10-K 1 atri_10k.htm ANNUAL REPORT atri_10k.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2014

o 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 0-10763
_______________________
 
Atrion Corporation
(Exact name of Registrant as specified in its charter)
 
Delaware
 
63-0821819
(State of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
One Allentown Parkway,
Allen, Texas
 
 
75002
(Address of principal executive offices)
 
(ZIP code)
 
Registrant’s telephone number, including area code:  (972) 390-9800
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
 
Title of Class
 
Name of Each Exchange on Which Registered
Common Stock, $.10 Par Value
  NASDAQ
 
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
 
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 þ No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Indicate by check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o No þ
 
The aggregate market value of the voting Common Stock held by nonaffiliates of the Registrant as of, June 30, 2014, the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $498,111,374 based on the $326.00 closing price reported for such date on the NASDAQ Global Select Market.
 
Number of shares of Common Stock outstanding at February 17, 2015: 1,872,848
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III of this Form 10-K incorporates by reference information from the Company's definitive proxy statement relating to the 2015 annual meeting of stockholders, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.
 


 
 
 
 
 
ATRION CORPORATION

FORM 10-K

ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2014
________

TABLE OF CONTENTS
 
ITEM   PAGE
       
PART I    3
       
  ITEM 1. BUSINESS   3
         
  ITEM 1A.  RISK FACTORS   8
         
  ITEM 1B.  UNRESOLVED STAFF COMMENTS   13
         
  ITEM 2.  PROPERTIES   13
         
  ITEM 3.  LEGAL PROCEEDINGS   14
         
  ITEM 4.  MINE SAFETY DISCLOSURES   14
         
    EXECUTIVE OFFICERS OF THE COMPANY   14
         
PART II   15
         
  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    15
         
  ITEM 6. SELECTED FINANCIAL DATA   16
         
  ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   16
         
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    20
         
  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   20
         
 
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   39
         
  ITEM 9A. CONTROLS AND PROCEDURES   39
         
  ITEM 9B. OTHER INFORMATION   41
         
PART III   41
         
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   41
         
  ITEM 11. EXECUTIVE COMPENSATION   41
         
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS    41
         
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   42
         
  ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES   42
         
PART IV   43
         
  ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   43
         
SIGNATURES   46
 
 
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ATRION CORPORATION

FORM 10-K

ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2014

PART I

ITEM 1.    BUSINESS.

General

Atrion Corporation and its subsidiaries (”we,” “our,” “us,” “Atrion,” or the “Company”) develop and manufacture products, primarily for medical applications. Our medical products range from fluid delivery devices to ophthalmic and cardiovascular products.
 
Our fluid delivery products accounted for 41 percent, 39 percent and 41 percent of net revenues for 2014, 2013 and 2012, respectively. These products include proprietary valves that promote infection control and needle safety. We have developed a wide variety of luer syringe check valves and one-way valves designed to fill, hold and release controlled amounts of fluids or gasses on demand for use in various intubation, catheter and other applications. We also make tubing clamps in a variety of materials and colors that are compatible with various grades of tubing and sterilization processes and produce specialized intravenous sets for use in numerous applications including anesthesia and oncology.
 
Our cardiovascular products accounted for 30 percent of our net revenues for 2014 and 30 percent of net revenues for each of 2013 and 2012. At the core of our cardiovascular products is the MPS2® Myocardial Protection System, or MPS2, a proprietary technology that delivers essential fluids and medications to the heart during open-heart surgery. The MPS2 integrates key functions relating to the delivery of solutions to the heart, such as varying the rate and ratio of oxygenated blood, crystalloid, potassium and other additives, and controlling temperature, pressure and other variables to allow simpler, more flexible management of this process, indicating improved patient outcomes. The MPS2 is the only device used in open-heart surgery that allows for the mixing of drugs into the bloodstream without diluting the blood. The MPS2 employs advanced pump, temperature control and microprocessor technologies and includes a line of disposable products. We also develop and manufacture other cardiovascular products such as cardiac surgery vacuum relief valves; silicone vessel loops for retracting and occluding vessels in minimally invasive surgical procedures; inflation devices for balloon catheter dilation, stent deployment and fluid dispensing; as well as products used in heart bypass surgery to make a precision opening in the heart for attachment of the bypass vessels.
 
Our ophthalmic products accounted for 14 percent, 16 percent and 13 percent of our net revenues for 2014, 2013 and 2012, respectively. We are a leading manufacturer of contact lens disinfection cases. We also manufacture a proprietary line of balloon catheters used in the treatment of nasolacrimal duct obstruction in children and adults. Nasolacrimal duct obstruction can cause a condition called epiphora, or chronic tearing. People affected by this condition experience excessive and uncontrollable tearing and often encounter infection as a result of nasolacrimal blockage.
 
Our other medical and non-medical products accounted for 15 percent, 15 percent and 16 percent of our net revenues for 2014, 2013 and 2012, respectively. One of these product lines consists of instrumentation and associated disposables used to measure the activated clotting time of blood. In addition, we manufacture and sell a line of products designed for safe needle and scalpel blade containment. We are also the leading manufacturer of inflation systems and valves used in marine and aviation safety products. We manufacture inflation systems and valves for products such as life vests, life rafts, inflatable boats, survival equipment, and other inflatable structures. We also produce one-way and two-way pressure relief valves for use on electronics cases, munitions cases, pressure vessels, transportation container cases, escape slides, and many other medical and non-medical applications.
 
 
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Marketing and Major Customers
 
We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. We sell our products through a sales force which consists of direct sales personnel, independent sales representatives and distributors.  Our sales managers also work closely with major customers in designing and developing products to meet customer requirements.

Our net revenues from sales to customers outside the United States totaled approximately 42 percent of our net revenues for each of 2014, 2013 and 2012. Our international sales are made to various manufacturers and through distributors in over 60 countries.  Revenues from sales to customers in Canada totaled approximately 8 percent of our net revenues for 2014 and 11 percent of our net revenues for each of 2013 and 2012. Additional information about our revenues from customers in and outside of the United States over the past three years is set forth in Part II, Item 8 of this Form 10-K.

We offer customer service, training and education, and technical support such as field service, spare parts, maintenance and repair for certain of our products. We periodically advertise our products in trade journals, routinely attend and participate in industry trade shows throughout the United States and internationally, and sponsor scientific symposia as a means of disseminating product information. We also have supportive literature on the benefits of our products.

Manufacturing

Our medical products and other components are produced at facilities in Florida, Alabama and Texas. The facilities in Alabama and Florida both utilize plastic injection molding and specialized assembly as their primary manufacturing processes. Our other manufacturing processes consist of the assembly of standard and custom component parts, including the assembly of electronic components, and the testing of completed products.

We are subject to the Quality System Regulation, or QSR, of the United States Food and Drug Administration, or FDA, which requires manufacturers of medical devices to adhere to certain design testing, quality control, documentation and other quality assurance procedures during the manufacturing process. We devote significant attention to quality assurance. Our quality assurance measures begin with the suppliers which participate in our supplier quality assurance program. These measures continue at the manufacturing level where many components are assembled in a clean room environment designed and maintained to reduce product exposure to particulate matter. Products are tested throughout the manufacturing process for adherence to specifications. Most finished products are then shipped to outside processors for sterilization by radiation or ethylene oxide gas. After sterilization, the products are quarantined and tested before they are shipped to customers.

Skilled workers are required for the manufacturing of our products, and we believe that additional workers with these skills are readily available in the areas where our plants are located.

Our medical device operations are EN ISO13485:2012 certified and are subject to FDA jurisdiction. Our non-medical device operations are ISO9001-2008 certified.

Research and Development

A well-targeted research and development program is an essential part of our activities, and we are currently engaged in a number of research and development projects. The objective of this program is to develop new products in our current product lines, improve current products and develop new product lines. The Company expects to continue additional research and development in 2015 in all these areas.

Our consolidated research and development expenditures for 2014, 2013 and 2012 were $5,286,000, $4,288,000 and $3,766,000, respectively.
 
 
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Sources and Availability of Raw Materials

The principal raw materials that we use in our products are resins. Our ability to operate profitably is dependent, in part, on the availability and pricing of these resins. The resins we use are derived from petroleum and natural gas, and the prices fluctuate substantially as a result of changes in petroleum and natural gas prices, demand and the capacity of the companies that produce these resins to meet market needs. Instability in the world markets for petroleum and natural gas could adversely affect the availability and pricing of these resins.

We contract with various suppliers to provide the component parts necessary to assemble our products. Almost all of these components are available from a number of different suppliers, although certain components are purchased from single sources that manufacture these components using our tooling. We believe that there are satisfactory alternative sources for single-sourced components, although a sudden disruption in supply from one or more of these suppliers could adversely affect our ability to deliver finished products on time. We own the molds used for production of nearly all our components. Consequently, in the event of supply disruption, we should be able to fabricate our own components or contract with another supplier, albeit after a possible delay in the production process.

Patents and License Agreements

Our commercial success is dependent, in part, on our ability to continue to develop patentable products, to preserve our trade secrets and to operate without infringing or violating the proprietary rights of third parties. We currently have 515 active patents and patent applications pending on products that are either being sold or are in development. We pay royalties to outside parties for four patents. All of these patents and patents pending relate to products currently being sold by us or to products in evaluation stages.  Our patents expire at various times over the next 20 years.

We have developed technical knowledge which, although non-patentable, we consider to be significant in enabling us to compete. However, the proprietary nature of such knowledge may be difficult to protect. We have entered into agreements with key employees prohibiting them from disclosing any of our confidential information or trade secrets. In addition, these agreements also provide that any inventions or discoveries relating to our business by these individuals will be assigned to us and become our sole property.

The medical device industry is characterized by extensive intellectual property litigation, and companies in that industry sometimes use intellectual property litigation to gain a competitive advantage. Intellectual property litigation, regardless of outcome, is often complex and expensive, and the outcome of this litigation is generally difficult to predict.

