Form 10-Q ATRION CORP For: Oct 27

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October 31, 2014 4:47 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

�	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2014

�

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

(Registrants Telephone Number, Including Area Code)

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes��No o

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��	�
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). Yes o 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 October 15, 2014
�	�	�
Common stock, Par Value $0.10 per share	�	1,947,448

�

ATRION CORPORATION AND SUBSIDIARIES

�

TABLE OF CONTENTS

�

�			�	Page
�			�	�
PART I. Financial Information			�	3
�	�		�	�
�	Item 1. Financial Statements		�	4
�	�		�	�
�	�	Consolidated Statements of Income (Unaudited) For the Three and Nine months Ended September 30, 2014 and 20133	�	4
�	�	�	�	�
�	�	Consolidated Balance Sheets (Unaudited) September 30, 2014 and December 31, 20134	�	5
�	�	�	�	�
�	�	Consolidated Statements of Cash Flows (Unaudited) For the Nine months Ended September 30, 2014 and 20135	�	6
�	�	�	�	�
�	�	Notes to Consolidated Financial Statements (Unaudited)6	�	7
�	�	�	�	�
�	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		�	9
�	�	�	�	�
�	Item 3. Quantitative and Qualitative Disclosures About Market Risk		�	13
�	�	�	�	�
�	Item 4. Controls and Procedures		�	13
�	�		�	�
PART II. Other Information�			�	14
�	�		�	�
�	Item 1. Legal Proceedings		�	14
�	�		�	�
�	Item 1A.�Risk Factors		�	14
�	�		�	�
�	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds�		�	14
�	�		�	�
�	Item 6. Exhibits�		�	14
�	�		�	�
SIGNATURES			�	15
�	�		�	�
Exhibit Index			�	16
�	�		�	�

�

PART I

�

FINANCIAL INFORMATION

�

Item 1. Financial Statements

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

�(Unaudited)

�

Three Months Ended

September 30,

�

Nine months Ended

September 30,

�

2014

�

2013

�

2014

�

2013

�

(In thousands, except per share amounts)

�

Revenues

�

36,625

�

34,044

�

108,069

�

100,142

�

Cost of goods sold

�

18,587

�

17,003

�

55,234

�

51,757

�

Gross profit

�

18,038

�

17,041

�

52,835

�

48,385

�

Operating expenses:

�

Selling

�

1,440

�

1,530

�

4,642

�

4,596

�

General and administrative

�

4,151

�

3,651

�

12,465

�

10,952

�

Research and development

�

1,221

�

1,147

�

3,545

�

3,229

�

6,812

�

6,328

�

20,652

�

18,777

�

Operating income

�

11,226

�

10,713

�

32,183

�

29,608

�

Interest income

�

240

�

310

�

904

�

1,005

�

Other income, net

�

252

�

310

�

917

�

1,005

�

Income before provision for income taxes

�

11,478

�

11,023

�

33,100

�

30,613

�

Provision for income taxes

�

(3,793

)

�

(3,350

)

�

(11,332

)

�

(9,800

)

�

Net income

�

7,685

�

7,673

�

21,768

�

20,813

�

Net income per basic share

�

3.94

�

3.82

�

11.08

�

10.33

�

Weighted average basic shares outstanding

�

1,949

�

2,007

�

1,964

�

2,014

�

Net income per diluted share

�

3.91

�

3.81

�

10.99

�

10.31

�

Weighted average diluted shares outstanding

�

1,966

�

2,016

�

1,980

�

2,019

�

Dividends per common share

�

0.75

�

0.64

�

2.03

�

1.76

�

The accompanying notes are an integral part of these statements.

