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,
  2009


or


[    ]
            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 filerx       
Non-accelerated filero         Smaller
reporting company  o







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





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





Title
      of Each Class
            
            Number
      of Shares Outstanding at
              October
      22, 2009Common
      stock, Par Value $0.10 per share
            
            1,979,771











ATRION CORPORATION AND
SUBSIDIARIES








TABLE OF
CONTENTS







PART I.  Financial
      Information
            
            2Item
      1.   Financial StatementsConsolidated
      Statements of Income (Unaudited) For
      the Three and Nine months Ended September
      30, 2009 and 2008
            
            3Consolidated
      Balance Sheets (Unaudited) September
      30, 2009 and December 31, 2008
            
            4Consolidated
      Statements of Cash Flows (Unaudited) For
      the Nine months Ended September
      30, 2009 and 2008
            
            5Notes
      to Consolidated Financial Statements (Unaudited)
            
            6Item 2.   Management's
      Discussion and Analysis of Financial
      Condition and Results of Operations
            
            9Item 3.  
      Quantitative
      and Qualitative Disclosures About Market Risk
            
            14Item 4.   Controls
      and Procedures
            
            14PART
      II.  Other Information
            
            15Item
      1.Legal Proceedings
            
            15Item
      1A.Risk Factors
            
            15Item 2.Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            15Item 6.   Exhibits
            
            16SIGNATURES
            
            17














1



































PART
I








FINANCIAL
INFORMATION






























2
 Item
1.Financial Statements
 
 ATRION
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME
 (Unaudited)


Three Months Ended
                              September
      30,
                            
                            
                            Nine
      Months Ended
                              September
      30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(in
      thousands, except per share amounts)Revenues
                            
                            $
                            25,192
                            
                            
                            $
                            23,461
                            
                            
                            $
                            76,240
                            
                            
                            $
                            72,305Cost
      of goods sold
                            
                            
                            13,973
                            
                            
                            
                            13,221
                            
                            
                            
                            41,902
                            
                            
                            
                            40,279Gross
      profit
                            
                            
                            11,219
                            
                            
                            
                            10,240
                            
                            
                            
                            34,338
                            
                            
                            
                            32,026Operating
      expenses:Selling
                            
                            
                            1,357
                            
                            
                            
                            1,432
                            
                            
                            
                            4,367
                            
                            
                            
                            4,777General
      and administrative
                            
                            
                            2,635
                            
                            
                            
                            2,398
                            
                            
                            
                            8,069
                            
                            
                            
                            7,644Research
      and development
                            
                            
                            661
                            
                            
                            
                            630
                            
                            
                            
                            2,191
                            
                            
                            
                            2,2414,653
                            
                            
                            
                            4,460
                            
                            
                            
                            14,627
                            
                            
                            
                            14,662Operating
      income
                            
                            
                            6,566
                            
                            
                            
                            5,780
                            
                            
                            
                            19,711
                            
                            
                            
                            17,364Other
      income:Interest
      income
                            
                            
                            162
                            
                            
                            
                            78
                            
                            
                            
                            391
                            
                            
                            
                            164Other
      income
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            1
                            
                            
                            
                            1162
                            
                            
                            
                            78
                            
                            
                            
                            392
                            
                            
                            
                            165Income
      before provision for income taxes
                            
                            
                            6,728
                            
                            
                            
                            5,858
                            
                            
                            
                            20,103
                            
                            
                            
                            17,529Provision
      for income taxes
                            
                            
                            (2,268
                            )
                            
                            
                            (1,866
                            )
                            
                            
                            (6,852
                            )
                            
                            
                            (5,746
                            )Net
      income
                            
                            $
                            4,460
                            
                            
                            $
                            3,992
                            
                            
                            $
                            13,251
                            
                            
                            $
                            11,783Income
      per basic share
                            
                            $
                            2.25
                            
                            
                            $
                            2.03
                            
                            
                            $
                            6.70
                            
                            
                            $
                            6.02Weighted
      average basic shares outstanding
                            
                            
                            1,980
                            
                            
                            
                            1,968
                            
                            
                            
                            1,978
                            
                            
                            
                            1,958Income
      per diluted share
                            
                            $
                            2.20
                            
                            
                            $
                            1.99
                            
                            
                            $
                            6.57
                            
                            
                            $
                            5.88Weighted
      average diluted shares outstanding
                            
                            
                            2,028
                            
                            
                            
                            2,005
                            
                            
                            
                            2,017
                            
                            
                            
                            2,005Dividends
      per common share
                            
                            $
                            0.36
                            
                            
                            $
                            0.30
                            
                            
                            $
                            0.96
                            
                            
                            $
                            0.78




The
accompanying notes are an integral part of these statements.








