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 September 30, ~~2019~~2020

☐	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)

~~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~~

One Allentown Parkway, Allen, TX 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 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~~☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ~~☒Yes~~☒ 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 ~~“accelerated filer,”~~ “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act (Check one):~~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~~ 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 atOctober ~~11, 2019~~30, 2020
Common stock, Par Value $0.10 per share		~~1,854,829~~1,828,953

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


PART I. Financial Information		2


Item 1.	Financial Statements		2
	Condensed Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2020 and 2019		3
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2020 and December 31, 2019		4
	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2020 and 2019		5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three and Nine Months Ended September 30, 2020 and 2019		6
	Notes to Condensed Consolidated Financial Statements (Unaudited)		8

	~~Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2019 and 2018~~	3

	~~Consolidated Balance Sheets (Unaudited) September 30, 2019 and December 31, 2018~~Item 2.	4

	~~Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2019 and 2018~~	5

	~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three and Nine Months Ended September 30, 2019 and 2018~~	6

	~~Notes to Consolidated Financial Statements (Unaudited)~~	8

	~~Item 2.~~ ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	13	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20

Item 4.	Controls and Procedures		20

PART II. Other Information			21

	~~Item 3.~~~~Quantitative and Qualitative Disclosures About Market Risk~~	18
Item 1.	Legal Proceedings		21
	~~Item 4.~~~~Controls and Procedures~~	18

~~PART II.~~ Item 1A.	18Risk Factors		21


Item 1.6.~~Legal Proceedings~~	18Exhibits		22

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

		~~Item 6.~~SIGNATURES ~~Exhibits~~	19

~~SIGNATURES~~		20
	23
~~Exhibit Index~~		21

Table of Contents

PART I

FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

Item 1. Financial Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			Three Months Ended September 30,						Nine Months Ended September 30,
	(in thousands, except per share amounts)												2020			2019			2020			2019
													(in thousands, except per share amounts)
Revenues	$	38,883		$	39,274		$	120,600		$	117,522		$	33,785		$	38,883		$	115,348		$	120,600
Cost of goods sold		20,992			21,275			65,414			61,349			18,887			20,992			63,114			65,414
Gross profit		17,891			17,999			55,186			56,173			14,898			17,891			52,234			55,186

Operating expenses:
Selling		2,092			2,105			6,574			6,169			1,888			2,092			5,660			6,574
General and administrative		3,990			3,933			12,480			12,470			4,039			3,990			13,066			12,480
Research and development		1,359			1,204			3,678			4,145			1,388			1,359			4,165			3,678
		7,441			7,242			22,732			22,784
Total Operating Expense														7,315			7,441			22,891			22,732
Operating income		10,450			10,757			32,454			33,389			7,583			10,450			29,343			32,454

Interest and dividend income		733			439			1,896			1,157			303			733			1,161			1,896
Other investment income (losses)		(106	)		21			265			(1,153	)		678			(106	)		5			265
Other income		--			20			--			20
		627			480			2,161			24
Total Non Operating Income Expenses														981			627			1,166			2,161

Income before provision for income taxes		11,077			11,237			34,615			33,413			8,564			11,077			30,509			34,615
Provision for income taxes		(1,482	)		(2,016	)		(5,918	)		(6,907	)		(1,321	)		(1,482	)		(5,764	)		(5,918	)

Net income	$	9,595		$	9,221		$	28,697		$	26,506		$	7,243		$	9,595		$	24,745		$	28,697

Net income per basic share	$	5.17		$	4.98		$	15.48		$	14.30		$	3.96		$	5.17		$	13.46		$	15.48
Weighted average basic shares outstanding		1,855			1,853			1,854			1,853			1,829			1,855			1,839			1,854

Net income per diluted share	$	5.15		$	4.96		$	15.40		$	14.27		$	3.95		$	5.15		$	13.42		$	15.40
Weighted average diluted shares outstanding		1,862			1,858			1,863			1,857			1,834			1,862			1,844			1,863

Dividends per common share	$	1.55		$	1.35		$	4.25		$	3.75		$	1.75		$	1.55		$	4.85		$	4.25

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

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets	September 30, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(in thousands)						(in thousands)
Current assets:
Cash and cash equivalents	$	63,673		$	58,753		$	23,996		$	45,048
Short-term investments		21,339			9,684			18,779			23,766
Accounts receivable		18,770			17,014			17,747			18,886
Inventories		38,314			33,572			48,622			42,093
Prepaid expenses and other current assets		2,661			3,242			4,013			2,545
		144,757			122,265
Total current assets								113,157			132,338

Long-term investments		16,830			21,048			45,381			31,772

Property, plant and equipment		196,250			181,582			213,203			200,990
Less accumulated depreciation and amortization		113,989			106,689			122,150			116,384
		82,261			74,893
Property, plant and equipment net								91,053			84,606

Other assets and deferred charges:
Patents		1,569			1,659			1,450			1,539
Goodwill		9,730			9,730			9,730			9,730
Other		1,604			1,621			2,261			2,046
		12,903			13,010
Total other assets								13,441			13,315

Total assets	$	256,751		$	231,216		$	263,032		$	262,031

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	9,878		$	9,601		$	11,694		$	10,855
Accrued income and other taxes		1,503			619			1,005			419
		11,381			10,220
Total current liabilities								12,699			11,274

Line of credit		--			--			0			0

Other non-current liabilities		13,065			10,229			12,215			12,887

Stockholders’ equity:
Common stock, par value $ per share; authorized shares, issued shares		342			342
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares								342			342
Paid-in capital		51,660			50,391			53,581			52,043
Retained earnings		312,563			291,761			333,523			317,745
Treasury shares, at September 30, 2019 and 1,567 at December 31, 2018, at cost		(132,260	)		(131,727	)
Treasury shares,1,591 at September 30, 2020 and 1,565 at December 31, 2019, at cost								(149,328	)		(132,260	)
Total stockholders’ equity		232,305			210,767			238,118			237,870

