2011 ANNUAL REPORT
www.lemaitre.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
or
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission File Number 001-33092
LEMAITRE VASCULAR, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
63 Second Avenue, Burlington, Massachusetts
(Address of principal executive offices)
04-2825458
(I.R.S. Employer Identification No.)
01803
(Zip Code)
Registrant’s telephone number, including area code 781-221-2266
Securities registered under Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.01 par value per share
The NASDAQ Stock Market LLC
Securities registered under Section 12(g) of the 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: ‘ No: Í
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: ‘ No: Í
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: Í No: ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) 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 Form10-K or any amendment to this Form 10-K. ‘
Indicate by check mark 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 Rule12b-2 of the Exchange Act.
Large accelerated filer ‘
Accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a small reporting
company)
Smaller reporting company Í
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
Yes: ‘ No: Í
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on
the last sale price for such stock on June 30, 2011: $59,273,098. The number of shares held by stockholders whose ownership
exceeds 5% of the registrant’s common stock outstanding at June 30, 2011 is based on Schedules 13D and 13G filed by such
stockholders for the year ended December 31, 2011 and subsequent reports, if any, filed by such stockholders pursuant to
Section 16 of the Securities Exchange Act of 1934, as amended. Exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under common control with the registrant. At March 21, 2012, the
registrant had 15,240,766 shares of common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from the registrant’s definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this annual
report.
LEMAITRE VASCULAR
2011 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings
Item 3.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosure About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits and Financial Statements Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K contains forward-looking statements (within the meaning of the federal
securities law) that involve substantial risks and uncertainties. All statements, other than statements of historical
facts, included in this Annual Report on Form 10-K regarding our strategy, future operations, future financial
position, future net sales, projected costs, projected expenses, prospects and plans and objectives of management
are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We have based these forward-
looking statements on our current expectations and projections about future events. Although we believe that the
expectations underlying any of our forward-looking statements are reasonable, these expectations may prove to
be incorrect, and all of these statements are subject to risks and uncertainties. Should one or more of these risks
and uncertainties materialize, or should underlying assumptions, projections, or expectations prove incorrect, our
actual results, performance, or financial condition may vary materially and adversely from those anticipated,
estimated, or expected. We have included important factors in the cautionary statements included in this Annual
Report on Form 10-K, particularly in the section entitled “Risk Factors,” that we believe could cause actual
results or events to differ materially from the forward-looking statements that we make. Our forward-looking
statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or
investments we may make. We do not assume any obligation to update any forward-looking statements, whether
as a result of new information, future events, or otherwise, except as required by law.
The following discussion should be read in conjunction with our financial statements and the related notes
contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission
filings.
Unless the context requires otherwise, references to “LeMaitre Vascular,” “we,” “our,” and “us” in this
Annual Report on Form 10-K refer to LeMaitre Vascular, Inc. and its subsidiaries.
LeMaitre, AlboGraft, AnastoClip, AnastoClip GC, EndoHelix, EndoRE, Expandable LeMaitre Valvulotome,
Flexcel, Glow ‘N Tell, Grice, Inahara-Pruitt, InvisiGrip, LeverEdge, LifeSpan, MollRing Cutter, NovaSil,
Periscope, Pruitt, Pruitt F3, Pruitt-Inahara, Reddick, VascuTape, XenoSure, and the LeMaitre Vascular logo are
registered trademarks of LeMaitre Vascular, and AlboSure, Martin, MollRing MultiTASC, Reddick-Saye,
UnBalloon and VCS are unregistered trademarks of LeMaitre Vascular. This Annual Report on Form 10-K also
includes the registered and unregistered trademarks of other persons.
Item 1.
Business
Overview
LeMaitre Vascular is a global provider of medical devices and implants for the treatment of peripheral
vascular disease. We develop, manufacture, and market vascular devices to address the needs of vascular
surgeons. Our diversified portfolio of peripheral vascular devices consists of brand name products that are used
in arteries and veins outside of the heart and are well known to vascular surgeons, including the Expandable
LeMaitre Valvulotome, the Pruitt F3 Carotid Shunt, and VascuTape Radiopaque Tape.
We have grown our business by using a three-pronged strategy: competing in niche markets, expanding our
worldwide direct sales force, and acquiring and developing complementary vascular devices. Since 1998 we have
built our sales force from zero to 78 direct sales representatives as of December 31, 2011 and we have completed
a number of vascular device acquisitions.
We estimate that peripheral vascular disease affects more than 20 million people worldwide. We estimate
that the annual worldwide market for all peripheral vascular devices is approximately $3 billion and that the
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annual worldwide market addressed by our core product lines approximates $750 million. We believe that this
market will grow due to the increase in the incidence and diagnosis of peripheral vascular disease, a shift to
higher priced endovascular devices, and the adoption of western healthcare standards by the developing world.
We believe that our strong brands, established sales force, evolving suite of peripheral vascular devices, and
broad network of vascular surgeon customers position us to capture an increasing share of this large and growing
market.
We sell 12 product lines, most of which are used in open vascular surgery and some of which are used in
endovascular procedures. For 2011, 2010, and 2009, our Valvulotomes, Balloon Catheters, and Carotid Shunt
product categories have each comprised more than 10% of our revenues. In none of those years, including 2011
did any single product line account for more than 25% of our revenues.
Historically, we have been a leading provider of vascular surgery products in niche product markets
characterized by low or limited competition. More recently we have sought to leverage our market leadership in
these niche product markets by selling complementary products in more competitive, larger market segments. In
addition, our vascular surgeon customers are increasingly performing minimally invasive endovascular
procedures, presenting us with attractive opportunities to sell new devices that address their changing product
needs.
We sell our products primarily through a direct sales force. Our sales force was comprised of 78 field sales
representatives in North America, the European Union, and Japan as of December 31, 2011. We also sell our
products through distributors in countries where we do not have a direct sales force. For the year ended
December 31, 2011, approximately 93% of our net sales were generated through our direct sales force, and no
single customer accounted for more than 1% of our net sales.
The Peripheral Vascular Device Market
We estimate that peripheral vascular disease affects more than 20 million people worldwide. The disease
encompasses a number of conditions in which the arteries or veins that carry blood to or from the legs, arms, or
organs other than the heart become narrowed, obstructed, weakened, or otherwise compromised. In many cases
peripheral vascular disease goes undetected, sometimes leading to life-threatening events—such as stroke,
ruptured aneurysm, or pulmonary embolism—or death.
Clinical studies have identified several factors that increase the risk of peripheral vascular disease, including
smoking, diabetes, obesity, high blood pressure, lack of exercise, coronary artery disease, high cholesterol, and
being over the age of 65. Demographic trends suggest an increase in the prevalence of peripheral vascular disease
over time, driven primarily by rising levels of obesity and diabetes and an aging population.
Vascular surgeons treat peripheral vascular disease and also perform vascular procedures associated with
other diseases, such as end-stage renal disease. We estimate that there are more than 2,000 board-certified
vascular surgeons and several thousand general surgeons who perform vascular procedures in the United States,
and that there are more than 3,000 vascular surgeons in Europe and Japan. In contrast to other medical
specialists, such as interventional cardiologists and interventional radiologists, vascular surgeons perform both
conventional vascular surgeries and endovascular procedures. Conventional vascular surgery involves opening
the body, cutting vessels, and suturing. Endovascular procedures typically are minimally invasive, catheter-based
procedures involving repairing vessels from within using real-time imaging technologies.
Our History
We were founded in 1983 by George D. LeMaitre, M.D., a vascular surgeon who designed and developed
the predecessor to our Expandable LeMaitre Valvulotome and Over-The-Wire LeMaitre Valvulotome. Through a
combination of strategic acquisitions and research and development efforts, we have expanded to 12 product
lines.
2
We have conducted several acquisitions of complementary products since 1998:
Year
Acquisition
1998 Whittaker Screen Printing
1999
2001
2003
2004
2005
2007
2007
2007
2007
2008
2010
Vermed
Ideas for Medicine
Credent
VCS Clip
Endomed
Vascular Innovations
Vascular Architects
UnBalloon Technology
Biomateriali
XenoSure(1)
LifeSpan
Key Product(s)
Radiopaque tape manufacturing operations
Balloon catheters
Carotid shunts, balloon catheters, and laparoscopic cholecystectomy devices
Vascular access grafts
Vessel closure system
Thoracic and abdominal stent grafts
Contrast injector
Remote endarterectomy devices
Stent graft modeling catheters
Polyester grafts and patches
Biologic vascular patch(1)
ePTFE grafts
(1) We obtained exclusive rights to distribute this product under our “XenoSure” brand in the United States and
most of Europe until January 26, 2016, and an option to acquire this product commencing January 2, 2014
and expiring January 26, 2016. If we do not meet our obligations under our distribution agreement with the
manufacturer, the manufacturer could terminate the agreement, and we would lose our purchase option to
acquire this product.
We have relocated most of the manufacturing operations associated with these acquisitions to our
Burlington, Massachusetts, headquarters and we continue to look at ways to make our operations more efficient.
Prior to 1999, we had no direct sales force and instead relied on direct marketing to generate brand
awareness and product loyalty. In 1999, we began building a direct sales organization that we have continued to
expand, most recently into Denmark and Spain in 2011. We currently sell products directly to our hospital
customers in the United States and Canada, Japan, and most major European markets.
Our Business Strategies
Our goal is to be the leading global provider of medical devices to vascular surgeons.
To achieve this objective, we are utilizing the following long-term strategies:
• Focus on niche markets. We seek to build and maintain market-leading share positions in niche
product markets. We believe that the relative lack of competitive focus on these markets by our larger
competitors with greater resources, and the differentiated features and consistent quality of our
products, allow for higher selling prices in these markets. In recent years we have sought to leverage
these market-leading share positions by selling complementary products in more competitive, larger
market segments.
• Expand our direct sales force. We sell our products primarily through a direct sales force in North
America, the European Union, and Japan. We intend to further expand our sales force over time. We
believe that direct-to-hospital sales build closer customer relationships, allow for higher selling prices,
and are not subject to the risk of customer churn resulting from distributor turnover.
• Add complementary products through acquisitions, research and development, and additional
regulatory approvals. We intend to further expand and diversify our product offerings and add new
technology platforms. We believe our significant experience in acquiring and integrating product lines
and businesses is one of our competitive advantages. We actively track industry developments and plan
to acquire additional product lines and businesses, refine our current product lines, develop new
applications for our existing technologies, and obtain regulatory approvals for our devices in new
markets in order to further access the broader peripheral vascular device market.
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Our Products
The following table describes the primary use and availability of each of our product lines as of March 27, 2012:
Product Category
Open Vascular
Product Line
Primary Use
Balloon Catheters
- LeMaitre Embolectomy Catheters
- Over-the-Wire Embolectomy
Removal of blood clots;
occlusion, and facilitation
of blood flow
Generally Available for Sale in(1)
United
States
✓
European
Union
✓
Japan
✓
Catheters
- NovaSil Embolectomy Catheters
- Pruitt Occlusion Catheters
- Distal Perfusion Catheter
Carotid Shunts
- Pruitt F3 Carotid Shunts
- Pruitt- Inahara Carotid Shunts
- Flexcel Carotid Shunts
Remote Endarterectomy Devices
- MollRing Cutter Transection Device
- Martin Dissector
- EndoHelix Retrieval Device
- Periscope Dissector
- Ring Stripper
Facilitation of blood flow
to brain during carotid
plaque removal
Removal of blockages in
the major arteries of the
leg
Valvulotomes
- Expandable LeMaitre Valvulotome
- Over-The-Wire LeMaitre
Destruction of vein valves
to create vein bypass
grafts
Valvulotome
Vascular Grafts
- AlboGraft Knitted Vascular Grafts
- AlboGraft Woven Vascular Grafts
- LifeSpan ePTFE Vascular Grafts
Vascular Patches(2)
- AlboSure Vascular Patches
- XenoSure Biologic Patches
Vein Strippers
- InvisiGrip Vein Stripper
Vessel Closure Systems
- AnastoClip VCS Vessel Closure
System
- AnastoClip GC Vessel Closure
System
- Accessory Devices
Endovascular
and Other
Manual Contrast Injectors
- LeverEdge Contrast Injector
Modeling Catheters
- The UnBalloon Non-Occlusive
Modeling Catheter
Radiopaque Tape
- Glow ‘n’ Tell Tape
- LeMaitre Stent Guide
Laparoscopic Cholecystectomy
Devices
- Reddick Cholangiogram Catheter
- Reddick-Saye Screw Retractor Kit
- Grice Laparoscopic Suture Needle
Synthetic vessels for use
in bypass and
replacement procedures
Synthetic and biological
patches for use in closing
incisions in a blood vessel
Single-incision removal
of varicose veins
Attachment of blood
vessels, primarily for
dialysis access
Injection of contrast
media into blood vessels
Improvement in the seal
of aortic stent grafts
Improvement in precision
of vascular and
endovascular procedures
Introduction of dye into
the cystic duct; related
uses
4
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Application
submitted
✓
✓
✓
✓
Application
submitted
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
ankle-to-groin incision, thereby reducing the length of hospital stays and the likelihood of wound complications.
The Expandable LeMaitre Valvulotome is the sixth generation of the original valvulotome developed by our
founder, George D. LeMaitre, M.D.
Vascular Grafts
Our AlboGraft Woven and Knitted Vascular Grafts are collagen-impregnated polyester grafts used to bypass
or replace diseased arteries. They are available in both straight tube and bifurcated versions.
Our LifeSpan ePTFE Vascular Graft is an expanded polytetrafluoroethylene (ePTFE) graft used to bypass or
replace diseased arteries, and to create dialysis access sites. They are available in both regular and thin wall
options and with an optional full or partial external spiral support to increase resistance to compression or
kinking. Our stepped and quick tapered LifeSpan models are designed to reduce the risk of steal syndrome and
high cardiac output, which are complications that may arise in dialysis access grafts.
Vascular Patches
Our AlboSure Vascular Patch is a polyester patch used in conjunction with endarterectomy and vascular
reconstructions. We have received regulatory clearance to market our AlboSure Vascular Patch in the United
States and European Union and intend to begin selling this device by 2013. Vascular surgeons use patches in
conjunction with carotid endarterectomy, remote endarterectomy, and other vascular reconstructions.
We also distribute the XenoSure Biologic Vascular Patch, a patch made from bovine pericardium. We have
exclusive rights to distribute this product under our “XenoSure” brand in the United States and most of Europe
until January 26, 2016, and an option to acquire this product commencing January 2, 2014 and expiring
January 26, 2016.
Vessel Closure Systems
Our AnastoClip VCS and AnastoClip GC Vessel Closure Systems allow surgeons to attach vessels, native
and prosthetic, to one another by deploying titanium clips in place of suturing. These vessel closure systems
create an interrupted anastomosis, or a vessel attachment that expands and contracts as the vessel pulses, which
we believe improves the durability of the anastomosis.
A retrospective 1,110-patient clinical study published in the August 2003 Journal of Vascular Surgery
found that the AnastoClip VCS Vessel Closure System improved 24-month patency versus traditional continuous
sutures from approximately 34% to 54% in arterio-venous fistulae, which are surgical attachments of arteries and
veins, and from approximately 17% to 36% in prosthetic grafts attachments. In 2010 we released the next-
generation AnastoClip GC Vessel Closure System, with a new clip design that is intended to provide additional
security and ease of use.
Endovascular and Other Products
Our endovascular products are used primarily by vascular surgeons in minimally invasive endovascular
procedures, such as stent-grafting, angioplasty, stenting, and atherectomy, and we also sell non-vascular medical
devices used in general surgery procedures, primarily laparoscopic cholecystectomy. Descriptions of our primary
endovascular and other product offerings follow.
Modeling Catheters
Our UnBalloon Non-Occlusive Modeling Catheter is used to apply radial pressure to the inside of an aortic
stent graft in order to seal the outer lining of the stent graft against either the aorta or an adjacent stent graft. The
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physician expands the device’s nitinol mesh cage inside of the stent graft in order to appose the stent graft lining
against the vessel or stent graft wall. An adequate seal will exclude blood flow from the aneurysm, thereby
preventing an endoleak, a condition in which blood continues to enter the aneurismal sac, increasing the risk of
aneurysm rupture and death. Unlike a traditional balloon catheter, The UnBalloon catheter dilates the aortic stent
graft without occluding blood flow, allowing the physician more time to repair an endoleak or model the stent
graft while minimizing the risk of stent graft migration during modeling.
Radiopaque Tape
Our VascuTape Radiopaque Tape is a flexible, medical-grade tape with centimeter or millimeter markings
printed with our proprietary radiopaque ink that is visible both to the eye and to an x-ray machine or fluoroscope.
VascuTape Radiopaque Tape is applied to the skin and provides interventionalists with a simple way to cross-
reference between the inside and the outside of a patient’s body, allowing them to locate tributaries or lesions
beneath the skin.
Other Products
In some hospitals, vascular surgery procedures are performed by general surgeons. We sell non-vascular
medical devices used in general surgery procedures, primarily laparoscopic cholecystectomy. Our leading
general surgery product is the Reddick Cholangiogram Catheter, which is used to inject dye into the cystic duct
during laparoscopic cholecystectomy. In this procedure, the gall bladder is dissected and removed through small
punctures in the abdomen. We also offer two laparoscopic accessories used in laparoscopic gall bladder removal.
Sales and Marketing
As of December 31, 2011, we employed 78 field sales representatives. We believe that the expansion of our
direct sales force has been a key factor in our success and it remains one of our primary long-term strategies. In
recent years, we have reduced the amount of starting compensation that we typically pay to our sales
representatives, and this savings has helped facilitate the hiring of additional sales personnel. Outside our direct
markets, we generally sell our products through country-specific distributors. We typically sign exclusive
distribution agreements with terms of up to three years specifying minimum annual sales volumes and pricing.
These agreements are renewable by mutual agreement.
In addition, we engage in direct marketing efforts, including direct mail and exhibitions at medical
congresses, which we believe are important to our brand development and continued success. We believe that
direct marketing allows us to market to vascular surgeons beyond the reach of our direct sales force.
Research and Development
Our research and development has historically focused on developing enhancements and extensions to our
existing product lines. Our current product development efforts are focused on both the open vascular and
endovascular spaces, and are largely improvements to our existing devices. In recent years we have increased
investment in product research and development, with the goal of more rapidly developing new products, line
extensions, and next-generation devices. In 2011 we introduced two new products to the market, the second-
generation of The UnBalloon Non-Occlusive Modeling Catheter and the Over-the-Wire LeMaitre Valvulotome.
Our products are subject to our design control procedures throughout the various stages of product
development. These procedures may include bench testing, animal testing, human use testing conducted by
independent physicians, and post-market surveillance of product performance, as appropriate. We may use
feedback received from independent physicians to demonstrate product functionality, safety, and effectiveness
before commencing full-scale marketing of any product.
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For 2011, 2010, and 2009, our research and development expenditures, including clinical study
expenditures, were $4.4 million, $5.5 million and $5.9 million, respectively, representing between 8% and 12%
of net sales. As of December 31, 2011, our research and development staff consisted of 13 full-time engineers
and technicians.
Manufacturing
Our principal manufacturing facilities are located in Burlington, Massachusetts, where most of our product
lines are produced in two ISO 14644-1 Class 8 clean rooms, each approximately 5,500 square feet. Our most
recent manufacturing consolidations in Burlington, Massachusetts were the relocation of our AlboGraft Vascular
Graft manufacturing operations from Brindisi, Italy and our LifeSpan ePTFE Vascular Graft from Laguna Hills,
California, both in 2011. Although most of our product lines are produced in Burlington, Massachusetts, our
distributed products are manufactured elsewhere and certain third-parties manufacture our EndoRE remote
endarterectomy devices.
We manufacture certain proprietary components, assemble most of our devices ourselves, and inspect, test,
and package all of our finished products. By designing and manufacturing many of our products from raw
materials, and assembling and testing as many of our subassemblies and products as practical, we believe that we
can maintain better quality control, ensure compliance with applicable regulatory standards and our internal
specifications, limit outside access to our proprietary technology, ensure adequate product supply, and make
design modifications in a timely manner. We have custom-designed proprietary manufacturing and processing
equipment and have developed proprietary enhancements for existing production machinery. Nearly all of our
products are built to stock.
Our management information systems provide us with the ability to evaluate our performance, collect
business intelligence, and make better strategic decisions. These systems include order entry, invoicing, on-line
inventory management, lot traceability, purchasing, shop floor control, and shipping and distribution analysis, as
well as various accounting-oriented functions. During day-to-day operations, these systems enable us to track our
products from the inception of an order through the manufacturing process and then through delivery of the
product to the customer.
We purchase components from, and have certain product lines manufactured by, third parties. Most of our
components are readily available from several supply sources, but we do rely on single- and limited-source
suppliers for several of our key product components and our third-party-manufactured products. We do not have
contractual arrangements with most of these suppliers and manufacturers, and we order our supplies and product
on an as-needed basis. To date, we have not experienced any material disruption in the adequate supply from
existing sources of product and components, but there is no guarantee that we will not experience such
disruptions in the future. For instance, the supply of ink for our LifeSpan ePTFE Vascular Graft was indefinitely
interrupted due to a fire at our former single-source supplier. Although we are sourcing an alternate supplier for
that component and feel that we have an adequate supply of ink on hand, it is possible that we could experience
delays in manufacturing the product if we are not successful in timely validating the new supply.
Any disruption in our manufacturing capacity could impact our ability to produce sufficient inventory and
meet the demands of our customers, which could adversely affect our financial condition and results of
operations.
Our manufacturing facilities have been certified to ISO 13485:2003 quality management system standards,
which enables us to satisfy certain regulatory requirements of the European Union, Canada, and other foreign
jurisdictions. If we were to lose these certifications, we would no longer be able to sell our products in these
countries until we made the necessary corrections to our operations. Our manufacturing facilities are subject to
periodic inspections by regulatory authorities and our Notified Body (described below) to ensure compliance
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with domestic and non-U.S. regulatory requirements. See “—Government Regulation.” In December 2011 and
January 2012, we underwent routine audits from our European Notified Body and the FDA, respectively.
Although the results of these inspections were satisfactory, the timing and scope of future audits is unknown and
it is possible, despite our belief that our quality systems and the operation of our manufacturing facilities will
remain in compliance with U.S, and non-U.S. regulatory requirements, that a future audit may result in one or
more unsatisfactory results.
Competition
The markets in which our 12 product lines compete are characterized by rapid change resulting from
technological advances and scientific discoveries. No one company competes against us in all of our product
lines. Rather, we compete with a range of companies, from large to small, including both publicly traded and
privately held device companies. Notable competitors include Applied Medical Resources Corporation,
Cardiovascular Systems Inc., Cook Group Incorporated, C.R. Bard, Inc., Edwards Lifesciences Corporation,
Getinge AB, Jotec GmbH, Medtronic, Inc., Terumo Medical Corporation, Uresil, LLC, and W. L. Gore &
Associates.
Our products compete primarily on the basis of their innovative technology, quality, reliability, ease of use,
cost-effectiveness, physician familiarity, brand recognition, and service support. Several of our products are sold
at higher prices than those of our competitors. We believe that our continued success will depend on our ability
to broaden and optimize our direct sales channel, acquire or develop additional vascular device product lines,
obtain patent or other product protections, obtain regulatory and reimbursement approvals, maintain sufficient
inventory to meet customer demand, and attract and retain skilled personnel.
Many of our competitors have substantially greater financial, technological, research and development,
regulatory, marketing, sales, and personnel resources than we do. Certain of these competitors are able to
manufacture at lower costs and may therefore offer comparable products at lower prices. Certain of these
competitors may also have greater experience in developing and further improving products, obtaining regulatory
approvals, and manufacturing and marketing such products. Certain of these competitors may obtain patent
protection or regulatory approval or clearance, or achieve product commercialization, before us, any of which
could materially adversely affect us.
Intellectual Property
We believe that our success is dependent, to a certain extent, on the development and maintenance of
proprietary aspects of our technologies. We rely on a combination of patents, trademarks, trade secret laws, and
confidentiality and invention assignment agreements to protect our intellectual property rights.
As of December 31, 2011, we actively maintained 27 issued patents and 7 pending patent applications in the
United States and Europe relating to various aspects of our products and/or manufacturing processes. The
majority of our issued U.S. patents are set to expire at various times from 2012 to 2020.
We intend to file and prosecute patent applications for our technology in jurisdictions where we believe that
patent protection is effective and advisable. Generally, for products that we believe are appropriate for patent
protection, we will attempt to obtain patents in the United States and key markets of the European Union.
However, depending on circumstances, we may not apply for patents in all or any of those jurisdictions, or we
may pursue patent protection elsewhere.
Notwithstanding the foregoing, the patent positions of medical device companies, including our company,
are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent
application can be denied or significantly reduced either before or after the patent is issued. Consequently, there
can be no assurance that any of our pending patent applications will result in an issued patent. There is also no
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assurance that any existing or future patent will provide significant protection or commercial advantage, or
whether any existing or future patent will be dominated by a more basic patent, thus possibly requiring us to
obtain a license to produce and sell the product.
Third parties may claim that our products infringe on their patents and other intellectual property rights.
Some companies in the medical device industry have used intellectual property infringement litigation to gain a
competitive advantage. If a competitor were to challenge our patents, licenses, or other intellectual property
rights, or assert that our products infringe its patent or other intellectual property rights, we could incur
substantial litigation costs, be forced to make expensive changes to our product designs, license rights in order to
continue manufacturing and selling our products, or pay substantial damages. Third-party infringement claims,
regardless of their outcome, would not only consume our financial resources but also divert our management’s
time and effort. Such claims could also cause our customers or potential customers to defer or limit their
purchase or use of the affected products until resolution of the claim.
Certain aspects of our products are covered by patents held by third parties. We manufacture, market, and
sell these products pursuant to license agreements with these third parties. These arrangements require us to pay
royalties, typically determined as a percentage of our net sales for the underlying product. If we fail to make
these payments or otherwise fail to observe the terms of these agreements, we may lose our ability to sell these
products. For example, we manufacture, market, and sell our AnastoClip and AnastoClip GC Vessel Closure
Systems, EndoHelix Retrieval Device, Grice Suture Needle, LifeSpan Vascular Graft, MollRing Cutter
Transection Device, Reddick-Saye Screw, and Periscope Dissector products pursuant to licenses with third-party
patent holders.
