ATRION CORP - Annual Report: 2007 (Form 10-K)
SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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Form
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2007
Commission
File Number 0-10763
_______________________
Atrion
Corporation
(Exact
name of Registrant as specified in its charter)
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Delaware
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63-0821819
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(State
of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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One
Allentown Parkway,
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Allen,
Texas
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75002
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(Address
of principal executive offices)
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(ZIP
code)
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Registrant’s
telephone number, including area code: (972) 390-9800
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
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Title of
Class
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Name of Each Exchange
on Which Registered
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Common
Stock, $.10 Par Value
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NASDAQ
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SECURITIES REGISTERED UNDER SECTION
12(g) OF THE EXCHANGE ACT: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
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. ¨
Indicate
by check whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. (as defined in
Exchange Act Rule 12b-2Check one):
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Large
accelerated filer ¨
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Accelerated
filer x
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Non-accelerated
filer ¨
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Smaller
reporting company ¨
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes ¨ No x
The
aggregate market value of the voting Common Stock held by nonaffiliates of the
Registrant as of the last business day of the Registrant’s most recently
completed second fiscal quarter, June 29, 2007, was $146,036,910 based on the
last reported sales price of the common stock on the Nasdaq National Market on
such date. Shares of voting stock held by executive officers, directors and
holders of more than 10% of the outstanding voting shares have been excluded
from this calculation because such persons may be deemed to be affiliates.
Exclusion of such shares should not be construed to indicate that any of such
persons possesses the power, direct or indirect, to control the Registrant, or
that such person is controlled by or under common control of the
Registrant
Number of
shares of Common Stock outstanding at February 25, 2008: 1,960,535
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 2008 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.
FORM
10-K
ANNUAL
REPORT TO
THE
SECURITIES AND EXCHANGE COMMISSION
FOR
THE YEAR ENDED DECEMBER 31, 2007
________
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ATRION
CORPORATION
FORM
10-K
ANNUAL
REPORT TO
THE
SECURITIES AND EXCHANGE COMMISSION
FOR
THE YEAR ENDED DECEMBER 31, 2007
|
BUSINESS
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General
Atrion
Corporation (“Atrion” or the “Company”) designs, develops, manufactures, sells
and distributes products and components, primarily for the medical and
healthcare 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 small gaseous oxygen pipeline
that is incidental to the overall operations of the Company.
The
Company’s fluid delivery products accounted for 32 percent, 32 percent and 28
percent of net revenues for 2007, 2006 and 2005, respectively. The Company
develops, manufactures and markets several specialized intravenous fluid
delivery tubing sets and accessories. The intravenous fluid delivery line
includes more than 80 distinct models used for complex therapy procedures
employed in anesthesia administration, intravenous fluid therapy, critical care
and oncology 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’s swabbable luer valve allows needleless
luer connections to luer access devices in IV applications. These valves provide
an economical replacement for needle access ports in drug delivery and IV
applications and maintain a sterile, closed IV system without the need for
replacement caps. 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 cardiovascular products accounted for 27 percent, 29 percent and 27
percent of net revenues for 2007, 2006 and 2005, respectively. At the heart of
the Company’s cardiovascular products is the MPS2® Myocardial Protection System
(“MPS2”), a proprietary technology that delivers essential fluids and
medications to the heart during open-heart surgery. The MPS2 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. New features include an expanded flow range, low volume mode and
cyclic flow mode. The MPS2 is the only device used in open-heart surgery that
allows for the mixing of drugs into the bloodstream without diluting the blood.
The MPS2 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® silicone vessel loops for retracting and occluding vessels in
minimally invasive surgical procedures; inflation devices for balloon catheter
dilation, stent deployment and fluid dispensing; and Clean-Cut® rotating aortic
punch and PerfectCut® Aortotomy System, both of which are used in heart bypass
surgery to make a precision opening in the heart for attachment of the bypass
vessels.
The
Company’s ophthalmic products accounted for 20 percent, 17 percent and 20
percent of net revenues for 2007, 2006 and 2005, 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® 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 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 other medical and non-medical products accounted for 21 percent, 22
percent and 25 percent of net revenues for 2007, 2006 and 2005, respectively.
Atrion is the leading manufacturer of inflation systems and valves used in
marine and aviation safety products. The Company manufactures inflation devices,
oral inflation tubes, right angle connectors, valves, and closures for life
vests, life rafts, inflatable boats, 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, transportation
container cases, escape slides, and many other medical and non-medical
applications 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’s ACTester
product line consists of instrumentation and associated disposables used to
measure the activated clotting time of blood. The Company manufactures, sells
and distributes a line of products designed for safe needle and scalpel blade
containment. 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.
Company
revenues from sales to parties outside the United States totaled approximately
36 percent, 30 percent and 27 percent of the Company’s net revenues in 2007,
2006 and 2005, respectively. These sales are made to various manufacturers and
through distributors in over 50 countries outside the United States. Company
revenues from sales to parties in Canada totaled approximately 17 percent, 11
percent and 11 percent of the Company’s net revenues in 2007, 2006 and 2005,
respectively.
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,
routinely attends and participates in industry trade shows throughout the United
States and internationally, and sponsors scientific symposia as a means of
disseminating product information. The Company provides supportive literature on
the benefits of its products.
During
2007, 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 14 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 facilities in
Arab, Alabama, St. Petersburg, Florida and Allen, Texas. The facilities 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 ISO13485:2003 certified and are subject
to FDA jurisdiction. The Company’s non-medical device operations are
ISO9001-2000 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
projects include, but are not limited to, inflation devices for balloon catheter
dilation, stent deployment, tissue displacement and fluid dispensing; inflation
devices for orthopedic procedures; advanced contact lens disinfection systems;
product-line expansion in ophthalmology; product-line expansion for MPS2
products; products designed for safe needle and scalpel blade containment; and
the integration of needle-free technology with fluid delivery products. The
Company expects to incur additional research and development expenses in 2008
for various projects.
The
Company’s consolidated research and development expenditures for 2007, 2006 and
2005 were $2,778,000, $2,794,000, and $2,396,000, respectively.
Availability
of Raw Materials
The
principal raw materials that the Company uses in its products are polyethylene,
polypropylene and polyvinyl chloride resins. The Company’s ability to operate
profitably is dependent, in large part, on the market for these resins. As these
resins used by the Company are derived from petroleum and natural gas, prices
fluctuate substantially as a result of changes in petroleum and natural gas
prices, demand and the capacity of the companies that produce these products to
meet market needs. Instability in the world markets for petroleum and natural
gas could adversely affect the prices of the Company’s raw materials and their
general availability.
The
Company subcontracts with various suppliers to provide the quantity of component
parts necessary to assemble the Company’s 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.
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 287 active patents and patent applications pending on
products that are either being sold or are in development. The Company pays
royalties to outside parties for four patents. All of these patents and patents
pending relate to current products being sold by the Company or to products in
evaluation stages.
The
Company has developed technical knowledge which, although non-patentable, is
considered to be significant in enabling it to compete. However, 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.
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 in the sale of healthcare 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 those of 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. 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. 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 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 healthcare 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 also 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 and 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.
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 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 is in compliance with these
rules.
Certain
aviation and marine safety products are also subject to regulation by the United
States 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, healthcare 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.
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
healthcare 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.
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 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.
The
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative healthcare delivery and payment
systems. Potential approaches that have been considered include mandated basic
healthcare benefits, controls on healthcare 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 healthcare delivery system. The Company cannot
predict what impact the adoption of any federal or state healthcare 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.
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 myocardial
protection systems and the subsequent design and development of the Company’s
MPS2 and its predecessor. 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 MPS2 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.
People
At
January 31, 2008, the Company had 492 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.
Available
Information
The
Company’s website address is www.atrioncorp.com. All of the Company’s filings
with the U. S. Securities and Exchange Commission (“SEC”), including the
Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, are available free of charge through its website. Those
reports are posted to the website as soon as reasonably practicable after they
are filed with or furnished to the SEC.
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RISK
FACTORS
|
In
addition to the other information contained in this Form 10-K, the following
risk factors should be considered carefully in evaluating our business. Our
business, financial condition or results of operations could be materially
adversely affected by any of these risks. Additional risks and uncertainties
that we do not currently know about or that we currently believe are immaterial,
or that we have not predicted, may also harm our business operations or
adversely affect us.
|
|
·
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Our business is dependent on
the price and availability of resins and our ability to pass on resin
price increases to our
customers.
|
The
principal raw materials that we use in our products are polyethylene,
polypropylene and polyvinyl chloride resins. Our ability to operate profitably
is dependent, in large part, on the market for these resins. The resins used by
us are derived from petroleum and natural gas; therefore, prices fluctuate
substantially as a result of changes in petroleum and natural gas prices, demand
and the capacity of the companies that produce these products to meet market
needs. Instability in the world markets for petroleum and natural gas could
adversely affect the prices of our raw materials and their general
availability.
Our
ability to maintain profitability is heavily dependent upon our ability to pass
through to our customers the full amount of any increase in raw material costs.
If resin prices increase and we are not able to fully pass on the increases to
our customers, our results of operations and our financial condition will be
adversely affected.
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|
·
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The loss of a key supplier of
raw materials could lead to increased costs and lower profit
margins.
|
The loss
of a key supplier would force us to purchase raw materials in the open market,
which may be at higher prices, until we could secure another source and such
higher prices may not allow us to remain competitive. If we are unable to obtain
raw materials in sufficient quantities, we may not be able to manufacture our
products. Even if we were able to replace one of our raw material suppliers
through another supply arrangement, there is no assurance that the terms that we
enter into with such alternate supplier will be as favorable as the supply
arrangements that we currently have.
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·
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A substantial portion of our
customer relationships are open short-term purchase commitments and, as a
result, many of our customers may unilaterally reduce the purchase of our
products.
|
A
substantial portion of our customer relationships are based on open short-term
purchase commitments. As a result, many of our customers may unilaterally reduce
the purchase of our products or, in certain cases, terminate existing orders for
which we may have incurred significant production costs. A loss of a major
customer or a number of our smaller customers could materially adversely affect
our financial condition and results of operations.
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|
·
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Product liability claims could
adversely affect our financial condition and results of
operations.
|
We may be
subject to product liability claims involving claims of personal injury or
property damage. Our product liability insurance coverage may not be adequate to
cover the cost of defense and the potential award in the event of a claim. Also,
a well-publicized actual or perceived problem could adversely affect our
reputation and reduce the demand for our products.
|
|
·
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Our success is dependent on our
ability to develop patentable products, to preserve our trade secrets and
operate without infringing or violating the proprietary rights of third
parties.
|
Others
may challenge the validity of any patents issued to us, and we could encounter
legal and financial difficulties in enforcing our 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 our patents less valuable or obsolete. Although we do not
believe that patents are the sole determinant in the commercial success of our
products, the loss of a significant percentage of our patents or of our patents
relating to a specific major product line could have a material adverse effect
on our business, financial condition and results of operations.
We have
developed technical knowledge which, although non-patentable, we consider to be
significant in enabling us to compete. However, the proprietary nature of such
knowledge may be difficult to protect.
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 us to significant
liabilities to third parties or require us 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 us on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from
manufacturing or selling certain of our products, which could have a material
adverse effect on our business, financial condition and results of
operations.
|
|
·
|
International patent protection
is uncertain.
|
Patent
law outside the United States is uncertain and is currently undergoing review
and revision in many countries. Further, the laws of some foreign countries may
not protect our intellectual property rights to the same extent as United States
laws. We may participate in opposition proceedings to determine the validity of
our or our competitors’ foreign patents, which could result in substantial costs
and diversion of our efforts.
|
|
·
|
New lines of business or new
products and services may subject us to additional
risks.
|
From time
to time, we may implement new lines of business or offer new products and
services within existing lines of business. There are substantial risks and
uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of
business or new products and services, we may invest significant time and
resources. Initial timetables for the introduction and development of new lines
of business and new products or services may not be achieved and price and
profitability targets may not prove feasible. External factors, such as
compliance with regulations, competitive alternatives, and shifting market
preferences, may also impact the successful implementation of a new line of
business or a new product or service. Furthermore, any new line of business or
new product or service could have a significant impact on the effectiveness of
our system of internal controls. Failure to successfully manage these risks in
the development and implementation of new lines of business or new products or
services could have a material adverse effect on our business, results of
operations and financial condition.
|
|
·
|
Some of our competitors have
significantly greater resources than we do, and it may be difficult for us
to compete against them.
|
In many
of our markets, we compete with numerous other companies that have substantially
greater financial resources and engage in substantially more research and
development activities than we do. Furthermore, innovations in surgical
techniques or medical practices could have the effect of reducing or eliminating
market demand for one or more of our products.
Some of
the markets in which we compete are dominated by established manufacturers that
have broader product lines, greater distribution capabilities, substantially
larger marketing, research and development staffs and facilities than we do.
