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Form 10-Q ATRION CORP For: Jun 30

August 4, 2015 5:30 PM EDT



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 June 30, 2015
 
or
o
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 Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
     
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.  xYes   oNo

Indicate by check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer.” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  o                                                  Accelerated filer   x                          Non-accelerated filer    o                                      Smaller reporting company  o
 

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYesx No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 
Title of Each Class
 
Number of Shares Outstanding at
July 15, 2015
Common stock, Par Value $0.10 per share
 
1,838,422


 
 

 


ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.
  Page
   
  Item 1. Financial Statements 2
   
    Consolidated Statements of Income (Unaudited)   3
    For the Three and Six months Ended
 
    June 30, 2015 and 2014
 
   
    Consolidated Statements of Comprehensive Income   4
      (Unaudited)  
    For the Three and Six months Ended
 
    June 30, 2015 and 2014
 
   
    Consolidated Balance Sheets (Unaudited)   5
    June 30, 2015 and December 31, 2014
 
   
    Consolidated Statements of Cash Flows (Unaudited)   6
    For the Six months Ended
 
    June 30, 2015 and 2014
 
   
    Consolidated Statement of Changes in Stockholders’   7
    Equity (Unaudited)
 
    June 30, 2015 and December 31, 2014
 
   
    Notes to Consolidated Financial Statements (Unaudited)   8
   
  Item 2. Management's Discussion and Analysis of   11
    Financial Condition and Results of
 
    Operations
 
   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
15
   
  Item 4. Controls and Procedures
15
   
PART II. Other Information 15
   
  Item 1. Legal Proceedings
15
   
  Item 1A. Risk Factors
15
   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
16
   
  Item 6. Exhibits
16
   
SIGNATURES
 
  18
Exhibit Index
 
    19
   

 
 

 



PART I


FINANCIAL INFORMATION





 
 

 
Item 1.Financial Statements

ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In thousands, except per share amounts)
 
       
Revenues
  $ 37,655     $ 35,025     $ 75,979     $ 71,444  
Cost of goods sold
    18,871       17,616       38,671       36,647  
Gross profit
    18,784       17,409       37,308       34,797  
Operating expenses:
                               
Selling
    1,682       1,616       3,203       3,201  
General and administrative
    4,313       4,386       8,271       8,314  
Research and development
    1,669       1,150       3,228       2,325  
      7,664       7,152       14,702       13,840  
Operating income
    11,120       10,257       22,606       20,957  
                                 
Interest income
    328       364       505       664  
                                 
Income before provision for income taxes
    11,448       10,621       23,111       21,621  
Provision for income taxes
    (3,974 )     (3,739 )     (8,036 )     (7,539 )
                                 
Net income
  $ 7,474     $ 6,882     $ 15,075     $ 14,082  
                                 
Net income per basic share
  $ 4.04     $ 3.51     $ 8.10     $ 7.14  
Weighted average basic shares outstanding
    1,850       1,960       1,862       1,971  
                                 
                                 
Net income per diluted share
  $ 3.99     $ 3.48     $ 8.00     $ 7.09  
Weighted average diluted shares outstanding
    1,872       1,977       1,884       1,987  
                                 
Dividends per common share
  $ 0.75     $ 0.64     $ 1.50     $ 1.28  
 
The accompanying notes are an integral part of these statements.

 
3

 
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In thousands)
 
                         
Net Income
  $ 7,474     $ 6,882     $ 15,075     $ 14,082  
                                 
Other Comprehensive Income:
Unrealized income on investments, net of tax expense of $117, $0, $179 and $0
    218       --       333       --  
                                 
Comprehensive Income
  $ 7,692     $ 6,882     $ 15,408     $ 14,082  
 
The accompanying notes are an integral part of these statements.
 

 
4

 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
Assets
 
June 30,
2015
   
December 31,
2014
 
   
(in thousands)
 
Current assets:
           
Cash and cash equivalents
  $ 19,580     $ 20,775  
Short-term investments
    44       3,084  
Accounts receivable
    21,248       16,962  
Inventories
    27,453       28,022  
Prepaid expenses and other current assets
    2,954       4,720  
Deferred income taxes
    573       573  
      71,852       74,136  
                 
Long-term investments
    11,974       21,760  
                 
Property, plant and equipment
    146,511       142,171  
Less accumulated depreciation and amortization
    83,637       79,655  
      62,874       62,516  
                 
Other assets and deferred charges:
               
Patents
    2,319       2,538  
Goodwill
    9,730       9,730  
    Other
    928       834  
      12,977       13,102  
                 
    Total assets
  $ 159,677     $ 171,514  
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 8,388     $ 9,479  
Accrued income and other taxes
    340       457  
      8,728       9,936  
                 
Line of credit
    --       --  
                 
Other non-current liabilities
    12,775       12,008  
                 
Stockholders’ equity:
               
Common stock, par value $0.10 per share; authorized
10,000 shares, issued 3,420 shares
    342       342  
Paid-in capital
    35,129       33,940  
Accumulated other comprehensive income/(loss)
    88       (245 )
Retained earnings
    208,977       196,706  
Treasury shares,1,582 at June 30, 2015 and 1,507
at December 31, 2014, at cost
    (106,362 )     (81,173 )
Total stockholders’ equity
    138,174       149,570  
                 
                 
    Total liabilities and stockholders’ equity
  $ 159,677     $ 171,514  
                 

The accompanying notes are an integral part of these statements.
 
