| Summary of Significant Accounting Policies | (1) Summary of Significant Accounting Policies Atrion Corporation and its subsidiaries (“we,” “our,” “us,” “Atrion,” or the “Company”) develop and manufacture products primarily for medical applications. We market our products throughout the United States and internationally. Our customers include physicians, hospitals, distributors, and other manufacturers. Atrion Corporation’s principal subsidiaries through which these operations are conducted are Atrion Medical Products, Inc., Halkey-Roberts Corporation, and Quest Medical, Inc. Principles of Consolidation The consolidated financial statements include the accounts of Atrion Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior-year balances have been reclassified in order to conform to the current year presentation. Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash and Cash Equivalents and Investments Cash and cash equivalents include cash on hand and cash deposits in the bank as well as money market funds and debt securities with maturities at the time of purchase of 90 days or less. Cash deposits in the bank include amounts in operating accounts, savings accounts, and money market accounts. Our investments consist of corporate and government bonds, mutual funds, and equity securities. We classify our investment securities in one of three categories: held-to-maturity, available-for-sale, or trading. Securities that we have the intent and ability to hold to maturity are reported at amortized cost and classified as held-to-maturity securities. We report our available-for-sale and trading securities at fair value with changes in fair value recognized in other investment income (loss) in the Consolidated Statements of Income. We consider as current assets those investments which will mature in the next 12 months including interest receivable on long-term bonds. The remaining investments are considered non-current assets which we intend to hold longer than 12 months. We periodically evaluate our investments for impairment. The components of the Company’s cash and cash equivalents and our short and long-term investments as of December 31, 2023 and 2022 are as follows (in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents: Cash deposits $ 2 $ 603 Money market funds 3,563 2,380 Commercial paper - 1,748 Total cash and cash equivalents $ 3,565 $ 4,731 Short-term investments: Commercial paper (held-to-maturity) $ - $ 12,227 Bonds (held-to-maturity) 2,552 8,597 Equity securities (available for sale) 139 330 Allowance for credit losses -- (2 ) Total short-term investments $ 2,691 $ 21,152 Long-term investments: Equity securities (available-for-sale) $ 4,354 $ 5,139 Bonds (held-to-maturity) 3,575 3,180 Mutual funds (available for sale) 236 350 Allowance for credit losses - - Total long-term investments $ 8,165 $ 8,669 Total cash, cash equivalents and short and long-term investments $ 14,421 $ 34,552 Accounts Receivable Accounts receivable are recorded at the original sales price to the customer. We maintain an allowance for credit losses to reflect estimated losses resulting from the failure of customers to make required payments. The allowance for credit losses is updated periodically to reflect our estimate of collectability. Accounts are written off when we determine the receivable will not be collected. Inventories Inventories are stated at the lower of cost (including materials, direct labor, and applicable overhead) or net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventory (in thousands): December 31, 2023 2022 Raw materials $ 37,770 $ 33,329 Work in process 17,462 13,618 Finished goods 27,075 18,846 Total inventories $ 82,307 $ 65,793 Accounts Payable We reflect disbursements as trade accounts payable until such time as payments are presented to our bank for payment. Disbursements totaling approximately $1.3 million at December 31, 2023 and $887 thousand at December 31, 2022, had not been presented for payment to our bank. As of December 31, 2022, there were expenditures of $5.7 million related to property, plant, and equipment included in our accounts payable and accrued liabilities balance. Income Taxes We account for income taxes using the asset and liability method for the recording of deferred income taxes. Deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the financial statement and the tax basis of assets and liabilities, as measured at current enacted tax rates. When appropriate, we evaluate the need for a valuation allowance to reduce deferred tax assets. Before any benefit is recorded, we determine that it is “more likely than not” that the position will be sustained by the taxing authority. Any uncertain tax positions are recorded within “Other non-current liabilities” in the accompanying consolidated balance sheets. We classify interest expense on underpayments of income taxes and accrued penalties related to unrecognized tax benefits in the income tax provision. Property, Plant, and Equipment Property, plant, and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Additions and improvements are capitalized, including all material, labor, and engineering costs to design, install, or improve the asset. Expenditures for repairs and maintenance are charged to expense as incurred. The following table represents a summary of property, plant, and equipment at original cost (in thousands): December 31, Useful 2023 2022 Lives Land $ 5,511 $ 5,511 — Buildings 66,192 60,984 30-40 yrs. Machinery and equipment 214,742 204,147 3-15 yrs. Total property, plant and equipment $ 286,445 $ 270,642 Depreciation expense was $15.0 million in 2023, $13.7 million in 2022, and $12.8 million in 2021. Depreciation expense is recorded in either cost of goods sold or operating expenses based on the associated assets’ usage. Patents and Licenses Costs for patents and licenses acquired are determined at acquisition date. Patents and licenses are amortized over the useful lives of the individual patents and licenses, which are from seven to 20 years. Patents and licenses are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill Goodwill is reviewed for impairment in the fourth quarter of each year, or when events or changes in circumstances indicate a change in value may have occurred, using a qualitative assessment to determine whether it is more likely than not that the carrying value of our reporting units exceeds their fair value. If necessary, a two-step goodwill impairment analysis is performed. Our evaluation of goodwill during each year resulted in no impairment losses. Current Accrued Liabilities The items comprising current accrued liabilities are as follows (in thousands): December 31, 2023 2022 