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 our 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. In
addition, our competitors may use price reductions to preserve market share in
their product markets.
|
|
·
|
We are subject to substantial
governmental regulation and our failure to comply with applicable
governmental regulations could subject us to numerous penalties, any of
which could adversely affect our
business.
|
We are
subject to numerous governmental regulations relating to, among other things,
our ability to sell our products, third-party reimbursement and Medicare and
Medicaid fraud and abuse. If we do not comply with applicable governmental
regulations, governmental authorities could do any of the
following:
|
|
·
|
impose
fines and penalties on us;
|
|
|
·
|
prevent
us from manufacturing our products;
|
|
|
·
|
bring
civil or criminal charges against
us;
|
|
|
·
|
delay
the introduction of our new products into the
market;
|
|
|
·
|
recall
or seize our products;
|
|
|
·
|
disrupt
the manufacture or distribution of our products;
or
|
|
|
·
|
withdraw
or deny approvals for our
products.
|
Any one
of these results could materially adversely affect our revenues and
profitability and harm our reputation.
|
|
·
|
We will be unable to sell our
products if we fail to comply with manufacturing
regulations.
|
To
manufacture our products commercially, we must comply with government
manufacturing regulations that govern design controls, quality systems and
documentation policies and procedures. The FDA and equivalent foreign
governmental authorities periodically inspect our manufacturing facilities and
the manufacturing facilities of our OEM medical device customers. If we or our
OEM medical device customers fail to comply with these manufacturing regulations
or fail any FDA inspections our marketing or distribution of our products may be
prevented or delayed, which would negatively impact our business.
|
|
·
|
Our products are subject to
product recalls even after receiving regulatory clearance or approval, and
any such recalls would negatively affect our financial performance and
could harm our reputation.
|
Any of
our products may be found to have significant deficiencies or defects in design
or manufacture. The FDA and similar governmental authorities in other countries
have the authority to require the recall of any such defective product. A
government-mandated or voluntary recall could occur as a result of component
failures, manufacturing errors or design defects. We do not maintain insurance
to cover losses incurred as a result of product recalls. Any product recall
would divert managerial and financial resources and negatively affect our
financial performance, and could harm our reputation with customers and
end-users.
|
|
·
|
We may not receive regulatory
approvals for new product candidates or approvals may be
delayed.
|
Regulation
by government authorities in the United States and foreign countries is a
significant factor in the development, manufacture and marketing of our proposed
products and in our ongoing research and product development activities. Any
failure to receive the regulatory approvals necessary to commercialize our
product candidates, or the subsequent withdrawal of any such approvals, would
harm our business. The process of obtaining these approvals and the subsequent
compliance with federal and state statutes and regulations require spending
substantial time and financial resources. If we fail to obtain or maintain, or
encounter delays in obtaining or maintaining, regulatory approvals, it could
adversely affect the marketing of any products we develop, our ability to
receive product revenues, and our liquidity and capital resources.
|
|
·
|
We rely on technology to
operate our business and any failure of these systems could harm our
business.
|
We rely
heavily on communications and information systems to conduct our business,
enhance customer service and increase employee productivity. Any failure,
interruption or breach in security of these systems could result in failures or
disruptions in our customer relationship management, general ledger, inventory,
manufacturing and other systems. There is no assurance that any such failures,
interruptions or security breaches will not occur or, if they do occur, that
they will be adequately addressed by our policies and procedures that are
intended to safeguard our systems. The occurrence of any failures, interruptions
or security breaches of our information systems could damage our reputation,
result in a loss of customer business, subject us to additional regulatory
scrutiny, or expose us to civil litigation and possible financial liability, any
of which could have a material adverse effect on our financial condition and
results of operations.
|
|
·
|
We sell many of our products to
healthcare providers that rely on Medicare, Medicaid and private health
insurance plans to reimburse the costs associated with the procedures
performed using our products and these third party payors may deny
reimbursement for use of our
products.
|
We are
dependent, in part, upon the ability of healthcare providers to obtain
satisfactory reimbursement from third-party payors for medical procedures in
which our 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. Failure by hospitals and other users of our products to obtain
reimbursement from third-party payors, or adverse changes in government and
private third-party payors’ policies toward reimbursement for procedures
employing our products, could have a material adverse effect on the Company’s
business, financial condition and results of operations. Major third-party
payors for medical services in the United States and other countries continue to
work to contain healthcare costs. The introduction of cost containment
incentives, combined with closer scrutiny of healthcare expenditures by both
private health insurers and employers, has resulted in increased discounts and
contractual adjustments to charges for services performed. Further
implementation of legislative or administrative reforms to the United States or
international reimbursement systems in a manner that significantly reduces
reimbursement for procedures using our products or denies coverage for such
procedures would have an adverse effect on our business, financial condition and
results of operations. Hospitals or physicians may respond to these
cost-containment pressures by substituting lower cost products or other
therapies for our products.
|
|
·
|
We may not be able to attract
and retain skilled people
|
Our
success depends, in large part, on our ability to attract and retain key people.
Competition for the best people in most activities we engage in can be intense
and we may not be able to hire people or to retain them. The unexpected loss of
services of one or more of our key personnel could have a material adverse
impact on our business because of their skills, knowledge of our market, years
of industry experience and the difficulty of promptly finding qualified
replacement personnel.
|
·
|
Severe weather, natural
disasters, acts of war or terrorism or other external events could
significantly impact our
business.
|
We
currently conduct all our development, manufacturing and management at three
locations. Severe weather, natural disasters, acts of war or terrorism and other
adverse external events at any one or more of these locations could have a
significant impact on our ability to conduct business. Our disaster recovery
policies and procedures may not be effective and the occurrence of any such
event could have a material adverse effect on our business, which, in turn,
could have a material adverse effect on our financial condition and results of
operations. The insurance we maintain may not be adequate to cover our
losses.
|
|
·
|
Our stock price can be
volatile.
|
Stock
price volatility may make it more difficult for our stockholders to sell their
common stock when they want and at prices they find attractive. Our stock price
can fluctuate significantly in response to a variety of factors including, among
other things:
|
|
·
|
actual
or anticipated variations in quarterly results of
operations;
|
|
|
·
|
recommendations
by securities analysts;
|
|
|
·
|
operating
and stock price performance of other companies that investors deem
comparable to the Company;
|
|
|
·
|
perceptions
in the marketplace regarding the Company and our
competitors;
|
|
|
·
|
new
technology used, or services offered, by
competitors;
|
|
|
·
|
trading
by funds with high-turnover practices or
strategies;
|
|
|
·
|
significant
acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving the Company or our
competitors;
|
|
|
·
|
failure
to integrate acquisitions or realize anticipated benefits from
acquisitions;
|
|
|
·
|
changes
in government regulations; and
|
|
|
·
|
geopolitical
conditions such as acts or threats of terrorism or military
conflicts.
|
General
market fluctuations, industry factors and general economic and political
conditions and events, such as economic slowdowns or recessions, interest rate
changes or credit loss trends, could also cause our stock price to decrease
regardless of operating results.
|
|
·
|
Our sales and operations are
subject to the risks of doing business
internationally
|
We are
increasing our presence in international markets, which subjects us to many
risks, such as:
|
|
·
|
economic
problems that disrupt foreign healthcare payment
systems;
|
|
|
·
|
the
imposition of governmental
controls;
|
|
|
·
|
less
favorable intellectual property or other applicable
laws;
|
|
|
·
|
the
inability to obtain any necessary foreign regulatory or pricing approvals
of products in a timely manner;
|
|
|
·
|
changes
in tax laws and tariffs; and
|
|
|
·
|
longer
payment cycles.
|
Our
operations and marketing practices are also subject to regulation and scrutiny
by the governments of the other countries in which we operate. In addition, the
Foreign Corrupt Practices Act, or FCPA, prohibits United States companies
and their representatives from offering, promising, authorizing or making
payments to foreign officials for the purpose of obtaining or retaining business
abroad. In certain countries, the healthcare professionals we regularly interact
with may meet the definition of a foreign official for purposes of the FCPA.
Additionally, we are subject to other United States laws in our
international operations. Failure to comply with domestic or foreign laws could
result in various adverse consequences, including possible delay in approval or
refusal to approve a product, recalls, seizures, withdrawal of an approved
product from the market, and/or the imposition of civil or criminal
sanctions.
A portion
of our business is conducted in currencies other than our reporting currency,
the United States dollar. We recognize foreign currency gains or losses
arising from our operations in the period in which we incur those gains or
losses. As a result, currency fluctuations among the United States dollar
and the currencies in which we do business will affect our operating results,
often in unpredictable ways.
|
|
·
|
We may experience fluctuations
in our quarterly operating
results.
|
We have
historically experienced, and may continue to experience, fluctuations in our
quarterly operating results. These fluctuations are due to a number of factors,
many of which are outside our control, and may result in volatility of our stock
price. Future operating results will depend on many factors,
including:
|
·
|
demand
for our products;
|
|
·
|
pricing
decisions, and those of our competitors, including decisions to increase
or decrease prices;
|
|
·
|
regulatory
approvals for our products;
|
|
·
|
timing
and levels of spending for research and development; sales and
marketing;
|
|
·
|
timing
and market acceptance of new product introductions by us or our
competitors;
|
|
·
|
development
or expansion of business infrastructure in new clinical and geographic
markets;
|
|
·
|
tax
rates in the jurisdictions in which we
operate;
|
|
·
|
shipping
delays or interruptions;
|
|
·
|
customer
credit holds;
|
|
·
|
timing
and recognition of certain research and development milestones and license
fees; and
|
|
·
|
ability
to control our costs;
|
|
UNRESOLVED
STAFF COMMENTS
|
None.
|
PROPERTIES
|
The
Company is headquartered in Allen, Texas, and maintains operations at that
location (108,000 square feet on 19 acres) as well as in Arab, Alabama (112,000
square feet on 67 acres), and St. Petersburg, Florida (178,000 square feet on 11
acres). Each facility houses administrative, engineering,
manufacturing, and warehousing operations. All operational facilities
are Company owned.
The
Company owns and maintains a 22-mile high-pressure steel pipeline that
transports gaseous oxygen between Decatur and Courtland, Alabama.
|
LEGAL
PROCEEDINGS
|
The
Company has no pending legal proceedings of the type described in Item 103 of
Regulation S-K.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
During
the fourth quarter of 2007, no matters were submitted to a vote of security
holders.
|
Name
|
Age
|
Title
|
|
Emile
A. Battat
|
69
|
Chairman
and Chief Executive Officer of the Company and Chairman or President of
all subsidiaries
|
|
David
A. Battat
|
38
|
President
and Chief Operating Officer of the Company and President of
Halkey-Roberts
|
|
Jeffery
Strickland
|
49
|
Vice
President and Chief Financial Officer, Secretary and Treasurer of the
Company and Vice President or Secretary-Treasurer of all
subsidiaries
|
Emile A.
Battat and Jeffery Strickland currently serve as officers of the Company and all
subsidiaries. David A. Battat currently serves as an officer of the Company and
Halkey-Roberts. 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 2008.
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 except that David A. Battat
is the son of Emile A. Battat.
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. Emile
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 Chief
Executive Officer of the Company and as Chairman or President of all
subsidiaries since October 1998. Mr. Battat also served as President of the
Company from October 1998 until May 2007.
Mr. David
Battat has been President and Chief Operating Officer of the Company since May
2007. Mr. Battat has served as President of Halkey-Roberts (a subsidiary) since
January 2006 and served from February 2005 through December 2005 as
Halkey-Roberts’ Vice President - Business Development and General Counsel. From
2002 through 2004, Mr. Battat was engaged in the private practice of
law.
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. Mr. Strickland was employed by the Company or its subsidiaries in
various other positions from September 1983 through January 1997.
|
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 Global Select Market (Symbol
ATRI). As of February 22, 2008, the Company had approximately 1,400
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
2006 and 2007 are shown below.
|
Year
Ended
December 31,
2006:
|
High
|
Low
|
||||||
|
First
Quarter
|
$ | 78.99 | $ | 66.30 | ||||
|
Second
Quarter
|
$ | 80.96 | $ | 64.31 | ||||
|
Third
Quarter
|
$ | 77.50 | $ | 67.37 | ||||
|
Fourth
Quarter
|
$ | 79.52 | $ | 75.13 | ||||
|
Year
Ended
December 31,
2007:
|
High
|
Low
|
||||||
|
First
Quarter
|
$ | 95.00 | $ | 78.31 | ||||
|
Second
Quarter
|
$ | 98.79 | $ | 89.50 | ||||
|
Third
Quarter
|
$ | 125.00 | $ | 96.30 | ||||
|
Fourth
Quarter
|
$ | 126.00 | $ | 107.65 | ||||
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
share starting in September of 2003. The quarterly dividend was
increased to $.14 per share in September of 2004, to $.17 per share in September
2005, to $.20 per share in September 2006 and to $.24 per share in September
2007. The Company paid quarterly dividends totaling $1.7 million to its
stockholders in 2007.
The
following table provides certain information about securities authorized for
issuance under the Company's equity compensation plans as of December 31,
2007:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
157,440 | $ | 34.70 | (3) | 58,524 | (1) | ||||||
|
Equity
compensation plans not approved by security holders
|
5,210 | (2) | $ | 12.25 | (3) | 2,290 | (4) | |||||
|
Total
|
162,650 | $ | 33.96 | (3) | 60,814 | |||||||
(1) Consists of
shares of the Company's common stock authorized for issuance under (i) 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 and (ii) the Company’s 2006 Equity
Incentive Plan which provides for the grant to key employees and consultants of
incentive and nonqualified stock options, restricted stock, restricted stock
units (“RSUs”), deferred stock units (“DSUs”), stock appreciation rights and
performance shares. The number of shares available for issuance under both plans
is 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.
