10-Q

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, 2021 

or

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

Commission File Number 001-32982

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)

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 Global Select Market

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	☐
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 classes of common stock, as of the latest practicable date.

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

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information		3
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended March 31, 2021 and March 31, 2020	3
	Condensed Consolidated Balance Sheets (Unaudited) March 31, 2021 and December 31, 2020	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2021 and 2020	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II. Other Information		18
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 6.	Exhibits	19
SIGNATURES		20

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 (Unaudited)

	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			-
		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.

3

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	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		-			-
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 statements.

4

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	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			-
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		-			(9,245	)
Shares tendered for employees’ withholding taxes on stock-based compensation		(585	)		-
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			-

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

5

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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 statements.

6

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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").

(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

7

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3)	Income per share
	The following is the computation for basic and diluted income per share:

	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.

8

ATRION CORPORATION AND SUBSIDIARIES

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, 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.

9

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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		-		-		-		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	$	-	$	-		$	3,695
Commercial paper	2		9,054	$	-	$	-		$	9,054
Bonds	2		49,098	$	306	$	(28	)	$	49,376
Mutual funds	1		609	$	-	$	(18	)	$	591
Equity investments	2		5,675	$	-	$	(1,572	)	$	4,103
As of December 31, 2020:
Money Market	1		4,822	$	-	$	-		$	4,822
Commercial paper	2		6,178	$	-	$	-		$	6,178
Bonds	2		55,720	$	505	$	(44	)	$	56,181
Mutual funds	1		599	$	-	$	(36	)	$	563
Equity investments	2		5,675	$	-	$	(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.

10

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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

11

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.

12

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 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 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;

· Maintaining a culture of controlling cost; and

· Preserving and fostering a collaborative, entrepreneurial management structure.

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

Results for the three months ended March 31, 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. The income per basic share computations are based on weighted average basic shares outstanding of 1,826,000 in the 2021 period and 1,853,000 in the 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.

13

Consolidated revenues of $39.2 million for the first quarter of 2021 were 10 percent lower than revenues of $43.6 million for the first quarter of 2020. This decrease was primarily attributable to a decrease in sales volumes of our Cardiovascular and Fluid Delivery products. Sales in the first quarter of 2020 were inflated by advanced stocking orders by customers concerned about their supply chains because of the COVID-19 outbreak at that time. This 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 defer procedures because of the pandemic.

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

	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 primarily due to lower sales volumes partially offset by higher manufacturing costs. Our cost of goods sold in the first quarter of 2021 was 58.2 percent of revenues compared to 54.4 percent of revenues in the first quarter of 2020.

Gross profit of $16.3 million in the first quarter of 2021 was $3.5 million or 17.8 percent lower than in the comparable 2020 period. Our gross profit percentage in the first quarter of 2021 was 41.7 percent of revenues compared with 45.5 percent of revenues in the first quarter of 2020. The decrease in gross profit percentage in the 2021 period compared to the 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 manufacturing costs.

Our first quarter 2021 operating expenses of $7.4 million were $746,000 lower than the operating expenses for the first quarter of 2020. This decrease was attributable to a $144,000 decrease in Selling expenses, primarily resulting from lower travel and conference expenses due to 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 2021 decreased by $2.8 million to $8.9 million due to the lower sales and gross profit discussed above, a 24 percent decrease compared to our operating income for the first quarter of 2020. Operating income was 23 percent of revenues for the first quarter of 2021 and 27 percent of revenues for the first quarter of 2020.

14

Interest and dividend income in the first quarter of 2021 was $217,000 compared with $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 period.

Other investment income in the first quarter of 2021 was $62,000 compared with Other investment loss of $997,000 in the first quarter of 2020. These amounts were attributable to unrealized gains or losses 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. The effective tax rate for the first quarter of 2021 was 16.7 percent compared with 20.4 percent for the first quarter of 2020. The decrease in the 2021 period’s effective tax rate compared to the prior-year period was primarily related to higher excess tax benefits from stock compensation.  

