SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 2002 Commission File Number 0-10763
Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0821819
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Allentown Parkway, Allen, Texas 75002
(Address of Principal Executive Offices) (Zip Code)
(972) 390-9800
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Title of Each Class November 9, 2002
- --------------------------------------- -------------------------------
Common stock, Par Value $0.10 per share 1,707,921
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, 2002 and 2001 3
Consolidated Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001 4
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30, 2002 and 2001 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 4. Controls and Procedures 14
PART II. Other Information 15
Item 6. Exhibits and Reports on
Form 8-K 15
SIGNATURES 16
Certifications 16
1
PART I
FINANCIAL INFORMATION
2
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------------------
2002 2001 2002 2001
--------------------------------------------
Revenues $ 14,662 $ 15,418 $ 44,262 $ 44,998
Cost of goods sold 9,620 9,577 28,705 27,864
-------- -------- -------- --------
Gross profit 5,042 5,841 15,557 17,134
-------- -------- -------- --------
Operating expenses:
Selling 1,306 1,543 4,142 5,027
General and administrative 1,708 2,082 5,375 5,970
Research and development 643 483 1,700 1,479
-------- -------- -------- --------
3,657 4,108 11,217 12,476
-------- -------- -------- --------
Operating income 1,385 1,733 4,340 4,658
-------- -------- -------- --------
Other income (expense):
Interest expense, net (88) (25) (287) (217)
Other (expense) income (19) 4 (17) 437
-------- -------- -------- --------
(107) (21) (304) 220
-------- -------- -------- --------
Income from continuing operations before
provision for income taxes 1,278 1,712 4,036 4,878
Provision for income taxes 181 535 1,002 1,529
-------- -------- -------- --------
Income from continuing operations 1,097 1,177 3,034 3,349
Gain on disposal of discontinued operations, net
of income taxes -- 5,326 165 5,492
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 1,097 6,503 3,199 8,841
Cumulative effect of change in accounting
principle, net of income taxes -- -- (1,641) --
-------- -------- -------- --------
Net income $ 1,097 $ 6,503 $ 1,558 $ 8,841
======== ======== ======== ========
Earnings (loss) per basic share:
Income from continuing operations $ 0.64 $ 0.57 $ 1.77 $ 1.66
Gain on disposal of discontinued operations -- 2.60 0.10 2.72
Cumulative effect of change in accounting
principle -- -- (0.96) --
-------- -------- -------- --------
$ 0.64 $ 3.17 $ 0.91 $ 4.38
======== ======== ======== ========
Weighted average basic shares outstanding 1,720 2,048 1,712 2,022
======== ======== ======== ========
Earnings (loss) per diluted share:
Income from continuing operations $ 0.59 $ 0.51 $ 1.61 $ 1.50
Gain on disposal of discontinued operations -- 2.33 0.09 2.46
Cumulative effect of change in accounting
principle -- -- (0.87) --
-------- -------- -------- --------
$ 0.59 $ 2.84 $ 0.83 $ 3.96
======== ======== ======== ========
Weighted average diluted shares outstanding 1,849 2,290 1,879 2,234
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
3
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
------------- ------------
(unaudited)
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 549 $ 542
Accounts receivable 10,356 7,559
Inventories 11,501 11,114
Prepaid expenses and other 1,463 1,463
-------- --------
23,869 20,678
-------- --------
Property, plant and equipment:
Original cost 41,978 39,866
Less accumulated depreciation and amortization 17,139 14,488
-------- --------
24,839 25,378
-------- --------
Other assets:
Patents 2,479 2,707
Goodwill 9,730 12,216
Other 2,582 3,308
-------- --------
14,791 18,231
-------- --------
$ 63,499 $ 64,287
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 5,593 $ 5,337
Accrued income and other taxes 818 109
-------- --------
6,411 5,446
-------- --------
Long-term debt 14,937 17,125
-------- --------
Other noncurrent liabilities 1,325 2,541
-------- --------
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000,000 shares, issued 3,419,953 shares 342 342
Paid-in capital 8,123 7,991
Retained earnings 63,218 61,660
Treasury shares,1,712,032 in 2002 and 1,732,032
in 2001, at cost (30,857) (30,818)
-------- --------
Total stockholders' equity 40,826 39,175
-------- --------
$ 63,499 $ 64,287
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these Balance Sheets.
