2021 Q4 Form 10-K Financial Statement

#000078419922000076 Filed on February 22, 2022

View on sec.gov

Income Statement

Concept 2021 Q4 2021 2020 Q4
Revenue $79.39M $298.8M $67.90M
YoY Change 16.93% 18.01% -2.58%
Cost Of Revenue $28.02M $101.3M $23.31M
YoY Change 20.23% 18.58%
Gross Profit $51.37M $197.5M $44.59M
YoY Change 15.21% 17.72% -4.21%
Gross Profit Margin 64.71% 66.09% 65.68%
Selling, General & Admin $32.14M $169.8M $26.97M
YoY Change 19.17% 20.29%
% of Gross Profit 62.56% 85.96% 60.48%
Research & Development $9.460M $35.55M
YoY Change 46.84%
% of Gross Profit 18.41% 18.0%
Depreciation & Amortization $5.969M $23.98M $5.894M
YoY Change 1.27% 15.76%
% of Gross Profit 11.62% 12.14% 13.22%
Operating Expenses $45.81M $205.3M $37.88M
YoY Change 20.95% 24.18%
Operating Profit $5.561M $8.117M $6.714M
YoY Change -17.17% 232.53%
Interest Expense -$3.873M $16.90M -$4.682M
YoY Change -17.28% 1.2%
% of Operating Profit -69.65% 208.21% -69.73%
Other Income/Expense, Net -$2.875M -$6.136M $2.676M
YoY Change -207.44% 95.79%
Pretax Income -$16.09M -$14.83M -$92.00K
YoY Change 17385.87% -13.67%
Income Tax $4.013M $7.000K $3.366M
% Of Pretax Income
Net Earnings -$20.10M -$14.83M -$3.458M
YoY Change 481.26% -11.08% 407.78%
Net Earnings / Revenue -25.32% -4.96% -5.09%
Basic Earnings Per Share -$0.38
Diluted Earnings Per Share -$513.3K -$0.38 -$89.54K
COMMON SHARES
Basic Shares Outstanding 39.33M 38.98M 38.86M
Diluted Shares Outstanding 38.98M

Balance Sheet

Concept 2021 Q4 2021 2020 Q4
SHORT-TERM ASSETS
Cash & Short-Term Investments $55.01M $55.01M $61.41M
YoY Change -10.42% -10.42%
Cash & Equivalents $55.01M $55.01M $61.41M
Short-Term Investments
Other Short-Term Assets $57.61M $57.61M $51.39M
YoY Change 12.11% 12.11%
Inventory $76.97M $76.97M $73.04M
Prepaid Expenses
Receivables $53.02M $53.02M $45.96M
Other Receivables $5.086M $5.086M $2.788M
Total Short-Term Assets $247.7M $247.7M $234.6M
YoY Change 5.59% 5.59% 25.19%
LONG-TERM ASSETS
Property, Plant & Equipment $37.52M $83.24M $33.08M
YoY Change 13.44% 61.16% 2.88%
Goodwill $250.0M $260.1M
YoY Change -3.87% 39.3%
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets $8.267M $10.62M $14.60M
YoY Change -43.39% -33.8% 2.78%
Total Long-Term Assets $545.4M $545.4M $554.8M
YoY Change -1.71% -1.71% 32.65%
TOTAL ASSETS
Total Short-Term Assets $247.7M $247.7M $234.6M
Total Long-Term Assets $545.4M $545.4M $554.8M
Total Assets $793.1M $793.1M $789.4M
YoY Change 0.46% 0.46% 30.34%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $10.40M $10.40M $9.623M
YoY Change 8.02% 8.02% -1.77%
Accrued Expenses $7.687M $27.69M $7.472M
YoY Change 2.88% 2.37% 10.98%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $1.630M $2.158M $1.195M
YoY Change 36.4% 19.29% 2.66%
Total Short-Term Liabilities $44.95M $44.95M $60.47M
YoY Change -25.66% -25.66% 33.79%
LONG-TERM LIABILITIES
Long-Term Debt $307.5M $311.9M $290.5M
YoY Change 5.86% 5.44% 35.37%
Other Long-Term Liabilities $6.484M $106.7M $6.690M
YoY Change -3.08% 53.0% 1.66%
Total Long-Term Liabilities $314.0M $418.6M $297.2M
YoY Change 5.66% 14.52% 34.37%
TOTAL LIABILITIES
Total Short-Term Liabilities $44.95M $44.95M $60.47M
Total Long-Term Liabilities $314.0M $418.6M $297.2M
Total Liabilities $492.3M $492.3M $460.7M
YoY Change 6.87% 6.87% 43.98%
SHAREHOLDERS EQUITY
Retained Earnings $1.975M $20.02M
YoY Change -90.14% -45.45%
Common Stock $323.3M $316.6M
YoY Change 2.11% 16.32%
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $300.7M $300.7M $328.7M
YoY Change
Total Liabilities & Shareholders Equity $793.1M $793.1M $789.4M
YoY Change 0.46% 0.46% 30.34%

Cashflow Statement

Concept 2021 Q4 2021 2020 Q4
OPERATING ACTIVITIES
Net Income -$20.10M -$14.83M -$3.458M
YoY Change 481.26% -11.08% 407.78%
Depreciation, Depletion And Amortization $5.969M $23.98M $5.894M
YoY Change 1.27% 15.76%
Cash From Operating Activities $716.0K -$2.585M $5.450M
YoY Change -86.86% -120.9%
INVESTING ACTIVITIES
Capital Expenditures -$2.567M $13.09M -$2.157M
YoY Change 19.01% 78.64%
Acquisitions $0.00
YoY Change -100.0%
Other Investing Activities -$245.0K $249.0K -$189.0K
YoY Change 29.63% -85.19%
Cash From Investing Activities -$2.812M $5.660M -$2.346M
YoY Change 19.86% -107.74%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $3.756M
YoY Change 54.44%
Debt Paid & Issued, Net $2.786M
YoY Change
Cash From Financing Activities -8.801M -12.22M -1.682M
YoY Change 423.25% -113.06%
NET CHANGE
Cash From Operating Activities 716.0K -2.585M 5.450M
Cash From Investing Activities -2.812M 5.660M -2.346M
Cash From Financing Activities -8.801M -12.22M -1.682M
Net Change In Cash -10.90M -6.948M 1.422M
YoY Change -866.32% -125.12%
FREE CASH FLOW
Cash From Operating Activities $716.0K -$2.585M $5.450M
Capital Expenditures -$2.567M $13.09M -$2.157M
Free Cash Flow $3.283M -$15.68M $7.607M
YoY Change -56.84% -410.97%

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1. Basis of Presentation and Summary of Significant Accounting Policies Nature of Business Artivion, Inc. (“Artivion,” the “Company,” “we,” or “us”), is a leader in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures for patients with aortic disease. We have four major product families: aortic stents and stent grafts, surgical sealants, On-X® mechanical heart valves and related surgical products, and implantable cardiac and vascular human tissues. Aortic stents and stent grafts include JOTEC® stent grafts and surgical products (collectively, “JOTEC Products”), the Ascyrus Medical Dissection Stent (“AMDS”) hybrid prosthesis, and the NEXUS® endovascular stent graft system (“NEXUS”). Surgical sealants include BioGlue® Surgical Adhesive (“BioGlue”) products. In addition to these four major product families, we sell or distribute PhotoFix® bovine surgical patches, CardioGenesis® cardiac laser therapy, Therion® chorioamniotic allografts (previously marketed as NeoPatch®), and PerClot® hemostatic powder (prior to the sale to a subsidiary of Baxter International, Inc (“Baxter”)). Basis of Presentation and Principles of Consolidation We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior-year amounts have been reclassified to conform to the current year presentation. Foreign Currencies Our revenues and expenses transacted in foreign currencies are remeasured as they occur at exchange rates in effect at the time of each transaction. Realized and unrealized gains and losses on foreign currency transactions are recorded as a component of Other expense, net on our Consolidated Statements of Operations and Comprehensive Loss. Realized and unrealized gains and losses were a loss of $5.5 million, a gain of $1.8 million, and a loss of $1.