Liquidity and Capital Resources

As of March 31, 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, 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 the credit facility at March 31, 2021 and we were in compliance with all financial covenants.

At March 31, 2021, we had a total of $88.5 million in cash and cash equivalents, short-term investments and long-term investments. At December 31, 2020 cash and cash equivalents, short-term investments and long-term investments were $87.9 million.

Cash flows from operating activities of $7.4 million for the three months ended March 31, 2021 were primarily comprised of net income plus the net effect of non-cash expenses, increases in accounts receivable, and decreases in accounts payable and prepaid expenses. During the first three months of 2021, we expended $7.3 million for the purchase of investments, $3.0 million for the addition of property and equipment and $3.2 million for dividends. During the same period, maturities and sales of investments generated $13.7 million in cash.

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

We believe that our $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.

15

COVID-19 Impact

The COVID-19 pandemic has resulted in travel and other restrictions to reduce the spread of the disease, including governmental orders across the globe, which, among other things, direct individuals to shelter at their places of residence, direct businesses and 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 developments, we have implemented work-from-home policies for certain of our employees. In addition, many of our customers implemented and are continuing similar measures in their facilities, which have delayed, and may continue to delay, the timing of some orders and deliveries. 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 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 ability to conduct our business in the ordinary course. Such restrictions and 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 some of our key personnel, either temporarily or permanently. In addition, our sales and marketing efforts have been negatively impacted and may be 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 economy.

16

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 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 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 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 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, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

17

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

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

ITEM 1A. Risk Factors.

Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2020 include discussions of our risk factors. There have been changes in certain risk factors described in that report as 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 pass through to our customers the full amount of any increase in raw material costs. The increased resin prices will affect our costs, and if we are not able to fully pass on the increases to our customers, our results of operations and our financial condition could be adversely affected.

18

Item 6. Exhibits.

Exhibit Index

Exhibit Number	Description
31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes - Oxley Act Of 2002
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes - Oxley Act Of 2002
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

19

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 10, 2021	By:	/s/ David A. Battat
		David A. Battat
		President and
		Chief Executive Officer
Date: May 10, 2021	By:	/s/ Jeffery Strickland
		Jeffery Strickland
		Vice President and
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

20

EX-31.1

EXHIBIT 31.1

Chief Executive Officer Certification

I, David A. Battat, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 10, 2021	/s/ David A. Battat
	David A. Battat
	President 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

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 10, 2021	/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 June 30, 2020 (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 10, 2021	/s/ David A. Battat
	David A. Battat
	President and Chief Executive Officer

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

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 June 30, 2020 (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 10, 2021	/s/ Jeffery Strickland
	Jeffery Strickland
	Vice President and Chief Financial Officer

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

XML

Cover - shares	3 Months Ended
	Mar. 31, 2021	Apr. 29, 2021
Cover [Abstract]
Entity Registrant Name	Atrion Corporation
Entity Central Index Key	0000701288
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	false
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Mar. 31, 2021
Entity Filer Category	Large Accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2021
Entity Common Stock Shares Outstanding		1,827,841
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-32982
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	63-0821819
Entity Address Address Line 1	One Allentown Parkway
Entity Address City Or Town	Allen
Entity Address State Or Province	TX
Entity Address Postal Zip Code	75002
City Area Code	972
Local Phone Number	390-9800
Security 12b Title	Common stock, Par Value $0.10 per share
Trading Symbol	ATRI
Security Exchange Name	NASDAQ
Entity Interactive Data Current	Yes

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) shares in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Revenues	$ 39,169,000	$ 43,594,000
Cost of goods sold	22,830,000	23,726,000
Gross profit	16,339,000	19,868,000
Operating expenses:
Selling	1,926,000	2,070,000
General and administrative	4,172,000	4,400,000
Research and development	1,310,000	1,684,000
Operating expenses	7,408,000	8,154,000
Operating income	8,931,000	11,714,000
Interest and dividend income	217,000	462,000
Other investment income/(losses)	62,000	(997,000)
Other income	66,000	0
Non operating income	345,000	(535,000)
Income before provision for income taxes	9,276,000	11,179,000
Provision for income taxes	(1,550,000)	(2,281,000)
Net income	$ 7,726,000	$ 8,898,000
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