(2) Includes
5,000 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 Global Select Market of the Company's common stock
on the grant date. Also includes 210 shares of the Company’s common stock
authorized for issuance upon settlement of DSU’s credited to non-employee
directors under the Company’s Deferred Compensation Plan for Non-Employee
Directors. The material terms of the plan are described in Note 8 to the
consolidated financial statements.
(3) The
DSUs and RSUs are excluded from the calculation of the weighted average exercise
price.
(4) Consists
of shares of the Company’s common stock authorized for issuance upon settlement
of DSUs under the Company’s Deferred Compensation Plan for Non-Employee
Directors.
The
Company has a Common Share Purchase Rights Plan, which is intended to protect
the interests of stockholders in the event of a hostile attempt to take over the
Company. The rights, which are not presently exercisable and do not
have any voting powers, represent the right of the Company’s stockholders to
purchase at a substantial discount, upon the occurrence of certain events,
shares of common stock of the Company or of an acquiring company involved in a
business combination with the Company. This plan, which was adopted
in August of 2006, expires in August of 2016.
During
the year ended December 31, 2007, the Company did not sell any equity securities
that were not registered under the Securities Act of 1933, and during the fourth
quarter of 2007 did not repurchase any of its equity
securities.
|
SELECTED
FINANCIAL DATA
|
Selected
Financial Data
(In
thousands, except per share amounts)
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Operating
Results for the Year ended December 31,
|
||||||||||||||||||||
|
Revenues
|
$ | 88,540 | $ | 81,020 | $ | 72,089 | $ | 66,081 | $ | 62,803 | ||||||||||
|
Operating
income
|
20,195 | (a) | 14,338 | 12,698 | 8,596 | 6,923 | ||||||||||||||
|
Income
from continuing operations
|
14,006 | (a) | 10,600 | 8,793 | 6,305 | 4,892 | ||||||||||||||
|
Net
income
|
14,006 | (a) | 10,765 | 8,958 | 6,470 | 5,057 | ||||||||||||||
|
Depreciation
and amortization
|
5,534 | 5,005 | 5,389 | 4,830 | 4,783 | |||||||||||||||
|
Per
Share Data:
|
||||||||||||||||||||
|
Income
from continuing
operations,
per diluted share
|
7.06 | (a) | 5.43 | 4.57 | 3.41 | 2.66 | ||||||||||||||
|
Net
income per diluted share
|
7.06 | (a) | 5.51 | 4.66 | 3.50 | 2.75 | ||||||||||||||
|
Cash
dividends per common share
|
.88 | .74 | .62 | .52 | .24 | (b) | ||||||||||||||
|
Average
diluted shares outstanding
|
1,985 | 1,953 | 1,924 | 1,850 | 1,839 | |||||||||||||||
|
Financial
Position at December 31,
|
||||||||||||||||||||
|
Total
assets
|
99,313 | 95,772 | 78,470 | 67,408 | 60,050 | |||||||||||||||
|
Long-term
debt
|
- | 11,399 | 2,529 | 2,936 | 4,287 | |||||||||||||||
|
(a)
|
Included
two special items that combined to add $1.1 million to operating
income, $695,000 to net income and $0.35 to net income per diluted
share.
|
|
(b)
|
Dividends
on outstanding shares of common stock paid in the 3rd
and 4th
quarters at $.12 per share
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
The
Company designs, develops, manufactures, sells and distributes products and
components, primarily for the medical and healthcare industry. The Company
markets components to other equipment manufacturers for incorporation in their
products and sells finished devices to physicians, hospitals, clinics and other
treatment centers. The Company’s medical products primarily serve the fluid
delivery, cardiovascular, and ophthalmology markets. The Company’s other medical
and non-medical products include instrumentation and disposables used in
dialysis, contract manufacturing and valves and inflation devices used in marine
and aviation safety products. In 2007 approximately 36 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 Company encounters competition in all of its markets and competes
primarily on the basis of product quality, price, engineering, customer service
and delivery time.
The
Company's strategy is to provide a broad selection of products in the areas of
its expertise. Research and development efforts are focused on improving current
products and developing highly-engineered products that meet customer needs and
have the potential for broad market applications and significant sales. Proposed
new products may be subject to regulatory clearance or approval prior to
commercialization and the time period for introducing a new product to the
marketplace can be unpredictable. The Company also focuses on controlling costs
by investing in modern manufacturing technologies and controlling purchasing
processes. The Company has been successful in consistently generating cash from
operations and has used that cash to reduce indebtedness, to fund capital
expenditures, to repurchase stock and, starting in 2003, to pay
dividends.
The
Company's strategic objective is to further enhance its position in its served
markets by:
|
|
·
|
Focusing
on customer needs;
|
|
|
·
|
Expanding
existing product lines and developing new
products;
|
|
|
·
|
Maintaining
a culture of controlling cost; and
|
|
|
·
|
Preserving
and fostering a collaborative, entrepreneurial management
structure.
|
For the
year ended December 31, 2007, the Company reported revenues of $88.5 million,
income from continuing operations of $14.0 million and net income of $14.0
million, up 9 percent, 32 percent and 30 percent, respectively, from
2006.
Results
of Operations
The
Company’s net income was $14.0 million, or $7.42 per basic and $7.06 per diluted
share, in 2007, compared to net income of $10.8 million, or $5.82 per basic and
$5.51 per diluted share, in 2006 and $9.0 million, or $4.99 per basic and $4.66
per diluted share, in 2005. Revenues were $88.5 million in 2007, compared with
$81.0 million in 2006 and $72.1 million in 2005. The 9 percent revenue increase
in 2007 over 2006 and the 12 percent revenue increase in 2006 over 2005 were
generally attributable to higher sales volumes.
Annual
revenues by product lines were as follows (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Fluid
Delivery
|
$ | 28,745 | $ | 25,809 | $ | 20,447 | ||||||
|
Cardiovascular
|
23,577 | 23,290 | 19,307 | |||||||||
|
Ophthalmology
|
17,614 | 13,744 | 14,514 | |||||||||
|
Other
|
18,604 | 18,177 | 17,821 | |||||||||
|
Total
|
$ | 88,540 | $ | 81,020 | $ | 72,089 | ||||||
The
Company’s cost of goods sold was $50.8 million in 2007, compared with $48.6
million in 2006 and $43.1 million in 2005. The 5 percent increase in
cost of goods sold for 2007 over 2006 and the 13 percent increase in cost of
goods sold for 2006 over 2005 were primarily related to the revenue increases
shown above.
Gross
profit in 2007 increased $5.4 million to $37.8 million, compared with $32.4
million in 2006 and $29.0 million in 2005. The Company’s gross profit was 43
percent of revenues in 2007 and 40 percent of revenues in both 2006 and 2005.
The increase in gross profit percentage in 2007 from the prior year was
primarily due to a favorable shift in product mix and improvements in
manufacturing efficiencies.
Operating
expenses were $17.6 million in 2007, compared with $18.1 million in 2006 and
$16.3 million in 2005. The decrease in operating expenses in 2007 from 2006 was
primarily related to the special item described below, partially offset by
increases in selling (“Selling”) and general and administrative (“G&A”)
expenses. In 2007, the Company recorded a $1.4 million benefit, net of expenses,
related to a dispute settlement. This benefit was reflected as a reduction in
operating expenses. Selling expenses consist primarily of salaries, commissions
and other related expenses for sales and marketing personnel, marketing,
advertising and promotional expenses. Selling expenses increased $286,000 in
2007, primarily as a result of increased outside services, promotion and
advertising expenses. G&A expenses consist primarily of salaries and other
related expenses of administrative, executive and financial personnel and
outside professional fees. In 2007, G&A expenses increased $592,000,
primarily attributable to a $329,000 charge related to the termination of
certain pension plans, increased compensation and benefit costs partially offset
by lower costs for outside services. The increase in operating expenses in 2006
from 2005 was primarily related to increased research and development
(“R&D”), Selling and G&A expenses. R&D expenses increased $398,000
in 2006, primarily due to increased legal expenses, prototype supplies and
compensation costs. Selling expenses increased $430,000 in 2006, primarily as a
result of increased compensation costs, commissions, outside services, promotion
and advertising. In 2006, G&A expenses increased $1.0 million, primarily due
to outside services, taxes, compensation and benefits and costs associated with
the relocation to the new facility for a subsidiary of the Company,
Halkey-Roberts Corporation (“Halkey-Roberts”).
The
Company’s operating income for 2007 was $20.2 million, compared with $14.3
million in 2006 and $12.7 million in 2005. The increase in gross profit and the
decrease in operating expenses described above were the major contributors to
the operating income improvement in 2007. The previously mentioned increase in
gross profit partially offset by the previously mentioned increase in operating
expenses was the major contributor to the operating income improvement in
2006.
Interest
expense was $251,000 in 2007 compared to $253,000 in 2006 and $61,000 in
2005. The decrease in 2007 was primarily related to decreased
interest rates and reduced borrowing levels. Interest of $326,000 was
capitalized in 2006 during the construction of the new facility for
Halkey-Roberts. After September 2007 the Company had no borrowings outstanding
under its Credit Facility.
Income
tax expense in 2007 totaled $6.0 million, compared with $3.6 million in 2006 and
$3.9 million in 2005. The effective tax rates for 2007, 2006 and 2005 were 30.0
percent, 25.2 percent and 30.7 percent, respectively. Benefits from tax
incentives for domestic production, exports and R&D expenditures totaled
$1,000,000 in 2007, $1,603,000 in 2006 and $642,000 in 2005. Benefits from
changes in uncertain tax positions totaled $168,000 in 2007. The lower effective
tax rate in 2006 is primarily a result of a review and documentation of the
Company’s R&D tax credits for 2005 and prior-year tax returns which
indicated that the Company was entitled to higher credits than had been claimed.
The Company expects the effective tax rate for 2008 to be approximately 32.0
percent.
The
Company believes that 2008 revenues will be higher than 2007 revenues and that
the cost of goods sold, gross profit, operating income and net income will each
be higher in 2008 than in 2007. Net income in 2008 will be negatively impacted
by an increase in the Company’s income tax rate. The Company further believes
that in 2008 the Company will have continuing volume growth in most of its
product lines, complemented by the introduction of new products, and will
achieve continued growth in operating income.
Discontinued
Operations
During
2006 and 2005, the Company recorded a gain of $165,000 after tax, on the
disposal of discontinued operations related to the 1997 sale of its natural gas
operations. These gains represented $.09 per basic share in each of 2006 and
2005 and $.08 per diluted share in 2006, and $.09 per diluted share in 2005.
These amounts are net of income tax expense of $85,000 in each of the two
years. Under the terms of the 1997 agreement, the Company received
contingent deferred payments of $250,000 each, before-tax, from the purchaser in
April 2006 and 2005. No additional payments were due under this
agreement after 2006.
Liquidity
and Capital Resources
The
Company has a $25.0 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 one percent. At
December 31, 2007, the Company had $25.0 million available for borrowing under
the Credit Facility.
At
December 31, 2007, the Company had cash and cash equivalents of $3.5 million
compared with $333,000 at December 31, 2006. The Company had no outstanding
borrowings under its Credit Facility at December 31, 2007 and $11.4 million at
December 31, 2006. The Credit Facility, which expires November 11, 2009, and may
be extended under certain circumstances, contains various restrictive covenants,
none of which is expected to impact the Company’s liquidity or capital
resources. At December 31, 2007, the Company was in compliance with all
financial covenants.
Cash
flows from continuing operations generated $22.7 million in 2007 as compared to
$12.6 million in 2006. The primary contributors to this increase were the
improved operating results for the 2007 period and improved working capital
changes in 2007 as compared to working capital changes in 2006. Cash provided by
operating activities consisted primarily of net income adjusted for certain
non-cash items and changes in working capital items. Non-cash items included
depreciation and amortization and deferred income taxes. Working capital items
consisted primarily of accounts receivable, accounts payable, inventories and
other current assets and other current liabilities.
At
December 31, 2007, the Company had working capital of $25.7 million, including
$3.5 million in cash and cash equivalents. The $2.0 million increase in working
capital during 2007 was primarily related to an increase in cash offset by a
decrease in accounts receivable, and increases in accounts payables and accrued
liabilities. The increase in cash was primarily related to amounts available
from operations after the Company paid off its outstanding borrowings under its
Credit Facility in September 2007. The decrease in accounts receivable was
related to improved collections as compared to 2006. The increase in accounts
payable was related to increased inventory purchases. The 2007 increase in
accrued liabilities was primarily related to accrued compensation.
Capital
expenditures for property, plant and equipment totaled $7.9 million in 2007,
compared with $20.9 million in 2006 and $10.6 million in 2005. The $7.9 million
expended in 2007 was primarily for the addition of machinery and equipment. Of
the $20.9 million expended for the addition of property, plant and equipment
during 2006, the Company expended $15.5 million toward the construction of the
new St. Petersburg facility for its Halkey-Roberts operation. Of the $10.6
million expended for the addition of property, plant and equipment during 2005,
the Company expended $4.5 million toward the construction of the St. Petersburg
facility for its Halkey-Roberts operation. The Company completed the
construction of the St. Petersburg facility and moved the Halkey-Roberts
operation into the new facility during the third quarter of 2006. The total cost
of the new facility was $20.0 million and the cost of the land was $3.8 million.
The Company expects 2008 capital expenditures to increase slightly over the 2007
levels.