�

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

�

�	�	September 30,		�	�	December 31,		�
�	�	2014		�	�	2013		�
�	�	(in thousands)						�
Assets	�	�						�
Current assets:				�	�	�		�
Cash and cash equivalents	�	$	26,921	�	�	$	28,559	�
Short-term investments	�	�	18,178	�	�	�	18,351	�
Accounts receivable	�	�	18,399	�	�	�	14,164	�
Inventories	�	�	28,408	�	�	�	26,266	�
Prepaid expenses and other current assets	�	�	1,974	�	�	�	1,603	�
Deferred income taxes	�	�	1,376	�	�	�	1,376	�
�	�	�	95,256	�	�	�	90,319	�
�	�	�	�	�	�	�	�	�
Long-term investments	�	�	10,000	�	�	�	10,069	�
�	�	�	�	�	�	�	�	�
Property, plant and equipment	�	�	138,426	�	�	�	130,504	�
Less accumulated depreciation and amortization	�	�	77,980	�	�	�	72,176	�
�	�	�	60,446	�	�	�	58,328	�
�	�	�	�	�	�	�	�	�
Other assets and deferred charges:								�
Patents	�	�	2,606	�	�	�	2,808	�
Goodwill	�	�	9,730	�	�	�	9,730	�
��Other	�	�	882	�	�	�	812	�
�	�	�	13,218	�	�	�	13,350	�
�	�	�	�	�	�	�	�	�
��Total assets	�	$	178,920	�	�	$	172,066	�
�	�	�	�	�	�	�	�	�
Liabilities and Stockholders Equity								�
Current liabilities:				�	�	�	�	�
Accounts payable and accrued liabilities	�	$	9,891	�	�	$	8,511	�
Accrued income and other taxes	�	�	890	�	�	�	853	�
�	�	�	10,781	�	�	�	9,364	�
�	�	�	�	�	�	�	�	�
Line of credit	�	�	--	�	�	�	--	�
�	�	�	�	�	�	�	�	�
Other non-current liabilities	�	�	11,797	�	�	�	13,708	�
�	�	�	�	�	�	�	�	�
Stockholders equity:				�	�	�	�	�
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares	�	�	342	�	�	�	342	�
Paid-in capital	�	�	33,554	�	�	�	31,592	�
Retained earnings	�	�	192,129	�	�	�	174,362	�
Treasury shares,1,473 at September 30, 2014 and 1,435 at December 31, 2013, at cost	�	�	(69,683	)	�	�	(57,302	)
Total stockholders equity	�	�	156,342	�	�	�	148,994	�
�	�	�	�	�	�	�	�	�
��Total liabilities and stockholders equity	�	$	178,920	�	�	$	172,066	�

�

The accompanying notes are an integral part of these statements.

�

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

�

�	�	Nine months Ended						�
�	�	September 30,						�
�	�	2014		�	�	2013		�
�	�	�		�	�	�		�
Cash flows from operating activities:	�	�		�	�	�		�
Net income	�	$	21,768	�	�	$	20,813	�
Adjustments to reconcile net income to net cash provided by operating activities:	�	�	�	�	�	�	�	�
Depreciation and amortization	�	�	6,696	�	�	�	6,388	�
Deferred income taxes	�	�	(1,463	)	�	�	(608	)
Stock-based compensation	�	�	1,836	�	�	�	1,215	�
Net change in accrued interest, premiums, and discounts on investments	�	�	242	�	�	�	424	�
Other	�	�	30	�	�	�	26	�
�	�	�	29,109	�	�	�	28,258	�
�	�	�	�	�	�	�	�	�
Changes in operating assets and liabilities:	�	�	�	�	�	�	�	�
Accounts receivable	�	�	(4,235	)	�	�	(3,129	)
Inventories	�	�	(2,142	)	�	�	(2,709	)
Prepaid expenses	�	�	(371	)	�	�	1,518	�
Other non-current assets	�	�	(70	)	�	�	(17	)
Accounts payable and accrued liabilities	�	�	1,380	�	�	�	2,525	�
Accrued income and other taxes	�	�	37	�	�	�	1,172	�
Other non-current liabilities	�	�	(448	)	�	�	(198	)
�	�	�	23,260	�	�	�	27,420	�
�	�	�	�	�	�	�	�	�
Cash flows from investing activities:	�	�	�	�	�	�	�	�
Property, plant and equipment additions	�	�	(8,641	)	�	�	(4,713	)
Purchase of investments	�	�	(19,375	)	�	�	--	�
Proceeds from maturities of investments	�	�	19,375	�	�	�	7,639	�
�	�	�	(8,641	)	�	�	2,926	�
�	�	�	�	�	�	�	�	�
Cash flows from financing activities:	�	�	�	�	�	�	�	�
Shares tendered for employees withholding taxes on stock-based compensation	�	�	(377	)�	�	�	--	�
Tax benefit related to stock-based compensation	�	�	160	�	�	�	6	�
Purchase of treasury stock	�	�	(12,065	)	�	�	(4,086	)
Dividends paid	�	�	(3,975	)	�	�	(3,541	)
�	�	�	(16,257	)	�	�	(7,621	)
�	�	�	�	�	�	�	�	�
Net change in cash and cash equivalents	�	�	(1,638	)	�	�	22,725	�
Cash and cash equivalents at beginning of period	�	�	28,559	�	�	�	7,999	�
Cash and cash equivalents at end of period	�	$	26,921	�	�	$	30,724	�
�	�	�	�	�	�	�	�	�
Cash paid for:	�	�	�	�	�	�	�	�
Income taxes	�	$	13,393	�	�	$	7,927	�

�

The accompanying notes are an integral part of these statements.