We believe that our strong brands have been an important factor in our success. We rely on common law
and registered trademarks to protect our product brands. Some of our registered trademarks are LeMaitre, Pruitt,
VascuTape, Glow ‘N Tell, and Reddick, each of which is registered in the United States and the European Union,
and in certain cases in other foreign countries.
We rely on trade secret protection for certain unpatented aspects of other proprietary technology. Some of
our products are not protected by patents. In the past, other companies have independently developed or
otherwise acquired comparable or substantially equivalent proprietary information and techniques, and there can
be no assurance that others will not do so in the future or otherwise gain access to our proprietary technology or
disclose such technology, or that we can meaningfully protect our trade secrets. We have a policy of requiring
key employees and consultants to execute confidentiality agreements upon the commencement of an employment
or consulting relationship with us. Our confidentiality agreements also require our employees to assign to us all
rights to any inventions made or conceived during their employment with us. We also generally require our
consultants to assign to us any inventions made during the course of their engagement by us. There can be no
assurance, however, that these agreements will provide meaningful protection or adequate remedies for us in the
event of unauthorized use, transfer, or disclosure of confidential information or inventions.
The laws of foreign countries generally do not protect our proprietary rights to the same extent as do the
laws of the United States and we may experience more difficulty enforcing our proprietary rights in certain
foreign jurisdictions.
Government Regulation
The products we manufacture and market are subject to regulation by the FDA, and, in some instances,
other federal and state authorities and foreign governments.
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United States Regulation
Our products are medical devices subject to extensive regulation by the FDA under the Federal Food, Drug,
and Cosmetic Act (the FDCA). FDA regulations govern, among other things, product development, testing,
manufacture, packaging, labeling, storage, clearance or approval, advertising and promotion, sales and
distribution, and import and export.
Premarket Pathways
Most medical devices must receive either 510(k) clearance or premarket application approval (PMA
approval) from the FDA prior to commercial distribution. Devices deemed to pose relatively less risk are placed
in either class I or II, which requires the manufacturer to submit a premarket notification requesting permission
for commercial distribution; this is known as 510(k) clearance. Some low-risk devices are exempted from this
requirement. Class II devices may be subject to special controls, such as performance standards and FDA
guidelines that are not applied to class I devices. Devices deemed by the FDA to pose the greatest risk, such as
life-sustaining, life-supporting, or implantable devices, or devices deemed not substantially equivalent to a
previously 510(k)-cleared device or to a pre-amendment class III device (i.e., one in commercial distribution
before May 28, 1976) for which PMA applications have not been called, are placed in class III, which generally
requires PMA approval. In all cases, a user fee is required for 510(k) submissions and PMA applications, which
in the case of PMA applications can be very costly.
510(k) Clearance. To obtain 510(k) clearance, a manufacturer must submit a premarket notification
demonstrating that the proposed device is substantially equivalent in intended use to a “predicate device” (i.e., a
previously 510(k)-cleared class I or class II device or a pre-amendment class III device for which the FDA has
not yet called for PMA applications). The FDA’s 510(k) clearance pathway usually takes from three to twelve
months, but it can last longer. In reviewing a premarket notification, the FDA may request additional
information, including clinical data. For example, in reviewing our premarket notification for the AlboGraft
Vascular Graft, the FDA requested, and we submitted, clinical data from the use of the device in other countries
where it was then already approved for sale. Nearly all of our devices sold in the United States to date are
marketed pursuant to the 510(k) process.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or
effectiveness, or that would constitute a major change as specified by FDA guidelines, requires a new 510(k)
clearance. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can
review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k)
clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance. The FDA also can
require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA
approval is obtained. Also, the manufacturer may be subject to significant regulatory fines or penalties.
PMA Approval. The PMA approval pathway requires proof of the safety and effectiveness of the proposed
device to the FDA’s satisfaction, making this pathway much more costly, lengthy, and uncertain. A PMA
application must provide extensive preclinical and clinical trial data, as well as detailed information about the
device and its components regarding, among other things, device design, manufacturing, and labeling. As part of
the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality
System Regulation (QSR) which imposes elaborate testing, control, documentation, and other quality assurance
procedures on the manufacturing process.
If the FDA approves a PMA, the approved indications or claims may be more limited than those originally
sought. The PMA can include post-approval conditions that the FDA believes to be necessary to ensure the safety
and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale, and
distribution. Failure to comply with the conditions of approval can result in material adverse enforcement action,
including the loss or withdrawal of the approval. Even after approval of a PMA, a new PMA or PMA supplement
is required if the device or its labeling or manufacturing process are modified. Supplements to a PMA often
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require the submission of the same type of information required for an original PMA, except that the supplement
is generally limited to that information needed to support the proposed change from the product covered by the
original PMA.
Clinical Trials. A clinical trial is typically required to support a PMA application and is sometimes required
to support 510(k) clearance. In some cases, one or more smaller feasibility IDE studies may precede a pivotal
IDE clinical trial intended to comprehensively demonstrate the safety and effectiveness of the investigational
device. All clinical studies of investigational devices must be conducted in compliance with the FDA’s extensive
requirements. If an investigational device could pose a significant risk to patients (as defined in the regulations),
the FDA, prior to initiation of clinical use, must approve an IDE application showing that it is safe to test the
device in humans and that the testing protocol is scientifically sound. A non-significant risk device does not
require submission to the FDA of an IDE application. Both significant risk and non-significant risk
investigational devices require approval from institutional review boards (IRBs) at the study centers where the
device will be used. The FDA and the IRB at each institution at which a clinical trial is being performed may
suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an
unacceptable health risk.
During a study, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial
monitoring, reporting, record keeping, and prohibitions on the promotion of investigational devices. The
investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol,
control the disposition of investigational devices, and comply with all reporting and record-keeping
requirements. Required records and reports are subject to inspection by the FDA. Prior to granting PMA
approval, the FDA typically inspects the records relating to the conduct of the study and the clinical data
supporting the PMA application for compliance with IDE requirements.
Although the QSR does not fully apply to investigational devices, the requirement for controls on design
and development does apply. The sponsor also must manufacture the investigational device in conformity with
the quality controls described in the IDE application and any conditions of IDE approval that FDA may impose
with respect to manufacturing.
Historically, our products have been introduced into the market using the 510(k) clearance procedure, and
we have not used the more burdensome PMA process for any of the products that we currently market or sell in
the United States.
Postmarket Regulation
After a device is placed on the market, regardless of the classification or premarket pathway, significant
regulatory requirements apply. These include:
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manufacturing establishment registration and device listing with the FDA;
the QSR, which requires finished device manufacturers, including third-party or contract
manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance
procedures in all aspects of manufacturing;
labeling regulations and FDA prohibitions against the promotion of products for uncleared,
unapproved, or off-label uses and other requirements related to promotional activities;
medical device reporting regulations, which require that manufacturers report to the FDA if their
device may have caused or contributed to a death or serious injury or malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction were to recur; and
corrections and removal reporting regulations, which require that manufacturers report to the FDA any
field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the
device or to remedy a violation of the FDCA that may present a risk to health.
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We are subject to inspection and marketing surveillance by the FDA to determine our compliance with
regulatory requirements. Our most recent FDA inspection was in January 2012, and was satisfactory.
Non-compliance with applicable FDA requirements can result in, among other things, public warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of
the FDA to grant marketing approvals, withdrawal of marketing approvals, a recommendation by the FDA to
disallow us to enter into government contracts, and criminal prosecutions. The FDA also has the authority to
request repair, replacement, or refund of the cost of any device manufactured or distributed by us. In the event
that one of our suppliers fails to maintain compliance with our quality requirements, we may have to qualify a
new supplier and could experience manufacturing delays as a result.
Non-U.S. sales of medical devices manufactured in the United States that are not approved or cleared by the
FDA for use in the United States, or are banned or deviate from lawful performance standards, are subject to
FDA export requirements. Before exporting such products to a foreign country, we must first comply with the
FDA’s regulatory procedures for exporting unapproved devices.
Other U.S. Regulations
We and our products are also subject to a variety of state and local laws in those jurisdictions where our
products are or will be marketed, and federal, state, and local laws relating to matters such as safe working
conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or
potentially hazardous substances. We are subject to various federal and state laws governing our relationships
with the physicians and others who purchase or make referrals for our products. For instance, federal law
prohibits payments of any form that are intended to induce a referral for any item payable under Medicare,
Medicaid, or any other federal healthcare program. Many states have similar laws. There can be no assurance that
we will not be required to incur significant costs to comply with such laws and regulations now or in the future or
that such laws or regulations will not have a material adverse effect upon our ability to do business.
We are subject to federal, state, and local laws, rules, regulations, and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling, and disposal of certain hazardous
and potentially hazardous substances used in connection with our operations. Although we believe that we have
complied with these laws and regulations in all material respects and to date have not been required to take any
action to correct any noncompliance, there can be no assurance that we will not be required to incur significant
costs to comply with environmental regulations in the future.
Non-U.S. Regulation
Sales of medical devices are subject to regulatory requirements in many countries. The regulatory review
process may vary greatly from country to country. For example, the European Union has adopted numerous
directives and standards relating to medical devices regulating their design, manufacture, clinical trials, labeling,
and adverse event reporting, including the Medical Devices Directive (93/42/EEC (the Directive)), which is
applicable to our products. Devices that comply with the requirements of the Directive are entitled to bear a CE
mark, indicating that the device conforms with the essential requirements of the applicable directive and can be
commercially distributed in countries that are members of the European Union, as well as Iceland, Lichtenstein,
Norway, and Switzerland. Each member state of the European Union has implemented the directives into its
respective national law and has each established a “Competent Authority” to apply the directive in its territory.
The Directive defines a classification system placing devices into Class I, IIa, IIb, or III, depending on the
risks and characteristics of the medical device. The Directive also defines the essential requirements that devices
must meet before being placed on the market, establishes assessment procedures for approving a device for
marketing, and creates mechanisms for national authorities to manage implementation or to intervene when
public health requires. Essential requirements include manufacturing, design, performance, labeling, and safety
requirements, and may include providing certain clinical data. These requirements vary based on the type of the
device and other related factors.
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A manufacturer of low-risk devices typically may demonstrate conformity to the essential requirements
based on a self-declaration. The European Standardization Committees have adopted numerous harmonized
standards for specific types of medical devices. Compliance with relevant standards establishes a presumption of
conformity with the essential requirements. Manufacturers of higher-risk devices generally must use a “Notified
Body”—an appointed independent third party to assess conformity. This third- party assessment may consist of
an audit of the manufacturer’s quality system and specific testing of the manufacturer’s devices. An assessment
by a Notified Body in one country within the European Union is generally required in order for a manufacturer to
commercially distribute the product throughout the European Union. Most of our devices are considered higher-
risk devices that require Notified Body assessment.
The European medical device laws also address the advertising and promotion of medical devices, clinical
investigations, and requirements for handling adverse events. Post-market surveillance of medical devices in the
European Union is generally conducted on a country-by-country basis; however, the Directive sets forth certain
specific requirements for reporting adverse events. The Medical Device Vigilance system is the mechanism by
which adverse event reporting is managed and monitored in the European Union. In October 2011, we received
complaints of two device failures which resulted in a voluntary recall of one production lot of our AlboGraft
Vascular Graft. Subsequently, in February 2012, we received complaints of two additional device failures from a
second lot which resulted in a voluntary recall of one additional production lot. We believe that we have isolated
the root cause of these device failures and implemented corrective actions beginning with lots produced from
November 2011. However, there can be no assurance that these failures will not reoccur or that other problems
will not develop in the future. As a result of the recalled lots, we recognized $0.2 million of inventory write-offs
which we recorded to cost of sales during the year ended December 31, 2011. Also in February 2012, we
received an additional complaint on our AlboGraft Vascular Graft that was apparently unrelated to the previous
complaints. Although the root cause of that complaint is still under investigation, it appears to be an isolated
manufacturing defect, although there is no assurance that this will prove to be the case. We were notified by the
regulatory agency in the United Kingdom in late February 2012 that they would issue a Medical Device Alert to
all hospitals in the United Kingdom advising caution when implanting the AlboGraft Vascular Graft. Although
the Medical Device Alert has not resulted in an additional recall, we believe that such notice adversely affects
our reputation and that of our AlboGraft Vascular Graft.
In some cases, we rely on our non-U.S. distributors to obtain premarket approvals, complete product
registrations, comply with clinical trial requirements, and complete those steps that are customarily taken in the
applicable jurisdictions to comply with governmental and quasi-governmental regulation. In the future, we
expect to continue to rely on distributors in this manner in those countries where we continue to market and sell
our products through them.
In Japan, the Ministry of Health, Labor and Welfare (MHLW) regulates medical devices through the
Pharmaceutical Affairs Law, which was reformed effective April 1, 2005. The revisions to Japan’s regulations
have resulted in longer lead times for product registration.
There can be no assurance that new laws or regulations or new interpretations of laws and regulations
regarding the release or sale of medical devices will not delay or prevent sale of our current or future products.
Third-Party Reimbursement
United States
Healthcare providers that purchase medical devices generally rely on third-party payors, including the
Medicare and Medicaid programs and private payors (such as indemnity insurers, employer group health
insurance programs, and managed care plans) to reimburse all or part of the cost of those products. As a result,
demand for our products is and will continue to be dependent in part on the coverage and reimbursement policies
of these payors. The manner in which reimbursement is sought and obtained varies based upon the type of payor
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involved and the setting in which the product is furnished and utilized. Furthermore, payments from Medicare,
Medicaid, and other third-party payors are subject to legislative and regulatory changes and are susceptible to
budgetary pressures.
In the United States, third-party payors generally pay healthcare providers directly for the procedures they
perform and in certain instances for the products they use. Alternatively, third-party payors may reimburse
patients for all or part of the charges that patients pay for procedures and the products used in connection with
those procedures. In either case, our sales volumes depend on the extent to which third-party payors cover our
products and the procedures in which they are used. In general, a third-party payor only covers a medical product
or procedure when the plan administrator is satisfied that the product or procedure is medically necessary
because it improves health outcomes, including quality of life or functional ability, in a safe and cost-effective
manner. Even if a device has received clearance or approval for marketing by the FDA, there is no assurance that
third-party payors will cover the cost of the device and related procedures in which the device is used.
In many instances, third-party payors cover the procedures performed using our products using price fee
schedules that do not vary reimbursement to reflect the cost of the products and equipment used in performing
those procedures. In other instances, payment or reimbursement is separately available for the products and
equipment used, in addition to payment or reimbursement for the procedure itself. Even if coverage is available,
third-party payors may place restrictions on the circumstances in which they provide coverage or may offer
reimbursement that is not sufficient to cover the cost of our products. Many of the products that compete with
ours are less expensive. Therefore, although coverage may be available for our products and the related
procedures, the levels of approved coverage may not be sufficient to justify using our products instead of those of
competitors.
Finally, the advent of contracted fixed rates per procedure has made it difficult to receive separate
reimbursement for disposable products, even if the use of these products improves clinical outcomes. In addition,
many third-party payors are moving to managed care systems in which providers contract to provide
comprehensive healthcare for a fixed cost per person. Managed care providers often attempt to control the cost of
healthcare by authorizing fewer elective surgical procedures. Under current prospective payment systems, such
as the diagnosis-related group system and the hospital out-patient prospective payment system, both of which are
used by Medicare and in many managed care systems used by private third party payors, the reimbursement for
our products will be incorporated into the overall reimbursement of a procedure, and there will be no separate
reimbursement for our products. As a result, we cannot be certain that hospital administrators and physicians will
purchase our products.
If hospitals and physicians cannot obtain adequate reimbursement for our products or the procedures in
which they are used, our business, financial condition, and results of operations could suffer a material adverse
impact.
Non-U.S.
Our success in non-U.S. markets will depend largely upon the availability of reimbursement from the third-
party payors through which healthcare providers are paid in those markets. Reimbursement and healthcare
payment systems in non-U.S. markets vary significantly by country. The main types of healthcare payment
systems are government sponsored healthcare and private insurance. As in the United States, reimbursement is
subject to legislative and regulatory changes and is susceptible to budgetary pressures. Reimbursement approval
must be obtained individually in each country in which our products are marketed. Outside the United States, we
generally pursue reimbursement approval in those countries in which we sell directly to the hospital. In other
markets, we generally rely on the distributors who sell our products to obtain reimbursement approval in those
countries in which they will sell our products. There can be no assurance that reimbursement approval will be
received.
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Fraud and Abuse Laws
We may directly or indirectly be subject to various federal and state laws pertaining to healthcare fraud and
abuse, including anti-kickback laws. In particular, the federal healthcare program 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, 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.
In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the Patient
Protection and Affordable Care Act (the PPACA). The PPACA includes provisions that, among other things,
require detailed disclosure of gifts and other remuneration made to health care professionals.
Employees
We had 276 full-time employees at December 31, 2011. Of these employees, 124 were in manufacturing,
and quality assurance, 108 were in sales and marketing, 19 were in research and development and regulatory, and
25 were in general and administrative. We believe that our employee relations are good.
Financial Information by Business Segment and Geographic Data
We operate in one reportable industry segment: the design, marketing, sales and technical support of
medical devices and implants for the treatment of peripheral vascular disease. Our chief operating decision maker
is our chief executive officer. Our chief executive officer reviews financial information, accompanied by
information about revenue by geographic region for purposes of allocating resources and evaluating financial
performance. The information included in Note 13 of the Notes to Consolidated Financial Statements is hereby
incorporated by reference.
Customers
Our sales are not dependent on any single customer or distributor, and we continue to expand our
distribution channel worldwide through direct and indirect sales forces.
Corporate Information
We were incorporated in Massachusetts on November 28, 1983, as Vascutech, Inc. On June 16, 1998, we
were reincorporated in Delaware, and on April 6, 2001, we changed our name to LeMaitre Vascular, Inc. Our
principal executive offices are located at 63 Second Avenue, Burlington, Massachusetts 01803, and our telephone
number is (781) 221-2266.
Where You Can Find More Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
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of 1934 are available through the investor relations portion of our website (www.lemaitre.com) free of charge as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission, or SEC. Information on our investor relations page and on our website is not part of this
Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated herein or
therein by reference. In addition, our filings with the Securities and Exchange Commission may be accessed
through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval (EDGAR)
system at www.sec.gov. You may also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference facilities. All statements made
in any of our securities filings, including all forward-looking statements or information, are made as of the date
of the document in which the statement is included, and we do not assume or undertake any obligation to update
any of those statements or documents unless we are required to do so by law. In addition, our Corporate
Governance Guidelines, Code of Business Conduct and Ethics and Charters of our Audit, Compensation and
Nominating and Corporate Governance Committees are available on our website and are available in print to any
stockholder who requests such information.
Item 1A. Risk Factors
The following important factors, among others, could cause our actual operating results to differ materially
from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere
by management from time to time. Investors should carefully consider the risks described below before making
an investment decision. The risks described below are not the only ones we face. Additional risks not presently
known to us or that we currently believe are immaterial may also significantly impair our business operations.
Our business could be harmed by any of these risks. The trading price of our common stock could decline due to
any of these risks, and investors may lose all or part of their investment.
Risks Related to Our Business
We may experience significant fluctuations in our quarterly and annual results.
Fluctuations in our quarterly and annual financial results have resulted and will continue to result from
numerous factors, including:
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strategic actions by us, such as acquisitions of additional businesses, products, or technologies;
the discontinuation of a product line or other revenue generating activity, such as our stent grafts;
the relocation and integration of manufacturing operations and other strategic restructuring, such as the
transfer of AlboGraft production;
adverse regulatory actions which may necessitate recalls of our products or warning letters that
negatively affect the markets for our products, such as the recent AlboGraft warning letter in the United
Kingdom;
our determination whether or not to continue the payment of quarterly cash dividends;
our determination whether of not to continue share repurchases;
costs incurred in connection with the termination of contractual and other relationships, including
distributorships;
our ability to collect outstanding accounts receivable in selected countries outside of the United States;
changes in the mix of products we sell;
the expiration or exhaustion of deferred tax assets such as net operating loss carry-forwards;
effects of domestic and foreign economic conditions and exchange rates on our industry and/or
customers;
17
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increased product and price competition; and
the loss of any significant customer, especially in regard to any product that has a limited customer
base.
These factors, some of which are not within our control, may cause the price of our common stock to
fluctuate substantially. If our quarterly operating results fail to meet or exceed the expectations of securities
analysts or investors, our stock price could drop suddenly and significantly. We believe the quarterly
comparisons of our financial results are not always meaningful and should not be relied upon as an indication of
our future performance.
We may not maintain our recent profitability.
As of December 31, 2011, we had an accumulated deficit of approximately $6.4 million. While we reported
operating and net income for the years ended December 31, 2011, 2010 and 2009, we had an operating and a net
loss for the years ended December 31, 2008 and 2007. There can be no assurance we will achieve significant net
sales gains or maintain either operating or net profitability in the future. As a result of our exit from stent grafts
in 2011, reported sales growth in 2012 may be challenged, and as a result we expect that it will be lower than our
2011 reported sales. In addition, we intend to increase operating expenses in 2012 in areas such as sales and
product development, and as a result we may need to maintain or reduce our operating expenses in other areas in
order to maintain or improve operating profitability. Decreased investment levels may inhibit future growth in
net sales and earnings.
Additionally, our ability to maintain and increase profitability will be influenced by many factors, including:
•
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the level and timing of future sales, manufacturing costs and operating expenditures;
market acceptance of our new products;
the productivity of our direct sales force and distributors;
fluctuations in foreign currency exchange rates;
our ability to successfully build direct sales organizations in new markets;
our ability to successfully acquire and develop competitive products;
our ability to successfully integrate acquired businesses, products, or technologies;
the impact on our business of competing products, technologies, and procedures;
the impact of the 2.3% medical device excise tax commencing in 2013;
our ability to obtain or maintain regulatory approvals for our products in new and existing markets; and
the cost of intellectual property challenges, if any.
If we are unable to expand our product offerings, we may not achieve our growth objectives and our results of
operations could suffer.
The treatment of peripheral vascular disease is shifting from open vascular surgery to minimally invasive
endovascular procedures, and many of our products are used primarily or exclusively in open vascular surgery
procedures. We market and sell our products primarily to vascular surgeons, and the majority of our marketing
efforts and sales relate to products used in open vascular surgery rather than in endovascular procedures. Recent
transactions in 2011 have further concentrated our focus on open vascular procedures. For instance, in 2011 we
divested a large portion of our endovascular product portfolio, our TAArget Thoracic Stent Graft and our UniFit
Abdominal Stent Graft, and further ended our relationship with Endologix, Inc. for distribution of its Powerlink
stent graft. Furthermore, notwithstanding periodic product updates and next-generation iterations, many of our
devices have been on the market for several years or longer. We may not be able to compete effectively with our
competitors unless we can keep pace with existing or new products and technologies in the vascular device
18
market and the minimally invasive endovascular procedure market, in particular. Our success in developing and
commercializing new products and new versions of our existing products is affected by our ability to:
•
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•
identify in a timely manner new market trends and customer needs;
keep pace with technological changes and industry standards;
obtain regulatory clearance or approval of new products and technologies;
successfully develop cost-effective manufacturing processes for such products;
commercially introduce such products and technologies; and
achieve market acceptance.
If we are unable to expand our product offerings, we may not achieve our growth objectives and our results
of operations could suffer.
We may acquire businesses and assets in the future. We may experience difficulties in completing the
integration of these acquisitions into our business, or we may not realize the anticipated benefits of these
acquisitions.
In order to expand our product offerings, we have completed several acquisitions, and a key part of our
strategy is to acquire additional businesses, products, or technologies in the future. Our growth strategy depends
in part upon our ability to identify, negotiate, complete, and integrate suitable acquisitions and develop products
from uncommercialized intellectual property that we acquire. If we are unable to complete acquisitions on
satisfactory terms, our growth objectives could be negatively affected.
Even if we complete acquisitions, we may experience:
•
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difficulties in integrating any acquired companies, personnel, and products into our existing business;
difficulties in integrating manufacturing operations into our existing business or successfully
replicating manufacturing processes at new manufacturing facilities;
difficulties or delays in transitioning clinical studies or unfavorable results from such clinical studies;
difficulties or delays in commercializing intellectual property that we acquire;
the sudden reduction in volume or loss of orders from a key customer, particularly where the acquired
company has concentrated sales;
diversion of our management’s time and attention from other business concerns;
challenges resulting from limited or no prior experience in new markets or countries we may enter;
higher costs of integration than we anticipated;
unknown or unanticipated liabilities included as part of the acquisition;
the need to improve an acquired product in order to gain broader market acceptance;
difficulties in retaining key employees of the acquired business who are necessary to manage these
acquisitions;
difficulties in acquiring the rights to and protecting intellectual property;
difficulties if the acquired company is remote or inconvenient to our Burlington, Massachusetts,
headquarters;
dilution as a result of equity financing required to fund acquisition costs; or
debt as a result of debt financing required to fund acquisition costs, which would be senior to our
outstanding shares of capital stock, and which would require interest payments to a lender.
19
We could also discover deficiencies withheld from us due to fraud or otherwise not uncovered in our due
diligence prior to an acquisition, including deficiencies in internal controls, data adequacy and integrity, product
quality, and regulatory compliance, as well undisclosed contractual or other liabilities and product liabilities, any
of which could result in us becoming subject to penalties or other liabilities. Any of these difficulties could
negatively impact our ability to realize the intended and anticipated benefits that we currently expect from our
acquisitions or from acquisitions we complete in the future and could harm our financial condition and results of
operations.
