UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended September 30, 2006
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from to
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)
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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. [X] Yes [_] No
Indicate by check whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No [X]
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 1, 2006
--------------------------------------- --------------------------------------
Common stock, Par Value $0.10 per share 1,871,057
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ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information 2
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three and Nine Months Ended
September 30, 2006 and 2005 3
Consolidated Balance Sheets
September 30, 2006 (Unaudited) and December 31, 2005 4
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30, 2006 and 2005 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II. Other Information 18
Item 6. Exhibits and Reports on
Form 8-K 18
SIGNATURES 19
Exhibits 20
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2006 2005 2006 2005
(in thousands, except per share amounts)
Revenues $ 19,290 $ 18,338 $ 59,641 $ 55,085
Cost of goods sold 11,803 11,377 36,033 33,297
----------- ----------- ----------- -----------
Gross profit 7,487 6,961 23,608 21,788
----------- ----------- ----------- -----------
Operating expenses:
Selling 1,415 1,378 4,631 4,231
General and administrative 2,190 1,925 6,541 6,144
Research and development 696 547 2,072 1,752
----------- ----------- ----------- -----------
4,301 3,850 13,244 12,127
----------- ----------- ----------- -----------
Operating income 3,186 3,111 10,364 9,661
----------- ----------- ----------- -----------
Other income:
Interest income 5 7 26 32
Interest expense (58) (18) (58) (61)
Other income (expense), net (4) 2 (26) 10
----------- ----------- ----------- -----------
(57) (9) (58) (19)
----------- ----------- ----------- -----------
Income from continuing operations
before provision for
income taxes 3,129 3,102 10,306 9,642
Provision for income taxes (433) (861) (2,685) (2,999)
----------- ----------- ----------- -----------
Income from continuing operations 2,696 2,241 7,621 6,643
Gain on disposal of discontinued
operations, net of income
taxes -- -- 165 165
----------- ----------- ----------- -----------
Net income $ 2,696 $ 2,241 $ 7,786 $ 6,808
=========== =========== =========== ===========
Income per basic share:
Income from continuing operations $ 1.45 $ 1.23 $ 4.13 $ 3.73
Gain on disposal of
discontinued operations -- -- 0.09 0.09
----------- ----------- ----------- -----------
$ 1.45 $ 1.23 $ 4.22 $ 3.82
=========== =========== =========== ===========
Weighted average basic
shares outstanding 1,858 1,829 1,846 1,781
=========== =========== =========== ===========
Income per diluted share:
Income from continuing operations $ 1.38 $ 1.15 $ 3.91 $ 3.47
Gain on disposal of discontinued operations -- -- 0.08 0.09
----------- ----------- ----------- -----------
$ 1.38 $ 1.15 $ 3.99 $ 3.56
=========== =========== =========== ===========
Weighted average diluted shares outstanding 1,960 1,953 1,951 1,915
=========== =========== =========== ===========
Dividends per common share $ 0.20 $ 0.17 $ 0.54 $ 0.45
=========== =========== =========== ===========
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The accompanying notes are an integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September, 30
2006 December 31,
Assets (unaudited) 2005
------ ----------- ----
Current assets:
Cash and cash equivalents $ 234 $ 525
Accounts receivable 9,541 8,291
Inventories 18,278 17,705
Prepaid expenses 1,053 832
Other 620 620
-------- --------
29,726 27,973
-------- --------
Property, plant and equipment 81,114 63,041
Less accumulated depreciation and amortization 30,621 27,787
-------- --------
50,493 35,254
-------- --------
Other assets and deferred charges:
Patents 2,341 2,331
Goodwill 9,730 9,730
Other 3,031 3,182
-------- --------
15,102 15,243
-------- --------
$ 95,321 $ 78,470
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 8,096 $ 7,128
Accrued income and other taxes 712 1,098
-------- --------
8,808 8,226
-------- --------
Line of credit 11,647 2,529
Other non-current liabilities 6,030 5,820
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000 shares, issued 3,420 shares 342 342
Paid-in capital 13,853 12,508
Retained earnings 89,104 82,318
Treasury shares,1,559 at September 30, 2006 and 1,586
at December 31, 2005, at cost (34,463) (33,273)
-------- --------
68,836 61,895
-------- --------
$ 95,321 $ 78,470
======== ========
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The accompanying notes are an integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
---------------------------------------
2006 2005
------------- -------------
Cash flows from operating activities:
Net income $ 7,786 $ 6,808
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on disposal of discontinued operations (165) (165)
Depreciation and amortization 3,555 3,328
Deferred income taxes 179 206
Tax benefit related to stock options -- 1,180
Stock based compensation expense 61 --
Other 33 10
------------- -------------
11,449 11,367
Changes in operating assets and liabilities:
Accounts receivable (1,250) (1,369)
Inventories (573) (3,143)
Prepaid expenses (221) (11)
Other non-current assets (99) (1,088)
Accounts payable and accrued liabilities 968 341
Accrued income and other taxes (386) 9
Other non-current liabilities 31 24
------------- -------------
Net cash provided by continuing operations 9,919 6,130
Net cash provided by discontinued operations 165 165
------------- -------------
10,084 6,295
------------- -------------
Cash flows from investing activities:
Property, plant and equipment additions (18,589) (10,340)
Deposit on land purchase -- 3,750
Property, plant and equipment sales 3 21
------------- -------------
(18,586) (6,569)
------------- -------------
Cash flows from financing activities:
Net change in line of credit 9,118 (983)
Exercise of stock options 1,029 2,239
Purchase of treasury stock (1,594) --
Tax benefit related to stock options 658 --
Dividends paid (1,000) (807)
------------- -------------
8,211 449
------------- -------------
Net change in cash and cash equivalents (291) 175
Cash and cash equivalents at beginning of period 525 255
------------- -------------
Cash and cash equivalents at end of period $ 234 $ 430
============= =============
Cash paid for:
Interest (net of capitalization) $ 58 $ 63
Income taxes $ 2,552 $ 1,835
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The accompanying notes are an integral part of these statements.
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 and its subsidiaries (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 2005 Annual Report on Form 10-K.