Competition

Depending on the product and the nature of the project, we compete on the basis of our ability to provide engineering and design expertise, quality, service, product and price. As such, successful competitors must have technical strength, responsiveness and scale. We believe that our expertise and reputation for quality medical products have allowed us to compete favorably with respect to each such factor and to maintain long-term relationships with our customers.

In many of our markets, we compete with numerous other companies in the sale of healthcare products. These markets are dominated by established manufacturers that have broader product lines, greater distribution capabilities, substantially greater capital resources and larger marketing, research and development staffs and facilities than ours. Many of these competitors offer broader product lines within the specific product market and in the general field of medical devices and supplies. Broad product lines give many of our cardiovascular and fluid delivery competitors the ability to negotiate exclusive, long-term medical device supply contracts and, consequently, the ability to offer comprehensive pricing of their competing products. By offering a broader product line in the general field of medical devices and supplies, competitors may also have a significant advantage in marketing competing products to group purchasing organizations, health maintenance organizations, or HMOs, and other managed care organizations that are increasingly seeking to reduce costs through centralization of purchasing functions. Furthermore, innovations in surgical techniques, product design or functions, or medical practices could have the effect of reducing or eliminating market demand for one or more of our products. In addition, our competitors may use price reductions to preserve market share in their product markets.
 
 
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We design products for a customer or potential customer prior to entering into long-term development and manufacturing agreements with that customer. Because these products are somewhat limited in number and normally are only a component of the ultimate product sold by our customers, we are dependent on our ability to meet the quality requirements of our customers and must continually be attentive to the need to manufacture such products at competitive prices and in compliance with strict manufacturing standards. Additionally, we are dependent on our customer’s success in the marketing of the ultimate product sold. We also compete in the market for inflation devices used in marine and aviation equipment.
 
Government Regulation

Products

The manufacture and sale of medical products are subject to comprehensive regulation by numerous United States and foreign regulatory agencies, principally the FDA. The research and development, manufacturing, promotion, marketing and distribution of medical products in the United States are governed by the Federal Food, Drug and Cosmetic Act, or FDCA, and the regulations promulgated thereunder. All manufacturers of medical devices must register with the FDA and list all medical devices manufactured by them. The list must be updated annually. Our medical products subsidiaries and certain of our customers are subject to inspection by the FDA for compliance with such regulations and procedures and our medical products manufacturing facilities are subject to regulation by the FDA.

The FDA has traditionally pursued a rigorous enforcement program to ensure that regulated entities comply with the FDCA.  A company not in compliance may face a variety of regulatory actions, including warning letters, product detentions, device alerts, mandatory recalls or field corrections, product seizures, total or partial suspension of production, injunctive actions or civil penalties and criminal prosecutions of the company or responsible employees, officers and directors.

The FDA sets forth rules, which are available to the public, for the approval of medical devices. The process of obtaining FDA approval for new devices can take several months to several years depending on the type of application required for a particular device. Furthermore, the process of obtaining FDA approval can be expensive and uncertain. Even if granted, FDA approval may include significant limitations on the indicated uses for which a product may be marketed. FDA enforcement policy strictly regulates the promotion of approved medical devices. Product approvals can be withdrawn for failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial marketing. We are also subject to regulation in certain foreign countries where we sell our products. Some of the regulations in these countries that are applicable to our products are similar to those of the FDA.

Certain aviation and marine safety products are also subject to regulation by the United States Coast Guard and the Federal Aviation Administration and similar organizations in foreign countries which regulate the safety of marine and aviation equipment.

Healthcare Regulations

In the United States, healthcare providers, including hospitals and physicians, that purchase medical products for treatment of their patients generally rely on third-party payors, principally Medicare, Medicaid and private health insurance plans, to reimburse all or a part of the costs and fees associated with the procedures performed using these products.
 
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed healthcare systems that control reimbursement for new products and procedures. In most markets, there are private insurance systems as well as government-managed systems. Market acceptance of our products in international markets depends, in part, on the availability and level of reimbursement.

Medicare and Medicaid reimbursement for hospitals is generally based on a fixed amount for a patient based upon that patient’s specific diagnosis. Because of this fixed reimbursement method, hospitals may seek to reduce the costs they incur in treating Medicare and Medicaid patients. Frequently, reimbursement is reduced to reflect the availability of a new procedure or technique, and as a result hospitals are generally willing to implement new cost saving technologies before these downward adjustments take effect. Likewise, because the rate of reimbursement for physicians who perform certain procedures has been and may in the future be reduced, physicians may seek greater cost efficiency in treatment to minimize any negative impact of reduced reimbursement. Third-party payors may challenge the prices charged for medical products and services and may deny reimbursement if they determine that a device was not used in accordance with cost-effective treatment methods as determined by the payor, was experimental or was used for an unapproved application.

In March 2010, comprehensive healthcare reform legislation in the form of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively known as the “Affordable Care Act”) was enacted. Among other provisions, this legislation imposes a 2.3 percent excise tax on the sale in the United States of certain medical devices by the manufacturer, producer or importer after December 31, 2012. This excise tax applies to approximately 29 percent of our product revenue generated in the United States. During 2014, we remitted $548,000 related to this excise tax. The Affordable Care Act, also established  a payment transparency program, sometimes referred to as the Physician Payments Sunshine Act, that requires medical device and drug manufacturers, including the Company, to report to the Centers for Medicare & Medicaid Services payments or other transfers of value made to physicians and teaching hospitals. The program is intended to provide patients with enhanced transparency as to the financial relationships that physicians and teaching hospitals have with medical device and drug manufacturers. Additionally, various healthcare reform proposals have also emerged at the state level.
 
 
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We anticipate that Congress, state legislatures and the private sector will continue to review and assess healthcare reform, including alternative healthcare delivery and payment systems. We cannot predict what impact the adoption or modification of any federal or state healthcare reform measures, including the Affordable Care Act, and state healthcare reform, future private sector reform or market forces may have on our business.

We are, directly or indirectly, subject to various federal and state laws governing our relationship with healthcare providers and pertaining to healthcare fraud and abuse, including anti-kickback laws. In particular, the federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending a good or service for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG, has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.
 
The Federal False Claims Act, or FCA, imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the United States government. Damages under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil penalties and treble damages. The U.S. Department of Justice, on behalf of the government, has previously alleged that the marketing and promotional practices of medical device and drug manufacturers that included the off-label promotion of products or the payment of prohibited kickbacks to doctors violated the FCA resulting in the submission of improper claims to federal and state healthcare entitlement programs such as Medicaid. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

Product Liability and Insurance

The design, manufacture and marketing of products of the types we produce entail an inherent risk of product liability claims. A problem with one of our products could result in product liability claims or a recall of, or safety alert or advisory notice relating to, the product. We have product liability insurance in amounts that we believe are adequate.

Advisory Board

Several physicians and other healthcare professionals serve as our clinical advisors. These clinical advisors have assisted in the identification of the market need for some of our products. Members of our management and scientific and technical staff from time to time consult with these clinical advisors to better understand the technical and clinical requirements of current and future products. We anticipate that these clinical advisors will continue to play a role in our development activities.

Certain of the clinical advisors are employed by academic institutions and may have commitments to, or consulting or advisory agreements with, other entities that may limit their availability to advise us. The clinical advisors may also serve as consultants to other medical device companies. Our clinical advisors are not expected to devote more than a small portion of their time in providing services to us.

People

At January 31, 2015, we had 483 employees. We are proud that many of our employees have tenures with us ranging from 10 to 37 years.

Available Information

Our website address is www.atrioncorp.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission, or SEC. These filings are also available at www.sec.gov.
 
 
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ITEM 1A.    RISK FACTORS.

In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition and results of operations could be materially adversely affected by any of these risks. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial, or that we have not predicted, may also harm our business operations or adversely affect us.
 
  
Our sales could decline materially if we lose business from one or more of our larger customers or a significant number of our smaller customers.
 
Our sales are generally made under open short-term purchase orders or purchase contracts.  Customers with purchase orders could reduce their volumes, or cease purchasing our products, with minimal notice.  Customers having purchase contracts may elect not to renew those contracts at expiration or the contracts may be renewed on terms less favorable to us.  The loss of, or material reduction in orders by, one or more of our larger customers or a significant number of our smaller customers could have a material adverse effect on our business, financial condition and results of operations.

  
Our business is dependent on the price and availability of resins and our ability to pass on resin price increases to our customers.
 
The principal raw materials that we use in our products are polyethylene, polypropylene and polyvinyl chloride resins. Our ability to operate profitably is dependent, in part, on the availability and pricing of these resins. The resins we use are derived from petroleum and natural gas; therefore, prices fluctuate substantially as a result of changes in petroleum and natural gas prices, demand and the capacity of the companies that produce these products to meet market needs. Instability in the world markets for petroleum and natural gas could adversely affect the prices of these raw materials and their availability.

Our ability to maintain profitability depends, in part,  upon our ability to pass through to our customers the full amount of any increase in raw material costs. If resin prices increase and we are not able to fully pass on the increases to our customers, our results of operations and our financial condition will be adversely affected.

  
Product liability claims could adversely affect our financial condition and results of operations.
 
We may be subject to product liability claims involving claims of personal injury or property damage. Our product liability insurance coverage may not be adequate to cover the cost of defense and the potential award in the event of a claim. A product liability claim, regardless of its merit or outcome, could result in significant legal defense costs. Also, a well-publicized actual or perceived problem with one or more of our products could adversely affect our reputation and reduce the demand for our products.

  
The loss of a key supplier of raw materials could lead to increased costs and lower profit margins.
 
The loss of a key supplier would force us to purchase raw materials in the open market, which may be at higher prices, until we could secure another source and such higher prices may not allow us to remain competitive. If we are unable to obtain raw materials in sufficient quantities, we may not be able to manufacture our products. Even if we were able to replace one of our raw material suppliers through another supply arrangement, there is no assurance that the terms that we enter into with such alternate supplier will be as favorable to us as the supply arrangements that we currently have.
 