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. Our assets and liabilities denominated in foreign currencies are recognized at the exchange rate in effect at the time of each transaction. At period end, the assets and liabilities are translated at the exchange rate in effect as of the balance sheet date and are recorded as a separate component of accumulated other comprehensive loss in the shareholders' equity section of our Consolidated Balance Sheets. Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates and assumptions are used when accounting for allowance for doubtful accounts, inventory, deferred preservation costs, acquired assets or businesses, intangible assets, deferred income taxes, commitments and contingencies (including product and tissue processing liability claims, claims incurred but not reported, and amounts recoverable from insurance companies), stock based compensation, certain accrued liabilities (including accrued procurement fees, income taxes, and financial instruments), and other items as appropriate.‎ Revenue Recognition Contracts with Customers We routinely enter into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and, in most cases, prices for the products and services that we offer. These agreements, however, do not obligate us to provide goods or services to the customer, and there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, we have a standard list price established by geography and by currency for all products and services, and our invoices contain standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. Our performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. We identify performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. We generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time we have an unconditional right to receive payment. Our prices are fixed and are not affected by contingent events that could impact the transaction price. We do not offer price concessions and do not accept payment that is less than the price stated when we accept the purchase order, except in rare credit related circumstances. We do not have any material performance obligations where we are acting as an agent for another entity. Revenues for products, including: aortic stents and stent grafts, surgical sealants, On-X products, and other medical devices, are typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Revenues from consignment are recognized when the medical device is implanted. We recognize revenues for preservation services when tissue is shipped to the customer. Warranty Our general product warranties do not extend beyond an assurance that the products or services delivered will be consistent with stated specifications and do not include separate performance obligations. Warranties included with our CardioGenesis cardiac laser products provide for annual maintenance services, which are priced separately and are recognized as revenues at the stand-alone price over the service period, whether invoiced separately or recognized based on our allocation of the transaction price. Significant Judgments in the Application of the Guidance in ASC 606 There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product or service obligation to the customer. This is consistent with the time in which the customer obtains control of the product or service. Performance obligations are also generally settled quickly after the purchase order acceptance, other than as identified for E-xtra Design Engineering products, therefore, the value of unsatisfied performance obligations at the end of any reporting period is immaterial. For performance obligations provided through our E-xtra Design Engineering product line, we determine the value of our enforceable right to payment based on the time required and costs incurred for design services and manufacture of the in-process device in relation to the total inputs required to complete the device. We consider variable consideration in establishing the transaction price. Forms of variable consideration potentially applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products and services in the periods in which the related revenue is recognized and adjusted in future periods as necessary. Commissions and Contract Costs Sales commissions are earned upon completion of each performance obligation, and therefore, are expensed when incurred. These costs are included in General, administrative, and marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss. We generally do not incur incremental charges associated with securing agreements with customers which would require capitalization and recovery over the life of the agreement. Practical Expedients Our payment terms for sales direct to customers are substantially less than the one-year collection period that falls within the practical expedient in the determination of whether a significant financing component exists. Shipping and Handling Charges Fees charged to customers for shipping and handling of products and tissues are included in product and preservation service revenues. The costs for shipping and handling of products and tissues are included as a component of cost of products and cost of preservation services. Taxes Collected from Customers Taxes collected on the value of transaction revenue are excluded from product and service revenues and cost of sales and are accrued in current liabilities until remitted to governmental authorities. Advertising Costs The costs to develop, produce, and communicate our advertising are expensed as incurred and are classified as General, administrative, and marketing expenses. The total amount of advertising expense included in our Consolidated Statements of Operations and Comprehensive Loss was $1.0 million, $1.1 million, and $1.7 million for the years ended December 31, 2021, 2020, and 2019, respectively. Stock-Based Compensation We have stock option and stock incentive plans for employees and non-employee directors that provide for grants of restricted stock awards (“RSA”s), restricted stock units (“RSU”s), performance stock units (“PSU”s), and options to purchase shares of our common stock at exercise prices generally equal to the fair values of such stock at the dates of grant. We also maintain a shareholder approved Employee Stock Purchase Plan (the “ESPP”) for the benefit of our employees. The ESPP allows eligible employees the right to purchase common stock on a regular basis at the lower of 85% of the market price at the beginning or end of each offering period. The RSAs, RSUs, PSUs, and stock options granted by us typically vest over a one to three-year period. The