�

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 Companys 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 Companys consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December�31, 2013 ("2013 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):

�

�	�	September 30,		�	�	December 31,		�
�	�	2014		�	�	2013		�
Raw materials	�	$	12,314	�	�	$	10,744	�
Work in process	�	�	7,097	�	�	�	6,246	�
Finished goods	�	�	8,997	�	�	�	9,276	�
Total inventories	�	$	28,408	�	�	$	26,266	�

(3)��Income per share

�

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

�

Three Months Ended September 30,

�

Nine months Ended�September 30,

�

2014

�

2013

�

2014

�

2013

�

(in thousands, except per share amounts)

�

Net income

�

7,685

�

7,673

�

21,768

�

20,813

�

Weighted average basic shares outstanding

�

1,949

�

2,007

�

1,964

�

2,014

�

Add:��Effect of dilutive securities

�

Weighted average diluted shares outstanding

�

1,966

�

2,016

�

1,980

�

2,019

�

Earnings per share:

�

Basic

�

3.94

�

3.82

�

11.08

�

10.33

�

Diluted

�

3.91

�

3.81

�

10.99

�

10.31

�

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 zero and 1,545 shares of common stock for the quarters ended September 30, 2014 and 2013, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

�

(4)��Investments

�

As of September 30, 2014, 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 September 30, 2014 (in thousands):

�

Gross Unrealized

�

Cost

�

Gains

�

Losses

�

Fair Value

�

Short-term Investments:

�

Corporate bonds

�

18,178

�

18,214

�

Long-term Investments

�

Corporate bonds

�

10,000

�

)

�

9,994

�

At September 30, 2014, the length of time until maturity of these securities ranged from one month to 57 months.

(5)��Income Taxes

Our effective tax rate for the third quarter of 2014 was 33.1 percent, compared with 30.4 percent for the third quarter of 2013. Our effective tax rate for the first nine months of 2014 was 34.2 percent, compared with 32.0 percent for the first nine months of 2013. The lower effective tax rates for both the third quarter and first nine months of 2013 benefited from the extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. Credits from tax incentives for research and development expenditures in the full year 2012 and first nine months of 2013 were included in the calculation of income taxes for the first nine months of 2013. The law has not been extended to 2014, and the absence of the federal research and development tax credits for 2014 resulted in an increase in our effective tax rate in the third quarter and first nine months of 2014. Additionally, our effective tax rate in the third quarter and first nine months of 2014 increased as a result of state income tax law changes.

�

(6)��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.

�

Item 2.��Managements 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 September 30, 2014, we reported revenues of $36.6 million, operating income of $11.2 million and net income of $7.7 million, up 8 percent, 5 percent and 0 percent, respectively, from the three months ended September 30, 2013. For the nine months ended September 30, 2014, we reported revenues of $108.1 million, operating income of $32.2 million and net income of $21.8 million, up 8 percent, 9 percent and 5 percent, respectively, from the nine months ended September 30, 2013.

�

Results for the three months ended September 30, 2014

Consolidated net income totaled $7.7 million, or $3.94 per basic and $3.91 per diluted share, in the third quarter of 2014. This is compared with consolidated net income of $7.7 million, or $3.82 per basic and $3.81 per diluted share, in the third quarter of 2013. The income per basic share computations are based on weighted average basic shares outstanding of 1,949,000 in the 2014 period and 2,007,000 in the 2013 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,966,000 in the 2014 period and 2,016,000 in the 2013 period.

�

Consolidated revenues of $36.6 million for the third quarter of 2014 were 8 percent higher than revenues of $34.0 million for the third quarter of 2013. This increase was primarily attributable to higher sales volumes.

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

�	�	Three Months ended September 30,						�
�	�	2014		�	�	2013		�
�	�	�		�	�	�		�
Fluid Delivery	�	$	14,839	�	�	$	13,411	�
Cardiovascular	�	�	10,434	�	�	�	10,429	�
Ophthalmology	�	�	5,560	�	�	�	5,127	�
Other	�	�	5,792	�	�	�	5,077	�
Total	�	$	36,625	�	�	$	34,044	�

�

Cost of goods sold of $18.6 million for the third quarter of 2014 was $1.6 million higher than in the comparable 2013 period. The primary contributors to the increase in our cost of goods sold were increased sales, increased manufacturing support personnel costs, increased repairs, depreciation and supplies partially offset by the impact of continued cost improvement projects. Our cost of goods sold in the third quarter of 2014 was 50.8 percent of revenues compared with 49.9 percent of revenues in the third quarter of 2013.

Gross profit of $18.0 million in the third quarter of 2014 was $1.0 million, or 6 percent, higher than in the comparable 2013 period. Our gross profit percentage in the third quarter of 2014 was 49.3 percent of revenues compared with 50.1 percent of revenues in the third quarter of 2013.

