equipment totaled $5.6 million in 2004, compared with $4.2
million in 2003 and $3.3 million in 2002. The Company expects capital
expenditures in 2005 to increase above 2004 levels. In 2004, the Company made a
$3.8 million deposit required in connection with a proposed land purchase. In
early 2005, the Company entered into an agreement to purchase that property. The
Company anticipates spending an additional $12 million to $14 million for the
construction of a new facility for Halkey-Roberts at this site. The Company is
planning to complete the construction of this new facility and move the
Halkey-Roberts operation into the new facility during 2006 (See Note 12).
During 2004, the Company expended $840,000 for the purchase of the Company's
common stock. During 2003, the Company expended $4.9 million for the purchase of
the Company's common stock. Included in this amount was $4.1 million used in
April 2003 for the completion of a tender offer in which a total of 173,614
shares of common stock were repurchased at a price of $23.00 per share.
The Company received net proceeds of $414,000 from the exercise of employee
stock options during 2004.
In September 2003, the Company announced that its Board of Directors had
approved a policy for the payment of regular quarterly cash dividends on the
Company's common stock. During 2004 the Company paid dividends totaling $891,000
to its stockholders.
16
The table below summarizes debt, lease and other contractual obligations
outstanding at December 31, 2004:
Payments due by period
--------------------------------------------------------------------------
2010 and
Contractual Obligations Total 2005 2006 - 2007 2008 - 2009 thereafter
--------------------------------------------------------------------------
(In thousands)
Credit Facility $ 2,936 -- $ 285 $ 2,651 --
Operating Leases $ 588 $ 422 $ 166 -- --
Purchase Obligations
$ 6,515 $ 6,238 $ 277 -- --
--------------------------------------------------------------------------
Total $ 10,039 $ 6,660 $ 728 $ 2,651 --
==========================================================================
The payment schedule for the Credit Facility assumes at maturity, November 2006,
the Company will convert this outstanding debt to a two-year term note as
permitted by the terms of the agreement. The payment schedule for the operating
lease assumes the lease expires in May 2006 (see Note 12 of Notes to
Consolidated Financial Statements).
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 non-cash,
after-tax charge in 2002. This charge had no effect on the Company's cash
position or the balance of its outstanding indebtedness, and it did not have any
impact on earnings from continuing operations in 2002.
The Company believes that its existing cash and cash equivalents, cash flows
from operations and 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 at least the foreseeable future.
Companies sometimes establish legal entities for a specific business transaction
or activity in the form of a Variable Interest Entity ("VIE"). VIEs may be used
to facilitate off-balance sheet financing, acquire financial assets, raise cash
from owned assets and similar transactions. The Company has no VIEs, no
off-balance sheet financing arrangements and no derivative financial
instruments.
Impact of Inflation
The Company experiences the effects of inflation primarily in the prices it pays
for labor, materials and services. Over the last three years, the Company has
experienced the effects of moderate inflation in these costs. At times, the
Company has been able to offset a portion of these increased costs by increasing
the sales prices of its products. However, competitive pressures have not
allowed for full recovery of these cost increases.
17
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued a revision of
FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123R"). In addition to SFAS No. 123R the FASB issued SFAS No. 151, "Inventory
Costs," which amends Accounting Review Bulletin 43, Chapter 4, "Inventory
Pricing." The impact to the Company for these items is described in Note 1 of
Notes to the Consolidated Financial Statements.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of
operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. In the preparation of these financial
statements, the Company makes estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. The Company believes the following
discussion addresses the Company's most critical accounting policies and
estimates, which are those that are most important to the portrayal of the
Company's financial condition and results and require management's most
difficult, subjective and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Actual
results could differ significantly from those estimates under different
assumptions and conditions.
During 2004, the Company accrued for legal costs associated with certain
litigation. The Company believes these accruals are adequate to cover the legal
fees and expenses associated with litigating these matters. However, the time
and cost required to litigate these matters as well as the outcomes of the
proceedings may vary from what the Company has projected.
The Company assesses the impairment of its long-lived identifiable assets,
excluding goodwill which is tested for impairment pursuant to SFAS No. 142 as
explained below, whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. This review is based upon projections of
anticipated future cash flows. While the Company believes that its estimates of
future cash flows are reasonable, different assumptions regarding such cash
flows or future changes in the Company's business plan could materially affect
its evaluations. No such changes are anticipated at this time.
The Company assesses goodwill for impairment pursuant to SFAS No. 142 which
requires that goodwill be assessed whenever events or changes in circumstances
indicate that the carrying value may not be recoverable, or, at a minimum, on an
annual basis by applying a fair value test.
Forward-looking Statements
The statements in this Management's Discussion and Analysis and elsewhere in
this annual report on Form 10-K 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
18
regarded as a representation by the Company that the objectives or plans of the
Company will be achieved. Such statements include, but are not limited to, the
Company's expectations regarding future revenues, cost of goods sold, gross
profit, operating income, income from continuing operations, cash flows from
operations, growth in product lines, and availability of equity and debt
financing. Words such as "anticipates," "believes," "intends," "expects,"
"should" 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
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
- --------------
The Company has a $25.0 million credit facility with a money center bank.