  
Any losses we incur as a result of our exposure to the credit risk of our customers could harm our results of operations.
 
We monitor individual customer payment capability in granting credit arrangements, seek to limit credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. As we have grown our revenue and customer base, our exposure to credit risk has increased. Any material losses as a result of customer defaults could harm, and have an adverse effect on, our business, operating results and financial condition.

  
Our success is measured in part by our ability to develop patentable products, to preserve our trade secrets and operate without infringing or violating the proprietary rights of third parties.
 
Others may challenge the validity of any patents issued to us, and we could encounter legal and financial difficulties in enforcing our patent rights against infringers. In addition, there can be no assurance that other technologies cannot or will not be developed or that patents will not be obtained by others which would render our patents less valuable or obsolete. Our patents expire at various times over the next 20 years. Once patents expire, some customers may not continue to purchase from us, opting for competitive copies instead. If we do not develop and launch new products prior to the expiration of patents for our existing products, our sales and profits could decline substantially.
 
 
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We have developed technical knowledge which, although non-patentable, we consider to be significant in enabling us to compete. However, the proprietary nature of such knowledge may be difficult to protect.

The medical device industry is characterized by extensive intellectual property litigation, and companies in the medical products industry sometimes use intellectual property litigation to gain a competitive advantage. Intellectual property litigation, regardless of outcome, is often complex and expensive, and the outcome of this litigation is generally difficult to predict. An adverse determination in any such proceeding could subject us to significant liabilities to third parties or require us to seek licenses from third parties or pay royalties that may be substantial. Furthermore, there can be no assurance that necessary licenses would be available to us on satisfactory terms or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing or selling certain of our products, which could have a material adverse effect on our business, financial condition and results of operations.

  
International patent protection is uncertain.
 
Patent law outside the United States is uncertain and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as United States laws. We may participate in opposition proceedings to determine the validity of our or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts.

  
New lines of business or new products and services may subject us to additional risks.
 
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business or new product or service could have a significant impact on the effectiveness of our system of internal control. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.
 
  
Some of our competitors have significantly greater resources than we do, and it may be difficult for us to compete against them.
 
In many of our markets, we compete with numerous other companies that have substantially greater financial resources and engage in substantially more research and development activities than we do. Furthermore, innovations in surgical techniques or medical practices could have the effect of reducing or eliminating market demand for one or more of our products.

Some of the markets in which we compete are dominated by established manufacturers that have broader product lines, greater distribution capabilities, substantially larger marketing, research and development staffs and facilities than we do. Many of these competitors offer broader product lines within the specific product market and in the general field of medical devices and supplies. Broad product lines give many of our cardiovascular and fluid delivery competitors the ability to negotiate exclusive, long-term medical device supply contracts and, consequently, the ability to offer comprehensive pricing of their competing products. By offering a broader product line in the general field of medical devices and supplies, competitors may also have a significant advantage in marketing competing products to group purchasing organizations.  In addition, our competitors may use price reductions to preserve market share in their product markets.

  
We are subject to healthcare fraud and abuse regulations that could result in significant liability, require us to change our business practices and restrict our operations in the future.
 
We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States. These laws and regulations are wide ranging and subject to changing interpretation and application, which could restrict our sales or marketing practices. A violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flow.

  
We will be unable to sell our products if we fail to comply with governmental regulations.
 
To manufacture our products commercially, we must comply with governmental regulations that govern design controls, quality systems and documentation policies and procedures, including continued compliance with QSR. The FDA and equivalent foreign governmental authorities periodically inspect our manufacturing facilities and the manufacturing facilities of our Original Equipment Manufacturer, or OEM, medical device customers. If we or our OEM
medical device customers fail to comply with these manufacturing regulations, including meeting reporting obligations to the FDA, or fail any FDA inspections, marketing or distribution of our products may be prevented or delayed, which would negatively impact our business.
 
 
9

 
 
  
Our products are subject to product recalls even after receiving regulatory clearance or approval, and any such recalls would negatively affect our financial performance and could harm our reputation.
 
Any of our products may be found to have significant deficiencies or defects in design or manufacture. The FDA and similar governmental authorities in other countries have the authority to require the recall of any such defective product. A government-mandated or voluntary recall could occur as a result of component failures, manufacturing errors or design defects. We do not maintain insurance to cover losses incurred as a result of product recalls. Any product recall would divert managerial and financial resources and negatively affect our financial performance, and could harm our reputation with customers and end-users.

  
We may not receive regulatory approvals for new product candidates or for modifications of existing products or approvals may be delayed.
 
Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of our proposed products and in our ongoing research and product development activities. Any failure to receive the regulatory approvals necessary to commercialize our product candidates, or the subsequent withdrawal of any such approvals, would harm our business. Additionally, modification of our existing products may require regulatory approval. The process of obtaining these approvals and the subsequent compliance with federal and state statutes and regulations require spending substantial time and financial resources. If we fail to obtain or maintain, or encounter delays in obtaining or maintaining, regulatory approvals, it could adversely affect the marketing of any products we develop or modify, our ability to receive product revenues, and our liquidity and capital resources.

  
We rely on technology to operate our business and any failure of these systems could harm our business.
 
We rely heavily on communications and information technology systems to conduct our business, enhance customer service and increase employee productivity. Some of these systems are vulnerable to interruption by fire, power loss, system malfunction, computer viruses, cyber-attacks and similar events. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, inventory, manufacturing and other systems. There is no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed by our policies and procedures that are intended to safeguard our systems. The occurrence of any failures, interruptions or security breaches of our information technology systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, and expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.  In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us, our customers, our suppliers or our employees, which may result in significant costs and other adverse consequences.

  
We sell many of our products to healthcare providers that rely on Medicare, Medicaid and private health insurance plans to reimburse the costs associated with the procedures performed using our products and these third party payors may deny reimbursement for use of our products.
 
We are dependent, in part, upon the ability of healthcare providers to obtain satisfactory reimbursement from third-party payors for medical procedures in which our products are used. Third-party payors may deny reimbursement if they determine that a prescribed product has not received appropriate regulatory clearances or approvals, is not used in accordance with cost-effective treatment methods as determined by the payor, or is experimental, unnecessary or inappropriate. Failure by hospitals and other users of our products to obtain reimbursement from third-party payors, or adverse changes in government and private third-party payors’ policies toward reimbursement for procedures utilizing our products, could have a material adverse effect on the Company’s business, financial condition and results of operations. Major third-party payors for medical services in the United States and other countries continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to charges for services performed. Further implementation of legislative or administrative reforms to the United States or international reimbursement systems in a manner that significantly reduces reimbursement for procedures using our products or denies coverage for such procedures may result in hospitals or physicians substituting lower cost products or other therapies for our products which, in turn, would have an adverse effect on our business, financial condition and results of operations. Additionally, uncertainty about whether and how changes may be implemented could also have a negative impact on the demand for our products.

  
Healthcare policy changes, including the Affordable Care Act, may have a material adverse effect on our business, financial condition and results of operations.
 
The Affordable Care Act makes changes that may significantly impact the medical device industry.  One of the principal aims of the Affordable Care Act is to expand health insurance coverage to millions of Americans who are uninsured.  The consequences of a significant coverage expansion on the sales of our products are unknown and speculative at this point.

The Affordable Care Act, as well as other federal or state health care reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and our ability to develop or market our products successfully.  The 2.3 percent excise tax imposed by the Affordable Care Act on sales in the United States of certain medical devices has resulted in decreased profits to us. Also, the expansion of the government's role in the United States healthcare industry may result in a further decrease in profits to us, lower reimbursement by payors for our products, and reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations.
 
 
10

 
 
  
We may not be able to attract and retain skilled people.
 
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities we engage in can be intense, and we may not be able to hire qualified people or to retain them. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

  
We  utilize distributors for a portion of our sales, which subjects us to risks that could harm our business.
 
We have strategic relationships with a number of distributors for sales of our products. To the extent that we rely on distributors, our success will depend on the efforts of others over whom we may have little or no control.  If these strategic relationships are terminated and not replaced, our revenues could be adversely affected. Also, we may be named as a defendant in litigation against our distributors related to sales of our products by them.
 
  
Severe weather, natural disasters, acts of war or terrorism or other external events could significantly impact our business.
 
We currently conduct all our development, manufacturing and management at three locations. Severe weather, natural disasters, acts of war or terrorism and other adverse external events at any one or more of these locations could have a significant impact on our ability to conduct business. We have the ability to transfer certain products from a facility affected by such events, but doing so would be expensive. Our disaster recovery policies and procedures may not be effective and the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. The insurance we maintain may not be adequate to cover our losses.

  
Our sales and operations are subject to the risks of doing business internationally.
 
A substantial portion of our sales occur outside the United States, and we are increasing our presence in international markets. Sales outside the United States subject us to many risks, such as:
 
  
economic or political problems that disrupt foreign healthcare payment systems;
  
the imposition of governmental controls;
  
less favorable intellectual property or other applicable laws;
  
protectionist laws and business practices that favor local competitors;
  
the inability to obtain any necessary foreign regulatory or pricing approvals of products in a timely manner;
  
changes in tax laws and tariffs;
  
receivables may be more difficult to collect; and
  
longer payment cycles.
 
Our operations and marketing practices are also subject to regulation and scrutiny by the governments of the other countries in which we operate. In addition, the Foreign Corrupt Practices Act, or FCPA, prohibits United States companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In certain countries, the healthcare professionals we regularly interact with may meet the definition of a foreign official for purposes of the FCPA. Additionally, we are subject to other United States laws in our international operations. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls, seizures, withdrawal of an approved product from the market, and the imposition of civil or criminal sanctions.