Our third quarter 2014 operating expenses of $6.8 million were $484,000 higher than the operating expenses for the third quarter of 2013. This increase was comprised of a $74,000 increase in Research and Development, or R&D, expenses and a $500,000 increase in General and Administrative, or G&A, expenses, partially offset by a $90,000 decrease in Selling expenses. The increase in R&D costs was primarily related to increased outside services partially offset by reduced supplies and travel. The decrease in Selling expenses for the third quarter of 2014 was primarily related to decreased travel, advertising and promotion partially offset by increased commissions. The increase in G&A expenses for the third quarter of 2014 was principally attributable to increased compensation, depreciation and amortization expense.

Operating income in the third quarter of 2014 increased $513,000 to $11.2 million, a 5 percent increase from our operating income in the quarter ended September 30, 2013. Operating income was 31 percent of revenues in both the third quarter of 2014 and the third quarter of 2013.

�

Interest income in the third quarter of 2014 decreased $70,000 to $240,000 compared to $310,000 in the third quarter of 2013. This decrease was primarily related to reduced average investment levels and reduced yields on investments.

Income tax expense for the third quarter of 2014 was $3.8 million compared to income tax expense of $3.4 million for the same period in the prior year. The effective tax rate for the third quarter of 2014 was 33.1 percent, compared with 30.4 percent for the third quarter of 2013. The lower third quarter 2013 effective rate benefited from the extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012. Additionally, the effective tax rate in the third quarter 2014 increased as a result of state income tax law changes. We expect the effective tax rate for the remainder of 2014 to be approximately 34.5 percent assuming no extension of the federal research tax credit prior to the end of the current year.

Results for the nine months ended September 30, 2014

Consolidated net income totaled $21.8 million, or $11.08 per basic and $10.99 per diluted share, in the first nine months of 2014. This is compared with consolidated net income of $20.8 million, or $10.33 per basic and $10.31 per diluted share, in the first nine months of 2013. The income per basic share computations are based on weighted average basic shares outstanding of 1,964,000 in the 2014 period and 2,014,000 in the 2013 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,980,000 in the 2014 period and 2,019,000 in the 2013 period.

Consolidated revenues of $108.1 million for the first nine months of 2014 were 8 percent higher than revenues of $100.1 million for the first nine months of 2013. This increase was primarily attributable to higher sales volumes.

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

�	�	Nine months ended September 30,						�
�	�	2014		�	�	2013		�
�	�	�		�	�	�		�
Fluid Delivery	�	$	44,808	�	�	$	39,159	�
Cardiovascular	�	�	32,300	�	�	�	30,723	�
Ophthalmology	�	�	15,850	�	�	�	15,939	�
Other	�	�	15,111	�	�	�	14,321	�
Total	�	$	108,069	�	�	$	100,142	�

�

Cost of goods sold of $55.2 million for the first nine months of 2014 was $3.5 million higher than in the comparable 2013 period. The primary contributors to the increase in our cost of goods sold were increased sales, increased manufacturing support personnel costs along with increased repairs, utilities, outside services, supplies and insurance partially offset by the impact of continued cost improvement projects. Our cost of goods sold in the first nine months of 2014 was 51.1 percent of revenues compared with 51.7 percent of revenues in the first nine months of 2013.

�

Gross profit of $52.8 million in the first nine months of 2014 was $4.5 million, or 9 percent, higher than in the comparable 2013 period. Our gross profit percentage in the first nine months of 2014 was 48.9 percent of revenues compared with 48.3 percent of revenues in the first nine months of 2013. The increase in gross profit percentage in the 2014 period compared to the 2013 period was primarily related to a favorable product mix and the impact of continued cost improvement initiatives partially offset by increased manufacturing costs mentioned above.

Our first nine months 2014 operating expenses of $20.7 million were $1.9 million higher than the operating expenses for the first nine months of 2013. This increase was comprised of a $316,000 increase in R&D expenses, a $46,000 increase in Selling expenses and a $1.5 million increase in G&A expenses. The increase in R&D costs was primarily related to increased outside services partially offset by decreased compensation and supplies. The increase in Selling expenses for the first nine months of 2014 was primarily related to increased commissions, travel and outside services partially offset by reduced compensation, advertising and promotion expenses. The increase in G&A expenses for the first nine months of 2014 was principally attributable to increased compensation, outside services, depreciation and amortization expense.

Operating income in the first nine months of 2014 increased $2.6 million to $32.2 million, a 9 percent increase from our operating income in the nine months ended September 30, 2013. The major contributor to the increase in operating income for the first nine months of 2014 was the previously mentioned increase in revenues partially offset by increased operating expenses. Operating income was 30 percent of revenues for the first nine months of 2014 and 29 percent of revenues for the first nine months of 2013.

