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, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from _________ to _________	~~Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934~~

	~~for the Quarterly Period Ended June 30, 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~~(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	☒	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☐
	☐	Emerging growth company	☐

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

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

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

Title of Each Class

Number of Shares Outstanding at

~~July 29, 2021~~April 28, 2022

Common stock, Par Value $0.10 per share

~~1,800,629~~1,795,104

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information				3

~~Item 1.~~	~~Financial Statements~~		3

	Item 1.	Financial Statements		4

		Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and June 30, 2020~~		34

		Condensed Consolidated Balance Sheets (Unaudited) ~~June 30, 2021~~ March 31, 2022 and December 31, ~~2020~~2021		45

		Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~		56

		Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~		67

		Notes to Condensed Consolidated Financial Statements (Unaudited)		8

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

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19	17

	Item 4.	Controls and Procedures		19	17

PART II. Other Information				20	17

	Item 1.	Legal Proceedings		20	17

	Item 1A.	Risk Factors		20	17

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		20	17

	Item 6.	Exhibits		21	18

SIGNATURES				22	19

Table of Contents

PART I

FINANCIAL INFORMATION

Table of Contents

Item 1.

Financial Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

													Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,						2022			2021
	2021			2020			2021			2020			(in thousands, except per share amounts)
	(in thousands, except per share amounts)
Revenues	$	42,693		$	37,968		$	81,862		$	81,563		$	47,138		$	39,169
Cost of goods sold		24,826			20,499			47,656			44,226			27,894			22,830
Gross profit		17,867			17,469			34,206			37,337			19,244			16,339
Operating expenses:
Selling		1,874			1,703			3,800			3,773			2,517			1,926
General and administrative		4,753			4,628			8,925			9,028			5,100			4,172
Research and development		1,445			1,092			2,755			2,776			1,377			1,310
		8,072			7,423			15,480			15,577			8,994			7,408
Operating income		9,795			10,046			18,726			21,760			10,250			8,931

Interest and dividend income		183			367			399			858			137			217
Other investment income (losses)		963			354			1,025			(673	)
Other investment income/(losses)														(240	)		62
Other income		0			0			66			0			25			66
		1,146			721			1,490			185			(78	)		345

Income before provision for income taxes		10,941			10,767			20,216			21,945			10,172			9,276
Provision for income taxes		(2,017	)		(2,162	)		(3,565	)		(4,443	)		(1,673	)		(1,550	)

Net income	$	8,924		$	8,605		$	16,651		$	17,502		$	8,499		$	7,726

Net income per basic share	$	4.89		$	4.69		$	9.12		$	9.49		$	4.73		$	4.23
Weighted average basic shares outstanding		1,826			1,835			1,826			1,844			1,799			1,826

Net income per diluted share	$	4.88		$	4.68		$	9.10		$	9.47		$	4.71		$	4.22
Weighted average diluted shares outstanding		1,828			1,839			1,830			1,849			1,803			1,832

Dividends per common share	$	1.75		$	1.55		$	3.50		$	3.10		$	1.95		$	1.75

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)

	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Assets	(in thousands)						(in thousands)
Current assets:
Cash and cash equivalents	$	17,070		$	22,450		$	24,886		$	32,264
Short-term investments		30,478			19,258			35,374			29,059
Accounts receivable		22,682			16,445			24,158			21,023
Inventories		47,725			50,298			51,414			50,778
Prepaid expenses and other current assets		7,873			3,868			2,901			3,447
		125,828			112,319			138,733			136,571

Long-term investments		32,441			46,207			17,566			19,423

Property, plant and equipment		225,384			218,912			239,786			233,217
Less accumulated depreciation and amortization		129,372			123,977			137,626			135,245
		96,012			94,935			102,160			97,972

Other assets and deferred charges:
Patents		1,361			1,421			1,272			1,302
Goodwill		9,730			9,730			9,730			9,730
Other		2,266			2,278			2,177			2,266
		13,357			13,429			13,179			13,298

Total assets	$	267,638		$	266,890		$	271,638		$	267,264

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	11,999		$	13,200		$	13,542		$	13,076
Accrued income and other taxes		670			436			2,644			270
		12,669			13,636			16,186			13,346