  
We may lose revenues, market share and profits due to exchange rate fluctuations related to our international business.

Fluctuations in exchange rates may affect the prices that our international customers are willing to pay and may put us at a price disadvantage compared to other competitors. Potentially volatile shifts in exchange rates may negatively affect our financial condition and operations. Because payments from our international customers are received primarily in United States dollars,  increases in the value of the United States dollar relative to foreign currencies could make our products less competitive or less affordable, and therefore adversely affect our sales in international markets.
 
 
11

 
 
  
We may experience fluctuations in our quarterly operating results.
 
We have historically experienced, and may continue to experience, fluctuations in our quarterly operating results. These fluctuations are due to a number of factors, many of which are outside our control, and may result in volatility of our stock price. Future operating results will depend on many factors, including:
 
  
demand for our products;
  
pricing decisions, and those of our competitors, including decisions to increase or decrease prices;
  
regulatory approvals for our products;
  
timing and levels of spending for research and development, sales and marketing;
  
timing and market acceptance of new product introductions by us or our competitors;
  
development or expansion of business infrastructure in new clinical and geographic markets;
  
tax rates in the jurisdictions in which we operate;
  
shipping delays or interruptions;
  
customer credit holds;
  
timing and recognition of certain research and development milestones and license fees; and
  
ability to control our costs;

  
Our stock price can be volatile.
 
Stock price volatility may make it more difficult for our stockholders to sell their common stock when they want and at prices they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
 
  
actual or anticipated variations in quarterly results of operations;
  
recommendations by securities analysts;
  
operating and stock price performance of other companies that investors deem comparable to the Company;
  
perceptions in the marketplace regarding the Company and our competitors;
  
new technology used, or services offered, by competitors;
  
trading by funds with high-turnover practices or strategies;
  
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or our competitors;
  
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
  
changes in government regulations; and
  
geopolitical conditions such as acts or threats of terrorism or military conflicts.

Additionally, our public float is small which can result in large fluctuations in stock price during periods with increased selling or buying activity. General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results.

  
If we make acquisitions or divestitures, we could encounter difficulties that harm our business.
 
We may acquire companies, products or technologies that we believe to be complementary to our business.  If we do so, we may have difficulty integrating the acquired personnel, operations, products or technologies and we may not realize the expected benefits of any such acquisition. In addition, acquisitions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees and increase our expenses, any of which could harm our business. We may also sell a business or product line. Any divestiture may result in significant write-offs, which could have a material adverse effect on our business, financial condition or results of operations. Divestitures could also involve additional risks, including difficulties in separation of operations, services and personnel, the diversion of management’s attention from other operations and the potential loss of key personnel.
 
 
12

 
 
  
Political and economic conditions could materially and adversely affect our revenue and results of operations.
 
Our business may be affected by a number of factors that are beyond our control such as general geopolitical economic and business conditions, conditions in the financial markets, and changes in the overall demand for our products. A severe or prolonged economic downturn could adversely affect our customers’ financial condition and the levels of business activity of our customers. Uncertainty about current global political or economic conditions could cause businesses to postpone spending in response to tighter credit, negative financial news or declines in income or asset values, which could have a material negative effect on the demand for our products. There could be additional effects on our business from these economic developments including the insolvency of key suppliers or their inability to obtain credit, the inability of our customers to pay for or obtain credit to finance purchases of our products and increased pressure to reduce the prices of our products.
 
Turbulence in the United States and international markets and economies could have a material adverse impact on our business, operating results and financial condition. In addition, if we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially adversely affect our business and results of operations.
 
  
Conflict minerals regulations may cause us to incur additional expenses and could limit the supply and increase the cost of metals used in manufacturing our products.
 
The SEC has adopted rules establishing disclosure and reporting requirements regarding the use of specified minerals, or conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. These new rules require us to determine, disclose and report whether or not such conflict minerals originate from the Democratic Republic of the Congo or an adjoining country. These rules could affect our ability to source certain materials used in our products at competitive prices and could impact the availability of certain minerals used in the manufacture of our products. As there may be only a limited number of suppliers of “conflict free” minerals, we cannot be sure that we will be able to obtain necessary conflict free minerals in sufficient quantities or at competitive prices. Our customers may require that our products be free of conflict minerals, and our revenues and margins may be harmed if we are unable to procure conflict free minerals at a reasonable price, or at all, or are unable to pass through any increased costs associated with meeting these demands. Additionally, we may face reputational challenges with our customers if we are unable to verify sufficiently the origins of all minerals used in our products through our due diligence procedures. We may also face challenges with government regulators and our customers and suppliers if we are unable to verify sufficiently that the metals used in our products are conflict free. There may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as cost related to possible changes to products, processes, or sources of supply as a consequence of such verification and disclosure requirements.
 
  
If we fail to manage our exposure to market risk and credit risk successfully, our financial condition could be adversely impacted.
 
We have exposure to market risk and credit risk in our investment activities. The fair values of our investments vary from time to time depending on economic and market conditions. Fixed maturity securities expose us to interest rate risk as well as credit risk. Equity securities expose us to equity price risk. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equity securities owned by us. The outlook of our investment portfolio depends on the future direction of interest rates, fluctuations in the equity securities market and the amount of cash flows available for investment. Our investments may decline in value in future periods, which could have a material adverse effect on our financial condition.

  
Provisions in our governing documents and Delaware law may discourage or prevent a change of control, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.
 
Our certificate of incorporation and bylaws contain provisions that may discourage, delay or prevent a change in the ownership of the Company or a change in our management.  In addition, our Board of Directors has adopted a rights plan which is intended to provide our Board of Directors with flexibility in addressing any takeover attempt and give it an opportunity to negotiate a transaction that maximizes stockholder value.  However, the rights plan could delay or prevent a change in control of us even if the change in control would generally be beneficial to our stockholders.  We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding common stock. Although a delay or prevention of a change of control transaction or of changes in our Board of Directors could be effective in improving stockholder value, they also carry a risk of causing the market price of our common stock to decline.
 
ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.    PROPERTIES.

We own three facilities comprising approximately 398,000 square feet, and the 97 acres on which they are situated, in Texas, Alabama and Florida. Administrative, engineering, manufacturing and warehouse operations are conducted at each facility, and our corporate headquarters are located at our Texas facility.  
 
 
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ITEM 3.    LEGAL PROCEEDINGS.

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

ITEM 4.    MINE SAFETY DISCLOSURES.

Not applicable.

Executive Officers of the Company

Name
 
Age
 
Title
         
Emile A Battat
 
76
 
Chairman of the Company and Chairman of Halkey-Roberts Corporation, or Halkey-Roberts,  one of our subsidiaries
         
David A. Battat
 
45
 
President and Chief Executive Officer of the Company, President of Halkey-Roberts  and Chairman of all other subsidiaries
         
Jeffery Strickland
 
56
 
Vice President and Chief Financial Officer, Secretary and Treasurer of the Company and Vice President or Secretary-Treasurer of all subsidiaries
 
Messrs. David Battat and Strickland currently serve as officers of the Company and all subsidiaries. Mr. Emile Battat currently serves as an officer of the Company and Halkey-Roberts. The officers of the Company and our subsidiaries are elected annually by the respective Boards of Directors of the Company and our subsidiaries at the first meeting of such Boards of Directors held after the annual meetings of stockholders of such entities. The next meetings of the stockholders of the Company and our subsidiaries are expected to be held in May 2015 and the Boards of Directors of the Company and our subsidiaries are expected to meet promptly thereafter. Accordingly, the terms of office of the current officers of the Company and our subsidiaries are anticipated to expire in May 2015.

There are no arrangements or understandings between any officer and any other person pursuant to which the officer was elected. The only family relationship between any of our executive officers or directors is that Mr. David Battat is the son of Mr. Emile Battat.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officers during the past ten years.

Brief Account of Business Experience During the Past Five Years

Mr. Emile Battat has been a director of the Company since 1987 and has served as Chairman of the Board of the Company since January 1998. He has served as Chairman of Halkey-Roberts since October 1998. He served as Chief Executive Officer of the Company and Chairman or President of all subsidiaries from October 1998 until May 2011

Mr. David Battat has been President and Chief Executive Officer of the Company and Chairman of all subsidiaries with the exception of Halkey-Roberts since May 2011. He has been President of Halkey-Roberts since January 2006. He served as the Company’s President and Chief Operating Officer from May 2007 until May 2011 and from February 2005 until December 2005 he served as Vice President - Business Development and General Counsel at Halkey-Roberts.
 
Mr. Strickland has served as Vice President and Chief Financial Officer, Secretary and Treasurer of the Company since February 1, 1997 and has served as Vice President or Secretary-Treasurer for all the Company’s subsidiaries since January 1997. Mr. Strickland was employed by the Company or our subsidiaries in various other positions from September 1983 through January 1997.
 
 
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PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the NASDAQ Global Select Market (Symbol ATRI). As of February 24, 2015, we had 151 record holders, and approximately 3,500 beneficial owners, of our common stock. The high and low sales prices as reported by NASDAQ for each quarter of 2013 and 2014 are shown below.

Year Ended            
December 31, 2013:
 
High
   
Low
 
First Quarter
  $ 210.99     $ 186.00  
Second Quarter
  $ 222.74     $ 186.37  
Third Quarter
  $ 261.00     $ 217.00  
Fourth Quarter
  $ 299.00     $ 252.50  
 
Year Ended            
December 31, 2014:
 
High
   
Low
 
First Quarter
  $ 316.99     $ 254.12  
Second Quarter
  $ 337.25     $ 261.53  
Third Quarter
  $ 329.99     $ 278.01  
Fourth Quarter
  $ 355.91     $ 288.50  

We pay regular quarterly cash dividends on our common stock. We have increased our quarterly cash dividend payments in September of each of the past eight years. The quarterly dividend was increased to $.56 in September of 2012, $.64 in September 2013 and to $.75 in September 2014. On December 10, 2012 we made special cash dividend payments to stockholders of $10.00 per share. We paid cash dividends totaling $5.4 million to our stockholders in 2014.

