UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

x
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2013
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from    to

Commission File Number 0-10763
 
Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)
 
     
Delaware
 
63-0821819
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
     
 
One Allentown Parkway, Allen, Texas  75002
(Address of Principal Executive Offices) (Zip Code)
 
     
(972) 390-9800
(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer.” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o
 
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes   x No

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

 
Title of Each Class
 
Number of Shares Outstanding at
October 14, 2013
Common stock, Par Value $0.10 per share
 
2,002,704
 

 
 
 
 

ATRION CORPORATION AND SUBSIDIARIES


TABLE OF CONTENTS


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1
 
 

 
 
 
 
 



 





PART I


FINANCIAL INFORMATION
 
 

 
 
2
 
 
Item 1. Financial Statements

ATRION CORPORATION AND SUBSIDIARIES
 (Unaudited)

   
Three Months Ended
September 30,
   
Nine months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(In thousands, except per share amounts)
 
Revenues
  $ 34,044     $ 30,637     $ 100,142     $ 90,565  
Cost of goods sold
    17,003       15,742       51,757       47,168  
Gross profit
    17,041       14,895       48,385       43,397  
Operating expenses:
                               
Selling
    1,530       1,301       4,596       4,208  
General and administrative
    3,651       3,164       10,952       10,033  
Research and development
    1,147       753       3,229       2,569  
      6,328       5,218       18,777       16,810  
Operating income
    10,713       9,677       29,608       26,587  
                                 
Interest income
    310       411       1,005       1,060  
Other income, net
    --       --       --       2  
      310       411       1,005       1,062  
                                 
Income before provision for income taxes
    11,023       10,088       30,613       27,649  
Provision for income taxes
    (3,350 )     (2,829 )     (9,800 )     (8,914 )
                                 
Net income
  $ 7,673     $ 7,259     $ 20,813     $ 18,735  
                                 
Net income per basic share
  $ 3.82     $ 3.60     $ 10.33     $ 9.30  
Weighted average basic shares outstanding
    2,007       2,014       2,014       2,015  
                                 
                                 
Net income per diluted share
  $ 3.81     $ 3.59     $ 10.31     $ 9.24  
Weighted average diluted shares outstanding
    2,016       2,022       2,019       2,028  
                                 
Dividends per common share
  $ 0.64     $ 0.56     $ 1.76     $ 1.54  
 
The accompanying notes are an integral part of these statements.
 
 
 
3
 
 
ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
 
 
Assets
 
September 30,
2013
 
December 31,
2012
    (in thousands)  
Current assets:
           
Cash and cash equivalents
  $ 30,724     $ 7,999  
Short-term investments
    8,448       8,182  
Accounts receivable
    16,183       13,054  
Inventories
    26,488       23,779  
Prepaid expenses and other current assets
    1,592       3,110  
Deferred income taxes
    623       623  
      84,058       56,747  
                 
Long-term investments
    20,104       28,433  
                 
Property, plant and equipment
    127,851       124,180  
Less accumulated depreciation and amortization
    70,163       64,912  
      57,688       59,268  
                 
Other assets and deferred charges:
               
Patents
    716       837  
Goodwill
    9,730       9,730  
     Other
    812       795  
      11,258       11,362  
                 
     Total assets
  $ 173,108     $ 155,810  
                 
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 9,268     $ 6,743  
Accrued income and other taxes
    1,636       465  
      10,904       7,208  
                 
Line of credit
    --       --  
                 
Other non-current liabilities
    12,968       13,774  
                 
Stockholders’ equity:
               
 Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares
    342       342  
Paid-in capital
    31,203       29,998  
Retained earnings
    169,883       152,630  
Treasury shares,1,417 at September 30, 2013 and 1,399 at December 31, 2012, at cost
    (52,192 )     (48,142 )
Total stockholders’ equity
    149,236       134,828  
                 
                 
    Total liabilities and stockholders’ equity
  $ 173,108     $ 155,810  
 
 
 
The accompanying notes are an integral part of these statements.
 
 
 
4
 
 
ATRION CORPORATION AND SUBSIDIARIES
(Unaudited)
 
 
   
Nine months Ended
September 30,
   
2013
   
2012
 
             
Cash flows from operating activities:
           
Net income
  $ 20,813     $ 18,735  
  Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    6,388       5,563  
Deferred income taxes
    (608 )     1,097  
Stock-based compensation
    1,215       1,106  
Net change in accrued interest, premiums, and discounts
               
    on investments
    424       556  
Other
    26       --  
      28,258       27,057  
                 
Changes in operating assets and liabilities:
               
Accounts receivable
    (3,129 )     (3,356 )
Inventories
    (2,709 )     70  
Prepaid expenses
    1,518       823  
Other non-current assets
    (17 )     (96 )
Accounts payable and accrued liabilities
    2,525       (543 )
Accrued income and other taxes
    1,172       135  
Other non-current liabilities
    (198 )     (723 )
      27,420       23,367  
                 
Cash flows from investing activities:
               
Property, plant and equipment additions
    (4,713 )     (7,978 )
Purchase of investments
    --       (21,545 )
Proceeds from maturities of investments
    7,639       11,750  
      2,926       (17,773 )
                 
Cash flows from financing activities:
               
Shares tendered for employees’ withholding taxes on stock-based compensation
    --       (1,065 )
Issuance of treasury stock
    --       153  
Tax benefit related to stock-based compensation
    6       929  
Purchase of treasury stock
    (4,086 )     (4,756 )
Dividends paid
    (3,541 )     (3,104 )
      (7,621 )     (7,843 )
                 