 
 
5

 
 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
    Six Months Ended June 30,  
   
2015
   
2014
 
     (in thousands)  
Cash flows from operating activities:
           
Net income
  $ 15,075     $ 14,082  
Adjustments to reconcile net income to
net cash provided by operating activities:
               
Depreciation and amortization
    4,503       4,458  
Deferred income taxes
    524       (1,016 )
Stock-based compensation
    1,054       1,129  
Net change in accrued interest, premiums, and discounts
               
    on investments
    106       274  
Other
    17       30  
      21,279       18,957  
                 
Changes in operating assets and liabilities:
               
Accounts receivable
    (4,286 )     (2,243 )
Inventories
    569       (942 )
Prepaid expenses
    1,766       (885 )
Other non-current assets
    (263 )     (52 )
Accounts payable and accrued liabilities
    (1,091 )     1,183  
Accrued income and other taxes
    (117 )     (553 )
Other non-current liabilities
    65       (226 )
      17,922       15,239  
                 
Cash flows from investing activities:
               
Property, plant and equipment additions
    (4,658 )     (5,942 )
Purchase of investments
    --       (19,375 )
Proceeds from maturities of investments
    13,400       19,375  
      8,742       (5,942 )
                 
Cash flows from financing activities:
               
Shares tendered for employees’ withholding taxes on
stock-based compensation
    (155 )     (377 )
Tax benefit related to stock-based compensation
    150       163  
Purchase of treasury stock
    (25,072 )     (11,608 )
Dividends paid
    (2,782 )     (2,513 )
      (27,859 )     (14,335 )
                 
Net change in cash and cash equivalents
    (1,195 )     (5,038 )
Cash and cash equivalents at beginning of period
    20,775       28,559  
Cash and cash equivalents at end of period
  $ 19,580     $ 23,521  
                 
Cash paid for:
               
Income taxes
  $ 5,138     $ 9,685  
 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
6

 
 
ATRION CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 
(Unaudited)


   
Common Stock
   
Treasury Stock
                         
   
 
Shares Outstanding
   
 
 
Amount
   
 
 
Shares
   
 
 
Amount
   
 
Additional Paid-in Capital
    Accumulated Other Comprehensive Income (Loss)    
Retained Earnings
   
Total
 
Balances, December 31, 2014
    1,913     $ 342       1,507     $ (81,173 )   $ 33,940     $ (245 )   $ 196,706     $ 149,570  
                                                                 
    Net income
                                                    15,075       15,075  
    Other comprehensive income
                                            333               333  
    Tax benefit from stock-based compensation
                                    150                       150  
    Stock-based compensation transactions
                            37       1,039                       1,076  
    Shares surrendered in stock transactions
                            (154 )                             (154 )
    Purchase of treasury stock
    (75 )             75       (25,072 )                             (25,072 )
    Dividends
                                                    (2,804 )     (2,804 )
Balances, June 30, 2015
    1,838     $ 342       1,582     $ (106,362 )   $ 35,129     $ 88     $ 208,977     $ 138,174  

The accompanying notes are an integral part of these financial statements

 
7

 
 
ATRION CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)


(1)           Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 ("2014 Form 10-K").  References herein to "Atrion," the "Company," "we," "our," and "us" refer to Atrion Corporation and its subsidiaries.

(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):
   
June 30,
   
December 31,
 
   
2015
   
2014
 
Raw materials
  $ 12,008     $ 12,575  
Work in process
    6,612       5,600  
Finished goods
    8,833       9,847  
Total inventories
  $ 27,453     $ 28,022  

(3)           Income per share
The following is the computation for basic and diluted income per share:
 
       
Three Months Ended June 30,
   
Six Months Ended June 30,
 
          2015       2014       2015       2014  
       
(in thousands, except per share amounts)
 
           
Net income
    $ 7,474     $ 6,882     $ 15,075     $ 14,082  
Weighted average basic shares outstanding
      1,850       1,960       1,862       1,971  
Add: Effect of dilutive securities
      22       17       22       16  
Weighted average diluted shares outstanding
      1,872       1,977       1,884       1,987  
                                   
Earnings per share:
                                 
Basic
     $  4.04       $ 3.51       $ 8.10       $  7.14   
Diluted
     $ 3.99       $  3.48       $ 8.00       $ 7.09   
 
 
 
 
8

 
 
 
ATRION CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)
 
Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing 15 and 33 shares of common stock for the quarters ended June 30, 2015 and 2014, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

(4)           Investments
As of June 30, 2015, we held certain investments that are required to be measured for disclosure purposes at fair value on a recurring basis. These investments are considered Level 2 investments and are all considered to be held-to-maturity securities. We consider as current assets those investments which will mature in the next 12 months. The remaining investments are considered non-current assets. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of June 30, 2015 (in thousands):


         
Gross Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Short-term Investments:
                       
Corporate bonds
  $ 44     $ --     $ --     $ 44  
                                 
Long-term Investments
                               
Corporate bonds
  $ 7,963     $       $ (1,551 )   $ 6,412  

The above long-term corporate bonds represent investments in two issuers. These securities have experienced a decline in value since their acquisition dates in the fourth quarter of 2014. Most of this decline relates to a changed outlook for one issuer due to major economic declines in its industry. The change for the other issuer relates to increases in interest rates which resulted in a lower market price for that security. The total carrying value of these investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest our investment may not be recoverable. We currently expect full recovery of our amortized cost in these securities based on our assessment of the credit quality of the underlying collateral and credit support available to each of the issuers. Based on our evaluation of the creditworthiness of the issuers and because we do not intend to sell the investments, nor is it likely that we would be required to sell these investments before recovery of their amortized cost bases, which may be maturity, none of the unrealized losses are considered to be other than temporary.

At June 30, 2015, the length of time until maturity of these securities ranged from 40 to 55 months. None of the above investments have been in a loss position for more than twelve months.

 
9

 
 
ATRION CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)


 
The cost and fair value of our investments that are being accounted for as available-for-sale securities, and the related gross unrealized gain reflected in accumulated other comprehensive income, were as follows as of the dates shown below (in thousands):

         
Gross Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair value
 
As of June 30, 2015:
                       
Long-term Investments:
                       
Equity investments
  $ 3,876     $ 135     $ --     $ 4,011  


(5)           Recent Accounting Pronouncements

From time to time, new accounting standards updates applicable to us are issued by the Financial Accounting Standards Board, or FASB, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.



 
10

 


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in dialysis and valves and inflation devices used in marine and aviation safety products.
 
Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of product quality, price, engineering, customer service and delivery time.
 
Our strategy is to provide a broad selection of products in the areas of our 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. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce indebtedness, to fund capital expenditures, to repurchase stock and to pay dividends.
 
Our strategic objective is to further enhance our position in our served markets by:
 
   Focusing on customer needs;
   Expanding existing product lines and developing new products;
   Manufacturing products to exacting quality standards; and
 
Preserving and fostering a collaborative and entrepreneurial culture.
 
