10-Q

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 March 31, 2008

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 April 30, 2008
Common stock, Par Value $0.10 per share	1,960,535

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.    Financial Information			2
	Item 1.    Financial Statements
		Consolidated Statements of Income (Unaudited) For the Three months Ended  March 31, 2008 and 2007	3
		Consolidated Balance Sheets (Unaudited) March 31, 2008 and December 31, 2007	4
		Consolidated Statements of Cash Flows (Unaudited) For the Three months Ended March 31, 2008 and 2007	5
		Notes to Consolidated Financial Statements (Unaudited)	6
	Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations		8
	Item 3.    Quantitative and Qualitative Disclosures About Market Risk		11
	Item 4.    Controls and Procedures		11
PART II.   Other Information			12
	Item 1.    Legal Proceedings		12
	Item 1A. Risk Factors		12
	Item 6.    Exhibits and Reports on Form 8-K		12
SIGNATURES			13

1

PART I

FINANCIAL INFORMATION

2

Item 1.    Financial Statements

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended March 31,
	2008			2007
	(in thousands, except per share amounts)
Revenues	$	24,602		$	23,037
Cost of goods sold		13,922			13,377
Gross profit		10,680			9,660
Operating expenses:
Selling		1,699			1,651
General and administrative		2,740			2,616
Research and development		787			656
		5,226			4,923
Operating income		5,454			4,737
Other income:
Interest income		36			9
Interest expense		--			(141	)
		36			(132	)
Income before provision for income taxes		5,490			4,605
Provision for income taxes		(1,834	)		(1,469	)
Net income	$	3,656		$	3,136
Income per basic share	$	1.89		$	1.68
Weighted average basic shares outstanding		1,937			1,872
Income per diluted share	$	1.83		$	1.59
Weighted average diluted shares outstanding		2,003			1,975
Dividends per common share	$	0.24		$	0.20

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

3

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

	March 31,			December 31,
Assets	2008			2007
	(in thousands)
Current assets:
Cash and cash equivalents	$	5,270		$	3,531
Accounts receivable		12,270			9,601
Inventories		17,977			17,387
Prepaid expenses		771			1,483
Other		607			607
		36,895			32,609
Property, plant and equipment		91,749			89,736
Less accumulated depreciation and amortization		36,797			35,686
		54,952			54,050
Other assets and deferred charges:
Patents		1,932			2,011
Goodwill		9,730			9,730
Other		956			913
		12,618			12,654
	$	104,465		$	99,313
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	7,581		$	6,349
Accrued income and other taxes		28			515
		7,609			6,864
Line of credit		--			--
Other non-current liabilities		7,017			7,007
Stockholders’ equity:
Common shares, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342
Paid-in capital		18,445			15,790
Accumulated other comprehensive loss		(486	)		(486	)
Retained earnings		107,205			104,021
Treasury shares,1,459 at March 31, 2008 and 1,509 at December 31, 2007, at cost		(35,667	)		(34,225	)
Total stockholders’ equity		89,839			85,442
	$	104,465		$	99,313

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

4

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months Ended
	March 31,
	2008			2007
	(In thousands)
Cash flows from operating activities:
Net income	$	3,656		$	3,136
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,497			1,305
Deferred income taxes		134			67
Stock-based compensation		113			55
Other		37			--
		5,437			4,563
Changes in operating assets and liabilities:
Accounts receivable		(2,668	)		(536	)
Inventories		(590	)		(93	)
Prepaid expenses		789			1,000
Other non-current assets		(43	)		(91	)
Accounts payable and current liabilities		1,232			350
Accrued income and other taxes		(486	)		1,161
Other non-current liabilities		(124	)		--
Net cash provided by continuing operations		3,547			6,354
Cash flows from investing activities:
Property, plant and equipment additions		(2,357	)		(1,478	)
Cash flows from financing activities:
Line of credit advances		--			6,104
Line of credit repayments		--			(11,001	)
Exercise of stock options		497			204
Taxes paid on cashless exercise of stock options		(870	)		--
Tax benefit related to stock options		1,393			168
Dividends paid		(471	)		(377	)
		549			(4,902	)
Net change in cash and cash equivalents		1,739			(26	)
Cash and cash equivalents at beginning of period		3,531			333
Cash and cash equivalents at end of period	$	5,270		$	307
Cash paid for:
Interest (net of capitalization)	$	--		$	158
Income taxes	$	64		$	(760	)

