<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
January 30, 1998
Atrion Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-10763 63-0821819
-------- ------- ----------
(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
One Allentown Parkway, Allen, Texas 75002
-----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(972) 390-9800
-1-
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a. Financial Statements of Businesses Acquired. This item is amended to
provide financial statements of Quest Medical, Inc. CVS Operations, which are
filed as Exhibit 99.3 to this Current Report on Form 8-K and incorporated
herein by reference:
Audited Annual Financial Statements
Report of Independent Auditors
Statements of Assets and Liabilities as of December 31, 1997
and 1996
Statements of Operations and Changes in Net Assets for the
years ended December 31, 1997 and 1996
Statements of Cash Flows for the years ended December 31,
1997 and 1996
Notes to Consolidated Financial Statements
b. Pro Forma Financial Information. This item is amended to provide the
following unaudited pro forma condensed combined financial statements which are
filed as Exhibit 99.4 to this Current Report on Form 8-K and incorporated
herein by reference:
Pro Forma Condensed Combined Balance Sheet as of December 31,
1997
Pro Forma Condensed Combined Statement of Income for the
twelve months ended December 31, 1997
Notes to Pro Forma Condensed Combined Consolidated Financial
Statements
-2-
<PAGE> 3
c. Exhibits:
2 Asset Purchase Agreement dated as of December 29,
1997, by and among Quest Medical, Inc., QMI
Acquisition Corporation and Atrion Corporation(1)
23.1 Consent of Independent Auditors(2)
99.1 Press Release of the Registrant dated December 30,
1997(1)
99.2 Press Release of the Registrant dated January 30,
1998(1)
99.3 Financial Statements of Business Acquired(2)
99.4 Pro Forma Financial Information(2)
- --------------------------------
(1) Filed as an Exhibit to the report of the Company on Form 8-K dated
February 17, 1998, and incorporated herein by reference.
(2) Filed herewith.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 15, 1998 ATRION CORPORATION
By: /s/ Jeffery Strickland
---------------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
-4-
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------
<S> <C>
2 Asset Purchase Agreement dated as of December 29, 1997, by and
among Quest Medical, Inc., QMI Acquisition Corporation and
Atrion Corporation(1)
23.1 Consent of Independent Auditors(2)
99.1 Press Release of the Registrant dated December 30, 1997(1)
99.2 Press Release of the Registrant dated January 30, 1998(1)
99.3 Financial Statements of Business Acquired(2)
99.4 Pro Forma Financial Information(2)
</TABLE>
- -----------------------------------
(1) Filed as an Exhibit to the report of the Company on Form 8-K dated
February 17, 1998, and incorporated herein by reference.
(2) Filed herewith
-5-
<PAGE> 1
EXHIBIT 23.1
-6-
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-40639 and 33-61309) pertaining to Atrion Corporation and the
related Prospectuses of our report dated February 25, 1998, with respect to the
financial statements of Quest Medical, Inc. CVS Operations included in the Form
8-K/A, as amended, dated April 15, 1998 of Atrion Corporation filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
April 14, 1998
-7-
<PAGE> 1
EXHIBIT 99.3
-8-
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Quest Medical, Inc.
We have audited the accompanying statements of assets and liabilities of the
CVS Operations of Quest Medical, Inc. as of December 31, 1997 and 1996, and the
related statements of operations, changes in net assets and cash flows for the
years then ended. These 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 generally accepted auditing
standards. 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 our audits provide a reasonable basis for
our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the assets and liabilities of the CVS Operations of Quest
Medical, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 25, 1998
-9-
<PAGE> 3
QUEST MEDICAL, INC.
CVS OPERATIONS
ASSETS AND LIABILITIES
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSETS DECEMBER 31,
---------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Receivables:
Trade accounts, less allowance for doubtful
accounts of $30,610 in 1997 and $14,337 in 1996 $ 2,180,491 $ 2,411,113
Net investment in sales-type leases 300,787 176,875
---------------------------------------
Total receivables 2,481,278 2,587,988
---------------------------------------
Inventories:
Raw materials 1,940,371 2,750,135
Work-in-process 601,270 708,513
Finished goods 2,667,035 1,895,749
---------------------------------------
Total inventories 5,208,676 5,354,397
---------------------------------------
Prepaid expenses and other current assets 131,735 218,680
---------------------------------------
Total current assets 7,821,689 8,161,065
---------------------------------------
Property, plant and equipment:
Leasehold improvements 63,629 44,272
Furniture and fixtures 3,369,484 3,221,839
Machinery and equipment 4,684,108 4,555,592
Cardioplegia equipment rented to customers 450,211 --
---------------------------------------
8,567,432 7,821,703
Less accumulated depreciation and
amortization 4,933,577 3,942,627
---------------------------------------
Net property, plant and equipment 3,633,855 3,879,078
---------------------------------------
Purchased technology from acquisitions, net of
accumulated amortization of $314,659 in 1997 and
$264,108 in 1996 383,341 433,892
Cost in excess of net assets acquired, net of accumulated
amortization of $227,749 in 1997 and $185,016 in 1996 785,457 828,190
Patents and patent applications, net of accumulated
amortization of $1,501,090 in 1997 and $1,311,556 in 1996 874,308 1,063,843
Other assets 8,631 8,631
=======================================
$ 13,507,282 $ 14,374,697
=======================================
</TABLE>
See accompanying notes to financial statements.
