2013 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, 2013
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission File Number 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 28, 2013: $55,483,470. For purposes of this calculation, shares held by stockholders
whose ownership exceeded 5% of the registrant’s common stock outstanding based on Schedules 13G filed by such
stockholders for the year ended December 31, 2013 were deemed to be held by affiliates. 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 13, 2014, the registrant had 15,579,447 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
2013 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.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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, gross margin expectations, 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, investments or terminations of distribution arrangements that
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, EndoRE, Expandable LeMaitre Valvulotome, Glow ‘N
Tell, Inahara-Pruitt, InvisiGrip, LeverEdge, LifeSpan, MollRing Cutter, MultiTASC, Pruitt, Pruitt F3,
Pruitt-Inahara, Reddick, UnBalloon, VascuTape, TRIVEX, XenoSure, and the LeMaitre Vascular logo are
registered trademarks of LeMaitre Vascular, and AlboSure, EndoHelix, Flexcel, Grice, Martin, NovaSil,
Periscope, Reddick-Saye 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, which are the property of
their respective owners.
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, VascuTape Radiopaque Tape and the XenoSure biologic
patch.
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 85 direct sales representatives as of December 31, 2013 and we have completed
a number of vascular device acquisitions.
1
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 to $4 billion and that the
annual worldwide market addressed by our core product lines approximates $800 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 14 product lines, most of which are used in open vascular surgery and some of which are used in
endovascular procedures. For 2013, 2012 and 2011, our valvulotomes, balloon catheters, and carotid shunt
product lines have each comprised more than 10% of our revenues. Additionally, our radiopaque tape comprised
8% of our revenues in 2013 compared to 10% and 9% of our revenues in 2012 and 2011, respectively. Finally,
our XenoSure biologic patches comprised 12% of our revenues in 2013 compared to 9% and 5% in 2012 and
2011, respectively. In none of those years, including 2013, 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 85 field sales
representatives in North America, Europe and Japan as of December 31, 2013. We also sell our products through
distributors in countries where we do not have a direct sales force. For the year ended December 31, 2013,
approximately 92% 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, Asia and the Pacific Rim. 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.
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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 Valvulotomes and Over-The-Wire LeMaitre Valvulotome. Through
a combination of strategic acquisitions and research and development efforts, we have expanded to 14 product
lines.
We have completed fourteen acquisitions of complementary products since 1998:
Year
Acquisition
1998 Whittaker Screen Printing
1999
2001
2003
2004
2005
2007
2007
2007
2007
2010
2012
2013
2013
Vermed
Ideas for Medicine
Credent
VCS Clip
Endomed
Vascular Innovations
Vascular Architects
UnBalloon Technology
Biomateriali
LifeSpan
XenoSure
Clinical Instruments
TRIVEX
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
ePTFE grafts
Biologic vascular patch
Carotid Shunts and Embolectomy Catheters
Powered phlebectomy system
With the exception of the recently acquired TRIVEX product lines, 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.
Our Business Strategies
Our goal is to be a 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 positions in niche product
markets. We believe that the relative lack of competitive focus on these markets by 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,
Europe 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 related to 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
evaluate the acquisition of additional product lines and businesses that may be complementary to our
product offerings, 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 1, 2014:
Product Line
Primary Use
Removal of blood clots;
occlusion, and facilitation of blood
flow
Generally Available for Sale in(1)
European
United
Union
States
✓
✓
Japan
✓
Balloon Catheters
- LeMaitre Embolectomy Catheters
- Over-the-Wire Embolectomy Catheters
- NovaSil Embolectomy Catheters
- Pruitt Occlusion Catheters
- Distal Perfusion Catheter
Carotid Shunts
- Pruitt F3 Carotid Shunts
- Pruitt-Inahara Carotid Shunts
- Inahara-Pruitt Carotid Shunts
- Flexcel Carotid Shunts
- Latex-Free Carotid Shunts
Laparoscopic Cholecystectomy Devices
- Reddick Cholangiogram Catheter
- Reddick-Saye Screw Retractor Kit
- Grice Laparoscopic Suture Needle
Manual Contrast Injectors
- LeverEdge Contrast Injector
Modeling Catheters
- The UnBalloon Non-Occlusive
Modeling Catheter
Powered Phlebectomy
- TRIVEX phlebectomy system
Radiopaque Tape
- Glow ‘n’ Tell Tape
- LeMaitre Stent Guide
Remote Endarterectomy Devices
- MollRing Cutter Transection Device
- Martin Dissector
- EndoHelix Retrieval Device
- Periscope Dissector
- Ring Stripper
- MultiTASC Dissection/Transection Device
Valvulotomes
- Expandable LeMaitre Valvulotomes
- Over-The-Wire LeMaitre Valvulotome
Vascular Grafts—ePTFE
- LifeSpan ePTFE Vascular Grafts
Vascular Grafts—Polyester
- AlboGraft Knitted Vascular Grafts
- AlboGraft Woven Vascular Grafts
Vascular Patches
- XenoSure Biologic Patches
- AlboSure Vascular Patches
Vein Strippers
- InvisiGrip Vein Stripper
Vessel Closure Systems
- AnastoClip VCS Vessel Closure System
- AnastoClip GC Vessel Closure System
- Accessory Devices
Facilitation of blood flow to brain
during carotid plaque removal
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Introduction of dye into the cystic
duct; related uses
Injection of contrast media into
blood vessels
Improvement in the seal of aortic
stent grafts
Removal of varicose veins by
powered phlebectomy
Improvement in precision of
vascular and endovascular
procedures
Removal of blockages in
the major arteries of the leg
Destruction of vein valves to
create vein bypass grafts
Synthetic vessels for use in bypass
and replacement procedures
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
4
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Application
submitted
✓
✓
✓
✓
✓
(1) Due to varying regulatory schemes and product introduction timelines, it may be that only some models
within the applicable product line are approved for sale in the indicated market. For example, in our carotid
shunts product line, our Pruitt-Inahara carotid shunts are available for sale in the United States, the
European Union and Japan, but our Pruitt F3 carotid shunts are not available for sale in Japan (though we
have submitted an application for regulatory approval for this product in Japan).
Balloon Catheters for Embolectomy, Occlusion and Perfusion
Our LeMaitre line of embolectomy catheters are used to remove blood clots from arteries or veins. We
manufacture single-lumen latex and latex-free embolectomy catheters as well as dual-lumen latex embolectomy
catheters. The dual-lumen embolectomy catheter allows clot removal and simultaneous irrigation or guide-wire
tractability. Occlusion catheters temporarily occlude blood flow to allow the vascular surgeon time and space to
complete a given procedure. Perfusion catheters temporarily perfuse blood and other liquids into the vasculature.
Our Pruitt line of occlusion and perfusion catheters reduces vessel trauma by using internal balloon fixation
rather than traditional external clamp fixation.
Carotid Shunts
Our Pruitt F3, Pruitt-Inahara, Inahara-Pruitt, Flexcel and latex-free Carotid Shunts are used to temporarily
divert, or shunt, blood to the brain while the surgeon removes plaque from the carotid artery in a carotid
endarterectomy surgery. Our Pruitt F3, Pruitt-Inahara, and Inahara-Pruitt shunts feature internal balloon fixation
that eliminates the need for clamps, thereby reducing vessel trauma. Our Flexcel shunt is a non-balloon shunt
offered for surgeons who prefer to secure their shunt using externally placed clamps.
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.
Unlike a traditional balloon catheter, The UnBalloon 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 externally 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.
Remote Endarterectomy Devices
Our EndoRE line of remote endarterectomy devices are used to remove severe atherosclerotic blockages
from the major arteries of the leg in a minimally invasive procedure requiring a single incision in the groin. Our
EndoRE devices are used to separate the sclerotic blockage from the vessel, cut the far end of the blockage to
free it for removal, and then withdraw the blockage from the vessel.
Valvulotomes
Our Expandable LeMaitre Valvulotomes and our Over-The-Wire LeMaitre Valvulotomes cut valves in the
saphenous vein, a vein that runs from the foot to the groin, so that the vein can function as a bypass vessel to
carry blood past diseased arteries to the lower leg or the foot. We believe that our valvulotomes reduce costs for
hospitals by enabling less invasive bypass surgery to be performed with several small incisions rather than one
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continuous ankle-to-groin incision, thereby reducing the length of hospital stays and the likelihood of wound
complications. The 1.5mm Expandable LeMaitre Valvulotome is the seventh 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
We sell the XenoSure Biologic Vascular Patch, a patch made from bovine pericardium. In 2008, we
obtained exclusive rights to distribute this product under our “XenoSure” brand in the United States, and in 2012,
we exercised our option to acquire this product. Our AlboSure Vascular Patch is a polyester patch. Vascular
surgeons use patches in conjunction with carotid endarterectomy, remote endarterectomy, and other vascular
reconstructions.
Powered Phlebectomy Devices
Our TRIVEX powered phlebectomy system is comprised of capital equipment and disposables that enable
less invasive removal of varicose veins. In this procedure, an illuminator is inserted through a small incision into
the leg, enabling visualization of varicose veins. A second instrument removes the veins. Compared to
conventional hook phlebectomy, this surgical procedure is faster and results in more complete vein removal
through fewer incisions.
Vessel Closure Systems
Our AnastoClip and AnastoClip GC Vessel Closure Systems allow surgeons to attach vessels 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.
Other Products
In some hospitals, vascular surgery procedures are performed by general surgeons. We also 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, 2013, we employed 85 field sales representatives. Notable developments in late 2013
include our initiative to sell direct-to-hospital in Norway and to set up an office in Melbourne, Australia. 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.
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 frequently specifying minimum
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annual sales volumes and pricing. These agreements are renewable by mutual agreement. From time to time,
when we determine that it would be financially advantageous for us to sell directly in a market, we terminate one
or more of our distributors in that market. In December 2012, we agreed to terminate our distributor for a certain
Japanese territory, and we began selling direct-to-hospital in this territory through our existing eight person
Japanese sales force in 2013. In October 2013, we agreed to terminate our distributors in Australia and Norway,
and we began selling direct-to-hospital in those territories in January 2014.
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 primarily focused on the open vascular space
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 2013 our development efforts were focused on launching the MultiTASC device, a
two-in-one tool for dissecting, cutting and removing total occlusions of the superficial femoral artery, the 1.5mm
Expandable LeMaitre Valvulotome, a smaller-size of our classic Expandable LeMaitre Valvulotome, and the
AlboSure vascular patch, a polyester alternative to our XenoSure biologic vascular patch.
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 procedures 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 before commencing
full-scale marketing of any product.
For 2013, 2012, and 2011, our research and development expenditures were $5.2 million, $5.1 million and
$4.4 million, respectively, representing between 8% and 9% of net sales. As of December 31, 2013, our research
and development staff consisted of 16 full-time engineers and technicians.
Manufacturing
Our manufacturing facilities are located in Burlington, Massachusetts, where most of our product lines are
produced in three clean rooms. In 2013, we completed the build-out of our third clean room in Burlington for the
production of the XenoSure biologic vascular patch. Our most recent manufacturing consolidation into
Burlington, Massachusetts was the launch of production of the XenoSure biologic vascular patch in 2013. While
we ramp production of the XenoSure biologic vascular patch in our facility, we continue to source product from
Neovasc Inc. We expect this transition to our Burlington facility to be complete in the second half of 2014. In
January 2014, we also initiated a project to transfer the manufacturing of the newly acquired Clinical Instruments
devices to our facility in Burlington. We expect the transfer to be complete in the second quarter of 2014.
