Atrion Corp.

We exceeded
last year’s earnings
by more than 15%.

Again.

A N N U A L   R E P O R T

2003

In  recent  years,  the  economic  climate  has  presented  significant
challenges to growth—and, in some cases, survival—for American
businesses. The companies that have fared well are those with solid
financial foundations and sound growth strategies that provide a
measure of protection against the changing winds of the economy.
Atrion is one of those companies. For the past five years, we have
produced earnings per share growth of more than 15 percent each
year. Despite fluctuations in our markets and product demand, we
have continued to return value to our stockholders through strong
earnings growth, year after year. As a leading provider of medical
devices  and  components  to  niche  markets  in  the  health  care
industry, we are committed to doing everything we can to continue
that level of performance.

F I N A N C I A L   H I G H L I G H T S

L E T T E R   T O   S T O C K H O L D E R S

F I N A N C I A L   I N F O R M A T I O N

1

2

7

C O R P O R A T E   I N F O R M A T I O N

2 8

2 0 0 3   F I N A N C I A L   H I G H L I G H T S

Earnings Per Diluted Share From
Continuing Operations

Revenues
(In millions)

Operating Income
(In millions)

$3.00
2.50
2.00
1.50

1.00
.50

$70
60
50
40
30
20
10

$7.0
6.0
5.0
4.0
3.0
2.0
1.0

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

For the year ended December 31,

Revenues from continuing operations

Operating income

Income from continuing operations

Earnings per diluted share from continuing operations

Weighted average diluted shares outstanding

As of December 31,

Total assets

Working capital

Long-term debt

Stockholders’ equity

2003

2002

62,803,000

6,923,000

4,892,000

2.66

1,839,000

2003

60,050,000

13,803,000

4,287,000

44,604,000

$

$

$

$

59,533,000

5,782,000

4,065,000

2.18

1,863,000

2002

60,807,000

14,787,000

10,337,000

41,691,000

$

$

$

$

1

T O   O U R   S T O C K H O L D E R S

EBITDA Per Diluted Share From
Continuing Operations(a)

$6.33

$5.48

$4.78

$7

6

5

4

3

2

1

$3.92

$2.70

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

Over the years, we have learned that there are certain clear prerequisites to growth.  Our path to growth is grounded on

these basic fundamentals: Managing our assets wisely. Making products that meet specific market needs.  And maintaining

our keen focus on productivity and profitability.              It is our steady and consistent focus on the fundamentals that has

enabled us to build strength and create an environment for growth, through favorable or unfavorable conditions in the

market and the economy.

We manage our assets and resources carefully.

Our financial strategy centers on building the strength and stability that will position our company for

ongoing growth. We approach the management of our resources with discipline and diligence, striking the

balance that allows us to accomplish our objectives: Funding the current needs of the business, maintaining a

strong financial foundation, and investing in the resources, technology and assets that will ensure operating

efficiency  and  fuel  future  growth.  The  soundness  of  this  strategy  was  reflected  once  again  in  our  financial

results for 2003.  

For the fifth consecutive year, Atrion’s earnings per diluted share from continuing operations increased

by more than 15 percent, rising from $2.18 in 2002 to $2.66 in 2003, a 22 percent improvement.  In light of

the  economic  pressures  which  have  challenged  virtually  every  business  in  recent  years,  we  view  five

consecutive years of EPS growth—ranging from 16 percent to over 50 percent—as a sign of solid financial

strength and a testament to the viability of our strategy.  Including a gain from discontinued operations of $ .09

per share, net income totaled $2.75 per diluted share for 2003.  

Revenues for 2003 increased five percent to $62.8 million, from $59.5 million in the prior year. Return

on  equity(a),  which  provides  a  good  indication  of  how  well  we  are  utilizing  investors’  dollars,  has  steadily

increased in recent years, from five percent in 1999 to 12 percent in 2003. This compares favorably to the

average return on equity for our industry, reported at 10.7 percent by statistical research sources. 

The company’s ability to generate strong cash flow continued to flourish in 2003. This is a key strength

for our company, as it enables us to pursue a number of value-creating initiatives.

• We initiated the payment of quarterly dividends on the company’s common stock in 

September 2003. Recent changes in tax laws make this an efficient avenue for 

providing a return to our shareholders and, with continuing growth in earnings and 

cash flow, we plan to increase the dividend periodically.

• We repurchased 193,814 shares of our common stock in 2003. Over the last five 

years, we have repurchased nearly two million shares of our stock, a strategy we 

regard as a wise investment for our company and our stockholders. 

• We reduced debt by $6 million, from $10.3 million at the end of 2002 to $4.3 million 

at year-end 2003.

(a) This is a non-GAAP financial measure 

which is defined and reconciled to GAAP 
on page 7 of this report.

2

We focus on the
fundamentals of
growth.
Profitability.
Productivity.
Strategic management.

3

Our financial performance earned recognition from Investors Business Daily, which ranked Atrion sixth

on its list of Market-Leading Medical Stocks in November 2003. During the year, our stock price more than

doubled, ending the year at $45.44, up from $22.50 at year-end 2002. Over the last five years, our stock price

has increased by 468 percent.

We make products that meet the specific needs of niche markets.

One of the principal strengths of our company lies in the diversity of our product lines. Atrion makes

medical  devices  and  components  for  end-users  and  manufacturers  throughout  the  health  care  industry,

ranging from ophthalmology and cardiovascular products to fluid delivery devices. Our reputation for quality,

precision and reliability has helped a number of our products gain the leading market positions in the United

States in their respective niches. 

In the ophthalmic sector, Atrion is a leading U.S. manufacturer of soft contact lens disinfection cases. In
addition, our LacriCATH® balloon catheter positions us as a market leader with a patented product for the

treatment of tear duct blockages. 

We serve the cardiac surgery market as a leading U.S. provider of vacuum relief valves, minimally invasive
surgical tapes and check valves. Serving the same market, our MPS® Myocardial Protection System continues

2003 Revenues
by Product Line

C A R D I O VA S C U L A R

O P H T H A L M O L O G Y

to make headway, as hospitals and surgeons increasingly recognize the value of this proprietary technology.

22%

30%

24%

24%

The MPS delivers essential fluids and medications to the heart during open-heart surgery, and it is the only

system  that  provides  integrated  control  over  temperature,  pressure,  flow  rate  and  the  precise  delivery  of

medications to the heart during surgery. Atrion also is the leading U.S. provider of clamps for IV sets, which

are used in many surgical and medical settings. 

Our expertise and leadership in valve design and manufacturing extend beyond the health care industry.

F L U I D   D E L I V E R Y

O T H E R

We are the leading domestic manufacturer of valves and inflation devices used in marine and aviation safety

products.

We  support  this  stable  of  solidly  performing  products  with  two  essential  programs.  One  is  a  highly

effective sales and marketing effort that keeps our products moving into the marketplace. Our sales team is

comprised  of  professionals  who  possess  clinical  knowledge  and  specific  product  experience,  and  also

concentrate on building strong relationships with customers and within the industry.  

Our  other  essential  program  is  research  and  development.  We  believe  it  is  vital  to  keep  a  pipeline  of

products in various stages of development so that we can take advantage of near- and long-term opportunities

in our markets. Understandably, proposed new products for the health care industry must undergo stringent

testing and rigorous approval procedures. Often, this means that the process of bringing a new product from

the design stage to the marketplace is a long and arduous one. A strong, proactive research and development

program ensures that we are committing the resources and time required to successfully stay the course.

4

Balanced growth.
Product diversity.
Market leadership.
These continue
to stand as signs
of our strength.

5

We gain strength from product diversity.

At any given time, changing customer needs, market conditions and economic factors can impact the

revenues  we  derive  from  one  of  our  product  lines,  either  positively  or  negatively.  But  that  is  precisely  the

advantage that product diversity gives us. We supply a range of different products, many of which hold leading

market  positions,  to  a  range  of  different  market  niches.  This  helps  us  to  achieve  growth  without  a

disproportionate dependence on a single product or market and provides stability and consistency for our

revenue base.

In 2003, we achieved revenue growth in the majority of our product lines, contributing to the generation

of continuing strong cash flows for the company.

We keep a close watch on the bottom line.

A  company  with  manufacturing  at  its  core  faces  the  continuing  challenge  to  make  its  products  faster,

better and more economically. We view this challenge as a continuing opportunity to increase profitability and

improve our operational efficiency.

Over  the  past  several  years,  we  have  made  significant  investments  in  the  upgrading  of  our  automated

manufacturing equipment, enabling us to produce higher volumes in less time and with greater cost efficiency.

We  also  have  taken  steps  toward  the  consolidation  of  common  systems  and  processes  among  our  three

manufacturing locations.  

In 2003, we continued to make solid headway in our never-ending quest for operational improvement,

which is a primary focus of our business strategy. Our ability to hold the line on operational costs, coupled

with increased revenues from product sales, contributed to a 20 percent improvement in operating income

over 2002.  