Borrowings under the Credit Facility bear interest at 30-day, 60-day or 90-day
LIBOR, as selected by the Company, plus one percent. The Company is subject to
interest rate risk based on an adverse change in the 30-day, 60-day or the
90-day LIBOR. At December 31, 2004, the Company had borrowings under the Credit
Facility of $2.9 million. A 1 percent increase in the market interest rate would
reduce the Company's annual pretax income by approximately $29,000 at the
current borrowing level.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Atrion Corporation:
We have audited the accompanying consolidated balance sheets of Atrion
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2004
and 2003, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Atrion Corporation
and Subsidiaries as of December 31, 2004 and 2003, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Dallas, Texas
February 18, 2005
20
CONSOLIDATED STATEMENTS OF INCOME
(For the year ended December 31, 2004, 2003 and 2002)
- --------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
(In thousands, except per share
amounts)
Revenues $ 66,081 $ 62,803 $ 59,533
Cost of Goods Sold 40,804 40,564 39,236
- --------------------------------------------------------------------------------
Gross Profit 25,277 22,239 20,297
- --------------------------------------------------------------------------------
Operating Expenses:
Selling 5,676 5,594 5,343
General and administrative 8,631 7,576 6,992
Research and development 2,374 2,146 2,180
- --------------------------------------------------------------------------------
16,681 15,316 14,515
- --------------------------------------------------------------------------------
Operating Income 8,596 6,923 5,782
Interest Income 45 69 78
Interest Expense (93) (195) (432)
Other Income (Expense), net 46 (26) 40
- --------------------------------------------------------------------------------
Income from Continuing Operations before
Provision for Income Taxes 8,594 6,771 5,468
Income Tax Provision (2,289) (1,879) (1,403)
- --------------------------------------------------------------------------------
Income from Continuing Operations 6,305 4,892 4,065
Gain on Disposal of Discontinued Operations,
net of tax 165 165 165
Cumulative Effect of Accounting Change, net
of tax -- -- (1,641)
- --------------------------------------------------------------------------------
Net Income $ 6,470 $ 5,057 $ 2,589
================================================================================
Income Per Basic Share:
Continuing operations $ 3.68 $ 2.86 $ 2.37
Discontinued operations .10 .10 .10
Cumulative effect of accounting change -- -- (.96)
- --------------------------------------------------------------------------------
Net Income Per Basic Share $ 3.78 $ 2.96 $ 1.51
================================================================================
Weighted Average Basic Shares Outstanding 1,711 1,711 1,711
================================================================================
Income Per Diluted Share:
Continuing operations $ 3.41 $ 2.66 $ 2.18
Discontinued operations .09 .09 .09
Cumulative effect of accounting change -- -- (.88)
- --------------------------------------------------------------------------------
Net Income Per Diluted Share $ 3.50 $ 2.75 $ 1.39
================================================================================
Weighted Average Diluted Shares Outstanding 1,850 1,839 1,863
================================================================================
The accompanying notes are an integral part of these statements.
21
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2003
- --------------------------------------------------------------------------------
Assets: 2004 2003
- --------------------------------------------------------------------------------
(In thousands)
Current Assets:
Cash and cash equivalents $ 255 $ 298
Accounts receivable, net of allowance for doubtful
accounts of $118 and $103 in 2004 and 2003,
respectively 7,588 6,226
Inventories 14,013 11,314
Prepaid expenses 1,028 1,894
Land deposit 3,750 --
Deferred income taxes 1,039 760
- --------------------------------------------------------------------------------
27,673 20,492
- --------------------------------------------------------------------------------
Property, Plant and Equipment 50,402 45,767
Less accumulated depreciation and amortization 25,071 21,578
- --------------------------------------------------------------------------------
25,331 24,189
- --------------------------------------------------------------------------------
Other Assets and Deferred Charges:
Patents, net of accumulated amortization of $7,535 and
$7,151 in 2004 and 2003, respectively 1,714 2,099
Goodwill 9,730 9,730
Other 2,960 3,540
- --------------------------------------------------------------------------------
14,404 15,369
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$ 67,408 $ 60,050
================================================================================
The accompanying notes are an integral part of these statements.
22
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2003
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity: 2004 2003
- --------------------------------------------------------------------------------
(In thousands)
Current Liabilities:
Accounts payable $ 3,788 $ 2,778
Accrued liabilities 3,358 3,260
Accrued income and other taxes 1,321 651
- --------------------------------------------------------------------------------
8,467 6,689
- --------------------------------------------------------------------------------
Line of Credit 2,936 4,287
- --------------------------------------------------------------------------------
Other Liabilities and Deferred Credits:
Deferred income taxes 4,263 3,496
Other 1,139 974
- --------------------------------------------------------------------------------
5,402 4,470
- --------------------------------------------------------------------------------
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, par value $.10 per share, authorized
10,000 shares, issued 3,420 shares 342 342
Additional paid-in capital 10,013 9,673
Retained earnings 74,479 68,900
Treasury shares, 1,701 shares in 2004 and 1,720 shares
in 2003, at cost (34,231) (34,311)
- --------------------------------------------------------------------------------
50,603 44,604
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$ 67,408 $ 60,050
================================================================================
The accompanying notes are an integral part of these statements.
