<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER 0-10763
ATRION CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 63-0821819
- ------------------------------------ --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE ALLENTOWN PARKWAY, ALLEN, TEXAS 75002
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(972) 390-9800
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING AT
TITLE OF EACH CLASS NOVEMBER 4, 1999
- ---------------------------------------- -----------------------------------
COMMON STOCK, PAR VALUE $0.10 PER SHARE 2,440,129
<PAGE> 2
ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION 2
ITEM 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three and Nine months Ended
September 30, 1999 and 1998 3
Consolidated Balance Sheets (Unaudited)
September 30, 1999 and December 31, 1998 4-5
Consolidated Statements of Cash Flows (Unaudited)
For the Nine months Ended
September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 13
ITEM 6. Exhibits and Reports on
Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
1
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PART I
FINANCIAL INFORMATION
2
<PAGE> 4
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------- ----------------------------------
1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 13,441 $ 11,570 $ 37,759 $ 33,108
Cost of goods sold 8,180 7,426 22,662 20,594
-------------- -------------- -------------- --------------
Gross profit 5,261 4,144 15,097 12,514
-------------- -------------- -------------- --------------
Operating expenses:
Selling expense 1,650 1,406 5,139 3,751
General and administrative 2,035 1,774 5,483 5,226
Research and development 629 747 2,007 2,035
-------------- -------------- -------------- --------------
4,314 3,927 12,629 11,012
-------------- -------------- -------------- --------------
Operating income 947 217 2,468 1,502
-------------- -------------- -------------- --------------
Other income (expense):
Interest income (expense), net (75) 124 (147) 454
Other income - 13 10 53
-------------- -------------- -------------- --------------
(75) 137 (137) 507
-------------- -------------- -------------- --------------
Income from continuing operations before
provision for income taxes 872 354 2,331 2,009
Provision for income taxes 218 128 663 747
-------------- -------------- -------------- --------------
Income from continuing operations 654 226 1,668 1,262
Gain on disposal of discontinued operations,
net of income taxes -- -- 165 --
-------------- -------------- -------------- --------------
Net income $ 654 $ 226 $ 1,833 $ 1,262
============== ============== ============== ==============
Earnings per basic share:
Continuing operations $ 0.26 $ 0.07 $ 0.63 $ 0.39
Gain on disposal of discontinued operations -- -- 0.06 --
-------------- -------------- ------------- --------------
$ 0.26 $ 0.07 $ 0.69 $ 0.39
============== ============= ============= =============
Weighted average basic shares outstanding 2,474 3,202 2,657 3,212
============== ============== ============== =============
Earnings per diluted share:
Continuing operations $ 0.26 $ 0.07 $ 0.62 $ 0.39
Gain on disposal of discontinued operations -- -- 0.06 --
-------------- -------------- ------------- -------------
$ 0.26 $ 0.07 $ 0.68 $ 0.39
============== ============= ============= =============
Weighted average diluted shares outstanding 2,527 3,202 2,697 3,216
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
- ------ -------------- --------------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 231 $ 5,635
Accounts receivable 8,658 7,278
Inventories 9,533 8,568
Prepaid expenses and other 1,047 1,358
-------------- --------------
19,469 22,839
-------------- --------------
Property, plant and equipment:
Original cost 33,029 22,315
Less accumulated depreciation and amortization 7,159 4,921
-------------- --------------
25,870 17,394
-------------- --------------
Deferred charges:
Patents 3,391 3,620
Goodwill 13,539 13,986
Other 2,855 2,576
-------------- --------------
19,785 20,182
-------------- --------------
$ 65,124 $ 60,415
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
4
<PAGE> 6
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------ -------------- --------------
(In thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ -- $ 203
Accounts payable and accrued liabilities 5,205 3,929
-------------- --------------
5,205 4,132
-------------- --------------
Long-term debt, less current maturities 5,981 --
Other noncurrent liabilities 7,341 6,914
-------------- --------------
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000,000 shares, issued 3,419,953 shares 342 342
Paid-in capital 6,403 6,394
Retained earnings 48,654 46,821
Treasury shares, at cost (8,802) (4,188)
-------------- --------------
Total stockholders' equity 46,597 49,369
-------------- --------------
$ 65,124 $ 60,415
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
5
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------------------
1999 1998