Our  strategy  for  the  future  continues  to  be  focused  on  growth,  as  we  remain  committed  to  the

fundamentals that have served us well: Financial strength that fuels continuing growth. Products that meet the

needs of select markets. Productivity and profitability that improve year by year.  

To that end, we will continue to put products into the marketplace that represent the highest standards of

integrity and innovation. We will be relentless in our pursuit of operational measures that improve productivity

and produce bottom-line benefits. We will seek out new ways to expand market opportunities and increase

sales. We will continue to deploy our financial resources in the wisest way we can. We pledge our best effort

to  achieving  a  double-digit  rate  of  growth  in  earnings  per  share  from  continuing  operations.  And  we  will

remain vigilant in our determination to return value to those who invest in our company.

Sincerely,

Emile A. Battat
Chairman of the Board and President

6

F I N A N C I A L   I N F O R M A T I O N

S E L E C T E D   F I N A N C I A L   D A T A

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2003

2002

2001

2000

1999

Revenues

Income from continuing operations

Net income

Total assets

Long-term debt

Income from continuing operations, per diluted share

Net income per diluted share

Cash dividends per common share

Average diluted shares outstanding

$

62,803

$

59,533

$

57,605

$

51,447

$

49,917

4,892

5,057

60,050

4,287

2.66

2.75

.24(a)

1,839

4,065

4,262

2,589(b)

9,754(c)

60,807

10,337

2.18

1.39(b)

—

1,863

65,555

17,125

1.88

4.30(c)

—

2,272

2,663

2,792

63,690

7,400

1.25

1.31

—

2,128

2,293

64,640

10,417

.81

.87

—

2,135

2,631

(a) Dividends on outstanding common shares paid in the 3rd and 4th quarter at $.12 per share (see Note 6) 
(b) Includes a $1.6 million after-tax goodwill impairment charge ($ .88 per diluted share) (see Note 2) 
(c) Includes a $5.5 million after-tax gain ($ 2.42 per diluted share) from discontinued operations (see Note 3)

R E C O N C I L I A T I O N   O F   N O N - G A A P   F I N A N C I A L   M E A S U R E S

EBITDA Per Diluted Share From Continuing Operations

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2003

2002

2001

2000

1999

Income from continuing operations

$

4,892

$

4,065

$

4,262

$

2,663

$

2,128

Add:

Interest expense (income), net

Income tax expense

Depreciation and amortization

EBITDA

Average diluted shares outstanding

EBITDA per Diluted Share from Continuing Operations

126

1,879

4,746

11,643

1,839

6.33

$

$

354

1,403

4,384

10,206

1,863

5.48

$

$

223

1,803

4,569

10,857

2,272

4.78

$

$

$

$

654

923

4,119

8,359

2,135

3.92

$

$

257

741

3,975

7,101

2,631

2.70

EBITDA per diluted share from continuing operations, a non-GAAP financial measure, is computed by the Company as EBITDA divided by weighted average diluted shares outstanding.  
The company computes EBITDA by adding income from continuing operations, net interest expense/(income), income tax expense, depreciation and amortization.

Return on Equity

(IN THOUSANDS)

Net Income

Stockholders’ Equity

Return on Equity

$

$

2003

5,057

41,691

12%

$

$

1999

2,293

49,369

5%

Return on equity, a non-GAAP financial measure, is computed by the Company by dividing annual net income by the Company’s beginning
of the year stockholders’ equity balance as shown on its balance sheet.

7

 
C O N S O L I D A T E D   S T A T E M E N T S   O F   I N C O M E

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues

$

Cost of Goods Sold

Gross Profit

Operating Expenses:

Selling

General and administrative

Research and development

Operating Income 

Interest Income

Interest Expense

Other Income (Expense), net

Income from Continuing Operations before Provision for Income Taxes

Income Tax Provision 

Income from Continuing Operations

Gain on Disposal of Discontinued Operations, net of tax 

Cumulative Effect of Accounting Change, net of tax 

Net Income

Income Per Basic Share:

Continuing operations

Discontinued operations

Cumulative effect of accounting change

Net Income Per Basic Share

Weighted Average Basic Shares Outstanding

Income Per Diluted Share:

Continuing operations

Discontinued operations

Cumulative effect of accounting change

Net Income Per Diluted Share

Weighted Average Diluted Shares Outstanding

The accompanying notes are an integral part of these statements.

8

FOR THE YEAR ENDED DECEMBER 31,
2003
62,803

2002
59,533

$

$

40,564

22,239

39,236

20,297

5,594

7,576

2,146

15,316

6,923

69

(195)

(26)

6,771

5,343

6,992

2,180

14,515

5,782

78

(432)

40

5,468

2001
57,605

35,777

21,828

6,248

7,849

1,911

16,008

5,820

77

(300)

468

6,065

(1,879)

(1,403)

(1,803)

4,892

165

—

4,065

165

(1,641)

4,262

5,492

—

$

5,057

$

2,589

$

9,754

$

$

$

$

2.86

$

2.37

$

.10

—

.10

(.96)

2.96

$

1.51

$

2.10

2.70

—

4.80

1,711

1,711

2,033

2.66

$

2.18

$

.09

—

.09

(.88)

2.75

$

1.39

$

1.88

2.42

—

4.30

1,839

1,863

2,272

C O N S O L I D A T E D   B A L A N C E   S H E E T S

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

A S S E T S :

Current Assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $103 and 

$151 in 2003 and 2002, respectively

Inventories

Prepaid expenses

Deferred income taxes 

Property, Plant and Equipment

Less accumulated depreciation and amortization

Other Assets and Deferred Charges:

Patents, net of accumulated amortization of $7,151 and $6,847 in 2003 and 2002, respectively 

Goodwill

Other

L I A B I L I T I E S   A N D   S T O C K H O L D E R S ’   E Q U I T Y :

Current Liabilities:

Accounts payable and accrued liabilities

Accrued income and other taxes

Line of Credit

Other Liabilities and Deferred Credits:

Deferred income taxes 

Other

Commitments and Contingencies 

Stockholders’ Equity:

Common stock, par value $ .10 per share, authorized 10,000 shares, issued 3,420 shares 

Additional paid-in capital

Retained earnings 

Treasury shares, 1,720 shares in 2003 and 1,714 shares in 2002, at cost 

The accompanying notes are an integral part of these statements.

9

AS OF DECEMBER 31,

2003

2002

$

298

$

353

6,226

11,314

1,894

760

20,492

45,767

21,578

24,189

2,099

9,730

3,540

6,721

10,311

2,273

1,018

20,676

42,661

18,211

24,450

2,403

9,730

3,548

15,369

15,681

$

60,050

$

60,807

$

6,038

$

5,030

651

6,689

4,287

3,496

974

4,470

—

342

9,673

68,900

859

5,889

10,337

2,115

775

2,890

—

342

8,222

64,249

(34,311)

(31,122)

44,604

41,691

$

60,050

$

60,807

C O N S O L I D A T E D   S T A T E M E N T S   O F   C A S H   F L O W S

(IN THOUSANDS)

C A S H   F L O W S   F R O M   O P E R A T I N G   A C T I V I T I E S :

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Cumulative effect of accounting change, net of tax

Gain on disposal of discontinued operations 

Depreciation and amortization

Deferred income taxes

Tax benefit related to stock plans

Other

Changes in operating assets and liabilities:

Accounts receivable

Inventories

Prepaid expenses

Other non-current assets

Accounts payable and accrued liabilities

Accrued income and other taxes

Other non-current liabilities

Net cash provided by continuing operations

Net cash provided by discontinued operations

C A S H   F L O W S   F R O M   I N V E S T I N G   A C T I V I T I E S :

Property, plant and equipment additions

Patent sale

C A S H   F L O W S   F R O M   F I N A N C I N G   A C T I V I T I E S :

Net change in line of credit

Issuance of treasury stock

Purchase of treasury stock

Dividends paid

N E T   C H A N G E   I N   C A S H   A N D   C A S H   E Q U I V A L E N T S

C A S H   A N D   C A S H   E Q U I V A L E N T S ,   B E G I N N I N G   O F   Y E A R

C A S H   A N D   C A S H   E Q U I V A L E N T S ,   E N D   O F   Y E A R

C A S H   P A I D   F O R :

Interest 

Income taxes (net of refunds)

The accompanying notes are an integral part of these statements.