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the year ended December 31, 2004, 2003 and 2002)
- --------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 6,470 $ 5,057 $ 2,589
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change,
net of tax -- -- 1,641
Gain on disposal of discontinued
operations (165) (165) (165)
Depreciation and amortization 4,792 4,746 4,384
Deferred income taxes 487 1,639 366
Tax benefit related to stock plans 90 515 82
Other 20 34 127
- --------------------------------------------------------------------------------
11,694 11,826 9,024
Changes in operating assets and
liabilities:
Accounts receivable (1,362) 495 838
Inventories (2,698) (1,003) 803
Prepaid expenses 866 379 (810)
Other non-current assets 580 8 (240)
Accounts payable and accrued liabilities 1,109 1,008 (307)
Accrued income and other taxes 670 (208) 750
Other non-current liabilities 165 199 (190)
- --------------------------------------------------------------------------------
Net cash provided by continuing operations 11,024 12,704 9,868
Net cash provided by discontinued
operations 165 165 165
- --------------------------------------------------------------------------------
11,189 12,869 10,033
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Property, plant and equipment additions (5,570) (4,215) (3,279)
Deposit on land purchase (3,750) -- --
- --------------------------------------------------------------------------------
(9,320) (4,215) (3,279)
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in line of credit (1,351) (6,050) (6,788)
Issuance of treasury stock 414 2,656 409
Purchase of treasury stock (84) (4,909) (564)
Dividends paid (891) (406) --
- --------------------------------------------------------------------------------
(1,912) (8,709) (6,943)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents (43) (55) (189)
Cash and cash equivalents, beginning of year 298 353 542
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 255 $ 298 $ 353
================================================================================
Cash paid for:
Interest $ 96 $ 207 $ 418
Income taxes (net of refunds) 716 554 (340)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
24
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(For the year ended December 31, 2004, 2003 and 2002)
(In thousands)
- -----------------------------------------------------------------------------------------------------
Common Stock Treasury Stock
- --------------------------------------------------------------------- Additional
Shares Paid-in Retained
Outstanding Amount Shares Amount Capital Earnings Total
- -----------------------------------------------------------------------------------------------------
Balance, January 1, 2002 1,688 $ 342 1,732 $(30,818) $ 7,991 $61,660 $39,175
Net income 2,589 2,589
Tax benefit from exercise
of stock options 82 82
Exercise of stock options 53 (53) 443 149 592
Shares surrendered in
option exercises (9) 9 (183) (183)
Purchase of treasury
stock (26) 26 (564) (564)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2002 1,706 342 1,714 (31,122) 8,222 64,249 41,691
Net income 5,057 5,057
Tax benefit from exercise
of stock options 515 515
Exercise of stock options 187 (187) 1,720 936 2,656
Purchase of treasury
stock (193) 193 (4,909) (4,909)
Dividends (406) (406)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2003 1,700 342 1,720 (34,311) 9,673 68,900 44,604
Net income 6,470 6,470
Tax benefit from exercise
of stock options 90 90
Exercise of stock options 21 (21) 164 250 414
Purchase of treasury
stock (2) 2 (84) (84)
Dividends (891) (891)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2004 1,719 $ 342 1,701 $(34,231) $10,013 $74,479 $50,603
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
25
Atrion Corporation
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Atrion Corporation designs, develops, manufactures, sells and distributes
products primarily for the medical and health care industry. The Company
markets its products throughout the United States and internationally. The
Company's customers include hospitals, distributors, and other
manufacturers. As of December 31, 2004, the principal subsidiaries of the
Company through which it conducted its operations were Atrion Medical
Products, Inc. ("Atrion Medical Products"), Halkey-Roberts Corporation
("Halkey-Roberts") and Quest Medical, Inc. ("Quest Medical").
Principles of Consolidation
The consolidated financial statements include the accounts of Atrion
Corporation and its subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term nature of
these items. The carrying amount of debt approximates fair value as the
interest rate is tied to market rates.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the dates of the financial statements and the reported
amount of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Financial Presentation
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
Cash and Cash Equivalents
Cash equivalents are securities with original maturities of 90 days or
less.
Trade Receivables
Trade accounts receivable are recorded at the original sales price to the
customer. The Company maintains an allowance for doubtful accounts to
reflect estimated losses resulting from the inability of customers to make
required payments. On an ongoing basis, the collectibility of accounts
receivable is assessed based upon historical collection trends, current
economic factors and the assessment of the collectibility of specific
accounts. The Company evaluates the collectibility of specific accounts
using a combination of factors, including the age of the outstanding
balances, evaluation of customers' current and past financial condition,
recent payment history, current economic environment, and discussions with
appropriate Company personnel and with the customers directly. Accounts are
written off when it is determined the receivable will not be collected.
26
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
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):
December 31,
2004 2003
---------------------------------------------------------------------------
Raw materials $ 5,665 $ 4,705
Finished goods 4,595 3,793
Work in process 3,753 2,816
---------------------------------------------------------------------------
Total inventories $14,013 $11,314
===========================================================================
Income Taxes
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
reporting basis and the tax basis of the Company's other assets and
liabilities. These amounts are based on tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Expenditures for repairs and maintenance are charged to expense as
incurred. The following table represents a summary of property, plant and
equipment at original cost (in thousands):
December 31,
---------------- Useful
2004 2003 Lives
---------------------------------------------------------------------------
Land $ 1,506 $ 1,506 --
Buildings 9,147 8,981 30-40 yrs
Machinery and equipment 39,749 35,280 3-10 yrs
---------------------------------------------------------------------------
Total property, plant and equipment $50,402 $45,767
===========================================================================
Depreciation expense of $4,408,000, $4,442,000 and $4,080,000 was recorded
for the years ended December 31, 2004, 2003 and 2002, respectively.
Patents
Cost for patents acquired is determined at acquisition date. Patents are
amortized over the remaining lives of the individual patents, which are
three to 13 years. Patents are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable.
Goodwill
Goodwill represents the excess of cost over the fair value of tangible and
identifiable intangible net assets acquired. Through December 31, 2001,
goodwill was being amortized over 25 years. Beginning January 1, 2002,
accounting for goodwill was changed to conform to Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" as outlined in Note 2. Annual impairment testing for goodwill is
done in accordance with SFAS No. 142 using a fair value-based test.
Goodwill is also reviewed periodically for impairment whenever events or
changes in circumstances indicate a change in value may have occurred.
27
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
Revenues
The Company recognizes revenue when its products are shipped to its
customers and distributors, provided an arrangement exists, the fee is
fixed and determinable and collectibility is reasonably assured. Net sales
represent gross sales invoiced to customers, less certain related charges,
including discounts, returns and other allowances. Returns, discounts and
other allowances have been insignificant historically.
Shipping and Handling Policy
Shipping and handling fees charged to customers are reported as revenue and
all shipping and handling costs incurred related to products sold are
reported as cost of goods sold.
Research and Development Costs
Research and development costs relating to the development of new products
and improvements of existing products are expensed as incurred.
Stock-Based Compensation
At December 31, 2004, the Company had two stock-based employee compensation
plans, which are described more fully in Note 8. The Company accounts for
those plans under the recognition and measurement principles of Accounting
Principles Board ("APB") 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.