-10-
<PAGE> 4
QUEST MEDICAL, INC.
CVS OPERATIONS
ASSETS AND LIABILITIES
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS DECEMBER 31,
---------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 410,483 $ 1,515,316
Accrued vacations 112,870 112,870
Accrued sales commissions 23,947 63,866
Other accrued expenses 128,664 112,470
---------------------------------------
Total current liabilities 675,964 1,804,522
---------------------------------------
Net assets of CVS Operations 12,831,318 12,570,175
=======================================
$ 13,507,282 $ 14,374,697
=======================================
</TABLE>
See accompanying notes to financial statements.
-11-
<PAGE> 5
QUEST MEDICAL, INC.
CVS OPERATIONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenue $ 14,306,127 $ 14,670,664
Cost of revenue 7,805,473 7,690,005
---------------------------------------
Gross profit 6,500,654 6,980,659
---------------------------------------
Operating expenses:
General and administrative 1,976,297 2,117,568
Research and development 1,302,987 2,026,673
Marketing 2,888,170 3,251,533
---------------------------------------
6,167,454 7,395,774
---------------------------------------
Earnings (loss) from operations 333,200 (415,115)
---------------------------------------
Interest expense (442,599) (348,523)
---------------------------------------
Loss from operations before income tax benefit (109,399) (763,838)
Income tax benefit (15,909) (236,967)
---------------------------------------
Net loss $ (93,490) $ (526,671)
=======================================
</TABLE>
See accompanying notes to financial statements.
-12-
<PAGE> 6
QUEST MEDICAL, INC.
CVS OPERATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (93,490) $ (526,671)
Adjustments to reconcile net loss from operations
to net cash provided (used) by operating activities:
Depreciation and amortization 1,273,788 1,065,453
Increase in inventory reserve 230,700 --
Changes in assets and liabilities:
Receivables 106,710 (716,117)
Inventories (84,979) (872,253)
Prepaid expenses and other assets 86,945 175,534
Accounts payable (1,104,833) 642,830
Accrued expenses (23,725) 85,793
---------------------------------------
Net cash provided (used) by operating activities 391,096 (145,431)
Cash flows from investing activities:
Additions to property, plant and equipment (745,729) (1,580,468)
---------------------------------------
Net cash used by investing activities (745,729) (1,580,468)
---------------------------------------
Net cash transfers from parent $ (354,633) $ (1,725,899)
=======================================
</TABLE>
See accompanying notes to financial statements.
-13-
<PAGE> 7
QUEST MEDICAL, INC.
CVS OPERATIONS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets of CVS Operations, beginning of year $ 12,570,175 $ 11,370,947
Net loss (93,490) (526,671)
Cash transfers from parent, net 354,633 1,725,899
=======================================
Net assets of CVS Operations, end of year $ 12,831,318 $ 12,570,175
=======================================
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE> 8
CVS OPERATIONS
QUEST MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS OF CVS
The CVS Operations (also referred to herein as "CVS") of Quest Medical, Inc.
(the "Parent") design, develop, manufacture and market a variety of healthcare
products used primarily in cardiovascular surgery and intravenous fluid
delivery applications. CVS revenues are derived primarily from sales throughout
the United States and to a lesser extent from sales internationally.
The research and development, manufacture, sale and distribution of medical
devices are subject to extensive regulation by various public agencies,
principally the Food and Drug Administration and corresponding state, local and
foreign agencies. Product approvals and clearances can be delayed or withdrawn
for failure to comply with regulatory requirements or upon the occurrence of
unforeseen problems following initial marketing.