3








ATRION
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)




Assets
                                                                                          
                                                                                          September 30,
                                                                                          
                                                                                          
                                                                                          December 31,2009
                                                                                          
                                                                                          
                                                                                          2008(in
      thousands)Current
      assets:Cash and cash equivalents
                                                                                          
                                                                                          $
                                                                                          14,313
                                                                                          
                                                                                          
                                                                                          $
                                                                                          12,056Short-term investments
                                                                                          
                                                                                          
                                                                                          4,860
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,692Accounts receivable
                                                                                          
                                                                                          
                                                                                          11,663
                                                                                          
                                                                                          
                                                                                          
                                                                                          10,875Inventories
                                                                                          
                                                                                          
                                                                                          18,866
                                                                                          
                                                                                          
                                                                                          
                                                                                          20,169Prepaid expenses
                                                                                          
                                                                                          
                                                                                          1,094
                                                                                          
                                                                                          
                                                                                          
                                                                                          719Deferred income taxes
                                                                                          
                                                                                          
                                                                                          596
                                                                                          
                                                                                          
                                                                                          
                                                                                          59651,392
                                                                                          
                                                                                          
                                                                                          
                                                                                          49,107Long-term
      investments
                                                                                          
                                                                                          
                                                                                          11,537
                                                                                          
                                                                                          
                                                                                          
                                                                                          --Property,
      plant and equipment
                                                                                          
                                                                                          
                                                                                          98,768
                                                                                          
                                                                                          
                                                                                          
                                                                                          94,364Less
      accumulated depreciation and amortization
                                                                                          
                                                                                          
                                                                                          44,875
                                                                                          
                                                                                          
                                                                                          
                                                                                          40,99453,893
                                                                                          
                                                                                          
                                                                                          
                                                                                          53,370Other
      assets and deferred charges:Patents
                                                                                          
                                                                                          
                                                                                          1,644
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,863Goodwill
                                                                                          
                                                                                          
                                                                                          9,730
                                                                                          
                                                                                          
                                                                                          
                                                                                          9,730Other
                                                                                          
                                                                                          
                                                                                          1,097
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,28312,471
                                                                                          
                                                                                          
                                                                                          
                                                                                          12,876$
                                                                                          129,293
                                                                                          
                                                                                          
                                                                                          $
                                                                                          115,353Liabilities and Stockholders’
      EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
                                                                                          
                                                                                          $
                                                                                          6,478
                                                                                          
                                                                                          
                                                                                          $
                                                                                          5,482Accrued
      income and other taxes
                                                                                          
                                                                                          
                                                                                          645
                                                                                          
                                                                                          
                                                                                          
                                                                                          7317,123
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,213Line
      of credit
                                                                                          
                                                                                          
                                                                                          --
                                                                                          
                                                                                          
                                                                                          
                                                                                          --Other
      non-current liabilities
                                                                                          
                                                                                          
                                                                                          9,038
                                                                                          
                                                                                          
                                                                                          
                                                                                          8,298Stockholders’
      equity:Common shares, par value $0.10 per share; authorized10,000
      shares, issued 3,420 shares
                                                                                          
                                                                                          
                                                                                          342
                                                                                          
                                                                                          
                                                                                          
                                                                                          342Paid-in
      capital
                                                                                          
                                                                                          
                                                                                          20,166
                                                                                          
                                                                                          
                                                                                          
                                                                                          19,130Accumulated
      other comprehensive loss
                                                                                          
                                                                                          
                                                                                          (533
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (533
                                                                                          )Retained
      earnings
                                                                                          
                                                                                          
                                                                                          128,894
                                                                                          
                                                                                          
                                                                                          
                                                                                          117,554Treasury
      shares, 1,440 at September 30, 2009 and 1,452at
      December 31, 2008, at cost
                                                                                          