In December 2004, the Financial Accounting Standards Board issued a
revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123R"). SFAS No. 123R supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees" and requires a public entity
to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award, and
recognize that cost over the vesting period. SFAS No. 123R is effective for
the first interim or annual period beginning after June 15, 2005. The
Company will begin recognizing option expense starting July 1, 2005. Since
most of the Company's outstanding options will have vested prior to July 1,
2005, the amount of expense to be recognized for options starting in the
third quarter of 2005 is not expected to be significant.
28
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
The following table illustrates the effect on net income and income per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123R to stock-based employee compensation:
Year ended December 31,
--------------------------------------
2004 2003 2002
------------ ------------ ------------
(In thousands, except per share amounts)
Net income, as reported $ 6,470 $ 5,057 $ 2,589
Deduct: Total stock-based employee
compensation expense determined under
fair value-based methods for all
awards, net of tax effects (658) (526) (691)
------------ ------------ ------------
Pro forma net income $ 5,812 $ 4,531 $ 1,898
============ ============ ============
Income per share:
Basic - as reported $ 3.78 $ 2.96 $ 1.51
============ ============ ============
Basic - pro forma $ 3.40 $ 2.65 $ 1.11
============ ============ ============
Diluted - as reported $ 3.50 $ 2.75 $ 1.39
============ ============ ============
Diluted - pro forma $ 3.14 $ 2.46 $ 1.02
============ ============ ============
New Accounting Pronouncements
In addition to SFAS No. 123R more fully discussed above, the FASB issued
SFAS No. 151, "Inventory Costs," which amends Accounting Research Bulletin
43, Chapter 4, "Inventory Pricing," to clarify that abnormal amounts of
idle facility expense, freight, handling costs and spoilage should be
recognized as current period expenses. Also, the Statement requires fixed
overhead costs to be allocated to inventory based on normal production
capacity. SFAS No. 151 is effective for inventory costs incurred in fiscal
years beginning after June 15, 2005. The Company does not expect a material
effect from adoption of this pronouncement.
(2) Goodwill and Intangible Assets
The Company adopted SFAS No. 142 effective January 1, 2002, and has
identified three reporting units where goodwill was recorded for purposes
of testing goodwill impairment: (1) Atrion Medical Products (2)
Halkey-Roberts and (3) Quest Medical. In connection with its adoption of
SFAS No. 142, the Company conducted an impairment analysis that revealed
that the Quest Medical reporting unit was impaired, resulting in a
write-down of goodwill in the first quarter of 2002 of $1.6 million, net of
an income tax benefit of $845,000. The charge reflected a $2.5 million
reduction in the goodwill resulting from the acquisition of Quest Medical
in February 1998. The remaining goodwill for the Company totaled $9.7
million at December 31, 2004.
29
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
Intangible assets consist of the following (dollars in thousands):
December 31, 2004 December 31, 2003
------------------------------------------ ---------------------------
Average Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
------------------------------------------ ---------------------------
Amortizable intangible assets:
Patents 12.85 $ 9,250 $ 7,535 $ 9,250 $ 7,151
Intangible assets not subject to
amortization:
Goodwill $ 9,730 -- $ 9,730 --
Aggregate amortization expense for patents was $384,000 for 2004 and
$304,000 for each of 2003 and 2002.
Estimated future amortization expense for each of the years set below
ending December 31, is as follows (in thousands):
2005 $ 205
2006 $ 155
2007 $ 144
2008 $ 144
There was no change in the carrying amounts of goodwill for 2004 or 2003.
(3) Discontinued Operations
During 1997, the Company sold all of its natural gas operations. The
consolidated financial statements presented herein reflect the Company's
natural gas operations as discontinued operations for all periods
presented. The consolidated financial statements reflect a gain on disposal
of these discontinued operations of $165,000 in each of 2004, 2003 and
2002. These amounts are net of income tax expense of $85,000 in each of the
three years.
In addition to the initial consideration received in 1997 upon the sale of
the natural gas operations, certain annual contingent deferred payments of
up to $250,000 per year were to be paid to the Company over an eight-year
period which began in 1999, with the amount paid each year to be dependent
upon revenues received by the purchaser from certain gas transportation
contracts. The Company received deferred payments of $250,000 each, before
tax, from the purchaser in April 2004, 2003 and 2002 which are reflected in
each year as a gain from discontinued operations of $165,000, net of tax.
(4) Line of Credit
The Company has a revolving credit facility ("Credit Facility") with a
money center bank. Under the Credit Facility, the Company and certain of
its subsidiaries have a line of credit of $25 million which is secured by
substantially all inventories, equipment and accounts receivable of the
Company. Interest under the Credit Facility is assessed at 30-day, 60-day
30
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
or 90-day LIBOR, as selected by the Company, plus one percent (3.38 percent
at December 31, 2004) and is payable monthly. At December 31, 2004 and
2003, $2.9 million and $4.3 million, respectively, was outstanding under
the line of credit. The Credit Facility expires November 12, 2006 and may
be extended under certain circumstances. At any time during the term, the
Company may convert any or all outstanding amounts under the Credit
Facility to a term loan with a maturity of two years. The Company's ability
to borrow funds under the Credit Facility 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 December 31, 2004, the Company was in
compliance with all financial covenants.