stock options granted by us typically expire within seven years of the grant date. We value our RSAs, RSUs, and PSUs based on the stock price on the date of grant. We expense the related compensation cost of RSAs, and RSUs using the straight-line method over the vesting period. We expense the related compensation cost of PSUs based on the number of shares expected to be issued, if achievement of the performance component is probable, using a straight-line method over each vesting tranche of the award which results in accelerated recognition of expenses. The amount of compensation costs expensed related to PSUs is adjusted as needed if we deem that achievement of the performance component is no longer probable or if our expectation of the number of shares to be issued changes. We use a Black-Scholes model to value our stock option grants and expense the related compensation cost using the straight-line method over the vesting period. The fair value of our ESPP options is also determined using a Black-Scholes model and is expensed over the vesting period. The fair value of stock options and ESPP options is determined on the grant date using assumptions for the expected term, volatility, dividend yield, and the risk-free interest rate. The expected term is primarily based on the contractual term of the option and our data related to historic exercise and post-vesting forfeiture patterns, which is adjusted based on our expectations of future results. Our anticipated volatility level is primarily based on the historic volatility of our common stock, adjusted to remove the effects of certain periods of unusual volatility not expected to recur, and adjusted based on our expectations of future volatility, for the life of the option or option group. Our model includes a zero-dividend yield assumption and we do not anticipate paying dividends in the future. The risk-free interest rate is based on recent US Treasury note auction results with a similar life to that of the option. Our model does not include a discount for post-vesting restrictions, as we have not issued awards with such restrictions. The period expense for our stock compensation is determined based on the valuations discussed above and forfeitures are accounted for in the period awards are forfeited. Income Per Common Share Income per common share is computed using the two-class method, which requires us to include unvested RSAs that contain non-forfeitable rights to dividends (whether paid or unpaid) as participating securities in the income per common share calculation. Under the two-class method, net income is allocated to the weighted-average number of common shares outstanding during the period and the weighted-average participating securities outstanding during the period. The portion of net income that is allocated to the participating securities is excluded from basic and dilutive net income per common share. Diluted net income per share is computed using the weighted-average number of common shares outstanding plus the dilutive effects of outstanding stock options and awards and other dilutive instruments as appropriate. Financial Instruments Our financial instruments include cash equivalents, restricted securities, accounts receivable, notes receivable, accounts payable, and debt obligations. The financial assets’ and liabilities’ such as receivables, and accounts payable carrying values approximate their fair value due to their short-term duration, and the carrying value of their debt obligations approximate fair value as they contain variable interest rates that approximate market values. Other financial instruments are recorded as discussed in the sections below. Fair Value Measurements We record certain financial instruments at fair value on a recurring basis, including cash equivalents and certain restricted securities. We may make an irrevocable election to measure other financial instruments at fair value on an instrument-by-instrument basis. Fair value financial instruments are recorded in accordance with the fair value measurement framework. We also measure certain assets and liabilities at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as certain financial assets, long-lived assets, and non-amortizing intangible assets for impairment, allocating value to assets in an acquired asset group, applying accounting for business combinations, and the initial recognition of liabilities such as contingent consideration. We use the fair value measurement framework to value these assets and labilities and report these fair values in the periods in which they are recorded or written down. The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; andLevel 3: Unobservable inputs or valuation techniques that are used when little or no market data is available. The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to our unobservable estimates and assumptions. Our assumptions could vary depending on the asset or liability value and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. We may also engage external advisors to assist in determining fair value, as appropriate. Although we believe that the recorded fair values of our financial instruments are appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values. Cash and Cash Equivalents Cash and cash equivalents consist primarily of highly liquid investments with maturity dates of three months or less at the time of acquisition. The carrying value of cash equivalents approximates fair value. We maintain depository accounts with certain financial institutions. Although these depository accounts may exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal. Cash Flow Supplemental Disclosures Supplemental disclosures of cash flow information for the years ended December 31 (in thousands): 2021 2020 2019Cash paid during the year for: Interest$ 14,407 $ 13,049 $ 13,297Income taxes 5,483 4,122 1,944 Non-cash investing and financing activities: Issuance of common stock for Ascyrus Acquisition$ -- $ 20,000 $ --Issuance of common stock for contingent consideration 10,000 -- --Operating lease right of use assets 31,726 1,864 2,604 Accounts Receivable and Allowance for Doubtful Accounts Our accounts receivable are primarily from hospitals and distributors that either use or distribute our products and tissues. We assess the likelihood of collection based on a number of factors, including past transaction history and the credit worthiness of the customer, as well as the potential increased risks related to international customers and large distributors. We determine the allowance for doubtful accounts based upon specific reserves for