10

FOR THE YEAR ENDED DECEMBER 31,
2003

2002

2001

$

5,057

$

2,589

$

9,754

—

(165)

4,746

1,639

515

34

1,641

(165)

4,384

366

82

127

11,826

9,024

495

(1,003)

379

8

1,008

(208)

199

12,704

165

12,869

838

803

(810)

(240)

(307)

750

(190)

9,868

165

10,033

—

(5,492)

4,569

316

1,238

(428)

9,957

(384)

(1,004)

(888)

301

934

(78)

(135)

8,703

165

8,868

(4,215)

(3,279)

(2,808)

—

—

428

(4,215)

(3,279)

(2,380)

(6,050)

2,656

(4,909)

(406)

(8,709)

(55)

353

298

207

554

$

$

(6,788)

409

(564)

—

(6,943)

(189)

542

353

418

(340)

9,725

1,778

(17,608)

—

(6,105)

383

159

542

272

1,217

$

$

$

$

C O N S O L I D A T E D   S T A T E M E N T   O F   C H A N G E S   I N   S T O C K H O L D E R S ’   E Q U I T Y

COMMON STOCK

TREASURY STOCK

(IN THOUSANDS)

SHARES
OUTSTANDING

AMOUNT

SHARES

AMOUNT

ADDITIONAL 
PAID-IN CAPITAL

RETAINED
EARNINGS

TOTAL

Balance, January 1, 2001

1,992

$

342

1,428

$

(14,653)

$

6,418

$

51,906

$

44,013

Net income

Tax benefit from exercise 
of stock options 

Exercise of stock options

235

(235)

2,077

Shares surrendered in 
option exercises

Purchase of treasury stock

Balance, December 31, 2001

Net income

Tax benefit from exercise of 

stock options 

Exercise of stock options

Shares surrendered in 
option exercises

Purchase of treasury stock

(27)

(512)

1,688

53

(9)

(26)

27

512

1,732

(634)

(17,608)

(30,818)

342

(53)

443

9

26

(183)

(564)

1,238

335

7,991

82

149

Balance, December 31, 2002

1,706

342

1,714

(31,122)

8,222

Net income

Tax benefit from exercise of

stock options 

Exercise of stock options

Purchase of treasury stock

Dividends 

187

(193)

(187)

193

1,720

(4,909)

515

936

9,754

9,754

1,238

2,412

(634)

(17,608)

39,175

2,589

82 

592

(183)

(564)

41,691

5,057

515 

2,656

(4,909)

(406)

61,660

2,589

64,249

5,057

(406)

B A L A N C E , D E C E M B E R 3 1 , 2 0 0 3

1,700

$

342

1,720

$

(34,311)

$

9,673

$

68,900

$

44,604

The accompanying notes are an integral part of this statement. 

11

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S

1

S U M M A R Y   O F   S I G N I F I C A N T   A C C O U N T I N G   P O L I C I E S

Atrion Corporation designs, develops, manufactures and markets products primarily for the medical and health care industry. The Company markets its
products  throughout  the  United  States  and  internationally.  The  Company’s  customers  include  hospitals,  distributors,  and  other  manufacturers.  As  of
December 31, 2003, the principal subsidiaries of the Company through which it conducted its operations were Atrion Medical Products, Inc. (“Atrion
Medical Products”), Halkey-Roberts Corporation (“Halkey-Roberts”) and Quest Medical, Inc. (“Quest Medical”).

P R I N C I P L E S   O F   C O N S O L I D A T I O N
The  consolidated  financial  statements  include  the  accounts  of  Atrion  Corporation  and  its  subsidiaries  (the  “Company”).  All  significant  intercompany
transactions and balances have been eliminated in consolidation.

F A I R   V A L U E
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these
items. The carrying amount of debt approximates fair value as the interest rate is tied to market rates.

E S T I M A T E S
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates
of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

F I N A N C I A L   P R E S E N T A T I O N
Certain prior-year amounts have been reclassified to conform with the current-year presentation.

C A S H   A N D   C A S H   E Q U I V A L E N T S
Cash equivalents are securities with original maturities of 90 days or less. 

T R A D E   R E C E I V A B L E S
Trade accounts receivable are recorded at the original sales price to the customer. The Company maintains an allowance for doubtful accounts to reflect
estimated losses resulting from the inability of customers to make required payments. On an ongoing basis, the collectibility of accounts receivable is
assessed, based upon historical collection trends, current economic factors, and the assessment of the collectibility of specific accounts. The Company
evaluates the collectibility of specific accounts using a combination of factors, including the age of the outstanding balances, evaluation of customers’
current and past financial condition, recent payment history, current economic environment, and discussions with appropriate Company personnel and
with the customers directly. Accounts are written off when it is determined the receivable will not be collected.

I N V E N T O R I E S
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):

Raw materials

Finished goods

Work in process

Total inventories

DECEMBER 31,

2003

2002

$

5,641

$

6,082

4,044

1,629

2,818

1,411

$

11,314

$

10,311

I N C O M E   T A X E S
The Company utilizes the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial reporting basis and the tax basis of the Company’s other assets and liabilities. These amounts are
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

12

P R O P E R T Y ,   P L A N T   A N D   E Q U I P M E N T
Property, plant and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Expenditures
for repairs and maintenance are charged to expense as incurred. The following table represents a summary of property, plant and equipment at original cost
(in thousands):

Land

Buildings

Machinery and equipment

Total property, plant and equipment

DECEMBER 31,
2003

DECEMBER 31,
2002

$

1,506

$

8,981

35,280

1,506

8,683

$

45,767

$

42,661

USEFUL
LIVES

—

30-40 yrs

32,472

3-10 yrs

Depreciation expense of $4,442,000, $4,080,000 and $3,743,000 was recorded for the years ended December 31, 2003, 2002 and 2001, respectively.

P A T E N T S
Cost for patents acquired is determined at acquisition date. Patents are amortized over the remaining lives of the individual patents, which are four to 14 years.
Patents are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

G O O D W I L L
Goodwill represents the excess of cost over the fair value of tangible and identifiable intangible net assets acquired. Through December 31, 2001, goodwill
was being amortized over 25 years. Beginning January 1, 2002, accounting for goodwill was changed to conform to Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” as outlined in Note 2. Annual impairment testing for goodwill is done in accordance
with SFAS No. 142 using a fair value-based test. Goodwill is also reviewed periodically for impairment whenever events or changes in circumstances indicate
a change in value may have occurred.

R E V E N U E S
The Company recognizes revenue when its products are shipped to its customers and distributors, provided an arrangement exists, the fee is fixed and
determinable  and  collectibility  is  reasonably  assured.  Net  sales  represent  gross  sales  invoiced  to  customers,  less  certain  related  charges,  including
discounts, returns and other allowances. Returns, discounts and other allowances have been insignificant historically.

S H I P P I N G   A N D   H A N D L I N G   P O L I C Y
Shipping  and  handling  fees  charged  to  customers  are  reported  as  revenue  and  all  shipping  and  handling  costs  incurred  related  to  products  sold  are
reported as cost of goods sold.

R E S E A R C H   A N D   D E V E L O P M E N T   C O S T S
Research and development costs relating to the development of new products and improvements of existing products are expensed as incurred.

S T O C K - B A S E D   C O M P E N S A T I O N  
At  December  31,  2003,  the  Company  had  three  stock-based  employee  compensation  plans,  which  are  described  more  fully  in  Note  8.  The  Company
accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the
effect on net income and income per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” to stock-based employee compensation:

13

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S       ( C O N T I N U E D )

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net income, as reported

Deduct: Total stock-based employee compensation expense determined under fair 

value-based methods for all awards, net of tax effects

Pro forma net income

Income per share:

Basic — as reported

Basic — pro forma

Diluted — as reported

Diluted — pro forma

YEAR ENDED DECEMBER 31,

2003

2002

2001

5,057 

$

2,589 

$

9,754 

(526)

4,531 

2.96

2.65 

2.75 

2.46 

$

$

$

$

$

(691)

1,898 

1.51 

1.11 

1.39 

1.02 

$

$

$

$

$

(275)

9,479 

4.80

4.66

4.30 

4.17 

$

$

$

$

$

$

N E W   A C C O U N T I N G   P R O N O U N C E M E N T S
In  December  2003,  the  Financial  Accounting  Standards  Board  issued  a  revised  SFAS  No.  132,  “Employers’  Disclosures  about  Pensions  and  Other
Postretirement Benefits.” SFAS No. 132 (as revised) revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not
change the measurement or recognition of those plans required by SFAS Nos. 87, 88 and 106. SFAS No. 132 (as revised) requires additional disclosures
to those in the original SFAS No. 132 and it also amends APB Opinion 28, “Interim Financial Reporting,” to require certain disclosures about pension and
other postretirement benefit plans in interim financial statements. SFAS No. 132 (as revised) is generally effective for financial statements with fiscal years
ending after December 15, 2003. The Company has revised its disclosures in Note 11 to conform to this new pronouncement.