Although almost all of our product lines are produced in Burlington, Massachusetts, our TRIVEX and EndoRE
products are currently manufactured by third-parties.
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. Our products are
built to stock.
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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.
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 Burlington 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 Bodies (described below) to ensure
compliance with domestic and non-U.S. regulatory requirements. See “—Government Regulation.” In February
2013, we underwent an audit by the FDA and in November and December 2013, we underwent European
Notified Body audits. 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 product lines compete are characterized by rapid change resulting from
technological advances and scientific discoveries. No one company competes against all of our product lines.
Rather, we compete with a range of companies, from large to small, including publicly traded and privately held
device companies. Notable competitors include Applied Medical Resources Corporation, Baxter International,
Inc., Cardiovascular Systems, Inc., C.R. Bard, Inc., Edwards Lifesciences Corporation, Getinge AB,
Jotec GmbH, SAS Perouse Medical, 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. While we compete, where
appropriate, on the basis of price, 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.
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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.
We actively maintain and pursue patents in the United States, Europe and other strategic locations 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 2015 to 2032.
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
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. See “Risk Factors” for a description of risks
associated with our intellectual property.
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 LifeSpan Vascular Grafts, MollRing Cutter and
MultiTASC devices, Reddick-Saye Screws, Periscope Dissectors and TRIVEX productspursuant to licenses with
third-parties.
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,
XenoSure, 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
9
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.
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,
manufacturing, 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 and performance 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. 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
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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 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:
•
•
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;
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•
•
•
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.
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 February 2013, 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
12
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.
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 the event that any of our products proves to be defective, we can voluntarily recall, or the FDA or foreign
equivalent could require us to implement a recall of, any of our products and, if someone is harmed by a
malfunction or a product defect, we may experience product liability claims for such defects. Any corrective
action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication
of our time and capital and may harm our reputation and financial results. Future recalls or claims could also
result in significant costs to us and significant adverse publicity, which could harm our ability to market our
products in the future.
In some cases, we rely on our non-U.S. distributors or third party agents 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 and agents in this manner where
appropriate.
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.
Canada regulates the import and sale of medical devices through Health Canada (HC). HC classifies
medical devices into four classifications, with Class I being the lowest risk and Class IV being the highest. Class
I and II devices are often cleared for sale after they are CE marked or listed on the company’s ISO certification
and filed via fax-back applications, which are typically processed relatively quickly. Higher classification risk
devices (Class III and IV) require filing of dossiers that resemble US 510(k) applications. These applications can
range in cost and typically take longer for approval.
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Australia regulates the import and sale of medical devices through the Therapeutic Goods Administration
(TGA). The TGA has built its regulatory framework around similar requirements to those issued in Europe. As
such, many medical devices (those with a lower risk profile) may gain relatively fast marketing clearance using
their existing EU issued CE marking. Higher risk devices (those in EU/Aus Class III) must go through a full
design review which can be costly and take longer to complete. Issued licenses for medical devices do not require
renewal, but do require an annual fee to remain active in the TGA registry of devices. Australia requires all
foreign manufacturers to have an in country ‘sponsor’ who must have a licensed business inside of Australia.
In China, The China Food and Drug Administration (CFDA) Medical Device Division regulates and must
approve all medical devices to be marketed and sold in China. China has a three class risk classification system,
with Class I being the lowest risk to Class III being the highest risk. Home country approval (510(k), PMA
clearance) is required as a prerequisite to any application. Additionally, the CFDA often tests finished devices at
its own testing laboratory to confirm each device’s specifications. The approval process is typically lengthy.
Licenses are valid for 4 years from date of issuance and require renewal prior to expiration. The CFDA requires a
license holder for any foreign manufacturer who must have a registered business inside of China.
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
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
14
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
may 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.
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.
Patient Protection and Affordable Care Act
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 public disclosure of compensation, gifts and any other transfers of value made to health care
professionals and teaching hospitals, beginning in 2014.
Employees
We had 334 employees, including 328 full-time employees, at December 31, 2013.
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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. No single customer accounted for more
than 1% of our net sales in 2013.
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. On
October 19, 2006, we executed our initial public offering, and our common stock trades under the symbol
“LMAT.” 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 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.
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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 not material 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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changes in the mix of products we sell;
strategic actions by us, such as acquisitions of businesses, products, or technologies;
the divestiture or 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 XenoSure production and the transfer of production of Clinical Instruments’ devices;
adverse regulatory actions which may necessitate recalls of our products or warning letters that
negatively affect the markets for our products;
our determination whether or not to continue the payment of quarterly cash dividends;
our determination whether or not to undertake or continue share repurchases;
costs incurred by us 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;
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;
increased product and price competition, due to the regulatory landscape, market conditions or other
factors; 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.
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
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efforts and sales relate to products used in open vascular surgery rather than in endovascular procedures. The
transactions we completed in 2011 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 also ended our relationship with Endologix, Inc. for distribution of its
Powerlink stent graft in Europe. 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 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 fourteen 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. If we are unable to
complete acquisitions on satisfactory terms or at all, our growth objectives and sales could be negatively affected.
Even if we complete acquisitions, we may experience:
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difficulties in integrating any acquired businesses, 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;
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;
higher costs of integration than we anticipated;
unknown or unanticipated liabilities included as part of the acquisition;
disputes or litigation with former owners related to contingent payments, liabilities assumed or not
assumed or other matters;
challenges resulting from limited or no prior experience in new markets or countries we may enter;
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 if the acquired company is remote or inconvenient to our Burlington, Massachusetts,
headquarters;
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difficulties or delays in transitioning clinical studies or unfavorable results from such clinical studies;
difficulties or delays in commercializing intellectual property that we acquire;
difficulties in acquiring the rights to and protecting intellectual property;
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
common stock and would require interest payments to a lender.
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 as 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 October 2012, we acquired the manufacturing and distribution rights of the XenoSure
biological patch from Neovasc Inc. and its wholly-owned subsidiary. We have begun manufacturing the
XenoSure biological patch in our Burlington, Massachusetts headquarters, though we continue to purchase
product from Neovasc Inc. We expect this transition to our Burlington facility to be complete in the second half
of 2014. We expect the transition to negatively impact gross margins on our biologic vascular patch in 2014, and
to improve our biologic vascular patch gross margins beginning in 2015; however, there can be no assurance that
these results will be achieved, if at all. Further, the production of the XenoSure biological patch is our first
experience in manufacturing biological tissues. There can be no assurance that we will not experience delays or
additional expenses associated with the transfer of this patch and there can be no assurance that our current
supply agreement with Neovasc will be sufficient to meet sales demand as we continue to transition
manufacturing.
Additionally, in January 2014, we initiated a project to transfer the manufacturing of the newly acquired
Clinical Instruments devices to our facility in Burlington. We expect the transfer to be complete in the second
quarter of 2014; however there can be no assurances that this will be achieved on the expected timetable or that
transfer costs won’t exceed our expectations. Further, the manufacturing transfer may result in a shortage of
Clinical Instruments devices, which could negatively impact our sales.
For any of these reasons or as a result of other factors, we may not realize the anticipated benefits of our
acquisitions and our operating results may be harmed.
If we do not realize the expected benefits from our cost-cutting measures announced in February 2014, our
financial condition and operating results could be adversely affected.
In February 2014, we announced that we had initiated a plan intended to improve operational
efficiencies. These actions include a reduction in force of approximately 10% of our workforce and other cost-
cutting measures. We cannot guarantee that we will be able to realize the cost savings and other anticipated
benefits from such actions or that such actions will not interfere with our ability to achieve our business
objectives. If we are unable to realize the expected financial benefits and operational efficiencies from these
actions, our financial condition and operating results could be adversely affected.
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
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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
reputations with our target customers; and have developed worldwide distribution channels that are more
effective than ours. Our competitors could elect to devote additional resources to the markets in which we
currently enjoy less competition. Also, although we currently have leading market positions in the markets for
some of our products, this is not true for the markets for all of our products. We have from time to time
experienced difficulties competing against very large companies.
Recent industry consolidation could make the competitive environment more difficult for smaller companies
like ours. 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. Further, if the trend towards endovascular procedures versus open vascular
procedures continues or accelerates, our competitors may be better poised to take advantage of that trend, since
our main product lines are used primarily in open vascular procedures. Because of the size of the vascular disease
market opportunity, competitors and potential competitors have dedicated, and we believe will continue to
dedicate, significant resources to aggressively promote their products. Also, new product developments that
could compete with us more effectively are likely because the vascular disease market is characterized by
extensive research efforts and technological progress. Competitors may develop technologies and products that
are safer, more effective, easier to use, less expensive, or more readily accepted than ours. Their products could
make our technology and products obsolete or noncompetitive. Our competitors may also be able to achieve
more efficient manufacturing and distribution operations than we can. In addition, many of our products face
competition from alternative procedures that utilize a different kind of medical device that we do not currently
sell. Increased competition could also result in price reductions and loss of market share, any of which could
result in lower revenues and reduced gross profits.
If we fail to convert additional countries or products from distributor sales to direct sales, or encounter
difficulties in effecting such conversions, our results of operations could suffer.
We have a history of converting international distributor sales to direct sales by buying out our distributors
and selling directly to hospitals through our own sales representatives. In the future, we intend to convert select
other countries and products from distributor sales to direct sales. Such conversions typically result in disruptions
in our sales in the applicable geographies. These transitions may also have an adverse effect on our cash flow
from operations because distributors, unlike direct sales personnel, pay us for inventory that they stock for later
sale. In addition, switching to a direct sales force may subject us to longer customer collection times and larger
bad debt expense, since we would be required to collect customer payments directly rather than through a
distributor.
Our distribution agreements are typically exclusive with terms of up to three years. These agreements may
temporarily constrain our ability to convert certain countries or products from a distributor to a direct sales
model. Further, even where the payment of compensation is not required by contract or local law, it may be
prudent to make such a payment in order to assure a successful market transition. For example, we paid
consulting and transition services fees to our former distributor in Japan in connection with the conversion to
direct sales in a specific territory in Japan even though not required under an existing contract, because the
absence of cooperation by a distributor may result in the erosion of our customer base, which could harm our
ability to sell our product in that country.
Following termination of any distribution relationship, we may encounter difficulties in transitioning to a
direct-sales model in any country in question. It may take us longer than expected to find sufficient qualified sales
personnel to establish an effective sales force, which could negatively impact projected sales. If a distributor sold
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our products through a network of sales agents, rather than exclusively through its own personnel, we may not be
able to establish relationships with all members of that network, temporarily limiting our access to the existing
market. Similarly, failure to maintain or quickly re-establish a distributor’s close relationships with the physicians
who use our products could cause a drop in sales. Further, it may be difficult or impossible to transfer the
assignment of a distributor’s rights to sell our products, and as a result sales to customers may be delayed until a
new agreement or approval is obtained. The transition to a direct sales model may also require us to incur additional
expenses and meet regulatory requirements that were previously the responsibility of the distributor. As a result of
these risks, there can be no assurance that we will be successful in transitioning to a direct sales model in the
countries that we select, and difficulties that we encounter in these transitions could negatively affect our business.
Current economic instability may harm our operating results.
