UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	☒ Quarterly Report Pursuant To Section 13 ~~or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2020~~

☐	~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from to~~

15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2021

☐ 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 001-32982

Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)

Delaware		63-0821819

~~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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, Par Value $0.10 per share	ATRI	The Nasdaq ~~Stock~~Global Select Market ~~LLC~~

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	☒	Accelerated filer ☐	~~Non-accelerated filer~~ ☐

Smaller reporting company ☐	☐	Non-accelerated filer	☐
		Emerging growth company ☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Title of Each Class		Number of Shares Outstanding at April ~~28, 2020~~ 29, 2021
Common stock, Par Value $0.10 per share		1,827,841

~~1,836,937~~

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.		Financial Information	2 3

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~March 31, 2020	3

	Condensed Consolidated Balance Sheets (Unaudited) March 31, ~~2020~~2021 and December 31, ~~2019~~2020	4

	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	14 13

Item 33..	Quantitative and Qualitative Disclosures About Market Risk	18 17

Item 4.	Controls and Procedures	18 17

PART II. Other Information		18

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 6.	Exhibits	19

SIGNATURES		20


~~PART II.~~	~~Other Information~~	182

~~Item 1.~~Table of Contents	~~Legal Proceedings~~	18

~~Item 1A.~~	~~Risk Factors~~	19

~~Item 2~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	20

~~Item 6.~~	~~Exhibits~~	20

~~SIGNATURES~~		21

~~Exhibit Index~~		22

P~~ART~~

PART I

FINANCIAL INFORMATION

I~~tem~~

Item 1. Financial ~~Statements~~

Statements.

ATRION CORPORATION AND SUBSIDIARIES

C~~ONSOLIDATED~~

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended
March 31,

2020

2019

(in thousands, except per share amounts)

Revenues $ 43,594 $ 41,614
Cost of goods sold 23,726 22,911
Gross profit 19,868 18,703
Operating expenses:
Selling 2,070 2,384
General and administrative 4,400 4,187
Research and development 1,684 1,095
8,154 7,666
Operating income 11,714 11,037

Interest and dividend income 462 582
Other investment income/(losses) (997 ) 211
(535 ) 793

Income before provision for income taxes 11,179 11,830
Provision for income taxes (2,281 ) (2,392 )

Net income $ 8,898 $ 9,438

Net income per basic share $ 4.80 $ 5.09
Weighted average basic shares outstanding 1,853 1,853

Net income per diluted share $ 4.79 $ 5.07
Weighted average diluted shares outstanding 1,859 1,862

Dividends per common share $ 1.55 $ 1.35

	Three Months Ended March 31,
	2021			2020
	(in thousands, except per share amounts)

Revenues	$	39,169		$	43,594
Cost of goods sold		22,830			23,726
Gross profit		16,339			19,868
Operating expenses:
Selling		1,926			2,070
General and administrative		4,172			4,400
Research and development		1,310			1,684
		7,408			8,154
Operating income		8,931			11,714

Interest and dividend income		217			462
Other investment income/(losses)		62			(997	)
Other income		66			0
		345			(535	)

Income before provision for income taxes		9,276			11,179
Provision for income taxes		(1,550	)		(2,281	)

Net income	$	7,726		$	8,898

Net income per basic share	$	4.23		$	4.80
Weighted average basic shares outstanding		1,826			1,853

Net income per diluted share	$	4.22		$	4.79
Weighted average diluted shares outstanding		1,832			1,859

Dividends per common share	$	1.75		$	1.55

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

C~~ONSOLIDATED~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets
March 31,
2020
December 31,
2019

(in thousands)
Current assets:
Cash and cash equivalents $ 44,080 $ 45,048
Short-term investments 18,568 23,766
Accounts receivable 22,813 18,886
Inventories 41,252 42,093
Prepaid expenses and other current assets 1,367 2,545
128,080 132,338

Long-term investments 33,718 31,772

Property, plant and equipment 204,280 200,990
Less accumulated depreciation and amortization 118,834 116,384
85,446 84,606

Other assets and deferred charges:
Patents 1,510 1,539
Goodwill 9,730 9,730
Other 1,946 2,046
13,186 13,315

Total assets $ 260,430 $ 262,031

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable and accrued liabilities $ 10,325 $ 10,855
Accrued income and other taxes 2,636 419
12,961 11,274

Line of credit -- --

Other non-current liabilities 12,472 12,887

Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares 342 342
Paid-in capital 52,422 52,043
Retained earnings 323,733 317,745
Treasury shares,1,580 at March 31, 2020 and 1,565 at December 31, 2019, at cost (141,500 ) (132,260 )
Total stockholders’ equity 234,997 237,870

Total liabilities and stockholders’ equity $ 260,430 $ 262,031

	March 31, 2021			December 31, 2020
Assets	(in thousands)

Current assets:
Cash and cash equivalents	$	29,427		$	22,450
Short-term investments		18,393			19,258
Accounts receivable		20,235			16,445
Inventories		49,519			50,298
Prepaid expenses and other current assets		2,385			3,868
		119,959			112,319

Long-term investments		40,672			46,207

Property, plant and equipment		221,342			218,912
Less accumulated depreciation and amortization		126,451			123,977
		94,891			94,935

Other assets and deferred charges:
Patents		1,391			1,421
Goodwill		9,730			9,730
Other		2,200			2,278
		13,321			13,429

Total assets	$	268,843		$	266,890

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	9,925		$	13,200
Accrued income and other taxes		852			436
		10,777			13,636

Line of credit		0			0

Other non-current liabilities		13,315			12,812

Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342
Paid-in capital		59,760			53,527
Retained earnings		342,221			337,700
Treasury shares,1,592 at March 31, 2021 and 1,594 at December 31, 2020, at cost		(157,572	)		(151,127	)
Total stockholders’ equity		244,751			240,442

Total liabilities and stockholders’ equity	$	268,843		$	266,890

The accompanying notes to the condensed consolidated financial statements are an integral part of these ~~financial~~ statements.