                                                                                          
                                                                                          (35,737
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (35,651
                                                                                          )Total stockholders’
      equity
                                                                                          
                                                                                          
                                                                                          113,132
                                                                                          
                                                                                          
                                                                                          
                                                                                          100,842$
                                                                                          129,293
                                                                                          
                                                                                          
                                                                                          $
                                                                                          115,353


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
















4
 ATRION
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)





Nine months
      EndedSeptember
      30,2009
                                  
                                  
                                  2008(in
      thousands)Cash
      flows from operating activities:Net
      income
                                  
                                  $
                                  13,251
                                  
                                  
                                  $
                                  11,783Adjustments to reconcile net income tonet
      cash provided by operating activities:Depreciation
      and amortization
                                  
                                  
                                  5,126
                                  
                                  
                                  
                                  4,688Deferred
      income taxes
                                  
                                  
                                  771
                                  
                                  
                                  
                                  722Stock-based
      compensation
                                  
                                  
                                  500
                                  
                                  
                                  
                                  482Other
                                  
                                  
                                  --
                                  
                                  
                                  
                                  3719,648
                                  
                                  
                                  
                                  17,712Changes
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  (788
                                  )
                                  
                                  
                                  (2,118
                                  )Inventories
                                  
                                  
                                  1,303
                                  
                                  
                                  
                                  (3,986
                                  )Prepaid
      expenses
                                  
                                  
                                  (375
                                  )
                                  
                                  
                                  427Other
      non-current assets
                                  
                                  
                                  186
                                  
                                  
                                  
                                  (149
                                  )Accounts
      payable and accrued liabilities
                                  
                                  
                                  996
                                  
                                  
                                  
                                  549Accrued
      income and other taxes
                                  
                                  
                                  (86
                                  )
                                  
                                  
                                  481Other
      non-current liabilities
                                  
                                  
                                  (31
                                  )
                                  
                                  
                                  (133
                                  )20,853
                                  
                                  
                                  
                                  12,783Cash
      flows from investing activities:Property,
      plant and equipment additions
                                  
                                  
                                  (5,430
                                  )
                                  
                                  
                                  (4,556
                                  )Purchases
      of investments
                                  
                                  
                                  (15,705
                                  )
                                  
                                  
                                  (625
                                  )Proceeds
      from investments
                                  
                                  
                                  4,000
                                  
                                  
                                  
                                  --(17,135
                                  )
                                  
                                  
                                  (5,181
                                  )Cash
      flows from financing activities:Line
      of credit advances
                                  
                                  
                                  --
                                  
                                  
                                  
                                  3,000Line
      of credit repayments
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Exercise
      of stock options
                                  
                                  
                                  459
                                  
                                  
                                  
                                  525Shares
      tendered for employees’ taxes on stock-based compensation
                                  
                                  
                                  (122
                                  )
                                  
                                  
                                  (913
                                  )Tax
      benefit related to stock options
                                  
                                  
                                  102
                                  
                                  
                                  
                                  1,632Dividends
      paid
                                  
                                  
                                  (1,900
                                  )
                                  
                                  
                                  (1,532
                                  )(1,461
                                  )
                                  
                                  
                                  2,712Net
      change in cash and cash equivalents
                                  
                                  
                                  2,257
                                  
                                  
                                  
                                  10,314Cash
      and cash equivalents at beginning of period
                                  
                                  
                                  12,056
                                  
                                  
                                  
                                  3,531Cash
      and cash equivalents at end of period
                                  
                                  $
                                  14,313
                                  
                                  
                                  $
                                  13,845Cash
      paid for:Income
      taxes
                                  
                                  $
                                  6,394
                                  
                                  
                                  $
                                  2,616







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


5
 ATRION
      CORPORATION AND SUBSIDIARIES
 NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(1)           Basis
of Presentation


In the
opinion of management, all adjustments necessary for a fair presentation of
results of operations for the periods presented have been included in the
accompanying unaudited consolidated financial statements of Atrion Corporation
and its subsidiaries (the “Company”). Such adjustments consist of normal
recurring items. The accompanying financial statements have been prepared in
accordance with the instructions to Form 10-Q and include the information and
notes required by such instructions. Accordingly, the consolidated financial
statements and notes thereto should be read in conjunction with the financial
statements and notes included in the Company’s 2008 Annual Report on Form
10-K.