Total liabilities and stockholders’ equity	$	256,751		$	231,216		$	263,032		$	262,031

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

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

~~(Unaudited)~~
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended September 30,

2019

2018

Cash flows from operating activities:

Net income

$
28,697

$
26,506

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

7,961

6,702

Deferred income taxes

1,922

17

Stock-based compensation

1,306

1,297

Net change in unrealized gains and losses on investments

(257
)

1,143

Net change in accrued interest, premiums, and discounts on investments

367

(81
)
Other

(6
)

(17
)

39,990

35,567

Changes in operating assets and liabilities:

Accounts receivable

(1,756
)

(3,690
)
Inventories

(4,742
)

(2,818
)
Prepaid expenses

581

600

Other non-current assets

17

(145
)
Accounts payable and accrued liabilities

277

2,240

Accrued income and other taxes

884

125

Other non-current liabilities

914

812

36,165

32,691

Cash flows from investing activities:

Property, plant and equipment additions

(15,239
)

(12,671
)
Purchase of investments

(54,539
)

(27,001
)
Proceeds from maturities of investments

46,992

33,913

(22,786
)

(5,759
)

Cash flows from financing activities:

Shares tendered for employees’ withholding taxes on stock-based compensation

(579
)

(90
)
Dividends paid

(7,880
)

(6,947
)

(8,459
)

(7,037
)

Net change in cash and cash equivalents

4,920

19,895

Cash and cash equivalents at beginning of period

58,753

30,136

Cash and cash equivalents at end of period

$
63,673

$
50,031

Cash paid for:

Income taxes

$
2,630

$
2,027

	Nine Months Ended September 30,
	2020			2019
	(in thousands)
Cash flows from operating activities:
Net income	$	24,745		$	28,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,517			7,961
Deferred income taxes		1,315			1,922
Stock-based compensation		1,540			1,306
Net change in unrealized gains and losses on investments		256			(257	)
Net change in accrued interest, premiums, and discounts on investments		25			367
Other		22			(6	)
		36,420			39,990

Changes in operating assets and liabilities:
Accounts receivable		1,136			(1,756	)
Inventories		(6,529	)		(4,742	)
Prepaid expenses		(1,468	)		581
Other non-current assets		(258	)		17
Accounts payable and accrued liabilities		839			277
Accrued income and other taxes		586			884
Other non-current liabilities		(1,977	)		914
		28,749			36,165

Cash flows from investing activities:
Property, plant and equipment additions		(14,899	)		(15,239	)
Purchase of investments		(40,025	)		(54,539	)
Proceeds from sale of investments		899			--
Proceeds from maturities of investments		30,223			46,992
		(23,802	)		(22,786	)

Cash flows from financing activities:
Purchase of treasury stock		(17,037	)		--
Shares tendered for employees’ withholding taxes on stock-based compensation		(55	)		(579	)
Dividends paid		(8,907	)		(7,880	)
		(25,999	)		(8,459	)

Net change in cash and cash equivalents		(21,052	)		4,920
Cash and cash equivalents at beginning of period		45,048			58,753
Cash and cash equivalents at end of period	$	23,996		$	63,673

Cash paid for:
Income taxes	$	4,518		$	2,630

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

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

~~(Unaudited)~~

For the Three Months ended September 30, 2019 and 2018

Common Stock

Treasury Stock

SharesOutstanding

Amount

Shares

Amount

Additional Paid-in Capital

Retained Earnings

Total

Balances, July 1, 2018

1,853

$
342

1,567

$
(131,727
)
$
49,635

$
279,807

$
198,057

Net income

9,221

9,221

Stock-based compensation transactions

387

387

Shares surrendered in stock transactions

Dividends

(2,508
)

(2,508
)
Balances, September 30, 2018

1,853

$
342

1,567

$
(131,727
)
$
50,022

$
286,520

$
205,157

Balances, July 1, 2019

1,855

$
342

1,565

$
(132,260
)
$
51,332

$
305,846

$
225,260

Net income

9,595

9,595

Stock-based compensation transactions

328

328

Shares surrendered in stock transactions

Dividends

(2,878
)

(2,878
)
Balances, September 30, 2019

1,855

$
342

1,565

$
(132,260
)
$
51,660

$
312,563

$
232,305

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months ended September 30, 2020 and 2019

	Common Stock				Treasury Stock					Additional
	Shares Outstanding		Amount		Shares		Amount			Paid-in Capital		Retained Earnings			Total
Balances, June 30, 2019		1,855	$	342		1,565	$	(132,260	)	$	51,332	$	305,846		$	225,260
Net income													9,595			9,595
Stock-based compensation transactions											328					328
Dividends													(2,878	)		(2,878	)
Balances, September 30, 2019		1,855	$	342		1,565	$	(132,260	)	$	51,660	$	312,563		$	232,305
Balances, June 30, 2020		1,829	$	342		1,591	$	(149,329	)	$	53,020	$	329,494		$	233,527
Net income													7,243			7,243
Stock-based compensation transactions								1			561					562
Shares surrendered in stock transactions								0								0
Dividends													(3,214	)		(3,214	)
Balances, September 30, 2020		1,829	$	342		1,591	$	(149,328	)	$	53,581	$	333,523		$	238,118

~~ATRION CORPORATION AND SUBSIDIARIES~~

~~Consolidated statementS of changes in stockholders’ equity~~

~~(Unaudited)~~

For the Nine Months ended September 30, 2019 and 2018

Common Stock

Treasury Stock

Shares Outstanding

Amount

Shares

Amount

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Total

Balances, January 1, 2018

1,852

$
342

1,568

$
(131,663
)
$
48,730

$
(1,215
)
$
268,194

$
184,388

Net income

26,506

26,506

Reclass from adopting ASO 2016-01

1,215

(1,215
)