known collection issues, as well as a non-specific reserve based upon aging buckets. We charge off uncollectible amounts against the reserve in the period in which we determine they are uncollectible. Our accounts receivable balances are reported net of allowance for doubtful accounts of $1.1 million and $973,000 as of December 31, 2021 and 2020, respectively. Inventories, net Inventories, net are comprised of finished goods for our product lines including: aortic stents and stent grafts; surgical sealants; On-X products; CardioGenesis laser consoles, handpieces, and accessories; PerClot before the Baxter Transaction defined below; PhotoFix; other medical devices; work-in-process; and raw materials. Inventories for finished goods are valued at the lower of cost or market on a first-in, first-out basis and raw materials are valued on a moving average cost basis. Typically, upon shipment or upon implant of a medical device on consignment, revenue is recognized, and the related inventory costs are expensed as cost of products. Cost of products also includes, as applicable, lower of cost or market write-downs and impairments for products not deemed to be recoverable and, as incurred, idle facility expense, excessive spoilage, extra freight, and re-handling costs. Inventory costs for manufactured products consist primarily of direct labor and materials (including salary and fringe benefits, raw materials, and supplies) and indirect costs (including allocations of costs from departments that support manufacturing activities and facility allocations). The allocation of fixed production overhead costs is based on actual production levels, to the extent that they are within the range of the facility’s normal capacity. Inventory costs for products purchased for resale or manufactured under contract consist primarily of the purchase cost, freight-in charges, and indirect costs as appropriate. We regularly evaluate our inventory to determine if the costs are appropriately recorded at the lower of cost or market value. We also evaluate our inventory for costs not deemed to be recoverable, including inventory not expected to ship prior to its expiration. Lower of cost or market value write-downs are recorded if the book value exceeds the estimated net realizable value of the inventory, based on recent sales prices at the time of the evaluation. Impairment write-downs are recorded based on the book value of inventory deemed to be impaired. Actual results may differ from these estimates. Write-downs of inventory are expensed as cost of products, and these write-downs are permanent impairments that create a new cost basis, which cannot be restored to its previous levels if our estimates change. We recorded write-downs to our inventory totaling $4.8 million, $1.7 million, and $601,000 for the years ended December 31, 2021, 2020, and 2019, respectively. The 2021 write-down was primarily related to JOTEC inventory and On-X ascending aortic prosthesis (“AAP”) inventory. The 2020 write-down was primarily related to JOTEC inventory, On-X AAP inventory, and BioGlue inventory not expected to ship prior to the expiration date. The 2019 write-down was primarily related to PerClot inventory not expected to ship prior to the expiration date. Deferred Preservation Costs Deferred preservation costs include costs of cardiac and vascular tissues available for shipment, tissues currently in active processing, and tissues held in quarantine pending release to implantable status. By federal law, human tissues cannot be bought or sold; therefore, the tissues we preserve are not held as inventory. The costs we incur to procure and process cardiac and vascular tissues are instead accumulated and deferred. Deferred preservation costs are stated at the lower of cost or market value on a first-in, first-out basis and are deferred until revenue is recognized. Upon shipment of tissue to an implanting facility, revenue is recognized, and the related deferred preservation costs are expensed as cost of preservation services. Cost of preservation services also includes, as applicable, lower of cost or market write-downs and impairments for tissues not deemed to be recoverable, and includes, as incurred, idle facility expense, excessive spoilage, extra freight, and re-handling costs. The calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing. Donated human tissue is procured from deceased human donors by organ and tissue procurement organizations (“OPOs”) and tissue banks, that provide the tissue to us for processing, preservation, and distribution. Deferred preservation costs consist primarily of the procurement fees charged by the OPOs and tissue banks, direct labor and materials (including salary and fringe benefits, laboratory supplies and expenses, and freight-in charges), and indirect costs (including allocations of costs from support departments and facility allocations). Fixed production overhead costs are allocated based on actual tissue processing levels, to the extent that they are within the range of the facility’s normal capacity. These costs are then allocated among the tissues processed during the period based on cost drivers, such as the number of donors or number of tissues processed. We apply a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable. We estimate quarantine and in process yields based on our experience and reevaluate these estimates periodically. Actual yields could differ significantly from our estimates, which could result in a change in tissues available for shipment and could increase or decrease the balance of deferred preservation costs. These changes could result in additional cost of preservation services expense or could increase per tissue preservation costs, which would impact gross margins on tissue preservation services in future periods. We regularly evaluate our deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or market value. We also evaluate our deferred preservation costs for costs not deemed to be recoverable, including tissues not expected to ship prior to the expiration date of their packaging. Lower of cost or market value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services, based on recent average service fees at the time of the evaluation. Impairment write-downs are recorded based on the book value of tissues deemed to be impaired. Actual results may differ from these estimates. Write-downs of deferred preservation costs are expensed as cost of preservation services, and these write-downs are permanent impairments that create a new cost basis, which cannot be restored to its previous levels if our estimates change. We