(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
      31,2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    8,114
                    
                    
                    $
                    8,978Work
      in process
                    
                    
                    4,422
                    
                    
                    
                    4,579Finished
      goods
                    
                    
                    6,330
                    
                    
                    
                    6,612Total
      inventories
                    
                    $
                    18,866
                    
                    
                    $
                    20,169





(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 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(in
      thousands, except per share amounts)Net
      income
                
                
                $
                4,460
                
                
                $
                3,992
                
                
                $
                13,251
                
                
                $
                11,783Weighted
      average basic shares outstanding
                
                
                
                1,980
                
                
                
                1,968
                
                
                
                1,978
                
                
                
                1,958Add: Effect
      of dilutive securities
                
                
                
                48
                
                
                
                37
                
                
                
                39
                
                
                
                47Weighted
      average diluted shares outstanding
                
                
                
                2,028
                
                
                
                2,005
                
                
                
                2,017
                
                
                
                2,005





Earnings
      per share:Basic
                      
                      $
                      2.25
                      
                      
                      $
                      2.03
                      
                      
                      $
                      6.70
                      
                      
                      $
                      6.02Diluted
                      
                      $
                      2.20
                      
                      
                      $
                      1.99
                      
                      
                      $
                      6.57
                      
                      
                      $
                      5.88





Outstanding
options, restricted stock or deferred stock units that were not included in the
diluted income per share calculation because their effect would be anti-dilutive
totaled 20,336 for the three-month and nine-month periods ended September 30,
2008, respectively, and none for the same periods in 2009.


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





(4)          
Investments


As of
September 30, 2009, the Company 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 assets as defined by Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurements and
Disclosures. The Company considers as current assets those investments
which will mature or are likely to be sold in the next 12 months. The remaining
investments are considered non-current assets. The amortized cost and fair value
of the Company’s investments that are being accounted for as held-to-maturity
securities, and the related gross unrealized gains and losses, were as follows
as of September 30, 2009 ( in thousands):








Gross
      UnrealizedCost
                
                
                Gains
                
                
                Losses
                
                
                Fair
      ValueShort-term
      Investments:Corporate
      bonds
                
                $
                1,201
                
                
                $
                3
                
                
                
                —
                
                
                $
                1,204Bank
      certificates of deposit
                
                
                3,021
                
                
                
                —
                
                
                
                —
                
                
                
                3,021Municipal
      tax-exempt bonds
                
                
                638
                
                
                
                2
                
                
                
                —
                
                
                
                640Short-term
      investment securities held to maturity
                
                $
                4,860
                
                
                $
                5
                
                
                
                —
                
                
                $
                4,865Long-term
      InvestmentsCorporate
      bonds
                
                $
                11,537
                
                
                $
                94
                
                
                $
                (15
                )
                
                $
                11,616





At
September 30, 2009, the length of time until maturity for the short-term
securities ranged from two to ten months. At September 30, 2009, the length of
time until maturity for the long-term securities ranged from 16 to 30
months.




(5)          
Subsequent
Events
 Effective
April 1, 2009, the Company adopted FASB ASC 855-10, Subsequent Events – Overall
(“ASC 855-10”). ASC 855-10 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  Adoption of
ASC 855-10 did not have a material impact on the Company’s consolidated
financial statements. The Company evaluated all events or transactions that
occurred after September 30, 2009 through November 4, 2009, the date the Company
issued these financial statements.During
this period the Company did not have any material recognizable subsequent
events.





7
 ATRION
      CORPORATION AND SUBSIDIARIES
 NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





(6)
            Pension
      Benefits


The
components of net periodic pension cost for the Atrion Corporation Cash Balance
Plan (the “Plan”) are as follows (in thousands):





Three
      Months ended September 30,
                  
                  
                  Nine
      Months endedSeptember
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      cost
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --Interest
      cost
                  
                  
                  54
                  
                  
                  
                  56
                  
                  
                  
                  162
                  
                  
                  
                  168Expected
      return on assets
                  
                  
                  (54
                  )
                  
                  
                  (55
                  )
                  
                  
                  (162
                  )
                  
                  
                  (165
                  )Prior
      service cost amortization
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Actuarial
      loss
                  
                  
                  8
                  
                  
                  