Since 2011, financial markets and the economies in southern Europe have experienced disruption and
volatility and conditions could worsen. As a result, the economic environment may, among other things:
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create downward pressure on the pricing of our products;
adversely affect the collection of accounts receivable, particularly in regions such as Italy, Spain, and
Greece;
increase the sales cycle for certain of our products, resulting in higher levels of inventory;
slow the adoption of new technology;
adversely affect our customers, causing them to reduce spending; and
adversely affect our suppliers, which could disrupt our ability to produce our products.
Any of these conditions could harm our operating results and liquidity.
If we are unable to increase our selling prices to customers, or if we are required to make price concessions,
our rate of net sales growth could be reduced and our operating results could suffer.
In the years ended December 31, 2013, 2012 and 2011, a material portion of our increases in net sales was
driven by higher average selling prices to our hospital customers across several of our product lines, particularly
with respect to sales occurring in the United States. We have in the past been able to rely upon our intellectual
property position, our well-known brands, our established reputation in the vascular surgery device marketplace,
and, in some cases, an absence of competition, to implement price increases. However, the magnitude of the
price increases we have been able to implement has declined over time.
We may become unable to implement further increases in the selling prices of our products:
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if healthcare spending is reduced, particularly in the United States, in response to government-enacted
healthcare reform, general economic conditions, or the influence of accountable care organizations;
if the reimbursement rates for the medical procedures in which our products are used are reduced or
limited; or
if competitors introduce lower-priced products of comparable safety and efficacy.
We also expect marketplace changes to increasingly place pressure on medical device pricing as hospitals
join group purchasing organizations, integrated delivery networks and other groups that seek to aggregate
purchasing power.
If we become unable to raise selling prices, or if we are required to make price concessions, it could reduce
our rate of net sales growth and harm our operating results.
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Our devices may not achieve market acceptance, which could adversely affect our business.
Some of our devices have been recently introduced into the market, including the MultiTASC Dissection/
Transection Device, the 1.5mm Expandable LeMaitre Valvulotome and the AlboSure Vascular Patch, and we
cannot assure you that any of those devices will achieve market acceptance. The same is true of new devices that
we may acquire or internally develop in the future. The marketing of our products requires a significant amount
of time and expense in order to identify and develop relationships with the physicians who may use our products,
invest in training and education with these physicians, and employ a sales force that is large enough to interact
with the targeted physicians, with no assurance of success. In some cases, our devices may face competition from
devices marketed by our competitors, and our customers may not prefer our devices. In other cases, our devices
may be used in new procedures and techniques, and if physicians do not adopt these procedures and techniques,
demand for these devices would fail to develop. For example, sales of our The UnBalloon Non-Occlusive
Modeling Catheter have not met our expectations since launching in 2010, despite its redesign. If our products do
not gain market acceptance, our business could be adversely affected.
The risks inherent in operating internationally and the risks of selling and shipping our products and of
purchasing our components and products internationally may adversely impact our net sales, results of
operations, and financial condition.
We derive a significant portion of our net sales from operations in markets outside of the United States. For
the year ended December 31, 2013, 34% of our net sales were derived from our operations outside of the
Americas. Our international sales operations expose us and our representatives, agents, and distributors to risks
inherent in operating in foreign jurisdictions. These risks include:
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fluctuations in foreign currency exchange rates;
the imposition of additional U.S. and foreign governmental controls or regulations, including export
licensing requirements, duties and tariffs, and other trade restrictions;
the risk of non-compliance with the Foreign Corrupt Practices Act by our sales representatives or our
distributors;
the imposition of U.S. and/or international sanctions against a country, company, person, or entity with
whom we do business that would restrict or prohibit continued business with the sanctioned country,
company, person, or entity;
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.
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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.
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 TRIVEX system and
associated disposables, as well as our EndoRE remote endarterectomy product line, are 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. 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 27,289 square foot leased facilities located in Burlington, Massachusetts, with the lease of
an additional 15,642 square feet to commence in 2015. 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 carry
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 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. The transactions we completed in 2011 further concentrated our focus on open vascular procedures.
In 2011 we divested a large portion of our endovascular product portfolio, our TAArget Thoracic Stent Graft and
our UniFit Abdominal Stent Graft and ended our distribution of the Endologix 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
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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 and the creation and maintenance of dialysis access sites. 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.
The use or misuse of our products may result in injuries that lead to product liability suits, which could be
costly to our business.
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. 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, and physicians may
use our products incorrectly or in procedures not contemplated by us. 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.
From time to time, we are involved in litigation where the outcome is uncertain and which could entail
significant expense.
As is the case with many global companies, we are subject, from time to time, to litigation, including
product liability suits, as described above. Because the outcome of litigation is inherently difficult to predict, it is
possible that the outcome of litigation could entail significant cost for us and harm our business. The fact that we
operate in international markets also increases the risk that we may face legal exposures as we seek to comply
with a large number of varying legal and regulatory requirements. Any successful claim against us could
adversely affect our business, financial condition and results of operations.
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,
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exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid.
Although in structuring our sales and marketing practices and customer discount arrangements we strive to
comply with those laws and regulations, we cannot assure you that:
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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
government regulators or courts will interpret those laws or regulations in a manner consistent with our
interpretation.
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, which was revised in 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 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.
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:
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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
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States generally must receive either 510(k) clearance or approval of a premarket application, or PMA, from the
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 post market data. 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.
If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation and other applicable
post market 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.
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 pre-announced and unannounced inspections. We have been, and anticipate in the future
being, subject to such inspections by the FDA and other regulatory bodies. 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
26
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 our products have received marketing approval or clearance, our products may be subject to
product recalls or product approvals and clearances could be withdrawn due to failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial approval.
Our products, marketing, sales and development activities, and manufacturing processes are subject to
extensive and rigorous regulation by the FDA, by comparable agencies in foreign countries, and by other
regulatory agencies and governing bodies. These authorities have been increasing their scrutiny of our industry.
If those regulatory bodies feel that we have failed to comply with regulatory standards or if we encounter
unforeseen problems following initial approval of our products, there can be no assurance that any approval will
not be subsequently withdrawn, suspended or conditioned upon extensive post-market study requirements, even
after products have received marketing approval or clearance. Further, due to the increased scrutiny of our
industry by the various regulatory agencies and the interconnectedness of the various regulatory agencies,
particularly within the European Union, there is also no assurance that withdrawal or suspension of any of our
product approvals by any single regulatory agency will not precipitate one or more additional regulatory agencies
from also withdrawing or suspending approval of any such product.
In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA or foreign
equivalent could require us to implement a recall of, any of our products, and, if someone is harmed by a
malfunction or a product defect, we may experience product liability claims for such defects. Any corrective
action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication
of our time and capital and may harm our reputation and financial results. Future recalls or claims could also
result in significant costs to us and significant adverse publicity, which could harm our ability to market our
products in the future.
In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA or foreign
equivalent could require us to implement a recall of or prohibit the sale of, any of our products. For example, in 2011,
2012, and 2013, we voluntarily recalled certain lots of our AlboGraft vascular graft. In March 2012, regulatory
agencies in France and the UK issued Prohibition Notices, which prohibited us from selling AlboGraft vascular grafts
in these countries pending our ability to address their concerns. Though these prohibitions were lifted by the end of
2012 and we believe that the failures associated with those lots were isolated, there can be no assurance that there will
not be a recurrence or that other problems related to our AlboGraft vascular graft will not develop in the future.
Additionally, if someone is harmed by a malfunction or a product defect, we may experience product
liability claims for such defects. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, will require the dedication of our time and capital and may harm our reputation and
financial results. Future recalls or claims could also result in significant costs to us and significant adverse
publicity, which could harm our ability to market our products in the future.
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 (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)
27
and impose new and/or increased taxes. Specifically, the law also 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. In 2013, we paid an excise tax of approximately $0.6 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.
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.
28
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.
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 each of October 2011, February 2012 and July
2013, 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 inspections by our European Notified Bodies were conducted in November and December 2013. 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 (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 approvals.
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 regions or countries, such as Europe, have issued regulations
that require our products be processed from bovine tissue sourced from countries, like Australia, where no cases
29
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.
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:
•
•
•
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.
Furthermore, the patents associated with the Expandable LeMaitre Valvulotomes will expire in
2015. Valvulotomes were our highest net sales product line in 2013. With the pending expiration of patents
associated with the Expandable LeMaitre Valvulotomes in 2015, it is possible that other manufacturers will
attempt to market and sell valvulotomes substantially similar, or identical, to the Expandable LeMaitre
Valvulotomes, though in 2013 we secured a patent in the US on the Over-The-Wire LeMaitre Valvulotome. To
the extent any of these manufacturers are successful this could have an adverse impact on our business and harm
our sales and operating results.
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.
30
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:
•
•
•
•
•
•
•
•
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 may 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.
31
Risks Related to Our Common Stock
Our stock price may be volatile, and your investment in our common stock could suffer a decline in value.
There can be significant volatility in the market price and trading volume of equity securities that is
unrelated to the financial performance of the companies issuing the securities. These broad market fluctuations
may negatively affect the market price of our common stock. You may not be able to resell your shares at or
above the price at which you purchased them due to fluctuations in the market price of our common stock caused
by changes in our operating performance or prospects, a low volume of trading in our common stock, and other
factors.
Some specific factors that may have a significant effect on our common stock market price include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in our operating results or future prospects;
our announcements or our competitors’ announcements of new products;
public concern as to the safety or efficacy of our products;
the public’s reaction to our press releases, our other public announcements, and our filings with the
SEC;
our determination whether or not to continue the payment of quarterly cash dividends;
our determination whether or not to undertake or continue a share repurchase program;
strategic actions by us or our competitors, such as acquisitions, divestitures or restructurings;
dilutive issuances of additional securities;
changes in our growth rates or our competitors’ growth rates;
developments regarding our patents or proprietary rights or those of our competitors;
our inability to raise additional capital;
changes in financial markets or general economic conditions, including those resulting from war,
incidents of terrorism, and responses to such events;
new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;
changes in accounting standards, policies, guidance, interpretations, or principles;
light volume of trades of our common stock;
the discontinuation of a product line or other revenue generating activity, such as our stent grafts;
adverse regulatory actions which may necessitate recalls of our products or warning letters that
negatively affect the markets for our products;
sales of common stock by us or our directors, officers, or principal stockholders;
our relatively small public float; and
changes in stock market analyst recommendations or earnings estimates regarding our common stock,
comparable companies, or our industry generally.
In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation has often been instituted. A securities class action suit against us could result in substantial costs
and divert our management’s attention and resources that would otherwise be used to benefit the future
performance of our business.
32
Our directors and officers have significant voting power and may take actions that may not be in the best
interests of our other stockholders.
Our directors and officers collectively control approximately 40% of our outstanding common stock,
assuming the exercise of all options held by such persons. As a result, these stockholders, if they were to act
together, would have substantial influence on most matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control, might adversely affect the market price of our common
stock, and may not be fully aligned with the interests of our other stockholders.
We have not established a minimum dividend payment level for our common stockholders and there are no
assurances of our ability to pay dividends to common stockholders in the future.