Interest income in the nine months ended September 2014 decreased $101,000 to $904,000 compared to interest income for the nine months ended September 2013. This decrease was primarily related to reduced average investment levels and reduced yields on investments.

Income tax expense for the first nine months of 2014 was $11.3 million compared to income tax expense of $9.8 million for the same period in the prior year. The effective tax rate for the first nine months of 2014 was 34.2 percent, compared with 32.0 percent for the first nine months of 2013. The lower first nine months 2013 effective rate benefited from the retroactive extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012. Credits from tax incentives for research and development expenditures in the full year 2012 and the first nine months of 2013 were included in the calculation of income taxes for the first nine months of 2013. Additionally, the effective tax rate in the first nine months of 2014 increased as a result of state income tax law changes.

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. From time to time prior to October 1, 2016 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 September 30, 2014 or at December 31, 2013. The credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At September 30, 2014, 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 September 30, 2014, we had a total of $55.1 million in cash and cash equivalents, short-term investments and long-term investments, a decrease of $1.9 million from December 31, 2013. The principal contributor to this decrease was the purchase of treasury stock under our stock repurchase program and property, plant and equipment additions partially offset by cash flows from operating results.

Cash flows from operating activities generated $23.3 million for the nine months ended September 30, 2014 as compared to $27.4 million for the nine months ended September 30, 2013. The decrease in the 2014 period as compared to the 2013 period was primarily attributable to increased cash requirements for working capital items. During the first nine months of 2014, we expended $8.6 million for the addition of property and equipment; $12.1 million for treasury stock under our stock repurchase program and $4.0 million for dividends.

At September 30, 2014, we had working capital of $84.5 million, including $26.9 million in cash and cash equivalents and $18.2 million in short-term investments. The $3.5 million increase in working capital during the first nine months of 2014 was primarily related to increases in accounts receivable and inventories. This increase was partially offset by decreases in cash and cash equivalents and short-term investments and to increases in accounts payable and accrued liabilities. The net decrease in cash and short-term investments was primarily related to purchases of treasury stock. The increase in accounts receivable was primarily related to increased revenues for the third quarter of 2014. The increase in inventories was primarily related to increased stocking levels to support revenues.

�

We believe that our $55.1 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 2014.

Forward-Looking Statements

�

Statements in this Managements 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 2014, 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 2014. 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.

�

Item 3.��Quantitative and Qualitative Disclosures About Market Risk

For the quarter ended September 30, 2014, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2013 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 September 30, 2014. 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 September 30, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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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 2013 Form 10-K.

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 September 30, 2014.

�

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)

�

7/1/2014 through 7/31/2014

�

�-

�

90,118

�

8/1/2014 through 8/31/2014

�

�-

�

�-

�

90,118

�

9/1/2014 through 9/30/2014

�

1,492

�

306.30

�

1,492

�

88,626

�

Total

�

1,492

�

306.30

�

1,492

�

88,626

�

(1)��

On August 16, 2011, our Board of Directors approved our current stock repurchase program pursuant to which we can repurchase up to 200,000 shares of our common stock from time to time in open market or privately-negotiated transactions. Our current stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.

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Item 6.��Exhibits

�

Exhibit No.	�	Description
�	�	�
10.1	�	Amended and Restated Change in Control Agreement between Atrion Corporation and David A. Battat dated September 3, 2014
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

�

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:��October 31, 2014�	By:	/s/ David A. Battat�	�
�	�	David A. Battat	�
�	�	President and Chief Executive Officer	�
�	�	�	�
Date:��October 31, 2014��	By:	/s/ Jeffery Strickland�	�
�	�	Jeffery Strickland	�
�	�	Vice President and Chief Financial Officer	�
�	�	(Principal Accounting andFinancial Officer)	�

�

Exhibit Index

�

Exhibit No.	�	Description
�	�	�
10.1	�	Amended and Restated Change in Control Agreement between Atrion Corporation and David A. Battat dated September 3, 2014
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

�

Exhibit 10.1

�

AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT

�

THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (the Agreement) is entered into as of the 3rd day of September, 2014 (the Effective Date) by and between ATRION CORPORATION, a Delaware Corporation (the Company) and DAVID A. BATTAT (the Executive).

�

W I T N E S S E T H:

�

WHEREAS, the Executive is currently employed as the President and Chief Executive Officer of the Company; and

�

WHEREAS, the Company and the Executive desire to provide certain benefits to the Executive in the event the Executives employment with the Company is terminated in connection with a change in control of the Company.