                  8
                  
                  
                  
                  24
                  
                  
                  
                  24Net
      periodic pension cost
                  
                  $
                  8
                  
                  
                  $
                  9
                  
                  
                  $
                  24
                  
                  
                  $
                  27





In
September 2007, the Company terminated the Plan. Participants accrued pension
benefits through December 31, 2007, but did not accrue any additional benefits
under the Plan after that date. However, participants will continue to earn
interest credits on their account balances until the Plan has settled all its
obligations with respect to termination. The Company believes that the Plan is
adequately funded to cover its settlement obligations. The Company will
recognize its remaining net unrecognized actuarial loss as a settlement loss in
the fourth quarter of 2009.





(7)
            Recent
      Accounting Pronouncements





Effective
July 1, 2009, the Company adopted FASB ASC 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide
background information about the guidance and provide the bases for conclusions
on the change(s) in the Codification. References made to FASB guidance
throughout this document have been updated for the Codification.





From time
to time, new accounting standards updates applicable to the Company are issued
by the FASB, which the Company will adopt as of the specified effective date.
Unless otherwise discussed, the Company believes the impact of recently issued
standards updates that are not yet effective will not have a material impact on
its consolidated financial statements upon adoption.





8


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





Overview





The
Company develops and manufactures products primarily for medical applications.
The Company markets components to other equipment manufacturers for
incorporation in their products and sells finished devices to physicians,
hospitals, clinics and other treatment centers. The Company’s medical products
primarily serve the fluid delivery, cardiovascular, and ophthalmology markets.
The Company’s other medical and non-medical products include instrumentation and
disposables used in dialysis, contract manufacturing and valves and inflation
devices used in marine and aviation safety products.




The
Company's products are used in a wide variety of applications by numerous
customers. The Company encounters competition in all of its markets and competes
primarily on the basis of product quality, price, engineering, customer service
and delivery time.




The
Company's strategy is to provide a broad selection of products in the areas of
its 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. The Company also focuses on controlling costs
by investing in modern manufacturing technologies and controlling purchasing
processes. The Company has been successful in consistently generating cash from
operations and has used that cash to reduce indebtedness, to fund capital
expenditures, to repurchase stock and to pay dividends.




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




·  Focusing
on customer needs;


·  Expanding
existing product lines and developing new products;


·  Maintaining
a culture of controlling cost; and


·     Preserving
and fostering a collaborative, entrepreneurial management
structure.




For the
three months ended September 30, 2009, the Company reported revenues of $25.2
million, operating income of $6.6 million and net income of $4.5 million, up 7
percent, 14 percent and 12 percent, respectively, from the three months ended
September 30, 2008. For the nine months ended September 30, 2009, the Company
reported revenues of $76.2 million, operating income of $19.7 million and net
income of $13.3 million, up 5 percent, 14 percent and 13 percent, respectively,
from the nine months ended September 30, 2008.





9








Results
for the three months ended September 30, 2009





Consolidated
net income totaled $4.5 million, or $2.25 per basic and $2.20 per diluted share,
in the third quarter of 2009. This is compared with consolidated net income of
$4.0 million, or $2.03 per basic and $1.99 per diluted share, in the third
quarter of 2008. The income per basic share computations are based on weighted
average basic shares outstanding of 1,979,943 in the 2009 period and 1,967,669
in the 2008 period. The income per diluted share computations are based on
weighted average diluted shares outstanding of 2,027,884 in the 2009 period and
2,005,295 in the 2008 period.





Consolidated
revenues of $25.2 million for the third quarter of 2009 were 7 percent higher
than revenues of $23.5 million for the third quarter of 2008. This increase was
generally attributable to higher sales volumes and increased
prices.





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





Three
      Months ended
                  September
      30,2009
                
                
                2008Fluid
      Delivery
                
                $
                9,535
                
                
                $
                7,999Cardiovascular
                
                
                6,948
                
                
                
                7,019Ophthalmology
                
                
                4,418
                
                
                
                3,733Other
                
                
                4,291
                
                
                
                4,710Total
                
                $
                25,192
                
                
                $
                23,461








Cost of
goods sold of $14.0 million for the third quarter of 2009 was $752,000 higher
than in the comparable 2008 period. The primary contributor to this increase was
higher sales volume. The Company’s cost of goods sold in the third quarter of
2009 was 55.5 percent of revenues compared with 56.4 percent of revenues in the
third quarter of 2008.