(2) Inventories Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):
September 30, December 31,
2006 2005
------------------------------------------------------------------------------
Raw materials $ 7,528 $ 6,898
Work in process 4,178 4,291
Finished goods 6,572 6,516
------------------------------------------------------------------------------
Total inventories $ 18,278 $ 17,705
==============================================================================
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(3) Income per share The following is the computation for basic and diluted income per share:
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
-------------- --------------- -------------- -------------
(in thousands, except per share amounts)
Income from continuing operations $ 2,696 $ 2,241 $ 7,621 $ 6,643
============= ============= ============== =============
Weighted average basic shares outstanding
1,858 1,829 1,846 1,781
Add: Effect of dilutive securities
(options and restricted stock) 102 124 105 134
------------- ------------- -------------- -------------
Weighted average diluted shares
outstanding 1,960 1,953 1,951 1,915
============= ============= ============== =============
Earnings per share from continuing
operations:
Basic $ 1.45 $ 1.23 $ 4.13 $ 3.73
============= ============== ============== =============
Diluted $ 1.38 $ 1.15 $ 3.91 $ 3.47
============= ============== ============== =============
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There were no outstanding options to purchase shares of common stock that were not included in the diluted income per share calculations because their effect would be anti-dilutive for the three-month and nine-month periods ended September 30, 2006 and 2005.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Stock-Based Compensation At September 30, 2006, the Company had three stock-based employee compensation plans. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost was reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company recorded compensation expense in the amount of approximately $37,000 for the three-month period and $61,000 for the nine-month period ended September 30, 2006. The Company recognized tax benefits related to compensation expense of approximately $13,000 for the three-month period and $14,000 for the nine-month period ended September 30, 2006.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R, "Accounting for Stock-based Compensation" ("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 during the three and nine months ended September 30, 2006, 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". In accordance with the modified-prospective transition method, results for the prior periods have not been restated.
As a result of the adoption of SFAS No. 123R, the financial results of the Company were lower than the results would have been under the previous accounting method for stock-based compensation by the following amounts:
Nine months ended
September 30, 2006
(in thousands , except
per share amounts)
-------------------
Income from continuing operations before income taxes $ 43
===================
Income from continuing operations and net income $ 35
===================
Basic and diluted earnings per share $.02
===================
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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. For the nine months ended September 30, 2006, $658,000 of such excess tax benefits was classified as financing cash flows. For the nine months ended September 30, 2005, $1,180,000 of such excess tax benefits were 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 must be at least equal to the fair market value of
such shares on the date of grant. The purchase price for shares issued
on the exercise of nonqualified options and restricted and performance
shares is fixed by the Compensation Committee of the Board of
Directors. The options granted become exercisable as determined by the
Compensation Committee and expire no later than 10 years after the date
of grant.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Option transactions for the three and nine months ended September 30, 2006 are as follows:
Three months ended Nine months ended
September 30, 2006 September 30, 2006
------------------ ------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
-------------- ----------------- -------------- ----------------
Options outstanding at the beginning of
the period 176,051 $ 25.64 225,100 $ 24.86
Granted 25,000 $ 71.86 25,000 $ 71.86
Expired - $ - - $ -
Exercised (3,751) $ 21.59 (52,800) $ 22.01
-------------- --------------
Options outstanding at the end of the period 197,300 $ 31.57 197,300 $ 31.57
============== ==============
Exercisable options at September 30, 2006 172,300 $ 25.73
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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Shares of restricted stock have been awarded to certain key employees. Restrictions lapse as the shares vest, generally over five years. 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. Nonvested shares are forfeited on termination of employment. Changes in restricted stock for the three and nine months ended September 30, 2006 were as follows:
Three months ended Nine months ended
September 30, 2006 September 30, 2006
------------------ ------------------
Weighted Weighted
Average Award Average Award
Shares Date Fair Value Shares Date Fair Value
-------------- ----------------- -------------- -----------------
Nonvested shares at the beginning of $ - $ -
the period - -
Awarded 7,500 $ 71.86 7,500 $ 71.86
Vested - $ - - $ -
Forfeited - $ - - $ -
-------------- --------------
Nonvested shares at the end of the
period 7,500 $ 71.86 7,500 $ 71.86
============== ==============
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The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. 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 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.
The weighted average grant date fair value of options granted for the three months and nine months ended September 30, 2006 were $18.02 and $18.02, respectively.
The total intrinsic value of options exercised during the three and nine months ended September 30, 2006 was $0. The total intrinsic values of options outstanding and options currently exercisable at September 30, 2006 were $0 and $0, respectively. The weighted-average remaining contractual life for options outstanding and options currently exercisable at September 30, 2006 was 2.89 and 2.60 years, respectively. The total intrinsic value of restricted stock grants at September 30, 2006 was $539,000. The weighted-average remaining contractual term for restricted stock awards at September 30, 2006 was 4.8 years.
As of September 30, 2006 there was $432,000 in unrecognized compensation cost related to nonvested stock options granted under the plans and $521,000 in unrecognized compensation cost related to nonvested restricted stock grants. The unrecognized compensation costs related to nonvested stock options will be recognized over a period of 3.8 years. The unrecognized compensation cost related to nonvested stock awards will be recognized over a period of 4.8 years. The total fair value of options vested during the three months ended September 30, 2006 was $0. At September 30, 2006 there were 25,000 nonvested stock options and 7,500 shares of nonvested restricted stock.
The Company has a policy of utilizing existing treasury shares to satisfy stock option exercises and restricted stock awards.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 the 2005 periods (in thousands, except per share amounts):
Three Months ended Nine Months ended
September 30, September 30,
2005 2005
--------------------- -------------------
Net income, as reported $ 2,241 $ 6,808
Deduct: Total stock-based employee compensation expense
determined under fair value-based methods for all awards,
net of tax effects 10 121
--------------------- -------------------
Pro forma net income $ 2,231 $ 6,687
===================== ===================
Income per share:
Basic - as reported $ 1.23 $ 3.82
===================== ===================
Basic - pro forma $ 1.22 $ 3.76
===================== ===================
Diluted - as reported $ 1.15 $ 3.56
===================== ===================
Diluted - pro forma $ 1.14 $ 3.49
===================== ===================
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(5) Pension Benefits The components of net periodic pension cost are as follows for the three and nine months ended September 30, 2006 and September 30, 2005 (in thousands):
Three Months ended Nine Months ended
September 30, September 30,
-------------------------------- --------------------------------
2006 2005 2006 2005
--------------- ------------- --------------- -------------
Service cost $ 69 $ 67 $ 207 $ 201
Interest cost 83 80 249 240
Expected return on assets (111) (114) (333) (342)
Prior service cost amortization (9) (9) (27) (27)
Actuarial loss 29 27 87 81
Transition amount amortization - (11) - (33)
--------------- ------------- --------------- -------------
Net periodic pension cost $ 61 $ 40 $ 183 $ 120
=============== ============= =============== =============
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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In 2006, the Company expects to contribute approximately $250,000 to its pension plan to satisfy minimum funding requirements for the year. As of September 30, 2006, contributions of $250,000 have been made to this plan.