------------- -------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,833 $ 1,262
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on disposal of discontinued operations (165) --
Depreciation and amortization 2,914 2,510
Deferred income taxes 131 343
Other 13 155
------------- -------------
4,726 4,270
Change in current assets and liabilities:
(Increase) in accounts receivable (1,380) (2,741)
(Increase) in other current assets (653) (605)
Increase in accounts payable 619 673
Increase in other current liabilities 669 1,074
------------- -------------
Net cash provided by continuing operations 3,981 2,671
Net cash provided by (used in) discontinued operations 165 (1,609)
------------- -------------
4,146 1,062
------------- -------------
Cash flows from investing activities:
Property, plant and equipment additions (10,714) (1,146)
Acquisition of subsidiary -- (23,198)
(10,714) (24,344)
------------- -------------
Cash flows from financing activities:
Increase (decrease) in long-term indebtedness 5,778 (453)
Issuance of common stock - 20
Repurchase of common stock (4,614) (485)
------------- -------------
1,164 (918)
Net change in cash and cash equivalents (5,404) (24,200)
Cash and cash equivalents at beginning of period 5,635 32,172
------------- -------------
Cash and cash equivalents at end of period $ 231 $ 7,972
============= =============
Cash paid for:
Interest (net of capitalized amounts) $ 158 $ 19
Income taxes (net of refunds) $ 153 $ 1,415
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 8
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented have
been included in the accompanying unaudited consolidated financial
statements of Atrion Corporation (the "Company"). Such adjustments
consist of normal recurring items. The accompanying financial
statements have been prepared in accordance with the instructions to
Form 10-Q and include the information and notes required by such
instructions. Accordingly, the consolidated financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's 1998 Annual Report on
Form 10-K.
(2) PURCHASE OF CERTAIN QUEST MEDICAL, INC. ASSETS.
On January 30, 1998, the Company, through a wholly owned Texas
subsidiary then known as "QMI Medical, Inc.," acquired the
cardiovascular and intravenous fluid products division of Advanced
Neuromodulation Systems, Inc. (formerly known as Quest Medical, Inc.
and herein referred to as "ANS") and all rights to the name "Quest
Medical, Inc." The Company paid $22,922,000 (after taking into account
certain postclosing adjustments and excluding $276,000 of related
acquisition costs) in cash for the net assets acquired from ANS. As
part of the transaction, the Company also obtained a one-year lease on
ANS's facility in Allen, Texas, along with an option to buy the
facility. This acquisition was accounted for using the purchase method
of accounting. Accordingly, the purchase price was allocated to the
assets and liabilities acquired based on their estimated fair value at
the date of acquisition. The excess of the consideration paid over the
estimated fair value of the net assets acquired of $9.7 million was
recorded as goodwill and is being amortized over 25 years. The Company
changed the name of QMI Medical, Inc. to "Quest Medical, Inc." in June
1998, and that subsidiary is herein referred to as "Quest Medical." On
February 1, 1999, the Company purchased the Allen, Texas facility for
$6.5 million pursuant to the option mentioned above.
The following table presents unaudited consolidated selected financial
data on a pro forma basis assuming the purchase of these assets had
occurred as of January 1, 1998. The unaudited consolidated pro forma
data reflect certain assumptions, which are based on estimates. The
unaudited consolidated pro forma combined results presented have been
prepared for comparative purposes only and are not necessarily
indicative of actual results that would have been achieved had the
acquisition occurred at the beginning of the period presented, or of
future results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, 1998
-----------------------
(in thousands, except
per share data)
<S> <C>
Revenues $ 34,229
Income from continuing operations $ 1,285
Net income $ 1,285
Net income per basic and diluted share $ 0.40
</TABLE>
For further information regarding the acquisition of these assets,
refer to the Company's Report on Form 8-K, filed with the Securities
and Exchange Commission on February 17, 1998, as amended on April 15,
1998.
7
<PAGE> 9
ATRION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
The Company's consolidated net income for the quarter ended September
30, 1999 was $654,000 or $.26 per basic and diluted share, compared
with $226,000, or $.07 per basic and diluted share, for the third
quarter of 1998. The earnings per basic share computations are based on
weighted average basic shares outstanding of 2,474,029 in 1999 and
3,201,645 in 1998. The earnings per diluted share computations are
based on weighted average diluted shares outstanding of 2,526,722 in
1999 and 3,201,645 in 1998.