--

Stock-based compensation transactions 1 (1 ) 26 1,292 1,318
Shares surrendered in stock transactions (90 ) (90 )
Dividends

(6,965
)

(6,965
)
Balances, September 30, 2018

1,853

$
342

1,567

$
(131,727
)
$
50,022

$
--

$
286,520

$
205,157

Balances, January 1, 2019

1,853

$
342

1,567

$
(131,727
)
$
50,391

$
--

$
291,761

$
210,767

Net income

28,697

28,697

Stock-based compensation transactions

3

(3
)

46

1,269

1,315

Shares surrendered in stock transactions

(1
)

1

(579
)

(579
)
Dividends

(7,895
)

(7,895
)
Balances, September 30, 2019

1,855

$
342

1,565

$
(132,260
)
$
51,660

$
--

$
312,563

$
232,305

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

(Unaudited)

For the Nine Months ended September 30, 2020 and 2019

Common Stock

Treasury Stock

Additional

Shares Outstanding

Amount

Shares

Amount

Paid-in
Capital

Retained Earnings

Total

Balances, December 31 , 2018

1,853

$ 342

1,567

$ (131,727 )

$ 50,391

$ 291,761

$ 210,767

Net income

28,697

28,697

Stock-based compensation transactions

3

(3 )

46

1,269

1,315

Shares surrendered in stock transactions

(1 )

1

(579 )

(579 )
Dividends

(7,895 )

(7,895 )
Balances, September 30, 2019

1,855

$ 342

1,565

$ (132,260 )

$ 51,660

$ 312,563

$ 232,305

Balances, December 31, 2019

1,855

$ 342

1,565

$ (132,260 )

$ 52,043

$ 317,745

$ 237,870

Cumulative change in accounting principal

(36 )

(36 )

Balances, January 1, 2020

1,855

342

1,565

(132,260
)

52,043

317,709

237,834

Net income

24,745

24,745

Stock-based compensation transactions

24

1,538

1,562

Shares surrendered in stock transactions

(55 )

(55 )
Purchase of treasury stock

(26 )

26

(17,037 )

(17,037 )
Dividends

(8,931 )

(8,931 )
Balances, September 30, 2020

1,829

$ 342

1,591

$ (149,328 )

$ 53,581

$ 333,523

$ 238,118

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
7
Table of Contents

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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 ~~affect~~can have a significant impact on our revenue, operating income, and net income, as well as on the ~~reported amounts~~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 ~~statements~~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 November 9, 2020, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and ~~notes.~~additional information is obtained. Actual results could differ materially from ~~those estimates.~~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~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018 (“2018~~2019 ("2019 Form ~~10-K”~~10-K"). ~~References herein~~

The Coronavirus Aid, Relief, and Economic Security Act, which became law on March 27, 2020, includes a provision that permits an employer to ~~“Atrion,”~~defer the ~~“Company,” “we,” “our,”~~payment of the employer’s portion of payroll taxes that otherwise would be due between March 27, 2020 and ~~“us” refer~~December 31, 2020. The Company has elected to ~~Atrion Corporation and its subsidiaries.~~take advantage of such deferral provision.

~~(2)~~	~~Inventories~~
Table of Contents

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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):

September 30, 2019

December 31, 2018

Raw materials

$
16,886

$
14,994

Work in process

9,231

7,214

Finished goods

12,197

11,364

Total inventories

$
38,314

$
33,572

	September 30,		December 31,
	2020		2019
Raw materials	$	19,994	$	18,157
Work in process		10,724		8,525
Finished goods		17,904		15,411
Total inventories	$	48,622	$	42,093

(3) Income per share

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

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(in thousands, except per share amounts)

Net income

$
9,595

$
9,221

$
28,697

$
26,506

Weighted average basic shares outstanding

1,855

1,853

1,854

1,853

Add: Effect of dilutive securities

7

5

9

4

Weighted average diluted shares outstanding

1,862

1,858

1,863

1,857

Earnings per share:

Basic

$
5.17

$
4.98

$
15.48

$
14.30

Diluted

$
5.15

$
4.96

$
15.40

$
14.27

~~ATRION CORPORATION AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Net income	$	7,243	$	9,595	$	24,745	$	28,697
Weighted average basic shares outstanding		1,829		1,855		1,839		1,854
Add:Effect of dilutive securities		5		7		5		9
Weighted average diluted shares outstanding		1,834		1,862		1,844		1,863
Earnings per share:
Basic	$	3.96	$	5.17	$	13.46	$	15.48
Diluted	$	3.95	$	5.15	$	13.42	$	15.40

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. ~~There were no anti-dilutive~~Dilutive securities representing two and zero shares of common stock for the quarters ended September 30, 2020 and 2019, respectively, and ~~2018.~~

an average of six and zero shares of common stock for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

As of September 30, 2020 and December 31, 2019, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity ~~securities that are required to be measured for disclosure purposes at fair value on a recurring basis.~~securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance ~~sheet.~~sheets. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance ~~sheet. These~~sheets. The fair values of these investments ~~are considered Level 1 or Level 2 as detailed in the table below.~~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):

	September 30, 2020			December 31, 2019
Cash and cash equivalents:
Cash deposits	$	19,573		$	38,942
Money market funds		3,673			3,460
Commercial paper		750			2,646
Total cash and cash equivalents	$	23,996		$	45,048
Short-term investments:
Commercial paper (held-to-maturity)	$	4,469		$	6,778
Bonds (held-to-maturity)		14,330			16,988
Allowance for credit losses		(20	)		0
Total short-term investments	$	18,779		$	23,766
Long-term investments:
Mutual funds (available for sale)	$	499		$	1,105
Bonds (held-to-maturity)		42,177			27,845
Allowance for credit losses		(57	)		0
Equity securities (available for sale)		2,762			2,822
Total long-term investments	$	45,381		$	31,772
Total cash, cash equivalents and short and long-term investments	$	88,156		$	100,586

Recently adopted Topic 326 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 September 30, 2020.