(6) Recent Accounting Pronouncements In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes recognized in financial statements. FIN 48 requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the requirements of FIN 48.
In September 2006, the FASB issued 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"). SFAS 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit pension or postretirement plan's overfunded status or a liability for a plan's underfunded status, and to recognize changes in that funded status through other comprehensive income in the year in which the changes occur. SFAS 158 will not change the amount of net periodic benefit expense recognized in an entity's results of operations. SFAS 158 is effective for fiscal years ending after December 15, 2006. The Company is currently evaluating the requirements of SFAS 158.
On September 13, 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 "Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company does not expect the adoption of SAB No. 108 to have a material impact on its consolidated financial position, results of operations and cash flows.
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 will be required to adopt SFAS 157 on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 157 on its Consolidated Financial Statements.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Item 2. 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 obstetrics products, instrumentation and disposables used in dialysis, contract manufacturing and valves and inflation devices used in marine and aviation safety products.
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:
o Focusing on customer needs;
o Expanding existing product lines and developing new products;
o Maintaining a culture of controlling cost; and
o Preserving and fostering a collaborative, entrepreneurial
management structure.
For the three months ended September 30, 2006, the Company reported revenues of $19.3 million, operating income of $3.2 million and net income of $2.7 million, up 5 percent, 2 percent and 20 percent, respectively, from the three months ended September 30, 2005. For the nine months ended September 30, 2006, the Company reported revenues of $59.6 million, operating income of $10.4 million and net income of $7.8 million, up 8 percent, 7 percent and 14 percent, respectively, from the nine months ended September 30, 2005.
During the third quarter of 2006, the Company completed the construction of the new facility for a subsidiary, Halkey-Roberts Corporation ("Halkey-Roberts"). The relocation of the Halkey-Roberts operations to its new facility was substantially completed in the third quarter of 2006.
Results for the three months ended September 30, 2006 Consolidated net income totaled $2.7 million, or $1.45 per basic and $1.38 per diluted share, in the third quarter of 2006. This is compared with consolidated net income of $2.2 million, or $1.23 per basic and $1.15 per diluted share, in the third quarter of 2005. The income per basic share computations are based on weighted average basic shares outstanding of 1,858,356 in the 2006 period and 1,828,886 in the 2005 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,960,274 in the 2006 period and 1,952,700 in the 2005 period.
Consolidated revenues of $19.3 million for the third quarter of 2006 were 5 percent higher than revenues of $18.3 million for the third quarter of 2005. This 5 percent increase in revenues was primarily attributable to an approximate 15 percent increase in the revenues from the Company's fluid delivery products and an approximate 14 percent increase in the revenues from the Company's cardiovascular products. These increases, which were generally attributable to higher sales volumes, were partially offset by an approximate 14 percent decrease in the revenues from the Company's ophthalmic products.
Revenues by product line were as follows (in thousands):
Three Months ended
September 30,
---------------------------------------
2006 2005
---------------- -----------------
Fluid Delivery $ 6,121 $ 5,306
Cardiovascular 5,707 5,001
Ophthalmology 3,301 3,825
Other 4,161 4,206
---------------- -----------------
Total $ 19,290 $ 18,338
================ =================
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Cost of goods sold of $11.8 million for the third quarter of 2006 was 4 percent higher than in the comparable 2005 period. Increased sales volume and increased manufacturing overhead costs offset by a favorable product mix were the primary contributors to the increase in cost of goods sold for the third quarter of 2006.
Gross profit of $7.5 million in the third quarter of 2006 was $526,000, or 8 percent, higher than in the comparable 2005 period. The Company's gross profit percentage in the third quarter of 2006 was 38.8 percent of revenues compared with 38.0 percent of revenues in the third quarter of 2005. The increase in gross profit percentage in the 2006 period compared to the 2005 period was primarily related to improved product mix partially offset by increased manufacturing overhead costs.
The Company's third quarter 2006 operating expenses of $4.3 million were $451,000 higher than the operating expenses for the third quarter of 2005, resulting primarily from a $265,000 increase in General and Administrative (G&A) expenses, a $37,000 increase in selling (Selling) expenses, and a $149,000 increase in Research and Development (R&D) expenses. The increase in G&A for the third quarter of 2006 was primarily related to increased outside services and costs associated with the relocation to the new facility for Halkey-Roberts. The increase in Selling expenses for the third quarter of 2006 was principally attributable to increased compensation costs and outside services. The increase in R&D costs was primarily related to outside services, prototype expenses, new product testing costs, and process enhancements. Operating income in the third quarter of 2006 increased $75,000, or 2 percent, to $3.2 million from $3.1 million in the third quarter of 2005. Operating income was 16.5 percent of revenues in the third quarter of 2006 compared to 17.0 percent of revenues in the third quarter of 2005. The change in operating income for the third quarter of 2006 as compared with the third quarter of 2005 was primarily attributable to the previously mentioned increased gross profit offset by the increased operating expenses.
Interest expense of $58,000 for the 2006 period is greater than the 2005 period primarily related to increased borrowing levels in connection with the construction of the Halkey-Roberts facility. Third quarter 2006 interest charges of $112,000, through August 31, 2006, were capitalized during the construction phase of the new Halkey-Roberts facility. Income tax expense for the third quarter of 2006 was $433,000 compared to income tax expense of $861,000 for the same period in the prior year. The effective tax rate for the third quarter of 2006 was 13.8 percent compared with 27.7 percent for the third quarter of 2005. The lower effective tax rate for the 2006 period is primarily related to a review 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.
Results for the nine months ended September 30, 2006 Consolidated net income totaled $7.8 million, or $4.22 per basic and $3.99 per diluted share, for the nine months ended September 30, 2006. This is compared with consolidated net income of $6.8 million, or $3.82 per basic and $3.56 per diluted share, for the nine months ended September 30, 2005. The income per basic share computations are based on weighted average basic shares outstanding of 1,846,265 in the 2006 period and 1,780,822 in the 2005 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,951,413 in the 2006 period and 1,915,087 in the 2005 period.
Consolidated revenues of $59.6 million for the nine months ended September 30, 2006 were 8 percent higher than revenues of $55.1 million for the nine months ended September 30, 2005. This 8 percent increase in revenues was primarily attributable to an approximate 25 percent increase in the revenues from the Company's fluid delivery products and an approximate 22 percent increase in the revenues from the Company's cardiovascular products. These increases, which were generally attributable to higher sales volumes, were partially offset by an approximate 17 percent decrease in the revenues from the Company's ophthalmic products and an approximate 3 percent decrease in the revenues from the Company's other products.