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

C~~onsolidated Statements of Cash Flows~~

(Unaudited)

(In thousands)

Three Months Ended
March 31,

2020

2019

Cash flows from operating activities:
Net income $ 8,898 $ 9,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,763 2,546
Deferred income taxes (500 ) 627
Stock-based compensation 378 380
Net change in unrealized gains and losses on investments 1,287 (147 )
Net change in accrued interest, premiums, and discounts on investments 77 184
12,903 13,028

Changes in operating assets and liabilities:
Accounts receivable (3,931 ) (4,226 )
Inventories 841 771
Prepaid expenses 1,178 1,439
Other non-current assets 58 34
Accounts payable and accrued liabilities (530 ) 316
Accrued income and other taxes 2,217 477
Other non-current liabilities 95 1,066
12,831 12,905

Cash flows from investing activities:
Property, plant and equipment additions (3,574 ) (3,563 )
Purchase of investments (12,392 ) (28,218 )
Proceeds from sale of investments 329 —
Proceeds from maturities of investments 13,951 6,667
(1,686 ) (25,114 )

Cash flows from financing activities:
Purchase of treasury stock (9,245 ) —
Dividends paid (2,868 ) (2,501 )
(12,113 ) (2,501 )

Net change in cash and cash equivalents (968 ) (14,710 )
Cash and cash equivalents at beginning of period 45,048 58,753
Cash and cash equivalents at end of period $ 44,080 $ 44,043

Cash paid for:
Income taxes $ 54 $ 56

	Three Months Ended March 31,
	2021			2020
	(In thousands)
Cash flows from operating activities:
Net income	$	7,726		$	8,898
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,093			2,763
Deferred income taxes		186			(500	)
Stock-based compensation		497			378
Net change in unrealized gains and losses on investments		(61	)		1,287
Net change in accrued interest, premiums, and discounts on investments		61			77
Other		25			0
Other operating activities		11,527			12,903

Changes in operating assets and liabilities:
Accounts receivable		(3,790	)		(3,931	)
Inventories		779			841
Prepaid expenses		1,483			1,178
Other non-current assets		78			58
Accounts payable and accrued liabilities		(3,406	)		(530	)
Accrued income and other taxes		416			2,217
Other non-current liabilities		317			95
		7,404			12,831

Cash flows from investing activities:
Property, plant and equipment additions		(3,044	)		(3,574	)
Purchase of investments		(7,392	)		(12,392	)
Proceeds from sale of investments		65			329
Proceeds from maturities of investments		13,728			13,951
		3,357			(1,686	)

Cash flows from financing activities:
Purchase of treasury stock		0			(9,245	)
Shares tendered for employees’ withholding taxes on stock-based compensation		(585	)		0
Dividends paid		(3,199	)		(2,868	)
		(3,784	)		(12,113	)

Net change in cash and cash equivalents		6,977			(968	)
Cash and cash equivalents at beginning of period		22,450			45,048
Cash and cash equivalents at end of period	$	29,427		$	44,080

Cash paid for:
Income taxes	$	79		$	54

Non-cash financing activities:
Non-cash effect of stock option exercises	$	6,012			0

The accompanying notes to the condensed consolidated financial statements are an integral part of these ~~financial statements.~~

statements

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

C~~onsolidated statementS of changes in stockholders’ equity~~

(Unaudited)

For the Three Months ended March 31, 2020 and 2019
Common Stock Treasury Stock Additional Paid-in Capital

Retained Earnings

Total
Shares Outstanding Amount Shares Amount
Balances, January 1, 2019 1,853 $ 342 1,567 $ (131,727 ) $ 50,391 $ 291,761 $ 210,767

Net income 9,438 9,438
Stock-based compensation transactions 6 381 387
Dividends (2,509 ) (2,509 )
Balances, March 31, 2019 1,853 $ 342 1,567 $ (131,721 ) $ 50,772 $ 298,690 $ 218,083

Balances, December 31, 2019 1,855 $ 342 1,565 $ (132,260 ) $ 52,043 $ 317,745 $ 237,870
Cumulative change in accounting principle (36 ) (36 )
Balances, January 1, 2020 1,855 342 1,565 (132,260 ) 52,043 317,709 237,834

Net income 8,898 8,898
Stock-based compensation transactions 5 379 384
Purchase of treasury stock (15 ) 15 (9,245 ) (9,245 )
Dividends (2,874 ) (2,874 )
Balances, March 31, 2020 1,840 $ 342 1,580 $ (141,500 ) $ 52,422 $ 323,733 $ 234,997

For the Three Months ended March 31, 2021 and 2020

	Common Stock				Treasury Stock				Additional
	Shares		Amount		Shares		Amount		Paid-in Capital		Retained Earnings		Total
Balances, December 31, 2019		1,855	$	342		1,565	$	(132,260)	$	52,043	$	317,745	$	237,870
Cumulative change in accounting principle												(36)		(36)
Balances, January 1, 2020		1,855	$	342		1,565	$	(132,260)		52,043	$	317,709		237,834

Net income											$	8,898		8,898
Stock-based compensation transactions							$	5	$	379				384
Purchase of treasury stock		(15)				15	$	(9,245)						(9,245)
Dividends											$	(2,874)		(2,874)
Balances, March 31, 2020		1,840	$	342		1,580	$	(141,500)	$	52,422	$	323,733	$	234,997

Balances, January 1, 2021		1,826	$	342		1,594	$	(151,127)	$	53,527	$	337,700	$	240,442

Net income											$	7,726		7,726
Stock-based compensation transactions		3				(3)	$	(5,860)	$	6,233				373
Shares surrendered in stock transactions		(1)				1	$	(585)						(585)
Dividends											$	(3,205)		(3,205)
Balances, March 31, 2021		1,828	$	342		1,592	$	(157,572)	$	59,760	$	342,221	$	244,751

The accompanying notes to the condensed consolidated financial statements are an integral part of these ~~financial statements~~

statements.

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

N~~otes to Consolidated Financial Statements~~

(Unaudited)

~~(1) Basis of Presentation~~

The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as deemed necessary.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 7, 2020, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”). References herein to “Atrion,” the “Company,” “we,” “our,” and “us” refer to Atrion Corporation and its subsidiaries.

The Cornavirus Aid, Relief, and Economic Security Act (CARES Act), which became law on March 27, 2020, includes a provision that permits employers to defer the payment of the employer’s portion of payroll taxes that otherwise would be due between March 27, 2020 and December 31, 2020. The Company has elected to take advantage of such deferral provision and is evaluating its ability to take advantage of other provisions of the CARES Act.”

~~(2) Inventories~~

~~Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the first-in, first-out method.~~

~~The following table details the major components of inventories (in thousands):~~
(1)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion” the “Company,” “we,” “our,” and “us”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as deemed necessary.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 10, 2021, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 ("2020 Form 10-K").