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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 September 30, 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	$	1,891	$	3,265	$	759	$	31,490	$	37,405
BBB/BB		0		0		0		19,102		19,102
TOTAL	$	1,891	$	3,265	$	759	$	50,592	$	56,507

The following table presents information regarding our allowance for credit losses on our short-term and long-term investments for the nine months ended September 30, 2020 (in thousands):

	Short- Term Securities		Long- Term Securities		Total
Beginning balance, December 31, 2019	$	0	$	0	$	0
Allowance recognized upon adoption of Topic 326		9		33		42
Provision for credit loss expense		11		24		35
Ending balance, September 30, 2020	$	20	$	57	$	77

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 September 30, 2019:

Money market

1

55,445

$
--

$
--

$
55,445

Commercial paper

2

6,138

$
--

$
--

$
6,138

Bonds

2

30,650

$
142

$
--

$
30,792

Mutual funds

1

949

$
34

$
--

$
983

Equity investments

2

5,675

$
--

$
(2,711
)

$
2,964

As of December 31, 2018:

Money market

1

12,319

$
--

$
--

$
12,319

Commercial paper

2

4,393

$
--

$
--

$
4,393

Bonds

2

25,922

$
--

$
(211
)

$
25,711

Mutual funds

1

795

$
--

$
(121
)

$
674

Equity investments

2

5,675

$
--

$
(2,814
)

$
2,861

					Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value
As of September 30, 2020:
Money market		1		3,673	$	-	$	0		$	3,673
Commercial paper		2		5,219	$	4	$	-		$	5,223
Bonds		2		56,506	$	544	$	(60	)	$	56,990
Mutual funds		1		566	$	0	$	(67	)	$	499
Equity investments		2		5,675	$	0	$	(2,913	)	$	2,762

As of December 31, 2019:
Money Market		1		3,460	$	0	$	0		$	3,460
Commercial paper		2		9,424	$	2	$	0		$	9,426
Bonds		2		44,833	$	138	$	(19	)	$	44,952
Mutual funds		1		1,052	$	53	$	0		$	1,105
Equity investments		2		5,675	$	0	$	(2,853	)	$	2,822

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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to Consolidated Financial Statements~~

(Unaudited)

The ~~above long-term~~ bonds represent investments in various issuers at September 30, ~~2019.~~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 has been in a loss position for more than 12 months.

The commercial paper has maturities from less than a month to 5five months. The bonds have maturities from less than a month to 3754 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):

September 30, 2019

December 31, 2018

Weighted Average Original Life (years)

Gross Carrying Amount

Accumulated Amortization

Weighted Average Original Life (years)

Gross Carrying Amount

Accumulated Amortization

15.67

$
13,840

$
12,271

15.67

$
13,840

$
12,181

September 30, 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	$	12,390		15.67	$	13,840	$	12,301

Aggregate amortization expense for patents and licenses was $$30,000 in each of the three months ended September 30, 2020 and 2019 and ~~2018 and $~~$90,000 in each of the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

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

2020

$
119

2021

$
119

2022

$
117

2023

$
113

2024

$
113

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

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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to Consolidated Financial Statements~~(Unaudited)

~~(Unaudited)~~

A summary of revenues by geographic area, based on shipping destination, for the three and ~~nine~~six months ended September 30, 2020 and 2019 ~~and 2018 is~~are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

United States

$
24,644

$
23,979

$
76,640

$
73,419

Germany

2,168

1,675

6,427

6,637

Other countries less than 5% of revenues

12,071

13,620

37,533

37,466

Total

$
38,883

$
39,274

$
120,600

$
117,522

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
United States	$	19,925	$	24,644	$	65,648	$	76,640
Germany		2,485		2,168		8,640		6,427
Other countries less than 5% of revenues		11,375		12,071		41,060		37,533
Total	$	33,785	$	38,883	$	115,348	$	120,600

A summary of revenues by product line for the three and nine months ended September 30, 2020 and 2019 ~~and 2018 is~~are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Fluid Delivery

$
17,888

$
17,106

$
54,334

$
54,033

Cardiovascular

14,565

13,292

44,564

39,505

Ophthalmology

1,556

2,768

5,656

8,405

Other

4,874

6,108

16,046

15,579

Total

$
38,883

$
39,274

$
120,600

$
117,522

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Fluid Delivery	$	16,512	$	17,888	$	60,620	$	54,334
Cardiovascular		11,297		14,565		36,963		44,564
Ophthalmology		1,171		1,556		2,970		5,656
Other		4,805		4,874		14,795		16,046
Total	$	33,785	$	38,883	$	115,348	$	120,600

~~The vast majority (98%)~~More than 99 percent of our total revenue in the periods presented herein is ~~driven~~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. ~~On an ongoing basis,~~Effective January 1, 2020, we adopted the ~~collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts.~~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.

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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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to Consolidated Financial Statements~~

(Unaudited)

(7) Recent Accounting Pronouncements

ASU ~~2016-01,~~No. 2016-13, Financial Instruments ~~- Overall (Subtopic 825-10)~~– Credit Losses (Topic 326): ~~Recognition and~~ Measurement of Credit Losses on Financial ~~Assets and Financial Liabilities.~~Instruments.