Line of credit		0			0			0			0

Other non-current liabilities		14,248			12,812			9,222			9,622

Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342			342			342
Paid-in capital		60,470			53,527			61,560			61,174
Retained earnings		347,954			337,700			362,313			357,324
Treasury shares,1,609 at June 30, 2021 and 1,594 at December 31, 2020, at cost		(168,045	)		(151,127	)
Treasury shares,1,625 at March 31, 2022 and 1,619 at December 31, 2021, at cost								(177,985	)		(174,544	)
Total stockholders’ equity		240,721			240,442			246,230			244,296

Total liabilities and stockholders’ equity	$	267,638		$	266,890		$	271,638		$	267,264

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 STATEMENTS OF CASH FLOWS

~~(Unaudited)~~
(UNAUDITED)

	Six Months Ended June 30,						Three Months Ended March 31,
	2021			2020			2022			2021
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income	$	16,651		$	17,502		$	8,499		$	7,726
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,210			5,574			3,420			3,093
Deferred income taxes		1,092			503			(730	)		186
Stock-based compensation		1,338			991			530			497
Net change in unrealized gains and losses on investments		(1,024	)		933			167			(61	)
Net change in accrued interest, premiums, and discounts on investments		269			(66	)		77			61
Other		25			22			-			25
		24,561			25,459			11,963			11,527

Changes in operating assets and liabilities:
Accounts receivable		(6,237	)		(3,558	)		(3,135	)		(3,790	)
Inventories		2,573			(3,712	)		(636	)		779
Prepaid expenses		(4,006	)		(681	)		4			1,483
Other non-current assets		12			(254	)		630			78
Accounts payable and accrued liabilities		(1,454	)		518			318			(3,406	)
Accrued income and other taxes		234			3,651			2,373			416
Other non-current liabilities		345			(2,000	)		330			317
Cash flows from operating activities		16,028			19,423			11,847			7,404

Cash flows from investing activities:
Property, plant and equipment additions		(7,252	)		(8,800	)		(7,577	)		(3,044	)
Purchase of investments		(16,110	)		(30,444	)		(10,009	)		(7,392	)
Proceeds from sale of investments		166			896			82			65
Proceeds from maturities of investments		19,246			20,774			5,226			13,728
Cash flows from investing activities		(3,950	)		(17,574	)		(12,278	)		3,357

Cash flows from financing activities:
Purchase of treasury stock		(10,488	)		(17,037	)		(3,447	)		0
Shares tendered for employees’ withholding taxes on stock-based compensation		(585	)		(55	)		-			(585	)
Dividends paid		(6,385	)		(5,706	)		(3,500	)		(3,199	)
Cash flows from financing activities		(17,458	)		(22,798	)		(6,947	)		(3,784	)

Net change in cash and cash equivalents		(5,380	)		(20,949	)		(7,378	)		6,977
Cash and cash equivalents at beginning of period		22,450			45,048			32,264			22,450
Cash and cash equivalents at end of period	$	17,070		$	24,099		$	24,886		$	29,427

Cash paid for:
Income taxes	$	5,095		$	199		$	1,752		$	79

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

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 STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

For the Three Months Ended June 30, 2021 and 2020

Common Stock

Treasury Stock

Additional

Shares Outstanding

Amount

Shares

Amount

Paid-in
Capital

Retained
Earnings

Total

Balances, April 1, 2020

1,840

$ 342

1,580

$ (141,500 )

$ 52,422

$ 323,733

$ 234,997

Net income

8,605

8,605

Stock-based compensation transactions

18

598

616

Shares surrendered in stock transactions

(55 )

(55 )
Purchase of treasury stock

(11 )

11

(7,792 )

(7,792 )
Dividends

(2,844 )

(2,844 )
Balances, June 30, 2020

1,829

$ 342

1,591

$ (149,329 )

$ 53,020

$ 329,494

$ 233,527

Balances, April 1, 2021

1,827

$ 342

1,593

$ (157,572 )

$ 59,760

$ 342,221

$ 244,751

Net income

8,925

8,925

Stock-based compensation transactions

1

(1 )

15

710

725

Purchase of treasury stock

(17 )

17

(10,488 )

(10,488 )
Dividends

(3,192 )

(3,192 )
Balances, June 30, 2021

1,811

$ 342

1,609

$ (168,045 )

$ 60,470

$ 347,954

$ 240,721

~~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 ~~STATEMENTS~~STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Six Months Ended June 30, 2021 and 2020

Common Stock

Treasury Stock

Additional

Shares Outstanding

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 principal

(36 )

(36 )
Balances, January 1, 2020

1,855

$ 342

1,565

$ (132,260 )