For the three months ended June 30, 2015, we reported revenues of $37.7 million, operating income of $11.1 million and net income of $7.5 million, up 8 percent, 8 percent and 9 percent, respectively, from the three months ended June 30, 2014. For the six months ended June 30, 2015, we reported revenues of $75.9 million, operating income of $22.6 million and net income of $15.1 million, up 6 percent, 8 percent and 7 percent, respectively, from the six months ended June 30, 2014.


 
11

 
 
Results for the three months ended June 30, 2015

Consolidated net income totaled $7.5 million, or $4.04 per basic and $3.99 per diluted share, in the second quarter of 2015. This is compared with consolidated net income of $6.9 million, or $3.51 per basic and $3.48 per diluted share, in the second quarter of 2014. The income per basic share computations are based on weighted average basic shares outstanding of 1,850,000 in the 2015 period and 1,960,000 in the 2014 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,872,000 in the 2015 period and 1,977,000 in the 2014 period.

Consolidated revenues of $37.7 million for the second quarter of 2015 were 8 percent higher than revenues of $35.0 million for the second quarter of 2014. This increase was primarily attributable to higher sales volumes.

Revenues by product line were as follows (in thousands):

   
Three Months ended
June 30,
 
   
2015
   
2014
 
             
Fluid Delivery
  $ 16,334     $ 14,732  
Cardiovascular
    11,668       10,837  
Ophthalmology
    5,107       5,106  
Other
    4,546       4,350  
Total
  $ 37,655     $ 35,025  


Cost of goods sold of $18.9 million for the second quarter of 2015 was $1.3 million higher than in the comparable 2014 period. The primary contributors to the increase in our cost of goods sold were increased sales, increased manufacturing support personnel costs, increased supplies, increased utilities and increased depreciation partially offset by the impact of continued cost improvement projects. Our cost of goods sold in the second quarter of 2015 was 50.1 percent of revenues compared with 50.3 percent of revenues in the second quarter of 2014.

Gross profit of $18.8 million in the second quarter of 2015 was $1.4 million, or 8 percent, higher than in the comparable 2014 period. Our gross profit percentage in the second quarter of 2015 was 49.9 percent of revenues compared with 49.7 percent of revenues in the second quarter of 2014. The increase in gross profit percentage in the 2015 period compared to the 2014 period was primarily related to a favorable product mix and the impact of continued cost improvement initiatives partially offset by increased manufacturing support costs mentioned above.

Our second quarter 2015 operating expenses of $7.7 million were $512,000 higher than the operating expenses for the second quarter of 2014. This increase was attributable to a $519,000 increase in Research and Development, or R&D, expenses and a $66,000 increase in Selling expenses along with a $73,000 decrease in General and Administrative, or G&A, expenses. The increase in R&D costs was primarily related to increased supplies and outside services. The increase in Selling expenses for the second quarter of 2015 was primarily related to increased promotion, advertising and miscellaneous expenses partially offset by reduced outside services and compensation. The decrease in G&A expenses for the second quarter of 2015 was principally attributable to decreased outside services and compensation partially offset by increased travel and amortization expense.
 
 
12

 

Operating income in the second quarter of 2015 increased $863,000 to $11.1 million, an 8 percent increase from our operating income in the quarter ended June 30, 2014. Operating income was 30 percent of revenues in the second quarter of 2015 and 29 percent of revenues in the second quarter of 2014.

Income tax expense for the second quarter of 2015 was $4.0 million compared to income tax expense of $3.7 million for the same period in the prior year. The effective tax rate for the second quarter of 2015 was 34.7 percent, compared with 35.2 percent for the second quarter of 2014. We expect the effective tax rate for the remainder of 2015 to be approximately 34.5 percent.

Results for the six months ended June 30, 2015

Consolidated net income totaled $15.1 million, or $8.10 per basic and $8.00 per diluted share, in the first six months of 2015. This is compared with consolidated net income of $14.1 million, or $7.14 per basic and $7.09 per diluted share, in the first six months of 2014. The income per basic share computations are based on weighted average basic shares outstanding of 1,862,000 in the 2015 period and 1,971,000 in the 2014 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,884,000 in the 2015 period and 1,987,000 in the 2014 period.

Consolidated revenues of $76.0 million for the first six months of 2015 were 6 percent higher than revenues of $71.4 million for the first six months of 2014. This increase was primarily attributable to higher sales volumes.

Revenues by product line were as follows (in thousands):

   
Six Months ended
June 30,
 
   
2015
   
2014
 
             
Fluid Delivery
  $ 32,228     $ 29,969  
Cardiovascular
    23,604       21,866  
Ophthalmology
    10,306       10,290  
Other
    9,841       9,319  
Total
  $ 75,979     $ 71,444  


Cost of goods sold of $38.7 million for the first six months of 2015 was $2.0 million higher than in the comparable 2014 period. The primary contributors to the increase in our cost of goods sold were increased sales, increased manufacturing support personnel costs, increased supplies, utilities and increased travel partially offset by the impact of continued cost improvement projects and improved manufacturing efficiencies. Our cost of goods sold in the first six months of 2015 was 50.9 percent of revenues compared with 51.3 percent of revenues in the first six months of 2014.

Gross profit of $37.3 million in the first six months of 2015 was $2.5 million, or 7 percent, higher than in the comparable 2014 period. Our gross profit percentage in the first six months of 2015 was 49.1 percent of revenues compared with 48.7 percent of revenues in the first six months of 2014. The increase in gross profit percentage in the 2015 period compared to the 2014 period was primarily related to a favorable product mix, the impact of continued cost improvement initiatives and improved manufacturing efficiencies partially offset by increased manufacturing costs mentioned above.
 
 
13

 

Our first six months 2015 operating expenses of $14.7 million were $862,000 higher than the operating expenses for the first six months of 2014. This increase was comprised of a $903,000 increase in R&D expenses, a $2,000 increase in Selling expenses and a $43,000 decrease in G&A expenses. The increase in R&D costs was primarily related to increased outside services, compensation and supplies. The decrease in G&A expenses for the first six months of 2015 was principally attributable to decreased outside services partially offset by increased travel and amortization expense.