recorded write-downs to our deferred preservation costs totaling $575,000, $1.7 million, and $787,000 for the years ended December 31, 2021, 2020, and 2019, respectively, due primarily to tissues not expected to ship prior to the expiration date of the packaging. In addition, write-offs during the year ended December 31, 2020 included $826,000 of non-conforming tissues resulting from contaminated saline solution. Property and Equipment, net Property and equipment, net is stated at cost less depreciation. Depreciation expense is recorded over the estimated useful lives of the assets, generally three to ten years, on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the remaining lease term at the time the assets are capitalized or the estimated useful lives of the assets, whichever is shorter. Property and equipment, net balance for the years ended December 31 is as follows (in thousands): 2021 2020Equipment and software$ 73,820 $ 66,141Furniture and fixtures 6,668 6,186Leasehold improvements 39,175 38,256Total property and equipment 119,663 110,583Less accumulated depreciation and amortization 82,142 77,506Property and equipment, net $ 37,521 $ 33,077 Depreciation expense for the years ended December 31 is as follows (in thousands): 2021 2020 2019Depreciation expense$ 7,157 $ 6,948 $ 7,467 Goodwill and Other Intangible Assets Our intangible assets consist of goodwill, acquired technology, customer lists and relationships, patents, trademarks, and other intangible assets, as discussed in Note 8. Our goodwill is attributable to a segment or segments of our business, as appropriate, as the related acquired business that generated the goodwill is integrated into our operations. Upon divestiture of a component of our business, the goodwill related to the reporting unit is allocated to the divested business using the relative fair value allocation method. We evaluate our goodwill and other non-amortizing intangible assets for impairment on an annual basis during the fourth quarter of the year, and, if necessary, during interim periods if factors indicate that an impairment review is warranted. As of October 31, 2021 and 2020, our non-amortizing intangible assets consisted of goodwill, in-process research and development, acquired procurement contracts and agreements, and trademarks. We performed a qualitative analysis of our non-amortizing intangible assets as of October 31, 2021 and 2020 and determined that the fair value of the assets and the fair value of the reporting unit more likely than not exceeded their associated carrying values and were, therefore, not impaired. Our definite lived intangible assets consist of acquired technologies, customer lists and relationships, distribution and manufacturing rights and know-how, patents, and other intangible assets. We amortize our definite lived intangible assets over their expected useful lives using the straight-line method, which we believe approximates the period of economic benefits of the related assets. Our indefinite lived intangible assets do not amortize but are instead subject to periodic impairment testing as discussed in “Impairments of Long-Lived Assets and Non-Amortizing Intangible Assets” below. Impairments of Long-Lived Assets and Non-Amortizing Intangible Assets Long-Lived Assets We assess the potential impairment of our: (i) net property and equipment, (ii) amortizing intangible long-lived assets to be held and used and (iii) operating lease right-of-use assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include, but are not limited to, the following: Significant underperformance relative to expected historical or projected future operating results; Significant negative industry or economic trends; Significant decline in our stock price for a sustained period; orSignificant decline in our market capitalization relative to net book value. If we determine that an impairment review is necessary, we will evaluate the assets or asset groups by comparing their carrying values to the sum of the undiscounted future cash flows expected to result from their use and eventual disposition. If the carrying values exceed the future cash flows, then the asset or asset group is considered impaired, and we will write down the value of the asset or asset group to its concluded fair value. For the years ended December 31, 2021, 2020, and 2019 we did not record an impairment of our long-lived assets as there were no indicators of impairment or the sum of the undiscounted future cash flows exceeded the carrying value of the long-lived asset (asset group). Accrued Procurement Fees Donated tissue is procured from deceased human donors by OPOs and tissue banks, that provide the tissue to us for processing, preservation, and distribution. We reimburse the OPOs and tissue banks for their costs to recover the tissue and include these costs as part of deferred preservation costs, as discussed above. We accrue estimated procurement fees due to the OPOs and tissue banks at the time tissues are received based on contractual agreements between us and the OPOs and tissue banks. Leases We have operating and finance lease obligations resulting from the lease of land and buildings that comprise our corporate headquarters and various manufacturing facilities; leases related to additional manufacturing, office, and warehouse space; leases on Company vehicles; and leases on a variety of office and other equipment, as discussed in Note 10. Certain of our leases contain escalation clauses, rent concessions, and renewal options for additional periods. We exercise judgment in the determination of whether a financial arrangement includes a lease and in determining the appropriate discount rates to be applied to leases based on our general collateralized credit standing and the geographical market considerations impacting lease rates across all locations. When available, we use the implicit discount rate in the lease contract to discount lease payments to present value. If an implicit discount rate is not available in the lease contract, we use our incremental borrowing rate. We elected the package of practical expedients that allow us to omit leases with initial terms of 12 months or less from our balance sheet, which are expensed on a straight-line basis over the life of the lease. We have elected not to separate lease and non-lease components for future leases. Our leases do not include terms or conditions which would result in variable lease payments other than for small office equipment leases with an additional charge for volume of usage. These incremental payments are excluded from our calculation of lease