Net change in cash and cash equivalents
    22,725       (2,249 )
Cash and cash equivalents at beginning of period
    7,999       24,590  
Cash and cash equivalents at end of period
  $ 30,724     $ 22,341  
                 
                 
                 
Cash paid for:
               
Income taxes
  $ 7,927     $ 6,471  
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
5
 
 
ATRION CORPORATION AND SUBSIDIARIES
 
(1)           Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 ("2012 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,
 
   
2013
   
2012
 
 Raw materials
  $ 11,081     $ 10,017  
 Work in process
    6,877       5,268  
 Finished goods
    8,530       8,494  
 Total inventories
  $ 26,488     $ 23,779  


 
6
 
 
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
(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,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(in thousands, except per share amounts)
 
Net income
  $ 7,673     $ 7,259     $ 20,813     $ 18,735  
                                 
Weighted average basic shares outstanding
    2,007       2,014       2,014       2,015  
Add:  Effect of dilutive securities
    9       8       5       13  
Weighted average diluted shares outstanding
    2,016       2,022       2,019       2,028  
 
Earnings per share:
                       
Basic
  $ 3.82     $ 3.60     $ 10.33     $ 9.30  
Diluted
  $ 3.81     $ 3.59     $ 10.31     $ 9.24  

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 1,545 and 5,901 shares of common stock for the quarters ended September 30, 2013 and 2012, 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, 2013, 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, 2013 (in thousands):


         
Gross Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Short-term Investments:
                       
Corporate bonds
  $ 8,448     $ 142     $ --     $ 8,590  
                                 
Long-term Investments
                               
Corporate bonds
  $ 20,104     $ 426     $ --     $ 20,530  

At September 30, 2013, the length of time until maturity of these securities ranged from 7.5 months to 18.5   months.
 
 
 
7
 
 
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5)        Income Taxes

The effective tax rate for the third quarter of 2013 was 30.4 percent, compared with 28.0 percent for the third quarter of 2012. The effective tax rate for the first nine months of 2013 was 32.0 percent, compared with 32.2 percent for the first nine months of 2012. The effective tax rates for 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. The effective tax rates for the third quarter and first nine months of 2012 benefited from a favorable adjustment to an uncertain tax position related to income tax credits claimed for research and development following the conclusion, in September 2012, of an Internal Revenue Service examination of our United States federal income tax returns for 2006, 2007 and 2008. We expect the effective tax rate for the remainder of 2013 to be approximately 34.0 percent.

(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.

 
 
8
 

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

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other products category includes valves 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 in niche markets. 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;
●
Maintaining a culture of controlling cost; and
●
Preserving and fostering a collaborative, entrepreneurial working environment.
 
For the three months ended September 30, 2013, we reported revenues of $34.0 million, operating income of $10.7 million and net income of $7.7 million, up 11 percent, 11 percent and 6 percent, respectively, from the three months ended September 30, 2012. For the nine months ended September 30, 2013, we reported revenues of $100.1 million, operating income of $29.6 million and net income of $20.8 million, up 11 percent, 11 percent and 11 percent, respectively, from the nine months ended September 30, 2012.

Results for the three months ended September 30, 2013

Consolidated net income totaled $7.7 million, or $3.82 per basic and $3.81 per diluted share, in the third quarter of 2013. This is compared with consolidated net income of $7.3 million, or $3.60 per basic and $3.59 per diluted share, in the third quarter of 2012. The income per basic share computations are based on weighted average basic shares outstanding of 2,007,000 in the 2013 period and 2,014,000 in the 2012 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 2,016,000 in the 2013 and 2,022,000 in the 2012 period.
 
 
 
9
 
 
Consolidated revenues of $34.0 million for the third quarter of 2013 were 11 percent higher than revenues of $30.6 million for the third quarter of 2012. This increase was primarily attributable to higher sales volumes.

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

   
Three Months ended
September 30,
 
   
2013
   
2012
 
             
Fluid Delivery
  $ 13,411     $ 13,160  
Cardiovascular
    10,429       8,481  
Ophthalmology
    5,127       3,934  
Other
    5,077       5,062  
Total
  $ 34,044     $ 30,637  


Cost of goods sold of $17.0 million for the third quarter of 2013 was $1.3 million higher than in the comparable 2012 period. Our cost of goods sold in the third quarter of 2013 was 49.9 percent of revenues compared with 51.4 percent of revenues in the third quarter of 2012.

Gross profit of $17.0 million in the third quarter of 2013 was $2.1 million, or 14 percent, higher than in the comparable 2012 period. Our gross profit percentage in the third quarter of 2013 was 50.1 percent of revenues compared with 48.6 percent of revenues in the third quarter of 2012. The increase in gross profit percentage in the 2013 period compared to the 2012 period was principally attributable to a favorable product sales mix, improved manufacturing capacity utilization, and the impact of continued cost improvement initiatives partially offset by increased compensation, manufacturing supplies and depreciation.

Our third quarter 2013 operating expenses of $6.3 million were $1.1 million higher than the operating expenses for the third quarter of 2012. This increase was comprised of a $394,000 increase in Research and Development, or R&D, expenses, a $229,000 increase in Selling expenses and a $487,000 increase in General and Administrative, or G&A, expenses. The increase in R&D costs was principally attributable to increased supplies, outside services and compensation. The increase in Selling expenses for the third quarter of 2013 was principally attributable to increased promotion and advertising, increased commissions and increased travel-related expenses. The increase in G&A expenses for the third quarter of 2013 was principally attributable to increased compensation and outside services.