March 31,

December 31,

2020

2019

Raw materials

$
17,416

$
18,157

Work in process

9,563

8,525

Finished goods

14,273

15,411

Total inventories

$
41,252

$
42,093

(2)	Inventories

	Inventories are stated at the lower of cost or net realizable value. 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,
	2021		2020
Raw materials	$	20,187	$	20,308
Work in process		12,122		11,339
Finished goods		17,210		18,651
Total inventories	$	49,519	$	50,298

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3)

~~(3)~~	Income per share

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

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

Three months Ended
March 31,
2020 2019
(in thousands, except per share amounts)
Net income $ 8,898 $ 9,438
Weighted average basic shares outstanding 1,853 1,853
Add: Effect of dilutive securities 6 9
Weighted average diluted shares outstanding 1,859 1,862

Earnings per share:
Basic $ 4.80 $ 5.09
Diluted $ 4.79 $ 5.07

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing 15 and zero shares of common stock for the quarters ended March 31, 2020 and 2019, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

~~(4) Investments~~

As of March 31, 2020, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheet. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheet. The fair values of these investments were estimated using recently executed transactions and market price quotations. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months.

	Three Months ended March 31,
	2021		2020
	(in thousands, except per share amounts)
Net income	$	7,726	$	8,898
Weighted average basic shares outstanding		1,826		1,853
Add: Effect of dilutive securities		6		6
Weighted average diluted shares outstanding		1,832		1,859
Earnings per share:
Basic	$	4.23	$	4.80
Diluted	$	4.22	$	4.79

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing zero and 15 shares of common stock for the quarters ended March 31, 2021 and 2020, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

(4)	Investments

	As of March 31, 2021, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheets. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheets. The fair values of these investments were estimated using recently executed transactions and market price quotations. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months.

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The components of the Company’s cash and cash equivalents and our short and long-term investments are as follows (in thousands):~~

March 31,
2020 December 31,
2019
Cash and cash equivalents:
Cash deposits $ 25,014 $ 38,942
Money market funds 13,131 3,460
Commercial paper 5,935 2,646
Total cash and cash equivalents $ 44,080 $ 45,048
Short-term investments:
Commercial paper (held-to-maturity) $ 6,490 $ 6,778
Bonds (held-to-maturity) 12,097 16,988
Allowance for credit losses (19 ) -
Total short-term investments $ 18,568 $ 23,766
Long-term investments:
Mutual funds (available for sale) $ 944 $ 1,105
Bonds (held-to-maturity) 30,992 27,845
Allowance for credit losses (52 ) -
Equity securities (available for sale) 1,834 2,822
Total long-term investments $ 33,718 $ 31,772

Total cash, cash equivalents and short and long-term investments
$ 96,366 $ 100,586

The newly adopted Topic 326 described in footnote 7, utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. Our credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as our portfolio. We also apply an adjustment factor to these credit loss calculations based upon our assessment of the expected impact from current economic conditions on our investments, including the impact of COVID-19. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit rating and update them on a quarterly basis with our latest assessment completed on March 31, 2020.

The components of the Company’s cash and cash equivalents and our short and long-term investments are as follows (in thousands):

	March 31, 2021			December 31, 2020
Cash and cash equivalents:
Cash deposits	$	22,007		$	16,628
Money market funds		3,695			4,822
Commercial paper		3,725			1,000
Total cash and cash equivalents	$	29,427		$	22,450
Short-term investments:
Commercial paper (held-to-maturity)	$	5,329		$	5,178
Bonds (held-to-maturity)		13,086			14,101
Allowance for credit losses		(22	)		(21	)
Total short-term investments	$	18,393		$	19,258
Long-term investments:
Mutual funds (available for sale)	$	591		$	563
Bonds (held-to-maturity)		36,012			41,619
Allowance for credit losses		(34	)		(52	)
Equity securities (available for sale)		4,103			4,077
Total long-term investments	$	40,672		$	46,207
Total cash, cash equivalents and short and long-term investments	$	88,492		$	87,915

We utilize a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. Our credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as our portfolio. We also apply an adjustment factor to these credit loss calculations based upon our assessment of the expected impact from current economic conditions on our investments, including the impact of COVID-19. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and update them on a quarterly basis with our latest assessment completed on March 31, 2021. During the first quarter of 2021, our allowance for credit losses related to short-term investments increased by $1,000 and our allowance for credit losses related to long-term investments decreased by $18,000.

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ATRION CORPORATION AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The following table summarizes the amortized cost of our held-to-maturity bonds at March 31, 2020, aggregated by credit quality indicator (in thousands):~~

Held-to-Maturity Bonds
Credit Quality Indicators
Asset Backed Bonds
Fed Govt Bonds/Notes

Municipal Bonds

Corporate Bonds

Totals

AAA/AA/A $ 2,706 $ 3,381 $ 761 $ 20,325 $ 27,173
BBB/BB - - - 15,916 15,916
TOTAL $ 2,706 $ 3,381 $ 761 $ 36,241 $ 43,089

~~The following table presents information regarding our allowance for credit losses on our short-term and long-term investments for the quarter ended March 31, 2020 (in thousands):~~

Short- Term Securities Long- Term Securities
Total

Beginning balance, December 31, 2019 $ - $ - $ -
Allowance recognized upon adoption of Topic 326 9 33 42
Provision for credit loss expense 10 19 29
Ending balance, March 31, 2020 $ 19 $ 52 $ 71

The following table summarizes the amortized cost of our held-to-maturity bonds at March 31, 2021, aggregated by credit quality indicator (in thousands):

Held-to-Maturity Bonds
Credit Quality Indicators	Asset Backed Bonds		Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	245	$	3,159	$	639	$	32,558	$	36,601
BBB/BB		0		0		0		12,497		12,497
TOTAL	$	245	$	3,159	$	639	$	45,055	$	49,098

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. The fair values of these investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

				Gross Unrealized
	Level	Cost		Gains		Losses			Fair Value
As of March 31, 2021:
Money market	1		3,695	$	0	$	0		$	3,695
Commercial paper	2		9,054	$	0	$	0		$	9,054
Bonds	2		49,098	$	306	$	(28	)	$	49,376
Mutual funds	1		609	$	0	$	(18	)	$	591
Equity investments	2		5,675	$	0	$	(1,572	)	$	4,103

As of December 31, 2020:
Money Market	1		4,822	$	0	$	0		$	4,822
Commercial paper	2		6,178	$	0	$	0		$	6,178
Bonds	2		55,720	$	505	$	(44	)	$	56,181
Mutual funds	1		599	$	0	$	(36	)	$	563
Equity investments	2		5,675	$	0	$	(1,598	)	$	4,077

The carrying value of our investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest an investment may not be fully recoverable. The bonds represent investments in various issuers at March 31, 2021. The unrealized losses for some of these bond investments reflect changes in interest rates following their acquisition. As of March 31, 2021, we had no bond investments in a loss position for more than 12 months.