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 2007 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):

	March 31,		December 31,
	2008		2007
Raw materials	$	7,817	$	7,452
Work in process		5,003		4,513
Finished goods		5,157		5,422
Total inventories	$	17,977	$	17,387

(3) Income per share

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

	Three months ended
	March 31,
	2008		2007
	(in thousands, except per share amounts)
Net Income	$	3,656	$	3,136
Weighted average basic shares outstanding		1,937		1,872
Add:  Effect of dilutive securities		66		103
Weighted average diluted shares outstanding		2,003		1,975
Income per share:
Basic	$	1.89	$	1.68
Diluted	$	1.83	$	1.59

There were no outstanding options to purchase shares of common stock that were not included in the diluted income per share calculations because their effect would be anti-dilutive for the three-months ended March 31, 2008 and 2007.

6

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Pension Benefits

The components of net periodic pension cost for the Atrion Corporation Cash Balance Plan (the “Plan”) are as follows for the three months ended March 31, 2008 and March 31, 2007 (in thousands):

	Three Months ended March 31,
	2008			2007
Service cost	$	--		$	65
Interest cost		56			80
Expected return on assets		(55	)		(123	)
Prior service cost amortization		--			(9	)
Actuarial loss		8			15
Net periodic pension cost	$	9		$	28

In September 2007, the Company terminated the Plan. Participants accrued pension benefits through December 31, 2007, but will 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 final payout for the Plan termination will likely occur in early 2009 after all regulatory approvals are received.

(5) Recent Accounting Pronouncements

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements”. This standard addresses how companies should measure fair value when they are required to use a fair-value measure for recognition or disclosure purposes under GAAP. The adoption of this standard did not have a material effect on the Company’s financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 provides entities with an option to report certain financial assets and liabilities at fair value with changes in fair value reported in earnings. In addition, it requires disclosures related to an entity’s election to use fair value reporting. It also requires entities to display the fair value of those assets and liabilities for which the entity has elected to use fair value on the face of the balance sheet. SFAS No. 159 was effective for the Company beginning January 1, 2008. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows. In addition, the Company did not choose to report additional assets and liabilities at fair value other than those required to be accounted at fair value prior to the adoption of SFAS No. 159.

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

7

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

Overview

The Company designs, develops, manufactures, sells and distributes products and components, primarily for the medical and healthcare industry. The Company markets components to other equipment manufacturers for incorporation in their products and sells finished devices to physicians, hospitals, clinics and other treatment centers. The Company’s 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 March 31, 2008, the Company reported revenues of $24.6 million, operating income of $5.5 million and net income of $3.7 million, up 7 percent, 15 percent and 17 percent, respectively, from the three months ended March 31, 2007.

Results for the three months ended March 31, 2008

Consolidated net income totaled $3.7 million, or $1.89 per basic and $1.83 per diluted share, in the first quarter of 2008. This is compared with consolidated net income of $3.1 million, or $1.68 per basic and $1.59 per diluted share, in the first quarter of 2007. The income per basic share computations are based on weighted average basic shares outstanding of 1,936,767 in the 2008 period and 1,872,346 in the 2007 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 2,002,989 in the 2008 period and 1,975,133 in the 2007 period.

8

Consolidated revenues of $24.6 million for the first quarter of 2008 were 7 percent higher than revenues of $23.0 million for the first quarter of 2007. These increases were generally attributable to higher sales volumes.

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

	Three Months ended March 31,
	2008		2007
Fluid Delivery	$	8,249	$	7,215
Cardiovascular		7,467		6,051
Ophthalmology		3,779		4,654
Other		5,107		5,117
Total	$	24,602	$	23,037

Cost of goods sold of $13.9 million for the first quarter of 2008 was 4 percent higher than in the comparable 2007 period. Increased sales volume and increased manufacturing overhead costs were the primary contributors to the increase in cost of goods sold for the first quarter of 2008.

Gross profit of $10.7 million in the first quarter of 2008 was $1.0 million, or 11 percent, higher than in the comparable 2007 period. The Company’s gross profit percentage in the first quarter of 2008 was 43.4 percent of revenues compared with 41.9 percent of revenues in the first quarter of 2007. The increase in gross profit percentage in the 2008 period compared to the 2007 period was primarily related to improved product mix and improved manufacturing efficiencies.