Operating income in the third quarter of 2013 increased $1.0 million to $10.7 million, an 11 percent increase from our operating income in the quarter ended September 30, 2012. Operating income was 31 percent of revenues in the third quarter of 2013 and 32 percent in the third quarter of 2012. The primary contributor to the increase in operating income for the third quarter of 2013 was the previously mentioned increase in revenues.

 
 
10
 

Income tax expense for the third quarter of 2013 was $3.4 million compared to income tax expense of $2.8 million for the same period in the prior year. The effective tax rate for the third quarter of 2013 was 30.4 percent, compared with 28.0 percent for the third quarter of 2012. The 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, which was signed into law on January 2, 2013. The lower effective tax rate for the third quarter of 2012 was principally attributable to a favorable adjustment to an uncertain tax position related to income tax credits claimed for R&D following the conclusion, in September 2012, of an Internal Revenue Service examination of our United States federal income tax returns for 2006, 2007 and 2008. We expect the effective tax rate for the remainder of 2013 to be approximately 34.0 percent.

Results for the nine months ended September 30, 2013

Consolidated net income totaled $20.8 million, or $10.33 per basic and $10.31 per diluted share, in the first nine months of 2013. This is compared with consolidated net income of $18.7 million, or $9.30 per basic and $9.24 per diluted share, in the first nine months of 2012. The income per basic share computations are based on weighted average basic shares outstanding of 2,014,000 in the 2013 period and 2,015,000 in the 2012 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 2,019,000 in the 2013 period and 2,028,000 in the 2012 period.

Consolidated revenues of $100.1 million for the first nine months of 2013 were 11 percent higher than revenues of $90.6 million for the first nine months of 2012. This increase was primarily attributable to higher sales volumes.

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

   
Nine months ended
September 30,
 
   
2013
   
2012
 
             
Fluid Delivery
  $ 39,159     $ 37,934  
Cardiovascular
    30,723       27,306  
Ophthalmology
    15,939       11,245  
Other
    14,321       14,080  
Total
  $ 100,142     $ 90,565  


Cost of goods sold of $51.8 million for the first nine months of 2013 was $4.6 million higher than in the comparable 2012 period. Our cost of goods sold in the first nine months of 2013 was 51.7 percent of revenues compared with 52.1 percent of revenues in the first nine months of 2012.

Gross profit of $48.4 million in the first nine months of 2013 was $5.0 million, or 11 percent, higher than in the comparable 2012 period. Our gross profit percentage in the first nine months of 2013 was 48.3 percent of revenues compared with 47.9 percent of revenues in the first nine months of 2012. The increase in gross profit percentage in the 2013 period compared to the 2012 period was principally attributable to a favorable product sales mix, improved manufacturing capacity utilization, and the impact of continued cost improvement initiatives partially offset by increased compensation and depreciation.
 
 
11
 
 
Our first nine months 2013 operating expenses of $18.8 million were $2.0 million higher than the operating expenses for the first nine months of 2012. This increase was comprised of a $660,000 increase in R&D expenses, a $388,000 increase in Selling expenses and a $919,000 increase in G&A expenses. The increase in R&D costs was principally attributable to increased outside services, compensation, supplies and travel-related expenses. The increase in Selling expenses for the first nine months of 2013 was principally attributable to increased compensation, travel, promotion, advertising and outside services. The increase in G&A expenses for the first nine months of 2013 was principally attributable to increased compensation and outside services.

Operating income in the first nine months of 2013 increased $3.0 million to $29.6 million, an 11 percent increase from our operating income in the nine months ended September 30, 2012. Operating income was 30 percent of revenues in the first nine months of 2013 compared to 29 percent of revenues in the first nine months of 2012. The primary contributor to the increase in operating income for the first nine months of 2013 was the previously mentioned increase in revenues.

Income tax expense for the first nine months of 2013 was $9.8 million compared to income tax expense of $8.9 million for the same period in the prior year. The effective tax rate for the first nine months of 2013 was 32.0 percent, compared with 32.2 percent for the first nine months of 2012. The 2013 effective rate 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. The effective tax rate for the 2012 period benefited from a favorable adjustment to an uncertain tax position related to income tax credits claimed for R&D following the conclusion, in September 2012, of an Internal Revenue Service examination of our United States federal income tax returns for 2006, 2007 and 2008.

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, 2013 or at December 31, 2012. The credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At September 30, 2013, 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, 2013, we had a total of $59.3 million in cash and cash equivalents, short-term investments and long-term investments, an increase of $14.7 million from December 31, 2012, which was principally attributable to operational results.

 
12
 
 
Cash flows from operating activities generated $27.4 million for the nine months ended September 30, 2013 as compared to $23.4 million for the nine months ended September 30, 2012. The increase in the 2013 period was primarily attributable to improved operational results as compared to the 2012 period and decreased cash requirements for working capital items, specifically accounts payable and accrued liabilities for the 2013 period. During the first nine months of 2013, we expended $4.7 million for the addition of property and equipment, $4.1 million for treasury stock and $3.5 million for dividends. During that same period, maturities of investments generated $7.6 million.

At September 30, 2013, we had working capital of $73.2 million, including $30.7 million in cash and cash equivalents and $8.5 million in short-term investments. The $23.6 million increase in working capital during the first nine months of 2013 was principally attributable to increases in cash and cash equivalents, accounts receivable and inventories partially offset by increases in accounts payable and accrued liabilities. The net increase in cash and cash equivalents was principally attributable to increases in accounts payable and accrued liabilities, increases in accrued income and other taxes, decreases in long-term investments and improved operational results.

We believe that our $59.3 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 2013.

Forward-Looking Statements
 
Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our effective tax rate for the remainder of 2013, 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 2013. 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.
 