$ 52,043

$ 317,709

$ 237,834

Net income

17,502

17,502

Stock-based compensation transactions

23

977

1,000

Shares surrendered in stock transactions

(55 )

(55 )
Purchase of treasury stock

(26 )

26

(17,037 )

(17,037 )
Dividends

(5,717 )

(5,717 )
Balances, June 30, 2020

1,829

$ 342

1,591

$ (149,329 )

$ 53,020

$ 329,494

$ 233,527

For the Three Months Ended March 31, 2021 and 2022																		For the Three Months Ended March 31, 2021 and 2022
																			Common Stock					Treasury Stock
																			Shares Outstanding			Amount		Shares			Amount			Additional Paid-in Capital		Retained Earnings			Total
Balances, January 1, 2021	1,826		$	342	1,594		$	(151,127	)	$	53,527	$	337,700		$	240,442				1,826		$	342		1,594		$	(151,127	)	$	53,527	$	337,700		$	240,442

Net income													16,651			16,651																	7,726			7,726
Stock-based compensation transactions	3				(3	)		(5,845	)		6,943					1,098				3					(3	)		(5,860	)		6,233					373
Shares surrendered in stock transactions	(1	)			1			(585	)							(585	)			(1	)				1			(585	)							(585	)
Purchase of treasury stock	(17	)			17			(10,488	)							(10,488	)
Dividends													(6,397	)		(6,397	)																(3,205	)		(3,205	)
Balances, June 30, 2021	1,811		$	342	1,609		$	(168,045	)	$	60,470	$	347,954		$	240,721
Balances, March 31, 2021																				1,828		$	342		1,592		$	(157,572	)	$	59,760	$	342,221		$	244,751
Balances, January 1, 2022																				1,801		$	342		1,619		$	(174,544	)	$	61,174	$	357,324		$	244,296

Net income																																	8,499			8,499
Stock-based compensation transactions																												6			386					392
Purchase of Treasury Stock																				(6	)				6			(3,447	)							(3,447	)
Dividends																																	(3,510	)		(3,510	)
Balances, March 31, 2022																				1,795		$	342		1,625		$	(177,985	)	$	61,560	$	362,313		$	246,230

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

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to condensed Consolidated Financial Statements~~

~~(Unaudited)~~
(UNAUDITED)

(1)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as ~~“Atrion”~~“Atrion,” the “Company,” “we,” “our,” ~~and~~or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) 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 US GAAP 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 US GAAP 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 ~~August~~May 9, ~~2021,~~2022, 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. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as we deem necessary.

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~~2021 ("2021 Form ~~10-K”~~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):

	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Raw materials	$	19,935	$	20,308	$	25,339	$	23,733
Work in process		10,626		11,339		10,173		9,571
Finished goods		17,164		18,651		15,902		17,474
Total inventories	$	47,725	$	50,298	$	51,414	$	50,778

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

~~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 June 30,				Six Months Ended June 30,				Three Months ended March 31,
	2021		2020		2021		2020		2022		2021
	(in thousands, except per share amounts)								(in thousands, except per share amounts)
Net income	$	8,924	$	8,605	$	16,651	$	17,502	$	8,499	$	7,726
Weighted average basic shares outstanding		1,826		1,835		1,826		1,844		1,799		1,826
Add: Effect of dilutive securities		2		4		4		5		4		6
Weighted average diluted shares outstanding		1,828		1,839		1,830		1,849		1,803		1,832
Earnings per share:
Basic	$	4.89	$	4.69	$	9.12	$	9.49	$	4.73	$	4.23
Diluted	$	4.88	$	4.68	$	9.10	$	9.47	$	4.71	$	4.22

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~~Potential dilutive securities representing six and eight shares of common stock for the quarters ended June 30, 2021 and 2020, respectively, and an average of three and 12 shares of common stock for the six months ended June 30, 2021 and 2020, respectively, werehave been excluded ~~from the computation of weighted average diluted shares outstanding because~~when their ~~effect~~inclusion would ~~have been~~be anti-dilutive.

(4)	Investments

	As of ~~June 30, 2021,~~March 31, 2022, 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~~investments in equity securities we intend to hold longer than 12 months.