Operating income in the first six months of 2015 increased $1.6 million to $22.6 million, an 8 percent increase from our operating income in the six months ended June 30, 2014. Operating income was 30 percent of revenues in the first six months of 2015 and 29 percent of revenues in the first six months of 2014.

Income tax expense for the first six months of 2015 was $8.0 million compared to income tax expense of $7.5 million for the same period in the prior year. The effective tax rate for the first six months of 2015 was 34.7 percent, compared with 34.9 percent for the first six months of 2014.

Liquidity and Capital Resources
We have a $40.0 million revolving credit facility with a money center bank that can be utilized for the funding of operations and for major capital projects or acquisitions, subject to certain limitations and restrictions. Borrowings under the credit facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by us, plus one percent. Effective June 11, 2015, our revolving credit facility was amended to extend the date until which the lender is obligated to make advances under the revolving line of credit to October 1, 2021 and, assuming an event of default is not then existing, we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years. We had no outstanding borrowings under our credit facility at June 30, 2015 or at December 31, 2014. The credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At June 30, 2015, we were in compliance with all financial covenants. We believe that the bank providing the credit facility is highly-rated and that the entire $40.0 million under the credit facility is currently available to us. If that bank were unable to provide such funds, we believe that such inability would not impact our ability to fund operations.

At June 30, 2015, we had a total of $31.6 million in cash and cash equivalents, short-term investments and long-term investments, a decrease of $14.0 million from December 31, 2014. The principal contributor to this decrease was the purchase of treasury stock partially offset by operating results.

Cash flows from operating activities of $17.9 million for the six months ended June 30, 2015 were primarily comprised of net income plus the net effect of non-cash expenses. During the first six months of 2015, we expended $4.6 million for the addition of property and equipment, $25.1 million for treasury stock and $2.8 million for dividends. During the same period, maturities of investments generated $13.4 million.

At June 30, 2015, we had working capital of $63.1 million, including $19.6 million in cash and cash equivalents and $44,000 in short-term investments. The $1.1 million decrease in working capital during the first six months of 2015 was primarily related to decreases in cash and cash equivalents, short-term investments and prepaid expenses. This decrease was partially offset by increases in accounts receivable and decreases in accounts payable and accrued liabilities. The net decrease in cash and short-term investments was primarily related to purchases of treasury stock. The decrease in prepaid expenses was primarily attributable to federal income tax payments. The increase in accounts receivable was primarily related to increased revenues for the second quarter of 2015. The decrease in accounts payable was primarily attributable to payments made during this year on 2014 purchases of capital equipment.

We believe that our $31.6 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $40.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary. Additionally, we believe that our cash and cash equivalents, short-term investments and long-term investments, as a whole, will continue to increase during the remainder of 2015.

Forward-Looking Statements
Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our effective tax rate for the remainder of 2015, our ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow and borrowings under the credit facility, the impact that the inability of the bank providing the credit facility to provide funds thereunder would have on our ability to fund operations, our access to equity and debt financing, and the increase in cash, cash equivalents, and investments in the remainder of 2015. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” 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; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product  liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, 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 us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition.

 
14

 



Item 3.
Quantitative and Qualitative Disclosures About Market Risk

For the quarter ended June 30, 2015, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2014 Form 10-K.


Item 4.
Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2015. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended June 30, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

OTHER INFORMATION
 
Item 1.                 Legal Proceedings
 
From time to time, we may be involved in claims or litigation that arise in the normal course of business. We are not currently a party to any legal proceedings, which, if decided adversely, would have a material adverse effect on our business, financial condition, or results of operations.

Item 1A.                      Risk Factors
 
There were no material changes to the risk factors disclosed in our 2014 Form 10-K.


 
15

 


Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds
 
The table below sets forth information with respect to our purchases of our common stock during each of the three months in the period ended June 30, 2015.

 
 
 
 
 
 
Period
 
 
 
 
 
Total Number of Shares Purchased
   
 
 
 
 
 
Average Price Paid per Share
   
 
 
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
 
4/1/2015 through 4/30/2015
    -       -       -       3,869  
5/1/2015 through 5/31/2015
    24,897     $ 331.00       4,279       249,590  
6/1/2015 through 6/30/2015
     -       -       -       249,590  
Total
    24,897     $ 331.00       4,279       249,590  
 
(1)  
On August 16, 2011, our Board of Directors approved a stock repurchase program pursuant to which we could repurchase up to 200,000 shares of our common stock from time to time in open market or privately-negotiated transactions.  By May 21, 2015, we had repurchased the 200,000 shares of our common stock authorized under the program approved in 2011.  On May 21, 2015, our Board of Directors approved a new stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions.  Our new stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.
 
Item 6.                 Exhibits

 
Exhibit
 
Number
Description
 
 
10.1
Seventh Amendment to Line of Credit Promissory Note dated as of June 11, 2015 among Atrion Corporation, Atrion Medical Products, Inc., Halkey-Roberts Corporation, Quest Medical, Inc., AlaTenn Pipeline Company, LLC, Atrion Leasing Company, LLC and Wells Fargo Bank, National Association.
 
 
10.2
Seventh Amendment to Loan and Security Agreement dated as of June 11, 2015 among Atrion Corporation, Atrion Medical Products, Inc., Halkey-Roberts Corporation, Quest Medical, Inc., AlaTenn Pipeline Company, LLC, Atrion Leasing Company, LLC and Wells Fargo Bank, National Association.
 
 
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
 

 
 
16

 
 
32.2
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002

 
101.INS
XBRL Instance Document

 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document

 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


 
17

 

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: August 4, 2015
By:
/s/ David A. Battat  
    David A. Battat  
   
President and Chief Executive Officer
 
       

     
       
Date: August 4, 2015
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Vice President and Chief Financial Officer
 
   
(Principal Accounting andFinancial Officer)
 


 
18

 

Exhibit Index
 
 
Exhibit
 
Number
Description
 
 
10.1
Seventh Amendment to Line of Credit Promissory Note dated as of June 11, 2015 among Atrion Corporation, Atrion Medical Products, Inc., Halkey-Roberts Corporation, Quest Medical, Inc., AlaTenn Pipeline Company, LLC, Atrion Leasing Company, LLC and Wells Fargo Bank, National Association.
 