We have a Rights Plan which is intended to protect the interests of stockholders in the event of a hostile attempt to take over the Company.  The rights, which are not presently exercisable and do not have any voting powers, represent the right of our stockholders to purchase at a substantial discount, upon the occurrence of certain events, shares of our common stock or of an acquiring company involved in a business combination with us.  This plan, which was adopted in August 2006, expires in August 2016.

During the year ended December 31, 2014, we did not sell any equity securities that were not registered under the Securities Act of 1933.

The table below sets forth information with respect to our purchases of our common stock during each of the three months in the period ended December 31, 2014.
 
Period
 
Total Number of Shares Purchased (1)
   
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 (2)
 
10/1/2014 through 10/31/2014
    -       -       -       88,626  
11/1/2014 through 11/30/2014
    4,600     $ 322.02       4,600       84,026  
12/1/2014 through 12/31/2014
    30,000       333.64       30,000       54,026  
Total
    34,600     $ 332.10       34,600       54,026  
 
(1)  
All shares shown in this column were purchased in open-market and private transactions.
 
(2)  
On August 16, 2011, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to 200,000 shares of our common stock from time to time in open market or privately-negotiated transactions. This stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.
 
The stock performance graph set forth in our 2015 Annual Report to Stockholders is incorporated by reference herein and is included in Exhibit 13.1 to this Form 10-K.  However, the stock performance graph is not to be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 18 under the Securities Exchange Act of 1934. In addition, it shall not be deemed incorporated by reference by any statement that incorporates this Form 10-K by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference.

 
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ITEM 6.    SELECTED FINANCIAL DATA.

Selected Financial Data
(In thousands, except per share amounts)

   
2014
   
2013
   
2012
   
2011
   
2010
 
Operating Results for the Year ended December 31,
                         
Revenues
  $ 140,762     $ 131,993     $ 119,062     $ 117,704     $ 108,569  
Operating income
    40,817       37,944       33,626       38,168       30,977  
Net income
    27,808       26,582       23,629       26,038       20,952  
Depreciation and amortization
    8,723       8,592       7,610       6,544       7,041  
Per Share Data:
                                       
Net income per diluted share
    14.08       13.18       11.66       12.82       10.32  
Cash dividends per common share
    2.78       2.40       12.10       1.82       10.56  
Average diluted shares outstanding
    1,975       2,017       2,027       2,031       2,030  
Financial Position at December 31,
                                       
Total assets
    171,514       172,066       155,810       161,895       134,652  
Long-term debt
    -       -       -       -       -  
 
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products.  In 2014, approximately 42 percent of our sales were outside the United States.
 
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 strategy is to provide a broad selection of products in the areas of our expertise. Research and development efforts are focused on improving current products and developing highly-engineered 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 year ended December 31, 2014, we reported revenues of $140.8 million, operating income of $40.8 million and net income of $27.8 million.
 
 
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Results of Operations

Our net income was $27.8 million, or $14.20 per basic and $14.08 per diluted share in 2014 compared to $26.6 million, or $13.22 per basic and $13.18 per diluted share, in 2013 and net income of $23.6 million, or $11.72 per basic and $11.66 per diluted share, in 2012. Revenues were $140.8 million in 2014, compared with $132.0 million in 2013 and $119.1 million in 2012. The seven percent revenue increase in 2014 over 2013 and 11 percent revenue increase in 2013 over 2012 were generally attributable to higher sales volumes.

Annual revenues by product lines were as follows (in thousands):
 
   
2014
   
2013
   
2012
 
                   
Fluid Delivery
  $ 57,905     $ 51,289     $ 49,060  
Cardiovascular
    43,001       40,182       36,021  
Ophthalmology
    19,329       20,736       15,717  
Other
    20,527       19,786       18,264  
Total
  $ 140,762     $ 131,993     $ 119,062  
 
Our cost of goods sold was $72.2 million in 2014, $68.9 million in 2013 and $62.9 million in 2012. Higher sales volume along with increased repair and compensation costs partially offset by improved manufacturing efficiencies were the primary contributors to the increase in cost of goods sold in 2014 over 2013. Higher sales volume along with higher depreciation expense and lower manufacturing efficiencies partially offset by a more favorable product mix and the impact of continued cost improvement initiatives were the primary contributors to the 10 percent increase in cost of goods sold for 2013 over 2012.

Gross profit in 2014 was $68.5 million compared with $63.1 million in 2013 and $56.1 million in 2012. Our gross profit was 49 percent of revenues in 2014, 48 percent of revenues in 2013 and 47 percent of revenues in 2012. The improvement in gross profit percentage in 2014 over 2013 was primarily related to improvements in manufacturing efficiencies. The increase in gross profit percentage in 2013 over 2012 was primarily related to a product mix that was more favorable than 2012’s product mix, improvements in manufacturing efficiencies and the impact of cost-savings projects.

Operating expenses were $27.7 million in 2014 compared with $25.1 million in 2013 and $22.5 million in 2012. Research and development, or R&D, expenses increased $1.0 million in 2014 as compared to 2013 primarily as a result of increased costs for outside services and supplies. R&D expenses consist primarily of salaries and other related expenses of our R&D personnel as well as costs associated with regulatory matters. In 2014, selling expenses were virtually unchanged as decreased promotional costs were offset by increased commissions.  Selling expenses consist primarily of salaries, commissions and other related expenses for sales and marketing personnel, marketing, advertising and promotional expenses. General and administrative, or G&A, expenses increased $1.6 million in 2014 as compared to 2013 primarily as a result of increased compensation, depreciation, amortization and outside services. G&A expenses consist primarily of salaries and other related expenses of administrative, executive and financial personnel and outside professional fees. R&D expenses increased $522,000 in 2013 as compared to 2012 primarily as a result of increased costs for supplies, outside services and compensation, partially offset by decreased travel costs. In 2013, selling expenses increased $524,000 primarily as a result of increased outside services, compensation, commissions and promotional expenses. G&A expenses increased $1.6 million in 2013 as compared to 2012 primarily due to increased compensation and outside services.

Our operating income for 2014 was $40.8 million, compared with $37.9 million in 2013 and $33.6 million in 2012. Operating income was 29 percent of revenues for 2014, 29 percent of revenues for 2013 and 28 percent of revenues for 2012. Increases in gross profit partially offset by increases in operating expenses described above were the major contributors to the operating income increases in 2014 and 2013 as compared to the previous years. Although we anticipate increases in R&D expenses and depreciation charges in 2015, we expect growth in our operating income during 2015 as compared to 2014.

Income tax expense in 2014 totaled $14.2 million, compared with $12.7 million in 2013 and $11.4 million in 2012. The effective tax rates for 2014, 2013 and 2012 were 33.8 percent, 32.3 percent and 32.6 percent, respectively. The effective tax rate for 2013 benefitted from the retroactive extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012. Benefits from tax incentives for 2012 R&D expenditures were included in the calculation of income taxes for 2013. The effective tax rate for 2012 was impacted by a favorable adjustment to an uncertain tax position related to income tax credits claimed for R&D expenditures following the conclusion of an Internal Revenue Service examination of our United States federal income tax returns for 2006, 2007 and 2008. Benefits from tax incentives for domestic production totaled $1.3 million in 2014, $1.3 million in 2013 and $949,000 in 2012. Benefits from changes in uncertain tax positions totaled $217,000 in 2014, $195,000 in 2013 and $720,000 in 2012. We expect our effective tax rate for 2015 to be approximately 34.0 percent.
 
 
17

 
 
Liquidity and Capital Resources

We have a revolving credit facility with a money center bank in the amount of $40.0 million pursuant to which the lender is obligated to make advances until October 1, 2016. The credit facility is to be utilized for the funding of operations and for major capital projects or acquisitions, subject to certain limitations and restrictions. Borrowings under the credit facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by us, plus one percent. From time to time prior to October 1, 2016 and assuming an event of default is not then existing, we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years. We had no outstanding borrowings under our credit facility at December 31, 2014 or 2013. The credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At December 31, 2014, we were in compliance with all financial covenants. We believe the bank providing the credit facility is highly-rated and that the entire $40.0 million under the credit facility is currently available to us. If that bank were unable to provide such funds, we believe such inability would not impact our ability to fund operations.

At December 31, 2014, we had a total of $45.6 million in cash and cash equivalents, short-term investments and long-term investments, a decrease of $11.4 million from December 31, 2013. The principal contributors to this decrease were the purchases of treasury stock under our stock repurchase program and property, plant and equipment expenditures.

Cash flows provided by operations of $31.2 million in 2014 were primarily comprised of net income plus the net effect of non-cash expenses. At December 31, 2014, we had working capital of $64.2 million, including $20.8 million in cash and cash equivalents and $3.1 million in short-term investments. The $16.8 million decrease in working capital during 2014 was primarily related to decreases in cash and cash equivalents and short-term investments and increases in accounts payable and accrued liabilities. This decrease was partially offset by increases in inventories and prepaid expenses and decreases in accrued income and other taxes. The decrease in cash and short-term investments was primarily a result of purchases of treasury stock under our stock repurchase program. Increased accounts receivable are primarily a result of increased sales. Increased inventories are primarily due to higher safety stock levels necessary to support increased revenues. Increased prepaid expenses and reduced accrued income and other taxes are primarily related to federal income tax payments. Increased accrued liabilities are primarily a result of accrued compensation. Increased accounts payable are primarily related to year-end purchases of capital equipment. Working capital items consisted primarily of cash, accounts receivable, short-term investments, inventories and other current assets minus accounts payable and other current liabilities.
 
Capital expenditures for property, plant and equipment totaled $12.7 million in 2014, compared with $7.5 million in 2013 and $10.3 million in 2012. These expenditures were primarily for machinery and equipment. We expect 2015 capital expenditures, primarily machinery and equipment, to be greater than the average of the levels expended during each of the past three years.