2

G O O D W I L L   A N D   I N T A N G I B L E   A S S E T S

The Company adopted SFAS No. 142 effective January 1, 2002, and has identified three reporting units where goodwill was recorded for purposes of testing
goodwill  impairment:  (1)  Atrion  Medical  Products  (2)  Halkey-Roberts  and  (3)  Quest  Medical.  The  Company  completed  an  impairment  analysis  that
revealed that the Quest Medical reporting unit was impaired, resulting in a write-down of goodwill in the first quarter of 2002 of $1.6 million, net of an
income tax benefit of $845,000. The charge reflected a $2.5 million reduction in the goodwill resulting from the acquisition of Quest Medical in February
1998.  The  remaining  goodwill  asset  balance  for  the  Company  totaled  $9.7  million  at  December  31,  2003.  The  impairment  loss  was  recorded  as  a
cumulative effect of a change in accounting principle. Net income from continuing operations for the year 2001 adjusted as though the non-amortization
provisions of SFAS No. 142 had been in effect at January 1, 2001, are as follows: 

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Income from continuing operations

Add back: Goodwill amortization, net of tax

Adjusted income from continuing operations

A D J U S T E D   I N C O M E   P E R   B A S I C   S H A R E :

Income from continuing operations

Add back: Goodwill amortization, net of tax

Adjusted income from continuing operations

A D J U S T E D   I N C O M E   P E R   D I L U T E D   S H A R E :

Income from continuing operations

Add back: Goodwill amortization, net of tax

Adjusted income from continuing operations

14

YEAR ENDED DECEMBER 31,

2003

4,892

—

4,892

2.86

—

2.86

2.66

—

2.66

$

$

$

$

$

$

2002

4,065

—

4,065

2.37

—

2.37

2.18

—

2.18

$

$

$

$

$

$

2001

4,262

425

4,687

2.10 

.21

2.31

1.88 

.19

2.07

$

$

$

$

$

$

Intangible assets consist of the following (dollars in thousands):

Amortizable intangible assets:

Patents

Intangible assets not subject to amortization:

AVERAGE LIFE
(YEARS)

DECEMBER 31, 2003
GROSS CARRYING
AMOUNT

ACCUMULATED GROSS CARRYING
AMOUNT
AMORTIZATION

ACCUMULATED
AMORTIZATION

DECEMBER 31, 2002

12.85

$

9,250

$

7,151

$

9,250

$

6,847

Goodwill

$

9,730

— $

9,730

—

Aggregate amortization expense for patents and goodwill was $304,000, $304,000 and $907,000 for 2003, 2002 and 2001, respectively.

Estimated future amortization expense for each of the years ending December 31, is as follows (in thousands):

2004

2005

2006

2007

2008

$ 304

$ 271

$ 169

$ 144

$ 144

There was no change in the carrying amounts of goodwill for 2003.

3

D I S C O N T I N U E D   O P E R A T I O N S

During 1997, the Company sold all of its natural gas operations. The consolidated financial statements presented herein reflect the Company’s natural gas
operations as discontinued operations for all periods presented. The consolidated financial statements reflect a gain on disposal of these discontinued
operations of $165,000 in 2003 and 2002, and $5.5 million in 2001. These amounts are net of income tax expense of $85,000 in 2003 and 2002, and
include an income tax benefit of $5.1 million in 2001. 

In addition to the initial consideration received in 1997 upon the sale of the natural gas operations, certain annual contingent deferred payments of up to
$250,000 per year were to be paid to the Company over an eight-year period which began in 1999, with the amount paid each year to be dependent upon
revenues received by the purchaser from certain gas transportation contracts. The Company received deferred payments of $250,000 each, before tax, from
the purchaser in April 2003, 2002 and 2001 which are reflected in each year as a gain from discontinued operations of $165,000, net of tax. The 2001
gain also includes a $5.3 million non-cash gain from reversal of a reserve established when the Company disposed of its natural gas operations in 1997.
This reversal in the third quarter of 2001 followed the resolution of an outstanding contingency related to the sale of those assets. 

4

L I N E   O F   C R E D I T

The Company has a revolving credit facility (“Credit Facility”) with a regional bank. In December 2001, the Credit Facility arrangement was amended to
increase the credit line under the Credit Facility from $18.5 million to $25.0 million. Under the Credit Facility, the Company and certain of its subsidiaries
have a line of credit which is secured by substantially all inventory, equipment and accounts receivable of the Company. Interest under the Credit Facility is
assessed at 30-day, 60-day or 90-day LIBOR, as selected by the Company, plus one percent (2.17 percent at December 31, 2003) and is payable monthly.
At  December  31,  2003,  and  2002,  $4.3  million  and  $10.3  million,  respectively,  was  outstanding  under  the  line  of  credit.  The  Credit  Facility  expires
November 12, 2006, 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 covenants in the loan agreement, the most restrictive of which is the ratio of total debt to earnings before interest,
income tax, depreciation and amortization. At December 31, 2003, the Company was in compliance with all financial covenants.

15

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S       ( C O N T I N U E D )

5

I N C O M E   T A X E S

The items comprising income tax expense for continuing operations are as follows (in thousands):

Current — Federal

— State

Deferred — Federal

— State

$

2003

914

32

946

912

21

933

YEAR ENDED DECEMBER 31,

2002

2001

$

1,081

$

1,520

(44)

1,037

327

39

366

188

1,708

74

21

95

Total income tax expense 

$

1,879

$

1,403

$

1,803

Temporary differences and carryforwards which have given rise to deferred income tax assets and liabilities as of December 31, 2003 and 2002 are as
follows (in thousands):

D E F E R R E D   T A X   A S S E T S :

Patents and goodwill

Benefit plans

Inventories

Tax credits

Other

Total deferred tax assets

D E F E R R E D   T A X   L I A B I L I T I E S :

Property, plant and equipment

Pensions

Other

Total deferred tax liabilities

Net deferred tax liability

B A L A N C E   S H E E T   C L A S S I F I C A T I O N :

Non-current deferred income tax liability

Current deferred income tax asset

Net deferred tax liability

16

2003

2002

654

492

374

169

39

1,728

3,838

626

—

4,464

2,736

3,496

760

2,736

$

1,041

639

342

451

60

2,533

3,253

362

15

3,630

1,097

2,115

1,018

1,097

$

$

$

$

$

$

$

$

$

$

$

$

$

Total income tax expense for continuing operations differs from the amount that would be provided by applying the statutory federal income tax rate to
pretax earnings as illustrated below (in thousands):

Income tax expense at the statutory federal income tax rate

$

2,298

$

1,858

$

2,062

YEAR ENDED DECEMBER 31,

2003

2002

2001

Increase (decrease) resulting from:

State income taxes

Decrease in valuation allowance

R&D credit

Foreign sales benefit

Other, net

Total income tax expense 

6

S T O C K H O L D E R S ’   E Q U I T Y

34

—

(100)

(250)

(103)

80

—

(164)

(244)

(127)

220

(68)

(52)

(352)

(7)

$

1,879

$

1,403

$

1,803

The Board of Directors of the Company has at various times authorized repurchases of Company stock in open-market or negotiated transactions at such
times and at such prices as management may from time to time decide. The Company has effected a number of open-market or negotiated transactions to
purchase its stock during the past three years. These repurchases totaled 20,200, 26,000 and 10,300 shares during the years 2003, 2002 and 2001,
respectively, at per share prices ranging from $14.02 to $42.42. As of December 31, 2003, authorization for the repurchase of 94,000 additional shares
remained. The Company purchased 173,614 shares of its common stock at $23.00 per share in April 2003 pursuant to a tender offer. The Company
purchased 502,229 shares of its common stock at $34.50 per share in December 2001 pursuant to a tender offer. All shares purchased in the tender offers
and in the open-market or negotiated transactions became treasury shares upon repurchase by the Company. 

In September 2003, the Company announced that it had adopted a policy for the payment of regular quarterly cash dividends on the Company’s common
stock. The Company subsequently paid a quarterly cash dividend of $ .12 per common share in both September and December of 2003.

The Company has a Common Share Purchase Rights Plan, which is intended to protect the interests of stockholders in the event of a hostile attempt to take
over the Company. The rights, which are not presently exercisable and do not have any voting powers, represent the right of the Company’s stockholders
to purchase at a substantial discount, upon the occurrence of certain events, shares of common stock of the Company or of an acquiring company involved
in a business combination with the Company. In January 2000, this plan, which was adopted in February 1990, was extended until February 2005.

7

I N C O M E   P E R   S H A R E

The following is the computation for basic and diluted income per share from continuing operations:

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Income from continuing operations

Weighted average basic shares outstanding

Add: Effect of dilutive securities (options)

Weighted average diluted shares outstanding

Income per share from continuing operations:

Basic

Diluted

YEAR ENDED DECEMBER 31,

2003

$

4,892

$

1,711

128

1,839

2002

4,065

1,711

152

1,863

$

$

2.86

2.66

$

$

2.37

2.18

2001

4,262

2,033

239

2,272

2.10

1.88

$

$

$

For  the  years  ended  December  31,  2003,  2002  and  2001,  options  to  purchase  approximately  25,250,  40,625  and  7,800  shares  of  common  stock,
respectively, were not included in the computation of diluted income per share because their effect would have been antidilutive.