 
10.2
Seventh Amendment to Loan and Security Agreement dated as of June 11, 2015 among Atrion Corporation, Atrion Medical Products, Inc., Halkey-Roberts Corporation, Quest Medical, Inc., AlaTenn Pipeline Company, LLC, Atrion Leasing Company, LLC and Wells Fargo Bank, National Association.
 
 
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

 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document

 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


19

Ex 10.1
 
 
SEVENTH AMENDMENT TO LINE OF CREDIT PROMISSORY NOTE
 
THIS SEVENTH AMENDMENT TO LINE OF CREDIT PROMISSORY NOTE (this “Agreement”), dated as of the 11th day of June, 2015, is between and among ATRION CORPORATION, a Delaware corporation, ATRION MEDICAL PRODUCTS, INC., a Delaware corporation, HALKEY-ROBERTS CORPORATION, a Florida corporation,  QUEST MEDICAL, INC., a Delaware corporation, ALATENN PIPELINE COMPANY, LLC, an Alabama limited liability company, and ATRION LEASING COMPANY, LLC, an Alabama limited liability company (collectively, the “Borrowers”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, successor by merger to Wachovia Bank, National Association (the “Lender”).
 
R E C I T A L S:
 
A.           Lender has heretofore established a credit facility for the Borrowers' benefit in the current maximum principal amount of Forty Million Dollars ($40,000,000) (the “Credit Facility”).  The Credit Facility is evidenced and secured by the following loan documents:
 
1.           Loan and Security Agreement dated November 12, 1999 (evidencing a Credit Facility in the original maximum principal amount of $18,500,000), as amended by the following documents, each duly executed by Borrowers and Lenders:   an Amendment to Loan and Security Agreement dated as of December 26, 2001; a Second Amendment to Loan and Security Agreement dated November 7, 2003 (which such Second Amendment, among other things, increased the principal balance of the Credit Facility to $25,000,000); a Third Amendment to Loan and Security Agreement dated September 1, 2005; a Fourth Amendment to Loan and Security Agreement dated July 1, 2008; a Fifth Amendment to Loan and Security Agreement dated September 30, 2008; and a Sixth Amendment to Loan and Security Agreement and Loan Increase Agreement dated October 1, 2011 (which such Sixth Amendment, among other things, increased the principal balance of the Credit Facility to $40,000,000) (as amended, the “Loan Agreement”); and
 
2.           Line of Credit Promissory Note dated November 12, 1999 in the original stated principal amount of $18,500,000, as amended by the following documents, each duly executed by Borrowers and Lenders: a Note Extension Agreement dated August 31, 2001; a Second Amendment to Line of Credit Promissory Note dated December 26, 2001 (which such Second Amendment, among other things, increased the principal balance of the Line of Credit Note to $25,000,000); a Third Amendment to Line of Credit Promissory Note dated November 7, 2003; a Fourth Amendment to Line of Credit Promissory Note dated September 1, 2005; a Fifth Amendment to Line of Credit Promissory Note dated July 1, 2008; and a Sixth Amendment to Line of Credit Promissory Note dated as of October 1, 2011 (which such Sixth Amendment, among other things, increased the principal balance of the Line of Credit Note to $40,000,000) (as amended, the “Line of Credit Note”), evidencing the Line of Credit Loan portion of the Credit Facility.
 
 
 

 
 
B.           The Credit Facility terminates on the Termination Date of October 1, 2016 and the outstanding principal balance of all Advances, together with accrued and unpaid interest thereon, is due and payable in full on the Termination Date of October 1, 2016.
 
C.           Borrowers have requested that the Termination Date be extended until October 1, 2021 and Lender has so agreed on the terms set forth below.
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
1. Defined Terms.  Capitalized terms used in this Agreement without definition shall have the meanings ascribed to them in the Line of Credit Note.
 
2. Termination Date Extended. The Line of Credit Note is hereby modified and amended to extend the Termination Date from October 1, 2016 until October 1, 2021 by deleting in its entirety the Defined Term “Termination Date” as the same appears in Section 1 of the Line of Credit Note, and by inserting in lieu thereof the following:
 
“Termination Date” means October 1, 2021, or such earlier date on which the obligations of the Lender to make Advances hereunder are terminated pursuant to the terms of this Agreement.
 
3. Pricing Matrix.  The Pricing Matrix attached as Exhibit A is hereby deleted in its entirety and the Revised Pricing Matrix attached as Revised Exhibit A is inserted in lieu thereof.
 
4. Amendment to Loan Agreement. Contemporaneously herewith, Borrowers and Lender have entered into that certain Seventh Amendment to Loan and Security Agreement.  Accordingly, all references in the Line of Credit Note to the “Loan Agreement” shall henceforth refer to the Loan Agreement, as amended by the Seventh Amendment to Loan Agreement and Security Agreement.
 
5. Confirmation of Obligations.  Except as herein modified, the Line of Credit Note shall remain in full force and effect, and the Line of Credit Note is hereby ratified and affirmed in all respects.
 
6. No Novation and No Release of Collateral. The execution and delivery of this Agreement shall not be interpreted or construed as, and in fact does not constitute, a novation, payment, or satisfaction of all or any portion of the Line of Credit Note; rather, this Agreement is strictly amendatory in nature.  The execution, delivery, and performance of this Agreement shall not operate to release any Collateral securing the Line of Credit Note nor modify or otherwise affect the lien and security interest held by Lender in and to such Collateral.
 
7. Counterparts. This Agreement may be executed in multiple counterparts and using multiple signature pages and shall be binding and enforceable at such time as each party has executed a counterpart of this Agreement.  The signature of any party to a counterpart of this Agreement shall bind such party to the same extent as if all parties executed a single original hereof.
 
 
 

 
 
8. Interpretation. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party to this Agreement by any court or other governmental or judicial authority by reason of such party's having or being deemed to have structured or dictated such provision.
 
9. Integration.  Borrowers acknowledge and agree that no promises, agreements, understandings, or commitments of any nature whatsoever have been made by or on behalf of Lender in respect to the Credit Facility and the Line of Credit Note, except as set forth herein.  Specifically, Borrowers acknowledge and agree that Lender has made no agreement, and is in no way obligated, to grant any extension, indulgence, forbearance, or consent with respect to the Credit Facility or the Line of Credit Note or any matter relating to the Credit Facility or the Line of Credit Note, except as specifically set forth herein.
 