 
13
 

 
Quantitative and Qualitative Disclosures About Market Risk

For the quarter ended September 30, 2013, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2012 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, 2013. 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, 2013 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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 2012 Form 10-K.
 
 
14
 

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, 2013.

 
 
 
 
 
 
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)
 
7/1/2013 through 7/31/2013
    -       -        -       151,646  
8/1/2013 through 8/31/2013
     -        -        -       151,646  
9/1/2013 through 9/30/2013
    4,775     $ 245.80       4,775       146,871  
Total
    4,775     $ 245.80       4,775       146,871  
 
 
(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.
 

Item 6.         Exhibits

 
   Exhibit
 
 
  Number
    Description
 
 
       3.1
Certificate of Incorporation of Atrion Corporation, dated December 10, 1996 (1)
 
 
       3.2
Bylaws of Atrion Corporation (as last amended on August 14, 2013) (2)
 
 
       10.1
Atrion Corporation Short-Term Incentive Compensation Plan
 
 
       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

Notes
 
(1)           Incorporated by reference to Appendix B to the Definitive Proxy Statement of Atrion Corporation filed January 10, 1997.
(2)           Incorporated by reference to Exhibit 3.1 to the Form 8-K of Atrion Corporation filed August 20, 2013.
 
 
 
15
 


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 29, 2013
By:
/s/ David A. Battat                     
   
David A. Battat
   
President and
   
Chief Executive Officer
     
     
     
Date:  October 29, 2013
By:
/s/ Jeffery Strickland                  
   
Jeffery Strickland
   
Vice President and
   
Chief Financial Officer
   
(Principal Accounting and Financial Officer)

 
 
16
 


 
  Exhibit
 
 
  Number
    Description
     
 
3.1
Certificate of Incorporation of Atrion Corporation, dated December 10, 1996 (1)
     
 
3.2
Bylaws of Atrion Corporation (as last amended on August 14, 2013) (2)
     
 
10.1
Atrion Corporation Short-Term Incentive Compensation Plan
     
 
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

Notes
 
(1)           Incorporated by reference to Appendix B to the Definitive Proxy Statement of Atrion Corporation filed January 10, 1997.
(2)           Incorporated by reference to Exhibit 3.1 to the Form 8-K of Atrion Corporation filed August 20, 2013.
 
17
 
Exhibit 10.1



 





ATRION CORPORATION
SHORT-TERM INCENTIVE COMPENSATION PLAN







 
Effective January 1, 2013
 
 
 
 
 
 
Exhibit 10.1
 
 
ATRION CORPORATION SHORT-TERM INCENTIVE COMPENSATION PLAN
Introduction

Atrion Corporation (the “Corporation”) adopts this Atrion Corporation Short-Term Incentive Compensation Plan (the “Plan”) effective as of January 1, 2013.  The purposes of the Plan are (1) to provide performance bonuses to selected Executive Officers, Key Employees, and Critical-Needs Individuals whose performance has a direct impact on the Corporation's objectives of achieving a high level of annual profitability and sustained long-term growth; (2) to attract and retain Executive Officers, Key Employees and Critical-Needs Individuals; and (3) to maintain a corporate-wide pool of profits that will be available to pay various types of performance bonuses, contractual bonuses, holiday gifts, severance payments, moving expenses, other employment-related expenses, and similar types of payments approved by the Corporate Board or the Subsidiary Board.

The Plan is designed to provide annual performance bonuses to three groups:
 
●
Executive Officers
 
●
Key Employees
 
●
Critical-Needs Individuals

The Corporation intends the Plan to be an unfunded plan maintained primarily for the purpose of providing incentive compensation to a select group of individuals, which is exempt from the minimum participation, vesting and funding standards of the Employee Retirement Income Security Act of 1974 (“ERISA”).  The Plan is designed to be unfunded within the meaning of Internal Revenue Code (“IRC”) § 404(a)(5).  If the Corporation sets aside monies in a separate account to fund benefits due under the Plan, such monies will remain subject to claims of the general creditors of the Corporation or any Subsidiary.  The Corporation reserves the right to interpret and operate the Plan accordingly, and to amend the Plan as necessary to maintain its status as an unfunded incentive compensation plan as defined under ERISA and the IRC and any other applicable law, and to qualify for the tax deduction under IRC § 404(a)(5) for payments made under the Plan.  The Plan is designed to be a short-term deferral plan within the meaning of IRC § 409A and will be administered accordingly, in compliance with Treasury Regulations § 1.409A-1(b)(4).
 
 
 
 
 
 
Exhibit 10.1
 
 
ATRION CORPORATION INCENTIVE COMPENSATION AND AWARDS PLAN
Table of Contents

ARTICLE 1 - DEFINITIONS
Page
1.1
Adjustment Factor for Subsidiary Profitability
     1
1.2
Awards Pool
     1
1.3
Board or Corporate Board
     1
1.4
Bonus
     1
1.5
Bonus Allocation Formula
     1
1.6
Compensation Committee
     2
1.7
Corporation
     2
1.8
Critical-Needs Individual
     2
1.9
Discretionary Expenses
     2
1.10
Effective Date
     3
1.11
Employee
     3
1.12
Employment
     2
1.13
ERISA
     3
1.14
Executive Officer
     3
1.15
Formula Bonus
     3
1.16
Formula Table
     3
1.17
Independent Contractor
     3
1.18
Individual Bonus Rate
     3
1.19
Individual Performance
     4
1.20
Individual Pool Points
     4
1.21
IRC
     4
1.22
Key Employee
     4
1.23
Participant
     4
1.24
Performance Year
 