liability and the related right-of-use asset. We do not include option terms in the determination of lease liabilities and the related right-of-use assets unless we determine at lease commencement that the exercise of the option is reasonably certain. Our leases do not contain residual value guarantee provisions or other restrictions or financial covenant provisions. Debt Issuance Costs Debt issuance costs related to our term loan and line of credit are capitalized and reported net of the current and long-term debt or as a prepaid asset when there are no outstanding borrowings. If there are unamortized debt issuance costs related to our line of credit but only borrowings on the term loan, these debt issuance costs will be combined with the debt issuance costs related to the term loan and reported net of the current and long-term debt for the term loan. We amortize debt issuance costs to interest expense on our term loan using the effective interest method over the life of the debt agreement. We amortize debt issuance costs to interest expense on our line of credit on a straight-line basis over the life of the debt agreement. Debt issuance costs related to our convertible debt agreement are amortized using the effective interest rate method as a direct deduction from the recorded debt issuance costs allocated to debt. Liability Claims In the normal course of business, we are made aware of adverse events involving our products and tissues. Future adverse events could ultimately give rise to a lawsuit against us, and liability claims may be asserted against us in the future based on past events that we are not aware of at the present time. We maintain claims-made insurance policies to mitigate our financial exposure to product and tissue processing liability claims. Claims-made insurance policies generally cover only those asserted claims and incidents that are reported to the insurance carrier while the policy is in effect. Thus, a claims-made policy does not generally represent a transfer of risk for claims and incidents that have been incurred but not reported to the insurance carrier during the policy period. Any punitive damage components of claims are uninsured. We engage external advisors to assist us in estimating our liability and any related amount recoverable under our insurance policies as of each balance sheet date. We use a frequency-severity approach to estimate our unreported product and tissue processing liability claims, whereby projected losses are calculated by multiplying the estimated number of claims by the estimated average cost per claim. The estimated claims are determined based on the reported claim development method and the Bornhuetter-Ferguson method using a blend of our historical claim experience and industry data. The estimated cost per claim is calculated using a lognormal claims model blending our historical average cost per claim with industry claims data. We use a number of assumptions in order to estimate the unreported loss liability including: the future claim reporting time lag, the frequency of reported claims, the average cost per claim, and the maximum liability per claim. We believe that the assumptions we use provide a reasonable basis for our calculation. However, the accuracy of the estimates is limited by various factors, including, but not limited to, our specific conditions, uncertainties surrounding the assumptions used, and the scarcity of industry data directly relevant to our business activities. Due to these factors, actual results may differ significantly from our assumptions and from the amounts accrued. We accrue our estimate of unreported product and tissue processing liability claims as a component of Other long-term liabilities and record the related recoverable insurance amounts as a component of Other long-term assets. The amounts recorded represent our estimate of the probable losses and anticipated recoveries for unreported claims related to products sold and services performed prior to the balance sheet date. Legal Contingencies We accrue losses from a legal contingency when the loss is both probable and reasonably estimable. The accuracy of our estimates of losses for legal contingencies is limited by uncertainties surrounding litigation. Therefore, actual results may differ significantly from the amounts accrued, if any. We accrue for legal contingencies as a component of accrued expenses and/or other long-term liabilities on our Consolidated Balance Sheets. Gains from legal contingencies are recorded when the contingency is resolved. Uncertain Tax Positions We periodically assess our uncertain tax positions and recognize tax benefits if they are “more-likely-than-not” to be upheld upon review by the appropriate taxing authority. We measure the tax benefit by determining the maximum amount that has a “greater than 50 percent likelihood” of ultimately being realized. We reverse previously accrued liabilities for uncertain tax positions when audits are concluded, statutes expire, administrative practices dictate that a liability is no longer warranted, or in other circumstances, as deemed necessary. These assessments can be complex, and we often obtain assistance from external advisors to make these assessments. We recognize interest and penalties related to uncertain tax positions in interest expense, net on our Consolidated Statements of Operations and Comprehensive Loss. See Note 9 for further discussion of our liabilities for uncertain tax positions. Deferred Income Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes. We assess the recoverability of our deferred tax assets and provide a valuation allowance against our deferred tax assets when, as a result of this analysis, we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized. Assessing the recoverability of deferred tax assets involves judgment and complexity including the consideration of prudent and feasible tax planning. Estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include, but are not limited to, the following: The ability to carry back deferred tax asset attributes to a prior tax year;Timing of the anticipated reversal of book/tax temporary differences; Projected future operating results; Anticipated future state tax apportionment; Timing and amounts of anticipated future taxable income; Evaluation of statutory limits regarding usage of certain tax assets; and Evaluation of the statutory periods over which certain tax assets can be utilized. Significant changes in the factors above, or other factors, could affect our ability to use our deferred tax assets. Such changes could have a material, adverse impact