We paid cash dividends totaling $5.4 million, $4.8 million and $24.5 million during 2014, 2013 and 2012, respectively. In November 2012, our Board of Directors declared a special cash dividend of $10.00 per share on our outstanding common stock. This dividend which totaled $20.2 million was paid on December 10, 2012. We expect to fund future dividend payments with cash flows from operations. We purchased treasury stock totaling $23.6 million, $9.2 million and $5.3 million during 2014, 2013 and 2012, respectively.

The table below summarizes debt, lease and other contractual obligations outstanding at December 31, 2014:

   
Payments due by period
 
Contractual Obligations
 
Total
   
2015
     2016 - 2017    
2018 and thereafter
 
   
(In thousands)
 
Purchase Obligations
  $ 10,467     $ 10,300     $ 167     $ -  
Total
  $ 10,467     $ 10,300     $ 167     $ -  

We believe our cash, cash equivalents, short-term investments and long-term investments, cash flows from operations and available borrowings of up to $40.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future. We believe our strong financial position would allow us to access equity or debt financing should that be necessary. Additionally, we expect our cash and cash equivalents and investments, as a whole, will continue to increase in 2015.

Off-Balance Sheet Arrangements

We have no off-balance sheet financing arrangements.

Impact of Inflation

We experience the effects of inflation primarily in the prices we pay for labor, materials and services. Over the last three years, we have experienced the effects of moderate inflation in these costs. At times, we have been able to offset a portion of these increased costs by increasing the sales prices of our products. However, competitive pressures have not allowed for full recovery of these cost increases.

New Accounting Pronouncements

From time to time, new accounting standards updates applicable to us are issued by the Financial Accounting Standards Board, or FASB, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

 
18

 
 
Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In the preparation of these financial statements, we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We believe the following discussion addresses our most critical accounting policies and estimates, which are those that are most important to the portrayal of our financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Actual results could differ significantly from those estimates under different assumptions and conditions.

From time to time, we accrue legal costs associated with certain litigation. In making determinations of likely outcomes of litigation matters, we consider the evaluation of legal counsel knowledgeable about each matter, case law and other case-specific issues. We believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters. However, the time and cost required to litigate these matters as well as the outcomes of the proceedings may vary from what we have projected.

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 are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is more likely than not, do not establish a valuation allowance. In the event that actual results differ from these estimates, the provision for income taxes could be materially impacted.
 
We assess the impairment of our long-lived identifiable assets, excluding goodwill which is tested for impairment as explained below, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. This review is based upon projections of anticipated future cash flows. Although we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows or changes in our business plan could materially affect our evaluations. No such changes are anticipated at this time.

We assess goodwill for impairment pursuant to Accounting Standards Codification, or ASC, 350, Intangibles—Goodwill and Other, which requires that goodwill be assessed whenever events or changes in circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis by applying a qualitative assessment on goodwill impairment to determine whether it is necessary to perform the two-step goodwill impairment test.

During 2014, 2013 and 2012, none of our critical accounting policy estimates required significant adjustments. We did not note any material events or changes in circumstances indicating that the carrying value of long-lived assets were not recoverable.
 
Quantitative and Qualitative Disclosures About Market Risks
 
Foreign Exchange Risk
 
We are not exposed to material fluctuations in currency exchange rates because the payments from our international customers are received primarily in United States dollars.
 
Market Risk and Credit Risk
 
The Company’s cash and cash equivalents are held in accounts with financial institutions that we believe are creditworthy. Certain of these accounts at times may exceed federally-insured limits. We have not experienced any credit losses in such accounts and do not believe we are exposed to any significant credit risk on these funds.
 
We have investments in United States government agency securities and corporate bonds. 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. Approximately 24% of our aggregate fixed-income investments are below investment grade. These securities have a higher degree of credit or default risk and a greater exposure to credit risk and may be less liquid in times of economic weakness or market disruptions. We have also invested a portion of our available funds in common stock. The value of these securities fluctuates due to changes in the equity and credit markets along with other factors. In times of economic weakness, the market value and liquidity of these assets may decline and may negatively impact our financial condition.
 
 
19

 
 
Forward-looking Statements
 
Statements in this Management’s Discussion and Analysis and elsewhere in this Form 10-K 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 expectations regarding our R&D expenditures and depreciation charges in 2015, our growth in operating income in 2015, our 2015 effective tax rate,  the impact of the restrictive covenants in our credit facility on our liquidity and capital resources, our earnings in 2015, our 2015 capital expenditures, funding future dividend payments with cash flows from operations, availability of equity and debt financing, our ability to meet our cash requirements for the foreseeable future, our ability to fund operations if the bank providing our credit facility were unable to lend funds to us, the impact on our consolidated financial statement of recently issued accounting standards when we adopt those standards, and increases in 2015 in cash, cash equivalents and investments. 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: 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 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.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Report of Independent Registered Public Accounting Firm
 
Board of Directors and Stockholders
Atrion Corporation

We have audited the accompanying consolidated balance sheets of Atrion Corporation and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. Exhibits and Financial Statement Schedules. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atrion Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Atrion Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 13, 2015 expressed an unqualified opinion.

 
/s/ Grant Thornton LLP
Dallas, Texas
March 13, 2015

 
20

 
 
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 2014, 2013 and 2012
 
   
2014
   
2013
   
2012
 
   
(In thousands, except per share amounts)
 
                   
Revenues
  $ 140,762     $ 131,993     $ 119,062  
Cost of Goods Sold
    72,244       68,931       62,922  
Gross Profit
    68,518       63,062       56,140  
                         
Operating Expenses:
                       
Selling
    6,210       6,218       5,694  
General and administrative
    16,205       14,612       13,054  
Research and development
    5,286       4,288       3,766  
      27,701       25,118       22,514  
                         
Operating Income
    40,817       37,944       33,626  
                         
Interest Income
    1,191       1,313       1,447  
                         
Other Income, net
    13       8       2  
Income before Provision for Income Taxes
    42,021       39,265       35,075  
                         
Provision for Income Taxes
    (14,213 )     (12,683 )     (11,446 )
                         
Net Income
  $ 27,808     $ 26,582     $ 23,629  
                         
Net Income Per Basic Share
  $ 14.20     $ 13.22     $ 11.72  
                         
Weighted Average Basic Shares Outstanding
    1,958       2,010       2,016  
                         
Net Income Per Diluted Share
  $ 14.08     $ 13.18     $ 11.66  
                         
Weighted Average Diluted Shares Outstanding
    1,975       2,017       2,027  
                         
Dividends Per Common Share
  $ 2.78     $ 2.40     $ 12.10  
 
The accompanying notes are an integral part of these statements.
 
 
21

 
 
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the year ended December 31, 2014, 2013 and 2012
 
   
2014
   
2013
   
2012
 
   
(In thousands)
 
                   
Net Income
  $ 27,808     $ 26,582     $ 23,629  
                         
Other Comprehensive loss, net of tax:                        
Unrealized loss on investments, net of tax benefit of $131 in 2014
    (245 )     --       --  
                         
Comprehensive Income
  $ 27,563     $ 26,582     $ 23,629  

The accompanying notes are an integral part of these statements.
 
 
22

 
 
ATRION CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2014 and 2013
 
Assets:
 
2014
   
2013
 
   
(In thousands)
 
             
Current Assets:
           
Cash and cash equivalents
  $ 20,775     $ 28,559  
Short-term investments
    3,084       18,351  
Accounts receivable, net of allowance for doubtful accounts of $22 and $86 in 2014 and 2013, respectively
     16,962        14,164  
Inventories
    28,022       26,266  
Prepaid expenses and other current assets
    4,720       1,603  
Deferred income taxes
    573       1,376  
Total Current Assets
    74,136       90,319  
                 
Long-term investments
    21,760       10,069  
                 
                 
Property, Plant and Equipment
    142,171       130,504  
Less accumulated depreciation and amortization
    79,655       72,176  
      62,516       58,328  
                 
                 
Other Assets and Deferred Charges:
               
Patents and licenses, net of accumulated amortization of $11,301 and $11,032 in 2014 and 2013, respectively
     2,538        2,808  
Goodwill
    9,730       9,730  
Other
    834       812  
      13,102       13,350  
                 
                 
Total Assets
  $ 171,514     $ 172,066  
 
The accompanying notes are an integral part of these statements.
 
 
23

 
 
ATRION CORPORATION
CONSOLIDATED BALANCE SHEET
As of December 31, 2014 and 2013
 
Liabilities and Stockholders’ Equity:
 
2014
   
2013
 
   
(In thousands)
 
             
Current Liabilities:
           
Accounts payable
  $ 4,529     $ 4,088  
Accrued liabilities
    4,950       4,423  
Accrued income and other taxes
    457       853  
Total Current Liabilities
    9,936       9,364  
                 
                 
Line of credit
    --       --  
                 
                 
Other Liabilities and Deferred Credits:
               
Deferred income taxes
    11,129       12,062  
Other
    879       1,646  
      12,008       13,708  
                 
Total Liabilities
    21,944       23,072  
                 
Commitments and Contingencies
               
                 
Stockholders’ Equity:
               
Common stock, par value $.10 per share, authorized 10,000 shares, issued 3,420 shares
     342        342  
Additional paid-in capital
    33,940       31,592  
Accumulated other comprehensive loss
    (245 )     --  
Retained earnings
    196,706       174,362  
Treasury shares, 1,507 shares in 2014 and 1,435 shares in 2013, at cost
    (81,173 )     (57,302 )
Total Stockholders’ Equity
    149,570       148,994  
                 
                 
Total Liabilities and Stockholders’ Equity
  $ 171,514     $ 172,066  
 
The accompanying notes are an integral part of these statements.
 