�

NOW, THEREFORE, in consideration of the foregoing, the mutual provisions contained herein, and for other good and valuable considerations, the parties hereto agree as follows:

�

1.��Term of Agreement.

�

(a)�The term of this Agreement shall commence on the Effective Date and shall terminate on the second anniversary of the Effective Date, provided, however, that commencing on the day after the Effective Date and continuing on each day thereafter (each such day being hereinafter referred to as a Renewal Date), the term of this Agreement shall be automatically extended so as to terminate on the second anniversary of such Renewal Date unless the Company shall give written notice to the Executive that the term of this Agreement shall not be so extended as of a specified Renewal Date, in which event this Agreement shall automatically terminate on the second anniversary of such specified Renewal Date.

�

(b)�Notwithstanding subsection (a) hereof, this Agreement shall continue in effect (i)��until the date two years beyond the initial or any extended date of termination in the event of a Change in Control (as defined in Exhibit A hereto) prior to such date of termination, and (ii) thereafter until the date that all obligations of the Company hereunder have been paid in full.

�

2.�Termination of Employment.

�

(a)�As set forth in detail in this Section 2, if the Executives employment by the Company is terminated in contemplation of or within two years following a Change in Control, the Executive shall be entitled to the compensation provided in Section 3 of this Agreement unless such termination is as a result of (i) the Executives death, (ii) the Executives Disability (as defined below), (iii) the Executives termination for Just Cause (as defined below), or (iv) termination of employment by the Executive other than for Good Reason (as defined below).

�

(b)�The Executive shall be considered to be subject to a "Disability" if, as a result of physical or mental sickness or incapacity or accident, the Executive is unable to perform the normal duties of his employment with the Company for a period of ninety (90) days in any one hundred twenty (120) day period.��If there is any disagreement between the Company and the Executive as to whether the Executive was unable to perform the normal duties of his employment due to Disability, the same shall be determined after examination of the Executive by a physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by the Executive's spouse��or, if the Executive is not married or if his spouse is unable or��unwilling to make the selection, by any other adult member of the Executive's immediate family) and approved by the Company.��The costs and expenses of such examination shall be borne by the Company.��The determination of such physician shall be conclusive evidence as to whether the Executive was unable to perform the normal duties of his employment due to Disability.��If the Executive does not permit such examination by such physician, then, for purposes hereof, the determination as to whether the Executive was unable to perform the normal duties of his employment due to Disability shall be made by the Board of Directors of the Company (the Board).��Nothing herein shall have any effect upon the Executive's eligibility to receive any disability benefits from the Company pursuant to the terms and conditions of any disability plan or other arrangement which the Company may have in effect from time to time.

�

(c)�In the event the Executives employment with the Company is terminated by the Company, whether or not in contemplation of or within two years following a Change in Control, (i) for Just Cause, (ii) by the Executive for other than Good Reason (as defined below), or (iii) due to the Executives death of Disability, then the Executive shall not be entitled to the compensation provided in Section 3 below or other compensation or benefits hereunder.��The term Just Cause shall mean (A) the Executive's continuing willful failure to perform his material duties and obligations as President and Chief Executive Officer of the Company (except by reason of his death or incapacity due to his Disability) after written notice thereof by the Company to the Executive, and the Executive's failure or refusal to perform such duties and obligations within thirty (30) days after the receipt of such notice by the Executive or (B) the conviction of, or the entering of a plea of nolo contendere by, the Executive with respect to a felony (other than as a result of a traffic violation or as a result of vicarious liability), provided that on or after a Change in Control, Just Cause shall be limited to only clause (B) above.��For purposes of this Section 2(c), no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company.��The Company must assert a Just Cause termination event no later than ninety (90) days after discovery of such event.

�

(d)�In the event the Executives employment with the Company is terminated in contemplation of or within two years following a Change in Control (i) by the Company without Just Cause or (ii) by the Executive for Good Reason, the Executive shall be entitled to the compensation and other benefits provided in Section 3 below.��The term Good Reason shall mean any one or more of the following: (A) without the Executive's express written consent, any diminution in the Executive's titles, authorities, responsibilities or the assignment of the Executive to any duties inconsistent with his position, duties, responsibilities and status with the Company as its President and Chief Executive Officer or the removal by the Board, or the failure or refusal of the Board to re-elect, the Executive as the President and Chief Executive Officer of the Company at any time during the term of this Agreement; (B) the Company's breach of any provision of this Agreement or any other breach by the Company of any provision of any agreement between the Company and the Executive and failure, within the ten (10) day period following its receipt of written notice from the Executive describing such breach in reasonable detail, to promptly commence in good faith to cure such breach (if curable); provided that such cure must be effected no later than thirty (30) days following such notice and provided further that such cure right shall not be available on more than one occasion in any twelve (12) month period; (C) failure of the Company to obtain the assumption in writing (a copy of which is delivered to the Executive) of the Company's obligations hereunder to the Executive by any successor to the Company prior to or at the time of a merger, acquisition, consolidation, disposition of substantially all of the assets of the Company or similar transaction.��For purposes of clause (A) above, a "diminution in the Executive's titles, authorities or responsibilities" shall be deemed to have occurred if the Company is no longer required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.