1.25
Plan
     4
1.26
Plan Administrator
     4
1.27
Plan Year
     4
1.28
Salary
     4
1.29
Subsidiary
     4
1.30
Subsidiary Board
     5
1.31
Termination Date
     5
1.32
Total Pool Points
     5
     
ARTICLE 2 - PLAN ADMINISTRATION
 
2.1
Purposes of the Awards Pool
     6
2.2
Carry-Over of Unused Amounts
     6
2.3
Duties of the Corporate Board
     6
2.4
Duties of the Subsidiary Board
     6
2.5
Duties of the Compensation Committee
     7
     
     
     
ARTICLE 3 - CONTRIBUTIONS TO THE AWARDS POOL
 
3.1
Determination of each Subsidiary’s Contributions
     8
3.2
Timing of Contributions
     8
     
 
 
 
i
 
 
Exhibit 10.1
 
ARTICLE 4 - DETERMINATION AND PAYMENT OF ANNUAL BONUSES
 
4.1
Eligibility for Bonus
     9
4.2
Determination of Annual Bonus Amounts
     9
 
(a) Executive Officer’s Bonus
     9
 
(b) Key Employee’s Bonus
     9
 
(c) Critical-Needs Individual’s Bonus
     9
4.3
Payment of Annual Bonuses
     10
 
(a) Minimum Payment
     10
 
(b) Bonuses for Executive Officers and Key Employees
     10
 
(c) Bonuses for Critical-Needs Individuals
     10
 
(d) Short-Term Deferral Plan
     10
4.4
Vesting in Bonus Awards
     10
     
ARTICLE 5 - AMENDMENT AND TERMINATION
 
5.1
Amendment of the Plan
     12
5.2
Termination of the Plan
     12
     
ARTICLE 6 - MISCELLANEOUS
 
6.1
Headings
     13
6.2
Construction and Choice of Law
     13
6.3
Severability
     13
6.4
Effect of Bonuses on Other Plans
     13
6.5
Status as an Unfunded Top-Hat Plan
     13
6.6
Nonalienation
     14
6.7
No Implied Rights
     14
6.8
Contractual Limitation Period
     14
     
ADDENDUM A
Formula Table - Bonus Allocation Formula
 


 
ii
 
 
Exhibit 10.1

 
ARTICLE 1
 
Definitions

As used in the Plan, the following words and phrases and any derivatives thereof will have the meanings set forth below unless the context clearly indicates otherwise.  Definitions of other words and phrases are set forth throughout the Plan.  Section references indicate sections of the Plan unless otherwise stated.  The masculine pronoun includes the feminine, and the singular number includes the plural and the plural the singular, whenever applicable.

1.1
“Adjustment Factor for Subsidiary Profitability” means a percentage that is a component of the Bonus Allocation Formula based on one or more factors including a Subsidiary’s profitability for a given Performance Year, a Subsidiary's contribution to the Awards Pool in a Plan Year relative to the total of all such contributions in that Plan Year, and accomplishments of a Subsidiary in executing meaningful corporate transactions and addressing business risks and other extraordinary items, as determined by the Subsidiary Board.
 
1.2
“Awards Pool” means the aggregate amounts contributed by the Subsidiaries for each Plan Year, which Atrion Corporation records and maintains in a separate account and uses for the payment of Bonuses and Discretionary Expenses.

1.3
“Board” or ” Corporate Board” means the Board of Directors of Atrion Corporation.

1.4
“Bonus” means (a) for an Executive Officer, a performance bonus in an amount equal to the Formula Bonus, as such amount may be adjusted by the Corporate Board based on recommendations of the Board Chairman and the Compensation Committee; (b) for a Key Employee, a performance bonus in an amount equal to the Formula Bonus, as such amount may be adjusted by the Subsidiary Board; and (c) for a Critical-Needs Individual, a performance bonus in such amount as is determined by the Subsidiary Board.

1.5
“Bonus Allocation Formula” means the formula used to calculate Formula Bonuses for Executive Officers and Key Employees, which is reflected in the Formula Table, the steps in the determination of which are as follows:
 
 
 
1
 
 
Exhibit 10.1
 
 
 
Step 1:
Salary X Individual Bonus Rate X Adjustment Factor for Subsidiary Profitability = Individual Pool Points;
 
  Step 2:
Ratio of Individual Pool Points to Total Pool Points X total amount of the Awards Pool = Preliminary Bonus Amount;
 
 
Step 3:
Preliminary Bonus Amount X Individual Performance = Formula Bonus.
 
1.6
“Compensation Committee” means the Compensation Committee of the Corporate Board.

1.7
“Corporation” means Atrion Corporation.

1.8
“Critical-Needs Individual” means (a) a manager, director, supervisor, engineer, or other Employee designated as such, who is not an Executive Officer or a Key Employee but whose skills have special value and are relatively unique in the labor market; or (b) an Independent Contractor (such as a member of an advisory board), whom the Subsidiary Board selects to receive a Critical-Needs Individual Bonus under Article 4 for a given Plan Year.

1.9
“Discretionary Expenses” means the following expenses that may be paid from the Awards Pool:
 
(a)
Various bonuses to be paid under employment agreements;
 
(b)
Various types of special bonuses, including but not limited to signing bonuses, relocation bonuses, safety bonuses, referral bonuses, quarterly bonuses, and spot bonuses;
 
(c)
Holiday gifts in the form of cash or gift cards or merchandise;
 
(d)
Severance payments;
 
(e)
Various types of employment-related expenses;
 
(f)
The expense amortization of each Subsidiary’s allocation of the cost of restricted stock unit awards to its Employees, over the vesting period; and
 
(g)
Such other payments and expenses as the Subsidiary Board determines to be appropriate.