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 29,427,000	$ 22,450,000
Short-term investments	18,393,000	19,258,000
Accounts receivable	20,235,000	16,445,000
Inventories	49,519,000	50,298,000
Prepaid expenses and other current assets	2,385,000	3,868,000
Total current assets	119,959,000	112,319,000
Long-term investments	40,672,000	46,207,000
Property, plant and equipment	221,342,000	218,912,000
Less accumulated depreciation and amortization	126,451,000	123,977,000
Property, plant and equipment net	94,891,000	94,935,000
Other assets and deferred charges:
Patents	1,391,000	1,421,000
Goodwill	9,730,000	9,730,000
Other	2,200,000	2,278,000
Other assets	13,321,000	13,429,000
Total assets	268,843,000	266,890,000
Current liabilities:
Accounts payable and accrued liabilities	9,925,000	13,200,000
Accrued income and other taxes	852,000	436,000
Total current liabilities	10,777,000	13,636,000
Line of credit	0	0
Other non-current liabilities	13,315,000	12,812,000
Stockholders' equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares	342,000	342,000
Paid-in capital	59,760,000	53,527,000
Retained earnings	342,221,000	337,700,000
Treasury shares,1,592 at March 31, 2021 and 1,594 at December 31, 2020, at cost	(157,572,000)	(151,127,000)
Total stockholders' equity	244,751,000	240,442,000
Total liabilities and stockholders' equity	$ 268,843,000	$ 266,890,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Stockholders' equity
Common stock, shares par value	$ 0.10	$ 0.10
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,420,000	3,420,000
Treasury stock, shares	1,592,000	1,594,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities:
Net income	$ 7,726,000	$ 8,898,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,093,000	2,763,000
Deferred income taxes	186,000	(500,000)
Stock-based compensation	497,000	378,000
Net change in unrealized gains and losses on investments	(61,000)	1,287,000
Net change in accrued interest, premiums, and discounts on investments	61,000	77,000
Other	25,000	0
Other operating activities	11,527,000	12,903,000
Changes in operating assets and liabilities:
Accounts receivable	(3,790,000)	(3,931,000)
Inventories	779,000	841,000
Prepaid expenses	1,483,000	1,178,000
Other non-current assets	78,000	58,000
Accounts payable and accrued liabilities	(3,406,000)	(530,000)
Accrued income and other taxes	416,000	2,217,000
Other non-current liabilities	317,000	95,000
Net cash provided operating activities	7,404,000	12,831,000
Cash flows from investing activities:
Property, plant and equipment additions	(3,044,000)	(3,574,000)
Purchase of investments	(7,392,000)	(12,392,000)
Proceeds from sale of investments	65,000	329,000
Proceeds from maturities of investments	13,728,000	13,951,000
Net cash provided investing activities	3,357,000	(1,686,000)
Cash flows from financing activities:
Purchase of treasury stock	0	(9,245,000)
Shares tendered for employees' withholding taxes on stock-based compensation	(585,000)	0
Dividends paid	(3,199,000)	(2,868,000)
Net cash provided financing activities	(3,784,000)	(12,113,000)
Net change in cash and cash equivalents	6,977,000	(968,000)
Cash and cash equivalents at beginning of period	22,450,000	45,048,000
Cash and cash equivalents at end of period	29,427,000	44,080,000
Cash paid for:
Income taxes	79,000	54,000
Non-cash financing activities:
Non-cash effect of stock option exercises	$ 6,012,000	$ 0