4
ATRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 1,558 $ 8,841
Adjustments to reconcile net income to
net cash provided by operating activities:
Goodwill impairment, net of income taxes 1,641 --
Gain on disposal of discontinued operations (165) (5,492)
Depreciation and amortization 3,237 3,429
Deferred income taxes (189) 203
Other 183 (428)
---------- ----------
6,265 6,553
Change in operating assets and liabilities:
Accounts receivable (2,798) (1,949)
Other current assets (387) (175)
Accounts payable and accrued liabilities 256 652
Accrued income and other taxes 709 630
Other non-current assets and liabilities 544 498
---------- ----------
Net cash provided by continuing operations 4,589 6,209
Net cash provided by discontinued operations 165 165
---------- ----------
4,754 6,374
Cash flows from investing activities:
Property, plant and equipment additions (2,611) (2,068)
Property, plant and equipment sales 15 176
Patent sale -- 428
---------- ----------
(2,596) (1,464)
---------- ----------
Cash flows from financing activities:
Decrease in long-term indebtedness (2,188) (5,013)
Issuance of common stock 345 459
Repurchase of common stock (308) (169)
---------- ----------
(2,151) (4,723)
---------- ----------
Net change in cash and cash equivalents 7 187
Cash and cash equivalents at beginning of period 542 159
---------- ----------
Cash and cash equivalents at end of period $ 549 $ 346
========== ==========
Cash paid for:
Interest $ 320 $ 314
Income taxes $ 190 $ 895
The accompanying notes are an integral part of these consolidated statements.
5
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented have been
included in the accompanying unaudited consolidated financial statements
of Atrion Corporation (the "Company"). Such adjustments consist of normal
recurring items. The accompanying financial statements have been prepared
in accordance with the instructions to Form 10-Q and include the
information and notes required by such instructions. Accordingly, the
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's 2001 Annual Report on Form 10-K.
(2) Intangible Assets
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
142, "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill is
no longer subject to amortization, but is now subject to at least an
annual assessment for impairment by applying a fair value-based test. SFAS
142 became effective for the Company on January 1, 2002. Goodwill
amortization, which was $603,000 in 2001, ceased effective January 1,
2002. The Company has completed the process of performing an impairment
analysis as required by SFAS 142, resulting in a write-down of goodwill in
the first quarter of 2002 of $1.6 million, net of income tax. The charge
reflected a reduction in the goodwill resulting from the acquisition of
Quest Medical in February 1998. The impairment loss was recorded as the
cumulative effect of a change in accounting principle. Net income before
cumulative effect of change in accounting principle for the three and nine
months ended September 30, 2002 and net income for the three and nine
months ended September 30, 2001 adjusted as though the non-amortization
provisions of SFAS 142 had been in effect for that period are as follows:
Three Months ended Nine Months ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
(in thousands) (in thousands)
Income from continuing operations $ 1,097 $ 1,177 $ 3,034 $ 3,349(a)
Add back: Goodwill amortization, net of
tax -- 106 -- 319
-------------------------------------------------
Adjusted income from continuing
operations $ 1,097 $ 1,283 $ 3,034 $ 3,668
=================================================
Three Months ended Nine Months ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
Adjusted income per basic share:
Income from continuing operations $ 0.64 $ 0.57 $ 1.77 $ 1.66(b)
Add back: Goodwill amortization, net of
tax -- 0.05 -- 0.15
-------------------------------------------------
Adjusted income from continuing
operations $ 0.64 $ 0.62 $ 1.77 $ 1.81
=================================================
(a) - includes $273,000, net of tax, one-time gain on a patent sale
(b) - includes $0.13 per share from a one-time gain on a patent sale
6
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Three Months ended Nine Months ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
Adjusted income per diluted share:
Income from continuing operations $ 0.59 $ 0.51 $ 1.61 $ 1.50(c)
Add back: Goodwill amortization, net of
tax -- 0.05 -- 0.14
-------------------------------------------------
Adjusted income from continuing
operations $ 0.59 $ 0.56 $ 1.61 $ 1.64
=================================================
(c) - includes $ 0.12 per share from a one-time gain on a patent sale
Intangible assets consist of the following (in thousands, except average
life):
September 30, 2002 December 31, 2001
-------------------------------------------------------------
Average Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
------------- ------------- ------------- ------------- -------------
Amortizable intangible assets:
Patents 12.85 $ 9,250 $ 6,771 $ 9,250 $ 6,543
Intangible assets not subject to amortization:
Goodwill $ 16,330 $ 6,600 $ 16,330 $ 4,114
Aggregate amortization expense for the three and nine months ended
September 30, 2002 was $76,000 and $228,000, respectively. Aggregate
amortization expense for the three and nine months ended September 30,
2001 was $227,000 and $680,000, respectively.