(5) Income Taxes
The items comprising income tax expense for continuing operations are as
follows (in thousands):
Year ended December 31,
---------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
Current -- Federal $ 1,807 $ 914 $ 1,081
-- State 91 32 (44)
- --------------------------------------------------------------------------------
1,898 946 1,037
- --------------------------------------------------------------------------------
Deferred -- Federal 380 912 327
-- State 11 21 39
- --------------------------------------------------------------------------------
391 933 366
- --------------------------------------------------------------------------------
Total income tax expense $ 2,289 $ 1,879 $ 1,403
================================================================================
31
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
Temporary differences and carryforwards which have given rise to deferred
income tax assets and liabilities as of December 31, 2004 and 2003 are as
follows (in thousands):
2004 2003
-----------------------------
Deferred tax assets:
Patents and goodwill $ 187 $ 654
Benefit plans 517 492
Inventories 413 374
Other 443 208
-----------------------------
Total deferred tax assets $ 1,560 $ 1,728
=============================
Deferred tax liabilities:
Property, plant and equipment $ 4,222 $ 3,838
Pensions 562 626
-----------------------------
Total deferred tax liabilities $ 4,784 $ 4,464
=============================
Net deferred tax liability $ 3,224 $ 2,736
=============================
Balance Sheet classification:
Non-current deferred income tax liability $ 4,263 $ 3,496
Current deferred income tax asset 1,039 760
-----------------------------
Net deferred tax liability $ 3,224 $ 2,736
=============================
Total income tax expense for continuing operations differs from the amount
that would be provided by applying the statutory federal income tax rate to
pretax earnings as illustrated below (in thousands):
Year ended December 31,
---------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
Income tax expense at the statutory
federal income tax rate $ 2,922 $ 2,298 $ 1,858
Increase (decrease) resulting from:
State income taxes 67 34 80
R&D credit (75) (100) (164)
Foreign sales benefit (441) (250) (244)
Other, net (184) (103) (127)
- --------------------------------------------------------------------------------
Total income tax expense $ 2,289 $ 1,879 $ 1,403
================================================================================
(6) Stockholders' Equity
The Board of Directors of the Company has at various times authorized
repurchases of Company stock in open-market or negotiated transactions at
such times and at such prices as management may from time to time decide.
The Company has effected a number of open-market or negotiated transactions
to purchase its stock during the past three years. These repurchases
totaled 1,900, 20,200 and 26,000 shares during the years 2004, 2003 and
2002, respectively, at per share prices ranging from $20.51 to $44.16. As
32
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
of December 31, 2004, authorization for the repurchase of 92,100 additional
shares remained. The Company purchased 173,614 shares of its common stock
at $23.00 per share in April 2003 pursuant to a tender offer. All shares
purchased in the tender offer and in the open-market or negotiated
transactions became treasury shares upon repurchase by the Company.
In September 2003, the Company announced that it had adopted a policy for
the payment of regular quarterly cash dividends on the Company's common
stock. The Company began paying a quarterly cash dividend of $.12 per
common share starting in September of 2003. The quarterly dividend was
increased to $.14 per common share in September of 2004.
(7) Income Per Share
The following is the computation for basic and diluted income per share
from continuing operations:
Year ended December 31,
---------------------------------------
2004 2003 2002
---------------------------------------
(In thousands, except per share amounts)
Income from continuing operations $ 6,305 $ 4,892 $ 4,065
- --------------------------------------------------------------------------------
Weighted average basic shares
outstanding 1,711 1,711 1,711
Add: Effect of dilutive securities
(options) 139 128 152
- --------------------------------------------------------------------------------
Weighted average diluted shares
outstanding 1,850 1,839 1,863
================================================================================
Income per share from continuing
operations:
Basic $ 3.68 $ 2.86 $ 2.37
Diluted $ 3.41 $ 2.66 $ 2.18
================================================================================
For the years ended December 31, 2004, 2003 and 2002, options to purchase
approximately 26,000, 25,250 and 40,625 shares of common stock,
respectively, were not included in the computation of diluted income per
share because their effect would have been antidilutive.
(8) Stock Option Plans
The Company's 1997 Stock Incentive Plan provides for the grant to key
employees of incentive and nonqualified stock options, stock appreciation
rights, restricted stock and performance shares. In addition, under the
1997 Stock Incentive Plan, outside directors (directors who are not
employees of the Company or any subsidiary) receive automatic annual grants
of nonqualified stock options to purchase 2,000 shares of common stock.
Under the 1997 Stock Incentive Plan, 624,425 shares, in the aggregate, of
common stock were reserved for grants. The purchase price of shares issued
on the exercise of incentive options must be at least equal to the fair
market value of such shares on the date of grant. The purchase price for
shares issued on the exercise of nonqualified options and restricted and
performance shares is fixed by the Compensation Committee of the Board of
Directors. The options granted become exercisable as determined by the
Compensation Committee and expire no later than 10 years after the date of
grant.
33
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
During 1998, the Company's stockholders approved the adoption of the
Company's 1998 Outside Directors Stock Option Plan which, as amended,
provided for the automatic grant on February 1, 1998 and February 1, 1999
of nonqualified stock options to the Company's outside directors. Although
no additional options may be granted under the 1998 Outside Directors Stock
Option Plan, all outstanding options under this plan continue to be
governed by the terms and conditions of the plan and the existing option
agreements for those grants.