At March 31, 2021, the length of time until maturity of the commercial paper we owned ranged from less than a month to six months and the length of time to maturity for the bonds ranged from less than a month to 57 months.


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~~The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):~~

Gross Unrealized
Level Cost Gains Losses Fair Value
As of March 31, 2020:
Money market 1 13,131 $ -- $ -- $ 13,131
Commercial paper 2 12,425 $ 19 $ -- $ 12,444
Bonds 2 43,089 $ -- $ (1,233 ) $ 41,856
Mutual funds 1 1,118 $ -- $ (174 ) $ 944
Equity investments 2 5,675 $ -- $ (3,841 ) $ 1,834

As of December 31, 2019:
Money Market 1 3,460 $ -- $ -- $ 3,460
Commercial paper 2 9,424 $ 2 $ -- $ 9,426
Bonds 2 44,833 $ 138 $ (19 ) $ 44,952
Mutual funds 1 1,052 $ 53 $ -- $ 1,105
Equity investments 2 5,675 $ -- $ (2,853 ) $ 2,822

ATRION CORPORATION AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The above bonds represent investments in various issuers at March 31, 2020.~~

The unrealized losses for these bond investments relate to the impact of COVID-19 on the bond market which resulted in a lower market price for those securities. None of these bond investments have been in a loss position for more than 12 months.

~~The commercial paper has maturities from less than a month to 8 months. The bonds have maturities from less than a month to 57 months.~~

~~(5) Patents and Licenses~~

~~Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license.~~

~~The following tables provide information regarding patents and licenses (dollars in thousands):~~

March 31, 2020 December 31, 2019
Weighted Average
Original Life
(years) Gross
Carrying
Amount Accumulated
Amortization Weighted Average
Original Life
(years) Gross
Carrying
Amount Accumulated
Amortization
15.67 $ 13,840 $ 12,330 15.67 $ 13,840 $ 12,301

(5)	Patents and Licenses

	Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):

March 31, 2021						December 31, 2020
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,449		15.67	$	13,840	$	12,419

	Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended March 31, 2021 and 2020.

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

2022	$	117
2023	$	113
2024	$	113
2025	$	112
2026	$	112

(6)

Revenues

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

A summary of revenues by geographic area, based on shipping destination, for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

	2021		2020
United States	$	22,038	$	26,192
Germany		2,400		3,237
Italy		2,074		1,482
Other countries less than 5% of revenues		12,657		12,683
Total	$	39,169	$	43,594

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~~Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended March 31, 2020 and 2019.~~

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

2021 $119
2022 $117
2023 $113
2024 $113
2025 $112

~~(6) Revenues~~

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of revenues by product line for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

	2021		2020
Fluid Delivery	$	19,075	$	22,348
Cardiovascular		12,830		14,824
Ophthalmology		1,693		863
Other		5,571		5,559
Total	$	39,169	$	43,594

More than 99 percent of our total revenue in the periods presented herein is pursuant to shipments initiated by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. Effective January 1, 2020, we adopted a new credit loss accounting methodology to calculate our credit loss allowance for our trade receivables following a lifetime “expected credit loss” measurement objective. An account is written off when we determine the receivable will not be collected. Historically, bad debt has been immaterial.

We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.

(7)	Recent Accounting Pronouncements

	From time to time, new accounting pronouncements applicable to us are issued by the Financial Accounting Standards Board, or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

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~~Notes to Consolidated~~Item 2. Management’s Discussion and Analysis of Financial ~~Statements~~

~~(Unaudited)~~

~~A summary~~Condition and Results of ~~revenues by geographic area, based on shipping destination, for the three months ended March 31, 2020 and 2019 is as follows (in thousands):~~

2020 2019
United States $ 26,192 $ 26,989
Germany 3,237 2,164
Other countries less than 5% of revenues 14,165 12,461
Total $ 43,594 $ 41,614

~~A summary of revenues by product line for the three months ended March 31, 2020 and 2019 is as follows (in thousands):~~

2020 2019
Fluid Delivery $ 22,348 $ 18,161
Cardiovascular 14,824 15,420
Ophthalmology 863 2,283
Other 5,559 5,750
Total $ 43,594 $ 41,614

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. Effective January 1, 2020, we adopted the new credit loss accounting methodology as discussed in footnote 7 to calculate our credit loss allowance for our trade receivables. An account is written off when we determine the receivable will not be collected. Historically, bad debt has been immaterial.

~~We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.~~

~~We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.~~

~~ATRION CORPORATION AND SUBSIDIARIES~~Operations.

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~(7) Recent Accounting Pronouncements~~

~~ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and trade and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized.

On January 1, 2020, we adopted the guidance prospectively with a cumulative adjustment to retained earnings. Atrion has not restated comparative information for 2019 and, therefore, the comparative information for 2019 is reported under the old model and is not comparable to the information presented for 2020.

At adoption, we recognized an incremental allowance for credit losses on our allowance for credit losses related to our held-to-maturity debt securities of approximately $42,000 and our trade accounts receivable of approximately $4,000. Additionally, we recorded an approximately $36,000 decrease in retained earnings associated with the increased estimated credit losses on our trade accounts receivable and investments.

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

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in valves and inflation devices used in marine and aviation safety products.

Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of ~~design,~~ product quality, price, engineering, customer service and delivery time.

Our business strategy is to provide hospitals, physicians and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in the areas of our expertise. We have diverse product lines serving primarily the fluid delivery, cardiovascular and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. Research and development, or R&D, efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce ~~and payoff~~or eliminate indebtedness, to fund capital expenditures, to make investments, to repurchase stock and to pay dividends.

Our strategic objective is to further enhance our position in our served markets by:

●

Focusing on customer needs;

●

Expanding existing product lines and developing new products;

●

~~Manufacturing products to exacting quality standards;~~Maintaining a culture of controlling cost; and

●

Preserving and fostering a collaborative, ~~respectful and~~ entrepreneurial ~~culture.~~management structure.