Estimated amortization expense for each of the years ending December 31,
is as follows (in thousands):
2002 $304
2003 $304
2004 $304
2005 $271
2006 $169
The change in the carrying amounts of goodwill for the nine-month period
ended September 30, 2002 is as follows (in thousands):
Balance as of January 1, 2002 $12,216
Impairment loss 2,486
-------
Balance as of September 30, 2002 $ 9,730
=======
7
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(3) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by using the first-in, first-out method. The following table details the
major components of inventory (in thousands):
September 30, December 31,
2002 2001
--------------------------------------------------------------------
Raw materials $ 6,099 $ 6,037
Finished goods 3,625 4,189
Work in process 1,777 888
--------------------------------------------------------------------
$ 11,501 $ 11,114
--------------------------------------------------------------------
(4) Earnings per share
The following is the computation for basic and diluted earnings per share
before cumulative effect of change in accounting principle:
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
(in thousands, except per share amounts)
Income from continuing operations $ 1,097 $ 1,177 $ 3,034 $ 3,349(a)
Gain on disposal of discontinued operations -- 5,326 165 5,492
-------------------------------------------------
Income before cumulative effect of change
in accounting principle $ 1,097 $ 6,503 $ 3,199 $ 8,841
=================================================
Weighted average basic shares outstanding 1,720 2,048 1,712 2,022
Add: Effect of dilutive securities
(options) 129 242 167 212
-------------------------------------------------
Weighted average diluted shares
outstanding 1,849 2,290 1,879 2,234
=================================================
(a) - includes $273,000, net of tax, one-time gain on a patent sale
8
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
(in thousands, except per share amounts)
Earnings per basic share:
Income from continuing operations $ 0.64 $ 0.57 $ 1.77 $ 1.66(b)
Gain on disposal of discontinued
operations -- 2.60 0.10 2.72
-------------------------------------------------
Earnings before cumulative effect of
change in accounting principle $ 0.64 $ 3.17 $ 1.87 $ 4.38
=================================================
Earnings per diluted share:
Income from continuing operations $ 0.59 $ 0.51 $ 1.61 $1.50(c)
Gain on disposal of discontinued
operations -- 2.33 0.09 2.46
-------------------------------------------------
Earnings before cumulative effect of
change in accounting principle $ 0.59 $ 2.84 $ 1.70 $ 3.96
=================================================
(b) - includes $ 0.13 per share from a one-time gain on a patent sale
(c) - includes $ 0.12 per share from a one-time gain on a patent sale
Outstanding options that were not included in the diluted earnings per
share calculation because their effect would be anti-dilutive totaled
61,500 and 33,667 for the three and nine-month periods ended September 30,
2002, respectively, and 12,000 and 11,067 for the three and nine-month
periods ended September 30, 2001, respectively.
9
ATRION CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results for the three months ended September 30, 2002
The Company's consolidated income from continuing operations for the
quarter ended September 30, 2002 was $1.1 million, or $0.64 per basic and
$0.59 per diluted share, compared with consolidated income from continuing
operations of $1.2 million, or $0.57 per basic and $0.51 per diluted
share, for the third quarter of 2001. The earnings per basic share
computations are based on weighted average basic shares outstanding of
1,719,791 in the 2002 period and 2,047,535 in the 2001 period. The
earnings per diluted share computations are based on weighted average
diluted shares outstanding of 1,848,858 in the 2002 period and 2,289,880
in the 2001 period.