 
24

 
 
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 2014, 2013 and 2012
 
   
2014
   
2013
    2012  
   
(In thousands)
 
Cash Flows From Operating Activities:
                 
Net income
  $ 27,808     $ 26,582     $ 23,629  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    8,723       8,592       7,610  
Deferred income taxes
    2       (923 )     1,462  
Stock-based compensation
    2,209       1,586       1,482  
Net change in accrued interest, premiums, and discounts on investments
    340       556       817  
   Other
    29       30       --  
      39,111       36,423       35,000  
Changes in operating assets and liabilities:
                       
Accounts receivable
    (2,798 )     (1,110 )     (1,831 )
Inventories
    (1,756 )     (2,487 )     803  
Prepaid expenses and other current assets
    (3,117 )     1,507       (797 )
Other non-current assets
    (22 )     (17 )     (77 )
Accounts payable and accrued liabilities
    968       1,768       (2,465 )
Accrued income and other taxes
    (396 )     388       (370 )
Other non-current liabilities
    (767 )     104       (894 )
      31,223       36,576       29,369  
                         
Cash Flows From Investing Activities:
                       
Property, plant and equipment additions
    (12,671 )     (7,503 )     (10,347 )
Purchase of patents
    --       (2,150 )     --  
Purchase of investments
    (33,115 )     --       (26,566 )
Proceeds from maturities of investments
    35,975       7,639       19,750  
      (9,811 )     (2,014 )     (17,163 )
                         
Cash Flows From Financing Activities:
                       
Exercise of stock options
    --       --       731  
Shares tendered for employees’ withholding taxes on stock-based compensation
    (376 )     --       (1,136 )
Tax benefit related to stock-based compensation
    168       15       1,412  
Purchase of treasury stock
    (23,556 )     (9,196 )     (5,344 )
Dividends paid
    (5,432 )     (4,821 )     (24,460 )
      (29,196 )     (14,002 )     (28,797 )
                         
Net change in cash and cash equivalents
    (7,784 )     20,560       (16,591 )
                         
Cash and cash equivalents, beginning of year
    28,559       7,999       24,590  
Cash and cash equivalents, end of year
  $ 20,775     $ 28,559     $ 7,999  
                         
Cash paid for:
                       
Income taxes
  $ 17,475     $ 8,036     $ 10,357  
 
The accompanying notes are an integral part of these statements.
 
 
25

 
 
ATRION CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the year ended December 31, 2014, 2013 and 2012
(In thousands)
 
   
Common Stock
   
Treasury Stock
    Additional     Other              
    Shares                       Paid-in     Comprehensive     Retained        
   
Outstanding
   
Amount
   
Shares
   
Amount
   
 Capital
   
 Income
   
Earnings
   
Total
 
Balances, January 1, 2012
    2,016     $ 342       1,404     $ (40,898 )   $ 25,452           $ 153,618     $ 138,514  
                                                               
    Net income
                                                  23,629       23,629  
    Tax benefit from stock-based compensation
                                    1,412                     1,412  
    Stock-based compensation transactions
    41               (41 )     368       3,134                     3,502  
    Shares surrendered in stock transactions
    (9 )             9       (2,268 )                           (2,268 )
    Purchase of treasury stock
    (27 )             27       (5,344 )                           (5,344 )
    Dividends
                                                  (24,617 )     (24,617 )
Balances, December 31, 2012
    2,021       342       1,399       (48,142 )     29,998             152,630       134,828  
                                                               
    Net income
                                                  26,582       26,582  
    Tax benefit from stock-based compensation
                                    15                     15  
    Stock-based compensation transactions
    1               (1 )     36       1,579                     1,615  
    Purchase of treasury stock
    (37 )             37       (9,196 )                           (9,196 )
    Dividends
                                                  (4,850 )     (4,850 )
Balances, December 31, 2013
    1,985       342       1,435       (57,302 )     31,592             174,362       148,994  
                                                               
    Net income
                                                  27,808       27,808  
    Other comprehensive income
                                            (245 )             (245 )
    Tax benefit from stock-based compensation
                                    168                       168  
    Stock-based compensation transactions
    3               (3 )     61       2,180                       2,241  
    Shares surrendered in stock transactions
    (1 )             1       (376 )                             (376 )
    Purchase of treasury stock
    (74 )             74       (23,556 )                             (23,556 )
    Dividends
                                                    (5,464 )     (5,464 )
Balances, December 31, 2014
    1,913     $ 342       1,507     $ (81,173 )   $ 33,940       (245 )   $ 196,706     $ 149,570  
 
The accompanying notes are an integral part of these statements.
 
 
26

 
 
Atrion Corporation
Notes to Consolidated Financial Statements
 
(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 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.

Estimates
The preparation of 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 equivalents include cash on hand and in the bank as well as money market accounts and debt securities with maturities at the time of purchase of 90 days or less.

Our investments consist of taxable corporate and United States government agency bonds and equity securities. We classify our investment securities in one of three categories: held-to-maturity, trading, or available-for-sale. Securities that we have the positive intent and ability to hold to maturity are reported at amortized cost and classified as held-to-maturity securities.  If we do not have the intent and ability to hold a security to maturity, we report the investment as available-for-sale securities.  We report available-for-sale securities at fair value with unrealized gains and, to the extent deemed temporary, unrealized losses recorded in stockholders’ equity as accumulated other comprehensive loss.  We consider investments which will mature in the next 12 months as current assets. The remaining investments are considered non-current assets including our investment in equity securities which we intend to hold longer than 12 months. We periodically evaluate our investments for impairment. We do not believe any unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of December 31, 2014.

The components of the Company’s cash and cash equivalents and our short and long-term investments as of December 31, 2014 and 2013 are as follows (in thousands):

   
2014
   
2013
 
Cash and cash equivalents::
           
Cash deposits
  $ 14,572     $ 25,958  
Money market funds
    6,203       2,601  
Total cash and cash equivalents
  $ 20,775     $ 28,559  
Short-term investments:
               
Corporate bonds (held-to-maturity)
  $ 3,084     $ 18,351  
Total short-term investments
  $ 3,084     $ 18,351  
Long-term investments:
               
Corporate bonds (held-to-maturity)
  $ 10,028     $ 10,069  
US government agency bonds (held-to-maturity)
    8,400       --  
Equity securities (available-for-sale)
    3,332       --  
Total long term investments
  $ 21,760     $ 10,069  
Total cash, cash equivalents and short and long-term investments
  $ 45,619     $ 56,979  
 
 
27

 
 
Trade Receivables
 
Trade accounts receivable are recorded at the original sales price 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 appropriate Company personnel and with the customers directly.  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 market. Cost is determined by using the first-in, first-out method. The following table details the major components of inventory (in thousands):

   
December 31,
 
   
2014
   
2013
 
Raw materials
  $ 12,575     $ 10,744  
Work in process
    5,600       6,246  
Finished goods
    9,847       9,276  
Total inventories
  $ 28,022     $ 26,266  

Accounts Payable
 
We reflect disbursements as trade accounts payable until such time as payments are presented to our bank for payment. At December 31, 2014 and 2013, disbursements totaling approximately $613,000 and $443,000, respectively, had not been presented for payment to our bank.

Income Taxes
 
We account for income taxes utilizing Accounting Standards Codification (ASC) 740, Income Taxes , or ASC 740.  ASC 740 requires the asset and liability method for the recording of deferred income taxes, whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the financial statement and the tax bases 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.

ASC 740 also requires the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more-likely-than-not of being sustained.

Our uncertain tax positions are recorded as “Other non-current liabilities.” 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
 
 
 
2014
   
2013
   
Lives
 
Land
  $ 5,260     $ 5,260        
Buildings
    31,751       31,314    
30-40 yrs
 
Machinery and equipment
    105,160       93,930    
3-15 yrs
 
Total property, plant and equipment
  $ 142,171     $ 130,504          
 
 
28

 
 
Depreciation expense of $8,454,000, $8,413,000 and $7,448,000 was recorded for the years ended December 31, 2014, 2013 and 2012, respectively. 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 7 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 represents the excess of cost over the fair value of tangible and identifiable intangible net assets acquired.  Annual impairment testing for goodwill is done using a qualitative assessment on goodwill impairment to determine whether it is necessary to perform the two-step goodwill impairment test.  Goodwill is also reviewed whenever events or changes in circumstances indicate a change in value may have occurred.  We have identified three reporting units where goodwill was recorded for purposes of testing goodwill impairment annually: (1) Atrion Medical Products, Inc., (2) Halkey-Roberts Corporation and (3) Quest Medical, Inc.  The total carrying amount of goodwill in each of the years ended December 31, 2014, 2013 and 2012 was $9,730,000. 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,
 
   
2014
   
2013
 
Accrued payroll and related expenses
  $ 4,240     $ 3,711  
Accrued vacation
    219       229  
Other accrued liabilities
    491       483  
Total accrued liabilities
  $ 4,950     $ 4,423  
 
Revenues
 
We recognize revenue when our products are shipped to our customers, provided an arrangement exists, the fee is fixed and determinable and collectability is reasonably assured. All risks and rewards of ownership pass to the customer upon shipment. Net sales represent gross sales invoiced to customers, less certain related charges, including discounts, returns and other allowances. Revenues are recorded exclusive of sales and similar taxes. Returns, discounts and other allowances have been insignificant historically.

Shipping and Handling Policy
 
Shipping and handling fees charged to customers are reported as revenue and all shipping and handling costs incurred related to products sold are reported as cost of goods sold.

Research and Development Costs
 
Research and development costs relating to the development of new products and improvements of existing products are expensed as incurred.
 
 
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Stock-Based Compensation
 
We have stock-based compensation plans covering certain of our officers, directors and key employees. As explained in detail in Note 8, we account for stock-based compensation utilizing the fair value recognition provisions of ASC 718, Compensation-Stock Compensation, or ASC 718.

New Accounting Pronouncements
 
From time to time, new accounting pronouncements applicable to us are issued by the Financial Accounting Standards Board, or 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.
 