The Company’s first quarter 2008 operating expenses of $5.2 million were $303,000 higher than the operating expenses for the first quarter of 2007. This increase was comprised of a $48,000 increase in selling (Selling) expenses, a $124,000 increase in General and Administrative (G&A) expenses and a $131,000 increase in Research and Development (R&D) expenses. The increase in Selling expenses for the first quarter of 2008 was primarily related to increased travel-related expenses. The increase in G&A expenses for the first quarter of 2008 was principally attributable to increased compensation and benefit costs partially offset by lower costs for outside services. The increase in R&D costs was primarily related to prototype expenses, new product testing costs and increased compensation and outside services. Operating income in the first quarter of 2008 increased $717,000, to $5.5 million, a 15 percent increase over operating income in the quarter ended March 31, 2007. Operating income was 22.2 percent of revenues in the first quarter of 2008 compared to 20.6 percent of revenues in the first quarter of 2007. The previously mentioned increase in gross profit partially offset by the increase in operating expenses were the major contributors to the operating income improvement in the first quarter of 2008.

9

The Company had no interest expense for the first quarter of 2008 due to the retirement of outstanding debt in the third quarter of 2007. Interest expense was $141,000 for the 2007 period and was attributable to borrowings related to a new Company facility. Income tax expense for the first quarter of 2008 was $1.8 million compared to income tax expense of $1.5 million for the same period in the prior year. The effective tax rate for the first quarter of 2008 was 33.4 percent compared with 31.9 percent for the first quarter of 2007. The higher effective income tax rate for the first quarter of 2008 is primarily a result of benefits from tax incentives for exports and R&D expenditures being a smaller percentage of taxable income in 2008 than in 2007.

Liquidity and Capital Resources

At March 31, 2008, the Company had cash and cash equivalents of $5.3 million compared with $3.5 million at December 31, 2007. The Company had no outstanding borrowings under its $25.0 million revolving credit facility (“Credit Facility”) at March 31, 2008 and December 31, 2007. The Credit Facility, which expires November 12, 2009, 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 March 31, 2008, the Company was in compliance with all financial covenants.

As of March 31, 2008, the Company had working capital of $29.3 million, including $5.3 million in cash and cash equivalents. The $3.5 million increase in working capital during the first three months of 2008 was primarily related to increases in cash, accounts receivable, inventories, and a decrease in accrued income and other taxes partially offset by increases in accounts payable and accrued liabilities and decreased prepaid expenses. The increase in accounts receivable during the first three months of 2008 was primarily related to the increase in revenues for the first quarter of 2008 as compared to the fourth quarter of 2007. The change in inventories is related to increased stocking levels necessary to support current operations. The increase in accounts payable and accrued liabilities was primarily related to increased purchases during the end of the first quarter of 2008. Cash flows from operating activities generated $3.5 million for the three months ended March 31, 2008 as compared to $6.4 million for the three months ended March 31, 2007. The 2008 decrease was primarily attributable to decreased accrued income and other taxes and increased accounts receivable as compared to the 2007 period. During the first three months of 2008, the Company expended $2.4 million for the addition of property and equipment. During the first three months of 2008, stock option activities generated $1.0 million of cash and the Company paid dividends of $471,000.

The Company believes that its existing cash and cash equivalents, cash flows from operations, borrowings available under the Company’s credit facility, supplemented, if necessary, with equity or debt financing, which the Company believes would be available, will be sufficient to fund the Company’s cash requirements for the foreseeable future.

10

Forward-Looking Statements

The 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 future liquidity and capital resources. 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 March 31, 2008, the Company did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in the Company’s 2007 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 March 31, 2008. 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 March 31, 2008 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

11

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, 2007.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1	Deferred Compensation Plan For Non-Employee Directors (As amended and restated as of March 5, 2008)
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

(b) Reports on Form 8-K

On February 25, 2008, the Company filed a report on Form 8-K with the SEC regarding the public dissemination of a press release announcing its financial results for the fourth quarter  and year ended December 31, 2007 (Item 12).