on our profitability, financial position, and cash flows. We will continue to assess the recoverability of our deferred tax assets, as necessary, when we experience changes that could materially affect our prior determination of the recoverability of our deferred tax assets. Valuation of Acquired Assets or Businesses As part of our corporate strategy, we are seeking to identify and capitalize upon acquisition opportunities of complementary product lines and companies. We evaluate and account for acquired patents, licenses, distribution rights, and other tangible or intangible assets as the purchase of an asset or asset group, or as a business combination, as appropriate. The determination of whether the purchase of a group of assets should be accounted for as an asset group or as a business combination requires judgment based on the weight of available evidence. For the purchase of an asset group, we allocate the cost of the asset group, including transaction costs, to the individual assets purchased based on their relative estimated fair values. In-process research and development acquired as part of an asset group is expensed upon acquisition. We account for business combinations using the acquisition method. Under this method, the allocation of the purchase price is based on the fair value of the tangible and identifiable intangible assets acquired and the liabilities assumed as of the date of the acquisition. The excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets is recorded as goodwill. The identifiable intangible assets typically consist of developed technology, trade names, customer relationships, and in-process research and development costs. Transaction costs related to business combinations are expensed as incurred. In-process research and development acquired as part of a business combination is accounted for as an indefinite-lived intangible asset until the related research and development project gains regulatory approval or is discontinued. We typically engage external advisors to assist us in determining the fair value of acquired asset groups or business combinations, using valuation methodologies such as: the excess earnings, the discounted cash flow, Monte Carlo, or the relief from royalty methods. The determination of fair value in accordance with the fair value measurement framework requires significant judgments and estimates, including, but not limited to: timing of product life cycles, estimates of future revenues, estimates of profitability for new or acquired products, cost estimates for new or changed manufacturing processes, estimates of the cost or timing of obtaining regulatory approvals, estimates of the success of competitive products, and discount rates and represent Level 3 measurements. We, in consultation with our advisors, make these estimates based on our prior experiences and industry knowledge. We believe that our estimates are reasonable, but actual results could differ significantly from our estimates. A significant change in our estimates used to value acquired asset groups or business combinations could result in future write-downs of tangible or intangible assets acquired by us and, therefore, could materially impact our financial position and profitability. If the value of the liabilities assumed by us, including contingent liabilities, is determined to be significantly different from the amounts previously recorded in purchase accounting, we may need to record additional expenses or write-downs in future periods, which could materially impact our financial position and profitability. New Accounting Pronouncements Recently Adopted In August 2020 the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible instruments by eliminating two accounting models (i.e., the cash conversion model and beneficial conversion feature model) and reducing the number of embedded conversion features that could be recognized separately from the host contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. On January 1, 2021 we adopted ASU 2020-06 using the modified retrospective approach and recorded $20.4 million to increase long-term debt, $3.2 million to reduce retained earnings, and $16.4 million to reduce additional paid-in capital included on the Consolidated Balance Sheets. See Note 11 for further discussion of convertible debt. In December 2019 the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify accounting principles generally accepted in the United States of America (“GAAP”) for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for public entities in fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. We adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a material impact on our financial condition or results of operations. As of January 1, 2020 we adopted the Accounting Standards Codification (“ASC”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The purpose of Update No. 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. Update No. 2016-13 is effective for annual periods beginning after December 15, 2019. The adoption of ASU 2016-13 did not result in a material effect on the Company’s financial condition, results of operations, or cash flows. As of January 1, 2019 we adopted the ASC Topic 842, Leases (“ASC 842”). The final guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to former Topic 840, Leases. We used the modified retrospective approach, which allows application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented. The adoption of this standard resulted in the recognition of operating lease agreements with a net present value of $22.7 million and corresponding right-of-use assets obtained in the same amount at January 1, 2019. See Note 9 for further discussion of leases. Not Yet Effective In March 2020 the FASB issued ASU 2020-04, Reference Rate Reform Topic 848 (“ASC 848”). The amendments in this ASU were put forth in response to the market transition from the LIBOR and other interbank offered rates to alternative reference rates. GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022 and cannot be applied to contract modifications that occur after December 31, 2022.  In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The objective of the new reference rate reform standard is to clarify the scope of Topic 848 and provide explicit guidance to help companies applying optional expedients and exceptions. This ASU is effective immediately for all entities that have applied optional expedients and exceptions. We are in the process of evaluating the effect that the adoption of this standard will have on our financial position and results of operations.  