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

~~Notes to condensed Consolidated Financial Statements~~

~~(Unaudited)~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Cash and cash equivalents:
Cash deposits	$	11,680		$	16,628
Money market funds		4,640			4,822		$	18,381		$	29,876
Commercial paper		750			1,000			5,394			0
Cash deposits								1,111			2,388
Total cash and cash equivalents	$	17,070		$	22,450		$	24,886		$	32,264

Short-term investments:
Bonds (held-to-maturity)							$	22,864		$	26,831
Commercial paper (held-to-maturity)	$	5,852		$	5,178			12,211			2,248
Bonds (held-to-maturity)		24,651			14,101
Equity securities (available for sale)								312			0
Allowance for credit losses		(25	)		(21	)		(13	)		(20	)
Total short-term investments	$	30,478		$	19,258		$	35,374		$	29,059
Long-term investments:
Bonds (held-to-maturity)							$	12,065		$	13,405
Equity securities (available for sale)								5,015			5,468
Mutual funds (available for sale)	$	529		$	563			493			559
Bonds (held-to-maturity)		26,915			41,619
Allowance for credit losses		(26	)		(52	)		(7	)		(9	)
Equity securities (available for sale)		5,023			4,077
Total long-term investments	$	32,441		$	46,207		$	17,566		$	19,423
Total cash, cash equivalents and short and long-term investments	$	79,989		$	87,915		$	77,826		$	80,746

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.~~investments. 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 ~~June 30, 2021.~~March 31, 2022. During the ~~second~~first quarter of ~~2021,~~2022, our allowance for credit losses related to short-term investments ~~increased~~decreased by $3$7 thousand and our allowance for credit losses related to long-term investments decreased by $8$2 thousand.

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ATRION CORPORATION AND SUBSIDIARIES

~~Notes to condensed Consolidated Financial Statements~~

~~(Unaudited)~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes the amortized cost of our held-to-maturity bonds at ~~June 30, 2021,~~March 31, 2022 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

$ 83

$ 3,126

$ 634

$ 33,909

$ 37,752

BBB/BB

0

0

0

13,814

13,814

TOTAL

$ 83

$ 3,126

$ 634

$ 47,723

$ 51,566

Held-to-Maturity Bonds

Credit Quality Indicators	Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	2,370	$	635	$	18,565	$	21,570
BBB/BB		0		0		13,359		13,359
TOTAL	$	2,370	$	635	$	31,924	$	34,929

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															Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value		Level		Cost		Gains		Losses			Fair Value
As of June 30, 2021:
As of March 31, 2022:
Money market		1		4,640	$	0	$	0		$	4,640		1	$	18,381	$	0	$	0		$	18,381
Commercial paper		2		6,602	$	1	$	0		$	6,603		2	$	17,605	$	1	$	(9	)	$	17,597
Bonds		2		51,566	$	249	$	(20	)	$	51,795		2	$	34,929	$	29	$	(139	)	$	34,819
Mutual funds		1		509	$	20	$	0		$	529		1	$	527	$	0	$	(34	)	$	493
Equity investments		2		5,675	$	0	$	(652	)	$	5,023		2	$	6,054	$	0	$	(727	)	$	5,327

As of December 31, 2020:
As of December 31, 2021:
Money Market		1		4,822	$	0	$	0		$	4,822		1	$	29,876	$	0	$	0		$	29,876
Commercial paper		2		6,178	$	0	$	0		$	6,178		2	$	2,248	$	0	$	0		$	2,248
Bonds		2		55,720	$	505	$	(44	)	$	56,181		2	$	40,236	$	97	$	(37	)	$	40,296
Mutual funds		1		599	$	0	$	(36	)	$	563		1	$	558	$	1	$	0		$	559
Equity investments		2		5,675	$	0	$	(1,598	)	$	4,077		2	$	5,675	$	0	$	(207	)	$	5,468

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 ~~June 30, 2021.~~March 31, 2022. The unrealized losses for some of these bond investments reflect changes in interest rates following their acquisition. As of ~~June 30, 2021,~~March 31, 2022, we had no7 bond investments in a loss position for more than 12 months.

At ~~June 30, 2021,~~March 31, 2022, the length of time until maturity of the commercial paper we owned ranged from less than a month to 10eight months and the length of time to maturity for the bonds ranged from less than a month to 5445 months.

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ATRION CORPORATION AND SUBSIDIARIES

~~Notes to condensed Consolidated Financial Statements~~

~~(Unaudited)~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5)	Patents and Licenses

	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):

June 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Weighted Average
Original Life
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Weighted Average
Original Life
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Gross

Carrying

Amount

Accumulated

Amortization

Weighted Average

Original Life

(years)

Gross

Carrying

Amount

Accumulated

Amortization

15.67

13,840

12,479

15.67

13,840

12,419

15.67

$ 13,840

$ 12,568

15.67

$ 13,840

$ 12,538

Aggregated amortization expense for patents and licenses was $30 thousand in ~~each of~~ the ~~three month~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020 and $60 thousand in each of the six month periods ended June 30, 2021 and 2020.~~2021.