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]
Balance, shares at Dec. 31, 2019		1,855	1,565
Balance, amount at Dec. 31, 2019	$ 237,870	$ 342	$ (132,260)	$ 52,043	$ 317,745
Cumulative change in accounting principle	(36)				(36)
Balance at January 1, 2020, shares		1,855	1,565
Balances, January 1, 2020, amount	237,834	$ 342	$ (132,260)	52,043	317,709
Net Income	8,898				8,898
Stock-based compensation transactions, amount	384		$ 5	379
Purchase of treasury stock, shares		(15)	15
Purchase of treasury stock, amount	(9,245)		$ (9,245)
Dividends	(2,874)				(2,874)
Balance, shares at Mar. 31, 2020		1,840	1,580
Balance, amount at Mar. 31, 2020	234,997	$ 342	$ (141,500)	52,422	323,733
Balance, shares at Dec. 31, 2020		1,826	1,594
Balance, amount at Dec. 31, 2020	240,442	$ 342	$ (151,127)	53,527	337,700
Net Income	7,726				7,726
Stock-based compensation transactions, amount	373		$ (5,860)	6,233
Dividends	(3,205)				(3,205)
Stock-based compensation transactions, shares		3	(3)
Shares surrendered in stock transactions, shares		(1)	1
Shares surrendered in stock transactions, amount	(585)		$ (585)
Balance, shares at Mar. 31, 2021		1,828	1,592
Balance, amount at Mar. 31, 2021	$ 244,751	$ 342	$ (157,572)	$ 59,760	$ 342,221

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2021

Basis of Presentation

1- Basis of Presentation

(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").

XML

Inventories

3 Months Ended

Mar. 31, 2021

Inventories

2- Inventories

(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

XML

Income Per Share

3 Months Ended

Mar. 31, 2021

Income Per Share

3- Income Per Share

(3)	Income per share
	The following is the computation for basic and diluted income per share:

	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.

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Investments

3 Months Ended

Mar. 31, 2021

Investments

4- Investments

(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.

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.

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		-		-		-		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	$	-	$	-		$	3,695
Commercial paper	2		9,054	$	-	$	-		$	9,054
Bonds	2		49,098	$	306	$	(28	)	$	49,376
Mutual funds	1		609	$	-	$	(18	)	$	591
Equity investments	2		5,675	$	-	$	(1,572	)	$	4,103
As of December 31, 2020:
Money Market	1		4,822	$	-	$	-		$	4,822
Commercial paper	2		6,178	$	-	$	-		$	6,178
Bonds	2		55,720	$	505	$	(44	)	$	56,181
Mutual funds	1		599	$	-	$	(36	)	$	563
Equity investments	2		5,675	$	-	$	(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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Patents and Licenses

3 Months Ended

Mar. 31, 2021

Patents and Licenses

5- Patents and Licenses

(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

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Revenues

3 Months Ended

Mar. 31, 2021

Revenues

6- Revenues

(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

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.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2021

Recent Accounting Pronouncements

7- Recent Accounting Pronouncements

(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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Inventories (Tables)

3 Months Ended

Mar. 31, 2021

Inventories

Schedule of inventories

	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

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Income Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Income Per Share

Schedule of Computation of Basic and Diluted Income Per Share

	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

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Investments (Tables)

3 Months Ended

Mar. 31, 2021

Investments

Schedule of cash and cash equivalents andshort and long-term investments

	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

Schedule of investments, held-to-maturity securities

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		-		-		-		12,497		12,497
TOTAL	$	245	$	3,159	$	639	$	45,055	$	49,098

Schedule of gross unrealized gains and losses on investments

				Gross Unrealized
	Level	Cost		Gains		Losses			Fair Value
As of March 31, 2021:
Money market	1		3,695	$	-	$	-		$	3,695
Commercial paper	2		9,054	$	-	$	-		$	9,054
Bonds	2		49,098	$	306	$	(28	)	$	49,376
Mutual funds	1		609	$	-	$	(18	)	$	591
Equity investments	2		5,675	$	-	$	(1,572	)	$	4,103
As of December 31, 2020:
Money Market	1		4,822	$	-	$	-		$	4,822
Commercial paper	2		6,178	$	-	$	-		$	6,178
Bonds	2		55,720	$	505	$	(44	)	$	56,181
Mutual funds	1		599	$	-	$	(36	)	$	563
Equity investments	2		5,675	$	-	$	(1,598	)	$	4,077

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Patents and Licenses (Tables)