For the three months ended March 31, ~~2020,~~2021, we reported revenues of ~~$43.6~~$39.2 million, operating income of ~~$11.7~~$8.9 million and net income of ~~$8.9~~$7.7 million, ~~up 5~~down 10 percent, ~~up 6~~24 percent and ~~down 6~~13 percent, respectively, from the three months ended March 31, ~~2019.~~

2020.

Results for the three months ended March 31, ~~2020~~

2021

Consolidated net income totaled $7.7 million, or $4.23 per basic and $4.22 per diluted share, in the first quarter of 2021. This is compared with consolidated net income of $8.9 million, or $4.80 per basic and $4.79 per diluted share, in the first quarter of 2020. ~~This is compared with consolidated net income of $9.4 million, or $5.09 per basic and $5.07 per diluted share, in the first quarter of 2019.~~ The income per basic share computations are based on weighted average basic shares outstanding of ~~1,853,000~~1,826,000 in the ~~2020~~2021 period and 1,853,000 in the ~~2019~~2020 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,832,000 in the 2021 period and 1,859,000 in the 2020 ~~period and 1,862,000 in~~period.

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Consolidated revenues of $39.2 million for the ~~2019 period.~~

~~Consolidated~~first quarter of 2021 were 10 percent lower than revenues of $43.6 million for the first quarter of ~~2020 were 5 percent higher than revenues~~2020. This decrease was primarily attributable to a decrease in sales volumes of ~~$41.6 million for~~our Cardiovascular and Fluid Delivery products. Sales in the first quarter of ~~2019.~~2020 were inflated by advanced stocking orders by customers concerned about their supply chains because of the COVID-19 outbreak at that time. This ~~increase was primarily attributable~~created unusually high sales volumes for us that were not repeated in the first quarter of 2021. The COVID-19 pandemic had a negative impact on our sales in the first quarter of 2021 as patients continued to ~~increased volumes~~defer procedures because of ~~our fluid delivery products partially offset by decreased volumes of our ophthalmology products.~~

the pandemic.

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

Three Months ended
March 31,
2020 2019

Fluid Delivery $ 22,348 $ 18,161
Cardiovascular 14,824 15,420
Ophthalmology 863 2,283
Other 5,559 5,750
Total $ 43,594 $ 41,614

	Three Months ended March 31,
	2021		2020

Fluid Delivery	$	19,075	$	22,348
Cardiovascular		12,830		14,824
Ophthalmology		1,693		863
Other		5,571		5,559
Total	$	39,169	$	43,594

Cost of goods sold of $22.8 million for the first quarter of 2021 was 3.8 percent lower than our cost of goods sold of $23.7 million for the first quarter of 2020 ~~was 3.5 percent higher than cost of goods sold of $22.9 million for the first quarter of 2019~~ primarily due to lower sales volumes partially offset by higher ~~sales volumes.~~manufacturing costs. Our cost of goods sold in the first quarter of ~~2020~~2021 was ~~54.4~~58.2 percent of revenues compared ~~with 55.1~~to 54.4 percent of revenues in the first quarter of ~~2019.~~

2020.

Gross profit of ~~$19.9~~$16.3 million in the first quarter of ~~2020~~2021 was ~~$1.2~~$3.5 million or ~~6.2~~17.8 percent ~~higher~~lower than in the comparable ~~2019~~2020 period. Our gross profit percentage in the first quarter of ~~2020~~2021 was ~~45.5~~41.7 percent of revenues compared with ~~44.9~~45.5 percent of revenues in the first quarter of ~~2019.~~2020. The ~~increase~~decrease in gross profit percentage in the ~~2020~~2021 period compared to the ~~2019~~2020 period was primarily related to a 2021 product sales mix with lower margins, inefficiencies in our manufacturing operations in 2021 partly caused by temporary power disruptions and the impact of the COVID-19 pandemic, and higher ~~margins.~~

manufacturing costs.

Our first quarter ~~2020~~2021 operating expenses of ~~$8.2~~$7.4 million were ~~$488,000 higher~~$746,000 lower than the operating expenses for the first quarter of ~~2019.~~2020. This ~~increase~~decrease was attributable to a $589,000 increase in Research and Development, or R&D, expenses and a $213,000 increase in General and Administrative, or G&A, expenses partially offset by a $314,000 decrease in Selling expenses. The increase in R&D expenses was primarily related to increased outside services, materials and supplies costs. The increase in G&A expenses was primarily related to salaries and outside services. The$144,000 decrease in Selling expenses, ~~was principally attributable to Company-mandated~~primarily resulting from lower travel ~~restrictions~~ and ~~cancelled sales conferences~~conference expenses due to ~~COVID-19.~~

COVID-19 restrictions. General and Administrative expenses were $228,000 lower resulting from decreases in travel and outside services. R&D expenses decreased by $374,000 primarily due to the completion of outside services required to support a specific project in 2020 that does not require additional outside services.

Operating income in the first quarter of ~~2020 increased $677,000~~2021 decreased by $2.8 million to ~~$11.7~~$8.9 million due to the lower sales and gross profit discussed above, a 624 percent ~~increase~~decrease compared to our operating income infor the first quarter ~~ended March 31, 2019.~~of 2020. Operating income was 23 percent of revenues for the first quarter of 2021 and 27 percent of revenues for ~~both~~ the first quarter of ~~2020 and the first quarter of 2019.~~

2020.

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Interest and dividend income in the first quarter of ~~2020~~2021 was ~~$462,000~~$217,000 compared with ~~$582,000~~$462,000 for the same period in the prior year. The decline in interest and dividend income was largely due to lower interest rates in the 2021 period as compared to the 2020 ~~versus 2019.~~

period.

Other investment ~~loss~~income in the first quarter of ~~2020~~2021 was ~~$997,000~~$62,000 compared with Other investment ~~income~~loss of ~~$211,000~~$997,000 in the first quarter of ~~2019.~~2020. These amounts were attributable to unrealized gains or losses ~~and gains~~ on equity investments resulting from changes

in the market values of the investments in each quarter.