In ~~January~~June 2016, the FASB issued ASU ~~2016-01,~~ No. 2016-13, Financial Instruments ~~- Overall (Subtopic 825-10)~~– Credit Losses (Topic 326): ~~Recognition and~~ Measurement of Credit Losses on Financial ~~Assets and Financial Liabilities~~Instruments. The ~~main objective~~ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of ~~this update is to enhance~~credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the ~~reporting model for financial instruments in order to provide users of financial statements with more decision-useful information. Changes~~FASB has issued several updates to the ~~previous~~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 ~~primarily affect~~prospectively with a cumulative adjustment to retained earnings. Atrion has not restated comparative information for 2019 and, therefore, the ~~accounting~~comparative information for ~~equity investments, financial liabilities~~2019 is reported under the ~~fair value option,~~old model and is not comparable to the ~~presentation and disclosure requirements~~information presented for ~~financial instruments. The primary impact of this change~~2020.

At adoption, we recognized an incremental allowance for ~~us relates~~credit losses on our allowance for credit losses related to our ~~available-for-sale equity investment~~held-to-maturity debt securities of approximately $42,000 and ~~resulted~~our trade accounts receivable of approximately $4,000. Additionally, we recorded an approximately $36,000 decrease in ~~unrecognized gains~~retained earnings associated with the increased estimated credit losses on our trade accounts receivable and losses from this investment being reflected in our income statement beginning in 2018. We adopted ASU 2016-01 as of January 1, 2018, applying the update by means of a cumulative-effect adjustment to the balance sheet by reclassifying the balance of our Accumulated Other Comprehensive Loss in the shareholders’ equity section of the balance sheet to Retained Earnings. The balance reclassified of $1,215,000 was a result of prior-period unrealized losses from our equity investment. This change in accounting is expected to create greater volatility in our investment income each quarter in the future.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~~

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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, customer service and delivery time.

Our strategy is to provide a broad selection of products in the areas of our expertise. Research and development efforts are focused on improving current products and developing ~~highly-engineered~~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 indebtedness, to fund capital expenditures, to repurchase stock and to pay dividends.

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

	●·	Focusing on customer needs;
	●·	Expanding existing product lines and developing new products;
	●·	Manufacturing products to exacting quality standards; and
	●·	Preserving and fostering a collaborative, respectful and entrepreneurial culture.

For the three months ended September 30, ~~2019,~~2020, we reported revenues of ~~$38.9~~$33.8 million, operating income of ~~$10.5~~$7.6 million and net income of ~~$9.6~~$7.2 million, down 113 percent, ~~down 3~~27 percent and ~~up 4~~25 percent, respectively, from the three months ended September 30, 2018. For the nine months ended September 30, 2019, we reported revenues of $120.6 million, operating income of $32.5 million and net income of $28.7 million, up 3 percent, down 3 percent and up 8 percent, respectively, from the nine months ended September 30, 2018.2019.

Results for the three months ended September 30, ~~2019~~2020

Consolidated net income totaled $7.2 million, or $3.96 per basic and $3.95 per diluted share, in the third quarter of 2020. This is compared with consolidated net income of $9.6 million, or $5.17 per basic and $5.15 per diluted share, in the third quarter of 2019. ~~This is compared with consolidated net income of $9.2 million, or $4.98 per basic and $4.96 per diluted share, in the third quarter of 2018.~~ The income per basic share computations are based on weighted average basic shares outstanding of 1,829,000 in the 2020 period and 1,855,000 in the 2019 ~~period and 1,853,000 in the 2018~~ period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,834,000 in the 2020 period and 1,862,000 in the 2019 ~~period and 1,858,000 in the 2018~~ period.

Consolidated revenues of $33.8 million for the third quarter of 2020 were 13 percent lower than revenues of $38.9 million for the third quarter of ~~2019 were 1 percent lower than revenues of $39.3 million for the third quarter of 2018.~~2019. This decrease was primarily attributable to ~~decreased~~a decrease in volumes of our ~~ophthalmology products~~Cardiovascular, Fluid Delivery and ~~other non-medical products partially offset by increased volumes of our fluid delivery products and cardiovascular~~Ophthalmology products.

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

	Three Months ended September 30,				Three Months ended September 30,
	2019		2018		2020		2019

Fluid Delivery	$	17,888	$	17,106	$	16,512	$	17,888
Cardiovascular		14,565		13,292		11,297		14,565
Ophthalmology		1,556		2,768		1,171		1,556
Other		4,874		6,108		4,805		4,874
Total	$	38,883	$	39,274	$	33,785	$	38,883

Cost of goods sold of $18.9 million for the third quarter of 2020 was 10.0 percent lower than cost of goods sold of $21.0 million for the third quarter of 2019 ~~was 1 percent lower than cost of goods sold of $21.3 million for the third quarter of 2018~~ primarily due to lower sales ~~volumes and the impact of continued cost improvement projects partially offset by increased depreciation and compensation costs.~~volumes. Our cost of goods sold in the third quarter of ~~2019~~2020 was ~~54.0~~55.9 percent of revenues compared ~~with 54.2~~to 54.0 percent of revenues in the third quarter of ~~2018.~~2019.

Gross profit of ~~$17.9~~$14.9 million in the third quarter of ~~2019~~2020 was ~~$108,000,~~$3.0 million or 116.7 percent lower than in the comparable ~~2018~~2019 period. Our gross profit percentage in the third quarter of ~~2019~~2020 was ~~46.0~~44.0 percent of revenues compared with ~~45.8~~46.0 percent of revenues in the third quarter of ~~2018.~~2019. The ~~increase~~decrease in gross profit percentage in the ~~2019~~2020 period compared to the ~~2018~~2019 period was primarily related to ~~improved~~increased manufacturing ~~efficiencies and cost improvement projects mentioned above partially offset by increased depreciation and compensation costs.~~costs coupled with lower sales volumes.