In February 2011, our Board of Directors adopted a quarterly dividend program for the purpose of returning
capital to our stockholders. However, we have not established a minimum dividend payment level for our
common stockholders and our ability to pay dividends may be harmed by the risks and uncertainties described in
this Annual Report on Form 10-K and in the other documents we file from time to time with the SEC. Future
dividends, if any, will be authorized by our Board of Directors and declared by us based upon a variety of factors
deemed relevant by our directors, including, among other things, our financial condition, liquidity, earnings
projections and business prospects. In addition, financial covenants in any credit facility to which we become a
party may restrict our ability to pay future quarterly dividends. We can provide no assurance of our ability to pay
dividends in the future.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Our principal worldwide executive, distribution, and manufacturing operations are located at adjacent
27,098 square foot and 27,289 square foot leased facilities located in Burlington, Massachusetts, with the lease of
an additional 15,642 square feet to commence in 2015. Our Burlington leases expire in 2023. In addition, our
international operations are headquartered at a 12,841 square foot leased facility located in Sulzbach, Germany,
with a lease expiring in 2016. In addition, we have smaller sales offices located in Australia, Canada, Italy,
Japan, and Spain. Based on our current operating plans, we believe our current facilities are adequate.
Item 3.
Legal Proceedings
In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations,
proceedings, and threats of litigation consisting of intellectual property, commercial and other matters. While the
outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of
December 31, 2013, that, in the opinion of management, might have a material adverse effect on our financial
position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
33
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
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 prices of our common stock as reported
on The NASDAQ National Market for the eight quarters ended December 31, 2013:
Year ended December 31, 2013:
First quarter ended March 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2012:
First quarter ended March 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$6.40
$6.75
$7.19
$8.96
$6.20
$6.00
$6.50
$6.50
$5.70
$5.90
$6.38
$6.57
$5.42
$4.79
$5.61
$5.69
Holders of Record
On March 13, 2014, the closing price per share of our common stock was $8.15 as reported on The
NASDAQ Global Market, and we had approximately 279 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. 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 periods presented is as follows:
Record Date
Payment Date
Per Share Amount
Dividend Payment
(in thousands)
Fiscal Year 2013
March 20, 2013
May 22, 2013
August 21, 2013
November 20, 2013
April 3, 2013
June 5, 2013
September 4, 2013
December 4, 2013
Fiscal Year 2012
March 20, 2012
May 18, 2012
August 17, 2012
November 20, 2012
April 3, 2012
June 4, 2012
August 31, 2012
December 4, 2012
$0.030
$0.030
$0.030
$0.030
$0.025
$0.025
$0.025
$0.025
$457
$457
$460
$464
$381
$379
$380
$378
On February 20, 2014, our Board of Directors approved a quarterly cash dividend on our common stock of
$0.035 per share payable on April 3, 2014, to stockholders of record at the close of business on March 20, 2014,
which will total approximately $0.5 million.
34
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, 2008, through the end of LeMaitre’s fiscal year ended December 31, 2013.
The graph assumes an investment of $100.00 made on December 31, 2008, in (i) LeMaitre’s common stock,
(ii) the stocks comprising the NASDAQ US Composite Index, (iii) stocks comprising the NASDAQ Medical
Equipment Index and (iv) the stocks comprising our peer group. This graph is not “soliciting material,” is not
deemed “filed” with the SEC and is not to be incorporated by reference into any filing of LeMaitre under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date hereof and irrespective of any general incorporation language in any such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among LeMaitre Vascular, Inc, the NASDAQ Composite Index,
the NASDAQ Medical Equipment Index,
Old Peer Group, and New Peer Group
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
LeMaitre Vascular, Inc
NASDAQ Composite
NASDAQ Medical Equipment
Old Peer Group
New Peer Group
* $100 invested on 12/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
LeMaitre Vascular, Inc . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . .
NASDAQ Medical Equipment . . . . . .
Old Peer Group . . . . . . . . . . . . . . . . . .
New Peer Group . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
100.00
100.00
216.64
144.88
135.05
113.84
124.23
293.33
170.58
144.86
127.62
131.65
259.72
171.30
158.78
118.53
147.66
256.22
199.99
175.96
145.73
173.44
363.97
283.39
205.02
209.24
269.21
LeMaitre’s fiscal year ends on the last day of December each year; data in the above table reflects market
values for our stock and NASDAQ and peer group indices as of the close of trading on the last trading day of
year presented.
The old peer group included the following companies: AngioDynamics, Inc., Cardiovascular Systems Inc.,
Cryolife Inc., Endologix, Inc., Integra Lifesciences Holdings Corporation, Merit Medical Systems Inc.,
Spectranetics Corp., and Vascular Solutions, Inc.
35
The new peer group includes the following companies: AtriCure, Inc., AngioDynamics, Inc., Cardiovascular
Systems Inc., Cryolife Inc., Endologix, Inc., Merit Medical Systems Inc., Spectranetics Corp., and Vascular
Solutions, Inc. This new peer group differs from our old peer group in that we removed Integra Lifesciences
Holdings Corporation since its products extend far beyond peripheral vascular space, and we added AtriCure,
Inc. based upon its financial profile.
Recent Sales of Unregistered Securities
Not Applicable.
Issuer Purchases of Equity Securities
In the quarter ending December 31, 2013, we repurchased 4,707 shares of our common stock in conjunction
to satisfy employee obligations with respect to withholding taxes in connection with the vesting of shares of
restricted stock.
Issuer Purchases of Equity Securities
Period
Total Number of
Shares (or Units)
Purchased(1)
Average Price Paid
Per
Share (or Unit)
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Program(2)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that may yet be
Purchased under
the Plans or
Program
October 1, 2013 through October 31,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
November 1, 2013 through
November 30, 2013 . . . . . . . . . . . . . . .
December 1, 2013 through December 31,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,707
—
4,707
$ —
$7.87
$ —
$7.87
—
—
—
—
$3,482,619
$3,482,619
$
$
—
—
(1) For the three months ended December 31, 2013, we repurchased 4,707 shares of our common stock to
(2)
satisfy employee obligations with respect to withholding taxes in connection with the vesting of restricted
stock units.
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, in July 2010, our Board of Directors further increased this
amount to $5.0 million, and in November 2011, our Board of Directors further increased this amount to
$10.0 million. This program expired on December 31, 2013.
36
Item 6.
Selected Financial Data
You should read the following selected consolidated financial data in conjunction with our consolidated
financial statements and the related notes which are included elsewhere in this Annual Report and the
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this
Annual Report. We have derived the consolidated statement of operations data for the years ended December 31,
2013, 2012, and 2011 and the consolidated balance sheet data as of December 31, 2013 and 2012, from our
audited consolidated financial statements, which are included elsewhere in this Annual Report. We have derived
the consolidated statement of operations data for the years ended December 31, 2010 and 2009, and the
consolidated balance sheet data as of December 31, 2011, 2010, and 2009 from our audited consolidated
financial statements, which are not included in this Annual Report. Our historical results for any prior period are
not necessarily indicative of results to be expected for any future period.
Year ended December 31,
2013
2012
2011
2010
2009
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$64,549
19,434
$56,735
15,867
$57,685
17,458
$56,060
14,341
$50,908
13,604
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,115
40,868
40,227
41,719
37,304
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . .
Medical device excise tax . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,143
12,576
5,243
635
—
—
—
20,811
10,973
5,092
—
—
(248)
—
19,375
11,228
4,425
—
2,161
(735)
83
19,409
10,506
5,488
—
1,816
—
485
17,710
9,852
5,910
—
1,777
—
106
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,597
36,628
36,537
37,704
35,355
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency gain (loss) . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . .
Total other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,518
4,240
3,690
4,015
1,949
4
(12)
(182)
—
(190)
78
(1)
(324)
—
(247)
11
—
51
—
62
31
(5)
(30)
14
10
38
(26)
280
(26)
266
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . .
4,328
1,126
3,993
1,422
3,752
1,609
4,025
(1,988)
2,215
617
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,202
$ 2,571
$ 2,143
$ 6,013
$ 1,598
Earnings per share of common stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.21
0.20
$
$
0.17
0.16
$
$
0.14
0.13
$
$
0.38
0.37
$
$
0.10
0.10
15,317
15,194
15,458
15,627
15,687
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,764
15,638
15,989
16,114
15,916
Cash dividends declared per common share . . . . . . . . . . . . .
$
0.12
$
0.10
$
0.08
$ — $ —
37
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities (excluding revolving line of credit and
current portion of long-term debt) . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
2011
2010
2009
(in thousands)
$14,711
—
41,725
70,492
$16,448
—
39,131
63,060
$20,132
—
39,687
59,687
$22,614
—
42,911
63,274
$23,192
808
39,550
56,906
10,220
3,710
13,930
56,562
8,394
1,778
10,172
52,888
6,539
1,060
7,599
52,088
10,389
529
10,918
52,356
6,548
2,145
8,693
48,213
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, Asia and the Pacific Rim. We estimate
that the annual worldwide market for all peripheral vascular devices approximates $3 to $4 billion, within which
our core product lines address roughly $800 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.
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.
Our principal product lines include the following: valvulotomes, balloon catheters, carotid shunts, biologic
vascular patches, radiopaque marking tape, anastomotic clips, remote endarterectomy devices, laparoscopic
cholecystectomy devices, vascular grafts, and powered phlebectomy.
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.
38
Our business opportunities include the following:
•
•
•
•
•
the long-term growth of our sales force in North America, Europe and Asia and the Pacific Rim,
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;
the introduction of our products in new markets upon obtainment of regulatory approvals in these
markets; and
the consolidation of product manufacturing into our facilities in our Burlington, Massachusetts
corporate headquarters.
We sell our products primarily through a direct sales force. As of December 31, 2013 our sales force was
comprised of 85 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, Mississauga, Canada, Madrid, Spain, Milan, Italy and Melbourne, Australia. In 2013,
approximately 92% 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 markets for biologic patches and valvulotome devices. In the biologic
patch market, we believe that we have been able to increase market share and increase selling prices. In the
valvulotome market, 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
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.
In recent years we have also experienced comparatively greater success in geographic markets outside of the
United States, including Europe and other non-traditional markets for our devices such as China and Saudi
Arabia. Sales to these geographies generally include comparatively lower average selling prices, and to the extent
that we continue to be successful in these markets, as well as successful at selling our biologic vascular patch
device which carries a lower margin, we will likely experience downward pressure on our gross margin.
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 October 2012, we entered into a definitive agreement with Schaublin Medica SA (Schaublin) to
terminate its distribution of our products in Switzerland effective January 1, 2013. The agreement
required us to pay approximately $0.2 million in exchange for the purchase of their customer list for
our products, certain customer contracts, sales and marketing transition services, and minimal
inventory.
In December 2012, we entered into a definitive agreement with Trytech Corporation to terminate its
distribution of our products in a certain Japanese territory effective as of April 1, 2013. The agreement
required us to pay approximately $0.1 million in exchange for the purchase of their customer list for
our products, certain customer contracts, sales and marketing transition services, and minimal
inventory.
In March 2013, we began shipping directly to Canadian hospitals from our sales office in Toronto,
Canada.
39
•
•
In October 2013, we entered into a definitive agreement with Medistim Norge AS (Medistim) to
terminate its distribution of our products in Norway effective January 1, 2014. The agreement required
us to pay approximately $0.2 million in exchange for the purchase of their customer list for our
products, sales and marketing transition services, and minimal inventory.
In October 2013, we entered into a definitive agreement with Tag Medical Pty Ltd (Tag) to terminate
its distribution of our products in Australia effective January 1, 2014. The agreement required us to pay
approximately $0.2 million in exchange for the purchase of their customer list for our products, certain
customer contracts, sales and marketing transition services, and minimal inventory.