Revenues by product line were as follows (in thousands):
Nine months ended
September 30,
-------------- ----- ----------------
2006 2005
-------------- ----------------
Fluid Delivery $ 19,180 $ 15,356
Cardiovascular 17,147 14,102
Ophthalmology 9,685 11,632
Other 13,629 13,995
-------------- ----------------
Total $59,641 $ 55,085
============== ================
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Cost of goods sold of $36.0 million for the nine months ended September 30, 2006 was 8 percent higher than in the comparable 2005 period. Increased sales volume, increased manufacturing overhead costs, and a temporary production curtailment due to reduced orders from certain ophthalmic and related kitting business customers were the primary contributors to the increase in cost of goods sold for the nine months ended September 30, 2006.
Gross profit of $23.6 million for the nine months ended September 30, 2006 was $1.8 million, or 8 percent, higher than in the comparable 2005 period. The Company's gross profit percentage was 39.6 percent of revenues for both the nine months ended September 30, 2006 and 2005.
The Company's third quarter 2006 operating expenses of $13.2 million were $1.1 million higher than the operating expenses for the nine months ended September 30, 2005, resulting primarily from a $400,000 increase in Selling expenses, a $320,000 increase in R&D expenses and a $397,000 increase in G&A expenses. The increase in Selling expenses for the nine months ended September 30, 2006 was principally attributable to increased compensation costs, advertising and promotion costs and outside services. The increase in R&D costs was primarily related to outside services, prototype expenses, new product testing costs, and process enhancements. The increase in G&A for the nine months ended September 30, 2006 was primarily related to increased outside services and costs associated with the relocation to the new facility for Halkey-Roberts partially offset by a decrease in insurance costs. Operating income for the nine months ended September 30, 2006 increased $703,000, or 7 percent, to $10.4 million from $9.7 million in the nine months ended September 30, 2005. Operating income was 17.4 percent of revenues for the nine months ended September 30, 2006 compared to 17.5 percent of revenues for the nine months ended September 30, 2005.
Interest expense of $58,000 for the 2006 period is less than the 2005 period because of the capitalization of interest charges in connection with the construction of the Halkey-Roberts facility. Interest charges of $326,000, through August 31, 2006, were capitalized during the construction phase of the new Halkey-Roberts facility. Income tax expense for the nine months ended September 30, 2006 was $2.7 million compared to income tax expense of $3.0 million for the same period in the prior year. The effective tax rate for the nine months ended September 30, 2006 was 26.0 percent compared with 31.1 percent for the nine months ended September 30, 2005. The lower effective tax rate for the 2006 period is primarily related to a review 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 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 $0.09 per basic and $0.08 per diluted share, for the first nine months of 2006 and $165,000 after tax, or $0.09 per basic and $0.09 per diluted share, for the first nine months of 2005, resulting from the receipt of contingent deferred payments in each year. No additional payments are due in future periods under the terms of the 1997 agreement pursuant to which the Company sold its natural gas operations.
Liquidity and Capital Resources At September 30, 2006, the Company had cash and cash equivalents of $234,000 compared with $525,000 at December 31, 2005. The Company had outstanding borrowings of $11.6 million under its $25.0 million revolving credit facility ("Credit Facility") at September 30, 2006 and $2.5 million at December 31, 2005. The increase in the outstanding balance under the Credit Facility in the first nine months of 2006 was primarily attributable to borrowings to partially fund the construction of the new Halkey-Roberts facility. The Credit Facility, which expires November 12, 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 September 30, 2006, the Company was in compliance with all financial covenants.
As of September 30, 2006, the Company had working capital of $20.9 million, including $234,000 in cash and cash equivalents. The $1.2 million increase in working capital during the first nine months of 2006 was primarily related to an increase in accounts receivable and inventories, and a decrease in accrued income and other taxes partially offset by an increase in accounts payable and accrued liabilities. The increase in accounts receivable during the first nine months of 2006 was primarily related to the increase in revenues for the third quarter of 2006 as compared to the fourth quarter of 2005. The increase in inventories is primarily related to increased purchases of raw materials in an effort to realize lower costs due to volume purchasing and increased stocking levels to support increased revenues. The increase in accounts payable is primarily related to the increased raw material purchases. Cash flows from continuing operations generated $9.9 million for the nine months ended September 30, 2006 as compared to $6.1 million for the nine months ended September 30, 2005. The 2005 period was heavily impacted by a $3.1 million increase in inventories. During the first nine months of 2006, the Company expended $18.6 million for the purchase of property and equipment. Of this amount, approximately $13.0 million was expended for the construction of the new Halkey-Roberts facility. The Company received net proceeds of $1.0 million from the exercise of employee stock options during the first nine months of 2006. During the first nine months of 2006, the Company repurchased 24,000 shares of its common stock for approximately $1.6 million and paid dividends totaling $1.0 million to its stockholders.
The Company believes that its existing cash and cash equivalents, cash flows from operations, borrowings available under the Company's credit facility, supplemented, if necessary, with equity or debt financing, which the Company believes would be available, will be sufficient to fund the Company's cash requirements for the foreseeable future.
Forward-Looking Statements
The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results
may differ materially. Therefore, the inclusion of such forward-looking
information should not be regarded as a representation by the Company
that the objectives or plans of the Company would be achieved. Such
statements include, but are not limited to, the Company's expectations
regarding future liquidity and capital resources. Words such as
"anticipates," "believes," "expects," "estimated" and variations of
such words and similar expressions are intended to identify such
forward-looking statements. 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; the loss of, or any material
reduction in sales to, any significant customers. In addition,
assumptions relating to budgeting, marketing, product development and
other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic review which may cause the
Company to alter its marketing, capital expenditures or other budgets,
which in turn may affect the Company's results of operations and
financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For the quarter ended September 30, 2006, the Company did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in the Company's 2005 Annual Report on Form 10K.
Item 4. 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 September 30, 2006. 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 our internal control over financial reporting for the quarter ended September 30, 2006 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Chief Executive Officer Amended and Restated Employment Agreement
31.1 Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2 Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes - Oxley Act Of 2002
32.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes - Oxley Act Of 2002
(b) Reports on Form 8-K
On August 8, 2006, the Company filed a report on Form 8-K with the SEC regarding the public dissemination of a press release announcing its financial results for the second quarter ended June 30, 2006 (Item 12).