Our third quarter ~~2019~~2020 operating expenses of ~~$7.4~~$7.3 million were ~~$199,000 higher~~$126,000 lower than the operating expenses for the third quarter of ~~2018.~~2019. This ~~increase~~decrease was attributable to a ~~$155,000 increase~~$204,000 decrease in ~~Research~~Selling expenses, primarily resulting from lower travel and ~~Development, or R&D,~~conference expenses ~~and a $57,000 increase~~due to COVID-19, partially offset by increases in General and Administrative, or G&A, expenses ~~partially offset by a $13,000 decrease in Selling expenses. The increase in~~of $49,000 and Research and Development, or R&D, expenses ~~was primarily related to increased outside services and increased materials and supplies costs.~~of $29,000. The increase in G&A expenses was ~~primarily related~~mainly due to increased ~~depreciation~~software maintenance and ~~increased information technology costs. The decrease in Selling~~salary expenses and the R&D expense increase was ~~principally attributable~~primarily due to ~~decreased travel partially offset by increased compensation and commissions.~~

higher salary expenses.

Operating income in the third quarter of ~~2019~~2020 decreased ~~$307,000~~by $2.8 million to ~~$10.5~~$7.6 million due to the lower sales and gross profit discussed above, a 327 percent decrease compared to our operating income infor the third quarter ~~ended September 30, 2018.~~of 2019. Operating income was 22 percent of revenues for the third quarter of 2020 and 27 percent of revenues for ~~both~~ the third quarter of ~~2019 and the third quarter of 2018.~~2019.

Interest and dividend income in the third quarter of ~~2019~~2020 was ~~$733,000~~$303,000 compared with ~~$439,000~~$733,000 for the same period in the prior year. ~~Increased levels of investment~~The decline in interest and ~~increased~~dividend income was largely due to lower interest rates ~~were~~in the ~~primary reasons for~~2020 period as compared to the ~~increase.~~2019 period.

Other investment ~~loss~~income in the third quarter of ~~2019~~2020 was ~~$106,000~~$678,000 compared with an Other investment ~~income~~loss of ~~$21,000~~$106,000 in the third quarter of ~~2018.~~2019. 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 respective quarter.

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Income tax expense was $1.3 million for the third quarter of 2020 compared with $1.5 million for the third quarter of ~~2019 compared with $2.0 million for the third quarter of 2018.~~2019. The effective tax rate for the third quarter of ~~2019~~2020 was ~~13.4~~15.4 percent compared with ~~17.9~~13.4 percent for the third quarter of ~~2018.~~2019. The ~~decrease~~increase in the ~~2019 period~~2020 period’s effective tax rate was primarily related to ~~increased~~decreased tax benefits ~~from~~booked for sales outside the United States under the foreign ~~sales transactions and higher tax credits from our research activities. We expect the effective tax rate for the remainder of 2019 to be approximately 19 percent.~~derived intangible income (“FDII”) deduction.

Results for the nine months ended September 30, ~~2019~~2020

Consolidated net income totaled $24.7 million, or $13.46 per basic and $13.42 per diluted share, in the first nine months of 2020. This is compared with consolidated net income of $28.7 million, or $15.48 per basic and $15.40 per diluted share, in the first nine months of 2019. ~~This is compared with consolidated net income of $26.5 million, or $14.30 per basic and $14.27 per diluted share, in the first nine months of 2018.~~ The income per basic share computations are based on weighted average basic shares outstanding of 1,839,000 in the 2020 period and 1,854,000 in the 2019 ~~period and 1,853,000 in the 2018~~ period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,844,000 in the 2020 period and 1,863,000 in the 2019 ~~period and 1,857,000 in the 2018~~ period.

Consolidated revenues of $115.3 million for the first nine months of 2020 compared with revenues of $120.6 million for the first nine months of ~~2019~~2019. Higher sales in Fluid Delivery were ~~3 percent higher than revenues of $117.5 million for the first nine months of 2018. This increase was primarily attributable to increased volumes of our cardiovascular products partially~~ offset by ~~decreased volumes of our ophthalmology products.~~lower Cardiovascular, Ophthalmology and Other sales.

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

Nine Months ended September 30,

2019

2018

Fluid Delivery

$
54,334

$
54,033

Cardiovascular

44,564

39,505

Ophthalmology

5,656

8,405

Other

16,046

15,579

Total

$
120,600

$
117,522

	Nine Months ended September 30,
	2020		2019

Fluid Delivery	$	60,620	$	54,334
Cardiovascular		36,963		44,564
Ophthalmology		2,970		5,656
Other		14,795		16,046
Total	$	115,348	$	120,600

Cost of goods sold of ~~$65.4~~$63.1 million for the first nine months of ~~2019~~2020 was ~~$4.1~~$2.3 million ~~higher~~lower than in the comparable ~~2018~~2019 period. ~~The primary contributor~~This reduction was due to ~~the increase in our cost of goods sold was increased~~lower sales volumes, ~~a less~~ favorable product sales mix, and ~~increased depreciation and compensation costs~~continued cost improvement projects, partially offset by increased manufacturing costs. Our cost of goods sold for the ~~impact~~first nine months of ~~continued cost improvement projects~~2020 was 54.7 percent of revenues compared to 54.2 percent of revenues for the first nine months of 2019.

Gross profit was $52.2 million in the first nine months of ~~2019. Our cost of goods sold~~2020 and $55.2 million in the ~~first nine months of~~comparable 2019 period. Our gross profit percentage was ~~54.2 percent of revenues compared with 52.2~~45.3 percent of revenues in the first nine months ~~of 2018.~~

~~Gross profit of $55.2 million~~in 2020 and 45.8 percent in the first nine months ~~of 2019 was $987,000, or 2 percent, lower than~~ in ~~the comparable 2018 period. Our gross profit percentage in the first nine months of 2019 was 45.8 percent of revenues compared with 47.8 percent of revenues in the first nine months of 2018. The~~2019. This decrease in gross profit percentage was due to increased manufacturing costs coupled with lower sales volumes in the ~~2019 period compared to the 2018 period~~2020 period. This reduction was ~~primarily related to the less~~softened by a favorable product sales mix and ~~increased depreciation and compensation costs partially offset by~~continued cost ~~improvement projects~~improvements in the current year period as mentioned above.