10. Severability.  If any provisions of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
 
11. Controlling Law. THE VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ALABAMA.  ONE OF THE LENDER'S PLACES OF BUSINESS IS LOCATED IN JEFFERSON COUNTY IN THE STATE OF ALABAMA, AND THE BORROWERS AGREE THAT THE LINE OF CREDIT LOAN SHALL BE FUNDED FROM AND THIS AGREEMENT SHALL BE HELD BY LENDER AT SUCH PRINCIPAL PLACE OF BUSINESS, AND THE HOLDING OF THIS AGREEMENT BY LENDER THEREAT SHALL CONSTITUTE SUFFICIENT MINIMUM CONTACTS OF BORROWERS WITH JEFFERSON COUNTY AND THE STATE OF ALABAMA FOR THE PURPOSE OF CONFERRING JURISDICTION UPON THE FEDERAL AND STATE COURTS PRESIDING IN SUCH COUNTY AND STATE.
 
11.           Waiver of Jury Trial. BORROWERS HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATED TO LOAN OBLIGATION, THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT, OR IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND BORROWERS WITH RESPECT TO THE LOAN OBLIGATIONS, THIS AGREEMENT, AND ANY OTHER LOAN DOCUMENT, OR IN CONNECTION WITH THE TRANSACTIONS RELATED HERETO OR CONTEMPLATED HEREBY OR THE EXERCISE OF ANY PARTY'S RIGHTS AND REMEDIES WITH RESPECT TO THE LOAN OBLIGATIONS, THIS AGREEMENT, OR OTHERWISE, OR THE CONDUCT OF THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  BORROWERS ACKNOWLEDGE THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF THE BORROWERS IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWERS AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 
[Signatures on Following Pages]
 
 
 
 

 

IN WITNESS WHEREOF, Borrowers and Lender have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.
 
BORROWERS:
 
 
ATRION CORPORATION,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
    Jeffery Strickland  
   
Its Vice President
 
       
 
 
ATRION MEDICAL PRODUCTS, INC.,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

 
HALKEY-ROBERTS CORPORATION,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

 
QUEST MEDICAL, INC.,
a Texas corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       
 
 
 
 

 

 
ALATENN PIPELINE COMPANY, LLC,
an Alabama limited liability company
 
       
 
By:
/s/ Jeffery Strickland  
    Jeffery Strickland  
   
Its Vice President
 
       

 
ATRION LEASING COMPANY, LLC,
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

 
LENDER:
 
 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
a national banking association
 
       
 
By:
/s/  Jason Ford  
     Jason Ford  
   
Its: Vice President
 
       

 
 
 

 

REVISED EXHIBIT A
PRICING MATRIX
(Effective June 11, 2015)
 


If the ratio of Funded Debt/EBITDA is:
The Line of Credit Loan Margin will be:
The Unused Line Fee will be:
The Term Loan Margin will be:
       
Less than 1.50
100 bps (1.00%)
6.5 bps (.065%)
125 bps (1.25%)
1.50 or greater but less than 2.00
137.5 bps (1.375%)
6.5 bps (.065%)
162.50 bps (1.625%)
2.00 or greater but less than 2.25
 
175 bps (1.75%)
6.5 bps (.065%)
200 bps (2.00%)




 
Ex. 10.2
 
 
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
 
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND LOAN INCREASE AGREEMENT (this “Agreement”), dated as of the 11th day of June, 2015 (the “Effective Date”) is between and among ATRION CORPORATION, a Delaware corporation, ATRION MEDICAL PRODUCTS, INC., a Delaware corporation, HALKEY-ROBERTS CORPORATION, a Delaware corporation,  QUEST MEDICAL, INC., a Texas corporation, ALATENN PIPELINE COMPANY, LLC, an Alabama limited liability company, and ATRION LEASING COMPANY, LLC, an Alabama limited liability company (collectively, the “Borrowers”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, successor by merger to Wachovia Bank, National Association (the “Lender”).
 
R E C I T A L S:

A.           Lender has heretofore established a credit facility for the Borrowers' benefit in the current maximum principal amount of Forty Million Dollars ($40,000,000) (the “Credit Facility”).  The Credit Facility is evidenced and secured by the following Loan Documents:
 
1.           Loan and Security Agreement dated November 12, 1999 (evidencing a Credit Facility in the original maximum principal amount of $18,500,000), as amended by the following documents, each duly executed by Borrowers and Lenders:   an Amendment to Loan and Security Agreement dated as of December 26, 2001; a Second Amendment to Loan and Security Agreement dated November 7, 2003 (which such Second Amendment, among other things, increased the principal balance of the Credit Facility to $25,000,000); a Third Amendment to Loan and Security Agreement dated September 1, 2005; a Fourth Amendment to Loan and Security Agreement dated July 1, 2008; a Fifth Amendment to Loan and Security Agreement dated September 30, 2008; and a Sixth Amendment to Loan and Security Agreement and Loan Increase Agreement dated October 1, 2011 (which such Sixth Amendment, among other things, increased the principal balance of the Credit Facility to $40,000,000) (as amended, the “Loan Agreement”); and
 
2.           Line of Credit Promissory Note dated November 12, 1999 in the original stated principal amount of $18,500,000, as amended by the following documents, each duly executed by Borrowers and Lenders: a Note Extension Agreement dated August 31, 2001; a Second Amendment to Line of Credit Promissory Note dated December 26, 2001 (which such Second Amendment, among other things, increased the principal balance of the Line of Credit Note to $25,000,000); a Third Amendment to Line of Credit Promissory Note dated November 7, 2003; a Fourth Amendment to Line of Credit Promissory Note dated September 1, 2005; a Fifth Amendment to Line of Credit Promissory Note dated July 1, 2008; and a Sixth Amendment to Line of Credit Promissory Note dated as of October 1, 2011 (which such Sixth Amendment, among other things, increased the principal balance of the Line of Credit Note to $40,000,000) (as amended, the “Line of Credit Note”), evidencing the Line of Credit Loan portion of the Credit Facility.
 