Gross
profit of $11.2 million in the third quarter of 2009 was $979,000, or 10
percent, higher than in the comparable 2008 period. The Company’s gross profit
percentage in the third quarter of 2009 was 44.5 percent of revenues compared
with 43.6 percent of revenues in the third quarter of 2008. The increase in
gross profit percentage in the 2009 period compared to the 2008 period was
primarily related to improved product mix and cost improvement
initiatives.





The
Company’s third quarter 2009 operating expenses of $4.7 million were $193,000
higher than the operating expenses for the third quarter of 2008. This increase
was comprised of a $237,000 increase in General and Administrative (G&A)
expenses and a $31,000 increase in Research and Development (R&D) expenses
partially offset by a $75,000 decrease in Selling (Selling) expenses. The
increase in G&A expenses for the third quarter of 2009 was principally
attributable to increased compensation, increased outside services and increased
taxes partially offset by reduced travel. The increase in R&D costs was
primarily related to outside services and compensation. The decrease in Selling
expenses for the third quarter of 2009 was primarily related to decreased
promotion and travel-related expenses partially offset by increased
compensation.






10




Operating
income in the third quarter of 2009 increased $786,000 to $6.6 million, a 14
percent increase over operating income in the quarter ended September 30, 2008.
Operating income was 26 percent of revenues in the third quarter of 2009
compared to 25 percent of revenues in the third quarter of 2008. The major
contributor to the operating income improvement in the third quarter of 2009 was
the previously mentioned increase in gross profit partially offset by the slight
increase in operating expenses.




Income
tax expense for the third quarter of 2009 was $2.3 million compared to income
tax expense of $1.9 million for the same period in the prior year. The effective
tax rate for the third quarter of 2009 was 33.7 percent, compared with 31.9
percent for the third quarter of 2008. The increase in the effective tax rate
for the 2009 period is primarily a result of benefits from tax incentives for
R&D expenditures being a smaller percentage of taxable income than in the
third quarter of 2008 and an increase in state income taxes in the 2009 period.
The Company expects the effective tax rate for the remainder of 2009 to be
within a range of 33.0 to 34.0 percent.





Results
for the nine months ended September 30, 2009





Consolidated
net income totaled $13.3 million, or $6.70 per basic and $6.57 per diluted
share, in the first nine months of 2009. This is compared with consolidated net
income of $11.8 million, or $6.02 per basic and $5.88 per diluted share, in the
first nine months of 2008. The income per basic share computations are based on
weighted average basic shares outstanding of 1,977,901 in the 2009 period and
1,958,626 in the 2008 period. The income per diluted share computations are
based on weighted average diluted shares outstanding of 2,017,414 in the 2009
period and 2,004,517 in the 2008 period.





Consolidated
revenues of $76.2 million for the first nine months of 2009 were 5 percent
higher than revenues of $72.3 million for the first nine months of 2008. This
increase was generally attributable to higher sales volumes and increased
prices.





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





Nine
      Months ended
                  September
      30,2009
                
                
                2008Fluid
      Delivery
                
                $
                27,685
                
                
                $
                24,896Cardiovascular
                
                
                21,439
                
                
                
                21,602Ophthalmology
                
                
                14,948
                
                
                
                11,101Other
                
                
                12,168
                
                
                
                14,706Total
                
                $
                76,240
                
                
                $
                72,305








Cost of
goods sold of $41.9 million for the first nine months of 2009 was $1.6 million
higher than in the comparable 2008 period. The primary contributor to this
increase was higher sales volume. The Company’s cost of goods sold in the first
nine months of 2009 was 55.0 percent of revenues compared with 55.7 percent of
revenues in the first nine months of 2008.





Gross
profit of $34.3 million in the first nine months of 2009 was $2.3 million, or 7
percent, higher than in the comparable 2008 period. The Company’s gross profit
percentage in the first nine months of 2009 was 45.0 percent of revenues
compared with 44.3 percent of revenues in the first nine months of 2008. The
increase in gross profit percentage in the 2009 period compared to the 2008
period was primarily related to improved product mix and cost improvement
initiatives.