Consolidated revenues of $14.7 million for the third quarter of 2002 were
lower than revenues of $15.4 million for the third quarter of 2001. Sales
of contact lens disinfection cases that the Company's customers distribute
through retail outlets were lower than similar product sales in the third
quarter of 2001. Shipments of these products reached peak levels during
the 2001 period as customers increased their orders to build up
inventories and launch their marketing programs. This decrease in sales
was partially offset by an increase in sales of products used by
physicians and hospitals during the three months ended September 30, 2002.
The Company anticipates favorable quarterly revenue comparisons of contact
lens disinfection cases starting with the fourth quarter of 2002 as
compared to the fourth quarter of 2001. Cost of goods sold of $9.6 million
for the third quarter of 2002 was flat as compared with the comparable
2001 period. The increase in cost of goods sold as a percentage of
revenues is primarily related to a shift in product mix to products with
lower gross profit margins.
Gross profit of $5.0 million in the third quarter of 2002 was $799,000, or
13.7 percent, lower than in the comparable 2001 period. The Company's
gross profit percentage in the third quarter of 2002 was 34.4 percent of
revenues compared with 37.9 percent of revenues in the third quarter of
2001. This decrease is primarily related to the previously mentioned shift
in product mix.
The Company's third quarter 2002 operating expenses of $3.7 million were
$451,000, or 11.0 percent, lower than the operating expenses for the third
quarter of 2001. This decrease was the result of decreased general and
administrative (G&A) expenses and decreased selling expenses partially
offset by a $160,000 increase in research and development (R&D) expenses
in the current year period. The increase is primarily related to a
$108,000 write-off of assets related to a discontinued project during the
third quarter of 2002. Selling expenses for the third quarter of 2002 were
$237,000 lower than selling expenses for the third quarter of 2001
primarily related to spending controls. G&A expenses for the third quarter
of 2002 were $374,000 lower than G&A expenses for the same period in 2001
primarily as a result of a $151,000 reduction in goodwill amortization in
the current year period due to the adoption of SFAS 142 as discussed in
Note 2 to the Company's Consolidated Financial Statements (unaudited)
included herein. Additionally, G&A expense savings from restructuring
certain of the Company's operations and reduced compensation and outside
services were partially offset by increases in insurance costs. Operating
income of $1.4 million in the third quarter of 2002 was $348,000, or 20
percent, lower than the operating income in the third quarter of 2001.
10
Net interest expense for the third quarter of 2002 was $88,000 compared to
net interest expense of $25,000 for the same period in the prior year.
This increase in net interest expense is primarily related to higher
average borrowings for the third quarter of 2002 as compared with the
third quarter of 2001 partially offset by a significant reduction in
interest rates for the 2002 period. Other expense for the third quarter of
2002 was $19,000 compared to other income of $4,000 for the same period in
the prior year. This shift is primarily related to a $21,000 loss on the
disposal of certain manufacturing equipment in 2002.
Income tax expense for the third quarter of 2002 was $181,000 compared to
income tax expense of $535,000 for the same period in the prior year. The
effective tax rates for the three months ended September 30, 2002 and 2001
were 14.2 percent and 31.3 percent, respectively. The lower effective tax
rate in 2002 is primarily related to higher benefits from tax incentives
for exports and R&D expenditures and the utilization of capital loss
carryovers.
In the third quarter of 2001, the Company recorded a non-cash gain from
discontinued operations of $5,326,000 after tax, or $2.60 per basic and
$2.33 per diluted share. The third quarter 2001 gain resulted from the
reversal of a reserve established when the Company disposed of its natural
gas operations in 1997. The reversal followed a resolution of an
outstanding contingency related to the sale of those assets. During the
third quarter of 2002, the Company had no transactions related to
discontinued operations, and no remaining assets from discontinued
operations.