In addition, CVS products are purchased primarily by hospitals and other users
which then bill various third-party payers including Medicare, Medicaid,
private insurance companies and managed care organizations. These third-party
payers reimburse fixed amounts for services based on a specific diagnosis. The
impact of changes in third-party payer reimbursement policies and any
amendments to existing reimbursement rules and regulations which restrict or
terminate the eligibility of CVS products could have an adverse impact on the
CVS Operations' financial condition and results of operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the CVS Operations of Quest
Medical, Inc. These financial statements reflect the revenues and expenses of
the CVS Operations, including direct and indirect expenses of the operations
that are paid by the Parent and charged directly to the CVS Operations.
Allocation of the general overhead from the Parent includes charges for
regulatory, general corporate management, accounting and payroll services,
human resources, management information systems and facilities expenses based
on revenues of the CVS Operations to total revenues for the Parent. Management
of the Parent believes that the expenses charged to the CVS Operations on this
basis are not materially different from the costs that would have been incurred
had the CVS Operations borne such expenses on a direct basis.
The taxable income or loss of the CVS Operations is included in the
consolidated tax return of the Parent. No current or deferred tax assets or
liabilities have been allocated to the CVS Operations by the Parent.
-15-
<PAGE> 9
CVS OPERATIONS
QUEST MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
Interest expense on the Parent's corporate facility has been allocated to the
CVS Operations based on space utilization. Interest expense on the Parent's
general credit facilities was allocated to the CVS Operations based on the
ratio of the net assets of the CVS Operations to the total net assets of the
Parent.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
NET ASSETS
The Parent utilizes a centralized cash management system. Cash advanced from
the Parent to the CVS Operations has been reflected as an increase in net
assets in the accompanying statements.
REVENUE RECOGNITION
CVS recognizes revenue from product sales when the goods are shipped to its
customers.
LEASES
CVS leases the MPS myocardial protection system to customers under
noncancellable leases with terms of up to five years. The present value of the
minimum rentals to be received under such leases is recorded as net sales. The
difference between the gross rentals to be received and the present value of
the rentals is recorded as unearned finance income and is amortized into income
on the interest method over the lease term. The cost of the leased equipment is
charged to cost of sales at the time the sale is recorded. At December 31, 1997
and 1996, the balance in the net investment in sales-type leases was $300,787
and $176,875, respectively.
INVENTORIES
Inventories are recorded at the lower of standard cost or market. Standard cost
approximates actual cost determined on the first-in, first-out (FIFO) basis.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions and improvements
extending asset lives are capitalized while maintenance and repairs are
expensed as incurred. Depreciation is provided using the straight-line method
over the estimated useful lives of the various assets ranging from 3 to 10
years.
INTANGIBLE ASSETS
The excess of costs over the net assets of acquired businesses (goodwill) is
amortized on a straight-line basis over the estimated useful life of 25 years.
-16-
<PAGE> 10
CVS OPERATIONS
QUEST MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
The cost of purchased technology related to acquisitions is based on appraised
values at the date of acquisition and is amortized on a straight-line basis
over the estimated useful life (15 years) of such technology.
The cost of purchased patents is amortized on a straight-line basis over the
estimated useful life (4 to 17 years) of such patents. Costs of patents which
are the result of internal development are charged to current operations.
The Parent assesses the recoverability of the CVS intangible assets primarily
based on its current and anticipated future undiscounted cash flows. At
December 31, 1997, the Parent does not believe there has been any impairment of
the CVS intangible assets.
RESEARCH AND DEVELOPMENT
Product development costs including start-up, research and development,
advertising and promotional costs are charged to CVS Operations in the year in
which such costs are incurred.
ADVERTISING
Advertising expense is charged to operations in the year in which such costs
are incurred. Total advertising expense included in marketing was $17,454 and
$20,299 at December 1997 and 1996, respectively.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to current year
presentation.
NOTE 3 COMMITMENTS AND CONTINGENCIES
The CVS Operations has no material commitments under noncancelable operating
leases. Total rent expense under operating leases included in CVS Operations
for the years ended December 31, 1997 and 1996 was $14,784 and $14,983,
respectively.
NOTE 4 FINANCIAL INSTRUMENTS, RISK CONCENTRATION AND MAJOR CUSTOMERS
In the United States, the CVS accounts receivable are due primarily from
hospitals and O.E.M. suppliers located throughout the county. Internationally,
the Parent's accounts receivable are due primarily from distributors. The CVS
Operations generally does not require collateral for trade receivables. The CVS
Operations maintains an allowance for doubtful accounts based upon expected
collectibility. Any losses from bad debts have historically been within
management's expectations.