The
Company decreased its outstanding borrowings under the Credit Facility by $11.4
million in 2007. During 2006, the Company increased its outstanding borrowings
under the Credit Facility by $8.9 million and repurchased 24,000 shares of its
common stock for approximately $1.6 million.
The
Company paid dividends totaling $1.7 million, $1.4 million and $1.1 million
during 2007, 2006 and 2005, respectively. During 2007, the Company received
$650,000 from the exercise of stock options.
The table
below summarizes debt, lease and other contractual obligations outstanding at
December 31, 2007:
|
Payments
due by period
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
2008
|
2009 - 2010 |
2011
and thereafter
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Purchase
Obligations
|
$ | 9,789 | $ | 9,732 | $ | 57 | $ | — | ||||||||
|
Total
|
$ | 9,789 | $ | 9,732 | $ | 57 | $ | — | ||||||||
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.
Off
Balance Sheet Arrangements
The
Company has no off-balance sheet financing arrangements.
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.
New
Accounting Pronouncements
In June
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 48 (“FIN 48”),
Accounting for Uncertainty in Income Taxes—An interpretation of FASB Statement
No.109. The Interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements and prescribes a
recognition threshold and measurement attributes of income tax positions taken
or expected to be taken on a tax return. Under FIN 48, the impact of an
uncertain tax position taken or expected to be taken on an income tax return
must be recognized in the financial statements at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized in the
financial statements unless it is more-likely-than-not of being sustained. The
Company adopted FIN 48 on January 1, 2007.
On
December 31, 2006, the Company adopted SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)" ("SFAS 158"). The funded
status of the Company’s pension plan is recorded as a non-current asset and all
unrecognized losses, net of tax, are recorded as accumulated other comprehensive
loss within stockholders’ equity. As required by SFAS 158, results for prior
periods were not restated.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which provides guidance for measuring the fair value
of assets and liabilities, as well as requires expanded disclosures about fair
value measurements. SFAS 157 indicates that fair value should be determined
based on the assumptions marketplace participants would use in pricing the asset
or liability, and provides additional guidelines to consider in determining the
market-based measurement. The Company is required to adopt SFAS 157 effective
January 1, 2008. The Company believes that SFAS 157 will not result in a
material change to its financial condition, results of operations, or cash
flow.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115” (“SFAS 159”), which allows measurement at fair value of
eligible financial assets and liabilities that are not otherwise measured at
fair value. If the fair value option for an eligible item is elected,
unrealized gains and losses for that item are to be reported in current earnings
at each subsequent reporting date. SFAS 159 also establishes presentation
and disclosure requirements designed to draw comparison between the different
measurement attributes the Company elects for similar types of assets and
liabilities. SFAS 159 is effective for fiscal years beginning after November 15,
2007. The Company believes that SFAS 159 will not result in a material
change to its financial condition, results of operations, or cash
flow.
From time
to time, new accounting pronouncements applicable to the Company are issued by
the FASB or other standards setting bodies, which the Company will adopt as of
the specified effective date. Unless otherwise discussed, the Company believes
the impact of recently issued standards that are not yet effective will not have
a material impact on its consolidated financial statements upon
adoption.
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
2007, 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 maintains an allowance for doubtful accounts to reflect estimated losses
resulting from the failure 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 and determines when to grant credit to its
customers 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. If
circumstance change, the Company’s estimates of the collectibility of amounts
could be changed by a material amount.
The
Company determines inventory valuation reserves based on a combination of
factors. In circumstances where the Company is aware of a specific problem in
the valuation of a certain item, a specific reserve is recorded to reduce the
item to its net realizable value. The Company also recognizes reserves based on
the actual usage in recent history and projected usage in the near-term. If
circumstances change (e.g., lower-than-expected or higher-than-expected usage),
estimates of the net realizable value could be materially
impacted.
The
Company is required to estimate its provision for income taxes in each of the
jurisdictions in which it operates. This process involves estimating its actual
current tax exposure, including assessing the risks associated with tax audits,
together with assessing temporary differences resulting from the different
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within the balance
sheet. The Company assesses the likelihood that its deferred tax assets will be
recovered from future taxable income and to the extent it believes that recovery
is more likely than not, does not establish a valuation allowance. In the event
that actual results differ from these estimates, the provision for income taxes
could be materially impacted.
Pension
plan benefits are expensed as applicable employees earn benefits. The
recognition of expenses is significantly impacted by estimates made by
management such as discount rates used to value certain liabilities and expected
return on assets. The Company uses third-party specialists to assist management
in appropriately measuring the expense associated with pension plan benefits. In
the event that actual results differ from these estimates, pension plan expenses
could be materially impacted
The
Company assesses the impairment of its long-lived identifiable assets, excluding
goodwill which is tested for impairment pursuant to SFAS No. 142, “Goodwill and
Other Intangible Assets” (“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 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,
net income, research and development expenses, 2008 effective tax rate, capital
expenditure levels, availability of equity and debt financing and the Company’s
ability to meet its cash requirements for the foreseeable future. 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.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Foreign Exchange
Risk
The
Company is not exposed to material fluctuations in currency exchange rates
because the payments from the Company’s international customers are primarily
received in United States dollars.
Principal and Interest Rate
Risk
The
Company has an investment portfolio that is invested with a major financial
institution in a municipal money market fund that is AAA rated. The primary
objective of the Company’s investment activities is to preserve principal while
maximizing the income it receives from its investments without significantly
increasing risk. In general, the primary exposure to market risk is
interest rate sensitivity. This means that a change in prevailing interest rates
may cause the value of and the return on the investment to fluctuate.
Although the returns on money market funds fluctuate with changes in interest
rates, the principal should not generally be subject to market
risk.
Recently,
there has been concern in the credit markets regarding the value of a variety of
mortgage-backed securities and the resultant effect on various securities
markets. The Company believes that its cash, cash equivalents, and
marketable securities do not have significant risk of default or
illiquidity. However, the Company cannot provide complete
assurance that its investments will not be subject to adverse changes in market
value.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
Atrion
Corporation
We have
audited the accompanying consolidated balance sheets of Atrion Corporation as of
December 31, 2007 and 2006, and the related consolidated statements of income,
changes in stockholders’ equity and comprehensive income, and cash flows for
each of the three years in the period ended December 31, 2007. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes
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 financial position of Atrion Corporation as of December
31, 2007 and 2006, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.
As
discussed in Note 1 to the consolidated financial statements, effective January
1, 2007, the Company adopted Financial Accounting Standards Board Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes”. As
discussed in Note 1 to the consolidated financial statements, effective January
1, 2006 the Company adopted the provisions of Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment.” Also as
discussed in Note 1 to the consolidated financial statements, effective
December 31, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
Benefit Pension and other Postretirement Plans.”
Our audit
was conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Schedule II is presented for the purposes
of additional analysis and is not a required part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Atrion Corporation’s internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO)
and our report dated March 13, 2008 expressed an unqualified
opinion.
/s/ Grant
Thornton LLP
Dallas,
Texas
March 13,
2008
CONSOLIDATED
STATEMENTS OF INCOME
For the
year ended December 31, 2007, 2006 and 2005
|
2007
|
2006
|
2005
|
||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Revenues
|
$ | 88,540 | $ | 81,020 | $ | 72,089 | ||||||
|
Cost
of Goods Sold
|
50,771 | 48,572 | 43,119 | |||||||||
|
Gross
Profit
|
37,769 | 32,448 | 28,970 | |||||||||
|
Operating
Expenses:
|
||||||||||||
|
Selling
|
6,353 | 6,067 | 5,637 | |||||||||
|
General
and administrative
|
9,841 | 9,249 | 8,239 | |||||||||
|
Dispute
resolution
|
(1,398 | ) | -- | -- | ||||||||
|
Research
and development
|
2,778 | 2,794 | 2,396 | |||||||||
| 17,574 | 18,110 | 16,272 | ||||||||||
|
Operating
Income
|
20,195 | 14,338 | 12,698 | |||||||||
|
Interest
Income
|
57 | 91 | 37 | |||||||||
|
Interest
Expense
|
(251 | ) | (253 | ) | (61 | ) | ||||||
|
Other
Income (Expense), net
|
-- | (4 | ) | 10 | ||||||||
|
Income
from Continuing Operations before Provision for Income
Taxes
|
20,001 | 14,172 | 12,684 | |||||||||
|
Provision
for Income Taxes
|
(5,995 | ) | (3,572 | ) | (3,891 | ) | ||||||
|
Income
from Continuing Operations
|
14,006 | 10,600 | 8,793 | |||||||||
|
Gain
on Disposal of Discontinued Operations, net of tax
|
-- | 165 | 165 | |||||||||
|
Net
Income
|
$ | 14,006 | $ | 10,765 | $ | 8,958 | ||||||
|
Income
Per Basic Share:
|
||||||||||||
|
Continuing
operations
|
$ | 7.42 | $ | 5.73 | $ | 4.90 | ||||||
|
Discontinued
operations
|
-- | .09 | .09 | |||||||||
|
Net
Income Per Basic Share
|
$ | 7.42 | $ | 5.82 | $ | 4.99 | ||||||
|
Weighted
Average Basic Shares Outstanding
|
1,887 | 1,851 | 1,794 | |||||||||
|
Income
Per Diluted Share:
|
||||||||||||
|
Continuing
operations
|
$ | 7.06 | $ | 5.43 | $ | 4.57 | ||||||
|
Discontinued
operations
|
-- | .08 | .09 | |||||||||
|
Net
Income Per Diluted Share
|
$ | 7.06 | $ | 5.51 | $ | 4.66 | ||||||
|
Weighted
Average Diluted Shares Outstanding
|
1,985 | 1,953 | 1,924 | |||||||||
|
Dividends
Per Common Share
|
$ | .88 | $ | .74 | $ | .62 | ||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
BALANCE SHEETS
As of
December 31, 2007 and 2006
|
Assets:
|
2007
|
2006
|
||||||
|
(In
thousands)
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 3,531 | $ | 333 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $32 and $149 in 2007
and 2006, respectively
|
9,601 | 10,542 | ||||||
|
Inventories
|
17,387 | 17,115 | ||||||
|
Prepaid
expenses and other current assets
|
1,483 | 1,530 | ||||||
|
Deferred
income taxes
|
607 | 1,138 | ||||||
|
Total
Current Assets
|
32,609 | 30,658 | ||||||
|
Property,
Plant and Equipment
|
89,736 | 82,536 | ||||||
|
Less
accumulated depreciation and amortization
|
35,686 | 31,094 | ||||||
| 54,050 | 51,442 | |||||||
|
Other
Assets and Deferred Charges:
|
||||||||
|
Patents
and licenses, net of accumulated amortization of $9,507 and $9,195 in 2007
and 2006, respectively
|
2,011 | 2,264 | ||||||
|
Goodwill
|
9,730 | 9,730 | ||||||
|
Other
|
913 | 1,678 | ||||||
| 12,654 | 13,672 | |||||||
|
Total
Assets
|
$ | 99,313 | $ | 95,772 | ||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
BALANCE SHEETS
As of
December 31, 2007 and 2006
|
Liabilities
and Stockholders’ Equity:
|
2007
|
2006
|
|
(In
thousands)
|
||
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
3,533
|
$
3,387
|
|
Accrued
liabilities
|
2,816
|
2,654
|
|
Accrued
income and other taxes
|
515
|
882
|
|
Total
Current Liabilities
|
6,864
|
6,923
|
|
|
||
|
Line
of credit
|
--
|
11,399
|
|
|
||
|
|
||
|
Other
Liabilities and Deferred Credits:
|
|
|
|
Deferred
income taxes
|
5,896
|
5,074
|
|
Other
|
1,111
|
1,481
|
|
7,007
|
6,555
|
|
|
|
|
|
|
Total
Liabilities
|
13,871
|
24,877
|
|
|
|
|
|
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
|
15,790
|
14,140
|
|
Accumulated
other comprehensive loss
|
(486)
|
(892)
|
|
Retained
earnings
|
104,021
|
91,708
|
|
Treasury
shares, 1,509 shares in 2007 and 1,546 shares in 2006, at
cost
|
(34,225)
|
(34,403)
|
|
Total
Stockholders’ Equity
|
85,442
|
70,895
|
|
|
||
|
|
||
|
Total
Liabilities and Stockholders’ Equity
|
$
99,313
|
$
95,772
|
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
year ended December 31, 2007, 2006 and 2005
|
2007
|
2006
|
2005
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
income
|
$ | 14,006 | $ | 10,765 | $ | 8,958 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Gain
on disposal of discontinued operations
|
-- | (165 | ) | (165 | ) | |||||||
|
Depreciation
and amortization
|
5,534 | 5,005 | 5,389 | |||||||||
|
Deferred
income taxes
|
1,134 | 693 | 500 | |||||||||
|
Tax
benefit related to stock options
|
-- | -- | 1,168 | |||||||||
|
Stock-based
compensation
|
368 | 116 | -- | |||||||||
|
Pension
charge
|
310 | -- | -- | |||||||||
|
Other
|
35 | 10 | 10 | |||||||||