1.10
“Effective Date” means January 1, 2013.

 
 
2
 
 
Exhibit 10.1
 
1.11
“Employee” means an individual (a) who is regularly employed by the Corporation or a Subsidiary as a common-law employee, and (b) who has FICA taxes withheld by his or her employer.

1.12
“Employment” means the period during which a Participant is employed as a regular, full-time employee of the Corporation or a Subsidiary.

1.13
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and regulations and rulings issued under ERISA.

1.14
“Executive Officer” means the Chief Executive Officer of the Corporation and the Chief Financial Officer of the Corporation.

1.15
“Formula Bonus” means the performance bonus determined under the Bonus Allocation Formula.

1.16
“Formula Table” means the table set forth in Addendum A to this Plan that sets forth the Bonus Allocation Formula.

1.17
“Independent Contractor” means an individual who performs services for the Corporation or a Subsidiary in a capacity other than that of an Employee.

1.18
“Individual Bonus Rate” means a percentage that is a component of the Bonus Allocation Formula as determined (a) for Executive Officers by the Compensation Committee after taking into account the recommendation of the Board Chairman and (b) for Key Employees by the Subsidiary Board.
 
1.19
“Individual Performance” means a percentage that is a component of the Bonus Allocation Formula which constitutes the rating assigned to a Participant for a given Performance Year based on his or her performance as determined (a) for Executive Officers by the Compensation Committee after taking into account the recommendation of the Board Chairman and (b) for Key Employees by the Subsidiary Board.
 
1.20
“Individual Pool Points” means the number of points calculated for each eligible Executive Officer and Key Employee for each Performance Year, determined as set forth in Step 1 of the Bonus Allocation Formula.
 
 
3
 
 
Exhibit 10.1
 
1.21
“IRC” means the Internal Revenue Code of 1986, as amended from time to time, and regulations and rulings issued under the Code.

1.22
“Key Employee” means an Employee other than an Executive Officer or a Critical-Needs Individual, who is employed by the Corporation or a Subsidiary, who has responsibility for the management, supervision, profitability, or growth of all or part of the Subsidiary’s business operations, and who is eligible to receive a Formula Bonus for a given Plan Year under Section 4.1.

1.23
“Participant” means an Executive Officer whom the Corporate Board has determined is eligible to receive a Bonus for one or more Plan Years and a Key Employee or Critical-Needs Individual whom the Subsidiary Board has determined is eligible to receive a Bonus for one or more Plan Years.

1.24
“Performance Year” means the 12 months ending on September 30 of each Plan Year.

1.25
“Plan” means the Atrion Corporation Short-Term Incentive Compensation Plan, as set forth in this document and as amended from time to time.

1.26
“Plan Administrator” means the Subsidiary Board, unless the Subsidiary Board has appointed an individual to serve in that role for purposes of any litigation that has or may arise from this Plan.

1.27
“Plan Year” means calendar year 2013 and each succeeding calendar year.

1.28
“Salary” means a Participant's base salary for the Plan Year, determined without regard to any bonus or award under this Plan or any benefits accrued under any other deferred compensation plan, retirement plan or welfare benefit plan.

1.29
“Subsidiary” means (a) Halkey-Roberts Corporation, (b) Quest Medical, Inc., (c) Atrion Medical Products, Inc., and (d) any other company of which the Corporation owns at least 80% of the outstanding common stock, which common stock represents at least 80% of the total value of the stock of such company, and which has been designated as a participant in the Plan.
 
 
 
4
 
 
Exhibit 10.1

1.30
“Subsidiary Board” means a committee the members of which are the members of the Boards of Directors of the participating Subsidiaries.

1.31
“Termination Date” means the date (a) of termination of Employment in the case of Participant who is an Employee, or (b) in the case of an Independent Contractor, when he or she stops performing services for the Corporation and its Subsidiaries.  A Participant who is on an approved leave of absence is not treated as terminated.

1.32
“Total Pool Points” means the total of all Individual Pool Points.
 
 
 
5
 
 
Exhibit 10.1
 
 
ARTICLE 2
 
Plan Administration

2.1
Purposes of the Awards Pool .  The Corporation will make, or cause to be made, the following payments from the Awards Pool:
 
(a)
Bonuses to Executive Officers in amounts determined by the Corporate Board;
 
(b)
Bonuses to Key Employees in amounts determined by the Subsidiary Board;
 
(c)
Bonuses to Critical-Needs Individuals in amounts determined by the Subsidiary Board; and
 
(d)
Discretionary Expenses.

2.2
Carry-Over of Unused Amounts.   In its sole discretion, the Corporation may carry over from Plan Year to Plan Year amounts contributed to the Awards Pool with respect to a Plan Year and may use such amounts for any purpose under the Plan at such times as it considers proper.

2.3
Duties of the Corporate Board.   The   Corporate Board will have the following responsibilities for Plan administration:
 
(a)
Approve and adopt the Plan;
 
(b)
Approve amendments to the Plan;
 
(c)
Determine the amount and timing of Bonuses for Executive Officers for each Plan Year; and
 
(d)
Perform such other functions to be performed by it as set forth in the Plan.