For instance, in December 2007 we acquired Biomateriali S.r.l., an Italian manufacturer of prosthetic
polyester grafts. In February 2011 we closed our AlboGraft Vascular Graft manufacturing facility in Brindisi,
Italy and transferred production to our Burlington, Massachusetts headquarters. Initially, we encountered
difficulties and delays which negatively impacted our ability to manufacture sufficient quantities of the devices
to satisfy demand. Also, the transfer was more expensive than we anticipated. In addition, between October 2011
and February 2012, we received five product complaints on grafts produced in our Burlington, Massachusetts
headquarters which resulted in the recall of two AlboGraft production lots and a Medical Device Alert sent to all
hospitals in the United Kingdom urging vigilance when using the AlboGraft. If our relocation of this product line
to our Burlington, Massachusetts headquarters continues to be more costly or difficult than anticipated, our
financial condition or results of operations may be harmed.
For any of these reasons or as a result of other factors we may not realize the anticipated benefits of
acquisitions and our operating results may be harmed.
Fluctuations in foreign currency exchange rates could result in declines in our reported sales and earnings.
For the full year ended December 31, 2011, 36% of net sales were derived from sales occurring outside of
the United States. Because the majority of our sales outside of the Americas are denominated in local currencies,
our reported sales and earnings are subject to fluctuations in foreign exchange rates. At present, we do not
manufacture any of our products outside the United States and we rarely engage in hedging transactions to
protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. A
decline in the value of the euro against the U.S. dollar could be expected to have a negative impact on our
revenue and earnings growth as euro-denominated revenues and earnings, if any, would be translated into U.S.
dollars at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency
fluctuations in the future may adversely affect our sales and earnings.
Our assumptions about the market for our products may not be correct.
We are focused on the market for devices used to treat peripheral vascular disease. We believe that
demographic trends point towards an increase in the need for our products. However, the projected demand for
our products could materially differ from actual demand if our assumptions regarding these trends and
acceptance of our products by the medical community prove to be incorrect or do not materialize or if drug
therapies gain more widespread acceptance as a viable alternative treatment, which in each case could adversely
affect our business prospects and profitability. For example, sales of our shunt products have declined in recent
quarters, possibly in relation to the introduction of carotid stenting in recent years, and this trend could continue
to adversely impact our future growth.
We face intense competition from other companies, technologies, and alternative medical procedures and we
may not be able to compete effectively.
The markets in which we compete are highly competitive, subject to change, and significantly affected by
new product introductions and other activities of industry participants. Although no one company competes
against us in all of our product lines, a number of manufacturers of peripheral vascular devices have substantially
greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and
management resources, larger research and development staffs, and larger facilities than ours; have established
20
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a shortage of high-quality sales personnel and distributors;
loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our
success in certain international markets;
changes in third-party reimbursement policies that may require some of the patients who receive our
products to directly absorb medical costs or that may necessitate the reduction of the selling prices of
our products;
the imposition of restrictions on the activities of foreign agents, representatives, and distributors;
scrutiny of foreign tax authorities, which could result in significant fines, penalties, and additional
taxes being imposed on us;
pricing pressure that we may experience internationally;
laws and business practices favoring local companies;
longer payment cycles;
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
difficulties in enforcing or defending intellectual property rights;
exposure to different legal and political standards; and
political, economic, and/or social instability.
We cannot assure you that one or more of these factors will not harm our business. Any material decrease in
our international sales would adversely impact our net sales, results of operations, and financial condition.
If we experience continued difficulties in manufacturing our AlboGraft Vascular Graft, which was relocated
from Brindisi, Italy to Burlington, Massachusetts in 2011, then our financial condition and results of
operations could be harmed.
In February 2011, we closed our AlboGraft Vascular Graft manufacturing facility in Brindisi, Italy and
transferred production to our Burlington, Massachusetts headquarters. Initially, we encountered difficulties and
delays which negatively impacted our ability to manufacture sufficient quantities of the devices to satisfy
demand. Also, the transfer has been more expensive than we anticipated. In addition, between October 2011 and
February 2012, we received five product complaints on products produced in Burlington, Massachusetts which
resulted in the recall of two AlboGraft production lots and a Medical Device Alert sent to all hospitals in the
United Kingdom urging vigilance when using the AlboGraft. If our relocation of this product line to our
Burlington, Massachusetts headquarters continues to be more costly than anticipated, our financial condition or
results of operations may be harmed.
We depend on single- and limited-source suppliers for some of the components to our products, as well as for
acquired products that have not been transitioned to in-house manufacture, and if any of those suppliers are
unable or unwilling to supply them on acceptable terms or otherwise, it could limit our ability to deliver our
products to our customers on a timely basis or at all.
We rely on single- and limited-source suppliers for some of our important product components, as well as
for products we have acquired that are not manufactured in-house. For example, our EndoRE remote
endarterectomy product line is manufactured for us by third-party suppliers. There are relatively few, or in some
cases no, alternative, validated sources of supply for these components and products. We do not have supply
agreements with most of these suppliers, and instead place orders on an as-needed basis. These suppliers could
discontinue or be rendered incapable of the manufacture or supply of these components or products at any time.
For instance, the supply of ink for our LifeSpan ePTFE Vascular Graft was indefinitely interrupted due to a fire
at our former single-source supplier. Although we are sourcing an alternate supplier for that component and feel
24
that we have an adequate supply of ink on hand, it is possible that we could experience delays in manufacturing
the product if we are not successful in timely validating the new supply. We do not carry a significant inventory
of these components and products. Identifying and qualifying additional or replacement suppliers, if required,
may not be accomplished quickly or at all and could involve significant additional costs. Any supply interruption
from our vendors or failure to obtain additional vendors for any of the components used to manufacture our
products would limit our ability to manufacture our products, may result in production delays and increased
costs, and may limit our ability to deliver products to our customers. If we are unable to identify alternate sources
of supply for the components, we would have to modify our products to use substitute components, which may
cause delays in shipments, increase design and manufacturing costs, and increase prices for our products. We
cannot assure you that any such modified products would be as effective as the predecessor products, or that such
modified products would gain market acceptance. This could lead to customer dissatisfaction and damage to our
reputation and our financial condition or results of operations may be harmed.
Any disruption in our manufacturing facilities could harm our results of operations.
Our principal worldwide executive, distribution, and manufacturing operations are located at adjacent
27,098 square foot and 21,929 square foot leased facilities located in Burlington, Massachusetts. These facilities
and the manufacturing equipment we use to produce our products would be difficult to replace and could require
substantial lead-time to repair or replace in the event of a natural or man-made disaster. In such event, we could
not shift production to alternate manufacturing facilities, and we would be forced to rely on third-party
manufacturers. Although we possess insurance for damage to our property and the disruption of our business
from casualties, such insurance may not be sufficient to cover all of our potential losses, including potential
damage to our reputation, and may not continue to be available to us on acceptable terms, or at all.
Our focus on the needs of vascular surgeons could harm our business if interventional cardiologists and
interventional radiologists perform a greater percentage of new procedures that replace those procedures
traditionally performed by vascular surgeons, or if vascular surgeons increasingly specialize in procedures for
which we do not sell devices.
The treatment of peripheral vascular disease is increasingly shifting from open vascular surgery to
minimally invasive endovascular procedures. We market and sell our products primarily to vascular surgeons,
and the majority of our marketing efforts and sales relate to products used in open vascular surgery rather than in
endovascular procedures. Recent transactions in 2011 have further concentrated our focus on open vascular
procedures. For instance, in 2011 we divested a large portion of our endovascular product portfolio, our TAArget
Thoracic Stent Graft and our UniFit Abdominal Stent Graft, and further ended our relationship with Endologix,
Inc. for distribution of its Powerlink stent graft.
In addition to performing traditional open surgical procedures, vascular surgeons in growing numbers also
perform minimally invasive, image-guided interventional procedures for peripheral vascular disease. However,
vascular surgeons may not adopt these procedures in the numbers we expect and instead these procedures may be
largely performed by interventional cardiologists and interventional radiologists. Many of our competitors have
focused their sales efforts on these interventionalists. If interventional cardiologists and interventional
radiologists perform a greater percentage of these new procedures than we expect, our net sales may decline.
Moreover, demographic trends and other market factors, such as reimbursement rates, are driving vascular
surgeons in the United States and potentially in other markets to increasingly specialize in certain kinds of
procedures, such as endovascular therapies, the creation and maintenance of dialysis access sites, and the
treatment of varicose veins. Sometimes these physicians will discontinue performing other vascular procedures.
If this trend continues, it could lead to the fragmentation of our customer base, which would reduce cross-selling
opportunities and the efficiency of each sales call by our sales representatives, which in turn would negatively
impact our business.
25
We depend on our senior management team and other key scientific, sales, and technical personnel, and if we
are unable to retain them or recruit additional qualified personnel we may not be able to manage our
operations and meet our strategic objectives.
We depend on the continued services of our senior management team and other key scientific, sales, and
technical personnel, as well as our ability to continue to attract and retain additional highly qualified personnel.
Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees will be
a critical factor in determining whether we will be successful in the future. Each of our key employees may
terminate his or her employment with us at any time. The loss of any of our senior management team or key
employees could harm our business. We compete for such personnel with other companies, academic
institutions, government entities, and other organizations. We may not be able to meet our future hiring needs or
retain existing personnel on acceptable terms. We could face significant challenges and risks in hiring, training,
managing, and retaining engineering and sales employees. Any loss or interruption of the services of our other
key personnel could also significantly reduce our ability to effectively manage our operations and meet our
strategic objectives, because we cannot assure you that we would be able to find an appropriate replacement
should the need arise. We maintain life insurance payable to us on our Chairman and Chief Executive Officer,
George W. LeMaitre, but not on our other key personnel.
If we do not maintain our relationships with our physician customers, our growth may be limited and our
business could be harmed.
Physicians typically influence the medical device purchasing decisions of the hospitals and other healthcare
institutions in which they practice. Consequently, our relationships with our physician customers are critical to
our continued growth. We believe that these relationships are based on our long-standing reputation and presence
in the market for peripheral vascular devices, the quality of our product offerings and clinical outcomes, our
marketing efforts and our presence at medical society meetings. Any actual or perceived diminution in our
reputation or the quality of our products or our failure or inability to maintain these other efforts could damage
our current relationships, or prevent us from forming new relationships, with physicians and cause our growth to
be limited and our business to be harmed.
Our lack of customer purchase contracts makes it difficult to predict sales and plan manufacturing
requirements, which could lead to lower net sales, higher expenses, and reduced margins.
We generally do not have long-term purchase contracts with our hospital customers, who typically order
products on an as-needed basis. As a result, it is difficult to accurately forecast our component and product
requirements. Our manufacturing and operating expenses are largely based on anticipated sales volume, and a
significant portion of these expenses is and will continue to be fixed. We must plan production and order product
components and third-party manufactured products several months in advance of customer orders. In addition,
lead times for product components and third-party manufactured products that we order vary significantly and
depend on factors such as the specific supplier and demand for each component at any given time. These factors
expose us to a number of risks, such as the following:
•
•
•
if we overestimate our requirements, or experience shortages, we may be obligated to carry more
inventory than we need, which could result in write-offs of excess or obsolete inventory;
if we underestimate our requirements, we may have an insufficient product component inventory,
which could disrupt manufacturing of our products and cause delays in shipments and net sales; and
if we experience shortages of product components from time to time, the manufacturing and shipping
of our products could be delayed.
If any of the foregoing occurs, it could lead to lower net sales, higher expenses, and reduced margins.
26
The use or misuse of our products may result in injuries that lead to product liability suits, which could be
costly to our business.
Although we offer training for physicians in the use of some of our products, we do not require that
physicians be trained in the use of our products. Not requiring training specific to the use of our devices may
expose us to greater risk of product liability if injuries occur during a procedure involving our products. In
addition, if demand for our products continues to grow, less skilled surgeons will likely use the devices,
potentially leading to an increased incidence of patient injury and an increased risk of product liability or product
complaints.
If our products are defectively designed, manufactured, or labeled, contain defective components, or are
misused, or if our products are found to have caused or contributed to injuries or death, we may become subject
to costly litigation by our customers or their patients. We are from time to time involved in product liability
claims. Product liability claims could divert management’s attention from our core business, be expensive to
defend, and result in sizable damage awards against us. Claims of this nature may also adversely affect our
reputation, which could damage our position in the market and subject us to product recalls.
We cannot assure you that our product liability insurance coverage will be sufficient to satisfy any claim
made against us. Further, we may not be able to maintain the same level of coverage, and we may not be able to
obtain adequate coverage at a reasonable cost and on reasonable terms, if at all. Any product liability claim
brought against us, with or without merit, could increase our product liability insurance rates or prevent us from
securing coverage in the future. Additionally, if any such product liability claim or series of claims is brought
against us for uninsured liabilities or is in excess of our insurance coverage, our business could be harmed.
We rely on our independent distributors to market and sell our products in select markets outside of the United
States and Canada.
Sales of our products through independent distributors represented 7% of our net sales for the year ended
December 31, 2011. Our success in these markets depends largely upon marketing arrangements with
distributors, in particular their sales and service expertise and relationships with their respective customers in the
marketplace. Although we intend to replace some of these distributors with a direct sales force, this will take time
and we may maintain a distribution model in some markets. We do not control our distributors and they may not
be successful in implementing our marketing plans.
Many of our distributors initially obtain and maintain foreign regulatory approval for sale of our products in
their respective countries. We do not have long-term contracts with many of our distributors, and our distributors
may terminate their relationships with us on little or no notice. In addition, some of our distributors are not
required to purchase any minimum amount of products from us, may sell products that compete with ours or
devote more efforts to selling other products, and may stop selling our products at any time. If we lose any of our
significant distributors, if we fail to recruit and retain additional skilled distributors in these locations, or if our
distributors devote more effort to selling products other than ours, our operations could be harmed. We have
experienced turnover with some of our distributors in the past that has impacted our short-term financial results
while we transitioned to new distributors. Similar occurrences could happen in the future.
We may require additional capital and failure to attract additional capital on acceptable terms could impair
our growth.
We may require additional capital to execute our strategies and expand our business. In particular, we
depend on access to capital to acquire products and technologies that complement our existing product lines. If
we complete an acquisition at a purchase price approaching or in excess of available capital resources, or if these
resources are otherwise insufficient to fund our operations, we will require debt or equity financing. Equity
financing, if available, may be dilutive to our stockholders. If we raise additional capital through the issuance of
debt, this debt will be senior to our outstanding shares of capital stock upon our liquidation. The availability of
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such financing depends in large measure on capital markets and liquidity factors over which we exert little control.
Financing may not be available or, if available, may not be available on terms satisfactory to us and could result in
significant stockholder dilution. In addition, covenants in debt financing arrangements may restrict our ability to
operate our business or obtain additional debt financing. These covenants may also require us to attain certain levels
of financial performance and we may not be able to do so; any such failure may result in the acceleration of such
debt and the foreclosure by our creditors on the collateral we used to secure the debt. We may also elect to raise
additional funds through collaboration, licensing, marketing, or similar arrangements, and these arrangements may
require us to relinquish valuable rights to our products or proprietary technologies, or grant licenses that are not
favorable to us. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our
growth strategy by reducing or delaying capital expenditures and acquisitions, delaying or postponing our product
development efforts, selling assets, restructuring our operations, or refinancing our indebtedness.
From time to time we may become subject to tax audits or similar proceedings, and as a result we may owe
additional taxes, interest, and penalties in amounts that may be material.
We are subject to income taxes in many countries, jurisdictions, and provinces, including the United States.
In determining our global provision for income taxes, we are required to exercise judgment. Regularly, we make
estimates where the ultimate tax determination is uncertain. While we believe our estimates are reasonable, we
cannot assure you that the final determination of any tax audit or tax-related litigation will not be materially
different from that reflected in our historical income tax provisions and accruals.
In addition, we are subject to sales, use, and similar taxes in many countries, jurisdictions, and provinces,
including those states in the United States where we maintain a physical presence or have a substantial nexus.
These taxing regimes are complex. For example, in the United States, each state and local taxing authority has its
own interpretation of what constitutes a sufficient physical presence or nexus to require the collection and
remittance of these taxes. Similarly, each state and local taxing authority has its own rules regarding the
applicability of sales tax by customer or product type. We employ a variety of strategies from time to time with
respect to our international operations. There can be no assurance that these strategies will be accepted by the
relevant taxing authorities.
We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open
to examination by a taxing authority. As of December 31, 2011, the total amount of unrecognized tax benefits,
that is the reserve for uncertain tax positions, was approximately $329,000. The assessment of additional taxes,
interest, and penalties as a result of audits, litigation, or otherwise, could be materially adverse to our current and
future results of operations and financial condition.
Risks Related to the Regulatory Environment
Oversight of the medical device industry might affect the manner in which we may sell medical devices and
compete in the marketplace.
There are laws and regulations that govern the means by which companies in the healthcare industry may
market their products to healthcare professionals and may compete by discounting the prices of their products,
including for example, the federal Anti-Kickback Statute, the federal False Claims Act, the federal Health
Insurance Portability and Accountability Act of 1996, state law equivalents to these federal laws that are meant to
protect against fraud and abuse and analogous laws in foreign countries. Violations of these laws are punishable
by criminal and civil sanctions, including, but not limited to, civil and criminal penalties, damages, fines,
exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid.
Although we exercise care in structuring our sales and marketing practices and customer discount arrangements
to comply with those laws and regulations, we cannot assure you that:
•
government officials charged with responsibility for enforcing those laws will not assert that our sales
and marketing practices or customer discount arrangements are in violation of those laws or
regulations; or
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•
government regulators or courts will interpret those laws or regulations in a manner consistent with our
interpretation.
Correspondingly, federal and state laws are also sometimes open to interpretation, and from time to time we
may find ourselves at a competitive disadvantage if our interpretation differs from that of our competitors.
In January 2004, AdvaMed, the principal United States trade association for the medical device industry, put
in place a model “code of conduct” that sets forth standards by which its members should abide in the promotion
of their products. AdvaMed issued a revised “code of conduct” effective July 1, 2009. We have in place policies
and procedures for compliance that we believe are at least as stringent as those set forth in the revised AdvaMed
Code, and we provide routine training to our sales and marketing personnel on our policies regarding sales and
marketing practices. Nevertheless, the sales and marketing practices of our industry have been the subject of
increased scrutiny from federal and state government agencies, and we believe that this trend will continue. For
example, recent federal legislation and state legislation would require detailed disclosure of gifts and other
remuneration made to health care professionals. In addition, prosecutorial scrutiny and governmental oversight,
on the state and federal levels, over device companies regarding the retention of healthcare professionals as
consultants has limited the manner in which medical device companies may retain healthcare professionals as
consultants. Various hospital organizations, medical societies and trade associations are establishing their own
practices that may require detailed disclosures of relationships between healthcare professionals and medical
device companies or ban or restrict certain marketing and sales practices such as gifts and business meals.
Our business is subject to complex, costly, and burdensome regulations. We could be subject to significant
penalties if we fail to comply.
The production and marketing of our products and our ongoing research and development are subject to
extensive regulation and review by numerous governmental authorities both in the United States and abroad. U.S.
and foreign regulations applicable to medical devices are wide-ranging and govern, among other things, the
testing, marketing, and premarket clearance or approval of new medical devices, in addition to regulating
manufacturing practices, reporting, promotion and advertising, importing and exporting, labeling, and record-
keeping procedures.
Our failure to comply with applicable regulatory requirements could result in governmental agencies or a
court taking action, including any of the following:
•
•
•
•
•
•
•
issuing public warning letters to us;
imposing fines and penalties on us;
issuing an injunction preventing us from manufacturing or selling our products;
bringing civil or criminal charges against us;
delaying the introduction of our new products into the market;
ordering a recall of, or detaining or seizing, our products; or
withdrawing or denying approvals or clearances for our products.
If any or all of the foregoing were to occur, our business, results of operations, and reputation could suffer.
If we are not successful in obtaining and maintaining clearances and approvals from governmental agencies,
we will not be able to sell our products, and our future growth will be significantly hampered.
Our products require premarket clearance or approval in the United States and the CE Mark or other
approvals in foreign countries where they are sold. Each medical device that we wish to market in the United
States generally must receive either 510(k) clearance or approval of a premarket application, or PMA, from the
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FDA before the product can be marketed or sold. Either process can be lengthy and expensive. The FDA’s 510(k)
clearance procedure usually takes from three to twelve months from the date the FDA receives the application,
but may take significantly longer. Although 510(k) clearances have been obtained for nearly all of our current
products that require 510(k) clearances, the FDA may condition, limit or prohibit our sales of these products if
safety or effectiveness problems develop with the devices. Our new products or significantly modified marketed
products could be denied 510(k) clearance and required to undergo the more burdensome PMA approval process
if they are not found to be substantially equivalent.
The PMA approval process is much more costly, lengthy, and uncertain than the premarket notification
process. It generally takes from six months to three years from the date the application is submitted to, and filed
with, the FDA, and may take even longer. Achieving premarket approval typically requires extensive clinical
trials and may require the filing of numerous amendments with the FDA over time. We do not have significant
experience in obtaining PMA approval for our products.
The FDA has proposed changes for which FDA clearance to market would possibly require clinical data,
more extensive manufacturing information and postmarket data. The FDA is also proposing that an FDA
inspection of the manufacturing facility may be required for certain products prior to clearance of the 510(k),
which is similar to the requirements of a Class III device. As part of the 510(k) reform, the FDA proposes to
issue regulations defining grounds and procedures for rescission of 510(k) applications that have previously been
cleared to market. The FDA may also require the more extensive PMA process for certain products. Our ability
to market our products outside the United States is also subject to regulatory approval, including our ability to
demonstrate the safety and effectiveness of our products in the clinical setting.
Even if regulatory approval or clearance of a product is granted, the approval or clearance could limit the
uses or the claims for which the product may be labeled and promoted, which may limit the market for our
products. If we do not obtain and maintain foreign regulatory or FDA approval with respect to our products, as
applicable, we will not be able to sell our products, and our future growth will be significantly hampered.
Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may
require us to cease marketing or recall the modified devices until clearances or approvals are obtained.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or
would constitute a major change as specified by FDA guidelines, requires the submission of another 510(k) or
PMA application to address the change. The FDA requires every manufacturer to make its own determination as
to whether a modification requires a new 510(k) clearance or PMA. Although in the first instance we may
determine that a change does not rise to a level of significance that would require us to make a submission, the
FDA may review and disagree with our determination and can require us to submit a 510(k) or a PMA for a
significant technological change or major change or modification in intended use. If the FDA requires us to
submit a 510(k) or a PMA for any modification to a previously cleared device, we may be required to cease
marketing the device, recall it, and not resume marketing until we obtain clearance or approval from the FDA for
the modified version of the device. Delays in our receipt of regulatory clearance or approval will cause delays in
our ability to sell our products, which could have a negative effect on our business, results of operations, and
prospects. Also, we may be subject to regulatory fines, penalties, and/or other sanctions authorized by the Federal
Food, Drug, and Cosmetic Act.
If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation and other applicable
postmarket requirements, our manufacturing operations could be disrupted, our product sales and
profitability could suffer, and we may become subject to a wide variety of FDA enforcement actions.
After a device is placed on the market, numerous regulatory requirements apply. We are subject to
inspection and marketing surveillance by the FDA to determine our compliance with all regulatory requirements.
If the FDA finds that we have failed to comply with any regulatory requirements, it can institute a wide variety of
enforcement actions.
30
We and some of our suppliers must comply with the FDA’s Quality System Regulation, which governs the
methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality
assurance, installation, servicing, labeling, packaging, storage, and shipping of medical devices. The FDA
enforces the Quality System Regulation through unannounced inspections. We have been, and anticipate in the
future being, subject to such inspections. In December 2011 and January 2012, we underwent routine audits from
our European Notified Body and the FDA, respectively. Although the results of these inspections were
satisfactory, the timing and scope of future audits is unknown and it is possible, despite our belief that our quality
systems and the operation of our manufacturing facilities will remain in compliance with U.S, and non-U.S.
regulatory requirements, that a future audit may result in one or more unsatisfactory results. If we or one of our
suppliers fails a Quality System Regulation inspection, or if a corrective action plan adopted by us or one of our
suppliers is not sufficient, the FDA may bring an enforcement action against us, and our operations could be
disrupted and our manufacturing delayed.
We are also subject to the FDA’s general prohibition against promoting our products for unapproved or
off-label uses and to the medical device reporting, or MDR, regulations that require us to report to the FDA if our
products may have caused or contributed to a death or serious injury, or if our device malfunctions and a
recurrence of the malfunction would likely result in a death or serious injury. We must also file reports with the
FDA of some device corrections and removals, and we must adhere to the FDA’s rules on labeling and
promotion. If we fail to comply with these or other FDA requirements or fail to take adequate corrective action in
response to any significant compliance issue raised by the FDA, the FDA can take significant enforcement
actions, which could harm our business, results of operations, and our reputation.
In addition, most other countries, such as Japan, require us to comply with manufacturing and quality
assurance standards for medical devices that are similar to those in force in the United States before marketing
and selling our products in those countries. If we fail to comply, we would lose our ability to market and sell our
products in those foreign countries.
Even after receiving regulatory clearance or approval, our products may be subject to product recalls, which
may harm our reputation and divert managerial and financial resources.
The FDA and similar governmental authorities in other countries have the authority to order mandatory
recall of our products or order their removal from the market if the governmental entity finds that our products
would cause serious adverse health consequences or death. A government mandated or voluntary recall by us
could occur as a result of component failures, manufacturing errors or design defects, including labeling defects.
For example, we initiated voluntary recalls of two lots of our AlboGraft vascular graft in October 2011 and
February 2012, respectively, in response to customer complaints of a manufacturing defect that compromised the
safety of the product. There can be no assurance that these failures will not reoccur or that other problems will
not develop in the future. Any future recall of our products may harm our reputation with customers and divert
managerial and financial resources.
The adoption of healthcare reform in the United States may adversely affect our business, results of
operations and/or financial condition.