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

2022	$	117
2023	$	113	$	113
2024	$	113	$	113
2025	$	112	$	112
2026	$	112	$	112
2027			$	108

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ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(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 ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020 are~~is as follows (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

United States

$ 24,649

$ 19,530

$ 46,687

$ 45,722

Italy

2,908

2,072

4,982

3,554

China

2,611

1,800

4,212

2,998

Germany

2,064

2,918

4,464

6,155

Other countries less than 5% of revenues

10,461

11,648

21,517

23,134

Total

$ 42,693

$ 37,968

$ 81,862

$ 81,563

~~Table of Contents~~

~~ATRION CORPORATION AND SUBSIDIARIES~~

~~Notes to condensed Consolidated Financial Statements~~

~~(Unaudited)~~

	2022		2021
United States	$	26,995	$	22,038
European Union		9,337		7,764
All other regions		10,806		9,367
Total	$	47,138	$	39,169

A summary of revenues by product line for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020		2022		2021
Fluid Delivery	$	20,920	$	21,761	$	39,995	$	44,108	$	24,114	$	19,075
Cardiovascular		13,157		10,841		25,987		25,666		15,303		12,830
Ophthalmology		2,102		936		3,796		1,800		1,084		1,693
Other		6,514		4,430		12,084		9,989		6,637		5,571
Total	$	42,693	$	37,968	$	81,862	$	81,563	$	47,138	$	39,169

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~~We 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. We generally adopt these standards 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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Item 2.

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

~~Overview~~

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 June 30, 2021, we reported revenues of $42.7 million, up 12 percent, operating income of $9.8 million, down 2 percent and net income of $8.9 million, up 4 percent from the three months ended June 30, 2020.
For the three months ended March 31, 2022, we reported revenues of $47.1 million, up 20 percent, operating income of $10.3 million, up 15 percent, and net income of $8.5 million, up 10 percent from the three months ended March 31, 2021.
Results for the three months ended March 31, 2022
Consolidated net income totaled $8.5 million, or $4.73 per basic and $4.71 per diluted share, in the first quarter of 2022. This is compared with consolidated net income of $7.7 million, or $4.23 per basic and $4.22 per diluted share, in the first quarter of 2021. The income per basic share computations are based on weighted average basic shares outstanding of 1,799 thousand in the 2022 period and 1,826 thousand in the 2021 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,803 thousand in the 2022 period and 1,832 thousand in the 2021 period.
Consolidated revenues of $47.1 million for the first quarter of 2022 were 20.3 percent higher than revenues of $39.2 million for the first quarter of 2021. Our first quarter 2022 results were favorably impacted by a 26% increase in Fluid Delivery and 19% increase in Cardiovascular revenues compared to the first quarter of 2021.

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~~Results for the three months ended June 30, 2021~~
Revenues by product line were as follows (in thousands):

Consolidated net income totaled $8.9 million, or $4.89 per basic and $4.88 per diluted share, in the second quarter of 2021. This is compared with consolidated net income of $8.6 million, or $4.69 per basic and $4.68 per diluted share, in the second quarter of 2020. The income per basic share computations are based on weighted average basic shares outstanding of 1,826 thousand in the 2021 period and 1,835 thousand in the 2020 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,828 thousand in the 2021 period and 1,839 thousand in the 2020 period.

Consolidated revenues of $42.7 million for the second quarter of 2021 were 12.4 percent higher than revenues of $38.0 million for the second quarter of 2020. This increase was primarily due to sales volumes of our Cardiovascular products. Sales volumes in our Other product line also increased. The COVID-19 pandemic had a negative impact on our sales in the second quarter of 2020 as patients deferred elective procedures.

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

Three Months Ended
June 30,

2021

2020

Fluid Delivery

$ 20,920

$ 21,761

Cardiovascular

13,157

10,841

Ophthalmology

2,102

936

Other

6,514

4,430

Total

$ 42,693

$ 37,968

Cost of goods sold of $24.8 million for the second quarter of 2021 was 21.1 percent higher than our cost of goods sold of $20.5 million for the second quarter of 2020 primarily due to higher sales volumes, sales mix and higher manufacturing costs. Our cost of goods sold in the second quarter of 2021 was 58.2 percent of revenues compared to 54.0 percent of revenues in the second quarter of 2020.