17

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S       ( C O N T I N U E D )

8

S T O C K   O P T I O N   P L A N S

The Company’s 1997 Stock Incentive Plan provides for the grant to key employees of incentive and nonqualified stock options, stock appreciation rights,
restricted stock and performance shares. In addition, under the 1997 Stock Incentive Plan, outside directors (directors who are not employees of the
Company or any subsidiary) receive automatic annual grants of nonqualified stock options to purchase 2,000 shares of common stock. Under the 1997
Stock Incentive Plan, 624,425 shares in the aggregate of common stock were reserved for grants. The purchase price of shares issued on the exercise of
incentive options must be at least equal to the fair market value of such shares on the date of grant. The purchase price for shares issued on the exercise
of nonqualified options and restricted and performance shares is fixed by the Compensation Committee of the Board of Directors. The options granted
become exercisable as determined by the Compensation Committee and expire no later than 10 years after the date of grant. 

During 1994, the stockholders of the Company approved the adoption of the Company’s 1994 Key Employee Stock Incentive Plan, which provided for the
grant  to  key  employees  of  incentive  and  nonqualified  options  to  purchase  shares  of  common  stock  of  the  Company.  During  1998,  the  Company’s
stockholders approved the adoption of the Company’s 1998 Outside Directors Stock Option Plan which, as amended, provided for the automatic grant on
February 1, 1998 and February 1, 1999 of nonqualified stock options to the Company’s outside directors. Although no additional options may be granted
under the 1994 Key Employee Stock Incentive Plan or the 1998 Outside Directors Stock Option Plan, all outstanding options under those plans continue
to be governed by the terms and conditions of those plans and the existing option agreements for those grants.

Option transactions for the three years in the period ended December 31, 2003 are as follows:

SHARES

492,350

81,000

(13,600)

(234,900)

324,850

201,500

(5,500)

(53,500)

467,350

12,000

(4,550)

(187,200)

287,600

174,350

261,100

217,000

WEIGHTED AVERAGE 
EXERCISE PRICE

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

10.50

15.31

10.84

10.46

11.62

21.05

8.34

11.06

15.82

29.30

20.18

14.19

17.38

11.89

13.81

15.41

Options outstanding at January 1, 2001

Granted in 2001

Expired in 2001

Exercised in 2001

Options outstanding at December 31, 2001

Granted in 2002

Expired in 2002

Exercised in 2002

Options outstanding at December 31, 2002

Granted in 2003

Expired in 2003

Exercised in 2003

Options outstanding at December 31, 2003

Exercisable options at December 31, 2001

Exercisable options at December 31, 2002

Exercisable options at December 31, 2003

18

As of December 31, 2003, there remained 72,534 shares for which options may be granted in the future under the 1997 Stock Incentive Plan. The following
table summarizes information about stock options outstanding at December 31, 2003:

RANGE OF EXERCISE PRICES

$6.875-$14.063

$14.875-$22.50

$26.13-$31.39

OPTIONS OUTSTANDING

OPTIONS EXERCISABLE

WEIGHTED
AVERAGE 
REMAINING
OUTSTANDING CONTRACTUAL LIFE

NUMBER

WEIGHTED
AVERAGE
EXERCISE
PRICE

143,100

85,000

59,500

287,600

5.3 years

4.2 years

5.3 years 

$

$

$

11.53

18.28

30.15

WEIGHTED
AVERAGE
EXERCISE
PRICE

$

$

$

11.04

18.28

27.72

NUMBER
EXERCISABLE

112,000

85,000

20,000

217,000

Pro forma information regarding net income and income per share as required by SFAS No. 123 has been determined as if the Company had accounted
for its stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2003, 2002 and 2001:

Risk-free interest rate

Dividend yield

Volatility factor

Expected life

2003

3.2%

0.0%

39.1%

7 years

2002

2.7%

0.0%

50.3%

2.7 years

2001

5.2%

0.0%

33.0%

7 years

The resulting estimated weighted average fair values of the options granted in 2003, 2002 and 2001 were $13.51, $7.25 and $7.06, respectively.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. All options
grants in 2003, 2002 and 2001 occurred prior to the declaration of dividends by the Company.

9

R E V E N U E S   F R O M   M A J O R   C U S T O M E R S

The Company had one major customer which represented approximately $9.1 million (14.4 percent), $7.4 million (12.4 percent) and $11.0 million
(19.1 percent) of the Company’s operating revenues during the years 2003, 2002 and 2001, respectively.

10

I N D U S T R Y   S E G M E N T   A N D   G E O G R A P H I C   I N F O R M A T I O N

The Company operates in one reportable industry segment: designing, developing, manufacturing and marketing products for the medical and health care
industry and has no foreign operating subsidiaries. The Company’s product lines include pressure relief valves and inflation systems, which are sold primarily
to the aviation and marine industries. Due to the similarities in product technologies and manufacturing processes, these products are managed as part of
the medical products segment. The Company recorded incidental revenues from its oxygen pipeline, which totaled approximately $950,000 in each of the
years of 2003, 2002 and 2001. Pipeline net assets totaled $2.6 million at December 31, 2003 and 2002. Company revenues from sales to parties outside the
United States totaled approximately 26, 25 and 33 percent of the Company’s total revenues in 2003, 2002 and 2001, respectively. No Company assets are
located outside the United States. A summary of revenues by geographic territory for the three years 2003, 2002 and 2001 is as follows (in thousands):

United States

Canada

United Kingdom

Other

Total

YEAR ENDED DECEMBER 31,

2003

2002

2001

$

46,721

$

44,454

$

38,805

8,620

1,547

5,915

6,938

1,693

6,448

10,635

2,182

5,983

$

62,803

$

59,533

$

57,605

19

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S       ( C O N T I N U E D )

11

E M P L O Y E E   R E T I R E M E N T   A N D   B E N E F I T   P L A N S

A noncontributory defined benefit retirement plan is maintained for all regular employees of the Company except those of Quest Medical. This plan was
amended effective January 1, 1998 to become a cash balance pension plan. The Company’s funding policy is to make the annual contributions required by
applicable regulations and recommended by its actuary. The Company uses a December 31 measurement date for the plan.

The changes in the plan’s projected benefit obligation (“PBO”) as of December 31, 2003 and 2002 are as follows (in thousands):

C H A N G E   I N   B E N E F I T   O B L I G A T I O N :

Benefit obligation, January 1

Service cost

Interest cost

Amendments

Actuarial (gain)/loss

Benefits paid

2003

2002

$

4,170

$

4,599

214

298

—-

529

(333)

320

307

(616)

(93)

(347)

Benefit obligation, December 31

$

4,878

$

4,170

In December 2002, the plan was amended to reduce benefit accruals for future service by plan participants by approximately 50 percent. This amendment
caused a reduction in the PBO of approximately $616,000, and is reflected as a reduction in pension expense over the estimated employee service lives. 

The changes in the fair value of plan assets, funded status of the plan and the status of the prepaid pension benefit recognized, which is included in the
Company’s balance sheets as of December 31, 2003 and 2002 are as follows (in thousands):

C H A N G E   I N   P L A N   A S S E T S :

Fair value of plan assets, January 1

Actual return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets, December 31

Funded status of plan

Unrecognized actuarial loss

Unrecognized prior service cost

Unrecognized net transition obligation

Net amount recognized as other assets

2003

2002

$

4,383

$

4,550

$

$

963

400

(333)

5,413

535

1,941

(502)

(88)

$

$

(750)

930

(347)

4,383

213

2,154

(539)

(132)

$

1,886

$

1,696

20

 
The accumulated benefit obligation for the pension plan was $4,801,000 and $4,170,000 at December 31, 2003 and 2002, respectively. The components
of net periodic pension cost for 2003, 2002 and 2001 were as follows (in thousands):

YEAR ENDED DECEMBER 31,

2003

2002

2001

C O M P O N E N T S   O F   N E T   P E R I O D I C   P E N S I O N   C O S T :

Service cost

Interest cost

Expected return on assets

Prior service cost amortization

Actuarial loss

Transition amount amortization

Net periodic pension cost 

Actuarial assumptions used to determine benefit obligations at December 31 were as follows:

Discount rate

Rate of compensation increase

Actuarial assumptions used to determine net periodic pension cost were as follows:

Discount rate

Expected long-term return on assets

Rate of compensation increase 

$

214

298

(349)

(37)

128

(44)

$

$

320

307

369

296

(405)

(477)

7

28

(44)

$

210

$

213

$

2003

6.50%

5.00%

YEAR ENDED DECEMBER 31,

2003

7.00%

8.00%

5.00%

2002

7.25%

9.00%

5.00%

6

—

(44)

150

2002

7.00%

5.00%

2001

7.25%

9.00%

5.00%

The Company’s expected long-term rate of return assumption is based upon the plan’s actual long-term investment results as well as the long-term outlook
for investment returns in the marketplace at the time the assumption is made. The reduction in the Company’s assumption for this expected return rate in
the beginning of 2003 to 8 percent from 9 percent reflected the major downturn in returns on debt and equity investments that occurred in the investment
markets in 2001 and 2002.