Net sales to a major CVS customer for each of the three years ended December
31, as a percentage of total net revenues from CVS Operations was as follows:
1997--14 percent and 1996--16 percent. Foreign sales for the years ended
December 31, 1997
-17-
<PAGE> 11
CVS OPERATIONS
QUEST MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
and 1996 were approximately 12 percent and 13 percent, respectively, of total
net revenues.
NOTE 5 EMPLOYEE BENEFIT PLANS
The Parent has a defined contribution retirement savings plan (the "Plan")
available to substantially all employees. The Plan permits employees to elect
salary deferral contributions of up to 15 percent of their compensation and
requires the Parent to make matching contributions equal to 50 percent of the
participants' contributions, to a maximum of 6 percent of the participants'
compensation. The Board of Directors may change the percentage of matching
contribution at its discretion. The expense of the Parent's contribution
charged to CVS Operations was $77,438 in 1997 and $94,973 in 1996. This charge
was based on the ratio of CVS revenues to total revenues of the Parent.
Management of the Parent believes that the expense charged to the CVS
Operations is not materially different from the cost that would have been
incurred had the CVS Operations borne such expense on a direct basis.
6. INCOME TAXES
A reconciliation of the income tax benefit to the benefit calculated at the
U.S. statutory rate follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Income tax benefit at Federal statutory rate $ (37,196) $ (259,637)
Tax effect of research and development credit -- --
Nondeductible amortization of goodwill 11,940 15,258
Nondeductible meals and entertainment 17,936 19,146
Other (8,589) (11,734)
--------------------------------
Income tax benefit $ (15,909) $ (236,967)
================================
</TABLE>
-18-
<PAGE> 1
EXHIBIT 99.4
-19-
<PAGE> 2
ATRION CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ATRION CVS PRO FORMA PRO FORMA
CORPORATION DIVISION ADJUSTMENTS COMBINED
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 32,172 $ - - $ (23,961) (1) $ 8,211
Accounts receivable, net 2,897 2,481 5,378
Inventories 3,960 5,209 9,169
Prepaid expenses 337 132 469
-------------------------------------------------- ----------
39,366 7,822 (23,961) 23,227
-------------------------------------------------- ----------
Property, plant and equipment, net 13,142 3,634 1,066 (1) 17,842
-------------------------------------------------- ----------
Other assets and deferred charges:
Patents, net of accumulated amortization 908 874 2,126 (1) 3,908
Goodwill, net of accumulated amortization 4,862 785 7,938 (1) 13,585
Other 2,664 392 3,056
-------------------------------------------------- ----------
8,434 2,051 10,064 20,549
-------------------------------------------------- ----------
$ 60,942 $ 13,507 $ (12,831) $ 61,618
================================================== ==========
Liabilities and stockholders' equity:
Current liabilities:
Current maturities of long-term debt $ 453 $ -- $ 453
Accounts payable and accrued liabilities 5,042 676 5,718
Accrued income and other taxes 278 278
-------------------------------------------------- ----------
5,773 676 -- 6,449
-------------------------------------------------- ----------
Long-term debt, less current maturities 203 203
-------------------------------------------------- ----------
Other liabilities and deferred credits:
Accumulated deferred income taxes 3,948 3,948
Other 1,032 1,032
-------------------------------------------------- ----------
4,980 -- -- 4,980
-------------------------------------------------- ----------
Stockholders' equity:
Common stock, par value $0.10 per share 342 342
Paid-in capital 6,395 6,395
Retained earnings 44,681 44,681
Net assets of CVS operations 12,831 (12,831) (1) --
Treasury shares (1,432) (1,432)
-------------------------------------------------- ----------
49,986 12,831 (12,831) 49,986
-------------------------------------------------- ----------
$ 60,942 $ 13,507 $ (12,831) $ 61,618
================================================== ==========
</TABLE>
-20-
<PAGE> 3
ATRION CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ATRION CVS PRO FORMA PRO FORMA
CORPORATION DIVISION ADJUSTMENTS COMBINED
---------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 30,277 $ 14,306 $ 44,583
Cost of goods sold 20,755 7,805 13 (2)
53 (3)
137 (6) 28,763
------------------------------ ----------------- ----------
Gross profit (loss) 9,522 6,501 (203) 15,820
Operating expenses:
General and administrative 5,552 1,976 304 (2)
81 (3)
(420) (4) 7,493
Selling 2,413 2,888 5,301
Research and development 1,147 1,303 2,450
Impairment loss 4,797 4,797
------------------------------------------------ ----------
13,909 6,167 (35) 20,041
------------------------------------------------ ----------
(Loss) earnings from operations (4,387) 334 (168) (4,221)
------------------------------------------------ ----------
Other income (expense):
Interest income (expense), net 818 (443) (1,384) (5)
197 (6)
245 (7) (567)
Other income, net 241 241
------------------------------------------------ ----------
Loss from continuing operations
before benefit for income taxes (3,328) (109) (1,110) (4,547)
Income tax benefit 1,283 470 (8) 1,753
------------------------------------------------ ----------
Loss from continuing operations $ (2,045) $ (109) $ (640) $ (2,794)
================================================ ==========
Loss from continuing operations per basic
and diluted share $ (0.63) $ (0.87)
========== ==========
Weighted average basic and diluted
shares outstanding 3,224 3,224
========== ==========
</TABLE>
-21-
<PAGE> 4
ATRION CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
On January 30, 1998, Atrion Corporation (the "Company"), through its wholly
owned Texas subsidiary, QMI Medical, Inc. (formerly known as "QMI Acquisition
Corp.") ("QMI"), acquired certain net assets of Quest Medical, Inc. ("Quest"),
pursuant to the terms of an Asset Purchase Agreement, dated as of December 29,
1997, among the Company, QMI and Quest.