In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the Patient
Protection and Affordable Care Act (the PPACA). The PPACA includes provisions that, among other things, reduce
and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and
impose new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize
healthcare reform in the form of a 2.3% excise tax on U.S. sales of most medical devices beginning in 2013. While
we are still evaluating the impact of this tax on our overall business, in 2011 this would have equated to an excise
tax of approximately $0.9 million. Various healthcare reform proposals have also emerged at the state level. The
PPACA and these proposals could reduce medical procedure volumes and impact the demand for our products or
the prices at which we sell our products. In addition, the excise tax will increase our cost of doing business. The
impact of the PPACA and these proposals could harm our operating results and liquidity.
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Domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of
third-party payors and cost containment measures could decrease the demand for products purchased by our
customers, the prices that our customers are willing to pay for those products and the number of procedures
using our devices.
Our products are purchased principally by hospitals or physicians which typically bill various third-party
payors, such as governmental programs (e.g., Medicare, Medicaid and comparable foreign programs), private
insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our
customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the
success of our products because it affects which products customers purchase and the prices they are willing to
pay. Reimbursement varies by country and can significantly impact the acceptance of new technology.
Implementation of healthcare reforms in the United States and in significant overseas markets such as Germany,
Japan, France and other countries may limit, reduce or eliminate reimbursement for our products and adversely
affect both our pricing flexibility and the demand for our products. Even when we develop or acquire a promising
new product, we may find limited demand for the product unless reimbursement approval is obtained from
private and governmental third-party payors.
Major third-party payors for hospital services in the United States and abroad continue to work to contain
healthcare costs through, among other things, the introduction of cost containment incentives and closer scrutiny
of healthcare expenditures by both private health insurers and employers. For example, in an effort to decrease
costs, certain hospitals and other customers may resterilize our products intended for a single use or purchase
reprocessed products from third-party reprocessors in lieu of purchasing new products from us.
Further legislative or administrative reforms to the reimbursement systems in the United States and abroad,
or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement,
could significantly reduce reimbursement for procedures using our medical devices or result in the denial of
coverage for those procedures. Examples of these reforms or adverse decisions include price regulation,
competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology
assessments and managed-care arrangements. Any of such reforms or adverse decisions resulting in restrictive
reimbursement practices or denials of coverage could have an adverse impact on the acceptance of our products
and the prices that our customers are willing to pay for them.
If we do not comply with foreign regulatory requirements to market our products outside the United States,
our business will be harmed.
Sales of medical devices outside the United States are subject to international regulatory requirements that vary
from country to country. These requirements and the amount of time required for approval may differ from our
experiences with the FDA in the United States. In some cases, we rely on our non-U.S. distributors to obtain
premarket approvals, complete product registrations, comply with clinical trial requirements, and complete those
steps that are customarily taken in the applicable jurisdictions to comply with governmental and quasi-governmental
regulation. In the future, we expect to continue to rely on distributors in this manner in those countries where we
continue to market and sell our products through them. Failure to satisfy these foreign regulations would impact our
ability to sell our products in these countries and could cause our business to suffer. There can be no assurance that
we will be able to obtain or maintain the required regulatory approvals in these countries.
Our products are regulated in the European Union under the European Medical Devices Directive (93/42/EC
as amended by 2007/47/EC). In order to market our medical devices in the European Union, we are required to
obtain CE mark certification, which denotes conformity to the essential requirements of the Medical Devices
Directive. We have received CE mark certification to sell nearly all of our products. However, there can be no
assurance that we will be able to obtain a CE mark for new products in the future or for modifications to our
existing products or in the manufacturing of our products, and obtaining a CE mark may involve a significant
amount of time and expense, stringent clinical and preclinical testing, or modification of our products and could
result in limitations being placed on the use of our products in order to obtain approval.
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Maintaining a CE mark is contingent upon our continued compliance with applicable European medical
device requirements, including limitations on advertising and promotion of medical devices and requirements
governing the handling of adverse events. There can be no assurance that we will be successful in maintaining
the CE mark for any of our current products. In particular, adverse event reporting requirements in the European
Union mandate that we report incidents which led or could have led to death or serious deterioration in health.
Under certain circumstances, we could be required to or could voluntarily initiate a recall or removal of our
product from the market in order to address product deficiencies or malfunctions. For instance, we initiated
voluntary recalls of two lots of our AlboGraft vascular graft in October 2011 and February 2012, respectively, in
response to customer complaints of a manufacturing defect. Any recall of our products may harm our reputation
with customers and divert managerial and financial resources.
Failure to receive or maintain approval would prohibit us from selling these products in member countries
of the European Union, and would require significant delays in obtaining individual country approvals. If we do
not receive or maintain these approvals, our business could be harmed.
Our manufacturing facilities are subject to periodic inspection by European regulatory authorities and
Notified Bodies, and we must demonstrate compliance with the Medical Devices Directive. Our most recent
periodic inspection by our European Notified Body was in December 2011. Any failure by us to comply with
European requirements in this regard may entail our taking corrective action, such as modification of our policies
and procedures. In addition, we may be required to cease all or part of our operations for some period of time
until we can demonstrate that appropriate steps have been taken. There can be no assurance that we will be found
in compliance with such standards in future audits.
In Japan, the Ministry of Health, Labor and Welfare (the MHLW) regulates medical devices through the
Pharmaceutical Affairs Law, which was reformed effective April 1, 2005. The revisions to Japanese regulations
have resulted in longer lead times for product development.
Any such delay in product registrations could have a negative impact on our results of operations.
Certain of our products contain materials derived from animal sources and may become subject to additional
regulation.
Our AlboGraft Vascular Graft, AlboSure Vascular Patch, and XenoSure Biologic Patch products contain
bovine tissue or material derived from bovine tissue. Products that contain materials derived from animal
sources, including food, pharmaceuticals and medical devices, are increasingly subject to scrutiny in the media
and by regulatory authorities. Regulatory authorities are concerned about the potential for the transmission of
disease from animals to humans via those materials. This public scrutiny has been particularly acute in Japan and
Western Europe with respect to products derived from animal sources, because of concern that materials infected
with the agent that causes bovine spongiform encephalopathy, otherwise known as BSE or mad cow disease,
may, if ingested or implanted, cause a variant of the human Creutzfeldt-Jakob Disease, an ultimately fatal disease
with no known cure. Cases of BSE in cattle discovered in Canada and the United States have increased
awareness of the issue in North America. Certain countries, such as Japan, have issued regulations that require
our products be processed from bovine tissue sourced from countries where no cases of BSE have occurred.
Products that contain materials derived from animals, including our products, may become subject to additional
regulation, or even be banned in certain countries, because of concern over the potential for the transmission of
infections agents. Significant new regulation, or a ban of our products, could impair our current business or our
ability to expand our business.
Compliance with environmental laws and regulations could be expensive. Failure to comply with
environmental laws and regulations could subject us to significant liability.
Our manufacturing operations and our research and development programs involve the use of hazardous
substances and are subject to a variety of federal, state, and local environmental laws and regulations relating to
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the storage, use, discharge, disposal, and remediation of, and human exposure to, hazardous substances. Our
research and development and manufacturing operations produce biological waste materials, such as human and
animal tissue, and waste solvents, such as isopropyl alcohol. Regulatory authorities permit these operations, and
the resulting waste materials are disposed of in material compliance with environmental laws and regulations.
Compliance with these laws and regulations is expensive, and non-compliance could result in substantial
liabilities, which could exceed our insurance coverage. In addition, our manufacturing operations may result in
the release, discharge, emission, or disposal of hazardous substances that could cause us to incur substantial
liabilities, including costs for investigation and remediation.
We cannot assure you that violations of these laws and regulations will not occur in the future or have not
occurred in the past as a result of human error, accidents, equipment failure, or other causes. The expense
associated with environmental regulation and remediation could harm our financial condition and operating
results.
Risks Related to Intellectual Property
If we fail to adequately protect our intellectual property rights, or prevent use of our intellectual property by
third parties, we could lose a significant competitive advantage and our business may suffer.
Our success depends in part on obtaining, maintaining, and enforcing our patents, trademarks, and other
proprietary rights, and our ability to avoid infringing on the proprietary rights of others. We take precautionary
steps to protect our technological advantages and intellectual property. We rely upon patent, trade secret,
copyright, know-how, and trademark laws, as well as license agreements and contractual provisions, to establish
our intellectual property rights and protect our products. These measures may only afford limited protection and
may not:
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prevent our competitors from duplicating our products;
prevent our competitors from gaining access to our proprietary information and technology; or
permit us to gain or maintain a competitive advantage.
The issuance of a patent is not conclusive as to its validity or enforceability. Any patents we have obtained
or will obtain in the future might also be invalidated or circumvented by third parties. In addition, our pending
patent applications may not issue as patents or, if issued, may not provide commercially meaningful protection,
as competitors may be able to design around our patents to produce alternative, non-infringing designs. Should
such challenges to our patents be successful, competitors might be able to market products and use
manufacturing processes that are substantially similar to ours.
Additionally, we may not be able to effectively protect our rights in unpatented technology, trade secrets,
and confidential information. We have a policy of requiring key employees and consultants and corporate
partners with access to trade secrets or other confidential information to execute confidentiality agreements. Our
confidentiality agreements also require our employees to assign to us all rights to any inventions made or
conceived during their employment with us. We also generally require our consultants to assign to us any
inventions made during the course of their engagement by us. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for us in the event of unauthorized use,
transfer, or disclosure of confidential information or inventions.
In addition, the laws of foreign countries may not protect our intellectual property rights effectively or to the
same extent as the laws of the United States. If our intellectual property rights are not adequately protected, we
may not be able to commercialize our technologies, products, or services and our competitors could
commercialize similar technologies, which could result in a decrease in our sales and market share.
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If third parties claim that we infringe upon their intellectual property rights, we may incur liabilities and costs,
and we may have to redesign or discontinue selling the affected product.
The medical device industry is litigious with respect to patents and other intellectual property rights.
Companies operating in our industry routinely seek patent protection for their product designs, and many of our
principal competitors have large patent portfolios. Companies in the medical device industry have used
intellectual property litigation to gain a competitive advantage. Whether a product infringes a patent involves
complex legal and factual issues, the determination of which is often uncertain. We face the risk of claims that
we have infringed on third parties’ intellectual property rights, and we cannot assure you that our products or
methods do not infringe the patents or other intellectual property rights of third parties. Our efforts to identify
and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims of
patent or other intellectual property infringement, even those without merit, could:
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be expensive and time consuming to defend;
result in us being required to pay significant damages to third parties for past use of the asserted
intellectual property;
harm our reputation;
cause us to cease making or selling products that incorporate the challenged intellectual property;
require us to redesign, reengineer, or rebrand our products, which may not be possible and could be
costly and time consuming if it is possible to do so at all;
require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s
intellectual property, which agreements may not be available on terms acceptable to us or at all;
divert the attention of our management and key personnel from other tasks important to the success of
our business; or
result in our customers or potential customers deferring or limiting their purchase or use of the affected
products until resolution of the litigation.
It is also possible that one of our competitors could claim that our manufacturing process violates an
existing patent. If we were unsuccessful in defending such a claim, we may be forced to stop production at one or
more of our manufacturing facilities.
In addition, new patents obtained by our competitors could threaten a product’s continued life in the market
even after it has already been introduced. If our business is successful, the possibility may increase that others
will assert infringement claims against us.
If we believe our product is or may be the subject of a patent with a third party, we attempt to reach a
license agreement with them to manufacture, market, and sell these products. If we fail to reach an agreement
with a third party patent holder that covers a product we offer, we could be required to pay significant damages to
third parties for past use of the asserted intellectual property and may be forced to cease making or selling
products that incorporate the challenged intellectual property.
In addition, we may become subject to interference proceedings conducted in the United States Patent
Office or opposition proceedings conducted in foreign patent offices challenging the priority of invention or the
validity of our patents. For example, in 2005 and 2006, respectively, Boston Scientific Corporation initiated
opposition proceedings in the European Patent Office claiming that we were not the first to file a patent
application on certain material. As a result of these opposition proceedings, some of our patent claims were
canceled.
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;
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock began trading on The NASDAQ Global Market under the symbol “LMAT” on
October 19, 2006. The following table sets forth the high and low sales closing prices of our common stock as
reported on The NASDAQ National Market for the eight quarters ending December 31, 2011:
Year ended December 31, 2010:
First quarter ended March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended June 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011:
First quarter ended March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$5.11
$5.81
$7.28
$7.09
$7.20
$7.18
$7.50
$6.42
$4.42
$4.50
$5.19
$6.03
$6.62
$6.36
$6.22
$5.28
Holders of Record
On March 21, 2012, the closing price per share of our common stock was $5.80 as reported on The
NASDAQ Global Market, and we had approximately 364 stockholders of record. In addition, we believe that a
significant number of beneficial owners of our common stock hold their shares in street name.
Dividend Policy
On February 24, 2011, our Board of Directors approved a policy for the payment of quarterly cash dividends
on our common stock of $0.02 per share. Future declarations of quarterly dividends and the establishment of
future record and payment dates are subject to approval by our Board of Directors on a quarterly basis. The
dividend activity for the year ended December 31, 2011 is as follows:
Record Date
Payment Date
Per Share Amount
March 22, 2011
May 20, 2011
August 19, 2011
November 23, 2011
April 5, 2011
June 6, 2011
September 6, 2011
December 6, 2011
$0.02
$0.02
$0.02
$0.02
Dividend Payment
(in thousands)
$309
$310
$310
$308
On February 23, 2012, our Board of Directors approved a quarterly cash dividend on our common stock of
$0.025 per share payable on April 3, 2012, to stockholders of record at the close of business on March 20, 2012,
which will total approximately $0.4 million.
Stock Price Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return on LeMaitre’s common stock
with the NASDAQ US Composite Index, the NASDAQ Medical Equipment Index and a peer group for the
period covering from December 31, 2006, through the end of LeMaitre’s fiscal year ended December 31, 2011.
40
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Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving line of credit and current portion of long-term
December 31,
2011
2010
2009
2008
2007
(in thousands)
$20,132
—
39,687
59,687
$22,614
—
42,911
63,274
$23,192
808
39,550
56,906
$15,895
5,359
37,116
54,399
$ 6,397
16,198
41,766
60,857
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
262
Current liabilities (excluding revolving line of credit and
current portion of long-term debt) . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,539
1,060
7,599
52,088
10,389
529
10,918
52,356
6,548
2,145
8,693
48,213
6,933
1,718
8,651
45,748
9,783
2,226
12,271
48,586
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the
related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange
Commission filings. The following discussion may contain predictions, estimates, and other forward-looking
statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and
elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially
from any future performance suggested below.
Overview
We are a medical device company that develops, manufactures, and markets medical devices and implants
for the treatment of peripheral vascular disease. Our principal product offerings are sold throughout the world,
primarily in the United States, the European Union and, to a lesser extent, Japan. We estimate that the annual
worldwide market for all peripheral vascular devices approximates $3 billion, within which our core product
lines address roughly $750 million. We have grown our business by using a three-pronged strategy: competing in
niche markets, expanding our worldwide direct sales force, and acquiring and developing complementary
vascular devices. We have used acquisitions as a primary means of further accessing the larger peripheral
vascular device market, and we expect to continue to pursue this strategy in the future. Additionally, we have
increased our efforts to expand our vascular device offerings through new product development efforts. In 2011,
we introduced two new products to the market – the second-generation UnBalloon modeling catheter and the
Over-the-Wire Valvulotome. We currently manufacture most of our product lines in our Burlington,
Massachusetts, headquarters.
Our products are used by vascular surgeons who treat peripheral vascular disease through both open surgical
methods and endovascular techniques. In contrast to interventional cardiologists and interventional radiologists,
neither of whom are certified to perform open surgical procedures, vascular surgeons can perform both open
surgical and minimally invasive endovascular procedures, and are therefore uniquely positioned to provide a
wider range of treatment options to patients.
Below is a listing of our principal product lines and product categories:
•
Our Open Vascular product category includes our balloon catheters, carotid shunts, remote
endarterectomy devices, valvulotomes, vascular grafts, and vessel closure systems. We also report the
results of our distribution of the Xenosure Biologic Patch in this category
44
•
Our Endovascular and Other product category includes our aortic stent grafts, contrast injection
device, laparoscopic cholecystectomy devices, non-occlusive modeling catheter, and radiopaque
marking tape. We also report the results of our distribution of the Endologix Powerlink System within
this category. We divested our aortic stent grafts in June 2011 and terminated our distribution of the
Endologix products in August 2011, each of which was previously reported in this product category.
We evaluate the sales performance of our various product lines utilizing criteria that varies based upon the
position of each product line in its expected life cycle. For established products, we typically review unit sales
and selling prices. For newer or faster growing products, we typically also focus upon new account generation
and customer retention.
To assist us in evaluating our business strategies, we regularly monitor long-term technology trends in the
peripheral vascular device market. Additionally, we consider the information obtained from discussions with the
medical community in connection with the demand for our products, including potential new product launches.
We also use this information to help determine our competitive position in the peripheral vascular device market
and our manufacturing capacity requirements.
Our business opportunities include the following:
•
•
•
•
the long-term growth of our sales force in North America, Europe and Japan, sometimes in connection
with terminations of certain distributor relationships in order to expand our sales presence in new
countries;
the addition of complementary products through acquisitions;
the updating of existing products and introduction of new products through research and development;
and
the introduction of our products in new markets upon obtainment of regulatory approvals in these
markets.
We are currently pursuing each of these opportunities.
We sell our products primarily through a direct sales force. As of December 31, 2011 our sales force was
comprised of 78 sales representatives in North America, the European Union and Japan. We also sell our
products in other countries through distributors. Our worldwide headquarters is located in Burlington,
Massachusetts. Our international operations are headquartered in Sulzbach, Germany. We also have sales offices
located in Tokyo, Japan, Madrid, Spain, and Milan, Italy. In 2011, approximately 93% of our net sales were
generated in markets in which we employ direct sales representatives.
In recent years we have experienced comparatively greater success in product markets characterized by low
or limited competition, for example the market for valvulotome devices. In these markets, we believe that we
have been able to increase selling prices without compromising market share. There can be no assurance that we
will not meet resistance to increased selling prices in the future. In contrast, we have experienced comparatively
lesser success in highly competitive product markets such as such as prosthetic polyester and ePTFE grafts,
where we face stronger competition from larger companies with greater resources. While we believe that these
challenging market dynamics can be mitigated by our strong relationships with our vascular surgeon customers,
there can be no assurance that we will be successful in highly competitive markets.
Because we believe that direct-to-hospital sales engender closer customer relationships, and allow for higher
selling prices and gross margins, we periodically enter into transactions with our distributors to transition their
sales of our medical devices to our direct sales organization:
•
In December 2010, we entered into a definitive agreement with Cardiva, S.L. to terminate its
distribution of our products in Spain effective as of June 30, 2011. The agreement required us to pay
approximately $1.2 million in exchange for this early termination, the purchase of their customer list
45
for our products, certain customer contracts, their provision of sales and marketing services, and $0.3
million of inventory.
•
In December 2010, we entered into a definitive agreement with Marcom Medical ApS to terminate its
distribution of our products in Denmark effective as of June 30, 2011. The agreement required us to pay
approximately $0.2 million in exchange for this early termination, the purchase of their customer list for our
products, certain customer contracts, their provision of sales and marketing services, and minimal inventory.
We anticipate that the expansion of our direct sales organization to Spain, and to a lesser extent, Denmark
may result in increased sales and marketing expenses during 2012.
Our strategy for growing our business includes the acquisition of complementary product lines and
companies and occasionally the discontinuance or divestiture of products or activities that are no longer
complementary:
•
•
•
•
In June 2010, we divested our OptiLock Implantable Port to Minvasive Ltd. for $0.2 million.
In November 2010, we acquired our LifeSpan ePTFE Vascular Graft from Angiotech Pharmaceuticals,
Inc. for $2.8 million and related assets from Edwards LifeSciences for $1.2 million.
In June 2011, we divested our TAArget and UniFit stent grafts to Duke Vascular, Inc. for $0.6 million.
In addition, Duke Vascular, Inc. assumed our future obligations for the associated UNITE and
ENTRUST clinical trials.
In August 2011, we terminated our distribution of Endologix’s aortic stent graft products in Europe in
exchange for $1.3 million.
In addition to relying upon acquisitions to grow our business, we also rely on our product development
efforts to bring differentiated technology and next-generation products to market. These efforts have led to the
following recent product launches:
•
•
•
In June 2010, we launched the AnastoClip GC Vessel Closure System.
In November 2011, we launched the second-generation of The UnBalloon Non-Occlusive Modeling
Catheter.
In December 2011, we launched the Over-The-Wire LeMaitre Valvulotome.
In addition to our sales growth strategies, we have also executed several operational initiatives designed to
consolidate and streamline manufacturing within our Burlington, MA facilities. We expect that these plant
consolidations will yield improved control over our production capacity and our direct labor force as well as
reduce redundant costs over the long-term. Our most recent manufacturing transitions included:
•
•
In October 2010, we adopted a reorganization plan that was designed to eliminate redundant costs
resulting from our 2007 acquisition of Biomateriali and to improve efficiencies in manufacturing
operations. We have completed the transition of AlboGraft vascular graft manufacturing to our existing
corporate headquarters in Burlington, Massachusetts.
In May 2011, we adopted a reorganization plan that was designed to eliminate redundant costs
resulting from our 2010 acquisition of the LifeSpan vascular graft and to improve efficiencies in
manufacturing operations. We have largely completed this transition to our existing corporate
headquarters in Burlington, Massachusetts.
Our execution of these business opportunities may affect the comparability of our financial results from
period to period and may cause substantial fluctuations from period to period, both due to restructuring and
similar non-recurring charges, as well as longer term impacts to revenues and operating expenditures. For
example, we recognized $4.0 million of revenue on our stent graft products during the year ended December 31,
2011, and also incurred sales, marketing, and research and development expenditures in connection with these
product lines. We expect that we will no longer recognize any further revenue or expenses from those product
46
lines, as we have exited the stent graft market. In connection with that exit, we realized a gain of approximately
$0.7 million as a result of the Endologix transaction. As another example, we recognized $1.1 million and $1.8
million of restructuring expenses in 2011 and 2010, respectively, related to the Biomateriali plant closure and
relocation to Burlington, MA.
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Euro, affect
our financial results. For the year ended December 31, 2011, approximately 36% of our sales were from outside the
Americas. We expect that foreign currencies will continue to represent a similarly significant percentage of our
sales in the future. Selling, marketing, and administrative costs related to these sales are largely denominated in the
same respective currency, thereby partially mitigating our transaction risk exposure. We therefore believe that the
risk of a significant impact on our operating income from foreign currency fluctuations is moderated. However,
most of our foreign sales are denominated in local currency, and if there is an increase in the rate at which a foreign
currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of
U.S. dollars than before the rate increase. In such cases we will receive less in U.S. dollars than we did before the
rate increase went into effect. The following table indicates the impact of foreign currency fluctuations and changes
to our business activities for each of our quarters during the three most recently completed fiscal years:
(amounts in thousands)
2011
2010
2009
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total net sales . . . . . . . . . . . . . . . . . . 13,411 14,564 15,112 14,598 14,431 13,656 14,158 13,815 13,584 13,346 12,630 11,348
Impact of currency exchange rate
fluctuations(1) . . . . . . . . . . . . . . . .
15
431
669
10
(420)
(418)
(336)
314
613
(215)
(699)
(622)
Net impact of acquisitions and
distributed sales, excluding
currency exchange rate
fluctuations(2) . . . . . . . . . . . . . . . .
Net impact of discontinued products,
260
319
335
328
156 —
—
95
397
333
234
101
excluding currency rate
fluctuations(3) . . . . . . . . . . . . . . . . (1,904)
(370)
(76)
(45)
(100)
(105)
(65) —
—
—
—
—
(1) Represents the impact of the change in foreign exchange rates compared to the corresponding quarter of the
prior year based on the weighted average exchange rate for each quarter.
(2) Represents the impact of new sales of acquired products or businesses and newly distributed sales of other
manufacturers’ during the current year period, measured for 12 months following the date of the event or
transaction.
(3) Represents the impact of sales related to discontinued and divested products, and discontinued distributed
sales of other manufacturers’ products, during the comparable prior period, measured for 12 months
following the date of the event or transaction.
Upon our divestiture of the stent graft product lines, we reorganized our product categories from “Vascular”,
“Endovascular”, and “General Surgery” to “Open Vascular” and “Endovascular and Other” as we re-focused our
portfolio and sales channel on open vascular products. Our consolidated financial statements and the related
management discussion and analysis for the years ended December 31, 2011, 2010, and 2009 have been
reclassified to reflect this change.
Net Sales and Expense Components
The following is a description of the primary components of our net sales and expenses:
Net sales. We derive our net sales from the sale of our products, less discounts and returns. Net sales
includes the shipping and handling fees paid for by our customers. Most of our sales are generated by our direct
sales force and are shipped and billed to hospitals or clinics throughout the world. In countries where we do not
have a direct sales force, sales are primarily generated by shipments to distributors who, in turn, sell to hospitals
and clinics. In those cases where our products are held on consignment at a hospital or clinic, we generate sales at
the time the product is used in surgery rather than at shipment.
47
Cost of sales. We manufacture nearly all of the products that we sell. Our cost of sales consists primarily of
manufacturing personnel, raw materials and components, depreciation of property and equipment, and other
allocated manufacturing overhead, as well as freight expense we pay to ship products to customers.
Sales and marketing. Our sales and marketing expense consists primarily of salaries, commissions, stock
based compensation, travel and entertainment, attendance at medical society meetings, training programs,
advertising and product promotions, direct mail, and other marketing costs.
General and administrative. General and administrative expense consists primarily of executive, finance
and human resource expense, stock based compensation, legal and accounting fees, information technology
expense, intangible amortization expense, and insurance expense.
Research and development. Research and development expense includes costs associated with the design,
development, testing, enhancement, and regulatory approval of our products, principally salaries, laboratory
testing, and supply costs. It also includes costs associated with design and execution of clinical studies,
regulatory submissions and costs to register, maintain, and defend our intellectual property, and royalty payments
associated with licensed and acquired intellectual property.
Restructuring. Restructuring expense includes costs directly associated with distribution agreement
termination expenses, severance and retention costs for terminated employees, factory relocation costs, and other
expenses associated with restructuring our operations.