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Operating expenses of ~~$22.7~~$22.9 million for the first nine months ~~of 2019~~2020 were ~~$52,000 lower~~$159,000 higher than the operating expenses for the first nine months of ~~2018.~~2019. This ~~decrease~~increase was attributable to a ~~$467,000 decrease~~$487,000 increase in R&D expenses and a $586,000 increase in G&A expenses largely offset by a ~~$10,000 increase in G&A expenses and a $405,000 increase~~$914,000 decrease in Selling expenses. The ~~decrease~~increase in R&D expenses was primarily related to ~~decreased compensation, decreased~~increases in outside services and ~~decreased materials and supplies costs partially offset by increased regulatory costs.~~compensation. The increase in G&A expenses for the first nine months of ~~2019~~2020 was principally attributable to increased ~~information technology costs partially offset by decreased~~compensation, software maintenance, and outside services. The ~~increase~~decrease in Selling expenses was principally attributable to ~~increased compensation, commissions~~Company-mandated travel restrictions and ~~promotion costs partially offset by decreased travel and decreased outside services.~~cancelled conferences due to COVID-19.

Operating income in the first nine months of ~~2019~~2020 decreased ~~$935,000~~by $3.1 million to ~~$32.5~~$29.3 million, a 310 percent decrease from our operating income in the first nine months ~~ended September 30, 2018.~~of 2019. Operating income was 25 percent of revenues for the first nine months of 2020 and 27 percent of revenues in the ~~first nine months of~~comparable 2019 ~~and 28 percent of revenues in the first nine months of 2018.~~period.

Interest and dividend income for the first nine months of ~~2019~~2020 was ~~$1.9~~$1.2 million compared with ~~$1.2~~$1.9 million for the same period in the prior year. ~~Increased levels of investment~~The decline in interest and ~~increased~~ dividend income ~~were~~was largely due to lower interest rates in the ~~primary reasons for~~2020 period as compared to the ~~increase.~~2019 period.

Other investment income was $5,000 for the first nine months of ~~2019 was $265,000~~2020 compared with anOther investment ~~loss~~income of ~~$1.2 million~~$265,000 in the first nine months of ~~2018.~~2019. These amounts ~~are~~were attributable to ~~unrealized~~ gains ~~and losses~~ on equity investments resulting from changes in the market values of the investments in each respective ~~nine month~~ period.

Income tax expense was $5.8 million for the first nine months of ~~2019 was~~2020 and $5.9 million ~~compared to income tax expense of $6.9 million for the same period~~ in the ~~prior year.~~comparable 2019 period. The effective tax rate for the first nine months of ~~2019~~2020 was ~~17.1~~18.9 percent compared with ~~20.7~~17.1 percent for the first nine months of ~~2018.~~2019. The ~~decrease~~increase in the ~~2019 period~~ effective tax rate in the 2020 period was primarily related to ~~increased~~decreased tax benefits booked for sales outside the United States under the FDII deduction and from lower stock compensation ~~and foreign sales transactions.~~deductions. We expect the effective tax rate for the fourth quarter of 2020 to be approximately 15 percent.

Liquidity and Capital Resources

As of September 30, ~~2019,~~2020, 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. We~~2022.We had no outstanding borrowings under our credit facility at September 30, ~~2019.~~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, depreciation and amortization. At September 30, ~~2019,~~2020, we were in compliance with all financial covenants.

At September 30, ~~2019,~~2020, we had a total of ~~$101.8~~$88.2 million in cash and cash equivalents, short-term investments and long-term investments, ~~an increase~~a decrease of $12.4 million from December 31, ~~2018.~~2019. The principal contributor to this ~~increase~~decrease was ~~operating results.~~stock buybacks of $17.0 million.

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Cash flows from operating activities of ~~$36.2~~$28.7 million for the nine months ended September 30, ~~2019~~2020 were primarily comprised of net income plus the net effect of non-cash expenses ~~increases~~and decreases in ~~other non-current liabilities and increases in accrued income~~accounts receivable and other taxes partially offset by increases in ~~accounts receivable~~inventories and ~~increases in inventories.~~prepaid expenses. During the first nine months of ~~2019,~~2020, we expended ~~$15.2~~$40.0 million for the purchase of investments, $14.9 million for the addition of property and equipment, ~~$54.5~~$17.0 million ~~for the purchase of investments~~in stock buybacks and ~~$7.9~~$8.9 million for dividends. During the same period, maturities and sales of investments generated ~~$47.0~~$30.2 million in cash.

At September 30, ~~2019,~~2020, we had working capital of ~~$133.4~~$100.5 million, including ~~$63.7~~$24.0 million in cash and cash equivalents and ~~$21.3~~$18.8 million in short-term ~~investments.~~investments compared to working capital of $121.1 million at December 31, 2019. The ~~$21.3~~$20.6 million ~~increase~~decrease in working capital during the first nine months of ~~2019~~2020 was primarily related to ~~an increase in~~decreases of cash and cash equivalents ~~short-term~~of $21.1 million and short term investments ~~and inventories. This increase was~~of $4.9 million partially offset by increases in accrued income and other taxes. The increase in cash and cash equivalents and short-term investments was primarily related to operating results. The increase in accounts receivable was primarily related to increased ~~revenues for the third quarter~~inventories of 2019 as compared to the fourth quarter of 2018. The increase in inventories was primarily related to replenishment of inventories to levels required for operational effectiveness. The increases in accrued income and other taxes are primarily related to accrued federal and state income taxes relating to operating results.$6.5 million.

We believe that our ~~$101.8~~$88.2 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 ~~continue to~~ increase during the remainder of ~~2019.~~

~~Forward-Looking Statements~~2020.