The Company’s pension plan assets at December 31, 2003 and 2002 were invested in the following asset categories:

A S S E T   C A T E G O R Y :

Equity securities

Debt securities

Other

Total

21

2003

2002

73%

25%

2%

64%

28%

8%

100%

100%

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S       ( C O N T I N U E D )

It is the Company’s investment policy to maintain 66 percent to 79 percent of the plan’s assets in equity securities and 21 percent to 31 percent of its assets
in debt securities with the balance invested in a money market account to meet liquidity requirements for distributions. The asset allocation at December
31,  2003  represents  the  targeted  asset  allocation  at  that  time.  Based  upon  the  plan’s  current  over-funded  position,  the  Company  expects  to  make  no
contributions to its pension plan in 2004.

The Company also sponsors a defined contribution plan for all employees. Each participant may contribute certain amounts of eligible compensation. The
Company makes a matching contribution to the plan. The Company’s contribution under this plan was $202,000 in 2003, $302,000 in 2002 and $258,000
in 2001. 

12

C O M M I T M E N T S   A N D   C O N T I N G E N C I E S

The Company is subject to legal proceedings, third-party claims and other contingencies related to product liability, regulatory, employee and other matters
that arise in the ordinary course of business. In the opinion of management, the amount of potential liability with respect to these actions will not materially
affect the Company’s financial position, results of operations or liquidity. 

The  Company  has  arrangements  with  its  executive  officers  (the  “Executives”)  pursuant  to  which  the  termination  of  their  employment  under  certain
circumstances would result in lump sum payments to the Executives. Termination under such circumstances in 2004 could result in payments aggregating
$2.0 million, excluding any excise tax that may be reimbursable by the Company.

In  May  1996,  Halkey-Roberts  began  leasing  the  land,  building  and  building  improvements  in  St.  Petersburg,  Florida,  which  serve  as  Halkey-Roberts’
headquarters and manufacturing facility, under a 10-year lease. The lease provides for monthly payments, including certain lease payment escalators, and
provides for certain sublease and assignment rights. The lease also provides the right of either the landlord or Halkey-Roberts to terminate the lease on 12
months notice effective at any time after May 21, 2003. The Company has guaranteed Halkey-Roberts’ payment and performance obligations under the
lease. The lease is being accounted for as an operating lease, and the rental expense for the years ended December 31, 2003, 2002 and 2001 was $396,000,
$384,000 and $372,000, respectively. Future minimum rental commitments under this lease are $409,000, $422,000 and $166,000 in 2004, 2005 and
2006, respectively. 

13

Q U A R T E R L Y   F I N A N C I A L   D A T A   ( U N A U D I T E D )

Quarterly financial data for 2003 and 2002 are as follows:

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

QUARTER
ENDED

03/31/03

06/30/03

09/30/03

12/31/03

03/31/02

06/30/02

09/30/02

12/31/02

OPERATING
REVENUE

$

15,721

16,175

16,117

14,790

$

14,825

14,775

14,662

15,271

OPERATING
INCOME

NET
INCOME/(LOSS)

INCOME/(LOSS)
PER BASIC SHARE

$

$

1,724

1,705

1,855

1,639

1,554

1,401

1,385

1,442

$

1,150

1,313

1,330

1,264

$

.65

.77

.79

.74

$

(634)(a)

$

(.37)(a)

1,095

1,097

1,031

.64

.64

.60

(a) Includes a $1.6 million after-tax charge ($ .96 per share) from goodwill impairment (see Note 2)

22

R E P O R T   O F   I N D E P E N D E N T   C E R T I F I E D   P U B L I C   A C C O U N T A N T S

To the Stockholders and the Board of Directors of Atrion Corporation:

We have audited the accompanying consolidated balance sheets of Atrion Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2003
and 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
The financial statements of Atrion Corporation and Subsidiaries as of and for the year in the period ended December 31, 2001, were audited by other auditors
who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 25, 2002.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the  financial  statements  are  free  of  material  misstatement.  An  audit  includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atrion Corporation
and Subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their consolidated cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America.

As discussed above, the financial statements of Atrion Corporation and Subsidiaries as of December 31, 2001, and for the year then ended were audited by
other auditors who have ceased operations. As described in Note 2, these financial statements have been revised to include the transitional disclosures required
by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 2 with respect to 2001 included agreeing the previously reported net income to the previously issued
financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those
periods related to goodwill to the Company’s underlying records obtained from management. We also tested the mathematical accuracy of the reconciliation
of adjusted net income to reported net income, and the related income-per-share amounts. In our opinion, the disclosures for 2001 in Note 2 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole. 

Grant Thornton LLP
Dallas, Texas
February 13, 2004

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Atrion Corporation and Subsidiaries Annual Report
for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this Annual Report. The
consolidated balance sheets as of December 31, 2001 and 2000 and the consolidated statements of income and cash flows for the years ended
December 31, 2000 and 1999 referred to in this report have not been included in the accompanying financial statements.

To the Stockholders and the Board of Directors of Atrion Corporation:

We have audited the accompanying consolidated balance sheets of Atrion Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atrion Corporation and subsidiaries
as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United States.

Arthur Andersen LLP
Atlanta, Georgia
February 25, 2002 

23

M A N A G E M E N T ’ S   D I S C U S S I O N

A N D   A N A L Y S I S   O F   F I N A N C I A L   C O N D I T I O N   A N D   R E S U L T S   O F   O P E R A T I O N S

The  following  discussion  of  the  Company’s  financial  condition  and  results  of  operations  should  be  read  together  with  the  other  financial
information  and  consolidated  financial  statements  included  in  this  Annual  Report.  This  discussion  contains  forward-looking  statements  that
involve risks and uncertainties. The Company’s actual results could differ materially from the results anticipated in the forward-looking statements
as a result of a variety of factors, including those discussed in “Forward Looking Statements” and elsewhere in this Annual Report. 

O V E R V I E W  
The Company designs, develops, manufactures, markets, sells and distributes products and components, primarily for the medical and health care industry.
The Company markets components to other equipment manufacturers for incorporation in their products and sells finished devices to physicians, hospitals,
clinics and other treatment centers. The Company’s products and services primarily range from ophthalmology and cardiovascular products to fluid delivery
devices, contract manufacturing and kitting services. In 2003 approximately 26 percent of the Company’s sales were outside the U.S.

The Company’s products are used in a wide variety of applications by numerous customers, the largest of which accounted for approximately 14 percent
of net sales in 2003. The Company encounters competition in all of its markets and competes primarily on the basis of product quality, price, engineering,
customer service and delivery time. 

The Company’s strategy is to provide a broad selection of products and a high level of service in the areas in which it competes. The Company focuses its
research and development efforts to improve current products and develop highly-engineered products that meet customer needs and have the potential
for broad market applications and significant sales. Proposed new products may be subject to regulatory clearance or approval prior to commercialization
and  the  time  period  for  introducing  a  new  product  to  the  marketplace  can  be  unpredictable.  The  Company  is  also  focused  on  controlling  costs. 
The Company does this by investing in modern manufacturing technologies and controlling purchasing processes. Over the past three years, the Company
has continued to be faced with increasing costs associated with all lines of insurance, including group health benefits. The Company has been successful
in consistently generating cash from operations and uses that cash to reduce indebtedness, to fund capital expenditures, to repurchase stock and, starting
in 2003, to pay dividends. During 2003, the Company reduced debt by approximately $6.0 million.

The Company’s strategic objective is to further enhance its position in its served markets by: 

• Focusing on customer needs 
• Expanding existing product lines and developing new products
• Maintaining a culture of controlling cost 
• Preserving and fostering a collaborative, entrepreneurial management structure 

For the year ended December 31, 2003, the Company reported revenues of $62.8 million, income from continuing operations of $4.9 million and net
income of $5.1 million, up 5 percent, 20 percent and 95 percent, respectively, from 2002.

R E S U L T S   O F   O P E R A T I O N S
The Company’s income from continuing operations was $4.9 million, or $2.86 per basic and $2.66 per diluted share, in 2003, compared to income from
continuing operations of $4.1 million, or $2.37 per basic and $2.18 per diluted share, in 2002 and $4.3 million, or $2.10 per basic and $1.88 per diluted
share, in 2001. Net income, including discontinued operations and cumulative effect of accounting change, totaled $5.1 million, or $2.96 per basic and
$2.75 per diluted share, in 2003, compared with $2.6 million, or $1.51 per basic and $1.39 per diluted share, in 2002 and $9.8 million, or $4.80 per
basic and $4.30 per diluted share, in 2001. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 effective January 1, 2002.
The required adoption of SFAS No. 142 as discussed in Note 2 to the Company’s Consolidated Financial Statements included herein is considered a change
in accounting principle and the cumulative effect of adopting this standard resulted in a $1.6 million, or $ .96 per basic and $ .88 per diluted share, non-
cash, after-tax charge in 2002.