Other income (expense). Other income (expense) primarily includes interest income and expense,
investment impairment charges, foreign currency gains (losses), and other miscellaneous gains (losses).
Income tax expense. We are subject to federal and state income taxes for earnings generated in the United
States, which include operating losses in certain foreign jurisdictions for certain years depending on tax elections
made, and foreign taxes on earnings of our wholly-owned German, French, Italian, Spanish, and Japanese
subsidiaries. Our consolidated tax expense is affected by the mix of our taxable income (loss) in the United
States, Germany, France, Italy, Spain, and Japan, permanent items, discrete items, unrecognized tax benefits, and
amortization of goodwill for U.S tax reporting purposes.
Results of Operations
Comparison of the year ended December 31, 2011, to the year ended December 31, 2010
The following tables set forth, for the periods indicated, our results of operations and the change between
the specified periods expressed as a percent increase or decrease:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales by product category:
2011
2010
$ Change
($ in thousands)
Percent
change
$57,685
$56,060
$ 1,625
3%
Open Vascular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Endovascular and Other . . . . . . . . . . . . . . . . . . . . . . .
$44,408
13,277
$40,022
16,038
$ 4,386
(2,761)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,685
$56,060
$ 1,625
Net sales by geography:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,958
20,727
$34,575
21,485
$ 2,383
(758)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,685
$56,060
$ 1,625
11%
(17%)
3%
7%
(4%)
3%
48
Net sales. Net sales increased 3% to $57.7 million in 2011 from $56.1 million in 2010. Sales in our Open
Vascular product category grew 11%, while sales in our Endovascular and Other product category decreased by
17% from the previous year. Acquisitions, primarily the LifeSpan vascular graft, increased sales 2% compared to
2010. Divestitures, primarily of the TAArget and UniFit stent graft product lines as well as the termination of the
Endologix aortic stent graft distribution agreement, decreased sales 4% from the prior year. Changes in foreign
currency exchange rates added 2% to year over year sales growth.
Sales increases in 2011 were largely driven by higher average selling prices across nearly all product lines,
as well as stronger sales of our Open Vascular products, primarily biologic patches of $0.9 million, catheters of
$0.6 million and vessel closure systems of $0.5 million, in addition to full-year LifeSpan vascular graft sales and
favorable changes in foreign currency exchange rates. These gains were partially offset by a $2.8 million
decrease in our Endovascular and Other product category, primarily due to the decline of, and subsequent exit
from, stent grafts, as well as unit decreases in a number of open vascular products.
Direct-to-hospital net sales were 93% in 2011 and 2010.
Net sales by geography. Net sales in the Americas increased $2.4 million to $37.0 million in 2011. The
increase was largely the result of higher average selling prices across nearly all product lines as well as increased
sales of biologic patches and vessel closure systems. International net sales decreased to $20.7 million in 2011.
The decrease was primarily driven by the divestitures of the TAArget and UniFit stent graft product lines and the
termination of the Endologix aortic stent graft distribution agreement. Sales of these products decreased to $4.0
million in 2011 compared to $6.8 million in 2010. The decrease in international sales was partially offset by full-
year LifeSpan sales of $1.2 million and $1.1 million of favorable changes in foreign currency exchange rates.
International direct-to-hospital net sales were 82% in 2011 and 2010.
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40,227
$41,719
69.7%
74.4%
$(1,492)
*
(4%)
(4.7%)
2011
2010
$ Change
($ in thousands)
Percent
change
* Not applicable
Gross profit. Gross profit decreased 4% to $40.2 million in 2011 from $41.7 million in 2010, while our
gross margin decreased 4.7% to 69.7%. The gross margin decrease was the result of manufacturing inefficiencies
in Burlington, Massachusetts largely related to the AlboGraft product line and its transfer from Italy to the United
States, as well as a $0.2 million charge related to a voluntary recall of two AlboGraft production lots in the fourth
quarter of 2011. The gross margin decrease was partially offset by higher average selling prices across nearly all
product lines and improved product mix due to the termination of the Endologix distribution agreement.
Sales and marketing . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Research and development
Restructuring charges . . . . . . . . . . . . . . . . . . . .
Gain on termination of distribution
agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charge . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$ change
Percent
change
2011 as a %
of Revenue
2010 as a %
of Revenue
$19,375
11,228
4,425
2,161
$19,409
10,506
5,488
1,816
$
($ in thousands)
0%
(34)
7%
722
(19%)
(1,063)
19%
345
(735)
83
—
485
(735)
(402)
*
*
34%
19%
8%
4%
*
*
35%
19%
10%
3%
*
*
$36,537
$37,704
$(1,167)
(3%)
63%
67%
* Not a meaningful percentage.
49
Sales and marketing. Sales and marketing expenses were $19.4 million in 2011, flat versus 2010. As a
percentage of net sales, sales and marketing expenses were 34% in 2011, down 1% from the prior year.
Compared to 2010, sales and marketing expenses were negatively affected by increases in foreign currency
exchange rates of $0.5 million, transition services related to business development activities of $0.3 million, and
recruiting expenses of $0.2 million, which were offset by a decrease in sales personnel compensation of $1.0
million. At December 31, 2011, we employed 78 sales representatives worldwide, compared to 67 in the prior
year period. We plan to increase the size of our sales force in 2012, though to a lesser extent than 2011, and we
expect that selling and marketing expenses will increase commensurately.
General and administrative. General and administrative expense increased 7% to $11.2 million in 2011
from $10.5 million in 2010. The increase was largely the result of higher administrative costs associated with our
French and Spanish subsidiaries of $0.5 million, higher amortization costs of $0.3 million related to the LifeSpan
Vascular Graft acquisition and our Spanish distributor buy-out, and changes in foreign currency exchange rates
of $0.2 million, partially offset by a reduction in administrative costs associated with our closure of the
Biomateriali subsidiary of $0.2 million. As a percentage of net sales, general and administrative expenses were
19% in both 2011 and 2010. We expect general and administrative expenses to increase primarily related our
direct sales efforts in Spain for all of 2012 versus six months in 2011.
Research and development. Research and development expenses decreased 19% to $4.4 million in 2011
from $5.5 million in 2010. As a percentage of net sales, research and development expenses decreased to 8% in
2011 from 10% in 2010. The decrease was largely driven by a reduction in regulatory and clinical affairs costs of
$0.8 million in 2011, related to the suspension of our UNITE and ENTRUST trials in October 2010. In addition,
product development costs decreased $0.4 million in 2011 as we reduced animal testing associated with new
products approvals. On June 30, 2011, Duke Vascular, Inc. assumed all future obligations of the UNITE and
ENTRUST trials as part of our stent graft divestiture agreement. Process engineering expenses increased by $0.2
million in 2011 as we increased staffing levels. We expect research and development costs to increase marginally
in 2012 as we continue to invest in new product development efforts.
Restructuring. Restructuring charges were $2.2 million in 2011 compared to $1.8 million in 2010. In 2010,
we commenced the closure of our Biomateriali manufacturing facility in Brindisi, Italy and the related transition
of production to our existing corporate headquarters in Burlington, Massachusetts. In 2011, we incurred an
additional $1.1 million in restructuring charges related to this project. These charges consisted of approximately
$0.3 million for the transfer of manufacturing equipment, $0.1 million of charges associated with repayment of a
development grant and loan from the Italian government, and $0.7 million related to deferred rent charges upon
exiting the Biomateriali facility in March 2011. In March 2012, we completed the Biomateriali liquidation and
dissolution process.
In 2010, we incurred a $1.8 million restructuring charge related to the closure of our Biomateriali
manufacturing facility in Brindisi, Italy, and the related transition of production to our existing corporate
headquarters in Burlington, Massachusetts. The restructuring charge consisted of $1.4 million of employee-
related severance charges, $0.3 million of charges associated with repayment of a development grant and loan
from the Italian government, and $0.1 million of charges related to the abandonment of fixed assets and legal
fees.
In May 2011, we adopted a reorganization plan (the LifeSpan Plan) that was designed to eliminate
redundant costs resulting from our 2010 acquisition of the LifeSpan vascular graft and to improve efficiencies in
our manufacturing operations. We have transitioned the production of our LifeSpan vascular graft from Laguna
Hills, California to our existing corporate headquarters in Burlington, Massachusetts. The LifeSpan Plan resulted
in the termination of 7 employees at the Laguna Hills facility, relocation of manufacturing equipment, and the
hiring of approximately 4 employees to staff the required functions in Burlington. We incurred approximately
$0.1 million related to the closure of the Laguna Hills facility and the related relocation of the manufacturing
equipment during the year ended December 31, 2011. We incurred approximately $33,000 of severance charges
related to this project during year ended December 31, 2011.
50
On June 30, 2011, we terminated our relationship with our Spanish distributor resulting in a contract
termination charge of $0.5 million which we recorded as restructuring charges. On June 30, 2011, we terminated
our relationship with our Danish distributor resulting in a contract termination charge of $0.1 million which we
recorded as restructuring charges.
In July 2011, we adopted a reorganization plan of our European administrative and stent graft sales
personnel as a result of our exit from the stent graft business. We terminated 6 employees and recorded severance
charges of $0.3 million during the year ended December 31, 2011. The final severance payments were made in
March 2012.
In 2010 and 2011, we initiated a series of strategic initiatives including the transition of AlboGraft
manufacturing from Italy to Burlington, the transition of LifeSpan manufacturing from California to Burlington,
the sale of our TAArget and Unifit assets, the termination of our Endologix distribution agreement in Europe, and
the termination of our distributors in Spain and Denmark. These initiatives are largely complete, and we do not
expect them to incur additional restructuring or impairment charges in 2012.
Gain on termination of distribution agreement. In July 2011, we terminated our Endologix distribution
agreement for $1.3 million, and recognized a gain of $0.7 million as a result of the transaction.
Impairment charges. We incurred $0.1 million of impairment charges in 2011 related to patents deemed to
have no value based on future expected economic benefits. We incurred $0.5 million of impairment charges in
2010 of which $0.4 million was due to the write-down of certain technology, customer lists, and fixed assets
related to our aortic stent graft product line. Additionally, we incurred a $0.1 million impairment charge
associated with a Biomateriali private label customer relationship, which we subsequently terminated.
Other income (expense). Foreign exchange gains for 2011 were $51,000 compared to foreign exchange
losses for 2010 of $30,000 in 2010. Foreign exchange gains were due to the comparative weakening of the U.S.
dollar versus the euro during the year. Net interest income and other income (expense) was comparatively flat in
2011 versus 2010.
Income tax expense. We recorded a provision for taxes of $1.6 million on pre-tax income of $3.8 million in
2011 compared to a tax benefit of $2.0 million on pre-tax income of $4.0 million in 2010. The 2011 provision
was comprised of Federal tax in the United States of $1.1 million, taxes in certain foreign subsidiaries that are
profitable of $0.4 million and state taxes of $0.1 million. The 2010 benefit was primarily due to the release of our
U.S. deferred tax asset valuation allowance of $3.3 million, and was partially offset by U.S. deferred provision of
$0.9 million, taxes in certain foreign subsidiaries that are profitable of $0.2 million, Federal tax in the United
States of $0.1 million, and state taxes of $0.1 million. The valuation allowance reversal was to the result of
achieving three year cumulative profitability which occurred in the fourth quarter of 2010 as well as our
expectation of future taxable income in the United States. Our effective tax rate differed from the U.S. statutory
tax rate in 2011 principally due to permanent items, true-up of historical deferred tax assets, a valuation
allowance recorded against foreign deferred tax assets and state credits, change in our reserve for uncertain tax
positions, and state taxes. While it is often difficult to predict the final outcome or timing of the resolution of any
particular tax matter, we believe that our tax reserves reflect the probable outcome of known contingencies.
We have assessed the need for a valuation allowance against our deferred tax assets and concluded that as of
December 31, 2011, we will continue to carry a valuation allowance against $4.4 million of deferred tax assets,
principally foreign net operating loss carry-forwards, which based on the weight of available evidence, we
believe it is more likely than not that such assets will not be realized.
We expect that our effective tax rate will decrease slightly in 2012 due to a reduction to foreign taxes and
we will be able to utilize Federal research and development tax credits to reduce our regular tax to the alternative
minimum tax rate.
51
Comparison of the year ended December 31, 2010, to the year ended December 31, 2009
The following tables set forth, for the periods indicated, our results of operations and the change between
the specified periods expressed as a percent increase or decrease:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales by product category:
2010
2009
$ Change
($ in thousands)
Percent
change
$56,060
$50,908
$5,152
10%
Open Vascular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Endovascular and Other . . . . . . . . . . . . . . . . . . . . . . .
$40,022
16,038
$34,265
16,643
$5,757
(605)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,060
$50,908
$5,152
Net sales by geography:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,575
21,485
$29,420
21,488
$5,155
(3)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,060
$50,908
$5,152
17%
(4%)
10%
18%
*
10%
* Not a meaningful percentage.
Net sales. Net sales increased 10% to $56.1 million in 2010 from $50.9 million in 2009. Sales in our Open
Vascular product category grew 17%, while sales in our Endovascular and Other product category decreased by
4% from the previous year. Foreign currency exchange rates subtracted 2% from year over year sales growth.
Sales increases in 2010 were largely driven by higher average selling prices across nearly all product lines, as
well as stronger sales of our Open Vascular products which included increased sales of valvulotomes of $1.7
million, biologic patches of $1.1 million, and carotid shunts of $0.8 million. These gains were partially offset by
a $0.3 million decrease in our Endovascular and Other product category, primarily due to decreased TAArget and
UniFit stent graft sales of $0.7 million. Sales were unfavorably impacted by the effect of currency exchange rate
fluctuations by $0.9 million.
TAArget and UniFit stent graft sales declined by 21% in 2010 compared to the prior year. The results were
due mainly to the retirement of our largest stent graft customer in the fourth quarter of 2009, a reduction in sales
to a distributor in Greece, and strong competitor product offerings. We suspended our clinical trials and ceased
development efforts related to these products in November 2010.
Direct-to-hospital net sales were 93% in 2010, up from 92% in 2009. The increase was primarily due to the
conversion of our AlboGraft Vascular Graft from a distribution model to a direct sales model in March 2009,
resulting in an additional three months of direct sales in 2010.
Net sales by geography. Net sales in the Americas increased $5.2 million to $34.6 million in 2010. The
increase was mainly the result of higher average selling prices, increased biologic patch sales of $1.1 million, and
strong results across nearly all of our Vascular product offerings. International net sales of $21.5 million were
flat in 2010. International sales were favorably impacted by a $1.6 million increase in Vascular products sales,
led by vascular graft and valvulotome sales, as well as a $0.4 million increase in Powerlink System sales.
International sales were unfavorably impacted by the effect of currency exchange rate fluctuations of $0.9
million and a $0.7 million decrease in sales of our own aortic stent grafts and a $0.3 million decrease in sales to
the one private label customer of our Biomateriali subsidiary. In January 2011, we terminated our relationship
with this customer, who purchased $0.1 million of dacron-related products in 2010.
52
International direct-to-hospital net sales were 82% in 2010, down from 83% in 2009.
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,719
$37,304
74.4%
73.3%
$4,415
*
12%
1.1%
2010
2009
$ Change
($ in thousands)
Percent
change
* Not applicable
Gross profit. Gross profit increased 12% to $41.7 million in 2010 from $37.3 million in 2009, while our
gross margin increased 1.1% to 74.4%. The gross margin increase was largely the result of improved
manufacturing efficiencies in our Burlington facility, higher average selling prices across nearly all product lines,
particularly in the United States, and favorable geographic sales mix versus the prior year. The gross margin
increase was partially offset by an increase in excess and obsolete inventory write-downs of $0.5 million,
manufacturing start-up costs associated with the transfer of AlboGraft Vascular Graft manufacturing to our
Burlington, Massachusetts headquarters, and sales growth in our comparatively lower margin polyester grafts
and distributed products.
2010
2009
$ change
Percent
change
2010 as a %
of Revenue
2009 as a %
of Revenue
Sales and marketing . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . .
Impairment charge . . . . . . . . . . . . . . . . . . . . . . .
$19,409
10,506
5,488
1,816
485
$17,710
9,852
5,910
1,777
106
($ in thousands)
10%
7%
(7%)
2%
*
$1,699
654
(422)
39
379
$37,704
$35,355
$2,349
7%
35%
19%
10%
3%
*
67%
35%
19%
12%
3%
*
69%
* Not a meaningful percentage.
Sales and marketing. Sales and marketing expense increased 10% to $19.4 million in 2010, from $17.7
million in 2009. Selling expenses increased $1.7 million to $16.3 million while marketing expenses remained
relatively flat. Changes in foreign currency exchange rates reduced sales and marketing expense by $0.3 million
compared to the prior year. Selling expense increases were largely driven by higher commission costs of $1.5
million and higher base compensation costs of $0.5 million, partly due to additional sales representatives. As a
percentage of net sales, sales and marketing expenses were 35% in 2010, comparable to the prior year. At the end
of 2010, we employed 67 sales representatives worldwide, as compared to 61 at the end of 2009.
General and administrative. General and administrative expense increased 7% to $10.5 million in 2010
from $9.9 million in 2009. The increase was largely the result of higher personnel costs of $0.9 million, and was
partially offset by a decrease in professional services of $0.2 million and changes in foreign currency exchange
rates of $0.1 million. As a percentage of net sales, general and administrative expenses were 19% in both 2010
and 2009.
Research and development. Research and development expenses decreased 7% to $5.5 million in 2010
from $5.9 million in 2009. As a percentage of net sales, research and development expense decreased to 10% in
2010 from 12% in 2009. The decrease was driven primarily by a reduction of regulatory and clinical affairs costs
of $0.4 million to $2.0 million in 2010, largely due to reduced animal testing as well as a reduction in the use of
outside services following the suspension of enrollment of our UNITE and ENRUST trials in October 2010.
Expenses related to product development and royalties remained consistent between 2010 and 2009.
53
Restructuring. Restructuring charges were $1.8 million in 2010 and 2009. In 2010, we incurred a $1.8
million restructuring charge related to the closure of our Biomateriali manufacturing facility in Brindisi, Italy,
and the related transition of production to our existing corporate headquarters in Burlington, Massachusetts. The
restructuring charge consisted of $1.4 million of employee-related severance charges, $0.3 million of charges
associated with repayment of a development grant and loan from the Italian government, and $0.1 million of
charges related to the abandonment of fixed assets and legal fees.
In 2009, we incurred a $1.8 million restructuring charge related to the March 27, 2009 termination of our
AlboGraft Vascular Graft distribution agreement with Edwards Lifesciences. The transaction included the
payment of $3.5 million in exchange for the termination of the distribution agreement, as well as the acquisition
of detailed customer information, transition services, and remaining product inventory.
Impairment charges. We incurred $0.5 million of impairment charges in 2010 of which $0.4 million was
due to the write-down of certain technology, customer lists, and fixed assets related to our aortic stent graft
product line. As of December 31, 2010, we determined that impairment indicators existed as a result of our
decision to suspend enrollment into our UNITE and ENTRUST clinical trials and cease product development
efforts in October 2010. The residual fair value of the TAArget and UniFit intangible assets was $0.2 million as
of December 31, 2010. Additionally, we incurred a $0.1 million impairment charge associated with a
Biomateriali private label customer relationship, which we subsequently terminated. We incurred $0.1 million of
impairment charges in 2009 related to patents deemed to have no value based on future expected economic
benefits.
Other income (expense). Foreign exchange losses for 2010 were $30,000 compared to foreign exchange
gains of $0.3 million in 2009. Foreign exchange gains were due to the comparative strengthening of the dollar
versus the euro during the year. Net interest income and other income (expense) was relatively flat between 2010
and 2009.
Income tax expense. We recorded a tax benefit of $2.0 million in 2010 compared to a tax expense of $0.6
million in 2009, on pre-tax income of $4.0 million in 2010 and $2.2 million in 2009. The 2010 benefit was
primarily due to the release of our U.S. deferred tax asset valuation allowance of $3.3 million, and was partially
offset by U.S. deferred provision of $0.9 million, taxes in certain foreign subsidiaries that are profitable of $0.2
million, federal tax in the United States of $0.1 million, and state taxes of $0.1 million. The valuation allowance
reversal was to the result of achieving three year cumulative profitability which occurred in the fourth quarter of
2010 as well as our expectation of future taxable income in the U.S. The 2009 provision was comprised of taxes
on profits on certain of our foreign subsidiaries that are profitable, deferred tax liabilities related to the
amortization of goodwill for U.S. tax purposes which could not be used to reduce existing deferred tax assets,
and the alternative minimum tax. Our effective tax rate differed from the U.S. statutory tax rate in 2010
principally due to the reversal of the valuation allowance on certain deferred tax assets and utilization of U.S net
operating loss carryforwards. While it is often difficult to predict the final outcome or timing of the resolution of
any particular tax matter, we believe that our tax reserves reflect the probable outcome of known contingencies.
Liquidity and Capital Resources
At December 31, 2011, our cash, cash equivalents and marketable securities were $20.1 million as
compared to $22.6 million at December 31, 2010. Our cash and cash equivalents are highly liquid investments
with maturities of 90 days or less at the date of purchase and consist of money market funds, and are stated at
cost, which approximates fair value. We did not hold any marketable securities nor any mortgage asset-backed or
auction-rate securities in our investment portfolio as of December 31, 2011. In the event of a temporary decline
in market value, we have the intent and ability to hold our investments for a sufficient period of time to allow for
recovery of the principal amounts invested. We continually monitor the asset allocation of our holdings in an
attempt to mitigate our credit and interest rate exposures, and we intend to continue to closely monitor
developments in the credit markets and make appropriate changes to our investment policy as necessary.
54
Operating and Capital Expenditure Requirements
We require cash to pay our operating expenses, make capital expenditures, fund acquisitions, and pay our
long-term liabilities. Since our inception, we have funded our operations through private and public placements
of equity securities, short-term borrowings, and funds generated from our operations.
For the year ended December 31, 2011, we recognized operating income of $3.7 million. For the year ended
December 31, 2010, we recognized operating income of $4.0 million. Although it is our intention to generate an
operating profit on an ongoing basis, excluding the impact of acquisitions, divestitures and distributor
terminations, there can be no assurance that we will generate an operating profit in the future due to our
continued investment in growing our business. We expect to fund any increased costs and expenditures from our
existing cash and cash equivalents and marketable securities, though our future capital requirements depend on
numerous factors. These factors include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
the revenues generated by sales of our products;
payments associated with potential future quarterly cash dividends to our common stockholders;
payments associated with our stock repurchase plan;
payments associated with U.S income taxes;
the costs associated with expanding our manufacturing, marketing, sales, and distribution efforts;
the rate of progress and cost of our research and development activities;
the costs of obtaining and maintaining FDA and other regulatory clearances of our existing and future
products;
the effects of competing technological and market developments; and
the number, timing, and nature of acquisitions and other strategic transactions
Our cash balances may decrease as we continue to use cash to fund our operations, make acquisitions, make
purchases under our share repurchase program, make payments under our quarterly dividend program, and make
deferred payments related to prior acquisitions. We believe that our cash, cash equivalents, investments and the
interest we earn on these balances will be sufficient to meet our anticipated cash requirements for at least the next
twelve months. If these sources of cash are insufficient to satisfy our liquidity requirements beyond the next
twelve months, we may seek to sell additional equity or debt securities or borrow from a financial institution. The
sale of additional equity and debt securities may result in dilution to our stockholders. If we raise additional
funds through the issuance of debt securities, such securities could have rights senior to those of our common
stock and could contain covenants that would restrict our operations. We may require additional capital beyond
our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms,
if at all.
Italian loan and grant
As part of the purchase of Biomateriali S.r.l, we assumed a loan from the Italian government under a
program that provides funding to certain businesses in Italy through a combination of grants and loans if certain
requirements are met. The loan was stated to be payable in ten annual payments through 2018 of principal and
interest at an interest rate of 0.74%. The present value of the loan was recorded as of the date the proceeds were
received using our incremental borrowing rate. Interest was being imputed on the loan and the amortization was
recorded as interest expense. The Italian government informed us the loan and grant will become due in full as a
result of the Biomateriali S.r.l plant closure. As a result, in December 2011, we incurred approximately $0.1
million of restructuring charges related to additional interest and penalties charges, and we made the final
payment to the Italian government of $0.5 million in December 2011. In 2010, we had previously recorded
approximately $0.3 million of restructuring charges related to the expected repayment of the grants, the imputed
interest on the outstanding loan balance, and certain additional interest and penalties.
55
Cash Flows
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided by (used in):
Year ended December 31,
2011
2010
Net
Change
$20,132
$22,614
$(2,482)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,170
(1,822)
(3,800)
$ 7,052
(5,235)
(2,335)
$(3,882)
3,413
(1,465)
Operating activities. Net cash provided by operating activities was $3.2 million in 2011 and consisted of
$2.1 million in net income, adjusted for non-cash items of $5.3 million (including depreciation and amortization
of $2.0 million, provision for deferred income taxes of $1.1 million, stock-based compensation of $1.0 million,
provision for inventory write-offs of $1.0 million, and noncash restructuring charges of $0.7 million, all of which
were partially offset by a gain on the termination of the Endologix distribution agreement of $0.7 million), and
net cash used by changes in working capital of $4.2 million. The net cash used by changes in working capital was
principally the result of a decrease in accounts payables as well as an increase in accounts receivable, inventories
and other current assets.
Net cash provided by operating activities was $7.1 million in 2010 and consisted of $6.0 million in net
income, adjusted for non-cash items of $1.5 million (including depreciation and amortization of $1.4 million,
stock-based compensation of $1.0 million, provision for inventory write-offs of $0.8 million, impairment charges
of $0.5 million and $0.1 million in accounts receivable loss provisions and was partially offset by a deferred
income tax benefit of $2.4 million) and net cash used by changes in working capital of $0.4 million. The net cash
used by changes in working capital was principally the result of an increase of accounts receivable, inventories
and other current assets while partially offset by increased accounts payable.