 
 

 
 
B.           The Credit Facility terminates on the Termination Date of October 1, 2016 and the outstanding principal balance of all Advances, together with accrued and unpaid interest thereon, is due and payable in full on the Termination Date of October 1, 2016.
 
C.           Borrowers have requested that the Termination Date be extended until October 1, 2021 and Lender has so agreed on the terms set forth below.
 
D.           To date, no Term Loans or Letters of Credit exist under the Credit Facility.
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
Defined Terms.  Capitalized terms used in this Agreement without definition shall have the meanings ascribed to them in the Loan Agreement.
 
Termination Date Extended. The Loan Agreement is hereby modified and amended to extend the Termination Date from October 1, 2016 until October 1, 2021, by deleting in its entirety the Defined Term “Termination Date” as the same appears in Section 1.1 of the Loan Agreement, and by inserting in lieu thereof the following:
 
“Termination Date” means October 1, 2021, or such earlier date on which the obligations of the Lender to make Advances hereunder are terminated pursuant to the terms of this Agreement.
 
Changes in Financial Covenants.   Section 5.17 is hereby modified and amended as follows:
 
 
(A)
Section 5.17 (c) (Consolidated Liabilities to Consolidated Tangible Net Worth ratio requirement) is hereby deleted.
 
The Compliance Certificate attached to the Loan Agreement as Exhibit G is deleted in its entirety, and replaced with the Revised Exhibit G which is attached to this Agreement.
 
4.           Acquisitions.  In consideration of this Agreement, Borrowers hereby ratify and confirm their agreement set forth in the Sixth Amendment to Loan and Security Agreement and Loan Increase Agreement that at no time prior to the Termination Date shall Borrowers (or any of them) purchase all or substantially all of the assets of any entity or any division of any entity or any operating line of business of any entity or the equity interest of any entity unless at such time there is no Event of Default and, after giving effect to such transaction, no Event of Default would exist on pro forma basis under the terms of the Loan Agreement.
 
 
 

 
 
5.           Additional Indebtedness. In consideration of this Agreement, Borrowers hereby ratify and confirm their agreement set forth in the Sixth Amendment to Loan and Security Agreement and Loan Increase Agreement that at no time prior to the Termination Date shall Borrowers (or any of them) incur or permit to exist any Indebtedness (as hereafter defined) unless at such time there is no Event of Default or, after giving effect to such Indebtedness, no Event of Default would exist on pro forma basis under the terms of the Loan Agreement.  Indebtedness” shall mean all liabilities of a Person as determined under GAAP and all obligations which such Person has guaranteed or endorsed or is otherwise secondarily or jointly liable for, and shall include, without limitation, (a) all obligations for borrowed money or purchased assets; (b) obligations secured by assets whether or not any personal liability exists; (c) the capitalized amount of any capital or finance lease obligations; (d) the unfunded portion of pension or benefit plans or other similar liabilities; (e) obligations as a general partner; (f) contingent obligations pursuant to guaranties, endorsements, letters of credit and other secondary liabilities; (g) obligations for deposits; and (h) obligations under Financial Contracts
 
6.           Sanctioned Persons; Sanctioned Countries.  Borrowers hereby represent and warrant that none of the Borrowers, their Subsidiaries or Affiliates or any guarantor (a) is a Sanctioned Person or (b) does business in a Sanctioned Country or with a Sanctioned Person in violation of the economic sanctions of the United States administered by OFAC.  Borrowers will not use the proceeds of any extension of credit under the Loan Agreement to fund any operation in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Country.  As used herein, the term “Sanctioned Country” means a country subject to the sanctions program identified on the list maintained by OFAC and available at the following website or as otherwise published from time to time:  http://www.treas.gov/offices/enforcement/ofac/programs/; the term “Sanctioned Person” means a) any Person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/eotffc/ofac/sdn/index.html or as otherwise published from time to time, (b) any agency, authority, or subdivision of the government of a Sanctioned Country, (c) any Person or organization controlled by a Sanctioned Country, or (d) any Person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC; and the term “OFAC”“ means the United States Department of the Treasury’s Office of Foreign Assets Control or any successor thereto.
 
7.           Representations and Warranties.  All representations and warranties set forth in Article IV of the Loan Agreement are hereby ratified and confirmed by the Borrowers, and Borrowers confirm that such all representations and warranties remain in full force and effect and are true and correct as stated therein as of the date hereof.
 
8.           Amendment to Line of Credit Note.  Contemporaneously herewith, Borrowers and Lender have entered into that certain Seventh Amendment to Line of Credit Promissory Note pursuant to which the Termination Date set forth in the Line of Credit Note has been extended to October 1, 2021.  All references in the Loan Agreement to the “Line of Credit Note” shall henceforth refer to the Line of Credit Note, as amended by the Seventh Amendment to Line of Credit Promissory Note.
 
9.           Confirmation of Obligations.  Except as herein modified, the Loan Agreement shall remain in full force and effect, and the Loan Agreement is hereby ratified and affirmed in all respects.
 
 
 

 
 
10.           No Novation and No Release of Collateral.  The execution and delivery of this Agreement shall not be interpreted or construed as, and in fact does not constitute, a novation, payment, or satisfaction of all or any portion of the Loan Agreement; rather, this Agreement is strictly amendatory in nature.  The execution, delivery, and performance of this Agreement shall not operate to release any Collateral securing the Credit Facility nor modify or otherwise affect the lien and security interest held by Lender in and to such Collateral.
 
11.           Counterparts.  This Agreement may be executed in multiple counterparts and using multiple signature pages and shall be binding and enforceable at such time as each party has executed a counterpart of this Agreement.  The signature of any party to a counterpart of this Agreement shall bind such party to the same extent as if all parties executed a single original hereof.
 
12.           Interpretation.  No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party to this Agreement by any court or other governmental or judicial authority by reason of such party's having or being deemed to have structured or dictated such provision.
 
13.           Integration.  Borrowers acknowledge and agree that no promises, agreements, understandings, or commitments of any nature whatsoever have been made by or on behalf of Lender in respect to the Credit Facility and the Loan Agreement, except as set forth herein.  Specifically, Borrowers acknowledge and agree that Lender has made no agreement, and is in no way obligated, to grant any extension, indulgence, forbearance, or consent with respect to the Credit Facility or any matter relating to the Credit Facility, except as specifically set forth herein.
 