Operating revenues were $62.8 million in 2003, compared with $59.5 million in 2002 and $57.6 million in 2001. These revenue increases are generally
attributable to higher sales volumes. The 5 percent revenue increase in 2003 over the prior year is primarily attributable to an 8 percent increase in the
revenues of the Company’s ophthalmic products, an 8 percent increase in the revenues of the Company’s cardiovascular products, a 3 percent increase in
the Company’s fluid delivery products and a 2 percent increase in the Company’s other medical and non-medical products and services. The 3 percent
revenue increase in 2002 over the prior year is primarily attributable to an 8 percent increase in the revenues of the Company’s cardiovascular products,
a 4 percent increase in the Company’s fluid delivery products and a 4 percent increase in the Company’s other medical and non-medical products and
services.

The Company’s cost of goods sold was $40.6 million in 2003, compared with $39.2 million in 2002 and $35.8 million in 2001. The increase in cost of
goods sold for 2003 over 2002 was primarily related to the increase in revenues discussed above and increased insurance costs partially offset by an
improvement  in  manufacturing  variances  resulting  from  increased  production  volumes.  The  increase  in  cost  of  goods  sold  for  2002  over  2001  was
primarily related to a shift in product mix, which resulted in lower gross margins, and the increase in revenues discussed above.

Gross profit was $22.2 million in 2003, compared with $20.3 million in 2002 and $21.8 million in 2001. The Company’s gross profit in 2003 was 35
percent of revenues compared with 34 percent of revenues in 2002 and 38 percent of revenues in 2001. The increase in gross profit percentage in 2003

24

 
from  the  prior  year  was  primarily  due  to  the  above-mentioned  improvement  in  manufacturing  variances.  The  decline  in  gross  profit  percentage
in 2002 from the prior year was primarily due to the unfavorable shift in product mix.

Operating expenses were $15.3 million in 2003, compared with $14.5 million in 2002 and $16.0 million in 2001. The increase in operating expenses in
2003 from 2002 was primarily attributable to increased general and administrative (“G&A”) and selling (“Selling”) expenses. G&A expenses consist primarily
of salaries and other related expenses of administrative, executive and financial personnel and outside professional fees. The increase in G&A expenses in
2003 is primarily attributable to increased insurance costs, compensation and other taxes. The Company anticipates that G&A expenses are likely to increase
in the foreseeable future but at a rate less than the anticipated rate of increase in revenues. Selling expenses consist primarily of salaries, commissions and
other related expenses for sales and marketing personnel, marketing, advertising and promotional expenses. The increase in Selling expenses in 2003 is
primarily related to increased compensation costs and travel related expenses. The Company anticipates that Selling expenses are likely to increase in the
foreseeable future but at a rate less than the anticipated rate of increase in revenues. Research and development (“R&D”) expenses consist primarily of
salaries and other related expenses of the research and development personnel as well as costs associated with regulatory expenses.  The Company anticipates
that  R&D  expenses  will  continue  at  the  current  level  for  the  foreseeable  future.  The  decrease  in  operating  expenses  in  2002  from  2001  was  primarily
attributable to decreased G&A and Selling expenses partially offset by increased R&D expenses. G&A expenses for 2002 were $857,000 lower than G&A
expenses for 2001, primarily due to a decrease in amortization expense as a result of a reduction in goodwill amortization in 2002 due to the adoption of
SFAS No. 142 as discussed in Note 2 to the Company’s Consolidated Financial Statements included herein.  Additionally, G&A expenses were lower in 2002
compared to 2001 primarily as a result of reduced depreciation and cost containment programs related to supplies, communication costs and professional
fees.  The  decrease  in  Selling  expenses  of  $905,000  in  2002  from  2001  was  primarily  related  to  reduced  outside  services  (primarily  related  to  clinical
studies), reduced compensation costs and continuing cost reduction efforts. R&D expenses were $269,000 higher for 2002 compared with 2001. This
increase was primarily related to increased product development activities. 

The Company’s operating income for 2003 was $6.9 million, compared with $5.8 million in 2002 and $5.8 million in 2001. Revenue growth, manufacturing
efficiency improvements, cost containment and cost reduction activities were the major contributors to the operating income improvements during 2003.
Revenue growth, cost containment and cost reduction activities during 2002 were offset by lower gross margins compared with 2001, which combined to
cause relatively flat operating results. 

Interest expense was $195,000 in 2003 compared to $432,000 in 2002 and $300,000 in 2001. The decrease in 2003 is primarily related to lower average
borrowings during 2003 as compared with 2002. The increase in 2002 is primarily related to higher average borrowings during 2002 as compared with
2001 partially offset by a significant reduction in interest rates in 2002. The higher average borrowings during 2002 is primarily related to borrowing of
funds under the Company’s credit facility in late December 2001 in connection with its repurchase of outstanding common stock of the Company under a
tender offer. The other income in 2001 was primarily related to the Company’s one-time pre-tax gain of $428,000 on the sale of a patent.

Income tax expense in 2003 totaled $1.9 million, compared with $1.4 million in 2002 and $1.8 million in 2001. The effective tax rates for 2003, 2002 and
2001 were 27.8 percent, 25.7 percent and 29.7 percent, respectively. Benefits from tax incentives for exports and R&D expenditures totaled $350,000 in
2003, $408,000 in 2002 and $404,000 in 2001. The higher effective tax rate in 2003 is primarily a result of benefits from tax incentives for exports and
R&D expenditures being a lesser percentage of taxable income in 2003 than in 2002. The lower effective tax rate in 2002 is primarily a result of benefits
from tax incentives for exports and R&D expenditures being a larger percentage of taxable income in 2002 than in 2001 and the utilization of capital loss
carryforwards in 2002. 

The Company believes that 2004 revenues will be higher than 2003 revenues and that the cost of goods sold, gross profit, operating income and income
from continuing operations will each be higher in 2004 than in 2003. The Company further believes that it will have continuing volume growth in most of
its product lines in 2004, complemented by the introduction of new products, and that it will achieve a double-digit annual rate of growth in earnings per
share from continuing operations for the next several years.

D I S C O N T I N U E D   O P E R A T I O N S
During 1997, the Company sold all of its natural gas operations. The financial statements presented herein reflect the Company’s natural gas operations as
discontinued operations for all periods presented. The financial statements also reflect an after-tax gain on disposal of these discontinued operations of 
$ .2 million, or $ .10 per basic and $ .09 per diluted share, in both 2003 and 2002, and $5.5 million, or $2.70 per basic and $2.42 per diluted share, in 2001.

In addition to the initial consideration received in 1997 upon the sale of the natural gas operations, certain annual contingent deferred payments of up to
$250,000 per year were to be paid to the Company over an eight-year period which began in 1999, with the amount paid each year to be dependent upon
revenues received by the purchaser from certain gas transportation contracts. The Company received deferred payments of $250,000 each, before tax, from
the purchaser in April 2003, 2002 and 2001 which are reflected in each year as a gain from discontinued operations of $165,000, net of tax. The 2001
gain also includes a $5,327,000 non-cash gain from reversal of a reserve established when the Company disposed of its natural gas operations in 1997.
This reversal in the third quarter of 2001 followed the resolution of an outstanding contingency related to the sale of those assets. 

25

M A N A G E M E N T ’ S   D I S C U S S I O N

A N D   A N A L Y S I S   O F   F I N A N C I A L   C O N D I T I O N   A N D   R E S U L T S   O F   O P E R A T I O N S         ( C O N T I N U E D )

L I Q U I D I T Y   A N D   C A P I T A L   R E S O U R C E S
The Company has a $25 million revolving credit facility (the “Credit Facility”) with a regional bank to be utilized for the funding of operations and for major
capital projects or acquisitions subject to certain limitations and restrictions (see Note 4 of Notes to Consolidated Financial Statements). Borrowings under
the Credit Facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by the Company, plus one percent. At December 31,
2003, the Company had outstanding borrowings of $4.3 million under the Credit Facility. At December 31, 2003, the Company was in compliance with all
financial covenants. The Credit Facility, which expires November 12, 2006, and may be extended under certain circumstances, contains various restrictive
covenants, none of which is expected to impact the Company’s liquidity or capital resources. 

As of December 31, 2003, the Company had cash and cash equivalents of $298,000, compared with $353,000 at December 31, 2002. The Company had
an  outstanding  balance  under  the  Credit  Facility  as  of  December  31,  2003,  of  $4.3  million  compared  with  $10.3  million  as  of  December  31,  2002. 
The $6.0 million decrease in the Credit Facility balance in 2003 from 2002 is primarily attributable to the Company’s use of cash flows from continuing
operations to reduce its borrowing level. Cash provided by continuing operations increased to $12.7 million in 2003, compared to $9.9 million in 2002
and $8.7 million in 2001. Cash provided by continuing operations consists primarily of net income adjusted for certain non-cash items and changes in
working  capital  items.  Non-cash  items  include  depreciation  and  amortization  and  deferred  income  taxes.  Working  capital  items  consist  primarily  of
accounts receivable, accounts payable, inventories and other current assets and other current liabilities. Working capital at December 31, 2003 decreased
primarily because of reduced accounts receivable, which is primarily related to the timing of revenues during the fourth quarter of 2003 as compared to
the  timing  of  revenues  during  the  fourth  quarter  of  2002.  Capital  expenditures  for  property,  plant  and  equipment  totaled  $4.2  million  in  2003, 
compared  with  $3.3  million  in  2002  and  $2.8  million  in  2001.  The  Company  expects  capital  expenditures  in  2004  to  continue  at  approximately  the 
same level as 2003. 