CY2021 us-gaap Nature Of Operations
NatureOfOperations
Nature of Business Artivion, Inc. (“Artivion,” the “Company,” “we,” or “us”), is a leader in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures for patients with aortic disease. We have four major product families: aortic stents and stent grafts, surgical sealants, On-X® mechanical heart valves and related surgical products, and implantable cardiac and vascular human tissues. Aortic stents and stent grafts include JOTEC® stent grafts and surgical products (collectively, “JOTEC Products”), the Ascyrus Medical Dissection Stent (“AMDS”) hybrid prosthesis, and the NEXUS® endovascular stent graft system (“NEXUS”). Surgical sealants include BioGlue® Surgical Adhesive (“BioGlue”) products. In addition to these four major product families, we sell or distribute PhotoFix® bovine surgical patches, CardioGenesis® cardiac laser therapy, Therion® chorioamniotic allografts (previously marketed as NeoPatch®), and PerClot® hemostatic powder (prior to the sale to a subsidiary of Baxter International, Inc (“Baxter”)).
CY2021 us-gaap Foreign Currency Transaction Gain Loss Before Tax
ForeignCurrencyTransactionGainLossBeforeTax
-5500000
CY2020 us-gaap Foreign Currency Transaction Gain Loss Before Tax
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1800000
CY2019 us-gaap Foreign Currency Transaction Gain Loss Before Tax
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-1200000
CY2021 us-gaap Use Of Estimates
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Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates and assumptions are used when accounting for allowance for doubtful accounts, inventory, deferred preservation costs, acquired assets or businesses, intangible assets, deferred income taxes, commitments and contingencies (including product and tissue processing liability claims, claims incurred but not reported, and amounts recoverable from insurance companies), stock based compensation, certain accrued liabilities (including accrued procurement fees, income taxes, and financial instruments), and other items as appropriate.
CY2021 us-gaap Advertising Expense
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CY2021 us-gaap Interest Paid
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InterestPaid
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CY2019 us-gaap Interest Paid
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CY2021 us-gaap Income Taxes Paid
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CY2020 us-gaap Noncash Or Part Noncash Acquisition Value Of Assets Acquired1
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CY2021 aort Noncash Or Part Noncash Acquisition Stock Issued For Contingent Consideration
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CY2021 aort Noncash Or Part Noncash Acquisition Assets Acquired In Exchange For Operating Leases
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CY2020 aort Noncash Or Part Noncash Acquisition Assets Acquired In Exchange For Operating Leases
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1864000
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2604000
CY2021Q4 us-gaap Allowance For Doubtful Accounts Receivable Current
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CY2020Q4 us-gaap Allowance For Doubtful Accounts Receivable Current
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CY2021 us-gaap Inventory Write Down
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CY2020 us-gaap Inventory Write Down
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1700000
CY2019 us-gaap Inventory Write Down
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601000
CY2021 aort Deferred Preservation Costs Write Down
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575000
CY2020 aort Deferred Preservation Costs Write Down
DeferredPreservationCostsWriteDown
1700000
CY2019 aort Deferred Preservation Costs Write Down
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787000
CY2020 aort Non Conforming Tissues Write Down
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826000
CY2021Q4 us-gaap Property Plant And Equipment Gross
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119663000
CY2020Q4 us-gaap Property Plant And Equipment Gross
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110583000
CY2021Q4 us-gaap Accumulated Depreciation Depletion And Amortization Property Plant And Equipment
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82142000
CY2020Q4 us-gaap Accumulated Depreciation Depletion And Amortization Property Plant And Equipment
AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment
77506000
CY2021Q4 us-gaap Property Plant And Equipment Net
PropertyPlantAndEquipmentNet
37521000
CY2020Q4 us-gaap Property Plant And Equipment Net
PropertyPlantAndEquipmentNet
33077000
CY2021 us-gaap Depreciation
Depreciation
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Depreciation
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Depreciation
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CY2020 us-gaap Impairment Of Long Lived Assets Held For Use
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CY2021 us-gaap Impairment Of Long Lived Assets Held For Use
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0
CY2021 aort Securites Purchase Option Agreement Expiration Period
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P90D
CY2021 aort Number Of Tranches
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3
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49400000
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CY2021Q4 us-gaap Restricted Cash And Cash Equivalents Noncurrent
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CY2019 us-gaap Realized Investment Gains Losses
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0
CY2020 us-gaap Realized Investment Gains Losses
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0
CY2021 us-gaap Realized Investment Gains Losses
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CY2021Q4 us-gaap Inventory Raw Materials And Supplies Net Of Reserves
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CY2020Q4 us-gaap Inventory Raw Materials And Supplies Net Of Reserves
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33625000
CY2021Q4 us-gaap Inventory Work In Process Net Of Reserves
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CY2021Q4 us-gaap Inventory Net
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36546000
CY2021Q4 us-gaap Other Inventory Materials Supplies And Merchandise Under Consignment
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CY2020Q4 us-gaap Other Inventory Materials Supplies And Merchandise Under Consignment
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CY2021Q4 us-gaap Inventory Valuation Reserves
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CY2020Q4 us-gaap Inventory Valuation Reserves
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