The net assets acquired from Quest are those that were used in its
cardiovascular and intravenous fluid delivery business (the "Division"). The
purchase price for the assets was based on an unaudited balance sheet of the
Division. The Company paid $23,685,045 of cash from the Company's general
corporate funds. The purchase price is subject to a postclosing adjustment
based on an increase or decrease in assets and liabilities reflected on a
closing date balance sheet to be prepared within 90 days following January 30,
1998. The acquisition has been accounted for using the purchase method of
accounting.
The unaudited pro forma condensed combined balance sheet as of December 31,
1997 has been prepared as if the acquisition of the Division had occurred on
that date. This balance sheet combines the balance sheet of the Company and the
Division's assets and liabilities at December 31, 1997.
The pro forma condensed combined statement of income for the year ended
December 31, 1997 has been prepared as if the acquisition of the Division had
occurred at the beginning of the period presented. The pro forma condensed
combined statement of income for the year ended December 31, 1997 combines the
statement of income of the Company and the statement of income of the Division
for the twelve months ended December 31, 1997.
The pro forma condensed combined balance sheet shows, among other things, an
increase in total assets of approximately $676,000 and no change in
stockholders' equity as a result of the acquisition. The pro forma condensed
combined statement of income shows, among other things, a decrease in loss from
operations of approximately $166,000, an increase in loss from continuing
operations of approximately $749,000 and an increase in loss from continuing
operations per basic and diluted share of $.24 as a result of the acquisition.
The pro forma results reflected herein are not necessarily indicative of the
results that would have occurred if the transaction described herein had
occurred as of the periods indicated above.
-22-
<PAGE> 5
ATRION CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE B PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma condensed combined balance sheet and the
unaudited pro forma condensed combined statement of income reflect the
following adjustments:
(1) Record the purchase of certain net assets of the Division for
$23,685,045 in cash and to record acquisition-related
expenses of $276,445 and the adjustment of other asset
balances resulting from the allocation of the preliminary
purchase price. The preliminary purchase price allocation is
subject to change when additional information concerning
asset and liability valuations is obtained. Therefore, the
final allocation may differ from the preliminary amounts
recorded.
(2) Adjust amortization expense for Division intangible assets.
Goodwill is being amortized over 25 years on a straight line
basis while patents are being amortized over the remaining
lives of the individual patents on a straight line basis. The
preliminary purchase price allocation is subject to change
when additional information concerning asset and liability
valuations is obtained. Therefore, the goodwill amortization
may differ from the preliminary amounts recorded.
(3) Adjust depreciation expense for Division fixed assets
purchased which were revalued at acquisition.
(4) Eliminate certain general and administrative expenses
allocated to the Division from Quest which will no longer be
incurred.
(5) Adjust interest income (expense) for borrowings that would
have been utilized to purchase the Division at an average
interest rate of approximately 6.5 percent for the first five
months of 1997 and to reflect decreased interest income at an
average interest rate on investment of 5.60 percent for the
final seven months of the year based on a reduction in cash
available for investment due to the purchase of the Division.
(6) Adjust certain expenses as a result of the Division's
facility being leased from Quest.
(7) Eliminate allocated interest expense for corporate borrowings
from Quest which will no longer be incurred.
(8) Adjust income tax benefit at a rate of 38.6 percent.
-23-