Investing activities. Net cash used in investing activities was $1.8 million in 2011. This was due to the
purchase of new property and equipment of $2.0 million, as a result of the transfer of manufacturing from
Brindisi, Italy and Laguna Hills, California to Burlington, Massachusetts and $1.2 million of acquisition related
payments, primarily related to the LifeSpan Vascular Graft acquisition and the Spanish and Danish distributor
buyouts. These cash uses were partially offset by a $1.3 million distribution termination payment from
Endologix.
Net cash used in investing activities was $5.2 million in 2010. This was primarily due to payments related to
our acquisition of the LifeSpan Vascular ePTFE Graft of $3.5 million and purchases of property and equipment
of $2.5 million, and was partially offset by sales and maturities of marketable securities of $0.8 million.
Financing activities. Net cash used in financing activities was $3.8 million in 2011. This was primarily due
to the purchase of $1.9 million of treasury stock under our stock repurchase plan, payment of a common stock
dividends of $1.2 million, and the purchase of $0.3 million of treasury stock to cover minimum withholding taxes
of restricted stock unit vestings and was partially offset by $0.1 million received from the exercise of stock
options. As of December 31, 2011, we were able to purchase up to an additional $5.3 million of common stock
under our stock repurchase plan through December 31, 2013.
Net cash used in financing activities was $2.3 million in 2010. This was primarily due to the purchase of
$2.2 million of treasury stock under our stock repurchase plan and the purchase of $0.3 million of treasury stock
to cover minimum withholding taxes of restricted stock unit vestings and was partially offset by $0.1 million
received from the exercise of stock options.
Dividends. On February 24, 2011, our Board of Directors approved a policy for the payment of quarterly
cash dividends on our common stock of $0.02 per share. Future declarations of quarterly dividends and the
56
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We write off accounts receivable when they become uncollectible. While such credit losses have historically
been within our expectations and allowances, we cannot guarantee the same credit loss rates will be experienced
in the future. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in
our existing accounts receivable. We review our allowance for doubtful accounts on a monthly basis and all past
due balances are reviewed individually for collectability. The provision for the allowance for doubtful accounts is
recorded in general and administrative expenses.
Inventory
Inventory consists of finished products, work-in-process, and raw materials. We value inventory at the lower
of cost or market value. Cost includes materials, labor, and manufacturing overhead and is determined using the
first-in, first-out (FIFO) method. On a quarterly basis, we review inventory quantities on hand and analyze the
provision for excess and obsolete inventory based primarily on product expiration dating and our estimated sales
forecast, which is based on sales history and anticipated future demand. Our estimates of future product demand
may not be accurate, and we may understate or overstate the provision required for excess and obsolete
inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the
value of our inventory and results of operations.
Stock-based Compensation
We recognize, as expense, the estimated fair value of stock options to employees which is determined using
the Black-Scholes option pricing model. We have elected to recognize the compensation cost of all share-based
awards on a straight-line basis over the vesting period of the award. In periods that we grant stock options, fair
value assumptions are based on volatility, interest, dividend yield, and expected term over which the stock
options will be outstanding. The computation of expected volatility is based on the historical volatility of the
company’s stock. The interest rate for periods within the contractual life of the award is based on the
U.S. Treasury risk-free interest rate in effect at the time of grant. The expected lives of the options were
estimated using the simplified method for “plain vanilla” options. Computation of expected forfeitures is based
on historical forfeiture rates of our share-based awards.
We also issue restricted stock units (RSUs) as an additional form of equity compensation to our employees,
officers, and directors, pursuant to our stockholder-approved 2006 Plan. RSUs entitle the grantee to an issuance
of stock at no cost and generally vest over a period of time determined by our Board of Directors at the time of
grant based upon the continued service to the company. The fair market value of the award is determined based
on the number of RSUs granted and the market value of our common stock on the grant date and is amortized to
expense over the period of vesting. Computation of expected forfeitures is based on historical forfeiture rates of
our share-based awards. Unvested RSUs are forfeited and canceled as of the date that employment or service to
the company terminates. RSUs are settled in shares of our common stock upon vesting. We may repurchase
common stock upon our employees’ vesting in RSUs in order to cover any minimum tax withholding liability as
a result of the RSUs having vested.
We used an expected forfeiture rate of approximately 16%, 16%, and 16% for 2011, 2010, and 2009,
respectively. Share-based compensation charges are recorded net of the estimated forfeitures and will be adjusted
in future periods to reflect the results of actual forfeitures and vesting. Share-based compensation charges are
recorded across the consolidated statement of operations based upon the grantee’s primary function.
As disclosed more fully in the notes to our consolidated financial statements, we recorded expense of
approximately $1.1 million in connection with share-based payment awards for the year ended December 31,
2011. The future expense of non-vested share-based awards of approximately $2.3 million is to be recognized
over a weighted-average period of 3.2 years. During 2011, we granted stock options at a weighted average fair
value of $7.07 and restricted stock units with weighted average fair value of $7.10.
59
Valuation of Goodwill, Other Intangibles
Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of
the fair value of assets acquired and liabilities assumed. Goodwill is evaluated for impairment annually or more
frequently if indicators of impairment are present or changes in circumstances suggest that an impairment may
exist. We evaluate the December 31 balance of the carrying value of goodwill based on a single reporting unit
annually. We perform an assessment of qualitative factors to determine if it is “more likely than not” that the fair
value of our reporting unit is less than its carrying value as a basis for determining whether it is necessary to
perform the two-step goodwill impairment test. The “more likely than not” threshold is defined as having a
likelihood of more than 50 percent. If required, the next step of the goodwill impairment test is to determine the
fair value of the reporting unit. The implied fair value of goodwill is determined on the same basis as the amount
of goodwill recognized in connection with a business combination. Specifically, the fair value of a reporting unit
is allocated to all of the assets and liabilities (including any unrecognized intangible assets) as if the reporting
unit had been acquired in a business combination as of the date of the impairment review and as if the fair value
of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying
amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be
recognized in an amount equal to that excess. Goodwill was $11.9 million as of December 31, 2011 and 2010.
Our annual impairment testing indicated no significant risk of impairment based upon changes in value that are
reasonably likely to occur. However, changes in these estimates and assumptions could materially affect the
estimated fair value of our reporting unit.
Other intangible assets consist primarily of purchased developed technology, patents, customer
relationships, and trademarks and are amortized over their estimated useful lives, ranging from 1 to 15 years. We
review intangible assets quarterly to determine if any adverse conditions exist for a change in circumstances has
occurred that would indicate impairment. Conditions that may indicate impairment include, but are not limited to,
a significant adverse change in legal factors or business climate that could affect the value of the asset, a change
in the operating cash flows associated with the asset, or adverse action or assessment by a regulator. If an
impairment indicator exists we test the intangible asset for recoverability. If the carrying value of the intangible
asset exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the
intangible asset, we will write the carrying value down to the fair value in the period identified. We generally
calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to
generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows
associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost
structures, and remaining useful lives of the asset. These estimates and assumptions require significant judgment
and actual results may differ from assumed or estimated amounts. Other intangible assets, net of accumulated
amortization, were $3.0 million as of December 31, 2011, and $3.7 million as of December 31, 2010. We
recognized impairment charges on our intangible assets of $0.1 million in 2011, $0.5 million in 2010, and $0.1
million in 2009.
Contingencies
In the normal course of business, we are subject to proceedings, lawsuits, and other claims and assessments
for matters related to, among other things, patent infringement, business acquisitions, employment, and product
recalls. We assess the likelihood of any adverse judgments or outcomes to these matters as well as potential
ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is
made after careful analysis of each individual issue. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in settlement strategy in dealing with these
matters. We record charges for the costs we anticipate incurring in connection with litigation and claims against
us when we determine a loss is probable and we can reasonably estimate these costs. During the years ended
December 31, 2011, 2010, and 2009, we were not subject to any material litigation, claims or assessments.
60
Restructuring
We record restructuring charges incurred in connection with consolidation or relocation of operations,
exited business lines, or distributor terminations. These restructuring charges, which reflect our commitment to a
termination or exit plan that will begin within twelve months, are based on estimates of the expected costs
associated with site closure, legal matters, contract terminations, or other costs directly related to the
restructuring. If the actual cost incurred exceeds the estimated cost, an additional charge to earnings will result. If
the actual cost is less than the estimated cost, a credit to earnings will be recognized.
Income Taxes
As part of the process of preparing our consolidated financial statements we are required to determine our
income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current
tax expense together with assessing temporary differences resulting from recognition of items for income tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our
consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered
from taxable income during the carryback period or in the future; and to the extent we believe that recovery is not
likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we must reflect this increase as an expense within the tax provision in the statement of
operations. We do not provide for income taxes on undistributed earnings of foreign subsidiaries, as our current
intention is to permanently reinvest these earnings.
We recognize, measure, present and disclose in our financial statements, uncertain tax positions that we
have taken or expect to take on a tax return. We operate in multiple taxing jurisdictions, both within the United
States and outside of the United States and may be subject to audits from various tax authorities regarding
transfer pricing, the deductibility of certain expenses, intercompany transactions, and other matters. Within
specific countries, we may be subject to audit by various tax authorities operating within the country and may be
subject to different statutes of limitation expiration dates. Management’s judgment is required in determining our
provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any
valuation allowance recorded against our net deferred tax assets. We will continue to monitor the realizability of
our deferred tax assets and adjust the valuation allowance accordingly. We have recorded a valuation allowance
on our net deferred tax assets of $4.4 million and $4.3 million as of December 31, 2011 and 2010, respectively.
Marketable Securities
We consider all highly liquid investments with maturities of 90 days or less at the time of purchase to be
cash equivalents, and investments with maturities of greater than 90 days at the time of purchase to be
marketable securities. The unrealized gains (losses) on available-for-sale securities are recorded in accumulated
other comprehensive income (loss). When a marketable security incurs a significant unrealized loss for a
sustained period of time, we review the instrument to determine if it is other-than-temporarily impaired. If we
conclude an instrument is other-than-temporarily impaired, we record the unrealized loss in the consolidated
statement of operations. We did not hold any marketable securities as of December 31, 2011 and December 31,
2010.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) amended existing rules covering fair value
measurement and disclosure to clarify guidance and minimize differences between U.S. generally accepted
accounting principles (GAAP) and International Financial Reporting Standards (IFRS). The new guidance
requires us to provide information about valuation techniques and unobservable inputs used in Level 3 fair value
measurements and provide a narrative description of the sensitivity of Level 3 measurements to changes in
unobservable inputs. The guidance is effective on January 1, 2012. We do not expect that the adoption of this
standard will have a material impact on our results of operations or financial position.
61
In June 2011, new guidance was issued pertaining to the presentation of comprehensive income. The new
rule eliminates the current option to report other comprehensive income and its components in the statement of
changes in equity. The standard is intended to provide a more consistent method of presenting non-owner
transactions that affect the company’s equity. Under the new guidance, an entity can elect to present items of net
income and other comprehensive income in one continuous statement or in two separate, but consecutive,
statements. The new guidance is effective for fiscal years that begin after December 15, 2011. We do not expect
that the adoption of this standard will have a material impact on our results of operations or financial position.
In September 2011, the FASB issued new authoritative guidance pertaining to the testing of goodwill for
impairment which allows an entity to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. Under this new guidance, an entity would not be
required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative
assessment, that it is more likely than not that its fair value is less than its carrying amount. The changes are
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011; however, early adoption is permitted. We adopted the new authoritative guidance in the
fourth quarter of 2011 in connection with our annual impairment test. The adoption of this standard did not have
a material impact on our results of operations or financial position.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2011. We do not currently have,
nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In
addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not
materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these
relationships.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This item is not applicable to us as a smaller reporting company.
Item 8. Financial Statements and Supplementary Data
See the consolidated financial statements filed as part of this Annual Report on Form 10-K as listed under
Item 15 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of December 31, 2011, our Chief Executive Officer and Chief Financial
Officer, with the participation of management, have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) were effective at reasonable
assurance levels.
62
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of our internal controls over financial reporting as of December 31,
2011. Management based its assessment on criteria established in the Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included evaluation of elements such as the design and operating effectiveness of key financial reporting
controls, process documentation, accounting policies, and our overall control environment.
Based on this assessment under the criteria set forth in the Internal Control — Integrated Framework,
management has concluded that our internal control over financial reporting was effective as of December 31,
2011.
Pursuant to Item 308 of Regulation S-K, this management’s report on internal control over financing
reporting shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the
liabilities of that section.
Changes in Internal Control over Financial Reporting
There was no change in the our internal control over financial reporting that occurred during the fiscal
quarter ended December 31, 2011, that has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
Not Applicable.
63
PART III
The information responsive to this item is incorporated by reference herein from the information to be
contained in our 2012 definitive proxy statement (the “2012 Definitive Proxy Statement”) for the 2012 annual
meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the year
ended December 31, 2011.
Item 10. Directors, Executive Officers and Corporate Governance
The information responsive to this item is incorporated by reference herein from the information to be
contained in the sections entitled “Directors, Executive Officers and Key Employees,” “Corporate Governance,”
and “Meeting and Committees of the Board of Directors” in our 2012 definitive proxy statement (the “2012
Definitive Proxy Statement”) for the 2012 annual meeting of stockholders to be filed with the Securities and
Exchange Commission within 120 days after the year ended December 31, 2011.
The information required by this item concerning compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference from the information contained in the section entitled “Section 16(a) Beneficial
Ownership Reporting Compliance” in our 2012 Definitive Proxy Statement.
Code of Ethics
Certain documents relating to our corporate governance, including our Code of Business Conduct and
Ethics, which is applicable to our directors, officers, and employees, and the charters of the Audit Committee,
Compensation Committee, and Corporate Governance and Nominating Committee of our Board of Directors, are
available on our website at http://www.lemaitre.com. We intend to disclose substantive amendments to or
waivers (including implicit waivers) of any provision of the Code of Business Conduct and Ethics that apply to
our principal executive officer, principal financial officer, principal accounting officer, or controller, or persons
performing similar functions, by posting such information on our website available at http://www.lemaitre.com.
Item 11. Executive Compensation
The information responsive to this item is incorporated herein by reference from the information to be
contained in the section entitled “Compensation of Executive Officers and Directors” in our 2012 Definitive
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information responsive to this item is incorporated herein by reference from the information to be
contained in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in our
2012 Definitive Proxy Statement.
64
Equity Compensation Plan Information
The following table sets forth information regarding our equity compensation plans in effect as of
December 31, 2010. Each of our equity compensation plans is an “employee benefit plan” as defined by Rule
405 of Regulation C of the Securities Act of 1933.
Plan category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
2,347,124
security holders . . . . . . . . . . . . . . . . . . . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,347,124
$5.43
—
$5.43
1,210,715
—
1,210,715
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required responsive to this item is incorporated herein by reference from the information to
be contained in the sections entitled “Certain Relationships and Related Transactions” and “Corporate
Governance” in our 2012 Definitive Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information responsive to this item is incorporated herein by reference from the information to be
contained in the section entitled “Ratification of Independent Registered Public Accounting Firm” in our 2012
Definitive Proxy Statement.
65
Item 15. Exhibits and Financial Statement Schedules
a) Documents filed as part of this Report.
PART IV
(1) The following consolidated financial statements are filed herewith in Item 8 of Part II above.
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations
(iv) Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
(3) Exhibits
Exhibit
Number
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
3.1
3.2
4.1
10.1
10.2
10.5
10.6
10.7†
10.8†
10.9†
10.10†
Amended and Restated By-laws of the Registrant
S-1/A 5/26/06
3.1
Second Amended and Restated Certificate of Incorporation of
the Registrant
10-K 3/29/10
Specimen Certificate evidencing shares of common stock
S-1/A 6/22/06
3.2
4.1
Northwest Park Lease dated March 31, 2003, by and between
the Registrant and Roger P. Nordblom and Peter C. Nordblom,
as Trustees of Northwest Associates, as amended
S-1
4/25/06
10.1
Registration Rights Agreement dated June 17, 1998, by and
between the Registrant and Housatonic Equity Investors, L.P.
S-1/A 5/26/06
10.2
License Agreement dated February 11, 1992, by and between
United States Surgical Corporation and Spinnaker R&D
Associates, as amended
Side Letter Agreement dated January 30, 2004, by and
between the Registrant and Spinnaker R&D Associates
Executive Retention and Severance Agreement dated October
10, 2005, by and between the Registrant and George W.
LeMaitre
Managing Director Employment Agreement dated October 1,
2008, by and between LeMaitre Vascular GmbH and Peter
Gebauer, as amended
S-1
4/25/06
10.5
S-1
4/25/06
10.6
S-1/A 5/26/06
10.7
10-K 3/31/09
10.8
Employment Agreement dated June 20, 2006, by and between
the Registrant and David Roberts
S-1/A 6/22/06
10.24
Employment Agreement dated April 20, 2006, by and between
the Registrant and Joseph P. Pellegrino
S-1/A 6/22/06
10.10
66
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
1997 Stock Option Plan and form of agreements thereunder
1998 Stock Option Plan and form of agreements thereunder
2000 Stock Option Plan and form of agreements thereunder
2004 Stock Option Plan and form of agreements thereunder
S-1
S-1
S-1
S-1
4/25/06
10.11
4/25/06
10.12
4/25/06
10.13
4/25/06
10.14
Second Amended and Restated 2006 Stock Option and
Incentive Plan and form of agreements thereunder
8-K
6/18/10
10.1
Form of Indemnification Agreement between the Registrant
and its directors and executive officers
S-1/A
5/26/06
10.17
Exhibit
Number
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
Form of Restricted Stock Unit Award Agreement under the
Registrant’s 2006 Stock Option and Incentive Plan
10.18†
Management Incentive Compensation Plan
10.19
10.20
10.21
10.22†
10.23†
10.24†
10.25
10.26
10.27
10.28
Second Amendment of Lease dated May 21, 2007, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Third Amendment of Lease dated February 26, 2008, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Fourth Amendment of Lease dated October 31, 2008, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
First Amendment to Executive Retention and Severance
Agreement dated December 23, 2008, by and between the
Registrant and George W. LeMaitre
First Amendment to Employment Agreement dated
December 19, 2008, by and between the Registrant and
David Roberts
First Amendment to Employment Agreement dated
December 19, 2008, by and between the Registrant and
Joseph P. Pellegrino
Fifth Amendment of Lease dated March 23, 2010, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Northwest Park Lease dated March 23, 2010, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Director Compensation Policy
First Amendment to Northwest Park Lease dated September
14, 2010, by and between Rodger P. Nordblom and Peter C.
Nordblom, as Trustees of Northwest Associates, and
Registrant
67
8-K
8-K
12/26/06
4/27/07
99.1
10.1
8-K
6/15/07
10.1
8-K
4/10/08
10.1
10-K
3/31/09
10.36
10-K
3/31/09
10.37
10-K
3/31/09
10.38
10-K
3/31/09
10.39
10-K
3/29/10
10.33
10-K
3/29/10
10.34
X
X
Incorporated By Reference
Form Date
Number
Filed
Herewith
X
X
X
X
X
X
X
Exhibit
Number
10.29
21.1
23.1
31.1
31.2
32.1*
32.2*
Exhibit Description
Second Amendment to Northwest Park Lease dated October
31, 2011, by and between NWP Building 4 LLC, as successor-
in-interest to Trustees of Northwest Associates, and Registrant
List of Subsidiaries
Consent of Ernst & Young LLP
Certification of Chief Executive Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Financial Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Executive Officer, as required by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter 36 of Title 18 of the United States Code (18 U.S.C.
§1350)
Certification of Chief Financial Officer, as required by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter 36 of Title 18 of the United States Code (18 U.S.C.
§1350)
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
†
*
Indicates a management contract or any compensatory plan, contract, or arrangement.
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are
not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference
into any filing of LeMaitre Vascular, Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of
any general incorporation language contained in such filing.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27,
2012.
LEMAITRE VASCULAR
By:
/s/ GEORGE W. LEMAITRE
George W. LeMaitre,
Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ GEORGE W. LEMAITRE
George W. LeMaitre
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
March 27, 2012
/s/
JOSEPH P. PELLEGRINO, Jr.
Joseph P. Pellegrino, Jr.
Chief Financial Officer (Principal
March 27, 2012
Accounting Officer)
/s/ RUSSELL D. HAYS
Russell D. Hays
Director
March 27, 2012
/s/ MICHAEL C. JACKSON
Director
March 27, 2012
Michael C. Jackson
/s/ LAWRENCE J. JASINSKI
Director
March 27, 2012
Lawrence J. Jasinski
/s/ CORNELIA W. LEMAITRE
Vice President, Human Resources
March 27, 2012
Cornelia W. LeMaitre
and Director
/s/ GEORGE D. LEMAITRE, M.D.
Director
March 27, 2012
George D. LeMaitre, M.D.
/s/
JOHN J. O’CONNOR
John J. O’Connor
Director
March 27, 2012
/s/ DAVID B. ROBERTS
President and Director
March 27, 2012
David B. Roberts
/s/ WILLIAM N. THORNDIKE, Jr.
Director
March 27, 2012
William N. Thorndike, Jr.
69
INDEX TO FINANCIAL STATEMENTS
LeMaitre Vascular, Inc.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended
December 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of LeMaitre Vascular, Inc.
We have audited the accompanying consolidated balance sheets of LeMaitre Vascular, Inc. as of
December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements 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. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of LeMaitre Vascular, Inc. at December 31, 2011 and 2010, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
March 27, 2012
/s/ Ernst & Young LLP
F-2
LeMaitre Vascular, Inc.
Consolidated Balance Sheets
December 31, December 31,
2011
2010
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $211 at December 31, 2011, and
$184 at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,132
$22,614
8,541
8,003
3,011
39,687
4,661
11,917
2,985
6
431
8,475
8,375
3,447
42,911
3,806
11,917
3,686
134
820
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59,687
$63,274
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares; none
981
5,539
19
6,539
989
71
7,599
$ 1,320
8,628
441
10,389
443
86
10,918
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock, $0.01 par value; authorized 100,000,000 shares; issued
16,303,155 shares at December 31, 2011, and 16,117,201 shares at
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 975,700 shares at December 31, 2011, and 637,916
163
64,619
(6,440)
(606)
shares at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,648)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,088
161
64,642
(8,583)
(429)
(3,435)
52,356
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59,687
$63,274
See accompanying notes to consolidated financial statements.
F-3
LeMaitre Vascular, Inc.
Consolidated Statements of Operations
Year ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,685
17,458
2011
2009
2010
(in thousands,
except per share data)
$56,060
14,341
$50,908
13,604
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on termination of distribution agreement
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,227
19,375
11,228
4,425
2,161
(735)
83
41,719
19,409
10,506
5,488
1,816
—
485
37,304
17,710
9,852
5,910
1,777
—
106
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,537
37,704
35,355
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
3,690
4,015
1,949
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
—
51
—
31
(5)
(30)
14
38
(26)
280
(26)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,752
1,609
4,025
(1,988)
2,215
617
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,143
$ 6,013
$ 1,598
Net income per share of common stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.14
0.13
$
$
0.38
0.37
$
$
0.10
0.10
Weighted-average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,458
15,627
15,687
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,989
16,114
15,916
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.08
$ — $ —
See accompanying notes to consolidated financial statements.
F-4
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Consolidated Statements of Cash Flows
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premium on marketable securities . . . . . . . . . . . . . . . . . . . . .
Loss on sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on termination of distribution agreement
. . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits from stock-based compensation awards . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Non cash restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receipts related to divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of technology and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits from stock-based compensation awards . . . . . . . . . . . . . . . . . . . . . . .
Common stock cash dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from Italian government loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of Italian government loan and grant . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash flow information (see Note 14).
Year ended December 31,
2011
2010
2009
(in thousands)
$ 2,143
$ 6,013
$ 1,598
2,037
1,097
—
—
83
56
1,011
1,159
(735)
(50)
30
732
(156)
(174)
(998)
105
(3,170)
3,170
(2,021)
(1,151)
1,414
(64)
—
(1,822)
1,376
967
1
—
485
55
836
(2,380)
—
(70)
51
108
37
(973)
(1,735)
(846)
3,127
7,052
(2,471)
(3,520)
40
(87)
803
(5,235)
1,419
985
46
34
106
75
428
226
—
—
17
—
63
(486)
164
610
155
5,440
(577)
(759)
—
(1,048)
4,566
2,182
69
(2,213)
50
(1,237)
—
(469)
(3,800)
(30)
(2,482)
22,614
$20,132
132
(2,516)
70
—
—
(21)
(2,335)
(60)
(578)
23,192
$22,614
202
(686)
—
—
108
—
(376)
51
7,297
15,895
$23,192
See accompanying notes to consolidated financial statements.
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securities. The unrealized gains (losses) on available-for-sale securities are recorded in accumulated other
comprehensive income (loss). When a marketable security incurs a significant unrealized loss for a sustained period
of time, we review the instrument to determine if it is other-than-temporarily impaired. If we conclude an
instrument is other-than-temporarily impaired, we record the unrealized loss in the consolidated statement of
operations. We did not hold any marketable securities as of December 31, 2011 and December 31, 2010.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash
equivalents, marketable securities, accounts receivable, and notes receivable. Cash equivalents represent highly liquid
investments with maturities of 90 days or less at the date of purchase. Marketable securities are investment grade,
interest-earning securities and are diversified by type and industry. Credit risk related to cash, cash equivalents, and
marketable securities are limited based on the creditworthiness of the financial institutions at which these funds are
held. Credit risk related to notes receivable is assessed based upon the individual payor as of the original fair value
determination and updated periodically as required.
Our accounts receivable are with customers based in the United States and internationally. Accounts
receivable generally are due within 30 to 90 days of invoice and are stated at amounts due from customers, net of
an allowance for doubtful accounts and sales returns, other than in certain European markets where longer
payment terms are customary and may range from 90 to 240 days. We perform ongoing credit evaluations of the
financial condition of our customers and adjust credit limits based upon payment history and the current
creditworthiness of the customers, as determined by a review of their current credit information. We
continuously monitor aging reports, collections, and payments from customers, and maintain a provision for
estimated credit losses based upon historical experience and any specific customer collection issues we identify.