Gross profit of $17.9 million in the second quarter of 2021 was $0.4 million or 2.3 percent higher than in the comparable 2020 period. Our gross profit percentage in the second quarter of 2021 was 41.8 percent of revenues compared with 46.0 percent of revenues in the second 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 and higher manufacturing costs.

Our second quarter 2021 operating expenses of $8.1 million were $649 thousand higher than the operating expenses for the second quarter of 2020. This increase was attributable to a $353 thousand increase in R&D expenses primarily for outside services related to ongoing projects and increased salaries. Selling expenses increased $171 thousand primarily for travel and commissions related to higher sales. General and Administrative expenses were $125 thousand higher primarily in compensation.

Operating income in the second quarter of 2021 decreased by $251 thousand to $9.8 million due to higher operating expenses discussed above. Operating income was 22.9 percent of revenues for the second quarter of 2021 and 26.5 percent of revenues for the second quarter of 2020.

Interest and dividend income in the second quarter of 2021 was $183 thousand compared with $367 thousand 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.

	Three Months Ended March 31,
	2022		2021

Fluid Delivery	$	24,114	$	19,075
Cardiovascular		15,303		12,830
Ophthalmology		1,084		1,693
Other		6,637		5,571
Total	$	47,138	$	39,169

Cost of goods sold of $27.9 million for the first quarter of 2022 was 22.2 percent higher than our cost of goods sold of $22.8 million for the first quarter of 2021, primarily due to higher sales volumes. Our cost of goods sold in the first quarter of 2022 was 59.2 percent of revenues compared to 58.3 percent of revenues in the first quarter of 2021.

Gross profit of $19.2 million in the first quarter of 2022 was $2.9 million or 17.8 percent higher than in the comparable 2021 period. Our gross profit percentage in the first quarter of 2022 was 40.8 percent of revenues compared with 41.7 percent of revenues in the first quarter of 2021. The decrease in gross profit percentage in the 2022 period compared to the 2021 period was primarily related to cost increases in labor and materials.

Our first quarter 2022 operating expenses of $9.0 million were $1.6 million higher than the operating expenses for the first quarter of 2021. This increase was attributable to a $928 thousand increase in general and administrative expenses primarily in compensation and depreciation expenses. Selling expenses increased $591 thousand primarily for outside services and travel. R&D expenses increased $67 thousand primarily for regulatory costs and supplies.

Operating income of $10.3 million in the first quarter of 2022 represented a $1.3 million, or 15 percent, increase in operating income over first quarter 2021 operating income. This increase was due to higher sales and gross profit discussed above partially offset by higher operating expenses. Operating income was 21.7 percent of revenues for the first quarter of 2022 and 22.8 percent of revenues for the first quarter of 2021.

Interest and dividend income in the first quarter of 2022 was $137 thousand compared with $217 thousand for the same period in the prior year. The decline in interest and dividend income was largely due to lower interest rates on our investments in the 2022 period as compared to the 2021 period.

Other investment income in the first quarter of 2022 was a $240 thousand loss compared with Other investment income of $62 thousand in the first quarter of 2021. These amounts were attributable to unrealized gains and losses on equity investments resulting from changes in the market values of the investments in each quarter.

Income tax expense was $1.7 million for first quarter of 2022 compared with $1.5 million for the first quarter of 2021. The effective tax rate for the first quarter of 2022 was 16.4 percent compared with 16.7 percent for the first quarter of 2021. We expect our effective tax rate for 2022 to be approximately 17 percent.

Liquidity and Capital Resources

As of March 31, 2022, 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 and is payable monthly. We had no outstanding borrowings under the credit facility at March 31, 2022 and we were in compliance with all financial covenants.

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Other investment income in the second quarter of 2021 was $963 thousand compared with Other investment income of $354 thousand in the second quarter of 2020. These amounts were attributable to unrealized gains and losses on equity investments resulting from changes in the market values of the investments in each quarter.

Income tax expense was $2.0 million for the second quarter of 2021 compared with $2.2 million for the second quarter of 2020. The effective tax rate for the second quarter of 2021 was 18.4 percent compared with 20.1 percent for the second quarter of 2020. The decrease in the 2021 period’s effective tax rate compared to the prior-year period was primarily related to lower state income taxes.