Accrued payroll and related expenses $ 4,096 4,718 Accrued vacation 367 408 Other accrued liabilities 1,424 824 Total accrued liabilities $ 5,887 5,950 Revenues We recognize revenue when obligations under the terms of an accepted 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. We believe that our medical device business will benefit 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 customers’ requirements which are driven in large part by their customers’ or patients’ needs for medical care which does not always follow broad economic trends. This affects the nature, amount, timing, and uncertainty of our revenue. Also, 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 2023, 2022, and 2021 is as follows (in thousands): Year ended December 31, 2023 2022 2021 United States $ 106,356 $ 109,740 $ 96,925 European Union 25,145 30,311 28,657 All other regions 37,825 43,455 39,427 Total $ 169,326 $ 183,506 $ 165,009 A summary of revenues by product line for 2023, 2022 and 2021 is as follows (in thousands): Year ended December 31, 2023 2022 2021 Fluid Delivery $ 71,144 $ 84,084 $ 77,753 Cardiovascular 69,750 67,632 56,919 Ophthalmology 8,678 5,849 6,332 Other 19,754 25,941 24,005 Total $ 169,326 $ 183,506 $ 165,009 More than 98 percent of our total revenue in the periods presented herein is pursuant to shipments initiated by an accepted purchase order, which is 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 recognized over time. Our payment terms vary by the type and location of our customers and the products or services offered, and payment is generally required after receipt by the customer. For certain products or services and customer types, we require payment before the products or services are delivered to the customer. We apply 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 when evaluating certain aged receivables for collectability issues and to determine changes necessary to our allowance for credit losses. If circumstances change, our estimates of the collectability of amounts could be changed by a material amount. 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. Shipping and handling fees charged to customers are reported as revenue. 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 defects 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 very low due to our focus on quality control. A one-year warranty is provided with certain equipment sales but warranty claims and our accruals for these obligations have been minimal. We expense sales commissions when incurred because the amortization period would be 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 four percent of our total revenue in all periods presented herein. A portion of these contracts contain multiple performance obligations including embedded leases. We treat agreements with an embedded lease component as a single performance obligation and recognize revenue under revenue guidelines rather than under the lease accounting guidelines, since the predominant component of revenue is the non-lease component. Our fixed monthly equipment rentals to customers are accounted for as operating leases under ASU 2016-02, Leases (ASC 842). Fixed monthly rental payments are recognized on a straight line basis over the lease term. We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount 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. Leases to Customers The lease assets from our sales-type leases are recorded in our accounts receivable in the accompanying consolidated balance sheets, and the balance totaled $256 thousand as of December 31, 2023 and $356 thousand as of December 31, 2022. Our equipment treated as leases to customers is included in Property, Plant, and Equipment on our consolidated balance sheets. Due to the immaterial amount of revenue and assets from our lessor activity, all other lessor disclosures have been omitted. Leased Property and Equipment As a lessee, we had seven leases in total for equipment and facilities used internally during 2023, which we account for as operating leases. At December 31, 2023, our right-of-use asset balance was $206 thousand and our lease liability at December 31, 2023 for these leases was $240 thousand. The monthly expense of $51 thousand for these operating leases, which are our only lessee arrangements, is immaterial and therefore all other lessee disclosures have been omitted. Liability-classified awards The Company classifies certain stock-based compensation awards that can or will be settled in cash as liability awards. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are recorded to general and administrative expense over the vesting period of the award. New Accounting Pronouncements From time to time new accounting pronouncements applicable to us are issued by the FASB, or other standards setting bodies, which we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective may require additional disclosures but will not have a material impact on our consolidated financial statements upon adoption. Fair Value Measurements Accounting standards use a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers are: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists therefore requiring an entity to develop its own assumptions. As of December 31, 2023 and 2022, we held investments in bonds, money market funds, mutual funds, and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The fair values of these investments and their tier levels are shown in Note 2. The carrying values of our other financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and accrued income and other taxes approximated fair value due to their liquid and short-term nature. Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. Our cash deposits are held in accounts with financial institutions that we believe are creditworthy. Certain of these amounts at times may exceed federally-insured limits. We have investments in money market funds, bonds, and equity securities. As a result, we are exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer, and otherwise. These securities have a higher degree of, and a greater exposure to, credit or default risk and may be less liquid in times of economic weakness or market disruptions as compared with cash deposits. For accounts receivable, we perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral. We maintain reserves for possible credit losses. We had allowances for credit losses of approximately $58 thousand at December 31, 2023 and $71 thousand, at December 31, 2022. The carrying amount of the receivables approximates their fair value. We had one customer which accounted for 11% of our accounts receivable as of December 31, 2023. |