�

The Executive must assert a "Good Reason" termination event no later than ninety (90) days after the Executive discovers such event.

�

(e)�Any termination of the Executives employment by the Company as set forth in Section 2(c)(i) or 2(d)(i) or by the Executive as set forth in Section 2(c)(ii) or 2(d)(ii) shall be communicated to the other party by a Notice of Termination.��For purposes of this Agreement, a Notice of Termination shall mean a written notice which shall state the specific termination provision in this Agreement pursuant to which such termination allegedly falls and which sets forth in reasonable detail the facts and circumstances which form the basis for such termination.

�

3.��Termination Payment.

�

(a)�In the event the Executives employment is terminated pursuant to Section 2(d), the Executive shall be entitled to receive the following payments from the Company:

�

the Executives base salary and annual bonus for the calendar year in which the date of termination falls, in each case prorated for the number of days of the calendar year that elapsed prior to the date of termination, accrued vacation pay and unreimbursed business expenses, such payment to be made as soon as practicable following the termination date but in any event within two and one-half (2�) months after the end of the calendar year in which the Executive's employment is terminated; and

�

two times the sum of (A) the Executives base salary for the twelve (12) months immediately preceding the month in which the Executives employment is terminated and (B) the sum of the (i) average of the annual bonuses paid, or that would have been paid had the Executives employment with the Company not been terminated, to the Executive under the Halkey-Roberts Corporation Incentive Compensation Plan or the Atrion Corporation Short-Term Incentive Compensation Plan for the three calendar years prior to the calendar year in which such termination occurs and (ii) average of the annual bonuses received by the Executive under any other bonus or incentive plan of the Company for the three calendar years prior to the calendar year in which such termination occurs, such payment to be made as soon as practicable following the termination date but in no event later than ten (10) days after the termination date.

�

(b)�In addition to the payments provided for in Section 3(a), in the event the Executives employment is terminated as set forth in Section 2(d), all stock options and/or equity granted to the Executive shall fully vest and become exercisable on the termination date and upon the Executive's termination of employment the Company shall pay one-hundred percent (100%) of the premiums for twelve (12) months of continuation coverage for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 for the Executive and his eligible dependents.

�

4.�Withholding.��The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state, or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law in light of the circumstances.��The Company shall be entitled to rely on an opinion of tax counsel if any question as to the amount or requirement of any such withholding shall arise.

�

5.�Notices.��All notices provided for by this Agreement shall be in writing and shall be (a) personally delivered to the party thereunto entitled or (b) deposited in the United States mail, postage prepaid, addressed to the party to be notified at the address listed below (or at such other address as may have been designated by written notice), certified or registered mail, return receipt requested.��The notice shall be deemed to be received (a) if by personal delivery, on the date of its actual receipt by the party entitled thereto or (b) if by mail, two (2) days following the date of deposit in the United States mail.

�

�	�To the Company:	�Atrion Corporation
�	�	One Allentown Parkway
�	�	Allen, Texas��75002
�	�	Attention:��Chief Financial Officer
�	�	�
�	�To Executive:��	�David A. Battat
�	�	To the most recent address
�	�	on file with the Company.
�	�	�

�

6.�Parties Bound.��This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the Company, Executive, and their respective heirs, personal representatives, successors and assigns; provided, however, that Executive may not assign any rights or obligations hereunder without the express written consent of Company.��This Agreement shall also bind and inure to the benefit of any successor of the Company by merger or consolidation, or any assignee of all or substantially all of the Company's properties.

�

7.�Invalid Provisions.��If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom.

�

8.�No Mitigation; No Set-Off.

�

(a)�In the event of any termination of employment hereunder, Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain.

�

(b)�Any amounts or benefits payable to the Executive under this Agreement are in addition to, and are not in lieu of, amounts payable to the Executive under any other salary continuation or cash severance arrangement of the Company or any other type of agreement entered into between the parties, and to the extent paid or provided under any other such arrangement or agreement shall not be offset from the amounts or benefits due hereunder, except to the extent expressly provided in such other arrangement or agreement.