~~Results for the six months ended June 30, 2021~~

Consolidated net income totaled $16.7 million, or $9.12 per basic and $9.10 per diluted share, in first six months of 2021. This is compared with consolidated net income of $17.5 million, or $9.49 per basic and $9.47 per diluted share, in the first six months of 2020. The income per basic share computations are based on weighted average basic shares outstanding of 1,826 thousand in the 2021 period and 1,844 thousand in the 2020 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,830 thousand in the 2021 period and 1,849 thousand in the 2020 period.

Consolidated revenues of $81.9 million for the first six months of 2021 were slightly higher than revenues of $81.6 million for the first six months of 2020. Increased sales in Other and Ophthalmic products were offset by lower Fluid Delivery sales.

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

Six Months Ended
June 30,

2021

2020

Fluid Delivery

$ 39,995

$ 44,108

Cardiovascular

25,987

25,666

Ophthalmology

3,796

1,800

Other

12,084

9,989

Total

$ 81,862

$ 81,563

Cost of goods sold of $47.7 million for the first six months of 2021 was $3.4 million higher than in the comparable 2020 period. This increase is due to an unfavorable product sales mix and higher manufacturing costs in the first six months of 2021. Our cost of goods sold in the first six months of 2021 and 2020 was 58.2 percent and 54.2 percent of revenues, respectively.

Gross profit was $34.2 million in the first six months of 2021 and $37.3 million in the first six months of 2020. Our gross profit percentage was 41.8 percent of revenues in the first six months in 2021 and 45.8 percent in 2020. This decrease was driven by unfavorable product sales mix and increased manufacturing costs.
At March 31, 2022, we had a total of $77.8 million in cash and cash equivalents, short-term investments, and long-term investments. At December 31, 2021, cash and cash equivalents, short-term investments, and long-term investments totaled $80.7 million.

16
Cash flows from operating activities of $11.8 million for the three months ended March 31, 2022 were primarily comprised of net income plus the net effect of non-cash expenses and increases in accounts receivable. During the first three months of 2022, we used $10.0 million for the purchase of investments, $7.6 million for the addition of property and equipment, $3.5 million for dividends, and $3.4 million for the purchase our own stock. During the same period, maturities and sales of investments generated $5.2 million in cash. For the three months ended March 31, 2021, cash flows from operating activities of $7.4 million 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 $7.4 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, 2022, we had working capital of $122.5 million, including $24.9 million in cash and cash equivalents and $35.4 million in short-term investments compared to working capital of $123.2 million at December 31, 2021. There was a $678 thousand decrease in working capital during the first three months of 2022.
We believe that our $77.8 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 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.
COVID-19 Impact
The COVID-19 pandemic continues to impact the global economy, cause market instability and uncertainty in the labor market, and put pressure on supply chains and healthcare systems, and it has impacted, and will likely continue to impact, our business. The pandemic continues to evolve and the full extent of its impact will depend on future developments, which are highly uncertain and cannot be determined at this time. We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes to manage our response and assess and seek to mitigate potential adverse impacts on our business. For additional discussion regarding the COVID-19 pandemic and our related risks, see Part I, Item 1A, “Risk Factors” included in our 2021 Form 10-K.
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 income tax rate for 2022, 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. 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 further 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 pandemic; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 pandemic further 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.
~~Table of Contents~~
Operating expenses of $15.5 million for the first six months 2021 were $97 thousand lower than the operating expenses for the first six months of 2020. This decrease was primarily in general and administrative expense as a result of lower compensation.
Operating income in the first six months of 2021 decreased $3.0 million to $18.7 million, a 13.9 percent decrease from our operating income in the six months ended June 30, 2020. Operating income for the first six months in 2021 and 2020 was 22.9 percent and 26.7 percent of revenues respectively.
Interest and dividend income for the first six months of 2021 was $399 thousand, compared with $858 thousand 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 versus the 2020 period.
Other investment income for the first six months of 2021 was $1.0 million compared to a $673 thousand loss in the first six months of 2020. These amounts were attributable to unrealized gains and losses on equity investments resulting from changes in the market values of our investments in each time period. The impact of COVID-19 on equity markets in the 2020 period also impacted our investments.
Income tax expense was $3.6 million for the first six months in 2021 and $4.4 million the first six months in 2020. The effective tax rate for the first six months of 2021 was 17.6 percent, compared with 20.2 percent for the first six months of 2020. The decrease in the 2021 period effective tax rate was primarily related to a decrease in state income taxes. We expect the effective tax rate for 2021 to be approximately 17 percent.
~~Liquidity and Capital Resources~~
As of June 30, 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 and is payable monthly. We had no outstanding borrowings under the credit facility at June 30, 2021 and we were in compliance with all financial covenants.
At June 30, 2021, we had a total of $80.0 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 $16.0 million for the six months ended June 30, 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 six months of 2021, we used $16.1 million for the purchase of investments, $7.3 million for the addition of property and equipment, $10.5 million for the purchase of treasury stock and $6.4 million for dividends. During the same period, maturities and sales of investments generated $19.4 million in cash.
At June 30, 2021, we had working capital of $113.2 million, including $17.0 million in cash and cash equivalents and $30.5 million in short-term investments compared to working capital of $98.7 million at December 31, 2020. The $14.5 million increase in working capital during the six months of 2021 was primarily related to an increase in short term investments $11.2 million and an increase in accounts receivable of $6.2 million.
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We believe that our $80.0 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.
~~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, directed individuals to shelter at their places of residence, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings, maintain social distancing, and order cessation of non-essential travel. As a result of these developments, we 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 continue negatively impacting productivity, disrupting our business, and delaying 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 continue negatively impacting 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 has resulted and may continue resulting 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 has been and may continue to 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 greater percentages of the populations being vaccinated. 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.
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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 income tax rate for 2021, 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 further 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 further 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 June 30, 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.~~
For the quarter ended March 31, 2022, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2021 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, 2022. 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, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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 June 30, 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 June 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.
Legal Proceedings.