On August 10, 2006, the Company filed a report on Form 8-K with the SEC regarding an amendment to the existing employment agreement dated January 1, 2002 and amended on December 3, 2002 between the Company and the Company's Chairman, President and Chief Executive Officer and the adoption of a Rights Plan.
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 6, 2006 /s/ Emile A. Battat
----------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: November 6, 2006 /s/ Jeffery Strickland
----------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
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Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 7th day of August 2006 by and between Atrion Corporation, a Delaware corporation (the "Company"), and Emile A. Battat (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive and the Company are currently parties to an employment agreement dated as of the 1st day of January, 2002 and amended as of the 3rd day of December, 2002 (the "Current Employment Agreement"), pursuant to which the Executive is employed by the Company as the Chairman of the Board of Directors of the Company (the "Board") and as its President and Chief Executive Officer; and
WHEREAS, the Company and the Executive desire to continue the Executive's employment by the Company following the expiration of the Current Employment Agreement on December 31, 2006, upon the terms and conditions set forth in this Agreement, which shall be effective as of the 1st day of January, 2007 (the "Commencement Date").
NOW, THEREFORE, in consideration of the foregoing, the mutual provisions contained herein, and for other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT.
(a)Continuation of Employment. The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment as the Company's Chairman of the Board ("Chairman") and President and Chief Executive Officer on the terms and conditions hereinafter set forth. The Executive shall perform such duties, and have such powers, authority, functions, and responsibilities (commensurate with his position and title), as may be reasonably assigned to him from time to time by the Board which are not (except with the Executive's prior written consent) inconsistent with and which do not interfere with or detract from those vested in or being performed by the Executive for the Company.
(b)Duties. During the Employment Term (as defined below), the Executive shall devote such time and effort as is reasonably necessary to perform his duties and responsibilities as Chairman and President and Chief Executive Officer of the Company; provided, however that the Executive shall be allowed, to the extent that such activities do not materially interfere with the performance of his duties and responsibilities hereunder, to manage his personal financial affairs and to serve on corporate, civic, not-for-profit, charitable industry boards and advisory committees.
2. TERM. The initial term of the Executive's employment under this Agreement shall be for period of five (5) years from the Commencement Date (the "Initial Term"). The term of the Executive's employment under this Agreement shall be automatically renewed for additional one (1) year terms (each referred to as an "Additional Term") at the end of the Initial Term and at the end of each Additional Term, as the case may be, unless either party delivers written notice of termination to the other at least thirty (30) days prior to the end of the Initial Term or Additional Term, as the case may be. The Initial Term and the Additional Terms shall be referred to herein as the "Employment Term."
3. COMPENSATION. The Company shall pay the Executive the following, subject to withholding and other applicable employment taxes:
(a)Base Salary and Bonuses. The Company shall pay the Executive a base salary (the "Base Salary") of Five Hundred Thousand and no/100 Dollars ($500,000.00) for each calendar year in the Employment Term.
In addition to the Base Salary, the Company shall pay the Executive a cash bonus (the "Annual Bonus") for each calendar year in the Employment Term (with the first Annual Bonus hereunder to be paid in 2008 (within the period set forth below) for the year 2007) equal to the amount that is 8% of the Increase in Operating Income for such calendar year. For purposes of this Agreement, "Increase in Operating Income" shall be equal to the excess, if any, of the Company's operating income for the calendar year of determination over the Company's operating income for the previous calendar year. The Compensation Committee of the Board shall have discretion to adjust the Increase in Operating Income calculated pursuant to the previous sentence to disregard one-time, non-recurring extraordinary adjustments and shall make such equitable adjustments as are required to give effect to acquisitions, divestitures, or similar corporate transactions by or involving the Company.
The Base Salary shall be payable in intervals consistent with the Company's normal payroll schedules (but in no event less frequently than monthly). The Base Salary, as in effect from time to time, may be increased but not reduced without the written consent of the Executive. The Annual Bonus for each calendar year in the Employment Term shall be payable as soon as practicable following the date on which the Annual Bonus can be determined, but in no event later than March 15 of the year following such calendar year.
In addition to the Base Salary and the Annual Bonus, the Company shall pay the Executive such other incentive compensation as the Company may from time to time determine.
(b) Benefits and Expenses. The Executive shall have the right to participate in the employee benefit plans, equity and incentive plans, insurance contracts, policies, arrangements or agreements maintained by the Company for the benefit of its employees and relating to retirement, health, disability and other employee benefits, subject to the Executive's qualification for participation in such benefit plans pursuant to the terms and conditions under which such benefit plans are offered, at a level commensurate with the Executive's position. The Executive's rights and entitlements with respect to any such benefits shall be subject to the provisions of the relevant agreements, contracts, policies, arrangements or plans providing such benefits. Nothing contained herein shall be deemed to impose any obligation on the Company to adopt or maintain any such plans, policies, arrangements, contracts or agreements. In accordance with its policies and procedures, the Company shall pay or reimburse the Executive for all reasonable or necessary travel and other out-of-pocket expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall comply with all such policies and procedures applicable to the Company's senior executive employees relating to the nature and extent of reimbursable expenses, the manner of accounting therefor and the manner or reimbursement of same. The Company shall also furnish the Executive with such office and clerical assistance as shall be suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder.
(c) Vacation and Holidays. The Executive shall be entitled to such vacation with pay during each fiscal year of the Company as determined by the Company, but in no event less than four (4) weeks per year, such vacation to be taken at such time or times as shall be approved by the Company, which approval shall not be unreasonably withheld. In addition, the Executive shall be entitled to such holidays with pay as the Company makes available to its other senior executive employees. Unless otherwise agreed between the parties, unused days of vacation and unused holidays may not be carried over from one fiscal year of the Company to another.
4. TERMINATION.
(a) Termination by the Company. The Company may terminate the employment of the Executive prior to the expiration of the Employment Term (i) for "just cause" (as defined below) by delivering written notice of termination to the Executive or (ii) without "just cause" upon thirty (30) days written notice of termination to the Executive.
(b) Termination by Executive. The Executive may terminate his employment under this Agreement prior to the expiration of Employment Term (i) for "good reason" (as defined below) by giving the Company ninety (90) days written notice of his intention to terminate such employment or (ii) without "good reason" by giving the Company ninety (90) days written notice of his intention to terminate such employment.
(c) Termination Upon Death or Disability. The Executive's employment shall terminate immediately upon his death. In the event that the Executive becomes subject to a Disability (as defined below), the Executive's employment may be terminated upon thirty (30) days written notice by either party to the other.