11




Operating
expenses of $14.6 million for the first nine months of 2009 were $35,000 lower
than the operating expenses for the comparable period in 2008. This decrease was
comprised of a $410,000 decrease in Selling expenses and a $50,000 decrease in
R&D expenses largely offset by a $425,000 increase in G&A expenses. The
decrease in Selling expenses for the first nine months of 2009 was primarily
related to decreased compensation, promotion, outside services, and
travel-related expenses. The decrease in R&D costs was primarily related to
reduced prototype expenses. The increase in G&A expenses for the first nine
months of 2009 was principally attributable to increased compensation and
outside services partially offset by decreased travel-related
expenses.





Operating
income in the first nine months of 2009 increased $2.3 million to $19.7 million,
a 14 percent increase over operating income in the nine months ended September
30, 2008. Operating income was 26 percent of revenues in the first nine months
of 2009 compared to 24 percent of revenues in the first nine months of 2008. The
previously mentioned increase in gross profit coupled with the decrease in
operating expenses were the major contributors to the operating income
improvement in the first nine months of 2009.





Income
tax expense for the first nine months of 2009 was $6.9 million compared to
income tax expense of $5.7 million for the same period in the prior year. The
effective tax rate for the first nine months of 2009 was 34.1 percent, compared
with 32.8 percent for the first nine months of 2008. The increase in the
effective tax rate for 2009 is primarily a result of benefits from tax
incentives for R&D expenditures being a smaller percentage of taxable income
and an increase in state income taxes. The Company expects the effective tax
rate for the remainder of 2009 to be within a range of 33.0 to 34.0
percent.








Liquidity
and Capital Resources


The
Company has a $25.0 million revolving credit facility (the “Credit Facility”)
with a money center bank to 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 the Company, plus one
percent. The Company had no outstanding borrowings under its Credit Facility at
September 30, 2009 or at December 31, 2008. The Credit Facility, which expires
November 12, 2012, and may be extended under certain circumstances, contains
various restrictive covenants, none of which is expected to impact the Company’s
liquidity or capital resources. At September 30, 2009, the Company was in
compliance with all financial covenants and had $25.0 million available for
borrowing under the Credit Facility. The Company believes that the bank
providing the Credit Facility is highly-rated and that the entire $25.0 million
under the Credit Facility is currently available to the Company. If that bank
were unable to provide such funds, the Company believes that such inability
would not impact the Company’s ability to fund operations.






12




At September 30, 2009, the Company had
$30.7 million in cash and cash equivalents and short-term and long-term
investments, an increase of $14.0 million from December 31, 2008. The principal
contributor to this increase was the cash generated by operating activities of
$20.9 million, which was partially offset by payments for acquisitions of
property, plant, and equipment of $5.4 million and the payment of dividends of
$1.9 million





As of
September 30, 2009, the Company had working capital of $44.3 million, including
$14.3 million in cash and cash equivalents. The $1.4 million increase in working
capital during the first nine months of 2009 was primarily related to increases
in cash and short-term investments and increases in accounts receivable
partially offset by decreases to inventories and an increase in accounts payable
and accrued liabilities. The increase in accounts receivable was primarily
related to the increase in revenues for the third quarter of 2009 as compared
with the fourth quarter of 2008. The decrease in inventories was primarily
related to the Company’s consumption of raw materials purchased in 2008 under a
program to hedge against future price increases. The increase in accounts
payable and accrued liabilities was primarily related to routine amounts due to
suppliers partially offset by reductions in accrued compensation.





Cash
flows from operating activities generated $20.8 million for the nine months
ended September 30, 2009 as compared to $12.8 million for the nine months ended
September 30, 2008. The increase in the 2009 period was primarily attributable
to increased operational results and more favorable cash requirements for
working capital related to inventories and accounts receivables as compared to
the 2008 period. During the first nine months of 2009, the Company expended $5.4
million for the addition of property and equipment and $15.7 million for
short-term and long-term investments. Stock option activities in the first nine
months of 2009 generated $439,000 of cash and the Company paid dividends of $1.9
million during that period.