| 21,387 | 16,424 | 15,860 | ||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
969 | (2,250 | ) | (703 | ) | |||||||
|
Inventories
|
(271 | ) | 590 | (3,692 | ) | |||||||
|
Prepaid
expenses and other current assets
|
47 | (698 | ) | 196 | ||||||||
|
Other
non-current assets
|
1,020 | (119 | ) | (1,863 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
317 | (1,087 | ) | (18 | ) | |||||||
|
Accrued
income and other taxes
|
565 | (216 | ) | (223 | ) | |||||||
|
Other
non-current liabilities
|
(1,329 | ) | 4 | 337 | ||||||||
|
Net
cash provided by continuing operations
|
22,705 | 12,648 | 9,894 | |||||||||
|
Net
cash provided by discontinued operations (Note 3)
|
-- | 165 | 165 | |||||||||
| 22,705 | 12,813 | 10,059 | ||||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||
|
Property,
plant and equipment additions
|
(7,893 | ) | (20,889 | ) | (10,569 | ) | ||||||
|
Property,
plant and equipment sales
|
-- | 3 | 21 | |||||||||
| (7,893 | ) | (20,886 | ) | (10,548 | ) | |||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Line
of credit advances
|
19,426 | 38,186 | 25,599 | |||||||||
|
Line
of credit repayments
|
(30,825 | ) | (29,316 | ) | (26,006 | ) | ||||||
|
Exercise
of stock options
|
650 | 1,228 | 2,285 | |||||||||
|
Purchase
of treasury stock
|
-- | (1,594 | ) | -- | ||||||||
|
Tax
benefit related to stock options
|
805 | 752 | -- | |||||||||
|
Dividends
paid
|
(1,670 | ) | (1,375 | ) | (1,119 | ) | ||||||
| (11,614 | ) | 7,881 | 759 | |||||||||
|
Net
change in cash and cash equivalents
|
3,198 | (192 | ) | 270 | ||||||||
|
Cash
and cash equivalents, beginning of year
|
333 | 525 | 255 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 3,531 | $ | 333 | $ | 525 | ||||||
|
Cash
paid for:
|
||||||||||||
|
Interest
(net of capitalization)
|
$ | 312 | $ | 199 | $ | 62 | ||||||
|
Income
taxes
|
3,487 | 3,272 | 2,508 | |||||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
INCOME
For the
year ended December 31, 2007, 2006 and 2005
(In
thousands)
|
|
Common
Stock
|
Treasury
Stock
|
||||||||||||||||||||||||||||||
|
Shares
Outstanding
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated Other
Comprehensive Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||||||||
|
Balances,
January 1, 2005
|
1,719 | $ | 342 | 1,701 | $ | (34,231 | ) | $ | 10,013 | -- | $ | 74,479 | $ | 50,603 | ||||||||||||||||||
|
Net
income
|
8,958 | 8,958 | ||||||||||||||||||||||||||||||
|
Tax
benefit from exercise of stock options
|
1,168 | 1,168 | ||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
115 | (115 | ) | 958 | 1,327 | 2,285 | ||||||||||||||||||||||||||
|
Dividends
|
(1,119 | ) | (1,119 | ) | ||||||||||||||||||||||||||||
|
Balances,
December 31, 2005
|
1,834 | 342 | 1,586 | (33,273 | ) | 12,508 | -- | 82,318 | 61,895 | |||||||||||||||||||||||
|
Net
income
|
10,765 | 10,765 | ||||||||||||||||||||||||||||||
|
Tax
benefit from exercise of stock options
|
752 | 752 | ||||||||||||||||||||||||||||||
|
Stock
options and restricted stock
|
66 | (66 | ) | 597 | 880 | 1,477 | ||||||||||||||||||||||||||
|
Shares
surrendered in option exercises
|
(2 | ) | 2 | (133 | ) | (133 | ) | |||||||||||||||||||||||||
|
Purchase
of treasury stock
|
(24 | ) | 24 | (1,594 | ) | (1,594 | ) | |||||||||||||||||||||||||
|
Dividends
|
(1,375 | ) | (1,375 | ) | ||||||||||||||||||||||||||||
|
Adjustment
for initial application of SFAS 158, net of tax (Notes 1 and
11)
|
(892 | ) | (892 | ) | ||||||||||||||||||||||||||||
|
Balances,
December 31, 2006
|
1,874 | 342 | 1,546 | (34,403 | ) | 14,140 | $ | (892 | ) | 91,708 | 70,895 | |||||||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net
income
|
14,006 | 14,006 | ||||||||||||||||||||||||||||||
|
Actuarial
gain on pension plan, net of income taxes of $110
|
205 | 205 | ||||||||||||||||||||||||||||||
|
Recognition
of pension plan curtailment gain and settlement loss, net of income taxes
of $109
|
201 | 201 | ||||||||||||||||||||||||||||||
|
Total
comprehensive income
|
406 | 14,006 | 14,412 | |||||||||||||||||||||||||||||
|
Tax
benefit from exercise of stock options
|
805 | 805 | ||||||||||||||||||||||||||||||
|
Stock
options and restricted stock
|
39 | (39 | ) | 382 | 845 | 1,227 | ||||||||||||||||||||||||||
|
Shares
surrendered in option exercises
|
(2 | ) | 2 | (204 | ) | (204 | ) | |||||||||||||||||||||||||
|
Dividends
|
(1,676 | ) | (1,676 | ) | ||||||||||||||||||||||||||||
|
Adjustment
for initial application of FIN 48 (Note 1)
|
(17 | ) | (17 | ) | ||||||||||||||||||||||||||||
|
Balances,
December 31, 2007
|
1,911 | $ | 342 | 1,509 | $ | (34,225 | ) | $ | 15,790 | $ | (486 | ) | $ | 104,021 | $ | 85,442 | ||||||||||||||||
The accompanying notes are an integral
part of this statement.
Atrion
Corporation
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies
|
Atrion
Corporation (“Atrion”) and its subsidiaries (collectively, the “Company”)
design, develop, manufacture, sell and distribute products primarily for the
medical and healthcare industry. The Company markets its products throughout the
United States and internationally. The Company’s customers include
hospitals, distributors, and other manufacturers. The principal
subsidiaries of Atrion through which these operations are conducted are 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 and its
subsidiaries. All 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.
Cash
and Cash Equivalents
Cash
equivalents include cash on hand and in the bank as well as 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 failure 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 and determines when to grant credit to its customers 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.
Accounts
Payable
The
Company reflects disbursements as trade accounts payable until such time as
payments are presented to the bank for payment. At December 31, 2007 and 2006,
disbursements totaling approximately $ 744,000 and $ 522,000, respectively, had
not been presented for payment to the bank.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
Inventories
Inventories
are stated at the lower of cost (including materials, direct labor and
applicable overhead) 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,
|
||||||||
|
2007
|
2006
|
|||||||
|
Raw
materials
|
$ | 7,452 | $ | 7,194 | ||||
|
Work
in process
|
4,513 | 4,084 | ||||||
|
Finished
goods
|
5,422 | 5,837 | ||||||
|
Total
inventories
|
$ | 17,387 | $ | 17,115 | ||||
Income
Taxes
The
Company accounts for deferred income taxes utilizing Statement of Financial
Accounting Standards No. 109 (“SFAS 109”), Accounting for Income Taxes.
SFAS 109 requires the asset and liability method, whereby deferred tax
assets and liabilities are recognized based on the tax effects of temporary
differences between the financial statement and the tax bases of assets and
liabilities, as measured at current enacted tax rates. When appropriate the
Company evaluates the need for a valuation allowance to reduce deferred
tax.
In June
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 48 (“FIN 48”),
Accounting for Uncertainty in Income Taxes—An interpretation of FASB Statement
No. 109. The Interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements and prescribes a
recognition threshold and measurement attributes of income tax positions taken
or expected to be taken on a tax return. Under FIN 48, the impact of an
uncertain tax position taken or expected to be taken on an income tax return
must be recognized in the financial statements at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized in the
financial statements unless it is more likely than not of being
sustained.
The
Company adopted FIN 48 on January 1, 2007. As a result of the adoption, current
income taxes payable decreased by $942,000, unrecognized tax benefits
of $959,000 were recorded as “Other non-current liabilities” and retained
earnings were reduced by $17,000 on the consolidated balance sheet, with no net
impact to the consolidated statement of income. The unrecognized tax benefits
were comprised of uncertain tax positions that would impact the effective
tax rate if recognized.
The
unrecognized tax benefits mentioned above of $959,000 included an aggregate
$57,000 of interest expense. Interest was computed on the difference between the
tax position recognized in accordance with FIN 48 and the amount previously
taken or expected to be taken in the tax returns. Upon adoption of FIN 48, the
Company elected an accounting policy to classify interest expense on
underpayments of income taxes and accrued penalties related to unrecognized tax
benefits in the income tax provision. Prior to the adoption of FIN 48, the
Company’s policy was to classify interest expense on underpayments of income
taxes as interest expense and to classify penalties as an operating expense in
arriving at pretax income.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
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
|
|||||||||||
|
2007
|
2006
|
Lives
|
||||||||||
|
Land
|
$ | 5,260 | $ | 5,260 | — | |||||||
|
Buildings
|
29,171 | 28,945 |
30-40
yrs
|
|||||||||
|
Machinery
and equipment
|
55,305 | 48,331 |
3-10
yrs
|
|||||||||
|
Total
property, plant and equipment
|
$ | 89,736 | $ | 82,536 | ||||||||
Depreciation
expense of $5,222,000, $4,685,000 and $4,365,000 was recorded for the years
ended December 31, 2007, 2006 and 2005, respectively.
Capitalized
interest related to the construction of a new facility at Halkey-Roberts in the
amount of $325,839 and $26,850 was recorded during 2006 and 2005,
respectively.
Patents
and Licenses
Cost for
patents and licenses acquired is determined at acquisition date. Patents and
licenses are amortized over the useful lives of the individual patents and
licenses, which are from 7 to 19 years. Patents and licenses 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. Annual impairment testing for
goodwill is done 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. The Company has
identified three reporting units where goodwill was recorded for purposes of
testing goodwill impairment annually: (1) Atrion Medical Products (2)
Halkey-Roberts and (3) Quest Medical. The carrying amount for
goodwill in each of the three years ended December 31, 2007, 2006 and 2005 was
$9,730,000.
Current
Accrued Liabilities
The items
comprising current accrued liabilities are as follows (in
thousands):
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Accrued
payroll and related expenses
|
$ | 1,941 | $ | 1,272 | ||||
|
Accrued
vacation
|
167 | 227 | ||||||
|
Accrued
professional fees
|
251 | 567 | ||||||
|
Other
accrued liabilities
|
457 | 588 | ||||||
|
Total
accrued liabilities
|
$ | 2,816 | $ | 2,654 | ||||
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. All risks and rewards of ownership
pass to the customer upon shipment. Net sales represent gross sales invoiced to
customers, less certain related charges, including discounts, returns and other
allowances. Revenues are recorded exclusive of sales and similar taxes. 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.
Advertising
Advertising
production costs are expensed as incurred. Media for print placement
costs are expensed in the period the advertising appears. Total
advertising expenses were approximately $277,000, $198,000 and $219,000 for the
years ended December 31, 2007, 2006 and 2005, respectively.
Stock-Based
Compensation
The
Company has stock-based compensation plans covering certain of its officers,
directors and key employees. As explained in detail in Note 8, the Company
accounts for stock-based compensation utilizing the fair value recognition
provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No.
123R”).
Pension
Plan
Pension
plan benefits are expensed as applicable employees earn benefits. The
recognition of expenses is significantly impacted by estimates made by
management such as discount rates used to value certain liabilities and expected
return on assets. The Company uses third-party specialists to assist management
in appropriately measuring the expense associated with pension plan
benefits.
On
December 31, 2006, the Company adopted SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)" ("SFAS 158"). As is further
described in Note 11, the funded status of the Company’s pension plan is
recorded as a non-current asset and all unrecognized losses, net of tax, are
recorded as accumulated other comprehensive loss within stockholders’ equity. As
required by SFAS 158, results for prior periods were not restated.
The
incremental effects of applying SFAS 158 on line items in the consolidated
balance sheet at December 31, 2006 were as follows (amounts in
thousands):
|
Before
Application
|
Adjustments
|
After
Application
|
||||||||||
|
Other
Assets and Deferred Charges: Other
|
$ | 3,051 | $ | (1,373 | ) | $ | 1,678 | |||||
|
Deferred
income tax liability
|
5,555 |
(481
|
) | 5,074 | ||||||||
|
Accumulated
other comprehensive loss
|
-- | (892 |
)
|
(892 | ) | |||||||
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
Comprehensive
Income
Comprehensive
income includes net income plus other comprehensive income, which for the
Company consists of the amortization of unrecognized pension gains, and
recognition of gains as a result of pension plan curtailment and settlement
transactions.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which provides guidance for measuring the fair value
of assets and liabilities, as well as requires expanded disclosures about fair
value measurements. SFAS 157 indicates that fair value should be determined
based on the assumptions marketplace participants would use in pricing the asset
or liability, and provides additional guidelines to consider in determining the
market-based measurement. The Company is required to adopt SFAS 157 effective
January 1, 2008. The Company believes that SFAS 157 will not
result in a material change to its financial condition, results of operations,
or cash flow.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115” (“SFAS 159”), which allows measurement at fair value of
eligible financial assets and liabilities that are not otherwise measured at
fair value. If the fair value option for an eligible item is elected,
unrealized gains and losses for that item are to be reported in current earnings
at each subsequent reporting date. SFAS 159 also establishes presentation
and disclosure requirements designed to draw comparison between the different
measurement attributes the Company elects for similar types of assets and
liabilities. SFAS 159 is effective for fiscal years beginning after November 15,
2007. The Company believes that SFAS 159 will not result in a
material change to its financial condition, results of operations, or cash
flow.