Consolidated revenues of $13.4 million for the third quarter of 1999
were $1.9 million or 16 percent higher than revenues for the third
quarter of 1998. The increase in revenues in the third quarter of 1999
was a result of improved sales at all operations. Gross profit of $5.3
million in the third quarter of 1999 was $1.1 million or 27 percent
higher than that in the comparable 1998 period. The previously
mentioned increased revenues were the primary contributors to this
increase. An increase in the gross profit percentage for the third
quarter of 1999 to 39.1 percent from 35.8 percent in the same period of
1998 also contributed to this increase.
The Company's third quarter 1999 operating expenses of $4.3 million
were $387,000 higher than the operating expenses for the third quarter
of 1998. This increase is primarily the result of increased costs
associated with the development and marketing of the Company's
Myocardial Protection System ("MPS") during the current year partially
offset by lower spending at the parent company level in the 1999 period
compared to the same period in 1998. Operating income in the third
quarter of 1999 totaled $947,000 compared with $217,000 in the third
quarter of 1998.
Net interest expense for the third quarter of 1999 was $75,000 compared
with net interest income of $124,000 for the same period in 1998. This
change is primarily attributable to the Company's use of cash and cash
equivalents in late 1998 to fund repurchases of outstanding common
stock of the Company and in February 1999 to fund the purchase of its
Allen, Texas facility and borrowings by the Company to fund its
repurchases of outstanding common stock of the Company during the first
nine months of 1999. Tax credits attributable to the Company's research
and development activities resulted in a lower effective income tax
rate in the third quarter of 1999 as compared to the same period in
1998.
The Company believes that based on recent trends and certain standing
orders, revenues, cost of goods sold, gross profit and operating income
for the fourth quarter of 1999 will be higher than the comparable 1998
period. The Company also anticipates that its effective income tax rate
for the fourth quarter of 1999 will be lower than in the comparable
1998 period and that 1999 earnings per share from continuing operations
will significantly exceed the 1998 level.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The Company's consolidated net income for the nine-month period ended
September 30, 1999 was $1.8 million, or $.69 per basic and $.68 per
diluted share, compared with $1.3 million, or $.39 per basic and
diluted share, for the first nine months of 1998. Income from
8
<PAGE> 10
continuing operations for the first nine months of 1999 was $1.7
million, or $.63 per basic and $.62 per diluted share, compared with
$1.3 million, or $.39 per basic and diluted share for the comparable
period in 1998. The earnings per basic share computations are based on
weighted average basic shares outstanding of 2,657,175 in 1999 and
3,212,448 in 1998. The earnings per diluted share computations are
based on weighted average diluted shares outstanding of 2,697,261 in
1999 and 3,216,205 in 1998.
Consolidated revenues of $37.8 million for the nine months ended
September 30, 1999 were $4.7 million or 14 percent higher than revenues
for the nine months ended September 30, 1998. All operations realized
increased revenues for the first nine months of 1999, compared with the
same period in the prior year. Increased placements by the Company of
its MPS units and higher sales of related disposables added to the 1999
revenue increase. The increase in revenues for the first nine months of
1999, compared to the same period in the prior year, was also a result
of the inclusion of the operations of Quest Medical for nine full
months in the current-year period compared with the inclusion of the
Quest Medical operations in the prior year period for the eight months
subsequent to its acquisition in January 1998.
Gross profit of $15.1 million for the first nine months of 1999 was
$2.6 million or 21 percent higher than that in the comparable period of
1998. This increase is the result of increased revenues at all
operations and the inclusion of the operations of Quest Medical for a
full nine-month period in 1999 compared to eight months in the 1998
period. The gross profit percentage for the first nine months of 1999
of 40.0 percent was higher than the gross profit percentage in the same
period of 1998 of 37.8 percent due to the inclusion of Quest Medical
for the full nine months in 1999 compared to eight months in the 1998
period. Quest Medical generally has a higher gross profit percentage
than the Company's other operations.