2.4
Duties of the Subsidiary Board .  The Subsidiary Board will have the following responsibilities for Plan administration:
 
(a)
Determine each Subsidiary’s return-on-investment goal for each Performance Year, at the 15% level or at a higher level that reflects a risk adjustment considered appropriate for certain investments;
 
(b)
Determine certain components of the Bonus Allocation Formula as provided in the Plan;
 
(c)
Determine each Subsidiary’s bonus sharing percentage;
 
(d)
Determine the date or dates that each Subsidiary is to make contributions to the Awards Pool;
 
 
 
6
 
 
Exhibit 10.1
 
 
 
(e)
Determine the amount and timing of the Bonus for each eligible Key Employee for each Plan Year;
 
(f)
Determine the amount and timing of the Bonus for each eligible Critical-Needs Individual for each Plan Year; and
 
(g)
Perform such other functions to be performed by it as set forth in the Plan or as may be directed by the Board.
 
2.5
Duties of the Compensation Committee .  The Compensation Committee will have the responsibility to review the recommendations of the Board Chairman with respect to Bonuses for Executive Officers, to make recommendations to the Corporate Board with respect to such Bonuses, to determine certain components of the Bonus Allocation Formula as provided in the Plan and to perform such other functions to be performed by it as set forth in the Plan or as may be directed by the Board.

 
 
7
 
 
Exhibit 10.1
 
 
ARTICLE 3
 
Contributions to the Awards Pool

3.1
Determination of each Subsidiary’s Contributions. Subject to any adjustment that the Subsidiary Board may make for any Plan Year, each Subsidiary will make contributions to the Awards Pool in amounts determined by the Subsidiary Board based on the following procedures for the month, calendar quarter, or the Plan Year:

Step One – Determine each Subsidiary’s bonus hurdle amount:
 
 
(A)(1)
The Subsidiary’s average investment for the Performance Year as determined by the Subsidiary Board multiplied by
 
 
     (2)
15% annual return requirement, or such higher percentage fixed by the Subsidiary Board, equals
 
 
     (3)
The Subsidiary’s return hurdle.
 
 
(B)(1)
The Subsidiary’s return hurdle, plus
 
 
     (2)
The Subsidiary’s charge for corporate expenses for the Performance Year as determined by the executive officers of the Corporation, equals
 
 
     (3)
The Subsidiary’s bonus hurdle amount.
 
Step Two – Determine each Subsidiary’s Contribution Amount:
 
 
(1)
(The Subsidiary’s pre-bonus operating income for the Performance Year minus the Subsidiary’s bonus hurdle amount) multiplied by
 
 
(2)
15% or lower bonus sharing percentage assigned to the Subsidiary by the Subsidiary Board, equals
 
 
(3)
The Subsidiary’s contribution for the period.
 
3.2
Timing of Contributions.   Each Subsidiary will make its contributions to the Awards Pool on the dates determined by the Subsidiary Board.
 
 
8
 
 
Exhibit 10.1
 
 
ARTICLE 4
 
Determination and Payment of Annual Bonuses

4.1
Eligibility for Bonus .  The Corporate Board will determine which Executive Officers are eligible to receive Bonuses, and the Subsidiary Board will determine which Key Employees and which Critical-Needs Individuals are eligible to receive Bonuses.

4.2
Determination of Annual Bonus Amounts.

 
(a)
Executive Officers Bonuses .  A Formula Bonus will be determined for each eligible Executive Officer for the Plan Year and will be reviewed by the Board Chairman.  The Formula Bonus for each such Executive Officer, together with the Board Chairman’s recommendation of any adjustment to the amount of such Formula Bonus, will be provided to the Compensation Committee.  The Compensation Committee will review the Formula Bonus and any adjustments recommended by the Board Chairman, and may also recommend adjustments to the amount of the Formula Bonus.  The Corporate Board will determine the amount of the Bonus to be paid to each eligible Executive Officer after taking into consideration the Formula Bonus and any adjustments to the amount thereof as recommended by the Board Chairman and the Compensation Committee.

 
(b)
Key Employees Bonuses .  A Formula Bonus will be determined for each eligible Key Employee for the Plan Year.  The Subsidiary Board will determine the amount of the Bonus to be paid to each eligible Key Employee after taking into consideration the Formula Bonus and adjusting the amount to be paid for any factors that the Subsidiary Board deems appropriate.

 
(c)
Critical-Needs Individuals Bonuses.   The Subsidiary Board will determine the amount of each eligible Critical-Needs Individual’s Bonus for the Plan Year based on his or her performance and any other factors the Subsidiary Board deems appropriate.
 
 
 
9
 
 
Exhibit 10.1

4.3
Payment of Annual Bonuses.

 
(a)
Minimum Payment .  On or before December 31 of each Plan Year, the Subsidiary Board, taking into account Bonuses for Key Employees and Critical-Needs Individuals as well as Bonuses to Executive Officers, shall determine the minimum aggregate amount of Bonuses with respect to such Plan Year and the prior Plan Year, regarding the deferred portion of any Bonuses for such prior Plan Year, to be paid by the immediately following March 15.
 
(b)
Bonuses for Executive Officers and Key Employees .  For business reasons such as retention, motivation, cash flow, and similar matters, the Corporate Board and the Subsidiary Board may in their discretion cause there to be distributed to some or all Executive Officers and Key Employees, respectively, a cash payment of 75% of their Bonus no later than the March 15 immediately following the Plan Year, and a cash payment of the remaining 25% no later than the next succeeding March 15.  All Executive Officers and Key Employees who are to receive Bonuses and who are not selected for such deferred payment for a given Plan Year will be paid 100% of their Bonuses no later than the March 15 immediately following the Plan Year.

 
(c)
Bonuses for Critical-Needs Individuals .  Unless the Subsidiary Board determines otherwise, the Bonuses for Critical-Needs Individuals will be paid in full no later than the March 15 immediately following the Plan Year.

 
(d)
Short-Term Deferral Plan .  The Corporate Board and the Subsidiary Board will strictly comply with the payment schedule described in this Section 4.3 to preserve the Plan’s status as a short-term deferral plan within the meaning of IRC § 409A.