(d) Definitions. For purposes of this Agreement, the following terms shall have the respective meanings indicated below:
(i) Just Cause. The term "just cause" shall mean (A) the Executive's continuing willful failure to perform his material duties and obligations under this Agreement (except by reason of his death or incapacity due to his Disability) after written notice thereof by the Company to the Executive, and the Executive's failure or refusal to perform such duties and obligations within thirty (30) days after the receipt of such notice by the Executive or (B) the conviction of, or the entering of a plea of nolo contendere by, the Executive with respect to a felony (other than as a result of a traffic violation or as a result of vicarious liability), provided that on or after a Change in Control (as defined in Exhibit A hereto), "just cause" shall be limited to only subsection (B) above. For purposes of this Section 4(d)(i), no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. The Company must assert a "just cause" termination event no later than ninety (90) days after discovery of such event.
The date of termination for a termination for "just cause" shall be the date indicated in the Notice of Termination (as defined herein). A "Notice of Termination" for "just cause" shall mean a notice that shall indicate the specific termination provision in Section 4(d)(i) relied upon and shall set forth in reasonable detail the facts and circumstances which provide for a basis for termination for "just cause." Further, a Notice for Termination for "just cause" shall be required to include a copy of a resolution duly adopted by the Board, with at least two-thirds (2/3) of the non-management members of the Board voting in favor thereof, at a meeting of the Board which was called for the purpose of considering such termination and which Executive and his representative had the right to attend and address the Board, finding that, in the good faith of the Board, Executive engaged in conduct set forth in the definition of "just cause" herein and specifying the particulars thereof in reasonable detail. Any purported termination for "just cause" which is held by an arbitrator not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a termination by the Company without "just cause."
(ii) Good Reason. The term "good reason" shall mean any one or more of the following:
(A) Without the Executive's express written consent, any diminution in the Executive's titles, authorities, responsibilities or the assignment of the Executive to any duties inconsistent with his position, duties, responsibilities and status with the Company as its Chairman, President and Chief Executive Officer or the removal by the Board, or the failure or refusal of the Board to re-elect, the Executive as the Chairman, President and Chief Executive Officer of the Company at any time during the term of this Agreement. For purposes hereof, a "diminution in the Executive's titles, authorities or responsibilities" shall be deemed to have occurred if the Company is no longer required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.
(B) The Company's breach of any provision of this Agreement or any other agreement between the Company and the Executive and failure, within the ten (10) day period following its receipt of written notice from the Executive describing such breach in reasonable detail, to promptly commence in good faith to cure such breach (if curable); provided that such cure must be effected no later than thirty (30) days following such notice and provided further that such cure right shall not be available on more than one occasion in any twelve (12) month period.
(C) Adoption by a majority of the Board of any resolution or series of related resolutions that, individually or collectively, has or could reasonably be expected to have a material effect on the strategic direction, operations, financial condition or results of operations of the Company and that is voted against by the Executive in a good faith exercise of his fiduciary duty or the failure or refusal of a majority of the Board to adopt a proposed resolution or series of related resolutions that, individually or collectively, has or could reasonably have been expected to have a material effect on the strategic direction, operations, financial condition or results of operations of the Company and that the Executive proposed, by a motion or series of motions (whether or not seconded), be adopted by the Board in a good faith exercise of his fiduciary duty.
(D) Failure of the Company to obtain the assumption in writing (a copy of which is delivered to the Executive) of the Company's obligations hereunder to the Executive by any successor to the Company prior to or at the time of a merger, acquisition, consolidation, disposition of substantially all of the assets of the Company or similar transaction.
The Executive must assert a "good reason" termination event no later than ninety
(90) days after the Executive discovers such event.
(iii) Disability. The Executive shall be considered to be
subject to a "Disability" if, as a result of physical or mental sickness or
incapacity or accident, the Executive is unable to perform the normal duties of
his employment with the Company for a period of ninety (90) days in any one
hundred twenty (120) day period. If there is any disagreement between the
Company and the Executive as to whether the Executive was unable to perform the
normal duties of his employment due to Disability, the same shall be determined
after examination of the Executive by a physician selected by the Executive (or,
if the Executive is unable to make such selection, it shall be made by the
Executive's spouse or, if the Executive is not married or if his spouse is
unable or unwilling to make the selection, by any other adult member of the
Executive's immediate family) and approved by the Company. The costs and
expenses of such examination shall be borne by the Company. The determination of
such physician shall be conclusive evidence as to whether the Executive was
unable to perform the normal duties of his employment due to Disability. If the
Executive does not permit such examination by such physician, then, for purposes
hereof, the determination as to whether the Executive was unable to perform the
normal duties of his employment due to Disability shall be made by the Board.
Nothing herein shall have any effect upon the Executive's eligibility to receive
any disability benefits from the Company pursuant to the terms and conditions of
any disability plan or other arrangement which the Company may have in effect
from time to time.
(e) Termination Payment.
(i) Termination for Just Cause. In the event the Company terminates the Executive's employment pursuant to Section 4(a)(i) of this Agreement, the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay the Executive any compensation earned but not yet paid, including without limitation, the Base Salary and Annual Bonus for the calendar year in which the date of termination falls, in each case prorated for the number of days of the calendar year that elapsed prior to the date of termination, any accrued vacation pay payable pursuant to the Company's policies, and any unreimbursed business expenses (collectively the "Accrued Amounts").
(ii) Termination Without Just Cause. In the event the Company terminates Executive's employment pursuant to Section 4(a)(ii) of this Agreement, the Executive's employment under this Agreement shall terminate at the expiration of said thirty (30) day period, and the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay to the Executive a cash lump sum amount equal to the sum of:
(A) the Accrued Amounts; and
(B) the Executive's Base Salary and the average of the annual bonuses received by the Executive for the three years prior to the year in which such termination occurs (collectively, the "Severance Payment"); which sum shall be paid by the Company as soon as practicable after the termination date, but in no event later than ten (10) days after the termination of the Executive's employment; provided, however, that in the event of any termination without just cause that occurs in contemplation of or within two years following a Change in Control, the Company shall instead pay to the Executive a cash lump sum amount equal to the sum of the Accrued Amounts and two times the Severance Payment. Any such payment shall be subject to a six-month delay to the extent necessary for the avoidance of adverse tax consequences to the Executive under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"). Notwithstanding the foregoing, in the event the Company terminates Executive's employment pursuant to Section 4(a)(ii), the Company may, at its option, require the Executive to cease providing services hereunder and serving as an employee of the Company at any time during said thirty (30) day period. In addition, all stock options and/or equity granted to the Executive shall fully vest and become exercisable upon the termination date. The Company shall continue to provide the Executive (and his spouse and dependents) with group health plan benefits (or substantially similar substitute arrangements), at its sole expense, for one year (the "One Year Medical Benefits").