The Company's operating expenses of $12.6 million for the first nine
months of 1999 were $1.6 million higher than operating expenses for the
first nine months of 1998. This increase is the result of increased
costs associated with the development and marketing of the MPS during
the current year partially offset by reduced spending at the parent
company level for the 1999 period compared to the same period in 1998.
The increase in operating expenses for the first nine months of 1999,
compared to the same period in the prior year, was also a result of the
inclusion of the operations of Quest Medical for nine full months in
the current year period compared with the inclusion of the Quest
Medical operations in the prior year period for the eight months
subsequent to its acquisition in late January 1998. Operating income in
the nine months ended September 30,1999 totaled $2.5 million compared
with $1.5 million in the same period of 1998.
Net interest expense for the nine months ended September 30, 1999 was
$147,000 compared with net interest income of $454,000 for the same
period in 1998. This change is primarily attributable to the Company's
use of cash and cash equivalents in late 1998 to fund repurchases of
outstanding common stock of the Company and in February 1999 to fund
the purchase of its Allen, Texas facility and borrowings by the Company
to fund its repurchases of outstanding common stock of the Company. Tax
credits attributable to the Company's research and development
activities resulted in a lower effective income tax rate in the first
nine months of 1999 as compared to the nine months ended September
30,1998.
9
<PAGE> 11
The Company recorded a gain on the disposal of discontinued operations
relating to the 1997 sale of its natural gas operations of $165,000,
after tax, or $.06 per basic and diluted share, for the nine months
ended September 30,1999. There was no similar transaction during the
same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of
$231,000 compared with $5.6 million at December 31, 1998. The decrease
in cash and cash equivalents from December 31, 1998 to September 30,
1999 was primarily attributable to the Company's February 1, 1999
purchase of its Allen, Texas facility for $6.5 million. The Company had
$6.0 million of long-term debt, borrowed under a $20 million revolving
loan facility, at September 30, 1999 compared with no long-term debt at
December 31, 1998. This increase in long-term debt from December 31,
1998 to September 30, 1999 was primarily attributable to the above
mentioned facility purchase, repurchases of outstanding common stock of
the Company and purchases of automation equipment. Since the end of the
third quarter of 1999, the Company has replaced the $20 million
revolving loan facility with a new $18.5 million credit facility with a
regional bank. Under the $18.5 million credit facility, the Company,
and certain of its subsidiaries, have a line of credit, which is
secured by inventory, equipment and accounts receivable. At the
Company's option, and subject to certain conditions, the amount that
can be borrowed under the facility may be increased to $25.0 million
upon the lender's determination that it has adequate security or upon
the Company's grant of such additional security as the lender deems
reasonably necessary. The term of the agreement expires November 11,
2002 and may be extended under certain circumstances. At any time
during the agreement, the Company may convert any or all outstanding
amounts under the facility to a term loan with a maturity of two years.
The Company's ability to borrow funds from time to time under the
facility is contingent on meeting certain covenants in the loan
agreement.
As previously reported to stockholders, the Company is continuing to
develop a strategy to adapt certain of Quest Medical's technology to
the delivery and control of protective drugs during the reperfusion of
clotted arteries in cardiac catheterization laboratories. The Company
believes that the adaptation of its technology for such a purpose would
require significant upfront expenditures and is not currently planning
to undertake the implementation of such a program unless it is able to
structure a partnership or similar arrangement in which another party
would bear all or a substantial part of the costs of adapting the
technology. The Company is exploring the opportunities for such
partnership or arrangement, but there is no assurance that the Company
will enter into any such relationship. The Company is presently unable
to determine whether Quest Medical's technology can be cost-effectively
adapted to the delivery and control of protective drugs during clotted
artery reperfusion, the terms of the partnership or arrangement, if
any, under which such program would be conducted, or the cost to the
Company of such a program, if undertaken.
The Company believes that its existing cash and cash equivalents, cash
flows from operations, borrowings available under the Company's
revolving loan facility and other equity or debt financing, which the
Company believes would be available, will be sufficient to fund the
Company's cash requirements, including any funding required for a
partnership or arrangement discussed above, for at least the next two
years.
