| Recent Accounting Pronouncements | Accounting Standards Update 2014-09, Revenue
from Contracts with Customers In May 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers We recognize revenue when 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. Our medical device business benefits in the long term from
an aging world population along with an increase in life expectancy. In the near term however, demand for our products fluctuates
based on our customer requirements which are driven in large part by their customers’ need for medical care which does not
always follow broad economic trends. This affects the nature, amount, timing and uncertainty of our revenue. Changes in the value
of the United States dollar relative to foreign currencies could make our products more or less affordable and therefore affect
our sales in international markets. A summary of revenues by geographic area, based on shipping
destination, for the first quarter of 2018 and 2017 is as follows (in thousands):
2018 2017
United States $ 24,607 $ 23,105
Germany 2,671 3,037
Other countries less than 5% of revenues 12,123 12,362
Total $ 39,401 $ 38,504 A summary of revenues by product line for first quarter
of 2018, and 2017 is as follows (in thousands):
2018 2017
Fluid Delivery $ 18,800 $ 18,005
Cardiovascular 13,210 11,464
Ophthalmology 2,785 3,673
Other 4,606 5,362
Total $ 39,401 $ 38,504 Our Fluid Delivery products include proprietary valves
that promote infection control and needle safety. Our Cardiovascular products include the MPS2 Myocardial Protection System, which
delivers essential fluids and medications, mixes critical drugs and controls temperature, pressure and other variables during open-heart
surgery. Our Ophthalmic products include devices to disinfect contact lenses and a proprietary line of balloon catheters used in
the treatment of nasolacrimal duct obstructions. Various other medical and non-medical products make up the Other product line,
including inflation systems and valves used in marine and aviation safety products. More than ninety-eight percent (98%) of our total revenue
in the periods presented herein is pursuant to shipments made under a purchase order, which under the new ASC 606 guidance we concluded
would be the contract with the customer. As a result, the vast majority of our revenue is recognized at a single point in time
when the performance obligation of the product being shipped is satisfied rather than over time, and presented as receivables on
the balance sheet. Our payment terms vary by the type and location of our
customers and the products or services offered. The term between invoicing and when payment is due is thirty (30) days in most
cases. For certain products or services and customer types, we require payment before the products or services are delivered to
the customer. 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, the collectability of
accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability
of specific accounts. We evaluate the collectability of specific accounts and determine when to grant credit to our customers using
a combination of factors, including the age of the outstanding balances, evaluation of customers’ current and past financial
condition, recent payment history, current economic environment, and discussions with our personnel and with the customers directly.
Accounts are written off when it is determined the receivable will not be collected. If circumstances change, our estimates of
the collectability of amounts could be changed by a material amount. We have elected to recognize the cost for 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. Our manufactured products come with a standard warranty to be free from defect and, in the event of a
defect, may be returned by the customer within a reasonable period of time. Historically our returns have been unpredictable and
yet very low due to our focus on quality control. A one-year warranty is provided with certain equipment sales but this activity
and our accruals for these obligations are very small. We expense sales commissions when incurred because the
amortization period would have been one year or less. These costs are recorded within selling expense. Atrion has contracts in place with customers for equipment
leases, equipment financing, and equipment and other services. These contracts represent less than 4% of our total revenue in all
periods presented herein. A portion of these contracts representing less than 3% of our revenues include multiple performance obligations.
For such arrangements, we allocate revenue to each performance obligation based on relative standalone selling price for each performance
obligation which is capable of being distinct and accounted for as a separate performance obligation. We generally determine standalone
selling prices based on observable inputs, primarily the prices charged to customers. Lease revenues, including embedded leases
under certain of these contracts, represent less than 1% of our total revenue in all periods presented herein. A limited number of our contracts have variable consideration
including tiered pricing and rebates which we monitor closely for potential constraints on revenue. For these contracts we estimate
our position quarterly using the most likely outcome method, including customer-provided forecasts and historical buying patterns,
and we accrue for any asset or liability these arrangements may create. The effect of accruals for variable consideration on our
consolidated financial statements is immaterial. After a thorough and extensive analysis of all of our customer
agreements and revenue generating transactions, we determined that there is no material change in the transaction price and amounts
allocated to performance obligations, or the timing of satisfaction of performance obligations under ASC 606 compared to our accounting
for these items in previous periods. In addition, we expect the impact of the adoption of ASC 606 to be immaterial on an ongoing
basis. We do not disclose the value of unsatisfied performance
obligations for contracts for which we recognize revenue at the amount to 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 under 606 would potentially obscure more useful and important information. ASU 2016-02, Leases On February 25, 2016 the FASB issued ASU 2016-02, Leases As a lessee, Atrion has only two leases for equipment used
internally which we account for as operating leases. Upon adoption of ASC 842, we recorded a right-of-use asset and a lease liability
for these leases as of January 1, 2018. The balance of our right of use assets totaled $38,000 at March 31, 2018 and is included
in our Property, Plant and Equipment on our Balance Sheet. An equal amount was recorded as a lease liability at March 31, 2018,
which represents the present value of future obligations under these respective leases. The monthly expense of $1,500 for these
operating leases, which are our only lessee arrangements, is immaterial and therefore all other lessee disclosures under ASC 842
have been omitted. As a lessor, Atrion has agreements with certain customers
for the rental of our equipment for use in hospitals. These arrangements include sales type leases, fixed monthly rentals and rental
agreements containing a lease component (embedded lease) and non-lease components. Lease revenues from all of these agreements
represented less than 1% of our total revenue in the first quarter of 2018 and in all of 2017. The fixed monthly rentals and embedded lease arrangements
are accounted for as operating leases. Fixed monthly rentals pay a flat fee each month. For our embedded lease agreements we have
chosen under ASC 842 to continue to use a variable basis (based on consumables sold in the period) to allocate and recognize revenue
as we have in prior periods because it most closely represents the way in which benefit of the asset is derived. The lease assets from our sales type leases are recorded
on our books in our accounts receivables and as of March 31, 2018 the balance totaled $536,000. Our equipment being leased as operating
leases to our customers is included in our Property Plant and Equipment on our balance sheet. As of March 31, 2018, the cost of
this property and related accumulated depreciation was $7.76 million and $5.43 million, respectively. After a thorough and extensive
analysis of our lessor agreements with customers we determined that our accounting treatment and revenue recognition under ASC
842 compared to our prior accounting treatment is essentially the same, and due to the small amount of revenue from our lessor
activity, all other lessor disclosures under ASC 842 have been omitted. ASU 2016-01, Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued ASU 2016-01, Financial
Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ASU 2017-08, Receivables – Non-refundable Fees
and Other Costs (Subtopic 310-20). In March 2017, the FASB issued ASU 2017-08, Receivables
– Non-refundable Fees and Other Costs (Subtopic 310-20). 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. |