We anticipate that the expansion of our direct sales organization in Norway and Australia will result in
increased sales and marketing expenses during 2014.
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 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 October 2012, we acquired the manufacturing and distribution rights of the XenoSure biologic
vascular patch from Neovasc, Inc. for $4.6 million, having previously been an exclusive distributor of
the XenoSure biologic vascular patch since 2008.
In July 2013, we acquired substantially all of the assets of Clinical Instruments International, Inc.
(Clinical Instruments), a manufacturer of latex and latex free shunts and catheters, for $1.1 million.
In August 2013, we acquired substantially all of the assets of InaVein, LLC (InaVein), a manufacturer
of a varicose veins removal system. The purchase price consisted of $2.5 million plus contingent
consideration totaling $1.4 million in 2014 and 2015, dependent on the sales performance of the
acquired business and regulatory approval in China.
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 developments:
•
•
•
•
In January 2012, we launched the Over-The-Wire LeMaitre Valvulotome.
In April 2013, we launched the MultiTASC device.
In May 2013, we launched the 1.5mm Expandable LeMaitre Valvulotome.
In June 2013, we launched the AlboSure vascular patch.
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 result in improved control over our production capacity as well as reduced costs over the
long-term. Our most recent manufacturing transitions included:
•
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 completed the transition of LifeSpan vascular graft manufacturing
into our existing corporate headquarters in Burlington, Massachusetts.
40
•
•
In November 2012, we initiated a project to build a third clean room for our newly acquired biologic
vascular patch. We expect this transition to our Burlington facility to be complete in the second quarter
of 2014. We expect the transition to negatively impact gross margins on our biologic vascular patch in
2014, and to improve our biologic vascular patch gross margins beginning in 2015; however, there can
be no assurance that these results will be achieved. Further, the production of the biologic vascular
patch is our first experience in manufacturing biological tissues. There can be no assurance that we will
not experience delays or additional expenses associated with this transfer.
In January 2014, we initiated a project to transfer the manufacturing of the newly acquired Clinical
Instruments devices to our facility in Burlington. We expect the transfer to be complete in the second
quarter of 2014; however there can be no assurances that this will be achieved on the expected
timetable or that transfer costs won’t exceed our expectations. Further, the manufacturing transfer may
result in a shortage of Clinical Instruments devices, which could negatively impact sales.
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, as we incur related restructuring
and other non-recurring charges, as well as longer term impacts to revenues and operating expenditures. For
example, in 2011 we exited the stent graft business, and realized gains of approximately $0.7 million in 2011 and
$0.2 million in 2012 in connection with that exit. Separately, 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, 2013, approximately 34% 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.
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.
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 include
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.
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.
41
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 Canadian, German, and Italian subsidiaries. Our
consolidated tax expense is affected by the mix of our taxable income (loss) in the United States and foreign
subsidiaries, 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, 2013, to the year ended December 31, 2012
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 geography:
2013
2012
$ Change
($ in thousands)
Percent
change
$64,549
$56,735
$7,814
14%
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42,657
21,892
$38,273
18,462
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$64,549
$56,735
$4,384
3,430
$7,814
11%
19%
14%
Net sales. Net sales increased 14% to $64.5 million in 2013 from $56.7 million in 2012. Sales from newly
acquired product lines contributed 2.7% to the sales growth.
Net sales increases of $7.8 million in 2013 were primarily driven by increased sales in biologic vascular
patches of $2.6 million, valvulotomes of $1.2 million, catheters of $1.3 million, Dacron grafts of $0.6 million,
and vessel closure systems of $0.6 million. In addition, sales of newly acquired powered phlebectomy systems
were $1.3 million. This sales growth was partially offset by decreased sales of radiopaque tape and non-occlusive
modeling catheters. The primary drivers of increased sales were higher average selling prices across all product
lines, increases in unit sales, and increased sales of Dacron grafts previously prohibited in certain European
countries. Our biologic vascular patches comprised 12% of our revenues in 2013 compared to 9% in 2012 and
5% in 2011.
Direct-to-hospital net sales were 92% of net sales in 2013 compared to 94% in 2012 and was primarily driven
by sales of powered phlebectomy systems and vessel closure systems to our China distributors of $1.0 million.
42
Net sales by geography. Net sales in the Americas increased $4.4 million to $42.7 million in 2013. The increase
was largely the result of higher average selling prices across nearly all product lines, as well as increased sales of
biologic vascular patches, powered phlebectomy systems, vascular closure systems, catheters, and shunts. Net sales
increases in the Americas were also due to higher Canadian and export sales. These increases were partially offset by a
decrease in radiopaque tape of $0.6 million and non-occlusive modeling catheters of $0.1 million. International net
sales increased $3.4 million to $21.9 million in 2013. The increase was primarily driven by higher sales of biologic
vascular patches of $1.3 million, catheters of $0.9 million, Dacron grafts, valvulotomes, and shunts.
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,115
$40,868
69.9%
72.0%
$4,247
*
10%
(2.1%)
2013
2012
$ Change
($ in thousands)
Percent
change
*
Not applicable
Gross profit. Gross profit increased $4.2 million to $45.1 million in 2013 from $40.9 million in 2012, while
our gross margin decreased 2.1% to 69.9%. The gross margin decrease was largely driven by unfavorable
geographic mix, sales to lower margin export markets, increased sales of our lower margin biologic vascular
patch, manufacturing start-up costs associated with our biologic vascular patch, and costs associated with newly
acquired Clinical Instruments facility. These decreases were partially offset by higher non-recurring Dacron graft
inventory write-offs in 2012, higher average selling prices across all product lines, and improved manufacturing
efficiencies. The gross profit increase was a result of higher sales.
In November 2012, we acquired the manufacturing and distribution rights of the XenoSure biologic vascular
patch, and we expect that the related manufacturing transfer will continue to negatively affect our gross margin in
2014. We expect to realize efficiencies which may improve gross margins on our XenoSure biologic vascular
patch beginning in 2015. In addition, we closed our Clinical Instruments facility in March 2014 and are
transitioning production to our Burlington facility which we believe will help improve the gross margin
beginning in the second quarter of 2014.
2013
2012
$ change
Percent
change
2013 as a %
of Revenue
2012 as a %
of Revenue
Sales and marketing . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Research and development
Medical device excise tax . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . .
$22,143
12,576
5,243
635
—
$20,811
10,973
5,092
—
(248)
($ in thousands)
6%
15%
3%
*
*
$1,332
1,603
151
635
248
$40,597
$36,628
$3,969
11%
34%
19%
8%
1%
*
63%
37%
19%
9%
*
*
65%
*
Not a meaningful percentage.
Sales and marketing. Sales and marketing expenses were $22.1 million in 2013 compared to $20.8 million
in 2012, an increase of 6%. As a percentage of net sales, sales and marketing expenses were 34% in 2013, down
3% from the prior year. Selling expenses increased $1.7 million while marketing expenses decreased by $0.4
million. The increase in selling expenses was primarily driven by increased sales personnel compensation of $1.1
million, partially due to additional sales personnel in Switzerland and Canada, and $0.5 million of additional
sales meetings and travel costs. Marketing expense decreases were largely driven by a $0.3 million reduction in
advertising costs and $0.1 million reduction in trade show expenses, which were partially offset by an increase in
compensation expense of $0.2 million. At December 31, 2013, we employed 85 sales representatives worldwide,
compared to 81 in the prior year period. We plan to increase the size of our sales force in 2014, related partly to
the hiring of additional sales representatives in Australia and Norway, and we expect that selling and marketing
expenses will increase commensurately.
43
General and administrative. General and administrative expenses increased 15% to $12.6 million in 2013
from $11.0 million in 2012. The increase was largely the result of expenses associated with our newly formed
subsidiary in Canada, increased compensation costs of $0.7 million, increased professional services costs of $0.6
million, and increased intangibles amortization of $0.3 million, which were partially offset by decreased
employee termination and bad debt expenses. As a percentage of net sales, general and administrative expenses
were 19% in both 2013 and 2012. We expect general and administrative expenses to increase in 2014 primarily
due to our new subsidiary in Australia.
Research and development. Research and development expenses increased 3% to $5.2 million in 2013 from
$5.1 million in 2012. As a percentage of net sales, research and development expenses decreased to 8% in 2013
from 9% in 2012. Product development expenses decreased $0.2 million primarily due to lower product testing
costs of $0.3 million which was partially offset by increased product engineer compensation. Clinical and
regulatory expenses increased $0.3 million, primarily due to an increase in compensation expenses and
regulatory submissions for new products in geographies such as China and Australia. Process engineering
expenses increased $0.1 million primarily due to the addition of the TRIVEX product line. Royalty expenses
were flat.
Medical device excise tax. Commencing in 2013, we were subject to a medical device excise tax equal to
2.3% of sales within the United States. The medical device excise tax was $0.6 million in 2013.
Restructuring. We did not incur restructuring charges in 2013 and 2012. In February 2014, we committed to
a plan intended to improve operational efficiencies, which includes a reduction in force of approximately 10% of
our workforce and other cost-cutting measures. The plan was implemented during the first quarter of 2014. We
estimate that termination costs will be $0.2 million to $0.4 million. We expect to record the majority of these
charges in 2014.
Gain on divestitures. In 2012, we recognized a gain on divestitures of $0.2 million resulting from payments
on a promissory note related to the divestiture of our TAArget and UniFit stent graft product lines to Duke
Vascular, Inc. in 2011.
Other income (expense). Foreign exchange losses for 2013 were $0.2 million compared to $0.3 million for
2012 and were generally flat other than a one-time exchange loss of $0.2 million as a result of a cumulative
translation adjustment recorded at our Biomateriali subsidiary upon the liquidation and dissolution of that legal
entity in 2012. Net interest income and other income (expense) decreased by approximately $80,000 primarily
related to interest earned in 2012 from the stent graft divestiture promissory note.
Income tax expense. We recorded a provision for taxes of $1.1 million on pre-tax income of $4.3 million in
2013 compared to $1.4 million on pre-tax income of $4.0 million in 2012. The 2013 provision was comprised of
Federal tax in the United States of $2.5 million, state taxes of $0.1 million and a net foreign tax benefit of $1.4
million. The 2012 provision was comprised of Federal tax in the United States of $1.4 million, state taxes of $0.1
million and a net foreign benefit of $0.1 million. Our effective tax rate differed from the U.S. statutory tax rate in
2013 principally due to research and development tax credits, release of uncertain tax position reserves due to the
expiration of the statute of limitations, effect of foreign taxes, manufacturing deductions, other permanent
differences, stock-based compensation, Subpart-F income 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, 2013, we will continue to carry a valuation allowance against $1.0 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 in 2014 will be higher than our effective tax rate in 2013. We will not
be able to generate Federal research and development tax credits in 2014 until and if legislation is enacted.
44
Comparison of the year ended December 31, 2012, to the year ended December 31, 2011
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 geography:
2012
2011
$ Change
($ in thousands)
Percent
change
$56,735
$57,685
$ (950)
(2%)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,273
18,462
$36,958
20,727
$ 1,315
(2,265)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,735
$57,685
$ (950)
4%
(11%)
(2%)
Net sales. Net sales decreased 2% to $56.7 million in 2012 from $57.7 million in 2011. Divestitures,
primarily of the TAArget and UniFit stent graft product lines as well as the termination of the Endologix aortic
stent graft distribution agreement, resulted in a decrease in sales of 8% from the prior year. Changes in foreign
currency exchange rates reduced year over year sales by 2%.