10
<PAGE> 12
YEAR 2000 ISSUES
In 1998, the Company began its assessment of its information systems,
products, facilities and equipment to determine if they are Year 2000
ready. At that time, the Company's operating units were using several
different information systems. As a part of the Company's ongoing
efforts to achieve operating synergies, as well as to assure Year 2000
compliance, the Company has purchased and has installed new computer
systems in one of its units and has taken steps to determine whether
its new and existing computer systems are Year 2000 compliant. The
Company has contacted its major suppliers, as well as certain other
suppliers and utilities, to determine whether they are Year 2000
compliant. In addition, the Company has reviewed its products that
process information that may be date sensitive and believes that those
products are not Year 2000 sensitive products. The Company's facilities
and equipment have also been examined to determine whether they are
Year 2000 ready. The Company has substantially completed its assessment
of its information systems, facilities and equipment and believes that
they are Year 2000 compliant. The Company has no means of ensuring that
all of its suppliers are or will be Year 2000 compliant. The failure of
certain of these suppliers to be Year 2000 compliant could materially
impact the Company. Additionally, the failure of communication,
financial and transportation systems would have a material adverse
impact on the Company, as would the failure of local utilities. As a
result, where appropriate and feasible, the Company will consider new
business relationships with alternate providers. The Company has
incurred costs of approximately $140,000, including the cost and time
for Company employees, to address Year 2000 issues, and believes that
any additional costs of addressing its Year 2000 transition will not
have a material adverse effect on the Company's financial condition or
business operations. Given the uncertain consequences of failure to
resolve significant Year 2000 issues, however, there is no assurance
that any one or more of such failures would not have a material adverse
impact on the Company. Plans have been developed at all locations to
address failures that may occur; however, the Company does not believe
that such contingency plans can adequately deal with major external
system failures such as in communications, transportation or utilities.
FORWARD-LOOKING STATEMENTS
The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results
may differ materially. Therefore, the inclusion of such forward-looking
information should not be regarded as a representation by the Company
that the objectives or plans of the Company would be achieved. Such
statements include, but are not limited to, the Company's expectations
regarding revenues, cost of sales, gross profit, operating income and
effective tax rate for the fourth quarter of 1999 and 1999 earnings per
share from continuing operations, as well as future liquidity and
capital resources and Year 2000 compliance and impact. Words such as
"anticipates," "believes," "expects," "estimated" and variations of
such words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements contained herein
involve numerous risks and uncertainties, and there are a number of
factors that could cause actual results to differ materially including,
but not limited to, the following: changing economic, market and
business conditions; the effects of governmental regulation; the impact
of competition and new technologies; slower-than-anticipated
introduction of new products, implementation of marketing strategies or
new manufacturing processes or implementation of new information
systems; changes in the prices of raw materials;
11
<PAGE> 13
changes in product mix; product recalls; the ability to attract and
retain qualified personnel; market acceptance of the Company's
products; Year 2000 problems; and the loss of any significant customer.
In addition, assumptions relating to budgeting, marketing, product
development and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic review
which may cause the Company to alter its marketing, capital
expenditures or other budgets, which in turn may affect the Company's
results of operations and financial condition.
12
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
10a Atrion Corporation Incentive Compensation Plan for Chief
Executive Officer
10b Atrion Corporation Incentive Compensation Plan for
Chief Financial Officer
27 Financial Data Schedule (filed electronically only) (for SEC use only)
(b) No reports on Form 8-K have been filed during the quarter
ended September 30, 1999.
</TABLE>
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Atrion Corporation
(Registrant)
Date: November 15, 1999 /s/ Emile A. Battat
------------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: November 15, 1999 /s/ Jeffery Strickland
------------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
14
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
-------------- ----------- ----
10a Atrion Corporation Incentive 16
Compensation Plan for Chief Executive
Officer
10b Atrion Corporation Incentive 19
Compensation Plan for Chief Financial
Officer
27 Financial Data Schedule (filed 20
electronically only)(for SEC use only)
15
<PAGE> 1
EXHIBIT 10a
ATRION CORPORATION
INCENTIVE COMPENSATION PLAN
FOR CHIEF EXECUTIVE OFFICER
1. PURPOSES OF THE PLAN
The purposes of this Incentive Compensation Plan for Chief Executive Officer
(the "Plan") are to assist Atrion Corporation (the "Company) in securing the
continuing services of Emile A. Battat ("Battat") as Chief Executive Officer of
the Company and to provide an opportunity for Battat to receive incentive
compensation that is tied to the enhancement of shareholder value. The Plan
gives Battat, whose annual base salary was set by the Board of Directors of the
Company in October 1998 at the lower end of the range of base salaries of chief
executive officers of comparable companies and which in accordance with Battat's
request has not been increased since that time, the opportunity to receive
incentive compensation when he ceases to serve as Chief Executive Officer of the
Company. The Plan permits the payment of incentive compensation only if
shareholder value has been substantially enhanced over the $9.19 per share
closing sale price of the Company's common stock on the day immediately
preceding adoption of the Plan.