We closely monitor outstanding receivables for potential collection risks, including those that may arise
from economic conditions, in both the U.S. and international economies. Our European sales to government-
owned or supported customers such as hospitals, distributors and agents, in Southern Europe, specifically Italy,
Spain and Greece may be subject to significant payment delays due to government austerity measures impacting
funding and payment practices. As of December 31, 2011 our receivables in Italy, Spain and Greece totaled $1.2
million, $0.2 million and $0.2 million, respectively. Receivables balances with certain publicly-owned hospitals
and government supported customers in these countries can accumulate over a period of time and then
subsequently be settled as large lump sum payments. While we believe our allowance for doubtful accounts in
these countries is adequate as of December 31, 2011, if significant changes were to occur in the payment
practices of these European governments or if government funding becomes unavailable, we may not be able to
collect on receivables due to us from these customers and our write offs of uncollectible amounts may increase.
We write off accounts receivable when they become uncollectible. While such credit losses have historically
been within our expectations and allowances, we cannot guarantee the same credit loss rates will be experienced
in the future. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in
our existing accounts receivable. We review our allowance for doubtful accounts on a monthly basis and all past
due balances are reviewed individually for collectability. The provision for the allowance for doubtful accounts is
recorded in general and administrative expenses. The following is a summary of our allowance for doubtful
accounts and sales returns:
Balance at
Beginning
of Period
Additions
Charged to
Income
Deductions
from
Reserves
Balance at
End of
Period
(in thousands)
Allowance for doubtful accounts and sales returns:
Year ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . .
$184
159
160
$56
55
75
$29
30
76
$211
184
159
F-11
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, marketable securities, accounts receivable,
trade payables, and notes payable. The fair value of the majority of these instruments approximates their carrying
value based upon their short-term nature or variable rates of interest.
Inventory
Inventory consists of finished products, work-in-process, and raw materials. We value inventory at the lower
of cost or market value. Cost includes materials, labor, and manufacturing overhead and is determined using the
first-in, first-out (FIFO) method. On a quarterly basis, we review inventory quantities on hand and analyze the
provision for excess and obsolete inventory based primarily on product expiration dating and our estimated sales
forecast, which is based on sales history and anticipated future demand. Our estimates of future product demand
may not be accurate, and we may understate or overstate the provision required for excess and obsolete
inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the
value of our inventory and results of operations.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the
related assets using straight-line method as follows:
Description
Computers and equipment
Machinery and equipment
Leasehold improvements
Useful Life
3–5 years
3–10 years
The shorter of its useful life or lease term
Expenditures for maintenance and repairs are charged to operations when incurred, while additions and
betterments are capitalized. When assets are retired or disposed, the asset’s original cost and related accumulated
depreciation are eliminated from the accounts and any gain or loss is reflected in the statement of operations.
Valuation of Business Combinations
We assign the value of the consideration transferred to acquire a business to the tangible assets and
identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of
acquisition. We assess the fair value of assets, including intangible assets, using a variety of methods and are
usually performed by an independent appraiser who measures fair value from the perspective of a market
participant.
Beginning January 1, 2009, acquisitions have been accounted for using the acquisition method, and the
acquired companies’ results have been included in the accompanying consolidated financial statements from
their respective dates of acquisition. Acquisition transaction costs have been recorded in general and
administrative expenses, and are expensed as incurred. Allocation of the purchase price for acquisitions is based
on estimates of the fair value of the net assets acquired and, for acquisitions completed within the past year, is
subject to adjustment upon finalization of the purchase price allocation.
Our acquisitions have historically been made at prices above the fair value of the acquired assets, resulting
in goodwill, due to expectations of synergies of combining the businesses. These synergies include use of our
existing commercial infrastructure to expand sales of the acquired businesses’ products, use of the commercial
infrastructure of the acquired businesses to cost-effectively expand sales of our products, and the elimination of
redundant facilities, functions and staffing.
F-12
Contingent Consideration
For business combinations completed after January 1, 2009, the Financial Accounting Standards Board (the
FASB) requires contingent consideration be recognized at the date of acquisition, based on the fair value at that
date, and then re-measured periodically through adjustments to net income. We have not completed an
acquisition with contingent consideration subsequent to January 1, 2009.
Impairment of Long-lived Assets
We review our long-lived assets (primarily property and equipment and intangible assets) subject to
amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that
would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment
include, but are not limited to, a significant adverse change in legal factors or business climate that could affect
the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment
indicator exists, we test the intangible asset for recoverability. We record impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those
assets. Impairment is measured based on the fair market value of the affected asset using discounted cash flows.
In 2011, we determined that certain patents within our portfolio in the United States and Europe had no
value based upon an analysis of expected economic benefits. As a result, we recorded an impairment charge of
$0.1 million for the write-down of these patents.
In 2010, we recognized impairment charges of $0.4 million related to our TAArget and UniFit products
associated with certain technology, customer lists, and fixed assets. We determined that an impairment indicator
existed with respect to these products as we suspended enrollment into our UNITE and ENTRUST clinical trials
and ceased development efforts related to these products in October 2010. The fair value of the residual
intangible assets of $0.2 million was determined by projected future cash flows discounted to their net present
value and will be amortized over three years. Additionally, we incurred a $0.1 million impairment charge
associated with a Biomateriali private label customer relationship, which we subsequently terminated.
In 2009, we determined that certain patents within our endovascular product category portfolio in the United
States and Europe had no value based upon an analysis of expected economic benefits. As a result, we recorded
an impairment charge of $0.1 million for the write-down of these patents.
These impairment adjustments fall within Level 3 of the fair value hierarchy, due to the use of significant
unobservable inputs to determine fair value. The fair value measurements were calculated using unobservable
inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and
timing of future cash flows within our analysis was based on our most recent operational budgets, long range
strategic plans and other estimates.
Goodwill
Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of
the fair value of assets acquired and liabilities assumed. Goodwill is evaluated for impairment annually or more
frequently if indicators of impairment are present or changes in circumstances suggest that an impairment may
exist. We evaluate the December 31 balance of the carrying value of goodwill based on a single reporting unit
annually. We perform an assessment of qualitative factors to determine if it is “more likely than not” that the fair
value of our reporting unit is less than its carrying value as a basis for determining whether it is necessary to
perform the two-step goodwill impairment test. The “more likely than not” threshold is defined as having a
likelihood of more than 50 percent. If required, the next step of the goodwill impairment test, is to determine the
fair value of the reporting unit. The implied fair value of goodwill is determined on the same basis as the amount
F-13
of goodwill recognized in connection with a business combination. Specifically, the fair value of a reporting unit
is allocated to all of the assets and liabilities (including any unrecognized intangible assets) as if the reporting
unit had been acquired in a business combination as of the date of the impairment review and as if the fair value
of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying
amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be
recognized in an amount equal to that excess. We have determined that no goodwill impairment charges were
required for the years ended December 31, 2011, 2010, or 2009.
Other Intangible Assets
Other intangible assets consist primarily of patents, trademarks, technology licenses, and customer
relationships acquired in connection with business acquisitions and asset acquisitions and are amortized over
their estimated useful lives, ranging from 1 to 15 years.
Stock-based Compensation
We recognize, as expense, the estimated fair value of stock options to employees which is determined using
the Black-Scholes option pricing model. We have elected to recognize the compensation cost of all share-based
awards on a straight-line basis over the vesting period of the award. In periods that we grant stock options, fair
value assumptions are based on volatility, interest, dividend yield, and expected term over which the stock
options will be outstanding. The computation of expected volatility is based on the historical volatility of the
company’s stock. The interest rate for periods within the contractual life of the award is based on the
U.S. Treasury risk-free interest rate in effect at the time of grant. The expected lives of the options were
estimated using the simplified method for “plain vanilla” options. Computation of expected forfeitures is based
on historical forfeiture rates of our share-based awards.
We also issue restricted stock units (RSUs) as an additional form of equity compensation to our employees,
officers, and directors, pursuant to our stockholder-approved 2006 Plan. RSUs entitle the grantee to an issuance
of stock at no cost and generally vest over a period of time determined by our Board of Directors at the time of
grant based upon the continued service to the company. The fair market value of the award is determined based
on the number of RSUs granted and the market value of our common stock on the grant date and is amortized to
expense over the period of vesting. Computation of expected forfeitures is based on historical forfeiture rates of
our share-based awards. Unvested RSUs are forfeited and canceled as of the date that employment or service to
the company terminates. RSUs are settled in shares of our common stock upon vesting. We may repurchase
common stock upon our employees’ vesting in RSUs in order to cover any minimum tax withholding liability as
a result of the RSUs having vested.
Share-based compensation charges are recorded net of the estimated forfeitures and will be adjusted in
future periods to reflect the results of actual forfeitures and vesting. Share-based compensation charges are
recorded across the consolidated statement of operations based upon the grantee’s primary function. The
expected forfeiture rates are as follows:
Expected forfeiture rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2011
2010
2009
(in thousands)
16% 16% 18%
Commitments and Contingencies
In the normal course of business, we are subject to proceedings, lawsuits, and other claims and assessments
for matters related to, among other things, patent infringement, business acquisitions, employment, and product
recalls. We assess the likelihood of any adverse judgments or outcomes to these matters as well as potential
F-14
ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is
made after careful analysis of each individual issue. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in settlement strategy in dealing with these
matters. We record charges for the losses we anticipate incurring in connection with litigation and claims against
us when we conclude a loss is probable and we can reasonably estimate these losses. During the years ended
December 31, 2011, 2010, and 2009, we were not subject to any material litigation or claims and assessments.
Income Taxes
We account for income taxes under the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred taxes are determined based on the difference between the financial reporting
and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are
expected to reverse. The provision for income taxes includes taxes currently payable and deferred taxes resulting
from the tax effects of temporary differences between the financial statement and tax bases of assets and
liabilities. We maintain valuation allowances where it is more likely than not that all or a portion of a deferred
tax asset will not be realized. Changes in the valuation allowances are included in our tax provision in the period
of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings
history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially
enhance the likelihood of the realization of a deferred tax asset.
We recognize, measure, present and disclose in our financial statements, uncertain tax positions that we
have taken or expect to take on a tax return. We recognize in our financial statements the impact of tax positions
that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate settlement.
Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense,
which is consistent with that of prior years.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Other than reported net income,
comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on
available-for-sale marketable securities, which are disclosed in the accompanying consolidated statements of
stockholders’ equity and comprehensive income.
As of December 31, 2011, accumulated other comprehensive loss consisted of foreign currency translation
adjustment losses of $0.6 million. As of December 31, 2010, accumulated other comprehensive loss consisted of
foreign currency translation adjustment losses of $0.4 million.
Restructuring
We record restructuring charges incurred in connection with consolidation or relocation of operations,
exited business lines, shutdowns of specific sites, or distributor terminations. These restructuring charges, which
reflect our commitment to a termination or exit plan that will begin within twelve months, are based on estimates
of the expected costs associated with site closure, legal matters, contract terminations, employee separation
arrangements, or other costs directly related to the restructuring. If the actual cost incurred exceeds the estimated
cost, an additional charge to earnings will result. If the actual cost is less than the estimated cost, a credit to
earnings will be recognized.
F-15
Net Income per Share
We compute basic earnings per share by dividing net income available for common stockholders by the
weighted average number of shares outstanding during the year. Except where the result would be anti-dilutive to
net income per share, diluted earnings per share has been computed using the treasury stock method and reflects
the potential vesting of restricted common stock and the potential exercise of stock options, as well as their
related income tax effects.
The computation of basic and diluted net income per share is as follows:
Year ended December 31,
2011
2010
2009
(in thousands, except per share data)
Basic:
Net income available for common stockholders . . . . . . . . . . . . . . . . . . . . . .
$ 2,143
$ 6,013
$ 1,598
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,458
15,627
15,687
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.14
$
0.38
$
0.10
Diluted:
Net income available for common stockholders . . . . . . . . . . . . . . . . . . . . . .
$ 2,143
$ 6,013
$ 1,598
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock equivalents, if dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,458
531
Shares used in computing diluted net income (loss) per common share . . . .
15,989
15,627
487
16,114
15,687
229
15,916
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.13
$
0.37
$
0.10
Shares excluded in computing diluted net income as those shares would be anti-
dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
355
58
304
Recent Accounting Pronouncements
In May 2011, the FASB amended existing rules covering fair value measurement and disclosure to clarify
guidance and minimize differences between GAAP and International Financial Reporting Standards (IFRS). The
new guidance requires us to provide information about valuation techniques and unobservable inputs used in
Level 3 fair value measurements and provide a narrative description of the sensitivity of Level 3 measurements
to changes in unobservable inputs. The guidance is effective on January 1, 2012. We do not expect that the
adoption of this standard will have a material impact on our results of operations or financial position.
In June 2011, new guidance was issued pertaining to the presentation of comprehensive income. The new
rule eliminates the current option to report other comprehensive income and its components in the statement of
changes in equity. The standard is intended to provide a more consistent method of presenting non-owner
transactions that affect the company’s equity. Under the new guidance, an entity can elect to present items of net
income and other comprehensive income in one continuous statement or in two separate, but consecutive,
statements. The new guidance is effective for fiscal years that begin after December 15, 2011. We do not expect
that the adoption of this standard will have a material impact on our results of operations or financial position.
In September 2011, the FASB issued new authoritative guidance pertaining to the testing of goodwill for
impairment which allows an entity to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. Under this new guidance, an entity would not be
required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative
assessment, that it is more likely than not that its fair value is less than its carrying amount. The changes are
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after
F-16
December 15, 2011; however, early adoption is permitted. We adopted the new authoritative guidance in the
fourth quarter of 2011 in connection with our annual impairment test. The adoption of this standard did not have
a material impact on our results of operations or financial position.
2. Acquisitions and Divestitures
AlboGraft Distribution Agreement
In March 2009, we entered into a series of agreements with Edwards Lifesciences Corporation (Edwards) to
terminate their distribution of our AlboGraft Vascular Graft product line in Europe and certain other international
markets, for which they had exclusive rights through 2011, and to acquire certain assets and rights from Edwards.
We paid $3.5 million to Edwards in exchange for this early termination, the purchase of their AlboGraft
customer list, certain licenses and most of their remaining AlboGraft inventory. We allocated the payment to the
tangible and intangible assets acquired, and to the settlement of our pre-existing relationship with Edwards, based
on the estimated fair value of each of these elements to the transaction. As such, we recorded $1.0 million of
intangible assets, recognized a $1.8 million restructuring charge related to the early termination of the
distribution agreement, and $0.7 million of inventory.
LifeSpan Vascular Graft
In November 2010, we entered into an Asset Purchase Agreement (the Angiotech Agreement) with
Angiotech Pharmaceuticals (US), Inc., and Angiodevice International GmbH (together, Sellers), to acquire
substantially all the assets associated with the LifeSpan Vascular Graft and related manufacturing business.
Assets acquired include inventory, fixed assets, select contractual commitments, permits and approvals, legal
rights, and intellectual property. Other provisions of the Angiotech Agreement include transitional assistance
from Sellers and mutual indemnification for losses arising out of or relating to certain breaches of, and
misrepresentations under, the Angiotech Agreement.
The purchase price for this acquisition was $2.8 million dollars. We paid Angiotech $2.5 million at the
closing of the acquisition. We paid the remaining $0.3 million in November 2011. The deferred payments were
included in Acquisition-related obligations in the December 31, 2010 consolidated balance sheet. We accounted
for the acquisition as a business combination. The following table summarizes the final purchase accounting for
the fair value of the assets acquired and liabilities assumed at the date of the acquisition:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The goodwill of $0.9 million will be deductible for tax purposes over 15 years.
Allocated
Fair Value
(in thousands)
$ 765
209
931
895
2,800
—
$2,800
F-17
Of the $0.9 million of acquired intangible assets, the following table reflects the allocation of the acquired
intangible assets and related estimated useful lives:
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer and contract relationships . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$863
68
Weighted
Average
Useful Life
6.0 years
4.0 years
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$931
In a related transaction, on November 30, 2010, we entered into an Asset Purchase Agreement and a
Transition Agreement (together, the Edwards Agreements), each with Edwards Lifesciences Corporation
(Edwards), and certain of Edwards’ affiliates, for an orderly transition of Edwards’ distribution business of the
LifeSpan Vascular Graft in Europe and Japan from Edwards to LeMaitre, and to acquire from Edwards certain
assets related to Edwards’ distribution of the product, including inventory, detailed customer lists for Europe and
Japan, transfer of certain registrations, and the LifeSpan trademark. Under the Edwards Agreements, Edwards
provided sales and marketing cooperation through assignment of most assignable customer contracts and other
transition assistance.
We paid Edwards $1.0 million on the closing date and paid $0.2 million in March 2011. The deferred payments
were included in Acquisition-related obligations in the December 31, 2010 balance sheet. We allocated the payment to
the tangible and intangible assets acquired based on the estimated fair value of each of these elements to the
transaction. As such, we recorded $0.6 million of inventory and $0.5 million of intangible assets. The weighted-
average amortization period for these intangibles as of December 31, 2010 is 4.4 years. In addition, we recorded $0.1
million as prepaid transition services which were amortized over its contractual life of three months.
Cardiva, S.L. Distribution Agreement
In December 2010, we entered into a definitive agreement with Cardiva, S.L. (Cardiva) to terminate its
distribution of our products in Spain and to acquire certain assets and rights from Cardiva effective as of June 30,
2011. We paid approximately $1.2 million in exchange for this early termination, the purchase of their Spanish
customer list for our products, certain customer contracts, their provision of sales and marketing services, and
most of their remaining inventory. We recorded $0.4 million of intangible assets, recognized a $0.5 million
restructuring charge related to the early termination of the distribution agreement, expensed $0.1 of transition
services as selling expense, and recorded $0.3 million of inventory. We allocated the payment to the tangible and
intangible assets acquired based on the estimated fair value of each of these elements to the transaction. The
weighted-average amortization period for these intangibles as of June 30, 2011 is 5.5 years. Additionally, we
entered into a one-year consulting agreement beginning July 1, 2011 with an employee of Cardiva for $0.2
million which has been paid in full as of December 31, 2011.
Marcom Medical ApS Distribution Agreement
In December 2010, we entered into a definitive agreement with Marcom Medical ApS (Marcom) to
terminate its distribution of our products in Denmark and to acquire certain assets and rights from Marcom
effective as of June 30, 2011. We paid approximately $0.2 million in exchange for this early termination, the
purchase of their Danish customer list for our products, certain customer contracts, and minimal inventory. We
have deferred payments of approximately $19,000 which have been included in Acquisition-related obligations
in our consolidated balance sheets which become payable on June 30, 2012. We recorded $0.1 million of
intangible assets and recognized a $0.1 million restructuring charge related to the early termination of the
distribution agreement. We allocated the payment to the tangible and intangible assets acquired based on the
estimated fair value of each of these elements to the transaction. The weighted-average amortization period for
these intangibles as of June 30, 2011 is 2.9 years.
F-18
OptiLock Implantable Port
On June 1, 2010, we sold our OptiLock Implantable Port product line to Minvasive Ltd. (Minvasive). In
exchange for consideration of approximately $0.2 million, Minvasive received our existing inventory, tangible
and intangible assets, and a customer list associated with the product line. Payment terms included $30,000 due
at signing, with the remaining balance to be paid in the form of a royalty of 30% of Minvasive’s OptiLock
Implantable Port sales until the total consideration is paid in full. In 2014, any outstanding balance will become
due in full. As a result of the transaction, we recorded the estimated present value of amounts due as a $0.1
million receivable in other long term assets. All royalty payments received from Minvasive will be applied to the
receivable, and any payments received in excess of the outstanding receivable balance will be recognized as a
gain on disposition in the periods in which they are received. We have received $60,000 as of December 31,
2011.
TAArget and UniFit Stent Grafts
On June 30, 2011, we sold our TAArget and UniFit stent graft product lines to Duke Vascular, Inc. (Duke).
In exchange for consideration of approximately $0.1 million in cash and a $0.5 million promissory note, Duke
received most of our existing inventory, tangible and intangible assets, and a customer list associated with the
product lines. We received the cash payment on June 30, 2011. The $0.5 million promissory note bears interest at
7% and is payable on June 30, 2012. The promissory note maturity date will accelerate upon Duke raising
additional capital or the sale of its business. We recorded the estimated fair value of the promissory note as $0.2
million receivable in other long term assets. Any payments received in excess of the fair value of the promissory
note will be recognized as a gain on disposition in the periods in which they are received. In addition, Duke
assumed our future obligations associated with the UNITE and ENTRUST clinical trials.
We received cash proceeds of $0.1 million and a promissory note that we valued at $0.2 million. We applied
these proceeds against the related assets, including $0.1 million of fixed assets, $0.1 million of intangible assets,
and $0.4 million of inventory, resulting in a net charge of approximately $0.4 million, which we recorded in cost
of sales during the year ended December 31, 2011.
Endologix Stent Grafts
On July 6, 2011, we entered into an early termination agreement for our distribution rights of Endologix’s
aortic endovascular products in Europe. Under the terms of the agreement, we received $1.3 million in exchange
for the early termination of our distribution agreement on August 31, 2011, certain customer contracts, our
provision of sales and marketing services, and most of our remaining inventory. Previously, we held distribution
rights in certain European countries for Endologix’s Powerlink System, and related products, through June 30,
2013. We recognized a gain of $0.7 million upon the termination of the distribution agreement during the year
ended December 31, 2011.
The fair market valuations associated with the Lifespan, Cardiva, Marcom, and Duke transactions fall within
Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value. The
fair value measurements were calculated using unobservable inputs, primarily using the income approach,
specifically the discounted cash flow method. The amount and timing of future cash flows within our analysis
was based on our due diligence models, most recent operational budgets, long range strategic plans and other
estimates.
F-19
3. Inventory
Inventory consists of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,034
1,308
4,661
$2,219
1,469
4,687
Total inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,003
$8,375
As of December 31,
2011
2010
(in thousands)
4. Property and Equipment
Property and equipment consists of the following:
As of December 31,
2011
2010
(in thousands)
Computers and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,007
5,077
2,949
$ 2,066
6,221
1,205
Gross property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,033
(5,372)
9,492
(5,686)
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,661
$ 3,806
Depreciation expense is as follows:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Goodwill and Other Intangibles
Goodwill consists of the following:
Year ended December 31,
2011
2010
2009
(in thousands)
$693
$1,047
$795
As of December 31,
2011
2010
(in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,917
—
$11,022
895
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,917
$11,917
F-20
Other intangibles consist of the following:
2011
2010
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value of
Intangible
Assets
Gross
Carrying
Value
Accumulated
Amortization
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and technology licenses . . . . .
Customer relationships . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . .
$2,546
1,154
1,528
332
Total identifiable intangible assets . . . . . .
$5,560
$ 909
723
712
231
$2,575
(in thousands)
$1,637
431
816
101
$3,761
1,271
1,662
312
$2,985
$7,006
$1,529
735
848
208
$3,320
Net
Carrying
Value of
Intangible
Assets
$2,232
536
814
104
$3,686
These assets are being amortized over useful lives ranging from 1 to 15 years. The weighted-average
amortization period for these intangibles as of December 31, 2011, is 4.7 years. Amortization expense is included
in general and administrative expense and is as follows:
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$990
(in thousands)
$683
$624
Year ended December 31,
2011
2010
2009
Estimated amortization expense for each of the five succeeding fiscal years, based upon the intangible assets
at December 31, 2011, is as follows:
Year ended December 31,
2012
2013
2014
2015
2016
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$840
$700
$357
$266
(in thousands)
$550
6. Financing Arrangements
As part of the purchase of Biomateriali S.r.l, we assumed a loan from the Italian government under a
program that provides funding to certain businesses in Italy through a combination of grants and loans if certain
requirements are met. The loan was stated to be payable in ten annual payments through 2018 of principal and
interest at an interest rate of 0.74%. The present value of the loan was recorded as of the date the proceeds were
received using our incremental borrowing rate. Interest was being imputed on the loan and the amortization was
recorded as interest expense. The Italian government informed us the loan and grant will become due in full as a
result of the Biomateriali S.r.l plant closure. As a result, in December 2011, we incurred approximately $0.1
million of restructuring charges related to additional interest and penalties charges, and we made the final
payment to the Italian government of $0.5 million in December 2011. In 2010, we had previously recorded
approximately $0.3 million of restructuring charges related to the expected repayment of the grants, the imputed
interest on the outstanding loan balance, and certain additional interest and penalties.
F-21
7. Accrued Expenses
Accrued expenses consist of the following:
As of December 31,
2011
2010
(in thousands)
Compensation and related taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Factory build-out costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,250
530
—
101
360
1,298
$4,116
802
791
922
441
1,556
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,539
$8,628
8. Commitments and Contingencies
Leases
We conduct certain of our operations in leased facilities, which are accounted for as operating leases.
Certain leases include renewal options. In addition, we lease automobiles and equipment under operating leases.
There were no assets held under capital leases at December 31, 2011 and 2010. Rent expense was as follows:
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,182
(in thousands)
$1,089
$1,315
Year ended December 31,
2011
2010
2009
At December 31, 2011, the minimum rental commitments under all non-cancelable operating leases with
initial or remaining terms of more than one year, for each of the following fiscal years, are as follows:
Operating leases . . . . . . . . . . . . . . . . . . . . . . .
$1,083
$854
(in thousands)
$659
$734
$583
$462
Year ended December 31,
2012
2013
2014
2015
2016
Thereafter
Purchase Commitments
As part of our normal course of business, we have purchase commitments to purchase $6.3 million of
inventory through 2016. The purchase commitments for inventory are to be used in operations over the normal
course of business and do not represent excess commitments or loss contracts.
Other Commitments
In 2007, we purchased certain patent applications and in-process research and development which included
earn-out payments associated with the commercialization of The UnBalloon Non-Occlusive Modeling Catheter
in the European Union and the United States as part of the consideration. The earn-out payments are payable
quarterly at approximately the rate of two times sales for the four quarters. The European earn-out period was
measured from December 23, 2009 through December 22, 2010. We recorded an intangible asset of
approximately $27,000 related to earn-out payments made on European sales. The United States earn-out period
will be measured from January 1, 2012 through December 31, 2012. We consider the earn-out payments
associated with the commercialization of the products in Europe and the United States to be contingent
consideration that will be recorded as additional intangible assets in the periods that the contingency is resolved.