12

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:  May 8, 2008	/s/ EmileA.Battat
	Emile A. Battat
	Chairman and
	Chief Executive Officer
Date:  May 8, 2008	/s/ Jeffery Strickland
	Jeffery Strickland
	Vice President and
	Chief Financial Officer

13

EX-10.1

Exhibit 10.1

ATRION CORPORATION

DEFERRED COMPENSATION PLAN FOR

NON-EMPLOYEE DIRECTORS

(As amended and restated as of March 5, 2008)

1.  Purpose; Effective Date.  Atrion Corporation (the "Company") has established this Deferred Compensation Plan for Non-Employee Directors (the "Plan") for the purpose of providing an unfunded nonqualified deferred compensation plan for the non-employee directors of the Company (the "Directors"). The Plan shall be effective as of the date it is approved by the Board of Directors of the Company (the "Board").

2.   Eligibility. Persons eligible to defer compensation under the Plan shall consist of the Directors.  Any Director who has submitted a Deferred Fee Election Form, as defined below, is hereinafter referred to as a "Participant."

3.   Deferred Fees.  A Director may elect to defer receipt of all or a portion of the cash fees payable for services as a director and for services as a member of a Committee of the Board (the "Fees") by submitting to the Company an election form with respect to such Fees (the "Deferred Fee Election Form").  The Deferred Fee Election Form must be submitted to the Company no later than the applicable Deferral Deadline, as defined below.  A Deferred Fee Election Form submitted by a Participant shall automatically continue from year to year and shall be irrevocable once the Deferral Deadline for those Fees has passed, but the Participant may modify or terminate a Deferred Fee Election Form with respect to Fees payable in any year by submitting a revised Deferred Fee Election Form or otherwise giving written notice to the Company at any time on or prior to the Deferral Deadline for those Fees.  The Deferral Deadline for an election to defer Fees for services performed in any calendar year shall be the last day of the prior calendar year; provided, however, that the Deferral Deadline for a Director's first year of eligibility in this Plan shall be the 30th day following the date the Director becomes eligible to participate in this Plan with respect to Fees payable for services performed after the election is made.  Directors at the effective date of the Plan will become eligible to participate in this Plan as of that date.  Directors elected after the date on which the Plan becomes effective will be eligible to participate in the Plan upon election to the Board.

4.   Deferred Stock Unit Accounts.

(a) Accounts. The Company shall establish on its books a Deferred Stock Unit Account ("DSU Account") for each Participant that elects to defer Fees, which shall be denominated in Deferred Stock Units ("DSUs"), including fractional DSUs.  The DSU Account shall be credited with a number of DSUs equal to the Fees deferred by the Director (the "Deferred Fees") divided by the closing market price of the common stock of the Company (the "Common Stock") on the day the Deferred Fees would have been paid if not for the deferral. On the first business day of each calendar year, each DSU Account shall be credited with an additional number of DSUs (including fractional DSUs) equal to the total amount of dividends that would have been paid during the prior year on the number of DSUs recorded as the balance of that DSU Account on each date such dividends were paid divided by the closing market price for the Common Stock on such dividend payment dates.  A Participant shall be one hundred percent (100%) vested in the number of DSUs held in his or her DSU Account at all times.

Exhibit 10.1

(b) Statement of Account. At least annually, a report shall be issued by the Company to each Participant setting forth the balance of the Participant's DSU Account under the Plan.

(c) Effect of Change in Control on DSU Accounts. At the time of consummation of a Change in Control (as defined below), if any, the amount credited to a Participant's DSU Account shall be converted into a credit for cash or common stock of the acquiring company ("Acquiror Stock") based on the consideration received by stockholders of the Company ("Stockholders") in the Change in Control, as follows:

(i) Stock Transaction. If Stockholders receive Acquiror Stock in the Change in Control, then (1) the amount credited to each Participant's DSU Account shall be converted into a credit for the number of shares of Acquiror Stock that the Participant would have received as a result of the Change in Control if the Participant had actually held the Common Stock credited to his or her DSU Account immediately prior to the consummation of the Change in Control, and (2) DSU Accounts will thereafter be denominated in shares of Acquiror Stock and ongoing deferral of Fees shall continue to be made into the DSU Accounts as so denominated in accordance with the terms of outstanding deferral elections.