From time
to time, new accounting pronouncements applicable to the Company are issued by
the FASB or other standards setting bodies, which the Company will adopt as of
the specified effective date. Unless otherwise discussed, the Company believes
the impact of recently issued standards that are not yet effective will not have
a material impact on its consolidated financial statements upon
adoption.
|
(2)
|
Patents
and Licenses
|
Purchased
patents and licenses paid for the use of other entities’ patents are amortized
over the useful life of the patent or license. Patents and licenses
are as follows (dollars in thousands):
|
December
31, 2007
|
December
31, 2006
|
|||||||||||||||||||||
|
Weighted
Average Original Life (years)
|
Gross Carrying Amount
|
Accumulated Amortization
|
Weighted
Average Original Life (years)
|
Gross Carrying Amount
|
Accumulated Amortization
|
|||||||||||||||||
| 14.74 | $ | 11,518 | $ | 9,507 | 14.72 | $ | 11,459 | $ | 9,195 | |||||||||||||
Aggregate
amortization expense for patents and licenses was $312,000 for 2007,
$318,000 for 2006 and $1,024,000 for 2005. Estimated future
amortization expense for each of the years set forth below ending December 31,
is as follows (in thousands):
|
2008
|
$ | 298 | ||
|
2009
|
$ | 279 | ||
|
2010
|
$ | 265 | ||
|
2011
|
$ | 265 | ||
|
2012
|
$ | 154 |
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
|
(3)
|
Discontinued
Operations
|
During
2006 and 2005, the Company recorded a gain of $165,000 after tax, on the
disposal of discontinued operations related to the 1997 sale of its natural gas
operations. These amounts are net of income tax expense of $85,000 in
each of the two years. Under the terms of the 1997 agreement, the
Company received contingent deferred payments of $250,000 each, before-tax, from
the purchaser in April 2006 and 2005. No additional payments were due
under this agreement after 2006 and thus there was no gain recorded in
2007.
|
(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 or 90-day LIBOR, as selected by the Company, plus one percent (6.09
percent at December 31, 2007) and is payable monthly. At December 31, 2007, the
line of credit was completely paid off, and at December 31, 2006, there was
$11.4 million outstanding under the line of credit. The Credit
Facility expires November 12, 2009 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, 2007, 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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Current
— Federal
|
$ | 4,603 | $ | 2,705 | $ | 3,189 | ||||||
|
— State
|
345 | 230 | 257 | |||||||||
| 4,948 | 2,935 | 3,446 | ||||||||||
|
Deferred — Federal
|
1,190 | 607 | 408 | |||||||||
|
— State
|
25 | 30 | 37 | |||||||||
| 1,215 | 637 | 445 | ||||||||||
|
Unrecognized
tax benefit
|
(168 | ) | -- | -- | ||||||||
|
Total
income tax expense
|
$ | 5,995 | $ | 3,572 | $ | 3,891 | ||||||
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, 2007 and 2006 are as follows (in
thousands):
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Benefit
plans
|
$ | 331 | $ | 629 | ||||
|
Inventories
|
456 | 446 | ||||||
|
Other
|
93 | 194 | ||||||
|
Total
deferred tax assets
|
$ | 880 | $ | 1,269 | ||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant and equipment
|
$ | 4,657 | $ | 4,259 | ||||
|
Pensions
|
201 | 143 | ||||||
|
Patents
and goodwill
|
1,311 | 803 | ||||||
|
Total
deferred tax liabilities
|
$ | 6,169 | $ | 5,205 | ||||
|
Net
deferred tax liability
|
$ | 5,289 | $ | 3,936 | ||||
|
Balance
Sheet classification:
|
||||||||
|
Non-current
deferred income tax liability
|
$ | 5,896 | $ | 5,074 | ||||
|
Current
deferred income tax asset
|
607 | 1,138 | ||||||
|
Net
deferred tax liability
|
$ | 5,289 | $ | 3,936 | ||||
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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Income
tax expense at the statutory federal income tax rate
|
$ | 7,030 | $ | 4,960 | $ | 4,313 | ||||||
|
Increase
(decrease) resulting from:
|
||||||||||||
|
State
income taxes
|
240 | 210 | 210 | |||||||||
|
R&D
credit
|
(586 | ) | (1,322 | ) | (100 | ) | ||||||
|
Foreign
sales benefit
|
(66 | ) | (154 | ) | (434 | ) | ||||||
|
Section
199 manufacturing deduction
|
(348 | ) | (127 | ) | (108 | ) | ||||||
|
Net
change in uncertain tax positions
|
(168 | ) | -- | -- | ||||||||
|
Other,
net
|
(107 | ) | 5 | 10 | ||||||||
|
Total
income tax expense
|
$ | 5,995 | $ | 3,572 | $ | 3,891 | ||||||
The 2006
amount for R&D credit includes $1,022,000 representing the results of a
review and documentation of the Company’s R&D tax credits for 2005 and
prior-year tax returns. This review indicated that the Company was entitled to
higher credits than had been claimed and amended returns were
filed.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
A
reconciliation of the beginning and ending balances of the total amounts of
gross unrecognized tax benefits as required by FIN 48 is as follows
(in thousands):
|
Gross
unrecognized tax benefits at January 1, 2007
|
$ | 959 | ||
|
Increases
in tax positions for prior years
|
52 | |||
|
Increases
in tax positions for current year
|
179 | |||
|
Lapse
in statute of limitations
|
(399 | ) | ||
|
Gross
unrecognized tax benefits at December 31, 2007
|
$ | 791 |
The
unrecognized tax benefits, which were comprised of uncertain tax positions,
would impact the effective tax rate if recognized. Unrecognized tax benefits
that are affected by statutes of limitation that expire within the next 12
months are immaterial.
The
Company and its subsidiaries are subject to U.S. federal income tax as well as
to income tax of multiple state jurisdictions. The Company has concluded
all U.S. federal income tax matters for years through 2003. In October
2007, the Internal Revenue Service (IRS) began examining certain of the
Company’s U.S. Federal income tax returns for 2005. To date, no proposed
adjustments have been issued. All material state and local income tax matters
have been concluded for years through 2003.
The
Company recognizes interest and penalties, if any, related to unrecognized tax
benefits in income tax expense. The liability for unrecognized tax benefits
included accrued interest of $50,000 and $57,000 at December 31, 2007 and
January 1, 2007, respectively. Tax expense for the year ended
December 31, 2007 includes an interest benefit of $7,000, which is
comprised of an interest benefit of $40,000 resulting from the expiration of the
statutes of limitations referred to above, and interest expense of $33,000 on
unrecognized tax benefits for prior years.
|
(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. No repurchases were made
in 2007 or in 2005. In 2006, the Company repurchased 24,000 shares at
a price of $66.41 per share. As of December 31, 2007, authorization
for the repurchase of up to 68,100 additional shares remained.
The
Company has increased its quarterly cash dividend payments in September of each
of the past three years. The quarterly dividend was increased from $.14 per
share to $.17 per share in September of 2005, to $.20 per share in September of
2006 and to $.24 per share in September of 2007.
The
Company has a Rights Plan, which is intended to protect the interests of
stockholders in the event of a hostile attempt to take over the
Company. The rights, which are not presently exercisable and do not
have any voting powers, represent the right of the Company’s stockholders to
purchase at a substantial discount, upon the occurrence of certain events,
shares of common stock of the Company or of an acquiring company involved in a
business combination with the Company. This plan, which was adopted
in August of 2006, expires in August of 2016.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
|
(7)
|
Income
Per Share
|
The
following is the computation for basic and diluted income per share from
continuing operations:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Income
from continuing operations
|
$ | 14,006 | $ | 10,600 | $ | 8,793 | ||||||
|
Weighted
average basic shares outstanding
|
1,887 | 1,851 | 1,794 | |||||||||
|
Add: Effect
of dilutive securities
|
98 | 102 | 130 | |||||||||
|
Weighted
average diluted shares outstanding
|
1,985 | 1,953 | 1,924 | |||||||||
|
Income
per share from continuing operations:
|
||||||||||||
|
Basic
|
$ | 7.42 | $ | 5.73 | $ | 4.90 | ||||||
|
Diluted
|
$ | 7.06 | $ | 5.43 | $ | 4.57 | ||||||
In 2007
and 2006, weighted average shares of restricted stock of 6,896 and 3,021 were
excluded from the calculation of weighted average basic shares outstanding.
Incremental shares from unvested restricted stock, restricted stock units and
deferred stock units were included in the calculation of weighted average
diluted shares outstanding using the treasury stock method in 2007 and in
2006.
|
(8)
|
Stock
Plans
|
At
December 31, 2007, the Company had four stock-based compensation plans which are
described more fully below. Prior to January 1, 2006, the Company accounted for
its plans under the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), and related interpretations. No stock-based employee compensation
cost was reflected in net income prior to January 1, 2006, 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.
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R, using the
modified-prospective transition method and the disclosures that follow are based
on applying SFAS No. 123R. Under this transition method, compensation expense
recognized included compensation expense for all share-based awards granted
prior to, but not yet vested as of, January 1, 2006, based on the grant date
fair value estimated in accordance with the original provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” (“SFAS No. 123”). In accordance with
the modified-prospective transition method, results for the prior periods have
not been restated.
Prior to
the adoption of SFAS No. 123R all tax benefits resulting from the exercise of
stock options were reflected as operating cash flows in the Consolidated
Statements of Cash Flows. SFAS No. 123R requires that cash flows from the
exercise of stock-based compensation resulting from tax benefits in excess of
recognized compensation cost (excess tax benefits) be classified as financing
cash flows. In 2007 and 2006, $805,000 and $752,000, respectively, of such
excess tax benefits was classified as financing cash flows. In 2005, $1,168,000
of such excess tax benefits was recorded as operating cash flows, as was
prescribed prior to the adoption of SFAS No. 123R.
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) received automatic annual grants of nonqualified
stock options to purchase 2,000 shares of common stock. The 1997
Stock Incentive Plan was amended in 2005 to provide that no additional stock
options may be granted to outside directors thereunder. 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 was required to 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 was 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.
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.
During
2006, the Company’s stockholders approved the adoption of the Company’s 2006
Equity Incentive Plan which provides for the grant to key employees and
consultants of incentive and nonqualified stock options, restricted stock,
restricted stock units, deferred stock units, stock appreciation rights and
performance shares. Under the 2006 Equity Incentive Plan, 100,000 shares, in the
aggregate, of common stock were reserved for awards. The purchase price of
shares issued on the exercise of options must be at least equal to the fair
market value of such shares on the date of grant. The purchase price
for restricted and performance shares is fixed by the Compensation Committee of
the Board of Directors. The options granted become exercisable and
expire as determined by the Compensation Committee except that incentive options
expire no later than 10 years after the date of grant.
In May of
2007, a non-employee director deferred compensation plan was put in place by the
Company. This plan allows the Company’s non-employee directors to
elect to substitute deferred stock units for the cash fees they are receiving
for their services as directors. They may elect to receive their fees
in deferred stock units on an annual basis at the beginning of the
year. The number of deferred stock units awarded for the cash fees
foregone is based upon the fair market value of the Company’s stock on the day
the cash fees would have been paid if not for the deferral. The
deferred stock units are convertible to stock on a one-for-one basis at a future
date as elected in advance by the director, but no later than the January
following the year in which the director ceases to serve on the Board of
Directors.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
Option
transactions for the three years in the period ended December 31, 2007 are as
follows:
|
Shares
|
Weighted
Average Exercise Price
|
|||||||
|
Options
outstanding at January 1, 2005
|
328,500 | $ | 22.33 | |||||
|
Granted
in 2005
|
12,500 | $ | 46.05 | |||||
|
Expired
in 2005
|
(1,000 | ) | $ | 31.39 | ||||
|
Exercised
in 2005
|
(114,900 | ) | $ | 19.88 | ||||
|
Options
outstanding at December 31, 2005
|
225,100 | $ | 24.86 | |||||
|
Granted
in 2006
|
25,000 | $ | 71.86 | |||||
|
Exercised
in 2006
|
(58,750 | ) | $ | 23.16 | ||||
|
Options
outstanding at December 31, 2006
|
191,350 | $ | 31.52 | |||||
|
Granted
in 2007
|
-- | -- | ||||||
|
Exercised
in 2007
|
(38,920 | ) | $ | 21.93 | ||||
|
Options
outstanding at December 31, 2007
|
152,430 | $ | 33.96 | |||||
|
Exercisable
options at December 31, 2005
|
206,350 | $ | 24.26 | |||||
|
Exercisable
options at December 31, 2006
|
166,350 | $ | 25.45 | |||||
|
Exercisable
options at December 31, 2007
|
133,680 | $ | 28.65 | |||||
All
unvested options outstanding at December 31, 2007 are expected to vest. As of
December 31, 2007, there remained 58,524 shares for which options may be granted
in the future under the 1997 Stock Incentive Plan and the 2006 Equity Incentive
Plan. The following table summarizes information about stock options outstanding
at December 31, 2007:
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
|
Range
of exercise prices
|
Number
outstanding
|
Weighted
average remaining contractual life
|
Weighted
average exercise price
|
Number
exercisable
|
Weighted
average exercise price
|
||||||||||||||
| $ |
6.875-$14.063
|
|
62,630 |
1.5
years
|
$ | 11.41 | 62,630 | $ | 11.41 | ||||||||||
| $ |
22.50-$29.30
|
|
12,000 |
4.5
years
|
$ | 25.98 | 12,000 | $ | 25.98 | ||||||||||
| $ |
43.75-$46.00
|
52,800 |
1.6
years
|
$ | 44.58 | 52,800 | $ | 44.58 | |||||||||||
| $ |
71.86
|
25,000 |
3.6
years
|
$ | 71.86 | 6,250 | $ | 71.86 | |||||||||||
| 152,430 |
2.1
years
|
$ | 33.96 | 133,680 | $ | 28.65 | |||||||||||||
The
Company estimates the fair value of stock options granted using the
Black-Scholes option-pricing formula and a single option award approach. None of
the Company’s grants includes performance-based or market-based vesting
conditions. The expected life represents the period that the Company’s
stock-based awards are expected to be outstanding and was determined based on
historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future
employee behavior. Stock-based payments made prior to January 1, 2006 were
accounted for using the intrinsic value method under APB 25. The fair value of
stock-based payments, funded with options, made subsequent to January 1, 2006
are valued using the Black-Scholes valuation method with a volatility factor
based on the Company’s historical stock trading history. The Company bases the
risk-free interest rate using the Black-Scholes valuation method on the implied
yield currently available on U. S. Treasury securities with an equivalent term.