Results for the nine months ended September 30, 2002
The Company's consolidated income from continuing operations for the nine
months ended September 30, 2002 was $3.0 million, or $1.77 per basic and
$1.61 per diluted share, compared with income from continuing operations
of $3.3 million, or $1.66 per basic and $1.50 per diluted share, for the
same period of 2001. Consolidated income from continuing operations for
the nine months ended September 30, 2001 included a one-time gain of
$428,000 ($273,000 net of tax, or $0.13 per basic and $0.12 per diluted
share) attributable to the sale of a patent. The Company's consolidated
income before cumulative effect of change in accounting principle for the
nine months ended September 30, 2002 was $2.9 million, or $1.87 per basic
and $1.70 per diluted share, compared with income before cumulative effect
of change in accounting principle of $8.8 million, or $4.38 per basic and
$3.96 per diluted share, for the same period of 2001. As previously
mentioned, the Company adopted SFAS 142 effective January 1, 2002. The
required adoption of SFAS 142 is considered a change in accounting
principle and the cumulative effect of adopting this standard resulted in
a $1.64 million, or $0.96 per basic and $0.87 per diluted share, non-cash,
after tax charge in the first quarter of 2002. Consolidated net income,
including the cumulative effect of change in accounting principle, totaled
$1.6 million, or $0.91 per basic and $0.83 per diluted share, in the first
nine months of 2002. This is compared with consolidated net income of $8.8
million, or $4.38 per basic and $3.96 per diluted share, in the first nine
months of 2001. The earnings per basic share computations are based on
weighted average basic shares outstanding of 1,711,519 in the 2002 period
and 2,021,908 in the 2001 period. The earnings per diluted share
computations are based on weighted average diluted shares outstanding of
1,878,976 in the 2002 period and 2,233,723 in the 2001 period.
11
Consolidated revenues of $44.3 million for the nine months ended September
30, 2002 were 1.6% lower than revenues for the same period of 2001. Growth
in sales of products used by hospitals and surgeons was more than offset
by a decline in sales of contact lens disinfection cases that the
Company's customers distribute through retail outlets. Cost of goods sold
of $28.7 million for the first nine months of 2002 was 3.0 percent higher
than in the comparable 2001 period. The increase in cost of goods sold is
primarily related to a shift in product mix to products with lower gross
profit margins.
Gross profit of $15.6 million in the first nine months of 2002 was $1.6
million, or 9.2 percent, lower than in the comparable 2001 period. The
Company's gross profit percentage for the nine months ended September 30,
2002 was 35.1 percent of revenues compared with 38.1 percent of revenues
in the nine months ended September 30, 2001. This decrease is primarily
related to the previously mentioned shift in product mix.
The Company's operating expenses for the first nine months of 2002 of
$11.2 million were $1.3 million, or 10.1 percent lower than the operating
expenses for the comparable 2001 period. This decrease was the result of
decreased G&A expenses and decreased selling expenses partially offset by
a $221,000 increase in R&D expenses in the current nine-month period. The
increase is primarily related to a $108,000 write-off of assets related to
a discontinued project during the third quarter of 2002. Selling expenses
for the nine months ended September 30, 2002 were $885,000 lower than
selling expenses for the first nine months of 2001 primarily related to
spending controls. G&A expenses for the first nine months of 2002 were
$595,000 lower than G&A expenses for the same period in 2001 primarily as
a result of a $451,000 reduction in goodwill amortization in the current
year period due to the adoption of SFAS 142 as mentioned above.
Additionally, savings realized from restructuring certain of the Company's
operations and reduced compensation expense were partially offset by
increases in insurance costs during the nine months ended September 30,
2002. Operating income of $4.3 million in the first nine months of 2002
was $318,000 lower than operating income in the comparable 2001 period.
Net interest expense for the nine months ended September 30, 2002 was
$287,000 compared to net interest expense of $217,000 for the same period
in the prior year. This increase in net interest expense is primarily
related to higher average borrowings for the first nine months of 2002 as
compared with the first nine months of 2001 partially offset by a
significant reduction in interest rates for the 2002 period. Other expense
for the nine months ended September 30, 2002 was $17,000 compared to other
income of $437,000 for the same period in 2001. This change is primarily
attributable to the Company's one-time gain of $428,000 on the sale of a
patent in the nine months ended September 30, 2001.