(ii) Cash or Other Property Transaction. If Stockholders receive cash or other property in the Change in Control, then (1) the amount credited to a Participant's DSU Account shall be converted into a cash credit for the amount of cash or the value of the property that the Participant would have received as a result of the Change in Control if the Participant had actually held the Common Stock credited to his or her DSU Account immediately prior to the consummation of the Change in Control, and the cash so credited to the Participant shall be distributed in a lump sum to the Participant in January of the year following the Change of Control, and (2) DSU Accounts shall no longer exist under the Plan, and there shall be no ongoing deferrals.

(iii) Combination Transaction. If Stockholders receive Acquiror Stock and cash or other property in the Change in Control, then (1) the amount credited to each Participant's DSU Account shall be converted in part into a credit for Acquiror Stock under Section 4(c)(i) and in part into a credit for cash under Section 4(c)(ii) in the same proportion as such consideration is received by the Stockholders, and (2) ongoing deferral and crediting of Fees shall continue to be made into the DSU Accounts as provided in Section 4(c)(i) in accordance with the terms of outstanding deferral elections.

Exhibit 10.1

(iv) Change in Control.  For purposes of this Plan, a "Change of Control" shall mean the occurrence of any of the following events: (a) any person, entity or affiliated group, excluding the Company or any employee benefit plan of the Company, acquiring more than twenty-five percent (25%) of the then outstanding shares of voting stock of the Company, (b) the consummation of any merger or consolidation of the Company into another company, such that the holders of the shares of the voting stock of the Company immediately before such merger or consolidation own less than fifty percent (50%) of the voting power of the securities of the surviving company or the parent of the surviving company, (c) the adoption of a plan for complete liquidation of the Company or the sale or disposition of all or substantially all of the Company's assets of the Company, such that after the transaction, the holders of the shares of the voting stock of the Company immediately prior to the transaction own less than fifty percent (50%) of the voting securities of the acquiror or the parent of the acquiror, or (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board.

5.   Distributions.

(a) Timing of Distributions.  Each Deferred Fee Election Form shall include an election by the Participant as to the timing of distributions with respect to Deferred Fees.  Except as otherwise provided in this Section 5, such elections shall be irrevocable with respect to Deferred Fees once the Deferral Deadline for such Deferred Fees has passed.  All distributions from the Plan shall be made in shares of Common Stock with one share of Common Stock to be distributed for each DSU in the Director’s DSU Account plus cash for any fractional DSU.

(b) Distribution Timing and Valuation. Distributions shall be made in January of the year following the year in which service as a Director of the Company ceases for any reason or in January of the year the Participant elects in the Deferred Fee Election Form.  All distributions   due under the Plan in any year shall be made on a date in January determined by the Compensation Committee of the Board (the "Committee").  All distributions shall be based on DSU Account balances as of the close of business on the last trading day of the immediately preceding year plus any additional DSUs credited to the DSU Account pursuant to the third sentence of Section 4(a) above.

(e) Designation of Beneficiaries; Death.

(i) Each Participant shall have the right, at any time, to designate any person or persons as the Participant's beneficiary or beneficiaries (both primary as well as secondary) to whom distributions under this Plan shall be made in the event of the Participant's death prior to completion of distribution due under the Plan. If greater than fifty percent (50%) of the distribution is designated to a beneficiary other than the Participant's spouse, such beneficiary designation shall be consented to by the Participant's spouse. Each beneficiary designation shall be in written form prescribed by the Company and will be effective only if filed with the Company during the Participant's lifetime. Such designation may be changed by the Participant at any time without the consent of a beneficiary, subject to the spousal consent requirement above. If no designated beneficiary survives the Participant, the Participant's distributions shall be made to the Participant's surviving spouse or, if no spouse survives, to the Participant's estate.

Exhibit 10.1

(ii) Upon the death of a Participant, all distributions shall be made in January of the year following death.

(f) Distribution to Guardian. If a distribution under the Plan is due to a minor or a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct such distribution to the guardian, legal representative or person responsible for the care and custody of such minor, incompetent or person. The Committee may require proof of incompetence, minority, incapacity or guardianship as it may deem appropriate prior to such distribution. Such distribution shall completely discharge the Committee and the Company from all liability with respect to such distribution.

(g) Withholding; Payroll Taxes. The Company shall withhold from distributions made hereunder any taxes required to be withheld from such distributions under federal, state or local law.

6.   Administration.

(a) Committee Duties. This Plan shall be administered by the Committee. The Committee shall have responsibility for the general administration of the Plan and for carrying out its intent and provisions. The Committee shall interpret the Plan and have such powers and duties as may be necessary to discharge its responsibilities. The Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.