Income tax expense was $1.6 million for the first quarter of 2021 compared with $2.3 million for the first quarter of ~~2020 compared with $2.4 million for the first quarter of 2019.~~2020. The effective tax rate for the first quarter of ~~2020~~2021 was ~~20.4~~16.7 percent compared with ~~20.2~~20.4 percent for the first quarter of ~~2019. We expect~~2020. The decrease in the 2021 period’s effective tax rate ~~for~~compared to the ~~remainder of 2020~~prior-year period was primarily related to ~~be approximately 20 percent.~~

higher excess tax benefits from stock compensation.

Liquidity and Capital Resources

As of March 31, ~~2020,~~2021, we had a $75.0 million revolving credit facility with a money center bank pursuant to which the lender is obligated to make advances until February 28, ~~2022.~~2024.

The credit facility is secured by substantially all of our inventories, equipment and accounts receivable. Interest under the credit facility is assessed at 30-day, 60-day or 90-day LIBOR, as selected by us, plus 1.0 percent (1.110 percent at March 31, 2021) and is payable monthly. We had no outstanding borrowings under ~~our~~the credit facility at March 31, 2020. Our ability to borrow funds under the credit agreement from time to time is contingent on meeting certain covenants in the loan agreement, the most restrictive of which is the ratio of total debt to earnings before interest, income tax, depreciation2021 and ~~amortization. At March 31, 2020,~~ we were in compliance with all financial covenants.

At March 31, ~~2020,~~2021, we had a total of ~~$96.4~~$88.5 million in cash and cash equivalents, short-term investments and long-term ~~investments, a decrease of $4.2 million from~~investments. At December 31, ~~2019. The principal contributor to this decrease was stock buybacks of $9.2~~2020 cash and cash equivalents, short-term investments and long-term investments were $87.9 million.

Cash flows from operating activities of ~~$12.9~~$7.4 million for the three months ended March 31, ~~2020~~2021 were primarily comprised of net income plus the net effect of non-cash expenses, ~~and increases in accrued income and other taxes partially offset by~~ increases in accounts ~~receivable.~~receivable, and decreases in accounts payable and prepaid expenses. During the first three months of ~~2020,~~2021, we expended ~~$12.4~~$7.3 million for the purchase of investments, ~~$3.6~~$3.0 million for the addition of property and equipment ~~$9.2 million in stock buybacks~~ and ~~$2.9~~$3.2 million for dividends. During the same period, maturities and sales of investments generated ~~$14.3~~$13.7 million in cash.

At March 31, ~~2020,~~2021, we had working capital of ~~$115.1~~$109.2 million, including ~~$44.1~~$29.4 million in cash and cash equivalents and ~~$18.6~~$18.3 million in short-term ~~investments.~~investments compared to working capital of $98.7 million at December 31, 2020. The ~~$6.0~~$10.5 million ~~decrease~~increase in working capital during the ~~first~~ three months of ~~2020~~2021 was primarily related to ~~decreases~~an increase in cash and cash equivalents of ~~short term investments~~$7.0 million and an increase in accounts receivable of ~~$5.2~~$3.8 million.

We believe that our ~~$96.4~~$88.5 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $75.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future, including the costs associated with the planned expansion of one of our manufacturing facilities. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary. ~~Additionally, we believe that our cash and cash equivalents, short-term investments and long-term investments, as a whole, will increase during the remainder of 2020.~~

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COVID-19 Impact

~~In March 2020, the World Health Organization declared the outbreak of~~

The COVID-19 a pandemic ~~which continues to spread throughout the United States and the world and~~ has resulted in travel and other restrictions to reduce the implementation of numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Although we are unable to predict accurately the full impact that COVID-19 will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the duration and severityspread of the ~~pandemic~~disease, including governmental orders across the globe, which, among other things, direct individuals to shelter at their places of residence, direct businesses and ~~containment measures, our compliance with~~governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, maintain social distancing, and order cessation of non-essential travel. As a result of these measures has affected our day-to-day operations and could disrupt our business and operations, as well as those of our key customers, suppliers, and other counterparties, for an indefinite period of time. To help protect the health and well-being of our employees and communities, some of our employees have been working remotely, anddevelopments, we have implemented ~~additional health and safety measures in~~work-from-home policies for certain of our ~~facilities.~~employees. In addition, many of our customers ~~may have~~ implemented and are continuing similar measures in their facilities, which have delayed, and may continue to delay, the timing of some orders and deliveries.

~~Although such disruptions did not~~ The effects of shelter-in-place and social distancing orders, government-imposed quarantines, and work-from-home policies may further negatively impact productivity, disrupt our business, and delay our development timelines beyond the delays we have ~~a material adverse impact~~already experienced and disclosed, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ~~financial results for the first quarter of fiscal 2020, revenue~~ability to conduct our business in the ~~current quarter~~ordinary course. Such restrictions and ~~subsequent quarters~~limitations may also further negatively impact our access to regulatory authorities (which are affected, among other things, by applicable travel restrictions and may be delayed in responding to inquiries, reviewing filings, and conducting inspections); our ability to perform regularly scheduled quality checks and maintenance; and our ability to obtain services from third-party specialty vendors and other providers or to access their expertise as fully and timely as needed. The COVID-19 pandemic may also result in the loss of ~~2020 could~~some of our key personnel, either temporarily or permanently. In addition, our sales and marketing efforts have been negatively impacted and may be ~~affected~~further negatively impacted by postponement or cancellation of face-to-face meetings and restrictions on access by non-essential personnel to hospitals or clinics to the extent such measures slow down adoption or further commercialization of our marketed products. The demand for our products may also be adversely impacted by the restrictions and limitations adopted in response to the COVID-19 pandemic, particularly to the extent they affect the patients' ability or willingness to undergo elective surgeries. As a result, some of our inventory may become obsolete and may need to be written off, impacting our operating results. These and similar, and perhaps more severe, disruptions in our operations may materially adversely impact our business, operating results, and financial condition.

The global COVID-19 pandemic continues to evolve as progress in fighting the pandemic is being made in the United States and some other countries with the pace of vaccinations increasing. However, the ultimate impact of the pandemic remains highly uncertain and subject to change. Accordingly, we do not yet know the full impact that the pandemic will have on our business, healthcare systems, or the global pandemic. OEM customers and end users of our products could experience financial distress, mass illness, supply chain disruptions and government prohibitions that could impact purchases of products from us. Illnesses, government prohibitions and supply chain disruptions could also impact our ability to fulfill orders.