COVID-19 Impact

COVID-19, which has spread throughout the United States and the world, has resulted in the implementation and continuation 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 severity of the pandemic and containment measures, our compliance with these measures has disrupted and may continue to disrupt our business and operations, as well as those of many of our key customers, suppliers, and other counterparties. In response to the COVID-19 pandemic, various national, state, and local governments where we, our customers, and our suppliers operate issued decrees prohibiting certain businesses from continuing to operate or restricting certain of their operations. To help protect the health and well-being of our employees and communities, some of our employees have been working remotely, and we implemented and are continuing additional health and safety measures in our facilities. 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.

These disruptions had a material adverse impact on our financial results for the first nine months of 2020 and for the three months ended September 30, 2020. For the first nine months of 2020, our revenues were down 4 percent, our operating income was down 10 percent and our net income was down 14 percent from the nine months ended September 30, 2019. For the third quarter 2020, our revenues were down 13 percent, our operating income was down 27 percent and our net income was down 25 percent from the three months ended September 30, 2019. Results for the fourth quarter of 2020, and for an indeterminate period thereafter, may be affected by the impact of the global pandemic. OEM customers and end users of our products may experience financial distress, mass illness, supply chain disruptions, and government prohibitions that could impact purchases of products from us. Illnesses, government prohibitions and restrictions, and supply chain disruptions could also impact our ability to fulfill orders. Additionally, we may be unable to collect receivables from those customers significantly impacted by COVID-19. 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.

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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 ~~2019,~~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, the impact of the COVID-19 pandemic on our business and operations, and our financial results, and the increase in cash, cash equivalents, and investments during the remainder of ~~2019.~~2020. 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~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For the quarter ended September 30, ~~2019,~~2020, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our ~~2018~~2019 Form 10-K.

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, ~~2019.~~2020. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended September 30, ~~2019~~2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

~~OTHER INFORMATION~~

~~Item 1.~~

~~Legal Proceedings~~

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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~~.operations.

Item 1A. Risk Factors.

~~Item 1A.~~

~~Risk Factors~~

Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 include discussions of our risk factors. There have been no material changes in the risk factors described in those reports, except with respect to the risk ~~factors as described~~factor regarding COVID-19 included in Part I,II, Item 1A entitled “Risk Factors,~~” in~~ “of our ~~2018~~Quarterly Report on Form ~~10-K other than~~10-Q for the ~~supplemental risk factor set forth below:~~quarter ended June 30, 2020 which is supplemented below.

~~Our business is dependent on third-party sterilization for many~~The ongoing COVID-19 pandemic has adversely affected our consolidated results of ~~our products,~~operations and ~~the closure of sterilization facilities that have provided sterilization services for us~~ may ~~adversely affect our business.~~continue to do so.

The ~~United States Food~~disruptions resulting from COVID-19 pandemic had a material adverse impact on our financial results for the first nine months of fiscal 2020 and ~~Drug Administration, or FDA, recently issued a caution concerning a nationwide shortage~~for the three months ended September 30, 2020. For the first nine months of ~~medical devices due to issues with contract sterilizers. Two significant contract sterilization facilities that service many medical device companies have been shut~~2020, our revenues were down due to environmental concerns—one permanently and one temporarily—and local officials have asked a third facility to voluntarily halt operations. This loss of sterilization capacity is causing significant delays at this country’s remaining sterilization facilities. As a result, FDA has reported that companies in the medical device industry are encountering backlogs to get products sterilized. We4 percent, our operating income was down 10 percent and our ~~OEM customers utilized~~net income was down 14 percent from the ~~two closed facilities, as well as other contract sterilizers still in operation, prior to their closures to sterilize some~~nine months ended September 30, 2019. For the third quarter of 2020, our ~~products requiring sterilization. We anticipate that~~revenues were down 13 percent, our operating income was down 27 percent and our net income was down 25 percent from the ~~shortage~~three months ended September 30, 2019.Our results for the fourth quarter of ~~sterilization capacity, until remedied, will delay our delivery~~2020, and for an indeterminate period thereafter, may be affected by the impact of ~~some products that require sterilization and may push sales that would normally occur in one reporting period into subsequent reporting periods.~~the global pandemic.


21
~~Item 6.~~	~~Exhibits~~

~~Exhibit Number~~		~~Description~~
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Item 6. Exhibits.

Exhibit Index

Exhibit Number		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		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~~
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~~
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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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:November 9, 2020	By:

~~Date: November 1, 2019~~	~~By:~~	/s/ David A. Battat
		David A. Battat
		President and
		Chief Executive Officer

		~~David A. Battat~~
		~~President and Chief Executive Officer~~

Date:November ~~1, 2019~~9, 2020	By:	/s/ Jeffery Strickland
		Jeffery Strickland
		Vice President and ~~Chief Financial Officer~~
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

~~Exhibit~~ ~~Number~~

~~Description~~
~~31.1~~		~~Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer~~ 23
~~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~~

	September 30, 2019		December 31, 2018
Raw materials	$	16,886	$	14,994
Work in process		9,231		7,214
Finished goods		12,197		11,364
Total inventories	$	38,314	$	33,572

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands, except per share amounts)
Net income	$	9,595	$	9,221	$	28,697	$	26,506
Weighted average basic shares outstanding		1,855		1,853		1,854		1,853
Add: Effect of dilutive securities		7		5		9		4
Weighted average diluted shares outstanding		1,862		1,858		1,863		1,857
Earnings per share:
Basic	$	5.17	$	4.98	$	15.48	$	14.30
Diluted	$	5.15	$	4.96	$	15.40	$	14.27

	September 30, 2019						December 31, 2018
Weighted Average Original Life (years)	Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
15.67	$	13,840	$	12,271		15.67	$	13,840	$	12,181