2. DEFINITIONS.
(a) "Average Market Price" means (i) the average closing sales price per share
of the Company's Common Stock for the ten (10) trading days immediately
preceding the Determination Date as reported by either (A) any national
securities exchange on which the shares of Common Stock are actively traded or
(B) if not so traded, the Nasdaq Stock Market or (ii) if the Common Stock is not
traded on any exchange or the Nasdaq Stock Market, the mean between the bid and
asked prices as reported by any nationally-recognized quotation service selected
by the Committee plus (iii) if any property or cash is distributed to
stockholders of the Company after the Effective Date and prior to the
Determination Date, the sum of (X) the Fair Market Value of any property or
securities distributed with respect to each share of Common Stock and (Y) the
amount of any cash distributed with respect to each share of Common Stock.
(b) "Business Combination" means any merger (other than a change of domicile
merger) or consolidation in which the stockholders of the Company exchange their
shares of common stock of the Company or in which their shares are converted to
the right to receive cash, any sale by the Company of all or substantially all
of the assets of the Company and its subsidiaries or any exchange by the
stockholders of the Company of their shares for shares of another corporation.
(c) "Committee" means the Compensation Committee of the Board of Directors of
the Company.
(d) "Common Stock" means the common stock of the Company.
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<PAGE> 2
(e) "Determination Date" means the date that Battat ceases to serve as Chief
Executive Officer of the Company or, if Battat ceases to serve in such capacity
in connection with a Business Combination that closes within sixty (60) days
after such date, the date on which such Business Combination closes.
(f) "Effective Date" means July 23, 1999.
(g) "Fair Market Value" means (i) in the case of publicly-traded securities, the
closing sales price per share of such securities as reported by either (A) any
national securities exchange on which such securities are actively traded or (B)
the Nasdaq Stock Market or, if such securities are not traded on any exchange or
the Nasdaq Stock Market, the mean between the bid and asked prices as reported
by any nationally-recognized quotation service selected by the Committee or (ii)
in the case of securities that are not publicly traded and other property, the
price at which such securities or property would change hands between a willing
buyer and a willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of the relevant facts, as determined by a
nationally-recognized valuation expert selected by the Committee.
(h) "Value of Consideration Received" means (i) the Fair Market Value of any
property or securities distributed with respect to each Share of Common Stock in
connection with a Business Combination plus (ii) if any property or cash is
distributed to stockholders of the Company after the Effective Date and prior to
the Determination Date, the sum of (X) the Fair Market Value of any property or
securities distributed with respect to each share of Common Stock and (Y) the
amount of any cash distributed with respect to each share of Common Stock.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the provisions
hereof, the Committee shall have the power and authority to direct the payment
by the Company of incentive compensation hereunder and shall have the authority,
in its sole discretion, in accordance with the provisions hereof, to make any
and all determinations deemed necessary or advisable for the administration of
the Plan.
4. INCENTIVE COMPENSATION.
Within ten (10) days following the Determination Date, the Company shall pay to
Battat incentive compensation determined as follows: If the Average Market Price
or, in the event Battat ceases to serve as Chief Executive Officer in connection
with a Business Combination, the Value of Consideration Received is $12.00 or
less, then Battat shall be paid no incentive compensation under the Plan. If the
Average Market Price or, in the event Battat ceases to serve as Chief Executive
Officer in connection with a Business Combination, the Value of Consideration
Received is greater than $12.00, Battat shall be paid incentive compensation
equal to the sum of (A) the product of (i) $150,000 and (ii) the amount not to
exceed $3.00 by which the Average Market Price or Value of Consideration
Received, as the case may be, exceeds $12.00, plus (B) the product of (i)
$200,000 and (ii) the amount not to exceed $3.00 by which the Average Market
Price or Value of Consideration Received, as the case may be, exceeds $15.00,
plus (C) the product of (i) $250,000 and (ii) the amount by which the Average
Market Price or Value of Consideration Received, as the case may be, exceeds
$18.00.