Option transactions for the three years in the period ended December 31,
2004 are as follows:
Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Options outstanding at January 1, 2002 324,850 $11.62
Granted in 2002 201,500 $21.05
Expired in 2002 (5,500) $ 8.34
Exercised in 2002 (53,500) $11.06
- --------------------------------------------------------------------------------
Options outstanding at December 31, 2002 467,350 $15.82
Granted in 2003 12,000 $29.30
Expired in 2003 (4,550) $20.18
Exercised in 2003 (187,200) $14.19
- --------------------------------------------------------------------------------
Options outstanding at December 31, 2003 287,600 $17.38
Granted in 2004 62,000 $44.39
Exercised in 2004 (21,100) $19.63
- --------------------------------------------------------------------------------
Options outstanding at December 31, 2004 328,500 $22.33
================================================================================
Exercisable options at December 31, 2002 261,100 $13.81
Exercisable options at December 31, 2003 217,000 $15.41
Exercisable options at December 31, 2004 287,250 $22.32
================================================================================
As of December 31, 2004, there remained 12,534 shares for which options may
be granted in the future under the 1997 Stock Incentive Plan. The following
table summarizes information about stock options outstanding at December
31, 2004:
Options Outstanding Options Exercisable
----------------------------------------- ---------------------------
Range of exercise prices Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
outstanding life price exercisable price
- ------------------------------- ---------------------------------------- --------------------------
$6.875-$14.063 130,800 4.4 years $11.44 109,300 $10.93
$14.875-$22.50 85,000 3.2 years $18.28 85,000 $18.28
$26.13-$31.39 50,700 4.2 years $30.23 30,950 $29.49
$43.75-$44.58 62,000 5.0 years $44.39 62,000 $44.39
328,500 287,250
34
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
Pro forma information regarding net income and income per share as required
by SFAS No. 123 has been determined as if the Company had accounted for its
stock options under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for
2004, 2003 and 2002:
2004 2003 2002
- --------------------------------------------------------------------------------
Risk-free interest rate 2.1% 3.2% 2.7%
Dividend yield 1.1% 0.0% 0.0%
Volatility factor 47.7% 39.1% 50.3%
Expected life 2.8 years 7 years 2.7 years
================================================================================
The resulting estimated weighted average fair values of the options granted
in 2004, 2003 and 2002 were $13.45, $13.51 and $7.25, respectively.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including expected stock price
volatility. The option grants in 2003 and 2002 occurred prior to the
declaration of dividends by the Company.
(9) Revenues From Major Customers
The Company had one major customer which represented approximately $9.6
million (14.5 percent), $9.1 million (14.4 percent) and $7.4 million (12.4
percent) of the Company's operating revenues during the years 2004, 2003
and 2002, respectively.
(10) Industry Segment and Geographic Information
The Company operates in one reportable industry segment: designing,
developing, manufacturing, selling and distributing products for the
medical and health care industry and has no foreign operating subsidiaries.
The Company's product lines include pressure relief valves and inflation
systems, which are sold primarily to the aviation and marine industries.
Due to the similarities in product technologies and manufacturing
processes, these products are managed as part of the medical products
segment. The Company recorded incidental revenues from its oxygen pipeline,
which totaled approximately $950,000 in each of the years of 2004, 2003 and
2002. Pipeline net assets totaled $2.6 million at December 31, 2004 and
2003. Company revenues from sales to parties outside the United States
totaled approximately 30 percent, 26 percent and 25 percent of the
Company's total revenues in 2004, 2003 and 2002, respectively. No Company
assets are located outside the United States. A summary of revenues by
35
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
geographic territory for the three years 2004, 2003 and 2002 is as follows
(in thousands):
Year ended December 31,
---------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
United States $ 46,375 $ 46,721 $ 44,454
Canada 9,113 8,620 6,938
United Kingdom 1,883 1,547 1,693
Japan 1,739 902 865
Other 6,971 5,013 5,583
- --------------------------------------------------------------------------------
Total $ 66,081 $ 62,803 $ 59,533
================================================================================
(11) Employee Retirement and Benefit Plans
A noncontributory defined benefit retirement plan is maintained for all
regular employees of the Company except those of Quest Medical. This plan
was amended effective January 1, 1998 to become a cash balance pension
plan. The Company's funding policy is to make the annual contributions
required by applicable regulations and recommended by its actuary. The
Company uses a December 31 measurement date for the plan.
The changes in the plan's projected benefit obligation ("PBO") as of
December 31, 2004 and 2003 are as follows (in thousands):
2004 2003
------------ ------------
Change in Benefit Obligation:
Benefit obligation, January 1 $ 4,878 $ 4,170
Service cost 241 214
Interest cost 311 298
Actuarial loss 423 529
Benefits paid (314) (333)
-----------------------------------------------------------------------
Benefit obligation, December 31 $ 5,539 $ 4,878
=======================================================================
In December 2002, the plan was amended to reduce benefit accruals for
future service by plan participants by approximately 50 percent. This
amendment caused a reduction in the PBO of approximately $616,000, and is
reflected as a reduction in pension expense over the estimated employee
service lives.
36
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
The changes in the fair value of plan assets, funded status of the plan and
the status of the prepaid pension benefit recognized, which is included in
the Company's balance sheets as of December 31, 2004 and 2003 are as
follows (in thousands):
2004 2003
------------ ------------
Change in Plan Assets:
Fair value of plan assets, January 1 $ 5,413 $ 4,383
Actual return on plan assets 562 963
Employer contributions -- 400
Benefits paid (314) (333)
------------------------------------------------------------------------
Fair value of plan assets, December 31 $ 5,661 $ 5,413
========================================================================
Funded status of plan $ 122 $ 535
Unrecognized actuarial loss 2,122 1,941
Unrecognized prior service cost (465) (502)
Unrecognized net transition obligation (44) (88)
------------------------------------------------------------------------
Net amount recognized as other assets $ 1,735 $ 1,886
========================================================================
The accumulated benefit obligation for the pension plan was $5,447,000 and
$4,801,000 at December 31, 2004 and 2003, respectively. The components of
net periodic pension cost for 2004, 2003 and 2002 were as follows (in
thousands):
Year ended December 31,
--------------------------------------
2004 2003 2002
------------ ------------ ------------
Components of Net Periodic
Pension Cost:
Service cost $ 241 $ 214 $ 320
Interest cost 311 298 307
Expected return on assets (423) (349) (405)
Prior service cost amortization (37) (37) 7
Actuarial loss 103 128 28
Transition amount amortization (44) (44) (44)
-----------------------------------------------------------------------------
Net periodic pension cost $ 151 $ 210 $ 213
=============================================================================
Actuarial assumptions used to determine benefit obligations at December 31
were as follows:
2004 2003
------------ ------------
Discount rate 6.00% 6.50%
Rate of compensation increase 5.00% 5.00%
37
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
Actuarial assumptions used to determine net periodic pension cost were as
follows:
Year ended December 31,
--------------------------------------
2004 2003 2002
------------ ------------ ------------
Discount rate 6.50% 7.00% 7.25%
Expected long-term return on assets 8.00% 8.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00%
The Company's expected long-term rate of return assumption is based upon
the plan's actual long-term investment results as well as the long-term
outlook for investment returns in the marketplace at the time the
assumption is made.