Our business may be adversely impacted as a result of the pandemic’s global economic impact. For example, we may be unable to collect receivables from those customers significantly impacted by COVID-19. Also, a decrease in orders in a given period could negatively affect our revenues in future periods, particularly if experienced on a sustained basis. We will continue to evaluate the nature and extent of the impact of COVID-19 to our business.

economy.

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Forward-Looking Statements

Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our ~~effective tax rate for the remainder of 2020, our~~ ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow and borrowings under the credit facility, our access to equity and debt financing, and the impact of the COVID-19 pandemic on our business and operations, and ~~the increase in cash, cash equivalents, and investments during the remainder of 2020.~~our financial results. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: the risk that the COVID-19 pandemic ~~could lead~~leads to material delays and cancellations of, or reduced demand for, procedures in which our products are utilized; curtailed or delayed capital spending by hospitals and other healthcare providers; disruption to our supply chain; closures of our facilities; delays in training; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 outbreak; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions; changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.

I~~tem~~

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

Risk.

For the quarter ended March 31, ~~2020,~~2021, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our ~~2019~~2020 Form 10-K.

I~~tem~~

Item 4. Controls and ~~Procedures~~

Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, ~~2020.~~2021. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended March 31, ~~2020~~2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

P~~ART~~

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PART II

- OTHER INFORMATION

I~~tem~~

ITEM 1. Legal ~~Proceedings~~

Proceedings.

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

I~~tem~~ITEM 1A. Risk ~~Factors~~

~~The ongoing COVID-19 pandemic could adversely affect our business, results~~Factors.

Item 1A. of ~~operations, and financial condition.~~

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the United States and the world and has resulted in the implementation of numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Although we are unable to predict accurately the full impact that COVID-19 will have on our results from operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers, and other counterparties, for an indefinite period of time. To help protect the health and well-being of our employees and communities, some of our employees have been working remotely, and we have implemented additional health and safety measures in our facilities. In addition, many of our customers may have implemented similar procedures in their facilities, which may delay the timing of some orders and deliveries expected in the second and third quarters of this year. Certain of these measures and government-imposed restrictions may have an adverse effect on the productivity and profitability of our manufacturing facilities, and in turn may have an adverse effect on our business and operations. Moreover, a prolonged pandemic, or the threat thereof, could result in employee absences and travel restrictions for our employees, lower productivity, voluntary closures of our offices and facilities, and other disruptions to our business. Any of these could have a material adverse effect on our business, financial condition, and results of operations.

The disruptions to our operations caused by COVID-19 may result in inefficiencies, delays, and additional costs in our product development, manufacturing, sales, marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Revenue for the second and subsequent quarters of this year may be lower than initially anticipated at the beginning of the year due to compliance by us, our customers, and our suppliers with government-mandated or recommended shelter-in-place orders in jurisdictions in which we, our customers, and our suppliers operate. Additionally, the pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could affect demand for our products and services and impact our results and financial condition even after the pandemic is contained and the shelter-in-place and similar orders are lifted. For example, we may be unable to collect receivables from those customers significantly impacted by COVID-19. Also, a decrease in orders in a given period could negatively affect our revenues in future periods, particularly if experienced on a sustained basis. The pandemic or any worsening of the global business and economic environment as a result thereof may also have the effect of heightening or exacerbating many of the other risks described in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for ~~our fiscal~~the year ended December 31, ~~2019, such~~2020 include discussions of our risk factors. There have been changes in certain risk factors described in that report as ~~those relating~~outlined below.

Supply chain disruptions due to storms in the southern United States in February 2021 could have a material adverse impact on our operations and our financial results.

The principal raw materials that we use in our products are polyethylene, polypropylene and polyvinyl chloride resins. Our ability to operate profitably is dependent, in part, on the availability and pricing of these resins and other raw materials. The resins we use are derived from petroleum and natural gas; therefore, prices fluctuate substantially as a result of changes in petroleum and natural gas prices, demand and the capacity of the companies that produce these products to meet market needs.

A storm in February 2021 impacted the southern region of the United States, causing power outages that led to chemical plant shutdowns. The storm also temporarily halted a third of the natural-gas production in the Texas gulf area. Supply chains were disrupted causing shortages of raw materials and price increases for polyethylene and polypropylene resins, in addition to other chemical compounds used to make our components. The ultimate impact of this supply chain disruption is uncertain, and, although we do not yet know the full extent of potential delays or impacts on our business or our healthcare customers, they could have a material adverse impact on our operations and our financial results.

Our ability to maintain profitability depends, in part, upon our ability to ~~maintain manufacturing efficiency, disruption of our operations at our manufacturing facilities or in our supply chain, and risks generally associated with our international business operations.~~

It~~em 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~The table below sets forth information with respect~~pass through to our ~~purchases~~customers the full amount of any increase in raw material costs. The increased resin prices will affect our ~~common stock during each~~costs, and if we are not able to fully pass on the increases to our customers, our results of ~~the three months in the period ended March 31, 2020.~~

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⁾

1/1/2020 through 1/31/2020 — — — 231,765
2/1/2020 through 2/29/2020 — — — 231,765
3/1/2020 through 3/31/2020 14,576 $ 634.27 14,576 217,189
Total 14,576 $ 634.27 14,576 217,189

operations and our financial condition could be adversely affected.

~~(1)~~

On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. At December 31, 2019, we had repurchased 18,235 shares of our common stock authorized under the program approved in May 2015. Our stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.

I~~tem 6. Exhibits~~

	Exhibit Number	~~Description~~18

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Item 6. Exhibits.

Exhibit Index

Exhibit Number	~~31.1~~	Description
31.1		Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2	~~31.2~~		Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1	~~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	~~32.2~~		Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes –- Oxley Act Of 2002
101.INS	~~101.INS~~		XBRL Instance Document
101.SCH	~~101.SCH~~		XBRL Taxonomy Extension Schema Document
101.CAL	~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase Document
101.PRE	~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document

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S~~IGNATURES~~

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)
	~~(Registrant)~~

Date: May ~~7, 2020~~10, 2021	By:	/s/ David A. Battat
		David A. Battat
		~~David A. Battat~~
President and		~~President and~~
		Chief Executive Officer


Date: May ~~7, 2020~~10, 2021	By:	/s/ Jeffery Strickland
		Jeffery Strickland
		Vice President and
		Chief Financial Officer ~~(Principal~~
		(Principal Accounting and Financial Officer)