Income tax expense for the nine months ended September 30, 2002 was $1.0
million compared to income tax expense of $1.5 million for the same period
in the prior year. The effective tax rates for the nine months ended
September 30, 2002 and 2001 were 24.8 percent and 31.3 percent,
respectively. The lower effective tax rate in 2002 is primarily related to
higher benefits from tax incentives for exports and R&D expenditures and
the utilization of capital loss carryovers.
12
The Company recorded a gain on the disposal of discontinued operations
relating to the sale of its natural gas operations of $165,000 after tax,
or $0.10 per basic and $0.09 per diluted share, for the first nine months
of 2002 compared with a gain from discontinued operations relating to the
sale of its natural gas operations of $5.5 million after tax, or $2.72 per
basic and $2.46 per diluted share, for the nine months ended September 30,
2001. As previously discussed, the reversal in 2001 of a reserve
established when the Company disposed of its natural gas operations in
1997 is the primary contributor to the gain in 2001.
Liquidity and Capital Resources
At September 30, 2002, the Company had cash and cash equivalents of
$549,000 compared with $542,000 at December 31, 2001. During the nine
months ended September 30, 2002, accounts receivable increased $2.8
million primarily as a result of increased sales during the third quarter
of 2002 as compared with the fourth quarter of 2001. Additionally, a delay
in payment by two large customers of approximately $1.0 million
contributed to the increase during 2002. These payments were received in
early October 2002. The Company had borrowings of $14.9 million under its
$25 million revolving credit facility (Credit Facility) at September 30,
2002 and borrowings of $17.1 million under its Credit Facility at December
31, 2001. The decrease in long-term debt from December 31, 2001 to
September 30, 2002 is primarily attributable to the Company's use of cash
flows from continuing operations to reduce its borrowing level. The term
of the Credit Facility expires November 12, 2004 and may be extended under
certain circumstances. At any time during the term, the Company may
convert any or all outstanding amounts under the Credit Facility to a term
loan with a maturity of two years. The Company's ability to borrow funds
under the Credit Facility from time to time is contingent on meeting
certain financial covenants in the loan agreement. At September 30, 2002,
the Company was in compliance with all financial covenants.
Net cash flow provided by continuing operations for the first nine months
of 2002 was $4.6 million compared with $6.2 million for the first nine
months of 2001. The previously mentioned increase in accounts receivable
was the primary contributor to the decrease in cash flow provided by
continuing operations for the first nine months of 2002. Cash flows used
in investing activities during the nine months ended September 30, 2002 of
$2.6 million were utilized to purchase equipment and machinery in the 2002
period. Cash flows used in financing activities for the nine months ended
September 30, 2002 of $2.1 million were utilized primarily to reduce the
Company's borrowing level under its Credit Facility.
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
13
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. These statements involve risks and
uncertainties. The following are some of the factors that could cause
actual results to differ materially from those expressed in or underlying
the Company's forward-looking statements: changing economic, market and
business conditions; market acceptance of the Company's products; the
effects of governmental regulation; acts of war or terrorism; competition
and new technologies; slower-than-anticipated introduction of new products
or implementation of marketing strategies; changes in the prices or
availability of raw materials; changes in product mix; product liability
claims and product recalls; the ability to attract and retain qualified
personnel and the loss of any significant customer. In addition,
assumptions relating to budgeting, marketing, product development and
other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic review which may cause the
Company to alter its marketing, capital expenditures or other budgets,
which in turn may affect the Company's results of operations and financial
condition.
Item 4. Controls and Procedures
With the participation of management, the Company's Chief Executive
Officer and its Chief Financial Officer evaluated the Company's disclosure
controls and procedures within 90 days of the filing of this quarterly
report. Based upon this evaluation, the chief executive officer and chief
financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in the reports that the Company files with the Securities
and Exchange Commission.
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the
Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the evaluation date.
14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes - Oxley Act Of 2002
99.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes - Oxley Act Of 2002
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 2002.
15
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 13, 2002 /s/ Emile A. Battat
------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: November 13, 2002 /s/ Jeffery Strickland
------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
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 quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
16
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Emile A. Battat
- -------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
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 quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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;
17
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Jeffery Strickland
- ----------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
18