The Company's pension plan assets at December 31, 2004 and 2003 were
invested in the following asset categories:
2004 2003
------------ ------------
Asset Category:
Equity securities 74% 73%
Debt securities 25% 25%
Other 1% 2%
--------------------------------------------------------------------
Total 100% 100%
====================================================================
It is the Company's investment policy to maintain 66 percent to 79 percent
of the plan's assets in equity securities and 21 percent to 31 percent of
its assets in debt securities with the balance invested in a money market
account to meet liquidity requirements for distributions. The asset
allocation at December 31, 2004 represents the targeted asset allocation at
that time. Based upon the plan's current funded position, the Company
expects to make $200,000 in contributions to its pension plan in 2005.
The Company also sponsors a defined contribution plan for all employees.
Each participant may contribute certain amounts of eligible compensation.
The Company makes a matching contribution to the plan. The Company's
contribution under this plan was $214,000, $202,000 and $302,000 in 2004,
2003 and 2002, respectively.
(12) Commitments and Contingencies
The Company is subject to legal proceedings, third-party claims and other
contingencies related to patent infringement, product liability,
regulatory, employee and other matters that arise in the ordinary course of
business. As of December 31, 2004, the Company had accrued $1.2 million for
legal fees and expenses that it expected to incur in connection with the
litigation or arbitration of three such matters.
The Company has arrangements with its executive officers (the "Executives")
pursuant to which the termination of their employment under certain
circumstances would result in lump sum payments to the Executives.
Termination under such circumstances in 2005 could result in payments
aggregating $1.4 million, excluding any excise tax that may be reimbursable
by the Company.
38
Atrion Corporation
Notes to Consolidated Financial Statements - (Continued)
In May 1996, Halkey-Roberts began leasing the land, building and building
improvements in St. Petersburg, Florida, which serve as Halkey-Roberts'
headquarters and manufacturing facility, under a 10-year lease. The lease
provides for monthly payments, including certain lease payment escalators,
and provides for certain sublease and assignment rights. The lease also
provides the right of either the landlord or Halkey-Roberts to terminate
the lease on 12 months notice. The Company has guaranteed Halkey-Roberts'
payment and performance obligations under the lease. The lease is being
accounted for as an operating lease, and the rental expense for the years
ended December 31, 2004, 2003 and 2002 was $409,000, $396,000 and $384,000,
respectively. Future minimum rental commitments under this lease are
$422,000 and $166,000 in 2005 and 2006, respectively.
During 2004, the Company began planning for the construction of a new
facility for its Halkey-Roberts operation to be located approximately four
miles from its current facility. In 2004, the Company made a $3.75 million
deposit required in connection with a proposed purchase of ten acres of
land to be used for the construction of this new facility. In early 2005,
the Company entered into an agreement to purchase that property. The
Company anticipates spending an additional $12 million to $14 million for
the construction of a new facility for Halkey-Roberts at this site. The
Company is planning to complete the construction of this new facility and
move the Halkey-Roberts operation into the new facility during 2006.
(13) Quarterly Financial Data (Unaudited)
The following table shows selected unaudited quarterly financial data for
2004 and 2003:
Quarter Operating Operating Income
Ended Revenue Income Net Income Per Basic Share
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
03/31/04 $ 16,789 $ 1,901 $ 1,287 $ .76
06/30/04 16,417 2,064 1,608 .94
09/30/04 16,704 2,217 1,756 1.02
12/31/04 16,171 2,414 1,819 1.06
- --------------------------------------------------------------------------------
03/31/03 $ 15,721 $ 1,724 $ 1,150 $ .65
06/30/03 16,175 1,705 1,313 .77
09/30/03 16,117 1,855 1,330 .79
12/31/03 14,790 1,639 1,264 .74
- --------------------------------------------------------------------------------
The quarterly information presented above reflects, in the opinion of
management, all adjustments necessary for a fair presentation of the results for
the interim periods presented.
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
With the participation of management, the Company's Chief Executive Officer and
its Chief Financial Officer evaluated the Company's disclosure controls and
procedures as of the end of 2004. 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 included 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 that occurred in the fourth quarter of 2004 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
ITEM 9B. OTHER INFORMATION
There was no information required to be disclosed in a report on Form 8-K during
the three months ended December 31, 2004 that was not reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information for this item relating to directors of the Company is
incorporated by reference from the Company's definitive proxy statement for its
2005 annual meeting of stockholders.
Executive Officers
The information for this item relating to executive officers of the Company is
set forth on pages 9 and 10 of this report.
The information required by Item 405 of Regulation S-K is incorporated by
reference from the Company's definitive proxy statement for its 2005 annual
meeting of stockholders.
The Company has adopted a Code of Ethics and Business Conduct that applies to
all of the Company's directors, officers and employees. The Code of Ethics and
Business Conduct will be provided to any person, without charge, upon request
addressed to : Corporate Secretary, Atrion Corporation, One Allentown Parkway,
Allen, Texas 75002.
40
ITEM 11. EXECUTIVE COMPENSATION
The information for this item is incorporated by reference from the Company's
definitive proxy statement for its 2005 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The information for this item is incorporated by reference from the Company's
definitive proxy statement for its 2005 annual meeting of stockholders.
Security Ownership of Management
The information for this item is incorporated by reference from the Company's
definitive proxy statement for its 2005 annual meeting of stockholders.