E~~xhibit Index~~

	Exhibit Number		~~Description~~
	~~31.1~~		~~Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer~~ 20
	~~31.2~~		~~Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer~~
	~~32.1~~		~~Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002~~
	~~32.2~~		~~Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002~~
	~~101.INS~~		~~XBRL Instance Document~~
	~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
	~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
	~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
	~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~
	~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

	Three Months Ended March 31,
	2020			2019
	(in thousands, except per share amounts)

Revenues	$	43,594		$	41,614
Cost of goods sold		23,726			22,911
Gross profit		19,868			18,703
Operating expenses:
Selling		2,070			2,384
General and administrative		4,400			4,187
Research and development		1,684			1,095
		8,154			7,666
Operating income		11,714			11,037

Interest and dividend income		462			582
Other investment income/(losses)		(997	)		211
		(535	)		793

Income before provision for income taxes		11,179			11,830
Provision for income taxes		(2,281	)		(2,392	)

Net income	$	8,898		$	9,438

Net income per basic share	$	4.80		$	5.09
Weighted average basic shares outstanding		1,853			1,853


Net income per diluted share	$	4.79		$	5.07
Weighted average diluted shares outstanding		1,859			1,862

Dividends per common share	$	1.55		$	1.35

Assets	March 31, 2020			December 31, 2019
	(in thousands)
Current assets:
Cash and cash equivalents	$	44,080		$	45,048
Short-term investments		18,568			23,766
Accounts receivable		22,813			18,886
Inventories		41,252			42,093
Prepaid expenses and other current assets		1,367			2,545
		128,080			132,338

Long-term investments		33,718			31,772

Property, plant and equipment		204,280			200,990
Less accumulated depreciation and amortization		118,834			116,384
		85,446			84,606

Other assets and deferred charges:
Patents		1,510			1,539
Goodwill		9,730			9,730
Other		1,946			2,046
		13,186			13,315

Total assets	$	260,430		$	262,031

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	10,325		$	10,855
Accrued income and other taxes		2,636			419
		12,961			11,274

Line of credit		--			--

Other non-current liabilities		12,472			12,887

Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342
Paid-in capital		52,422			52,043
Retained earnings		323,733			317,745
Treasury shares,1,580 at March 31, 2020 and 1,565 at December 31, 2019, at cost		(141,500	)		(132,260	)
Total stockholders’ equity		234,997			237,870

Total liabilities and stockholders’ equity	$	260,430		$	262,031

For the Three Months ended March 31, 2020 and 2019
	Common Stock					Treasury Stock					Additional Paid-in Capital		Retained Earnings			Total
	Shares Outstanding			Amount		Shares		Amount			Additional Paid-in Capital		Retained Earnings			Total
Balances, January 1, 2019		1,853		$	342		1,567	$	(131,727	)	$	50,391	$	291,761		$	210,767

Net income														9,438			9,438
Stock-based compensation transactions									6			381					387
Dividends														(2,509	)		(2,509	)
Balances, March 31, 2019		1,853		$	342		1,567	$	(131,721	)	$	50,772	$	298,690		$	218,083

Balances, December 31, 2019		1,855		$	342		1,565	$	(132,260	)	$	52,043	$	317,745		$	237,870
Cumulative change in accounting principle														(36	)		(36	)
Balances, January 1, 2020		1,855			342		1,565		(132,260	)		52,043		317,709			237,834

Net income														8,898			8,898
Stock-based compensation transactions									5			379					384
Purchase of treasury stock		(15	)				15		(9,245	)							(9,245	)
Dividends														(2,874	)		(2,874	)
Balances, March 31, 2020		1,840		$	342		1,580	$	(141,500	)	$	52,422	$	323,733		$	234,997

	March 31,		December 31,
	2020		2019
Raw materials	$	17,416	$	18,157
Work in process		9,563		8,525
Finished goods		14,273		15,411
Total inventories	$	41,252	$	42,093

	March 31, 2020			December 31, 2019
Cash and cash equivalents:
Cash deposits	$	25,014		$	38,942
Money market funds		13,131			3,460
Commercial paper		5,935			2,646
Total cash and cash equivalents	$	44,080		$	45,048
Short-term investments:
Commercial paper (held-to-maturity)	$	6,490		$	6,778
Bonds (held-to-maturity)		12,097			16,988
Allowance for credit losses		(19	)		-
Total short-term investments	$	18,568		$	23,766
Long-term investments:
Mutual funds (available for sale)	$	944		$	1,105
Bonds (held-to-maturity)		30,992			27,845
Allowance for credit losses		(52	)		-
Equity securities (available for sale)		1,834			2,822
Total long-term investments	$	33,718		$	31,772

Total cash, cash equivalents and short and long-term investments	$	96,366		$	100,586

Held-to-Maturity Bonds
Credit Quality Indicators		Asset Backed Bonds		Fed Govt Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	2,706	$	3,381	$	761	$	20,325	$	27,173
BBB/BB		-		-		-		15,916		15,916
TOTAL	$	2,706	$	3,381	$	761	$	36,241	$	43,089

	Short- Term Securities		Long- Term Securities		Total
Beginning balance, December 31, 2019	$	-	$	-	$	-
Allowance recognized upon adoption of Topic 326		9		33		42
Provision for credit loss expense		10		19		29
Ending balance, March 31, 2020	$	19	$	52	$	71

	Gross Unrealized
		Level	Cost		Gains		Losses			Fair Value
As of March 31, 2020:
Money market		1	13,131	$	--	$	--		$	13,131
Commercial paper		2	12,425	$	19	$	--		$	12,444
Bonds		2	43,089	$	--	$	(1,233	)	$	41,856
Mutual funds		1	1,118	$	--	$	(174	)	$	944
Equity investments		2	5,675	$	--	$	(3,841	)	$	1,834

As of December 31, 2019:
Money Market		1	3,460	$	--	$	--		$	3,460
Commercial paper		2	9,424	$	2	$	--		$	9,426
Bonds		2	44,833	$	138	$	(19	)	$	44,952
Mutual funds		1	1,052	$	53	$	--		$	1,105
Equity investments		2	5,675	$	--	$	(2,853	)	$	2,822

March 31, 2020						December 31, 2019
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,330		15.67	$	13,840	$	12,301

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⁾
1/1/2020 through 1/31/2020	—		—		—		231,765
2/1/2020 through 2/29/2020	—		—		—		231,765
3/1/2020 through 3/31/2020	14,576	$	634.27		14,576		217,189
Total	14,576	$	634.27		14,576		217,189