3 Months Ended

Mar. 31, 2021

Patents and Licenses

Schedule of patents and licenses

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

Schedule of estimated future amortization expense

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

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Revenues (Tables)

3 Months Ended

Mar. 31, 2021

Revenues (Tables)

Schedule of revenues by geographic area

	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

Schedule of revenues by product

	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

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Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Inventories (Details)
Raw material	$ 20,187	$ 20,308
Work in process	12,122	11,339
Finished goods	17,210	18,651
Total inventories	$ 49,519	$ 50,298

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Income per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Per Share
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

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Income per share (Details Narrative) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Per Share
Dilutive securities	0	15,000

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Investments (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
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	$ 44,080	$ 45,048
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

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Investments (Details 1) $ in Thousands	Mar. 31, 2021 USD ($)
Debt securities, held-to-maturity	$ 49,098
AAA /AA/A [Member]
Debt securities, held-to-maturity	36,601
BBB/BB [Member]
Debt securities, held-to-maturity	12,497
Assets Baked Bonds [Member]
Debt securities, held-to-maturity	245
Assets Baked Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	245
Fed Govt. Bonds/Notes [Member]
Debt securities, held-to-maturity	3,159
Fed Govt. Bonds/Notes [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	3,159
Fed Govt. Bonds/Notes [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	0
Municipal Bonds [Member]
Debt securities, held-to-maturity	639
Municipal Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	639
Municipal Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	0
Corporate Bonds [Member]
Debt securities, held-to-maturity	45,055
Corporate Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	32,558
Corporate Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	12,497
Asset Backed Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	$ 0

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Investments (Details 2) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Debt securities, held-to-maturity	$ 49,098
Mutual funds (available for sale) [Member]
Debt securities, held-to-maturity	609	$ 599
Gross Unrealized Fair Value	591	563
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(18)	(36)
Money Market Funds [Member]
Debt securities, held-to-maturity	3,695	4,822
Gross Unrealized Fair Value	3,695	4,822
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Commercial Paper [Member]
Debt securities, held-to-maturity	9,054	6,178
Gross Unrealized Fair Value	9,054	6,178
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Bonds [Member]
Debt securities, held-to-maturity	49,098	55,720
Gross Unrealized Fair Value	49,376	56,181
Gross Unrealized Gains	306	505
Gross Unrealized Losses	(28)	(44)
Equity investments [Member]
Debt securities, held-to-maturity	5,675	5,675
Gross Unrealized Fair Value	4,103	4,077
Gross Unrealized Gains	0	0
Gross Unrealized Losses	$ (1,572)	$ (1,598)

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Investments (Details Narrative)	3 Months Ended
	Mar. 31, 2021 USD ($)
Allowance for credit losses related to long term investments	$ 18,000
Allowance for credit losses related to short term investments	$ 1,000
Maximum [Member] | Bonds [Member]
Securities Maturity	57 years

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Patents and Licenses (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Patents and Licenses
Weighted Average Original Life (years)	15 years 8 months 1 day	15 years 8 months 1 day
Gross Carrying Amount	$ 13,840	$ 13,840
Accumulated Amortization	$ 12,449	$ 12,419

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Patents and Licenses (Details 1) $ in Thousands	Mar. 31, 2021 USD ($)
Patents and Licenses
2022	$ 117
2023	113
2024	113
2025	112
2026	$ 112

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Patents and Licenses (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Patents and Licenses
Aggregate amortization expense	$ 30,000	$ 30,000

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Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Other countries less than 5% of revenues	$ 12,657	$ 12,683
Total Revenues	39,169	43,594
Italy [Member]
Total Revenues	2,074	1,482
Unites States [Member]
Total Revenues	22,038	26,192
Germany [Member]
Total Revenues	$ 2,400	$ 3,237

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Revenues (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Total Revenues	$ 39,169	$ 43,594
Other	5,571	5,559
Fluid Delivery [Member]
Total Revenues	19,075	22,348
Cardiovascular [Member]
Total Revenues	12,830	14,824
Ophthalmology [Member]
Total Revenues	$ 1,693	$ 863