The Company bases the dividend yield used in the Black-Scholes valuation method
on the Company’s stock dividend history.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
There
were no options granted in 2007. The fair value for the options
granted in 2006 and 2005 was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2006 and 2005:
|
2006
|
2005
|
|||||||
|
Risk-free
interest rate
|
4.9 | % | 3.4 | % | ||||
|
Dividend
yield
|
1.0 | % | 1.3 | % | ||||
|
Volatility
factor
|
25.0 | % | 31.3 | % | ||||
|
Expected
life
|
4
years
|
3
years
|
||||||
The
weighted average grant date fair values of the options granted in 2006 and 2005
were $18.02 and $10.51, respectively, per share. The total intrinsic values of
options exercised during 2007, 2006 and 2005 were $3.0 million, $2.8 million and
$3.7 million, respectively. The total intrinsic values of options outstanding
and options currently exercisable at December 31, 2007, were $13.9 million and
$12.9 million, respectively.
During
2006, the Company made one award of restricted stock under the 2006 Equity
Incentive Plan. Under the terms of the award and the plan, the restrictions
lapse generally over a five-year period. During the vesting period, holders of
the restricted stock have voting rights and earn dividends, but the shares may
not be sold, assigned, transferred, pledged or otherwise encumbered. Unvested
shares are forfeited on termination of employment. Changes in restricted
stock for the years ended December 31, 2006 and 2007 were as
follows:
|
Shares
|
Weighted
Average Award Date Fair Value Per Share
|
|||||||
|
Restricted
stock at January 1, 2006
|
-- | |||||||
|
Granted
in 2006
|
7,500 | $ | 71.86 | |||||
|
Vested
in 2006
|
-- | $ | - | |||||
|
Restricted
stock at December 31, 2006
|
7,500 | $ | 71.86 | |||||
|
Granted
in 2007
|
-- | $ | -- | |||||
|
Vested
in 2007
|
(1,500 | ) | $ | 71.86 | ||||
|
Restricted
stock at December 31, 2007
|
6,000 | $ | 71.86 | |||||
All shares of unvested restricted stock
outstanding at December 31, 2007 are expected to vest. The total intrinsic value
of unvested restricted stock awards at December 31, 2007 and 2006 was $750,000
and $583,000, respectively. The total fair value of restricted stock vested
during 2007 was $146,000.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
During
2007 restricted stock units were granted to certain key employees under the 2006
Equity Incentive Plan. All of these stock units are convertible to
shares of stock on a one-for-one basis when the restrictions lapse, which is
generally over a five-year period. Unvested stock units are forfeited on
termination of employment. During the vesting period, holders of all restricted
stock units earn dividends as additional units. During 2007, certain outside
directors elected to receive stock units as compensation for their services as
board members. Changes in restricted and deferred stock units for the
year ended December 31, 2007 were as follows:
|
Restricted
Stock Units
|
Weighted
Average Award Date Fair Value Per Unit
|
Directors’
Deferred Stock Units
|
Weighted
Average Award Date Fair Value Per Unit
|
|||||||||||||
|
Unvested
stock units at January 1, 2007
|
-- | -- | ||||||||||||||
|
Granted
in 2007
|
10,010 | $ | 96.03 | 210 | $ | 98.87 | ||||||||||
|
Vested
in 2007
|
-- | 210 | $ | 98.87 | ||||||||||||
|
Unvested
stock units at December 31, 2007
|
10,010 | $ | 96.03 | -- | ||||||||||||
All
unvested restricted stock units at December 31, 2007 are expected to vest. No
restricted stock units vested during 2007. The total intrinsic value of all
outstanding stock units which are not yet convertible at December 31, 2007,
including 210 deferred stock units held for the accounts of outside directors,
was $1,277,000. The total fair value of directors’ deferred stock units
vested during 2007 was $21,000. As of December 31, 2007, there remained
2,290 units which may be awarded in the future to non-employee
directors.
Compensation
related to stock options is based on the fair value of stock options granted
using the Black-Scholes option-pricing formula and a single option award
approach. Compensation related to restricted stock and restricted stock units is
based on the fair market value of the stock on the date of the grant. These fair
values are then amortized on a straight-line basis over the requisite service
periods of the entire awards, which is generally the vesting period. For the
years ended December 31, 2007 and 2006, the Company recorded share-based
compensation expense as a “General and Administrative expense” in the amount of
$368,000 and $116,000, respectively for all of the above mentioned share-based
compensation arrangements. The total tax benefit recognized in the income
statement from share-based compensation arrangements for the years ended
December 31, 2007 and 2006, was $130,000 and $35,000, respectively.
Unrecognized
compensation cost information for the Company’s various share-based compensation
types are shown below as of December 31, 2007:
|
Unrecognized
Compensation Cost
|
Weighted
Average Remaining Years in Amortization Period
|
|||||||
|
Stock
options
|
$ | 291,000 | 2.6 | |||||
|
Restricted
stock
|
386,000 | 3.6 | ||||||
|
Restricted
stock units
|
851,000 | 4.5 | ||||||
|
Total
|
$ | 1,528,000 | ||||||
The
Company has a policy of utilizing existing treasury shares to satisfy stock
option exercises, stock unit conversions and restricted stock
awards.
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 in 2005 (in thousands, except per share
amounts):
|
2005
|
||||
|
Net
income, as reported
|
$ | 8,958 | ||
|
Deduct:
Total stock-based employee compensation expense determined under fair
value-based methods for all awards, net of tax effects
|
129 | |||
|
Pro
forma net income
|
$ | 8,829 | ||
|
Income
per share:
|
||||
|
Basic
– as reported
|
$ | 4.99 | ||
|
Basic
– pro forma
|
$ | 4.92 | ||
|
Diluted
– as reported
|
$ | 4.66 | ||
|
Diluted
– pro forma
|
$ | 4.59 | ||
|
(9)
|
Revenues
From Major Customers
|
The
Company had one major customer which represented approximately $12.6 million
(14.2 percent), $7.9 million (9.7 percent) and $7.8 million (10.8 percent) of
the Company’s operating revenues during 2007, 2006 and 2005,
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 healthcare
industry and has no foreign operating subsidiaries. The Company has
other product lines which 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
$958,000 in 2007 and $955,000 in each of 2006 and 2005. Pipeline net
assets totaled $2.2 and $2.3 million at December 31, 2007 and 2006,
respectively. Company revenues from sales to parties outside the
United States totaled approximately 36 percent, 30 percent and 27 percent of the
Company’s total revenues in 2007, 2006 and 2005, respectively. No
Company assets are located outside the United States.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
A summary
of revenues by geographic territory, based on shipping destination, for 2007,
2006 and 2005 is as follows (in thousands):
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
United
States
|
$ | 56,860 | $ | 56,784 | $ | 52,283 | ||||||
|
Canada
|
14,890 | 9,235 | 8,232 | |||||||||
|
United
Kingdom
|
2,204 | 1,897 | 1,984 | |||||||||
|
Japan
|
3,199 | 2,763 | 1,824 | |||||||||
|
Germany
|
2,434 | 1,827 | 1,183 | |||||||||
|
China
|
1,133 | 983 | 1,058 | |||||||||
|
Other
countries less than $1 million
|
7,820 | 7,531 | 5,525 | |||||||||
|
Total
|
$ | 88,540 | $ | 81,020 | $ | 72,089 | ||||||
A summary
of revenues by product line for 2007, 2006 and 2005 is as follows (in
thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Fluid
Delivery
|
$ | 28,745 | $ | 25,809 | $ | 20,447 | ||||||
|
Cardiovascular
|
23,577 | 23,290 | 19,307 | |||||||||
|
Ophthalmology
|
17,614 | 13,744 | 14,514 | |||||||||
|
Other
|
18,604 | 18,177 | 17,821 | |||||||||
|
Total
|
$ | 88,540 | $ | 81,020 | $ | 72,089 | ||||||
|
(11)
|
Employee
Retirement and Benefit Plans
|
In September 2007, the Company
terminated a noncontributory cash balance defined benefit retirement plan that
was maintained for all regular employees of the Company except those of Quest
Medical. Prior to termination, it was the Company’s funding policy to
make the annual contributions required by applicable regulations and recommended
by its actuary. The Company used a December 31 measurement date for
the plan. Affected employees accrued pension benefits through December 31, 2007,
but will not accrue any additional benefits under the plan after that
date. A curtailment gain of $361,000 was recorded in the third
quarter of 2007 related to the Company’s action to terminate the plan. During
September 2007 the plan settled its obligations to a certain group of
participants whose employment had terminated by acquiring for them annuities
from a life insurance company. A settlement loss for this transaction
of $671,000 was recorded in the third quarter of 2007.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
The
following is a reconciliation of the beginning and ending balances of the
benefit obligation and the fair value of plan assets as of year end (in
thousands):
|
2007
|
2006
|
|||||||
|
Actuarial
Present Value of Benefit Obligation:
|
||||||||
|
Accumulated
Benefit Obligation
|
$ | 3,612 | $ | 5,806 | ||||
|
Projected
Benefit Obligation
|
3,612 | 5,905 | ||||||
|
Change
in Projected Benefit Obligation:
|
||||||||
|
Projected
benefit obligation, January 1
|
$ | 5,905 | $ | 5,655 | ||||
|
Service
cost
|
259 | 278 | ||||||
|
Interest
cost
|
243 | 334 | ||||||
|
Actuarial
(gain)/loss
|
(88 | ) | 12 | |||||
|
Benefits
paid
|
(404 | ) | (374 | ) | ||||
|
Curtailments
|
(76 | ) | -- | |||||
|
Settlements
|
(2,227 | ) | -- | |||||
|
Projected
benefit obligation, December 31
|
$ | 3,612 | $ | 5,905 | ||||
|
Change
in Plan Assets:
|
||||||||
|
Fair
value of plan assets, January 1
|
$ | 6,313 | $ | 5,676 | ||||
|
Actual
return on plan assets
|
503 | 761 | ||||||
|
Employer
contributions
|
-- | 250 | ||||||
|
Benefits
paid
|
(404 | ) | (374 | ) | ||||
|
Settlements
|
(2,227 | ) | -- | |||||
|
Fair
value of plan assets, December 31
|
$ | 4,185 | $ | 6,313 | ||||
|
Funded
Status of Plan at Year End
|
$ | 573 | $ | 408 | ||||
The
following table summarizes amounts recognized in accumulated other comprehensive
loss (in thousands):
|
2007
|
2006
|
|||||||
|
Unrecognized
net actuarial loss
|
$ | 748 | $ | 1,762 | ||||
|
Unrecognized
prior service cost
|
-- | (389 | ) | |||||
|
Net
unrecognized net actuarial loss
|
$ | 748 | $ | 1,373 | ||||
|
Tax
benefit recognized
|
(262 | ) | (481 | ) | ||||
|
Net
amount
|
$ | 486 | $ | 892 | ||||
The
Company anticipates that $24,000 of the net actuarial loss will be amortized
from accumulated other comprehensive loss into net periodic benefit cost during
2008 and that the remaining net actuarial loss will be recognized as a charge at
the final settlement of the plan expected to happen in early
2009.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
The
funded status of the Company’s pension plan was recognized as other assets in
the consolidated balance sheets in the amount of $573,000 at December 31, 2007
and $408,000 at December 31, 2006.