4.4
Vesting in Bonus Awards.   No Participant will have any vested or legally binding right in any portion of any type of Bonus until the date when an amount is actually paid to such Participant.  Notwithstanding any other provision hereof, if a Participant’s Employment terminates before such Participant actually receives payment of his or her Bonus, such Participant will forfeit that Bonus on such Participant’s Termination Date; provided, however, that if such Participant’s termination of Employment results from his or her death and such Participant  had 25% of a Bonus withheld under Section 4.3(b) and not yet paid as of the Termination Date, the amount withheld shall vest fully upon such Participant’s Termination Date and the Corporation shall pay the amount withheld to such Participant’s surviving spouse, if any, or, if none, then to such Participant’s estate .
 
 
 
10
 
 
Exhibit 10.1
 
ARTICLE 5
 
Amendment or Termination of the Plan

5.1
Amendment of the Plan .  The Corporate Board may amend the Plan from time to time; provided that no amendment (a) will have the effect of eliminating or reducing any Plan benefit earned before the effective date of the amendment; or (b) will cause any violation of any rule or requirement under IRC § 409A or any other applicable law.

5.2
Termination of the Plan .  The Corporate Board may terminate all or any part of the Plan at any time, subject to the restrictions stated in Section 5.1 above.
 
 
 
11
 
 
Exhibit 10.1
 
 
ARTICLE 6
 
Miscellaneous

6.1
Headings .  The headings and subheadings in the Plan have been inserted for convenient reference, and, to the extent any heading or subheading conflicts with the text, the text will govern.

6.2
Construction and Choice of Law .  The Plan will be governed and construed in accordance with the laws of the State of Delaware, except to the extent such laws are preempted by ERISA or the IRC or any other federal law and excluding Delaware’s choice of law principles, and all claims relating to or arising out of this Plan or any violation of this Plan, whether sounding in contract, tort of otherwise, will be governed by the laws of Delaware, excluding choice of law principles.

6.3
Severability .  If any court of competent jurisdiction rules that any provision of this Plan is unenforceable, the remaining provisions will remain in full force and effect to the extent that deletion of the unenforceable provision does not substantially alter the Plan's purposes.

6.4
Effect of Bonuses on Other Plans .  Except to the extent expressly stated in such other plan, no Bonus payable under this Plan will be included in compensation for any purpose under any other plan sponsored by the Corporation or any Subsidiary, including but not limited to qualified and nonqualified retirement plans, life insurance plans and other welfare benefit plans.

6.5
Status as an Unfunded Top-Hat Plan .  Notwithstanding any other provision of the Plan, this Plan is adopted on the condition that, in the event of an audit or other review, the Internal Revenue Service will find that the entire Plan meets the requirements for an unfunded top-hat plan and short-term deferral plan under applicable provisions of the IRC and ERISA.  In the event any contrary determination cannot be cured by revisions satisfactory to the Corporate Board, the Corporate Board may in its discretion declare the adoption of the Plan, or any part of the Plan, null and void.  This Section 6.5 is not intended to require the Corporation to submit this Plan to the IRS or to any other governmental agency or department for approval.
 
6.6
Nonalienation .  No benefits payable under the Plan will be subject to the claim or legal process of any creditor of any Participant by execution, levy, garnishment, attachment, pledge, bankruptcy or otherwise.  No Participant may alienate, transfer, anticipate or assign any benefits under the Plan.
 
 
 
12
 
 
Exhibit 10.1

6.7
No Implied Rights .  Participation in the Plan will not give any Participant the right to be retained in Employment or service as an Independent Contractor.  No person will have any right or interest in any portion of the Plan except as specifically provided in the Plan.

6.8
Contractual Limitation Period .  If any active or former Employee, or any other person whomsoever, asserts any claim against the Plan that is denied by the Corporate Board or the Subsidiary Board, such person must file any lawsuit that is based directly or indirectly on such claim denial no later than 180 days after the date the Corporate Board or the Subsidiary Board, as applicable, issues the written denial or such person will be forever barred from filing any such lawsuit.
 
 
 
13
 
 
Exhibit 10.1

Addendum A
 
Formula Table—Bonus Allocation Formula
 
1 X 2 X 3 = 4; 5 X 6 = 7
 
 
 
1
 
2
3
4
5
6
7
 Position
 
Salary
Individual
Bonus Rate
Adjustment Factor for Subsidiary Profitability
Individual
Pool Points (PP) 1
 
(Ratio of Individual PP to Total of PP) X total $ in  Awards Pool=
Preliminary Bonus
Amount 2
Individual
Performance
 
Formula Bonus 3
Executive Officers
 
 
 
 
             
Key Employees
 
 
 
             
Pool Points required to cover all other bonuses and Discretionary Expenses.
 
 
             

 
 
           ________________________
             1    Salary X Individual Bonus Rate X Adjustment Factor for Subsidiary Profitability = Individual Pool Points for a particular Participant.
             2     Ratio of Individual Pool Points to Total Pool Points reflected in this Formula Table, multiplied by dollar amount of Awards Pool = Preliminary Bonus Amount for the Participant.
         3    Preliminary Bonus Amount X Individual Performance = Formula Bonus for the Participant, with the amount thereof subject to adjustment as provided in the Plan in determining the Bonus for the Participant.
 
 
14
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 registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
 
 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 29, 2013
 
/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;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
 
 
 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 29, 2013
 
/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 officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 29, 2013
/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


Pursuant to 18 U.S.C. § 1350, the undersigned officer of Atrion Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 29, 2013
/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.