Net sales decreases of $1.0 million in 2012 were primarily driven by the 2011 divestiture of our stent graft
product lines which accounted for $4.0 million of sales during 2011, a $0.6 million decrease in polyester graft
sales, and a weakening of the Euro, which negatively impacted sales by $1.3 million. These decreases were
partially offset by higher average selling prices across nearly all product lines, increased sales of biologic patches
of $2.0 million, increased sales of radiopaque tape of $0.6 million and increased sales of catheters of $0.5
million, which was partially driven by selected pricing discounts in new geographies.
Direct-to-hospital net sales were 94% of net sales in 2012, compared to 93% in 2011.
Net sales by geography. Net sales in the Americas increased $1.3 million to $38.3 million in 2012. The
increase was largely the result of higher average selling prices across nearly all product lines, as well as increased
sales of biologic patches, radiopaque tape of $0.5 million, catheters of $0.3 million, and vascular closure systems
of $0.2 million. These increases were partially offset by the divestiture of our stent graft product lines which
accounted for $0.5 million in 2011. International net sales decreased $2.3 million to $18.5 million in 2012. The
decrease was primarily driven by the divestiture of our stent graft product lines which accounted for $3.5 million
in 2011, a decrease in polyester graft sales, and the negative effects of foreign currency exchange rates, which
were partially offset by increased sales of biologic patches of $1.1 million and catheters of $0.3 million. Biologic
patches became available for sale in Europe in July 2011.
In April 2012, the regulatory agencies in the United Kingdom and France issued Prohibition Notices which
prohibited us from selling our AlboGraft polyester grafts in those countries until further notice. In July 2012, the
regulatory agencies substantially rescinded the Prohibition Notices allowing the products to return to market.
Sales of AlboGraft in France and the United Kingdom were $0.5 million in 2012 compared to $1.0 million in
2011.
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40,868
$40,227
72.0%
69.7%
$641
*
2012
2011
$ Change
($ in thousands)
Percent
change
2%
2.3%
*
Not applicable
Gross profit. Gross profit increased $0.6 million to $40.9 million in 2012 from $40.2 million in 2011, while
our gross margin increased 2.3% to 72.0%. The gross margin increase was largely the result of a reduction in
costs related to the closure of our factory in Brindisi, Italy in March 2011, a reduction in costs associated with the
45
2011 manufacturing start-up and transition activities related to the AlboGraft and Lifespan product lines,
increased selling prices across most of our product lines, and favorable product and geographic mix driven
largely by our exit from stent grafts. The gross margin increase was partially offset by manufacturing
inefficiencies as well as increased sales of XenoSure. The gross profit increase was largely the result of the
increase in the gross margin, which was partially offset by our exit from the stent graft product lines, which
generated $4.0 million of revenue in 2011.
2012
2011
$ change
Percent
change
2012 as a %
of Revenue
2011 as a %
of Revenue
Sales and marketing . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . .
Impairment charge . . . . . . . . . . . . . . . . . . . . . . .
$20,811
10,973
5,092
—
(248)
—
$19,375
11,228
4,425
2,161
(735)
83
*
Not a meaningful percentage.
$36,628
$36,537
$
91
($ in thousands)
7%
(2%)
15%
(100%)
$ 1,436
(255)
667
(2,161)
487
(83)
*
*
0%
37%
19%
9%
0%
*
*
65%
34%
19%
8%
4%
*
*
63%
Sales and marketing. Sales and marketing expenses were $20.8 million in 2012 compared to $19.4 million
in 2011. As a percentage of net sales, sales and marketing expenses were 37% in 2012, up 3% from the prior
year. Selling expenses increased $1.0 million while marketing expenses increased by $0.4 million. The increase
in selling expenses was primarily driven by increased sales personnel compensation of $0.8 million and $0.2
million of additional sales meetings and travel costs. These increases were partially offset by $0.2 million of
2011 transition services related to the LifeSpan acquisition and the buy-out of our former Spanish distributor.
Marketing expense increases were largely driven by $0.3 million of additional advertising costs. Changes in
foreign currency exchange rates reduced 2012 expenses by $0.6 million compared to the prior year period. At
December 31, 2012, we employed 81 sales representatives worldwide, compared to 78 in the prior year period.
General and administrative. General and administrative expenses decreased 2% to $11.0 million in 2012
from $11.2 million in 2011. The decrease was largely driven by a decrease in compensation costs of $0.3 million,
the closure of our Biomateriali facility in March 2011, which incurred general and administrative costs of $0.1
million in the prior year period, and by changes in foreign currency exchange rates of $0.3 million. These
decreases were partially offset by the settlement of an employee matter of $0.1 million and bad debt expense
relating to certain European markets of $0.1 million. As a percentage of net sales, general and administrative
expenses were 19% in both 2012 and 2011.
Research and development. Research and development expenses increased 15% to $5.1 million in 2012
from $4.4 million in 2011. As a percentage of net sales, research and development expenses increased to 9% in
2012 from 8% in 2011. Product development expenses increased $1.0 million primarily due to increased product
engineer compensation and additional testing and sample costs. Clinical and regulatory expenses increased $0.1
million, primarily due to an increase in compensation expenses. Process engineering expenses decreased $0.2
million. Royalty expenses decreased $0.2 million, primarily due to our exit from our stent graft product lines.
Restructuring. We did not incur restructuring charges in 2012 compared to $2.2 million of restructuring
charges in the prior year. In 2011, we closed our Biomateriali manufacturing facility in Brindisi, Italy and
transitioned production to our existing facility in Burlington, Massachusetts. In 2011, we also closed our
Lifespan manufacturing facility in Laguna Hills, California and transitioned production to Burlington. Finally,
we terminated our Spanish and Danish distribution agreements and reorganized our European administrative and
sales personnel as a result of our exit from the stent graft business in 2011.
46
Gain on divestitures. In 2012, we recognized a gain on divestitures of $0.2 million resulting from payments
on a promissory note related to the divestiture of our TAArget and UniFit stent graft product lines to Duke
Vascular, Inc. in 2011. In July 2011, we terminated our Endologix distribution agreement for $1.3 million and
recognized a gain of $0.7 million.
Impairment charges. We did not incur impairment charges in 2012. We incurred $0.1 million of
impairment charges in 2011 related to patents deemed to have no value based on future expected economic
benefits.
Other income (expense). Foreign exchange losses for 2012 were $0.3 million compared to foreign exchange
gains for 2011 of $51,000. Foreign exchange gains were due to the comparative strengthening of the U.S. dollar
versus the euro during the year. Net interest income and other income (expense) increased by approximately
$67,000 primarily due to the interest earned from the promissory note related to our stent graft divestiture in
2011.
Income tax expense. We recorded a provision for taxes of $1.4 million on pre-tax income of $4.0 million in
2012 compared to $1.6 million on pre-tax income of $3.8 million in 2011. The 2012 provision was comprised of
Federal tax in the United States of $1.4 million, state taxes of $0.1 million and a net foreign tax benefit of $0.1
million. 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. Our effective tax rate
differed from the U.S. statutory tax rate in 2012 principally due to permanent items, changes in our valuation
allowances, specific manufacturing deductions, state taxes, and release of uncertain tax position reserves. 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, 2013, our cash, cash equivalents and marketable securities were $14.7 million compared to
$16.4 million at December 31, 2012. 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, 2013. All of our cash held outside of the United
States is available for corporate use.
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, 2013, we recognized operating income of $4.5 million. For the year ended
December 31, 2012, we recognized operating income of $4.2 million. We expect to fund any increased costs and
expenditures from our existing cash and cash equivalents, 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;
future payments associated with the acquisitions of InaVein and Clinical Instruments;
payments associated with U.S income and other taxes, such as the medical device tax;
47
•
•
•
•
the costs associated with expanding our manufacturing, marketing, sales, and distribution efforts;
the costs associated with our initiatives to sell direct-to-hospital in new countries;
the costs of obtaining and maintaining FDA and other regulatory clearances of our existing and future
products; 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
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 funds from, or establish a revolving credit facility with 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 and possibly our ability to pay dividends.
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 provided 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 became 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.
Cash Flows
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided by (used in):
Year ended December 31,
2013
2012
Net
Change
$14,711
$16,448
$(1,737)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,388
(6,188)
(961)
$ 4,722
(5,198)
(3,157)
$
666
(990)
2,196
Operating activities. Net cash provided by operating activities was $5.4 million in 2013 and consisted of
$3.2 million in net income, adjusted for non-cash items of $5.0 million (including depreciation and amortization of
$2.8 million, stock-based compensation of $1.3 million, and provision for inventory write-offs of $0.5 million), and
net cash used by changes in working capital of $2.8 million. The net cash used by changes in working capital was
principally the result of increased receivables and inventories of $3.4 million and partially offset by increased
accounts payables.
Net cash provided by operating activities was $4.7 million in 2012 and consisted of $2.6 million in net
income, adjusted for non-cash items of $4.9 million (including depreciation and amortization of $2.2 million,
stock-based compensation of $1.2 million, and provision for inventory write-offs of $0.9 million), and net cash
used by changes in working capital of $2.7 million. The net cash used by changes in working capital was
principally the result of increased inventories of $3.7 million and partially offset by increased accounts payables.
48
Investing activities. Net cash used in investing activities was $6.2 million in 2013. This was primarily
driven by acquisition related payments of $3.3 million, of which payments to InaVein and Clinical Instruments
were $3.0 million, and the purchase of property and equipment of $2.7 million of which $0.9 million related to
facility build-out and manufacturing equipment associated with our biologic vascular patch.
Net cash used in investing activities was $5.2 million in 2012. This was due to the $4.4 million of
acquisition related payments, primarily related to the XenoSure biologic patch acquisition, certain distributor
buyouts, and the purchase of new property and equipment of $1.2 million. These cash uses were partially offset
by a $0.5 million repayment of a promissory note from Duke Vascular related to our stent graft divestiture in
2011.
Financing activities. Net cash used in financing activities was $1.0 million in 2013, driven primarily by
payment of common stock dividends of $1.8 million and the purchase of $0.4 million of treasury stock to cover
minimum withholding taxes of restricted stock unit vestings, which were partially offset by proceeds from stock
option exercises of $1.2 million.
Net cash used in financing activities was $3.2 million in 2012. This was primarily due to the purchase of
$1.7 million of treasury stock under our stock repurchase plan, payment of common stock dividends of $1.5
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 $0.4 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. 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 periods presented is as follows:
Record Date
Payment Date
Per Share Amount
Dividend Payment
(in thousands)
Fiscal Year 2013
March 20, 2013
May 22, 2013
August 21, 2013
November 20, 2013
April 3, 2013
June 5, 2013
September 4, 2013
December 4, 2013
Fiscal Year 2012
March 20, 2012
May 18, 2012
August 17, 2012
November 20, 2012
April 3, 2012
June 4, 2012
August 31, 2012
December 4, 2012
$0.030
$0.030
$0.030
$0.030
$0.025
$0.025
$0.025
$0.025
$457
$457
$460
$464
$381
$379
$380
$378
On February 20, 2014, our Board of Directors approved a quarterly cash dividend on our common stock of
$0.035 per share payable on April 3, 2014, to stockholders of record at the close of business on March 20, 2014,
which will total approximately $0.5 million.