(b) Binding Effect of Decisions. The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

7.   Amendment and Termination of the Plan.

(a) Amendment. The Board may at any time amend the Plan in whole or in part; provided, however, that no amendment shall affect the terms of any previously deferred amounts or the terms of any irrevocable Deferred Fee Election Form of any Participant.

Exhibit 10.1

(b) Termination. The Board may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting, or other effects of the continuance of the Plan, or potential distributions thereunder, would not be in the best interests of the Company.

(i) Partial Termination. The Board may partially terminate the Plan by instructing the Committee not to accept any additional Deferred Fee Election Forms and terminating all existing Deferred Fee Election Forms to the extent such Deferred Fee Election Forms have not yet become irrevocable. In the event of such a partial termination, the Plan shall continue to operate and be effective with regard to all elections regarding Deferred Fees made prior to the effective date of such partial termination.

(ii) Complete Termination. The Board may completely terminate the Plan as provided in this Section 7(b)(ii). In connection with any complete termination, the Company shall take all actions necessary so that Participants do not incur any taxes under Section 409A of the Internal Revenue Code.

(1) In the event the Board causes a complete termination of the Plan (other than in connection with a Change in Control Event as provided in Section 8(b)(ii)(2)), the Plan shall continue to operate as in a partial termination except as provided in this Section 8(b)(ii)(1). For a period selected by the Board of at least 12 months from the date the Board takes action to terminate the Plan, the Plan shall continue to make distributions otherwise due under the terms of the Plan absent termination of the Plan. On a date selected by the Board that is more than 12 months from the date the Board took action to terminate the Plan, the Plan shall cease to operate, the Company shall determine the balance of each Participant's DSU Account as of the close of business on such date and the Company shall distribute such DSU Account balances to the Participants in a single lump sum distribution as soon as practicable after such date, but in no event shall such distribution be made later than 24 months after the date the Board took action to terminate the Plan.

(2) The Board may completely terminate the Plan at any time during the 30 days preceding or the 12 months following a Change in Control Event (as defined in the proposed regulations under Section 409A of the Internal Revenue Code in effect as of the effective date of the Plan or in any revised or final regulations adopted after the effective date of the Plan). In that event, on the effective date of the complete termination, the Plan shall cease to operate, the Company shall determine the balance of each Participant's DSU Account as of the close of business on such effective date, and the Company shall distribute such DSU Account balance to the Participants in a single lump sum distribution as soon as practicable after such effective date and in no event later than 12 months after such effective date.

Exhibit 10.1

8.   Miscellaneous.

(a) No Funding.  The obligations of the Company to make distributions under this Plan shall be interpreted solely as an unfunded, contractual obligation to distribute only those amounts credited to the Participant's DSU Account.  Any assets set aside, including any assets transferred to a grantor trust or purchased by the Company with respect to amounts payable under the Plan, shall be subject to the claims of the Company's general creditors, and no person other than the Company shall, by virtue of the provisions of the Plan, have any interest in such assets.

(b) Non-assignability. Neither a Participant nor any other person shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be non-assignable and nontransferable. No part of the distributions to be made hereunder shall, prior to actual distribution, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.

(c)  Compliance with Laws.  This Plan and the issuance and delivery of shares of Common Stock under this Plan are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

(d) Governing Law. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Texas, except as preempted by federal law.

(e) Validity. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provisions had never been inserted herein.

(f) Notice. Any notice or filing required or permitted to be given to the Company or the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Secretary of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Exhibit 10.1

(g) Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.

EX-31.1

Exhibit 31.1

Chief Executive Officer Certification

I, Emile 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

Exhibit 31.1

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: May 8, 2008
	/s/ EmileA.Battat
	Emile A. Battat
	Chairman and
	Chief Executive Officer

EX-31.2

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

Exhibit 31.2

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: May 8, 2008

/s/ Jeffery Strickland

Jeffery Strickland

Vice President and

Chief Financial Officer

EX-32.1

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 March 31, 2008 (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: May 8, 2008	/s/ EmileA.Battat
	Emile A. Battat
	Chief Executive Officer

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

EX-32.2

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 March 31, 2008 (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: May 8, 2008	/s/ Jeffery Strickland
	Jeffery Strickland
	Chief Financial Officer

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