The
components of net periodic pension cost for 2007, 2006 and 2005 were as follows
(in thousands):
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Components
of Net Periodic
Pension Cost:
|
||||||||||||
|
Service
cost
|
$ | 259 | $ | 278 | $ | 267 | ||||||
|
Interest
cost
|
243 | 334 | 322 | |||||||||
|
Expected
return on assets
|
(370 | ) | (445 | ) | (456 | ) | ||||||
|
Prior
service cost amortization
|
(28 | ) | (37 | ) | (37 | ) | ||||||
|
Actuarial
loss
|
46 | 116 | 107 | |||||||||
|
Transition
amount amortization
|
-- | -- | (44 | ) | ||||||||
|
Curtailment
gain
|
(361 | ) | -- | -- | ||||||||
|
Settlement
loss
|
671 | -- | -- | |||||||||
|
Net
periodic pension expense
|
$ | 460 | $ | 246 | $ | 159 | ||||||
Actuarial
assumptions used to determine benefit obligations at December 31 were as
follows:
|
2007
|
2006
|
|||||||
|
Discount
rate
|
6.00 | % | 6.00 | % | ||||
|
Rate
of compensation increase
|
N/A | 5.00 | % | |||||
Actuarial
assumptions used to determine net periodic pension cost were as
follows:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Discount
rate
|
6.00 | % | 6.00 | % | 6.00 | % | ||||||
|
Expected
long-term return on assets
|
8.00 | % | 8.00 | % | 8.00 | % | ||||||
|
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, 2007 and 2006 were invested in the
following asset categories:
|
2007
|
2006
|
|||||||
|
Asset
Category:
|
||||||||
|
Equity
securities
|
0 | % | 77 | % | ||||
|
Debt
securities
|
0 | % | 19 | % | ||||
|
Other
|
100 | % | 4 | % | ||||
|
Total
|
100 | % | 100 | % | ||||
The
Company liquidated all plan investments in September 2007 in conjunction with
the decision to terminate the plan. At December 31, 2007, all remaining assets
were invested in a certificate of deposit or in a money market account. The
Company did not make any contributions to the plan during 2007, and it believes
that no further contributions to the plan will be required to finalize the plan
termination based upon the plan’s year-end funding status. The Company estimates
that future benefit payments will total $90,000 in 2008. The final
payout for the plan termination will likely occur in early 2009 after all
regulatory approvals are received. The Company currently projects benefit
payments for the final payout to be approximately $3.8 million.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
During
the third quarter the Company also terminated and settled its obligations under
two nonqualified retirement plans by making additional contributions of $280,000
to the trusts for such plans and then distributing all trust assets to the plan
participants. A settlement loss of $19,000 was recorded in the third
quarter of 2007 with respect to these plans
The
Company 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 contributions under this plan
were $246,000, $244,000 and $223,000 in 2007, 2006 and 2005,
respectively.
|
(12)
|
Commitments
and Contingencies
|
From time
to time and in the ordinary course of business, the Company may be subject to
various claims, charges and litigation. In some cases, the claimants may seek
damages, as well as other relief, which, if granted, could require significant
expenditures. The Company accrues the estimated costs of settlement or damages
when a loss is deemed probable and such costs are estimable, and accrues for
legal costs associated with a loss contingency when a loss is probable and such
amounts are estimable. Otherwise, these costs are expensed as incurred. If the
estimate of a probable loss or defense costs is a range and no amount within the
range is more likely, the Company accrues the minimum amount of the range. As of
December 31, 2007, the Company had accrued $200,000 for legal fees and
expenses that it expected to incur in connection with the litigation or
arbitration of two such matters.
The
Company had an ongoing dispute which was favorably settled in the third quarter
of 2007. The Company recorded a one-time benefit of $1.4 million, net of
expenses, in operating expenses. As part of this settlement the Company could
receive additional annual payments totaling $4.1 million through 2025. The
Company did not record these payments as part of the settlement due to the
uncertainty of collection.
The
Company has arrangements with two of 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 2008 could result
in payments aggregating $1.6 million excluding any excise tax that may be
reimbursable by the Company.
During
2005 and 2006, the Company constructed a new facility in St. Petersburg, Florida
for its Halkey-Roberts operation. The new facility is located approximately four
miles from the leased facility then being used by that
subsidiary. The Company completed the construction of this new
facility and moved the Halkey-Roberts operation into the new facility during the
third quarter of 2006. The Company terminated its lease for the former
Halkey-Roberts facility which was vacated in October of 2006. This lease was
being accounted for as an operating lease, and the rental expense for the years
ended December 31, 2006 and 2005 was $363,000 and $422,000,
respectively. There is no future rental commitment under this
lease.
Atrion
Corporation
Notes
to Consolidated Financial Statements – (continued)
|
(13)
|
Quarterly
Financial Data (Unaudited):
|
|
Quarter
Ended
|
Operating
Revenue
|
Operating
Income
|
Net
Income
|
Income
Per Basic Share
|
Income
Per Diluted Share
|
|||||||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||||||||||
|
03/31/07
|
$ | 23,037 | $ | 4,737 | $ | 3,136 | $ | 1.68 | $ | 1.59 | ||||||||||
|
06/30/07
|
|
23,199 | 5,426 | 3,618 | 1.92 | 1.83 | ||||||||||||||
|
09/30/07
|
21,315 | 5,795 | 4,110 | 2.17 | 2.07 | |||||||||||||||
|
12/31/07
|
20,989 | 4,237 | 3,142 | 1.65 | 1.57 | |||||||||||||||
|
03/31/06
|
$ | 19,503 | $ | 3,052 | $ | 2,106 | $ | 1.15 | $ | 1.08 | ||||||||||
|
06/30/06
|
20,849 | 4,125 | 2,985 | 1.62 | 1.53 | |||||||||||||||
|
09/30/06
|
19,290 | 3,186 | 2,696 | 1.45 | 1.38 | |||||||||||||||
|
12/31/06
|
21,379 | 3,974 | 2,979 | 1.60 | 1.52 | |||||||||||||||
The
quarter ended September 30, 2007 included two special items that combined
to add $1.1 million to operating income, $695,000 to net income, $0.37 to net
income per basic share, and $0.35 to net income per diluted share.
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.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
CONTROLS
AND PROCEDURES
|
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and its Chief Financial Officer, evaluated the Company’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of December 31, 2007. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures are effective. There were no changes in the
Company’s internal control over financial reporting for the fourth fiscal
quarter ended December 31, 2007 that have materially affected or are reasonably
likely to materially affect the Company’s internal control over financial
reporting.
There has
been no change in the Company’s internal control over financial reporting during
the quarter ended December 31, 2007.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended. The Company’s internal control
system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. All
internal control systems, no matter how well designed, have inherent
limitations. A system of internal control may become inadequate over time
because of changes in conditions or deterioration in the degree of compliance
with the policies or procedures. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007 using the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal
Control-Integrated Framework. Based on this assessment, the Company’s
management concluded that, as of December 31, 2007, the Company’s internal
control over financial reporting was effective.
Grant
Thornton LLP, an independent registered public accounting firm, has audited the
consolidated financial statements included in this Report and, as part of their
audit, has issued the following report on the effectiveness of our
internal control over financial reporting.
Report
of Independent Registered Public Accounting Firm
Board of
Directors and
Stockholders
of Atrion Corporation
We have
audited Atrion Corporation’s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Atrion Corporation’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on Atrion
Corporation’s internal control over financial reporting based on our
audit.
We
conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Atrion Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated
Framework issued by COSO.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Atrion
Corporation and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of income, changes in stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2007, and our report dated March 13, 2008, expressed an
unqualified opinion on those financial statements.
/s/ Grant
Thornton LLP
Dallas,
Texas
March 13,
2008
|
OTHER
INFORMATION
|
There was
no information required to be disclosed in a report on Form 8-K during the three
months ended December 31, 2007 that was not reported.
|
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 2008 annual
meeting of stockholders.
Executive
Officers
The
information for this item relating to executive officers of the Company is set
forth in Part I 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 2008 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.
|
EXECUTIVE
COMPENSATION
|
The
information for this item is incorporated by reference from the Company's
definitive proxy statement for its 2008 annual meeting of
stockholders.
|
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 2008 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 2008 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.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information for this item is incorporated by reference from the Company's
definitive proxy statement for its 2008 annual meeting of
stockholders.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
information for this item is incorporated by reference from the Company’s
definitive proxy statement for its 2008 annual meeting of
stockholders.
|
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 and Comprehensive
Income
|
2.
|
Financial Statement
Schedules:
|
|
|
Schedule
II – Consolidated Valuation and Qualifying
Accounts
|
|
Allowance
for Doubtful Receivables
|
||||||||||||
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Beginning
balance
|
$ | 149 | $ | 65 | $ | 118 | ||||||
|
Additions
charged to expense
|
(30 | ) | 106 | (34 | ) | |||||||
|
Deductions
from reserve
|
(87 | ) | (22 | ) | (19 | ) | ||||||
|
Ending
balance
|
$ | 32 | $ | 149 | $ | 65 | ||||||
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
|
Bylaws
of Atrion Corporation, as last amended on December 3, 2007
(3)
|
|
10a*
|
Atrion
Corporation 1997 Stock Incentive Plan (4)
|
|
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*
|
Severance
Plan for Chief Financial Officer (10)
|
|
10h*
|
Chief
Executive Officer Amended and Restated Employment Agreement (11)
|
|
10i*
|
Atrion
Corporation 2006 Equity Incentive Plan (12)
|
|
10j*
|
Form
of Award Agreement for Incentive Stock Option under the Atrion Corporation
2006 Equity Incentive Plan (13)
|
|
10k*
|
Form
of Award Agreement for Non-Qualified Stock Option under the Atrion
Corporation 2006 Equity Incentive Plan (14)
|
|
10l*
|
Form
of Award Agreement for Restricted Stock under the Atrion Corporation 2006
Equity Incentive Plan (15)
|
|
10m*
|
Deferred
Compensation Plan for Non-Employee Directors (16)
|
|
10n*
|
Form
of Deferred Fee Election Form – Deferred Compensation Plan for
Non-Employee Directors (17)
|
|
10o*
|
Non-Employee
Director Stock Purchase Plan (18)
|
|
10p*
|
Form
of Stock Purchase Election Form – Non-Employee Director Stock Purchase
Plan (19)
|
|
10q*
|
Incentive
Compensation Plan for Chief Financial Officer for Calendar Years Beginning
2007 (20)
|
|
10r*
|
Halkey-Roberts
Corporation Incentive Compensation Plan (21)
|
|
Subsidiaries
of Atrion Corporation as of December 31, 2007 (22)
|
|
|
Consent
of Grant Thornton LLP
(22)
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Executive Officer (22)
|
|
|
Sarbanes-Oxley
Act Section 302 Certification of Chief Financial Officer (22)
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes – Oxley Act Of 2002 (22)
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes – Oxley Act Of 2002 (22)
|
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 Exhibit 3.1 to the Form 8-K of Atrion Corporation filed
December 6, 2007
|
|
|
(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 10b to Form 10-Q of Atrion Corporation dated May
12, 2000.
|
|
|
(11)
|
Incorporated
by reference to Exhibit 10.1 to Form 10-Q of Atrion Corporation dated
November 6, 2006.
|
|
|
(12)
|
Incorporated
by reference to Appendix A to Definitive Proxy Statement of Atrion
Corporation dated April 6, 2006.
|
|
|
(13)
|
Incorporated
by reference to Exhibit 10.2 to Form 10-Q of Atrion Corporation dated
August 8, 2006.
|
|
|
(14)
|
Incorporated
by reference to Exhibit 10.3 to Form 10-Q of Atrion Corporation dated
August 8, 2006.
|
|
|
(15)
|
Incorporated
by reference to Exhibit 10.4 to Form 10-Q of Atrion Corporation dated
August 8, 2006.
|
|
|
(16)
|
Incorporated
by reference to Exhibit 4.1 to the Form S-8 of Atrion Corporation filed
June 27. 2007 (File No. 333-144086).
|
|
|
(17)
|
Incorporated
by reference to Exhibit 10.1 to the Form S-8 of Atrion Corporation filed
June 27. 2007 (File No. 333-144086).
|
|
|
(18)
|
Incorporated
by reference to Exhibit 4.1 to the Form S-8 of Atrion Corporation filed
June 27. 2007 (File No. 333-144085).
|
|
|
(19)
|
Incorporated
by reference to Exhibit 10.1 to the Form S-8 of Atrion Corporation filed
June 27. 2007 (File No. 333-144085).
|
|
|
(20)
|
Incorporated
by reference to Exhibit 10.5 to Form 10-Q of Atrion Corporation dated
August 7, 2007.
|
|
|
(21)
|
Incorporated
by reference to Exhibit 10.6 to Form 10-Q of Atrion Corporation dated
August 7, 2007.
|
|
|
(22)
|
Filed
herewith.
|
*
Management Contract or Compensatory Plan or Arrangement
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
and Chief
|
||||
|
Executive
Officer
|
||||
Dated:
March 13, 2008
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
and Chief Executive
|
March
13, 2008
|
||
|
Emile
A. Battat
|
Officer
(Principal Executive Officer)
|
|||
|
/s/
Jeffery Strickland
|
Vice
President, Chief Financial Officer and
|
March
13, 2008
|
||
|
Jeffery
Strickland
|
Secretary-Treasurer
(Principal Financial
|
|||
|
and
Accounting Officer)
|
||||
|
/s/
Hugh J. Morgan, Jr.
|
Director
|
March
13, 2008
|
||
|
Hugh
J. Morgan, Jr.
|
||||
|
/s/
Roger F. Stebbing
|
Director
|
March
13, 2008
|
||
|
Roger
F. Stebbing
|
||||
|
/s/
John P. Stupp, Jr.
|
Director
|
March
13, 2008
|
||
|
John
P. Stupp, Jr.
|
||||
|
/s/
Ronald N. Spaulding
|
Director
|
March
13, 2008
|
||
|
Ronald
N. Spaulding
|
||||
-55-