(iii) Termination for Good Reason. In the event the Executive
terminates the Executive's employment pursuant to Section 4(b)(i) of this
Agreement, the Company shall have no further obligation under Sections 3 and 4
of this Agreement except to pay to the Executive a cash lump sum equal to the
Accrued Amounts and the Severance Payment, which shall be paid by the Company as
soon as practicable after the termination date, but in no event later than ten
(10) days after the termination of the Executive's employment; provided,
however, that in the event of any termination for good reason that occurs in
contemplation of or within two years following a Change in Control, the Company
shall instead pay to the Executive a cash lump sum amount equal to the sum of
the Accrued Amounts and two times the Severance Payment. Any such payment shall
be subject to a six-month delay to the extent necessary for the avoidance of
adverse tax consequences to the Executive under Section 409A of the Code. In
addition, all stock options and/or equity granted to the Executive shall fully
vest and become exercisable upon the termination date. The Company shall also
provide the Executive (and his spouse and dependents) with the One Year Medical
Benefits.
(iv) Termination Without Good Reason. In the event the Executive terminates the Executive's employment pursuant to Section 4(b)(ii) of this Agreement, the Executive's employment under this Agreement shall terminate at the expiration of said thirty (30) day period, and the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay the Executive a cash lump sum equal to the Accrued Amounts as soon as practicable after the termination date, but in no event later than ten (10) days after the termination of Executive's employment. Notwithstanding the foregoing, in the event the Executive terminates his employment pursuant to Section 4(b)(ii), the Company may, at its option, require the Executive to cease providing services hereunder and serving as an employee of the Company at any time during said thirty (30) day period; provided that the Executive shall be entitled to such payments as would have otherwise been due to him had he continued in the employment of the Company for such thirty (30) day period, including, without limitation, payments of the Accrued Amounts and amounts to be paid under any other plan, agreement or policy which survives the termination of this Agreement.
(v) Termination upon Death or Disability. In the event the Executive's employment is terminated pursuant to Section 4(c) hereof, the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay to the Executive (or his personal representative or guardian) a cash lump sum amount equal to the Accrued Amounts and the Severance Payment, which shall be paid by the Company as soon as practicable after the termination date, but in no event later than ten (10) days after the termination of the Executive's employment. In addition, all stock options and/or equity granted to the Executive shall fully vest and become exercisable upon the termination date. The Company shall also provide the Executive (and/or his spouse and dependents as applicable) with the One Year Medical Benefits.
(f) COBRA. In the event that the Company's group health plan does not permit the Company to provide continuation coverage for the Executive for the one (1) year period in which the One Year Medical Benefits are to be provided and does not permit the Executive to elect COBRA coverage within sixty (60) days after the expiration of said one (1) year period and for COBRA coverage to begin on the first day following the expiration of said one (1) year period, the Company shall use reasonable good faith efforts within ninety (90) days after the Commencement Date to amend its group health plan to permit the Company to provide continuation coverage for the Executive for said one (1) year period and to permit the Executive to make such election and, if made, for COBRA coverage to begin on the first day following the expiration of said one (1) year period; provided, however, that the Company shall not be required to change health insurance companies or to pay additional premiums for any employee or former employee other than the Executive in order to effect, or as a result of, such amendment. Nothing herein shall be construed as limiting the COBRA rights of the Executive (or his spouse and dependents).
5. WITHHOLDING. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state, or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law in light of the circumstances. The Company shall be entitled to rely on an opinion of tax counsel if any question as to the amount or requirement of any such withholding shall arise.
6. NOTICES. All notices provided for by this Agreement shall be in writing and shall be (a) personally delivered to the party thereunto entitled or (b) deposited in the United States mail, postage prepaid, addressed to the party to be notified at the address listed below (or at such other address as may have been designated by written notice), certified or registered mail, return receipt requested. The notice shall be deemed to be received (a) if by personal delivery, on the date of its actual receipt by the party entitled thereto or (b) if by mail, two (2) days following the date of deposit in the United States mail.
To the Company: Atrion Corporation
One Allentown Parkway
Allen, TX 75002
Attention: Chief Financial Officer
To Executive: Emile A. Battat
To the most recent address
on file with the Company.
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7. PARTIES BOUND. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the Company, Executive, and their respective heirs, personal representatives, successors and assigns; provided, however, that Executive may not assign any rights or obligations hereunder without the express written consent of Company. This Agreement shall also bind and inure to the benefit of any successor of the Company by merger or consolidation, or any assignee of all or substantially all of the Company's properties.
8. INVALID PROVISIONS. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom.
9. EXCISE TAX GROSS-UP.
(a) Payment of Excise Tax Amount. In the event any of the payments or benefits provided to the Executive hereunder or under any other plan, agreement or arrangement (the "Company Payments") will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may be imposed by any taxing authority), the Company shall pay to the Executive at the time specified below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after the deduction of any Excise Tax on the Company Payments and any U.S. federal, state and local income or payroll tax on the Gross-Up Payment provided for herein but before deduction for any federal, state or local income or payroll tax on the Company Payments, shall be equal to the Company Payments.
(b) Applicability of Excise Tax. For purposes of determining whether
any of the Company Payments and Gross-up Payments (collectively the "Total
Payments") will be subject to the Excise Tax and the amount of such Excise Tax,
(x) the Total Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in
excess of the "base amount" (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, to the extent that, in the
opinion of a national independent accounting firm designated by the Executive or
tax counsel with a nationally-recognized law firm selected by such accountants
(the "Accountants"), such Total Payments (in whole or in part) constitute
"parachute payments," do not represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the "base amount" or are otherwise subject to the Excise Tax, and (y) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Accountants in accordance with the principles of Section 280G
of the Code.
(c) Amount of Gross-Up Payment. For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross-up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code; provided, however, that if it is reasonably likely that such repayment could constitute a violation of Section 402 of the Sarbanes-Oxley Act of 2002 (or other applicable law), no such payment shall be required. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined.
(d) Time of Payment. The Gross-up Payment or portion thereof provided
for in subsection (c) above shall be paid not later than the thirtieth (30th)
day following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by the
Accountants, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(e) Procedures. In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Employee, and the Executive and the Executive's representative shall cooperate with the Company and its representative.
(f) Costs. The Company shall be responsible for all charges of the Accountant.
(g) Notices. The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax.