14.           Release of Lender.  In consideration of Lender's execution of this Agreement, and without any contingency, precondition, or condition subsequent, the Borrowers, for and on behalf of themselves and all those claiming by, through or under them, including, without limitation, their respective heirs, administrators, executors, beneficiaries, parents, subsidiaries, affiliates, owners, successors and assigns, do hereby fully and forever remise, release, relinquish, discharge, settle and compromise any and all claims, cross-claims, counterclaims, causes, damages and actions of every kind and character, and all suits, costs, damages, expenses, compensation and liabilities of every kind, character and description, whether direct or indirect, known or unknown, in law or in equity, which any of them now have or will have against Lender, and/or any of its affiliates, agents, representatives, officers, employees, attorneys, advisors, consultants or contractors on account of, arising  out of, or resulting from, or in any manner incidental or related to, any and every thing or event occurring or failing to occur at any time in the past up to and including the Effective Date, including, without limitation, any claims relating to the Loan Documents, the Collateral, Lender’s administration of the Loan Documents or the Collateral, this Agreement, or any other transaction contemplated by this Agreement.
 
15.           Severability.  If any provisions of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
 
 
 
 

 
 
16.           Waiver of Jury Trial.  BORROWERS HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATED TO LOAN OBLIGATION, THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT, OR IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND BORROWERS WITH RESPECT TO THE LOAN OBLIGATIONS, THIS AGREEMENT, AND ANY OTHER LOAN DOCUMENT, OR IN CONNECTION WITH THE TRANSACTIONS RELATED HERETO OR CONTEMPLATED HEREBY OR THE EXERCISE OF ANY PARTY'S RIGHTS AND REMEDIES WITH RESPECT TO THE LOAN OBLIGATIONS, THIS AGREEMENT, OR OTHERWISE, OR THE CONDUCT OF THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  BORROWERS ACKNOWLEDGE THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF THE BORROWERS IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWERS AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
 
[Signatures on Following Pages]
 
IN WITNESS WHEREOF, Borrowers and Lender have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.
 
BORROWERS:
 
ATRION CORPORATION,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
    Jeffery Strickland  
   
Its Vice President
 
       
 
ATRION MEDICAL PRODUCTS, INC.,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

 
HALKEY-ROBERTS CORPORATION,
a Delaware corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

 
QUEST MEDICAL, INC.,
a Texas corporation
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       
 
 

 

 
ALATENN PIPELINE COMPANY, LLC,
an Alabama limited liability company
 
       
 
By:
/s/ Jeffery Strickland  
    Jeffery Strickland  
   
Its Vice President
 
       

 
ATRION LEASING COMPANY, LLC,
 
       
 
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Its Vice President
 
       

LENDER:
 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
a national banking association
 
       
 
By:
/s/ Jason Ford  
    Jason Ford  
   
 Vice President
 
     
 

 
 

 
 
 
REVISED EXHIBIT G
 
COMPLIANCE CERTIFICATE
 
Wells Fargo Bank, N.A.
4975 Preston Park Blvd.
Suite 280
Plano, Texas 75093

 
RE:
Loan and Security Agreement dated November 12, 1999 (evidencing a Credit Facility in the original maximum principal amount of $18,500,000), as amended by the following documents, each duly executed by Borrowers and Lenders:   an Amendment to Loan and Security Agreement dated as of December 26, 2001; a Second Amendment to Loan and Security Agreement dated November 7, 2003 (which such Second Amendment, among other things, increased the principal balance of the Credit Facility to $25,000,000); a Third Amendment to Loan and Security Agreement dated September 1, 2005; a Fourth Amendment to Loan and Security Agreement dated July 1, 2008; a Fifth Amendment to Loan and Security Agreement dated September 30, 2008; and a Sixth Amendment to Loan and Security Agreement and Loan Increase Agreement dated October 1, 2011 (which such Sixth Amendment, among other things, increased the principal balance of the Credit Facility to $40,000,000), as amended by Seventh Amendment to Loan and Security Agreement dated June 11, 2015 (as amended, the “Loan Agreement; all defined terms used in this Compliance Certificate shall have the meanings ascribed to them in the Loan Agreement)
 
The undersigned officer of the Atrion Corporation does hereby certify that for the quarterly financial period ending ________________________:
 
1.
No Default or Event of Default has occurred or exists except                                                                                                                 .
 
2.
The Consolidated Net Income for the Group, based upon the preceding twelve (12) months through the end of such period, was:
 
Required:                      Not less than $1,000,000
Actual:                                
 
3.
The Consolidated Fixed Charge Coverage ratio through the end of such period was:
 
Required:                      Not less than 1.75 to 1.0
Actual:
   
 
4.
The ratio of Funded Debt to EBITDA through the end of such period was:
 
Required:                      Not more than 2.25 to 1.0
Actual:                                
 
 
 
 

 
 
5.
All representations and warranties contained in Article IV of the Loan Agreement, as the same may have been supplemented from time to time in accordance with the provisions of Section 5.1(c) of the Loan Agreement, are true and correct as though given on the date hereof, except
.
 
6.
The undersigned hereby certifies that all information provided herein is true and correct.
 
ATRION CORPORATION
 
BY:           ____________________________________
Name:           ____________________________________
Title:           ____________________________________
 
Dated this the ______ day of ______________________, ______.
 

 

 
Ex 31.1
 
Chief Executive Officer Certification

I, David 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
 
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: August 4, 2015
By:
/s/ David A. Battat  
   
David A. Battat
 
   
President and
 
   
Chief Executive Officer
 

 
Ex. 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
 
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: August 4, 2015
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Vice President and
 
   
Chief Financial Officer
 

 
Ex.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. § 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 June 30, 2015 (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: August 4, 2015
By:
/s/ David A. Battat  
    David A. Battat  
   
President and Chief Executive Officer
 
       
 
The foregoing certification is made solely for purpose of 18 U.S.C. § 1350 and not for any other purpose.


Ex 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. § 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 June 30, 2015 (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: August 4, 2015
By:
/s/ Jeffery Strickland  
   
Jeffery Strickland
 
   
Vice President and
 
   
Chief Financial Officer
 







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