�

9.�Attorneys' Fees And Costs.��In the event that it becomes necessary for the Executive to seek legal counsel with regard to a dispute, claim or issue under this Agreement or the Executive deems it necessary to initiate arbitration in order to enforce his rights hereunder, then the Company shall bear and, upon notification to the Company by the Executive, immediately advance to the Executive all expenses of such dispute, claim, issue or arbitration, including the reasonable fees and expenses of the counsel of the Executive incurred in connection with such dispute, claim, issue or arbitration, unless an arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case an arbitrator may determine that Executive shall bear his own legal fees. Notwithstanding any existing or prior attorney-client relationship between the Company and the counsel selected by the Executive, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel.

�

10.�Arbitration.��All disputes and controversies arising under or in connection with this Agreement, shall be settled by arbitration conducted before one (1) arbitrator sitting in New York, New York, or such other location agreed to by the parties hereto, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company unless the arbitrator determines that Executive's position was frivolous or otherwise taken in bad faith, in which case the arbitrator may determine that Executive shall bear his own legal fees.

�

11.�Section Headings.��The headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

�

12.�Multiple Counterparts.��This Agreement may be executed in counterparts, each of which for all purposes is to be deemed an original, and both of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

�

13.�Governing Law.��This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflict-of-law rules.

�

14.�Section 409A.��This Agreement is not intended to provide for the deferral of compensation within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the Code), but, rather, is intended to satisfy the short-term deferral exemption under Treasury Regulation ��1.409A-1(b)(4).��To that end, all payments provided for under Section 3(a) of this Agreement shall be made no later than two and one-half (2�) months after the end of the calendar year in which the Executive's employment is terminated.��In the event that any provision of this Agreement or any payment of compensation or benefits pursuant to this Agreement is determined to be inconsistent with the requirements of Section 409A of the Code, the Company shall reform this Agreement to the extent necessary to comply therewith and to avoid the imposition of any penalties or taxes pursuant to Section 409A of the Code; provided that any such reformation shall, to the maximum extent possible, retain the originally intended economic and tax benefit to the Executive and the original purpose of this Agreement without violating Section 409A of the Code or creating any unintended or adverse consequences to the Executive.��Such reformation may include imposition of a six (6) month delay in the payment of certain benefits if the Executive is a specified employee under Section 409A of the Code at the relevant time.

�

15.�Entire Agreement.��This Agreement contains the entire agreement of the parties hereto, and supersedes all prior agreements and understandings, oral or written, if any, between the parties hereto, with respect to the subject matter hereof. No modification or amendment of any of the terms, conditions, or provisions herein may be made otherwise than by written agreement signed by the parties hereto.

�

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.

�

�	ATRION CORPORATION		�
�	�	�	�
�	By:	/s/ Emile Battat��	�
�	Its:	Chairman��	�
�	�	�	�
�	�	/s/ David Battat�	�
�	�	DAVID A. BATTAT	�
�	�	�	�

�

Exhibit A

(a)��For purposes of the Agreement, the term Change in Control shall mean the occurrence of any one of the following events:

�

(i)��any person (as the term person is used in Section 13(d) (3) or Section 14(d) (2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (other than the Company, any of its subsidiaries, or any trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company or any of its subsidiaries) becomes the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities of the Company representing 25% or more of the combined voting power of the then-outstanding voting securities of the Company

�

(ii)��the Company is merged, consolidated or reorganized into or with another corporation or other person and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;

�

(iii)��the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells all or substantially all of its assets to any other corporation or other person and as a result of such sale less than 50% of the combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; or

�

(iv)��during any period of two consecutive years, individuals who, at the beginning of any such period, constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's stockholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.

�

Exhibit 31.1

�

Chief Executive Officer Certification

I, 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 registrants internal control over the financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants 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: October 31, 2014	�	/s/ David A. Battat	�
�	�	David A. Battat	�
�	�	President and Chief Executive Officer	�
�	�	�	�

Exhibit 31.2

�

Chief Financial Officer Certification

I, Jeffery Strickland, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;

�

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: October 31, 2014	�	/s/ Jeffery Strickland	�
�	�	Jeffery Strickland	�
�	�	Vice President and Chief Financial Officer	�
�	�	�	�

Exhibit 32.1

�

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

Pursuant to 18 U.S.C. � 1350, the undersigned officer of Atrion Corporation (the Company), hereby certifies, to such officers knowledge, that the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (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.

�

�	�	�	�
Date: October 31, 2014	�	/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.

Exhibit 32.2

�

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

�

�	�	�	�
Date: October 31, 2014	�	/s/ Jeffery Strickland	�
�	�	Jeffery Strickland	�
�	�	Vice President and Chief Financial Officer	�
�	�	�	�

�

The foregoing certification is made solely for purpose of 18 U.S.C. � 1350 and not for any other purpose.

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Form 10-Q ATRION CORP For: Oct 27

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