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, 2014 and 2013, we held certain investments in corporate and government debt securities as well as certain equity securities. These investments are all considered Level 2 assets and the fair value of our investments were estimated using recently executed transactions and market price quotations (see Note 2).
 
The carrying values of our other financial instruments including cash and cash equivalents, money market accounts, 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 and cash equivalents are held in accounts with financial institutions that we believe are creditworthy. Certain of these amounts at times may exceed federally-insured limits. At December 31, 2014, approximately 91% of our cash and cash equivalents were uninsured. We have not experienced any credit losses in such accounts and do not believe we are exposed to any significant credit risk on these funds.

We have investments in United States government agency securities and corporate bonds. 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. Approximately 24% of our aggregate fixed-income investments are below investment grade. These securities have a higher degree of credit or default risk and a greater exposure to credit risk and may be less liquid in times of economic weakness or market disruptions.

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.  As of December 31, 2014 and 2013, we had allowances for doubtful accounts of approximately $22,000 and $86,000, respectively.  The carrying amount of the receivables approximates their fair value. Our customer that generates our largest revenues accounted for 6.5%, 8.2% and 16.3% of accounts receivable as of December 31, 2014, 2013 and 2012, respectively.  No other customer exceeded 10% of our accounts receivable as of December 31, 2014, 2013 or 2012.

(2) Investments
 
As of December 31, 2014 and 2013, we held certain investments that were required to be measured for disclosure purposes at fair value on a recurring basis. These investments were considered Level 2 investments. We consider as current assets those investments which will mature in the next 12 months. The remaining investments are considered non-current assets including our investment in equity securities which we intend to hold longer than 12 months.

 
30

 
 
The amortized cost and fair value of our investments that are being accounted for as held-to-maturity securities, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

         
Gross Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair value
 
As of December 31, 2014:
                       
Short-term Investments:
                       
Corporate bonds
  $ 3,084     $ --     $ (6 )   $ 3,078  
                                 
Long-term Investments:
                               
Corporate and government bonds
  $ 18,428     $ 21     $ (292 )   $ 18,157  
                                 
As of December 31, 2013:
                               
Short-term Investments:
                               
Corporate bonds
  $ 18,351     $ 234     $     $ 18,585  
Long-term Investments:
                               
Corporate bonds
  $ 10,069     $ 285     $     $ 10,354  

At December 31, 2014, the length of time until maturity of these securities ranged from three and a half months to 58 months. None of the above investments has been in a loss position for more than 12 months.
 
The cost and fair value of our investments that are being accounted for as available-for-sale securities, and the related gross unrealized loss reflected in accumulated other comprehensive loss, were as follows as of the dates shown below (in thousands):

         
Gross Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair value
 
As of December 31, 2014:
                       
Long-term Investments:
                       
Equity investments
  $ 3,708     $ --     $ (376 )   $ 3,332  
 
(3) Patents and Licenses

Purchased patents and licenses 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):

December 31, 2014
   
December 31, 2013
 
Weighted Average
Original Life
(years)
   
Gross
Carrying
Amount
   
 
Accumulated
Amortization
   
Weighted Average
Original Life
(years)
   
Gross
Carrying
Amount
   
 
Accumulated
Amortization
 
  15.67     $ 13,840     $ 11,302       15.67     $ 13,840     $ 11,032  

Aggregate amortization expense for patents and licenses was $269,000 for 2014, $179,000 for 2013 and $162,000 for 2012.  Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

2015
  $ 269  
2016
  $ 269  
2017
  $ 173  
2018
  $ 141  
2019
  $ 141  
 
 
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 (4) Line of Credit

We have a $40.0 million revolving credit facility with a money center bank pursuant to which the lender is obligated to make advances until October 1, 2016. The credit facility is secured by substantially all 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 one percent (1.16 percent at December 31, 2014) and is payable monthly. We had no outstanding borrowings under the credit facility at December 31, 2014 or 2013.  At any time during the term, we may convert any or all outstanding amounts under the credit facility to a term loan with a maturity of two years. Our ability to borrow funds under the credit facility from time to time is contingent on meeting certain covenants in the loan agreement, the most restrictive of which is the ratio of total debt to earnings before interest, income tax, depreciation and amortization.  At December 31, 2014, we were in compliance with all of those covenants.

(5) Income Taxes

The items comprising income tax expense are as follows (in thousands):

   
Year ended December 31,
 
   
2014
   
2013
   
2012
 
Current 
— Federal
  $ 12,626     $ 12,541     $ 8,934  
 
— State
    1,585       1,065       1,050  
      14,211       13,606       9,984  
                         
Deferred 
— Federal
    31       (1,063 )     1,363  
 
— State
    (29 )     140       99  
      2       (923 )     1,462  
Total income tax expense
  $ 14,213     $ 12,683     $ 11,446  
 
Temporary differences and carryforwards which have given rise to deferred income tax assets and liabilities as of December 31, 2014 and 2013 are as follows (in thousands):

   
2014
   
2013
 
Deferred tax assets:
           
Benefit plans
  $ 1,535     $ 1,590  
Inventories
    483       525  
Other
    158       37  
Total deferred tax assets
  $ 2,176     $ 2,152  
Deferred tax liabilities:
               
Property, plant and equipment
  $ 9,648     $ 9,716  
Patents and goodwill
    2,926       2,956  
Other
    158       166  
Total deferred tax liabilities
  $ 12,732     $ 12,838  
                 
Net deferred tax liability
  $ 10,556     $ 10,686  
                 
Balance Sheet classification:
               
Non-current deferred income tax liability
  $ 11,129     $ 12,062  
Current deferred income tax asset
    573       1,376  
Net deferred tax liability
  $ 10,556     $ 10,686  
 
 
32

 
 
Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below (in thousands):

   
Year ended December 31,
 
   
2014
   
2013
   
2012
 
Income tax expense at the statutory federal income tax rate
  $ 14,707     $ 13,743     $ 12,276  
Increase (decrease) resulting from:
                       
State income taxes
    934       770       747  
Section 199 manufacturing deduction
    (1,290 )     (1,307 )     (949 )
Other, net
    (138 )     (523 )     (628 )
Total income tax expense
  $ 14,213     $ 12,683     $ 11,446  

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits as required by ASC 740 is as follows (in thousands):

Gross unrecognized tax benefits at January 1, 2012
  $ 1,261  
Increase in tax positions for prior years
    19  
Increase in tax positions for current year
    0  
Decrease due to settlement with taxing authorities
    (641 )
Lapse in statutes of limitation
    (98 )
Gross unrecognized tax benefits at December 31, 2012
  $ 541  
Increase in tax positions for prior years
    11  
Increase in tax positions for current year
    0  
Lapse in statutes of limitation
    (206 )
Gross unrecognized tax benefits at December 31, 2013
  $ 346  
Increase in tax positions for prior years
    6  
Increase in tax positions for current year
    0  
Lapse in statutes of limitation
    (223 )
Gross unrecognized tax benefits at December 31, 2014
  $ 129  

As of December 31, 2014 all of the unrecognized tax benefits, which were comprised of uncertain tax positions, would impact the effective tax rate if recognized. Unrecognized tax benefits that are affected by statutes of limitation that expire within the next 12 months are immaterial.

We are subject to United States federal income tax as well as to income tax of multiple state jurisdictions.  We have concluded all United States federal income tax matters for years through 2010.  In January 2009, the Internal Revenue Service, or IRS, began examining certain of our United States federal income tax returns for 2006, 2007 and 2008. This audit was favorably concluded in the third quarter of 2012 when the IRS appeals group allowed 100% of the tax credits claimed for our R&D expenditures during those years. Our unrecognized tax benefits were reduced at that time on the basis of this favorable settlement in the amount of approximately $641,000. All material state and local income tax matters have been concluded for years through 2010. 

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for unrecognized tax benefits included accrued interest of $9,000, $21,000 and $26,000 at December 31, 2014, 2013 and 2012, respectively. Tax expense for the year ended December 31, 2014, 2013 and 2012 included a net interest benefit of $12,000, $5,400 and $51,000, respectively.

(6) Stockholders’ Equity

Our Board of Directors has at various times authorized repurchases of our stock in open-market or privately-negotiated transactions at such times and at such prices as management may from time to time determine. On August 16, 2011, our Board of Directors adopted a new stock repurchase program pursuant to which we can repurchase up to 200,000 shares of our common stock from time to time in open market or privately-negotiated transactions. This stock repurchase program has no expiration date but may be terminated by the Board of Directors at any time. As of December 31, 2014, 54,026 shares remained available for repurchase under this program. We repurchased 74,746, 36,666 and 26,562 shares under the program during 2014, 2013 and 2012, respectively.
 
 
33

 
 
We have increased our quarterly cash dividend payments in September of each of the past three years. The quarterly dividend was increased to $.56 per share in September 2012, to $.64 per share in September 2013 and to $.75 per share in September 2014.  On December 10, 2012 we also paid a special cash dividend to stockholders of $10.00 per share. Holders of stock units earned non-cash dividends of $33,000 in 2014, $29,000 in 2013 and $157,000 in 2012.

We have a Rights Plan which is intended to protect the interests of stockholders in the event of a hostile attempt to take over the Company.  The rights, which are not presently exercisable and do not have any voting powers, represent the right of our stockholders to purchase at a substantial discount, upon the occurrence of certain events, shares of our common stock or of an acquiring company involved in a business combination with us.  This plan, which was adopted in August 2006, expires in August 2016.
 
(7) Income Per Share

The following is the computation of basic and diluted income per share:
 
   
Year ended December 31,
 
   
2014
   
2013
   
2012
 
   
(In thousands, except per share amounts)
 
Net Income
  $ 27,808     $ 26,582     $ 23,629  
                         
Weighted average basic shares outstanding
    1,958       2,010       2,016  
Add:  Effect of dilutive securities
    17