17
<PAGE> 3
5. WITHHOLDING.
Any payment of incentive compensation under the Plan shall be subject to
applicable withholding, social security and other state, federal and local taxes
and deductions.
6. MISCELLANEOUS PROVISIONS.
(a) The Plan shall be governed by and construed in accordance with the laws of
the State of Texas applied without giving effect to any conflict-of-laws
principles.
(b) No member of the Board of Directors of the Company or the Committee nor any
officer or employee of the Company acting on behalf of the Board of Directors or
the Committee shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan; and all
members of the Board of Directors and the Committee and each officer and
employee acting on their behalf shall, to the extent permitted by law, be
indemnified and held harmless by the Company in respect of any such action,
determination or interpretation.
(c) All obligations of the Company under the Plan with respect to the payment of
incentive compensation shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase
of all or substantially all of the assets of the Company or a merger or
consolidation or otherwise.
(d) In the event the Common Stock, as presently constituted, shall be changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company (whether by reason of recapitalization,
reclassification, split, reverse split, combination of shares, or otherwise) or
if the number of such shares of Common Stock shall be increased through the
payment of a stock dividend, then the incentive compensation payable hereunder
shall be adjusted as may be necessary to reflect the foregoing events. In the
event there shall be any other change in the number or kind of the outstanding
shares of Common Stock, or of any stock or other securities into which such
shares shall have been changed, or for which they shall have been exchanged,
then, if the Committee shall, in its sole discretion, determine that such change
equitably requires an adjustment in incentive compensation which may be granted
under the Plan, such adjustments shall be made in accordance with such
determination.
18
<PAGE> 1
EXHIBIT 10b
Atrion Corporation
Incentive Compensation Plan for Chief Financial Officer
This plan provides the opportunity for Jeffery Strickland, Vice President and
Chief Financial Officer of Atrion Corporation, to receive incentive compensation
based on the attainment of certain stated goals during the calendar years 1998,
1999 and 2000.
Financial Goals:
The financial goals for Atrion are set forth in the earnings per share (EPS)
estimates (i.e., those included in the "Revised Budget") prepared by management
for the years 1999 and 2000 submitted to the Board of Directors at its May 12,
1998 meeting. These EPS figures are the targets for this plan. All figures are
from continuing operations and exclude extraordinary and one-time items. At the
end of each year, the EPS target for that year is to be adjusted upwards where
necessary to reflect for the years 1998, 1999 and 2000, respectively, an 8%, 9%
and 10% minimum pre-tax return on average assets used in continuing operations
during that year.
For the years 1998, 1999 and 2000, if the targeted EPS figures, as adjusted, are
met, then Jeffery Strickland (JS) is entitled to incentive compensation equal to
25% of his base salary for that year. If the target is exceeded by 50% or more,
then the incentive compensation for JS will be doubled. For results between
these two target figures, the incentive compensation for JS will be adjusted
proportionately.
Non-Financial Goals:
JS's performance shall be evaluated by the Board without stated non-financial
goals and any incentive compensation award shall be at the discretion of the
Board.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ATRION CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 8,658
<ALLOWANCES> 0
<INVENTORY> 9,533
<CURRENT-ASSETS> 19,469
<PP&E> 33,029
<DEPRECIATION> 7,159
<TOTAL-ASSETS> 65,124
<CURRENT-LIABILITIES> 5,205
<BONDS> 5,981
0
0
<COMMON> 342
<OTHER-SE> 46,255
<TOTAL-LIABILITY-AND-EQUITY> 65,124
<SALES> 37,759
<TOTAL-REVENUES> 37,759
<CGS> 22,662
<TOTAL-COSTS> 22,662
<OTHER-EXPENSES> 12,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 2,331
<INCOME-TAX> 663
<INCOME-CONTINUING> 1,668
<DISCONTINUED> 165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,833
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.68
</TABLE>