During 2003, the Company expended $4.9 million for the purchase of the Company’s common stock. Included in this amount was $4.1 million in April
2003 for the completion of a tender offer in which a total of 173,614 shares of common stock were repurchased at a price of $23.00 per share. During
the fourth quarter of 2003, the Company repurchased the following shares of the Company’s common stock:

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased

As Part of Publicly Announced Plan or Program

Maximum Number of Shares That May Yet 
Be Purchased Under Plan or Program(a)

OCTOBER 2003

NOVEMBER 2003

TOTAL

8,400

$42.42

8,400

105,800

11,800

$41.02

11,800

94,000

20,200

$41.60

20,200

94,000

(a) This program was announced in April 2000 and initially provided for 200,000 shares to be repurchased.

The Company received net proceeds of $2.7 million for the exercise of employee stock options during 2003.

In September 2003, the Company announced that its Board of Directors had approved a policy for the payment of regular quarterly cash dividends on the
Company’s common stock. During 2003 the Company paid dividends totaling $406,000 to its stockholders. 

The table below summarizes debt, lease and other minimum contractual obligations outstanding at December 31, 2003:

CONTRACTUAL OBLIGATIONS
(IN THOUSANDS)

Credit Facility

Operating Leases

Purchase Obligations

Total

TOTAL

4,287

997

4,586

9,870

$

$

$

$

PAYMENTS DUE BY PERIOD

2004

2005 - 2006

2007 - 2008

2009 AND
THEREAFTER

— $

409

4,574

4,983

$

$

$

$

$

$

32

588

12

632

$

4,255

—

—

$

4,255

—

—

—

—

The payment schedule for the Credit Facility assumes at maturity, November 2006, the Company would convert this outstanding debt to a two year term
note as allowed by the terms of the agreement. The payment schedule for the operating lease assumes the lease expires in May 2006 (see Note 12 of Notes
to Consolidated Financial Statements).

26

The Company adopted SFAS No. 142 effective January 1, 2002. The required adoption of SFAS No. 142 is considered a change in accounting principle and
the cumulative effect of adopting this standard resulted in a $1.6 million non-cash, after-tax charge in 2002. This charge had no effect on the Company’s
cash position or the balance of its outstanding indebtedness, and it did not have any impact on earnings from continuing operations in 2002. As previously
discussed, the Company recorded a non-cash gain from discontinued operations during 2001 related to the reversal of a reserve established when the
Company  disposed  of  its  natural  gas  operations  in  1997.  This  gain  had  no  effect  on  the  Company’s  cash  position  or  the  balance  of  its  outstanding
indebtedness, and it did not have any impact on earnings from continuing operations in 2001.

The Company believes that its existing cash and cash equivalents, cash flows from operations and 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 at least the foreseeable future. 

Companies sometimes establish legal entities for a specific business transaction or activity in the form of a Variable Interest Entity (“VIE”). VIEs may be
used to facilitate off-balance sheet financing, acquire financial assets, raise cash from owned assets and similar transactions. The Company has no VIEs, no
off-balance sheet financing arrangements or any derivative financial instruments.

I M P A C T   O F   I N F L A T I O N
The Company experiences the effects of inflation primarily in the prices it pays for labor, materials and services. Over the last three years, the Company has
experienced the effects of moderate inflation in these costs. At times, the Company has been able to offset a portion of these increased costs by increasing
the sales prices of its products. However, competitive pressures have not allowed for full recovery of these cost increases.

N E W   A C C O U N T I N G   P R O N O U N C E M E N T S
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other
Postretirement Benefits.” The impact to the Company for this item is described in Note 1 of Notes to the Consolidated Financial Statements.

C R I T I C A L   A C C O U N T I N G   P O L I C I E S
In the ordinary course of business, the Company makes estimates and assumptions relating to the reporting of results of operations and financial condition
in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. The Company
believes the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of
the Company's financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to
make  estimates  about  the  effect  of  matters  that  are  inherently  uncertain.  Actual  results  could  differ  significantly  from  those  estimates  under  different
assumptions and conditions.

The Company assesses the impairment of its long-lived identifiable assets, excluding goodwill which is tested for impairment pursuant to SFAS No. 142 as
explained below, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. This review is based upon projections
of anticipated future cash flows. While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash
flows or future changes in the Company’s business plan could materially affect its evaluations. No such changes are anticipated at this time.

The Company assesses goodwill for impairment pursuant to SFAS No. 142 which requires that goodwill be assessed whenever events or changes in
circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis by applying a fair value test. 

F O R W A R D - L O O K I N G   S T A T E M E N T S
The  statements  in  this  Management’s  Discussion  and  Analysis  and  elsewhere  in  this  Annual  Report  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 will be achieved. Such statements include, but are not limited to, the Company’s
expectations regarding future revenues, cost of goods sold, gross profit, operating income, income from continuing operations, cash flows from operations,
growth  in  product  lines,  annual  growth  in  earnings  per  share  from  continuing  operations,  and  availability  of  equity  and  debt  financing.  Words  such  as
“anticipates,” “believes,” “intends,” “expects” and variations of such words and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results to
differ materially, including, but not limited to, the following: changing economic, market and business conditions; acts of war or terrorism; the effects of
governmental  regulation;  the  impact  of  competition  and  new  technologies;  slower-than-anticipated  introduction  of  new  products  or  implementation  of
marketing strategies; implementation of new manufacturing processes or implementation of new information systems; the Company’s ability to protect its
intellectual property; changes in the prices of raw materials; changes in product mix; product  liability claims and product recalls; the ability to attract and
retain qualified personnel and the loss of any significant customers. In addition, assumptions relating to budgeting, marketing, product development and
other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause the Company to
alter its marketing, capital expenditures or other budgets, which in turn may affect the Company’s results of operations and financial condition.

27

2 0 0 3   B O A R D   O F   D I R E C T O R S   A N D   E X E C U T I V E   O F F I C E R S

B O A R D   O F   D I R E C T O R S

Emile A. Battat
Chairman of the Board and President
Atrion Corporation

Richard O. Jacobson
Chairman of the Board
Jacobson Companies
Des Moines, Iowa

John H. P. Maley
Chairman of the Board
Compex Technologies, Inc.
Minneapolis, Minnesota

Hugh J. Morgan, Jr.
Private Investor, Former Chairman of the Board
National Bank of Commerce of Birmingham
Birmingham, Alabama

Roger F. Stebbing
President and Chief Executive Officer
Stebbing and Associates, Inc.
Signal Mountain, Tennessee

John P. Stupp, Jr.
President
Stupp Bros., Inc.
St. Louis, Missouri

E X E C U T I V E   O F F I C E R S

Emile A. Battat
Chairman of the Board and President

Jeffery Strickland
Vice President and Chief Financial
Officer, Secretary and Treasurer

28

C O R P O R A T E   I N F O R M A T I O N

C o r p o r a t e   O f f i c e :
Atrion Corporation
One Allentown Parkway
Allen, Texas 75002
(972) 390-9800
www.atrioncorp.com

R e g i s t r a r   a n d   T r a n s f e r   A g e n t
American Stock Transfer and Trust Company
59 Maiden Lane
New York, New York 10007

F o r m   1 0 - K
A copy of the Company’s 2003 Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained by any stockholder without charge by written request to:

Corporate Secretary
Atrion Corporation
One Allentown Parkway
Allen, Texas 75002

S t o c k   I n f o r m a t i o n
The Company’s common stock is traded on The Nasdaq Stock Market (Symbol: ATRI). As of March 8, 2004, there were
approximately 1,200 stockholders, including beneficial owners holding shares in nominee or “street” name. The table below 
sets forth the high and low closing prices on The Nasdaq Stock Market and the quarterly dividends per share declared by the
Company for each quarter of 2002 and 2003.

2002 Quarter Ended
March 31
June 30
September 30
December 31

2003 Quarter Ended
March 31
June 30
September 30
December 31

$

$

$

$

High
38.14
32.51
28.09
23.90

High
22.85
30.80
45.20
50.00

$

$

Low
26.91
26.82
18.31
17.31

Low
17.95
22.75
26.80
40.00

Dividends
—
—
—
—

Dividends
—
—
.12
.12

The Company paid no cash dividends on its common stock during 2002.  In the third quarter of 2003 the Company began paying
quarterly cash dividends and presently plans to pay quarterly cash dividends in the future.

MPS and LacriCATH are registered trademarks of Atrion Corporation

 
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