We have no pending legal proceedings of the type described in Item 103 of Regulation S-K.

Item 1A.
Risk Factors.
As of the date of this Report, there has been no material change in the risk factors described in our ~~Annual Report on~~2021 Form ~~10-K for the fiscal year ended December 31, 2020, as supplemented by the risk factor described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.~~10-K.

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

The table below sets forth information with respect to our purchases of our common stock during each ofmonth in the three ~~months in the~~month period ended ~~June 30, 2021.~~March 31, 2022.

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾

4/1/2021 to 4/30/2021

-

$ -

-

202,018

5/1/2021 to 5/31/2021

1,095

$ 601.31

1,095

200,923

6/1/2021 to 6/30/2021

16,028

$ 613.28

16,028

184,895

Total

17,123

$ 612.52

17,123

184,895

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾

1/1/2022 to 1/31/2022

1,788

$ 621.06

1,788

172,402

2/1/2022 to 2/28/2022

3,849

606.93

3,849

168,553

3/1/2022 to 3/31/2022

--

--

--

168,553

Total

5,637

$ 611.41

5,637

168,553

(1) On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. At March 31, 2022, we had repurchased 81,447 shares of our common stock authorized under the program approved in May 2015. Our stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.

~~(1)~~
On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. At June 30, 2021, we had repurchased 65,105 shares of our common stock authorized under the program approved in May 2015. Our stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.
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Item 6. Exhibits.
~~Exhibits.~~
Exhibit Index

Exhibit
Number
Description
~~10.1~~
~~Atrion Corporation 2021 Equity Incentive Plan effective May 21, 2021 (incorporated by reference to Appendix A of Atrion Corporation’s Definitive Proxy Statement filed on April 7, 2021)~~
~~10.2~~
~~Form of Common Stock Award Agreement under Atrion Corporation 2021 Equity Incentive Plan~~
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

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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)

Date: ~~August~~May 9, ~~2021~~2022 By: /s/ David A. Battat

David A. Battat

President and Chief Executive Officer

Date: ~~August~~May 9, ~~2021~~2022
By:
/s/ Jeffery Strickland

Jeffery Strickland

Vice President and Chief Financial Officer

~~Chief Financial Officer~~
(Principal Accounting and Financial Officer)

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Balances, April 1, 2021	1,827		$	342	1,593		$	(157,572	)	$	59,760	$	342,221		$	244,751

Net income													8,925			8,925
Stock-based compensation transactions	1				(1	)		15			710					725
Purchase of treasury stock	(17	)			17			(10,488	)							(10,488	)
Dividends													(3,192	)		(3,192	)
Balances, June 30, 2021	1,811		$	342	1,609		$	(168,045	)	$	60,470	$	347,954		$	240,721

Held-to-Maturity Bonds
Credit Quality Indicators	Asset Backed Bonds		Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	83	$	3,126	$	634	$	33,909	$	37,752
BBB/BB		0		0		0		13,814		13,814
TOTAL	$	83	$	3,126	$	634	$	47,723	$	51,566