10. NO MITIGATION; NO SET-OFF.
(a) No Duty to Mitigate. In the event of any termination of employment hereunder, Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain.
(b) Other Payments. Any amounts or benefits payable to the Executive under this Agreement are, in addition to, and are not in lieu of, amounts payable to the Executive under any other salary continuation or cash severance arrangement of the Company or any other type of agreement entered into between the parties, and to the extent paid or provided under any other such arrangement or agreement shall not be offset from the amounts or benefits due hereunder, except to the extent expressly provided in such other arrangement or agreement.
11. ATTORNEYS' FEES AND COSTS. In the event that it becomes necessary for the Executive to seek legal counsel with regard to a dispute, claim or issue under this Agreement or the Executive deems it necessary to initiate arbitration in order to enforce his rights hereunder, then the Company shall bear and, upon notification to the Company by the Executive, immediately advance to the Executive all expenses of such dispute, claim, issue or arbitration, including the reasonable fees and expenses of the counsel of the Executive incurred in connection with such dispute, claim, issue or arbitration, unless an arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case an arbitrator may determine that Executive shall bear his own legal fees. Notwithstanding any existing or prior attorney-client relationship between the Company and the counsel selected by the Executive, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel.
12. ARBITRATION. All disputes and controversies arising under or in connection with this Agreement, shall be settled by arbitration conducted before one (1) arbitrator sitting in New York, New York, or such other location agreed by the parties hereto, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company unless the arbitrator determines that Executive's position was frivolous or otherwise taken in bad faith, in which case the arbitrator may determine that Executive shall bear his own legal fees.
13. LEGAL FEES. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement.
14. INDEMNIFICATION. The Company shall indemnify and hold harmless Executive to the fullest extent permitted under the Company's Bylaws as in effect on the date hereof or the date of termination of employment, if on such date the Bylaws provide the Executive with greater rights to indemnification, and to the fullest extent permitted by law for any action or inaction of Executive while serving as an officer or director of the Company or, at the Company's request, as an officer or director of any other entity or as a fiduciary of any benefit plan. The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term (but in no event for a period which is less than six (6) years after termination) in the same amount and to the same extent as the Company covers its other officers and directors as of the Commencement Date or the date of termination of employment, if on such date the Executive will receive greater coverage under such insurance.
15. WAIVERS AND CONSENTS. One or more waivers of any breach of any covenant, term or provision of this Agreement by any party shall not be construed as a waiver of a subsequent breach of the same covenant, term or provision, nor shall it be considered a waiver of any other then existing or subsequent breach of a different covenant, term or provision. The consent or approval of either party to or of any act by the other party requiring such consent or approval shall not be deemed to waive or render unnecessary consent to or approval or any subsequent similar act. No custom or practice of the parties shall constitute a waiver of either party's rights to insist upon strict compliance with the terms hereof.
16. SECTION HEADINGS. The headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.
17. MULTIPLE COUNTERPARTS. This Agreement may be executed in counterparts, each of which for all purposes is to be deemed an original, and both of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflict-of-law rules.
19. SECTION 409A. The intent of the parties is that, effective as of January 1, 2005, this Agreement and, while effective, the Current Employment Agreement, will be in full compliance with Section 409A of the Code, and in the event that any provision of this Agreement and, while effective, the Current Employment Agreement, or any payment of compensation or benefits paid pursuant to this Agreement is determined to be inconsistent with the requirements of Section 409A of the Code, the Company shall reform this Agreement and, while effective, the Current Employment Agreement, to the extent necessary to comply therewith and to avoid the imposition of any penalties or taxes pursuant to Section 409A of the Code, provided that any such reformation shall to the maximum extent possible retain the originally intended economic and tax benefits to the Executive and the original purpose of this Agreement and, if applicable, the Current Employment Agreement, without violating Section 409A of the Code or creating any unintended or adverse consequences to the Executive. Such reformation may include imposition of a six month delay in the payment of certain benefits if the Executive is a "specified employee" under Section 409A of the Code at the relevant time.
20. ENTIRE AGREEMENT. The Current Agreement, the provisions of which (as supplemented by Section 19 hereof) shall remain in full force and effect until January 1, 2007, and this Agreement contain the entire agreement of the parties hereto, and supersede all prior agreements and understandings, oral or written, if any, between the parties hereto, with respect to the subject matter hereof. No modification or amendment of any of the terms, conditions, or provisions herein may be made otherwise than by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.
ATRION CORPORATION
By: /s/ Jeffery Strickland ------------------------------------------ Vice President and Chief Financial Officer, Secretary and Treasurer /s/ Emile A. Battat --------------------------------------------- EMILE A. BATTAT |
Exhibit A
(a) For purposes of the Agreement, the term "Change in Control" shall mean the occurrence of any one of the following events:
(i) any person (as the term "person" is used in Section 13(d)
(3) or Section 14(d) (2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (other than the Company, any of its subsidiaries, or any
trustee or other fiduciary holding securities of the Company under an employee
benefit plan of the Company or any of its subsidiaries) becomes the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of securities
of the Company representing 25% or more of the combined voting power of the
then-outstanding voting securities of the Company
(ii) the Company is merged, consolidated or reorganized into or with another corporation or other person and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;
(iii) the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells all or substantially all of its assets to any other corporation or other person and as a result of such sale less than 50% of the combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; or
(iv) during any period of two consecutive years, individuals who, at the beginning of any such period, constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's stockholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
Exhibit 31.1
Chief Executive Officer Certification
I, Emile A. Battat, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; and
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over the financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
Exhibit 31.1
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 6, 2006
/s/ Emile A. Battat
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Emile A. Battat
Chairman, President and
Chief Executive Officer
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Exhibit 31.2
Chief Financial Officer Certification
I, Jeffery Strickland, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; and
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over the financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
Exhibit 31.2
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 6, 2006
/s/ Jeffery Strickland
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Jeffery Strickland
Vice President and
Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES - OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Atrion
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 (the "Report") fully complies with the requirements of Section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934 and that the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated: November 6, 2006 /s/ Emile A. Battat
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Emile A. Battat
Chief Executive Officer
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The foregoing certification is made solely for purpose of 18 U.S.C. ss. 1350 and not for any other purpose.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES - OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Atrion
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 (the "Report") fully complies with the requirements of Section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934 and that the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated: November 6, 2006 /s/ Jeffery Strickland
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Jeffery Strickland
Chief Financial Officer
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The foregoing certification is made solely for purpose of 18 U.S.C. ss. 1350 and not for any other purpose.