In addition, there is a contingent payment of $0.1 million related
F-22
to one patent application which is payable upon the issuance of the patent. We consider the payment associated
with the patent application approval to be contingent consideration that will be recorded as additional intangible
assets in the periods that the contingency is resolved.
AlboGraft Recall
In October 2011, we received complaints of two device failures which resulted in a voluntary recall of one
production lot of our AlboGraft Vascular Graft. Subsequently, in February 2012, we received complaints of two
additional device failures from a second lot which resulted in a voluntary recall of one additional production lot.
We believe that we have isolated the root cause of these device failures and implemented corrective actions
beginning with lots produced from November 2011. However, there can be no assurance that these failures will
not reoccur or that other problems will not develop in the future. As a result of the recalled lots, we recognized
$0.2 million of inventory write-offs which we recorded to cost of sales during the year ended December 31,
2011. Also in February 2012, we received an additional complaint on our AlboGraft Vascular Graft that was
apparently unrelated to the previous complaints. Although the root cause of that complaint is still under
investigation, it appears to be an isolated manufacturing defect, although there is no assurance that this will prove
to be the case. We were notified by the regulatory agency in the United Kingdom in late February 2012 that they
would issue a Medical Device Alert to all hospitals in the United Kingdom advising caution when implanting the
AlboGraft Vascular Graft. Although the Medical Device Alert has not resulted in an additional recall, we believe
that such notice adversely affects our reputation and that of our AlboGraft Vascular Graft.
9. Income Taxes
Income (loss) before income taxes is as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,511
241
(in thousands)
$ 7,171
(3,146)
$ 5,127
(2,912)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,752
$ 4,025
$ 2,215
Year ended December 31,
2011
2010
2009
Certain of our foreign subsidiaries are included in the U.S. tax return as branches but are included as foreign
for purposes of the table above.
The provision (benefit) for income taxes is as follows:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2011
2010
2009
(in thousands)
$ 309
9
132
450
831
116
212
1,159
$
147
60
185
392
(2,105)
(257)
(18)
(2,380)
$133
5
253
391
260
22
(56)
226
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,609
$(1,988)
$617
F-23
We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open
to examination by a taxing authority. As of December 31, 2011, the gross amount of unrecognized tax benefits
exclusive of interest and penalties was $329,000. We have identified no uncertain tax positions for which it is
reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease
within the 12 months ending December 31, 2012. We remain subject to examination until the statute of
limitations expires for each respective tax jurisdiction. The Federal statute of limitations will be open with
respect to these tax positions until 2015. A reconciliation of beginning and ending amount of our unrecognized
tax benefits is as follows:
2011
2010
2009
Unrecognized tax benefits at the beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in unrecognized tax benefits as a result of tax positions taken during the
(in thousands)
$299
$299
$277
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 —
—
Amount of decreases in the unrecognized tax benefits relating to an indirect IRC
Section 199 benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
(22) —
Unrecognized tax benefits at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$329
$277
$299
Deferred taxes are attributable to the following temporary differences:
Deferred tax assets:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2011
2010
(in thousands)
$
516
3,997
1,054
150
—
791
160
367
7,035
$
418
3,830
822
231
33
1,236
—
400
6,970
(810)
(103)
(2,068)
—
(63)
(1,760)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,981)
(1,823)
Net deferred tax assets before valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,054
(4,370)
5,147
(4,309)
Net deferred tax asset (liabiltity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (316) $
838
Deferred tax classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term deferred tax asset
Short-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
809
(142)
$ 1,205
(58)
Net short-term deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
667
1,147
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax asset
Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net long-term deferred tax asset (liability)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
(989)
(983)
134
(443)
(309)
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (316) $
838
F-24
We have assessed the need for a valuation allowance against our deferred tax assets and continue to carry a
valuation allowance against $4.4 million of foreign deferred tax assets and state credits; based on the weight of
available evidence, we believe it is more likely than not such assets will not be realized. The valuation allowance
against our deferred tax assets may require adjustment in the future based on changes in the mix of temporary
differences, changes in tax laws, and operating performance. In 2010 we assessed the need for a valuation
allowance against our deferred tax assets in the United States and concluded that we emerged from a cumulative
loss position. As a result, we released $3.3 million of our valuation allowance that was previously established
against certain U.S. deferred tax assets, which based on the weight of available evidence; we believed it was
more likely than not such assets would be realized.
As of December 31, 2011, we have state net operating loss carryforwards of $0.3 million that expire at
various times through 2029. In addition, we have net operating loss carryforwards in France of $1.1 million that
have no expiration, Japan of $1.7 million that begin to expire in 2013 and Italy of $9.3 million of which $7.8
million relates to our Biomateriali subsidiary which was dissolved in March 2012 and $1.5 million related to our
Italian sales office of which $0.6 million does not expire and $0.9 million that begin to expire in 2013. We also
have Federal research and development tax credit carryforwards and alternative minimum tax credits of
approximately $0.7 million and state tax credit carryforwards of approximately $0.6 million that are available to
reduce future tax liabilities, which expire at various dates through 2031, or can be carried forward indefinitely.
Included in the research and development credit carryforwards are stock option deductions of approximately $0.6
million. The benefit of these tax deductions will be credited to additional paid-in capital when we receive a cash
benefit from the stock options being utilized. Ownership changes, as defined by the Internal Revenue Code, may
limit the amount of net operating losses and research and experimentation credit carryforwards that can be
utilized annually to offset future taxable income and taxes payable.
We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested; therefore, no
amount for U.S. income tax has been provided. In the event of distribution of those earnings in the form of
dividends or otherwise, we would be subject to both U.S. income taxes, subject to an adjustment, if any, for
foreign tax credits, and foreign withholding taxes payable to certain foreign tax authorities.
A reconciliation of the Federal statutory rate to our effective tax rate is as follows:
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax, net of federal benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
34.0% 34.0% 34.0%
1.7% 1.8% 1.2%
(1.6%)
2.3%
(0.8%)
3.6% (87.7%) (20.1%)
6.8% 6.4% 9.3%
1.2%
(3.1%)
(1.6%)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.9% (49.4%) 27.9%
We are not currently under audit in any tax jurisdictions. As of December 31, 2011, a summary of the tax
years that remain subject to examination in our most significant tax jurisdictions are:
United States—Federal
Germany
Italy
Japan
2008 and forward
2007 and forward
2006 and forward
2005 and forward
F-25
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Stock-based Compensation
The components of stock-based compensation expense included in the consolidated statements of operations
are as follows:
Stock option awards to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted common stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 591
506
2011
2010
(in thousands)
$436
531
Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,097
$967
2009
$300
685
$985
We expect to record the unamortized portion of share-based compensation expense of $2.3 million for
existing stock options and RSUs outstanding at December 31, 2011, over a weighted-average period of 3.2 years.
Stock Repurchase Plan
In July 2009, our Board of Directors authorized the repurchase of up to $1.0 million of our common stock
from time to time on the open market or in privately negotiated transactions. In October 2009, our Board of
Directors increased this amount to $2.0 million, and in July 2010, our Board of Directors further increased this
amount to $5.0 million. In November 2011, our Board of Directors further increased this amount to $10.0 million
and extended the program through December 31, 2013. The timing and number of any shares repurchased will be
determined based on our evaluation of market conditions and other factors. Repurchases may also be made under
a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from
doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time and
will conclude no later than December 31, 2013, unless otherwise extended by our Board of Directors. The
repurchase program is being funded using our available cash and cash equivalents. We repurchased 300,326
shares for $1.9 million in the year ended December 31, 2011. We repurchased 378,528 shares for $2.2 million in
the year ended December 31, 2010. We had the authority to purchase up to an additional $5.3 million of common
stock under the repurchase program as of December 31, 2011.
Dividends
On February 24, 2011, our Board of Directors approved a policy for the payment of quarterly cash dividends
on our common stock of $0.02 per share. Future declarations of quarterly dividends and the establishment of
future record and payment dates are subject to approval by our Board of Directors on a quarterly basis. The
dividend activity for the year ended December 31, 2011 is as follows:
Record Date
Payment Date
Per Share Amount Dividend Payment
March 22, 2011
May 20, 2011
August 19, 2011
November 23, 2011
April 5, 2011
June 6, 2011
September 6, 2011
December 6, 2011
$0.02
$0.02
$0.02
$0.02
(in thousands)
$309
$310
$310
$308
On February 23, 2012, our Board of Directors approved a quarterly cash dividend on our common stock of
$0.025 per share payable on April 3, 2012, to stockholders of record at the close of business on March 20, 2012,
which will total approximately $0.4 million.
11. Profit-Sharing Plan
We offer a 401(k) profit-sharing plan (the Plan) covering eligible U.S. employees to make tax deferred
contributions, a portion of which are matched by us. We may make discretionary profit sharing contributions to
F-28
the Plan in an amount determined by our Board of Directors. Our contributions vest ratably over six years of
employment and amounted to approximately $0.1 million for 2011, $0.2 million for 2010, and $0.1 million for
2009. Effective April 1, 2011, we ceased our discretionary matching on employee contributions.
12. Restructuring Charges
In March 2009, we incurred $1.8 million of restructuring charges, related to the termination of our
Biomateriali subsidiary’s distribution agreement with Edward Lifesciences as discussed in Note 2.
In October 2010, we adopted a reorganization plan (the Biomateriali Plan) that is designed to eliminate
redundant costs resulting from our 2007 acquisition of Biomateriali and to improve efficiencies in our
manufacturing operations. We transitioned the production of our AlboGraft Vascular Graft to our existing
corporate headquarters in Burlington, Massachusetts. The Biomateriali Plan provided for the termination of 29
employees at our Biomaterial subsidiary, relocation of manufacturing equipment, the eventual dissolution of our
Biomateriali subsidiary, and the hiring of additional employees to staff the required functions in Burlington. In
2010, we incurred $1.4 million of severance charges, of which $0.9 million was paid in December 2010, $0.3
million of charges related to the repayment of grants and loans received from the Italian government associated
with business incentive programs for the Biomateriali facility (see Note 6), and $0.1 million of charges related to
the abandonment of fixed assets and legal fees associated with the negotiation of the severance agreements. In
2011, we incurred $0.3 million of charges associated with the transfer of manufacturing equipment to our
Burlington factory and $0.7 million of non-cash charges related to the write-down of an asset for deferred rent,
which was triggered by our exit of the Biomateriali facility in March 2011, and $0.1 million related to the
repayment of grants and loans received from the Italian government associated with business incentive programs
for the Biomateriali facility. We paid $0.4 million of severance related charges in 2011 and paid remaining $0.2
million in February 2012. We made the final payment to the Italian government of $0.5 million in December
2011. In March 2012, we completed the Biomateriali liquidation and dissolution process.
In May 2011, we adopted a reorganization plan (the LifeSpan Plan) that is designed to eliminate redundant
costs resulting from our 2010 acquisition of the LifeSpan vascular graft and to improve efficiencies in our
manufacturing operations. We have transitioned the production of our LifeSpan vascular graft from Laguna Hills,
California to our existing corporate headquarters in Burlington, Massachusetts. The LifeSpan Plan resulted in the
termination of 7 employees at the Laguna Hills facility, relocation of manufacturing equipment, and the hiring of
approximately 4 employees to staff the required functions in Burlington. We incurred approximately $0.1 million
related to the closure of the Laguna Hills facility and the related relocation of the manufacturing equipment
during the year ended December 31, 2011. We incurred approximately $33,000 of severance charges related to
this project during year ended December 31, 2011.
On June 30, 2011, we terminated our relationship with our Spanish distributor resulting in a contract
termination charge of $0.5 million which we recorded as restructuring charges (see Note 2 for further details
regarding the transaction).
On June 30, 2011, we terminated our relationship with our Danish distributor resulting in a contract
termination charge of $0.1 million which we recorded as restructuring charges (see Note 2 for further details
regarding the transaction).
In July 2011, we adopted a reorganization plan of our European administrative and stent graft sales
personnel as a result of our exit from our stent graft business. We terminated 6 employees and recorded
severance charges of $0.3 million during the year ended December 31, 2011. The final severance payments were
made in March 2012.
F-29
The components of the restructuring charges are as follows:
Year ended December 31,
2010
2009
2011
Distributor termination charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italian government loan and grant termination charge . . . . . . . . . . . . . .
Non cash asset write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 572
446
291
79
732
41
(in thousands)
$ —
—
1,431
250
108
27
$1,777
—
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,161
$1,816
$1,777
Activity related to accrued restructuring costs is as follows:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus:
Year ended December 31,
2011
2010
2009
$ 922
(in thousands)
$ —
$
83
Current year restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,161
—
1,816
155
Less:
Payment for termination of contractual obligations . . . . . . . . . . . . .
Payment of employee severance costs . . . . . . . . . . . . . . . . . . . . . . .
Payment related transfer of manufacturing equipment
. . . . . . . . . .
Payment of Italian loan and grant
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash fixed asset write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
572
680
446
469
83
732
—
941
—
—
—
108
1,777
—
1,777
83
—
—
—
—
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 101
$ 922
$ —
13. Segment and Enterprise-wide Disclosures
The FASB establishes standards for reporting information regarding operating segments in annual financial
statements. Operating segments are identified as components of an enterprise about which separate, discrete
financial information is available for evaluation by the chief operating decision-maker in making decisions on
how to allocate resources and assess performance. We view our operations and manage our business as one
operating segment. No discrete operating information other than product sales is prepared by us, except by
geographic location, for local reporting purposes.
Upon our divestiture of the stent graft product lines, we reorganized our product categories from “Vascular”,
“Endovascular”, and “General Surgery” to “Open Vascular” and “Endovascular and Other” as we re-focused our
portfolio and sales channel on open vascular products. Net sales in these product categories were as follows:
Open Vascular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Endovascular and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$44,408
13,277
(in thousands)
$40,022
16,038
$34,265
16,643
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,685
$56,060
$50,908
Year ended December 31,
2011
2010
2009
F-30
Most of our revenues were generated in the United States, Europe, and Japan, and substantially all of our
assets are located in the United States. We analyze our sales using a number of approaches, including sales by
legal entity. Our German subsidiary (LeMaitre Vascular GmbH) records all sales in Europe excluding direct sales
in France (LeMaitre Vascular SAS); Italy (LeMaitre Vascular S.r.l.); and Spain (LeMaitre Vascular Spain SL)
beginning July 1, 2011, and to distributors worldwide, excluding distributor sales in North, South and Central
America (LeMaitre Vascular, Inc.) France (LeMaitre Vascular SAS), Portugal (LeMaitre Vascular SL), and
Korea and Taiwan (LeMaitre Vascular GK). Net sales to unaffiliated customers by legal entity were as follows:
LeMaitre Vascular, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LeMaitre Vascular GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,958
13,845
6,882
(in thousands)
$34,575
15,382
6,103
$29,420
15,802
5,686
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,685
$56,060
$50,908
Year ended December 31,
2011
2010
2009
Total property and equipment held by legal entity were as follows:
LeMaitre Vascular, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LeMaitre Vascular GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,241
253
167
$3,188
268
350
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,661
$3,806
As of December 31,
2011
2010
(in thousands)
14. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are as follows:
Cash paid for income taxes, net
Supplemental non-cash financing activities:
Common stock repurchased for RSU tax withholdings . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2011
2010
2009
(in thousands)
$835
$431
$717
308
271
165
15. Fair Value Measurements
The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and
disclosed in one of the following three categories:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities
in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
F-31
As of December 31, 2011, we had cash equivalents in a money market fund that was valued using Level 1
inputs (quoted market prices for identical assets) at a fair value of $17.4 million.
We had no Level 2 or Level 3 assets being measured at fair value on a recurring basis as of December 31,
2011. As discussed in Notes 1 and 2, several measurements of acquisition-related assets and impairments of
intangible assets were measured using Level 3 techniques.
16. Quarterly Financial Data (unaudited)
2011
Three months ended
March 31
June 30
September 30 December 31
(in thousands, except per share data)
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders:
$14,598
10,151
(30)
64
$15,112
10,370
897
519
$14,564
10,183
1,991
1,214
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
$ — $
0.03
0.03
$
$
0.08
0.08
$13,411
9,523
832
346
$
$
0.02
0.02
2010
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders:
Three months ended
March 31
June 30
September 30 December 31
(in thousands, except per share data)
$13,815
10,318
1,270
1,021
$14,158
10,656
2,008
1,511
$13,656
10,398
2,032
1,517
$14,431
10,347
(1,295)
1,964
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.07
0.06
$
$
0.10
0.09
$
$
0.10
0.09
$
$
0.13
0.12
F-32
Exhibit
Number
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
EXHIBIT INDEX
3.1
3.2
4.1
10.1
10.2
10.5
10.6
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19
10.20
Amended and Restated By-laws of the Registrant
S-1/A
5/26/06
3.1
Second Amended and Restated Certificate of Incorporation
of the Registrant
10-K
3/29/10
Specimen Certificate evidencing shares of common stock
S-1/A
6/22/06
3.2
4.1
Northwest Park Lease dated March 31, 2003, by and
between the Registrant and Roger P. Nordblom and Peter C.
Nordblom, as Trustees of Northwest Associates, as amended
Registration Rights Agreement dated June 17, 1998, by and
between the Registrant and Housatonic Equity Investors,
L.P.
License Agreement dated February 11, 1992, by and
between United States Surgical Corporation and Spinnaker
R&D Associates, as amended
Side Letter Agreement dated January 30, 2004, by and
between the Registrant and Spinnaker R&D Associates
Executive Retention and Severance Agreement dated
October 10, 2005, by and between the Registrant and George
W. LeMaitre
Managing Director Employment Agreement dated October
1, 2008, by and between LeMaitre Vascular GmbH and Peter
Gebauer, as amended
Employment Agreement dated June 20, 2006, by and
between the Registrant and David Roberts
Employment Agreement dated April 20, 2006, by and
between the Registrant and Joseph P. Pellegrino
1997 Stock Option Plan and form of agreements thereunder
1998 Stock Option Plan and form of agreements thereunder
2000 Stock Option Plan and form of agreements thereunder
2004 Stock Option Plan and form of agreements thereunder
Second Amended and Restated 2006 Stock Option and
Incentive Plan and form of agreements thereunder
Form of Indemnification Agreement between the Registrant
and its directors and executive officers
Form of Restricted Stock Unit Award Agreement under the
Registrant’s 2006 Stock Option and Incentive Plan
Management Incentive Compensation Plan
Second Amendment of Lease dated May 21, 2007, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Third Amendment of Lease dated February 26, 2008, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
S-1
4/25/06
10.1
S-1/A
5/26/06
10.2
S-1
4/25/06
10.5
S-1
4/25/06
10.6
S-1/A
5/26/06
10.7
10-K
3/31/09
10.8
S-1/A
6/22/06
10.24
S-1/A
6/22/06
10.10
S-1
S-1
S-1
S-1
4/25/06
10.11
4/25/06
10.12
4/25/06
10.13
4/25/06
10.14
8-K
6/18/10
10.1
S-1/A
5/26/06
10.17
8-K
8-K
12/26/06
4/27/07
99.1
10.1
8-K
6/15/07
10.1
8-K
4/10/08
10.1
Exhibit
Number
10.21
10.22†
10.23†
10.24†
10.25
10.26
10.27
10.28
10.29
21.1
23.1
31.1
31.2
32.1*
32.2*
Exhibit Description
Fourth Amendment of Lease dated October 31, 2008, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
First Amendment to Executive Retention and Severance
Agreement dated December 23, 2008, by and between the
Registrant and George W. LeMaitre
First Amendment to Employment Agreement dated
December 19, 2008, by and between the Registrant and
David Roberts
First Amendment to Employment Agreement dated
December 19, 2008, by and between the Registrant and
Joseph P. Pellegrino
Fifth Amendment of Lease dated March 23, 2010, by and
between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Incorporated By Reference
Form
Date
Number
Filed
Herewith
10-K 3/31/09
10.36
10-K 3/31/09
10.37
10-K 3/31/09
10.38
10-K 3/31/09
10.39
10-K 3/29/10
10.33
Northwest Park Lease dated March 23, 2010, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of
Northwest Associates, and Registrant
10-K 3/29/10
10.34
Director Compensation Policy
First Amendment to Northwest Park Lease dated September
14, 2010, by and between Rodger P. Nordblom and Peter C.
Nordblom, as Trustees of Northwest Associates, and
Registrant
Second Amendment to Northwest Park Lease dated October
31, 2011, by and between NWP Building 4 LLC, as
successor-in-interest to Trustees of Northwest Associates,
and Registrant
List of Subsidiaries
Consent of Ernst & Young LLP
Certification of Chief Executive Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Financial Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Executive Officer, as required by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter 36 of Title 18 of the United States Code (18 U.S.C.
§1350)
Certification of Chief Financial Officer, as required by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter 36 of Title 18 of the United States Code (18 U.S.C.
§1350)
X
X
X
X
X
X
X
X
X
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
Exhibit
Number
Exhibit Description
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
Incorporated By
Reference
Form Date Number
Filed
Herewith
†
*
Indicates a management contract or any compensatory plan, contract, or arrangement.
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are
not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference
into any filing of LeMaitre Vascular, Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of
any general incorporation language contained in such filing.
Board of Directors
Russell D. Hays1, 2
Cornelia W. LeMaitre
John J. O’Connor1
Retired Chairman, President & Chief Executive Officer
Biosource International, Inc.
Vice President, Human Resources
LeMaitre Vascular, Inc.
Director from 2003 to 2005 and since 2008
Director since 1992
Retired Vice Chairman of Services
PricewaterhouseCoopers LLP
Director since 2008
Michael C. Jackson3
George D. LeMaitre, MD, FACS
David B. Roberts
Founding Partner
Housatonic Partners
Director since 2005
Founder
LeMaitre Vascular, Inc.
Director since 1983
President
LeMaitre Vascular, Inc.
Director since 2001
Lawrence J. Jasinski1, 2, 3
George W. LeMaitre
William N. Thorndike, Jr.3
President & Chief Executive Officer
Soteira, Inc.
Director since 2003
Chairman & Chief Executive Officer
LeMaitre Vascular, Inc.
Director since 1992
Managing General Partner
Housatonic Partners
Director from 1998 to 2005 and since 2008
1 Member of the Audit Committee
2 Member of the Compensation Committee
3 Member of the Nominating and Corporate
Governance Committee
Stockholder Information
Price Range of Common Stock
Our common stock trades on the NASDAQ Global
Market under the symbol “LMAT”. The following
table sets forth the high and low closing sale prices
of our common stock for the periods indicated.
Transfer Agent
Inquiries concerning the transfer or exchange of
shares, lost stock certificates, duplicate mailings or
changes of address should be directed to our
transfer agent at:
Investor Information Requests
Investors, stockholders and security analysts
seeking information about us should refer to our
investor relations website at ir.lemaitre.com or call
Investor Relations at 781-221-2266.
Price Range
2010 HIGH LOW
First Quarter
$5.11
$4.42
Second Quarter
$5.81
$4.50
Third Quarter
$7.28
$5.19
Fourth Quarter
$7.09
$6.03
2011 HIGH LOW
Registrar And Transfer Company
10 Commerce Drive
Crawford, NJ 07016
800-368-3948
Foreign Shareowners: 908-497-2300
Independent Auditors
Ernst & Young LLP
Boston, MA
Auditors since 1998
First Quarter
$7.20
$6.62
Second Quarter
$7.18
$6.36
Third Quarter
$7.50
$6.22
Fourth Quarter
$6.42
$5.28
Annual Meeting
The annual meeting of stockholders will take place
on Thursday, June 14, 2012, beginning at 10:00
a.m. at our corporate headquarters at 63 Second
Avenue, Burlington, Massachusetts.
Other Information
Reports on Form 10-K, Form 10-Q, Current
Reports on Form 8-K and amendments to those
reports are available free of charge through the
investor relations section of our website at
ir.lemaitre.com. Copies of these reports are also
available by writing us at:
Investor Relations
LeMaitre Vascular, Inc.
63 Second Avenue
Burlington, MA 01803, USA
Executive Committee
George W. LeMaitre
Robert V. Linden
Andrew Hodgkinson
Chairman & Chief Executive Officer
Senior Vice President, Sales, The Americas
Vice President, Clinical, Regulatory & Quality Affairs
David B. Roberts
President
Kimberly L. Cieslak
Vice President, Marketing
Cornelia W. LeMaitre
Vice President, Human Resources
Joseph P. Pellegrino, Jr.
Ryan H. Connelly
Wolfgang Meichelboeck, Dipl.-Ing.
Chief Financial Officer
Peter R. Gebauer
President, International
Trent G. Kamke
Director, Research & Development
Vice President, Marketing International
Aaron M. Grossman
Jonathan W. Ngau
Vice President, General Counsel & Secretary
Vice President, Information Technology
Maik D. Helmers
Nobuhiro Okabe
Senior Vice President, Operations
Vice President, Central European Sales
Country Manager, Japan
Giovannella Deiure
Roli Kumar-Choudhury
Country Manager, Italy
Director, Quality Assurance
Olivier Pierron
General Manager, France
CORPORATE
HEADQUARTERS
LeMaitre Vascular, Inc.
63 Second Avenue
Burlington, MA 01803
USA
Tel: +1-781-221-2266
Fax: +1-781-425-5049
INTERNATIONAL
HEADQUARTERS
LeMaitre Vascular GmbH
Otto-Volger-Str. 5a/b
65843 Sulzbach/Ts.
Germany
Tel: +49-(0)6196-659230
Fax: +49-(0)6196-527072
ASIA-PACIFIC
HEADQUARTERS
LeMaitre Vascular GK
1F Kubodera Twin Tower Bldg.
2-9-4 Kudan-minami, Chiyoda-ku
Tokyo 102-0074 Japan
Tel: +81-(0)3-5215-5681
Fax: +81-(0)3-5215-5682