Although
the recent distress in the financial markets and the global economy in general
has not had a significant impact on the Company’s liquidity, the Company
continues to monitor the financial markets and general global economic
conditions. In the current credit and financial markets, many companies are
finding it difficult to gain access to capital resources. In spite of the
current economic conditions, the Company believes that its $19.2 million in
cash, cash equivalents and short-term investments, $11.5 million in long-term
investments, cash flows from operations and available borrowings of up to $25.0
million under the Company’s Credit Facility will be sufficient to fund the
Company’s cash requirements for at least the foreseeable future. The Company
believes that its strong financial position would allow it to access equity or
debt financing should that be necessary and its capital resources should not be
materially impacted by the current economic crisis. Additionally, the Company
believes that its cash and cash equivalents, short-term investments and
long-term investments, as a whole, will continue to increase in the remainder of
2009.


13





Forward-Looking
Statements


Statements
in this Management’s Discussion and Analysis that are forward-looking are based
upon current expectations, and actual results may differ materially. Therefore,
the inclusion of such forward-looking information should not be regarded as a
representation by the Company that the objectives or plans of the Company would
be achieved. Such statements include, but are not limited to, the Company’s
expectations regarding the effective tax rate for the remainder of 2009, the
Company’s ability to fund its cash requirements for the foreseeable future with
its current assets, long-term investments, cash flow and borrowings under the
Credit Facility, the impact that a failure of the bank providing the Credit
Facility would have on the Company’s ability to fund operations, the Company’s
access to equity and debt financing, the impact of the current economic crisis
on the Company’s capital resources and the increase in cash, cash equivalents,
short-term investments and long-term investments in the remainder of 2009. Words
such as “anticipates,” “believes,” “expects,” “estimated” 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; the
Company’s ability to protect its 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 the Company to alter its marketing, capital expenditures
or other budgets, which in turn may affect the Company’s results of operations
and financial condition.






Item
3.   Quantitative and
Qualitative Disclosures About Market Risk




For the
quarter ended September 30, 2009, the Company did not experience any material
changes in market risk exposures that affect the quantitative and qualitative
disclosures presented in the Company’s 2008 Annual Report on Form
10-K.


Item
4.   Controls
and Procedures




The
Company’s management, with the participation of the Company’s Chief Executive
Officer and its Chief Financial Officer, evaluated the Company’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of September 30, 2009. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures are effective. There were no changes in the
Company’s internal control over financial reporting for the quarter ended
September 30, 2009 that have materially affected or are reasonably likely to
materially affect the Company’s internal control over financial
reporting.


14





PART II





OTHER
INFORMATION


Item
1.                      Legal
Proceedings




From time
to time, the Company may be involved in claims or litigation that arise in the
normal course of business. The Company is not currently a party to any legal
proceedings, which, if decided adversely, would have a material adverse effect
on the Company’s business, financial condition, or results of operations.





Item
1A.                    Risk
Factors




There
were no material changes to Risk Factors disclosed in our annual report on Form
10-K for the year ended December 31, 2008.





Item
2.                      
Unregistered Sales of Equity Securities and Use of Proceeds


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)7/1/2009
      through 7/31/2009
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  68,1008/1/2009
      through 8/31/2009
                  
                  
                  400
                  (2)
                  
                  $
                  130.06
                  
                  
                  
                  --
                  
                  
                  
                  68,1009/1/2009
      through 9/30/2009
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  68,100Total
                  
                  
                  400
                  
                  
                  $
                  130.06
                  
                  
                  
                  --
                  
                  
                  
                  68,100







(1)
            The
      Company has a program that was announced in April 2000 to purchase in open
      market or privately negotiated transactions up to 200,000 shares. The
      program has no expiration date but may be terminated at any time by the
      Board of Directors.


(2)
            Consists
      of shares delivered to the Company in payment of income taxes related to
      vesting of restricted stock by a participant in a Company equity incentive
      plan. The Company’s equity incentive plans permit a participant under
      certain circumstances to deliver shares of Company stock in payment of
      income taxes due to be paid on equity
awards.







15





Item
6.                      Exhibits




ExhibitNumber
            Description




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













16
  SIGNATURES
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 
  Atrion Corporation(Registrant)Date:  November
      4, 2009
              By:        /s/ Emile A.
      BattatEmile A. BattatChairman andChief Executive OfficerDate:  November
      4, 2009
              By:       /s/ Jeffery
      StricklandJeffery StricklandVice President andChief Financial Officer






17