Changes in Control
The Company knows of no arrangements that may at a subsequent date result in a
change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information for this item is incorporated by reference form the Company's
definitive proxy statement for its 2005 annual meeting of stockholders.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report on Form 10-K:
1. Financial Statements of the Company:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statement of Changes in Stockholders Equity
2. Financial Statement Schedules:
Schedule II - Consolidated Valuation and Qualifying Accounts
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
SCHEDULE
Board of Directors
Atrion Corporation
In connection with our audit of the consolidated financial statements of
Atrion Corporation and Subsidiaries referred to in our report dated
February 18, 2005, which is included in Part IV of this Annual Report on
Form 10-K, we have also audited Schedule II for each of the two years in
the period ended December 31, 2004. In our opinion, this schedule when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
/s/ Grant Thornton LLP
Dallas, Texas
February 18, 2004
Schedule II - Consolidated Valuation and Qualifying Accounts
Allowance for Doubtful
Receivables
December 31,
---------------------------
2004 2003
------------ ------------
Beginning balance $ 104 $ 151
Additions charged to expense 41 75
Deductions from reserve (27) (122)
--------------------------------------------------------------------------
Ending balance $ 118 $ 104
==========================================================================
All other financial statement schedules have been omitted since the
required information is included in the consolidated financial statements
or the notes thereto or is not applicable or required.
3. Exhibits. Reference as made to Item 15(b) of this report on Form 10-K.
(b) Exhibits
Exhibit
Numbers Description
- ------- -----------
2a Asset Purchase Agreement, dated March 19, 1997, between Atrion
Corporation and Midcoast Energy Resources, Inc.(1)
3a Certificate of Incorporation of Atrion Corporation, dated December
30, 1996(2)
3b Amended and Restated Bylaws of Atrion Corporation(3)
10a* Atrion Corporation 1997 Stock Incentive Plan(4)
42
10b* Form of Award Agreement for Incentive Stock Option(5)
10c* Form of Award Agreement for Nonqualified Stock Option for Key
Employee(6)
10d* Form of Award Agreement for Nonqualified Stock Option for
Director(7)
10e* Atrion Corporation 1998 Outside Directors Stock Option Plan(8)
10f* Form of Stock Option Agreement(9)
10g* Atrion Corporation Incentive Compensation Plan for Chief Executive
Officer(10)
10h* Severance Plan for Chief Financial Officer(11)
10i* Atrion Corporation Incentive Compensation Plan for Chief Financial
Officer(12)
10j* Agreement regarding the nullification of Incentive Compensation
Plan for Chief Executive Officer(13)
10k* Chief Executive Officer Employment Agreement(14)
10l* Amendment to Chief Executive Officer Employment Agreement(15)
21 Subsidiaries of Atrion Corporation as of December 31, 2004(16)
23 Consent of Grant Thornton LLP(16)
31.1 Sarbanes-Oxley Act Section 302 Certification of Chief Executive
Officer(16)
31.2 Sarbanes-Oxley Act Section 302 Certification of Chief Financial
Officer(16)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes - Oxley Act Of 2002(16)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes - Oxley Act Of 2002(16)
Notes
-----
(1) Incorporated by reference to Appendix A to the Definitive Proxy
Statement of the Company dated April 23, 1997.
(2) Incorporated by reference to Appendix B to the Definitive Proxy
Statement of the Company dated January 10, 1997.
(3) Incorporated by reference to Appendix C to the Definitive Proxy
Statement of the Company dated January 10, 1997.
(4) Incorporated by reference to Exhibit 4.4(b) to the Form S-8 of
Atrion Corporation filed June 10, 1998 (File No. 333-56509).
(5) Incorporated by reference to Exhibit 4.5 to the Form S-8 of Atrion
Corporation filed June 10, 1998 (File No. 333-56509).
(6) Incorporated by reference to Exhibit 4.6 to the Form S-8 of Atrion
Corporation filed June 10, 1998 (File No. 333-56509).
(7) Incorporated by reference to Exhibit 4.7 to the Form S-8 of Atrion
Corporation filed June 10, 1998 (File No. 333-56509).
(8) Incorporated by reference to Exhibit 4.4 to the Form S-8 of Atrion
Corporation, filed June 10, 1998 (File No. 333-56511).
(9) Incorporated by reference to Exhibit 4.5 to the Form S-8 of Atrion
Corporation, filed June 10, 1998 (File No. 333-56511).
(10) Incorporated by reference to Exhibit 10a to Form 10-Q of Atrion
Corporation dated November 15, 1999.
(11) Incorporated by reference to Exhibit 10b to Form 10-Q of Atrion
Corporation dated May 12, 2000.
(12) Incorporated by reference to Exhibit 10k to Form 10-K of Atrion
Corporation dated March 30, 2001.
43
(13) Incorporated by reference to Exhibit 10l to Form 10-K of Atrion
Corporation dated March 26, 2002.
(14) Incorporated by reference to Exhibit 10m to Form 10-K of Atrion
Corporation dated March 26, 2002.
(15) Incorporated by reference to Exhibit 10q to Form 10-K of Atrion
Corporation dated March 13, 2003.
(16) Filed herewith.
* Management Contract or Compensatory Plan or Arrangement
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Emile A. Battat
-------------------
Emile A. Battat
Chairman,
President and Chief
Executive Officer
Dated: March 18, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Emile A. Battat Chairman, President and Chief Executive March 18, 2005
- ------------------------------- Officer (Principal Executive Officer)
Emile A. Battat
/s/ Jeffery Strickland Vice President, Chief Financial Officer and March 18, 2005
- ------------------------------- Secretary-Treasurer (Principal Financial
Jeffery Strickland and Accounting Officer)
/s/ Richard O. Jacobson Director March 22, 2005
- -------------------------------
Richard O. Jacobson
Director
- -------------------------------
Hugh J. Morgan, Jr.
45
/s/ Roger F. Stebbing Director March 22, 2005
- -------------------------------
Roger F. Stebbing
/s/ John P. Stupp, Jr. Director March 22, 2005
- -------------------------------
John P. Stupp, Jr.
46