Contractual obligations. Our principal contractual obligations consist of operating leases and inventory
purchase commitments. The following table summarizes our commitments to settle contractual obligations as of
December 31, 2013:
Contractual obligations
Less
than 1
year
Total
1-3
years
3-5
years
More
than
5 years
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase commitments for inventory . . . . . . . . . . . . . . . . . . . . . . .
$ 8,758
4,411
(in thousands)
$2,033
286
$1,159
4,125
$1,491
—
$4,075
—
Total contractual obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,169
$5,284
$2,319
$1,491
$4,075
49
The commitments under our operating leases consist primarily of lease payments for our Burlington,
Massachusetts, corporate headquarters and manufacturing facility, expiring in 2023; our Toronto, Ontario,
Canada office, expiring in 2018; our Sulzbach, Germany office, expiring in 2016; our Tokyo, Japan office,
expiring in 2016; our Milan, Italy office, expiring in 2016; our Madrid, Spain office, expiring in 2014; and our
Melbourne, Australia office, expiring in 2017. They also include automobile and equipment leases.
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.
Critical Accounting Policies and Estimates
We have adopted various accounting policies to prepare our consolidated financial statements in accordance
with U.S. generally accepted accounting principles (GAAP). Our most significant accounting policies are
described in note 1 to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. The preparation of our consolidated financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the amounts reported in our consolidated financial statements and
accompanying notes. Our estimates and assumptions, including those related to bad debts, inventories, intangible
assets, sales returns and discounts, and income taxes are reviewed on an ongoing basis and updated as
appropriate. Actual results could differ from those estimates.
Certain of our more critical accounting policies require the application of significant judgment by
management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical
experience, terms of existing contracts, and observance of trends in the industry, as appropriate. Different,
reasonable estimates could have been used in the current period. Additionally, changes in accounting estimates
are reasonably likely to occur from period to period. Both of these factors could have a material impact on the
presentation of our financial condition, changes in financial condition, or results of operations.
We believe that the following financial estimates and related accounting policies are both important to the
portrayal of our financial condition and results of operations and require subjective or complex judgments.
Further, we believe that the items discussed below are properly recorded in our consolidated financial statements
for all periods presented. Management has discussed the development, selection and disclosure of our most
critical financial estimates with the audit committee of our board of directors and our independent registered
public accounting firm. The judgments about those financial estimates are based on information available as of
the date of our consolidated financial statements. Those financial estimates and related policies include:
Revenue Recognition
Our revenue is derived primarily from the sale of disposable or implantable devices used during vascular
surgery. We sell primarily directly to hospitals and to a lesser extent to distributors, as described below, and,
during the periods presented in our consolidated financial statements, entered into consigned inventory
arrangements with either hospitals or distributors on a limited basis.
We recognize revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and
(4) collectability is reasonably assured. We generally use customer purchase orders or contracts to determine the
existence of an arrangement. Sales transactions are based on prices that are determinable at the time that the
customer’s purchase order is accepted by us. In order to determine whether collection is reasonably assured, we
assess a number of factors, including past transaction history with the customer and the creditworthiness of the
customer. If we determine that collection is not reasonably assured, we would defer the recognition of revenue
until collection becomes reasonably assured, which is generally upon receipt of payment. We provide for product
returns at the time revenue is recognized based on our historical return product history. Based on these policies,
we recognize revenue, net of allowances for returns and discounts, as products are shipped, based on shipping
50
point terms, or at the time consigned inventory is consumed at which time title passes to customers. We
recognize revenue net of allowances for returns and discounts, at the time of shipment of our products to our
distributors.
Accounts Receivable
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
and Spain may be subject to significant payment delays due to government austerity measures impacting funding
and payment practices. As of December 31, 2013 our receivables in Italy and Spain totaled $1.2 million and $0.5
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, 2013, 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.
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
51
U.S. Treasury risk-free interest rate in effect at the time of grant. Historical data on exercise patterns is the basis
for estimating the expected life of an option. The expected annual dividend rate was calculated by dividing our
annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.
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. 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 based upon historical rates
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 $1.3 million in connection with share-based payment awards for the year ended December 31,
2013. The future expense of non-vested share-based awards of approximately $2.6 million is to be recognized
over a weighted-average period of 3.4 years. During 2013, we granted stock options at a weighted average fair
value of $3.01 and restricted stock units with weighted average fair value of $6.67.
Valuation of Goodwill, and 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 $15.0 million and $13.7 million as of December 31,
2013 and 2012, respectively. 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 13 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
52
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 $6.1 million as of December 31, 2013, and $5.2 million as of December 31, 2012. We
recognized impairment charges on our intangible assets of $0.1 million in 2011.
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, product
liability 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, 2013, 2012, and 2011, we were not subject to any material litigation, claims or
assessments.
Restructuring
We record restructuring charges incurred in connection with consolidation or relocation of operations,
exited business lines, reductions in force, 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, severance payments, 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
53
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 $1.0 million and $3.1 million as of December 31, 2013 and 2012, respectively.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued new guidance which requires
disclosure of changes in accumulated other comprehensive income balances by component and significant
reclassification adjustments from accumulated other comprehensive income in a single note or on the face of the
financial statements. This guidance became effective January 1, 2013. The adoption of this standard, which is
related to disclosure only, did not have an impact on our results of operations or financial position.
In July 2013, the FASB issued guidance to address the diversity in practice related to the financial statement
presentation of unrecognized tax benefits as either a reduction of a deferred tax asset or a liability when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is effective
prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The
adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2013. 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, 2013, 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.
54
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 GAAP.
Management assessed the effectiveness of our internal controls over financial reporting as of December 31,
2013. Management based its assessment on criteria established in the Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework).
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,
2013.
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, 2013, 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.
55
PART III
The information responsive to this item is incorporated by reference herein from the information to be
contained in our 2014 definitive proxy statement (2014 Definitive Proxy Statement) for the 2014 annual meeting
of stockholders to be filed with the Securities and Exchange Commission within 120 days after the year ended
December 31, 2013.
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 “Meetings and Committees of the Board of Directors” in the 2014 Definitive Proxy Statement.
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 2014 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 2014 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
2014 Definitive Proxy Statement.
56
Equity Compensation Plan Information
The following table sets forth information regarding our equity compensation plans in effect as of
December 31, 2013. 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
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,117,097
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,117,097
(a)
(b)
$5.86
—
$5.86
Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
783,012
—
783,012
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 2014 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 2014
Definitive Proxy Statement.
57
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
(v) Consolidated Statements of Comprehensive Income
(vi) Consolidated Statements of Cash Flows
(vii) Notes to Consolidated Financial Statements
(2) Exhibits
Exhibit
Number
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
4.1
10.1
Purchase Option Agreement dated December 30, 2008 by
and among the Registrant, Neovasc Inc. and Neovasc
Medical Inc.
Amendment No. 1 to Exclusive Distribution Agreement
and Purchase Option Agreement dated January 22, 2009 by
and among the Registrant, Neovasc Inc. and Neovasc
Medical Inc.
Amendment No. 2 to Purchase Option Agreement dated
January 5, 2012 by and among the Registrant, Neovasc Inc.
and Neovasc Medical Inc.
Amendment No. 3 to Purchase Option Agreement dated
October 1, 2012 by and among the Registrant, Neovasc
Inc. and Neovasc Medical Inc.
10-K
3/27/13
2.1
10-K
3/27/13
2.2
10-K
3/27/13
2.3
10-K
3/27/13
2.4
Asset Purchase Agreement dated August 28, 2013 between
Registrant and InaVein, LLC
10-Q
11/7/13
Amended and Restated By-laws of the Registrant
S-1/A
5/26/06
2.1
3.1
Second Amended and Restated Certificate of Incorporation
of the Registrant
10-K
3/29/10
3.2
Amendment to Second Amended and Restated Certificate
of Incorporation of the Registrant
8-K
6/15/12
Specimen Certificate evidencing shares of common stock
S-1/A
6/22/06
3.3
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
58
Exhibit Description
Registration Rights Agreement dated June 17, 1998, by
and between the Registrant and Housatonic Equity
Investors, L.P.
Director Compensation Policy
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
Incorporated By Reference
Form
Date
Number
Filed
Herewith
S-1/A
5/26/06
10.2
10-K
3/27/12
10.27
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
4/25/06
10.11
S-1
4/25/06
10.12
S-1
4/25/06
10.13
S-1
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
Exhibit
Number
10.2
10.3
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
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
10.15†
Management Incentive Compensation Plan
10.16
10.17
10.18
10.19†
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
59
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
10-K
3/31/09
10.36
10-K
3/31/09
10.37
Exhibit
Number
10.20†
10.21†
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Exhibit Description
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
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
Third Amendment of Northwest Park Lease dated
August 31, 2012, by and between NWP Building 4 LLC, as
successor-in-interest to Trustees of Northwest Associates,
and Registrant
Lease dated December 20, 2013, by and between
N.W. Building 3 Trust and Registrant
Fourth Amendment of Lease dated December 20, 2013,
by and between NWP Building 4 LLC, as successor-in-
interest to the Trustees of Northwest Associates, and
Registrant
Sixth Amendment of Lease dated December 20, 2013,
by and between NWP Building 5 LLC, as successor-in-
interest to the Trustees of Northwest Associates, and
Registrant
10.30†
Amended and Restated Management Incentive
Compensation Plan
21.1
23.1
31.1
31.2
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)
60
Incorporated By Reference
Form
Date
Number
Filed
Herewith
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
10-K
3/27/12
10.28
10-K
3/27/12
10.29
10-K
3/27/13
10.26
8-K
12/23/13
10.1
8-K
12/23/13
10.2
8-K
12/23/13
10.3
8-K
2/25/14
10.1
X
X
X
X
Exhibit
Number
32.1*
32.2*
Exhibit Description
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
101.DEF
XBRL Taxonomy Extension Calculation Linkbase
Document.
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
X
X
X
X
X
X
X
X
†
*
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.
61
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 21,
2014.
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 21, 2014
/s/
JOSEPH P. PELLEGRINO, JR.
Joseph P. Pellegrino, Jr.
Chief Financial Officer (Principal
March 21, 2014
Financial and Accounting Officer)
/s/ RUSSELL D. HAYS
Russell D. Hays
Director
March 21, 2014
/s/ LAWRENCE J. JASINSKI
Director
March 21, 2014
Lawrence J. Jasinski
/s/ CORNELIA W. LEMAITRE
Vice President, Human Resources
March 21, 2014
Cornelia W. LeMaitre
and Director
/s/
JOHN J. O’CONNOR
John J. O’Connor
Director
March 21, 2014
/s/ DAVID B. ROBERTS
President and Director
March 21, 2014
David B. Roberts
/s/ MICHAEL H. THOMAS
Director
March 21, 2014
Michael H. Thomas
62
INDEX TO FINANCIAL STATEMENTS
LeMaitre Vascular, Inc.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . .
Page
F-2
F-3
F-4
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . .
F-6
F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
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. (the Company)
as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive
income, statements of stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2013. 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, 2013 and 2012, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in
conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
March 21, 2014
/s/ Ernst & Young LLP
F-2
LeMaitre Vascular, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $263 at December 31, 2013, and
$326 at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
December 31,
2012
(in thousands,
except share data)
$14,711
$16,448
10,590
13,255
3,169
41,725
5,810
15,031
6,144
1,615
167
9,048
10,859
2,776
39,131
4,544
13,749
5,191
273
172
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,492
$63,060
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 3,000,000 shares; none
$ 1,235
7,993
992
10,220
3,461
249
13,930
$ 1,060
6,777
557
8,394
1,673
105
10,172
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock, $0.01 par value; authorized 37,000,000 shares; issued
16,959,330 shares at December 31, 2013, and 16,539,621 shares at
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 1,380,119 shares at December 31, 2013, and
170
65,354
(667)
(253)
1,323,537 shares at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,042)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,562
165
64,694
(3,869)
(433)
(7,669)
52,888
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,492
$63,060
See accompanying notes to consolidated financial statements.
F-3
LeMaitre Vascular, Inc.
Consolidated Statements of Operations
Year ended December 31,
2013
2012
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands,
except per share data)
$56,735
15,867
$57,685
17,458
$64,549
19,434
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical device excise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,115
22,143
12,576
5,243
635
—
—
—
40,868
20,811
10,973
5,092
—
—
(248)
—
40,227
19,375
11,228
4,425
—
2,161
(735)
83
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,597
36,628
36,537
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,518
4,240
3,690
4
(12)
(182)
4,328
1,126
78
(1)
(324)
3,993
1,422
11
—
51
3,752
1,609
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,202
$ 2,571
$ 2,143
Earnings per share of common stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.21
0.20
$
$
0.17
0.16
$
$
0.14
0.13
Weighted-average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,317
15,194
15,458
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,764
15,638
15,989
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.12
$
0.10
$
0.08
See accompanying notes to consolidated financial statements.
F-4
LeMaitre Vascular, Inc.
Consolidated Statements of Comprehensive Income
Year ended December 31,
2013
2012
2011
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Foreign currency translation adjustment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$2,571
$2,143
$3,202
180
180
173
173
(177)
(177)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,382
$2,744
$1,966
See accompanying notes to consolidated financial statements.
F-5
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LeMaitre Vascular, Inc.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued contingent earnout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess 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:
Year ended December 31,
2013
2012
(in thousands)
2011
$ 3,202
$ 2,571
$ 2,143
2,793
1,253
57
—
(29)
479
287
—
(31)
52
—
115
2,234
1,213
—
—
153
863
287
(248)
(23)
8
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369
2,037
1,097
—
83
56
1,011
1,159
(735)
(50)
30
732
(156)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,247)
(2,168)
(236)
861
(640)
(3,725)
303
1,357
(174)
(998)
105
(3,170)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,388
4,722
3,170
Investing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
Payments related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receipts related to divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,733)
(3,291)
—
(164)
(1,209)
(4,373)
500
(116)
(2,021)
(1,151)
1,414
(64)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,188)
(5,198)
(1,822)
Financing activities
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation awards . . . . . . . . . . . . . . . . . .
Common stock cash dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of Italian government loan and grant . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . .
1,219
(373)
31
(1,838)
—
(961)
24
359
(2,021)
23
(1,518)
—
(3,157)
(51)
69
(2,213)
50
(1,237)
(469)
(3,800)
(30)
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,737)
16,448
(3,684)
20,132
(2,482)
22,614
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,711
$16,448
$20,132
Supplemental disclosures of cash flow information (see Note 14).
See accompanying notes to consolidated financial statements.
F-9
LeMaitre Vascular, Inc.
Notes to Consolidated Financial Statements
December 31, 2013
1. Significant Accounting Policies and Related Matters
Description of Business
Unless the context requires otherwise, references to LeMaitre Vascular, we, our, and us refer to LeMaitre
Vascular, Inc. and our subsidiaries. We develop, manufacture, and market medical devices and implants used
primarily in the field of vascular surgery. We operate in a single segment in which our principal product lines
include the following: valvulotomes, balloon catheters, carotid shunts, biologic patches, radiopaque marking
tape, anastomotic clips, remote endarterectomy devices, laparoscopic cholecystectomy devices, vascular grafts,
and powered phlebectomy. Our offices are located in Burlington, Massachusetts; Mississauga, Canada; Sulzbach,
Germany; Milan, Italy; Madrid, Spain; Melbourne, Australia and Tokyo, Japan.
Consolidation and Basis of Presentation
Our consolidated financial statements include the accounts of LeMaitre Vascular and the accounts of our
wholly-owned subsidiaries, LeMaitre Vascular GmbH, LeMaitre Vascular GK, Vascutech Acquisition LLC,
LeMaitre Acquisition LLC, LeMaitre Vascular SAS, LeMaitre Vascular S.r.l., LeMaitre Vascular Spain SL,
LeMaitre Vascular Switzerland GmbH, LeMaitre Vascular ULC, LeMaitre Vascular AS, and LeMaitre Vascular
Pty Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation
Balance sheet accounts of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates.
Operating accounts are translated at average exchange rates for each year. Net translation gains or losses are
adjusted directly to a separate component of other comprehensive income (loss) within stockholders’ equity.
Foreign exchange transaction gains (losses), substantially all of which relate to intercompany activity between us
and our foreign subsidiaries, are included in other income (expense) in the accompanying consolidated
statements of operations.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(GAAP) requires us to make estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. Our estimates and assumptions, including those related to bad
debts, inventories, intangible assets, sales returns and discounts, and income taxes are reviewed on an ongoing
basis and updated as appropriate. Actual results could differ from those estimates.
Revenue Recognition
Our revenue is derived primarily from the sale of disposable or implantable devices used during vascular
surgery. We sell primarily directly to hospitals and to a lesser extent to distributors, as described below, and,
during the periods presented in our consolidated financial statements, entered into consigned inventory
arrangements with either hospitals or distributors on a limited basis.
We recognize revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and
(4) collectability is reasonably assured. We assess whether the fee is fixed or determinable based on the terms of
the agreement associated with the transaction. Sales transactions are based on prices that are determinable at the
time the customer’s purchase order is accepted by us. Orders that are not accompanied with a purchase order are
either confirmed in writing or verbally with the customer.
F-10
After the delivery of the product, there is no uncertainty about customer acceptance due to the nature of the
product. There is no contingency for acceptance, warranty, or price protection. We do not recognize revenue on
consigned sales until the customer notifies us that the products have been used. In order to determine whether
collection is reasonably assured, we assess a number of factors, including past transaction history with the
customer and the creditworthiness of the customer. If we determine that collection is not reasonably assured, we
defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of
payment. We provide for product returns at the time revenue is recognized based on our product return history.
Based on these policies, we recognize revenue, net of allowances for returns and discounts, as products are
shipped, based on shipping point terms, or at the time consigned inventory is consumed at which time title passes
to customers. We recognize revenue net of allowances for returns and discounts, at the time of shipment of our
products to our distributors. Customers returning products are entitled to full or partial credit based on the
condition and timing of the return. To be accepted, a returned product must be unopened (if sterile),
unadulterated, and undamaged, must have at least 18 months remaining prior to its expiration date, or twelve
months for our hospital customers in Europe, and generally be returned within 30 days of shipment. These return
policies apply to sales to both hospitals and distributors. The amount of products returned to us, either for
exchange or credit, has not been material. Nevertheless, we provide for an allowance for future sales returns
based on historical return experience. Our cost of replacing defective products has not been material and is
accounted for at the time of replacement.
Research and Development Expense
Research and development costs, principally salaries, laboratory testing, and supplies, are expensed as
incurred and also include royalty payments associated with licensed and acquired intellectual property.
Shipping and Handling Costs
Shipping and handling fees paid by customers are recorded within net sales, with the related expense
recorded in cost of sales.
Advertising Costs
Advertising costs are expensed as incurred and are included as a component of sales and marketing expense
in the accompanying consolidated statements of operations. Advertising costs are as follows:
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$421
(in thousands)
$717
$410
Year ended December 31,
2013
2012
2011
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with maturity dates of 90 days or less to be cash
equivalents. Cash and cash equivalents are primarily invested in money market funds. These amounts are stated
at cost, which approximates fair value.
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.
F-11
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
and Spain may be subject to significant payment delays due to government austerity measures impacting funding
and payment practices. As of December 31, 2013 our receivables in Italy and Spain totaled $1.2 million and $0.5
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, 2013, 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. Such credit losses have historically been
within our expectations and allowances. 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, 2013 . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
$326
211
184
$ 29
153
56
$92
38
29
$263
326
211
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.
F-12
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.
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.
Contingent Consideration
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.
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.
F-13
This impairment adjustment falls 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
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, 2013, 2012, or 2011.
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 13 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. Historical data on exercise patterns is the basis
for estimating the expected life of an option. The expected annual dividend rate was calculated by dividing our
annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.
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. 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.
F-14
Share-based compensation charges are recorded net of the estimated forfeitures based upon historical rates
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.
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
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, 2013, 2012, and 2011, 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.
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, which are disclosed in the
accompanying consolidated statements of comprehensive income. There were no reclassifications out of
comprehensive income for the years ended December 31, 2013 and 2012.
Accumulated other comprehensive loss consisted of foreign currency translation adjustment losses of $0.3
million and $0.4 million as of December 31, 2013 and 2012, respectively.
Restructuring
We record restructuring charges incurred in connection with consolidation or relocation of operations,
exited business lines, reductions in force, 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
F-15
expected costs associated with site closure, legal matters, contract terminations, severance payments, 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.
Earnings 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,
2013
2012
2011
(in thousands, except per share data)
Basic:
Net income available for common stockholders . . . . . . . . . . . . . . . . . . . . . .
$ 3,202
$ 2,571
$ 2,143
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,317
15,194
15,458
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.21
$
0.17
$
0.14
Diluted:
Net income available for common stockholders . . . . . . . . . . . . . . . . . . . . . .
$ 3,202
$ 2,571
$ 2,143
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock equivalents, if dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing diluted earnings per common share . . . . . . . . . . .
15,317
447
15,764
15,194
444
15,638
15,458
531
15,989
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.20
$
0.16
$
0.13
Shares excluded in computing diluted earnings per share as those shares would
be anti-dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
373
549
355
Recent Accounting Pronouncements
In February 2013, the FASB issued new guidance which requires disclosure of changes in accumulated
other comprehensive income balances by component and significant reclassification adjustments from
accumulated other comprehensive income in a single note or on the face of the financial statements. This
guidance became effective January 1, 2013. The adoption of this standard, which is related to disclosure only, did
not have an impact on our results of operations or financial position.
In July 2013, the FASB issued guidance to address the diversity in practice related to the financial statement
presentation of unrecognized tax benefits as either a reduction of a deferred tax asset or a liability when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is effective
prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The
adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
2. Acquisitions and Divestitures
XenoSure Manufacturing and Distribution Rights
In October 2012, we entered into an Asset Purchase Agreement (the Neovasc Agreement) with Neovasc,
Inc. and its subsidiary, Neovasc Medical Inc. (collectively Neovasc) to acquire the manufacturing and
distribution rights of the XenoSure biologic vascular patch. Previously, we were the exclusive distributor of the
F-16
XenoSure biologic vascular patch through January 26, 2016 and held an option to purchase the manufacturing
and distribution rights. Assets acquired in October 2012 include intellectual property, manufacturing know-how,
and a five year non-compete agreement. Other provisions of the Neovasc Agreement include transitional
assistance from Neovasc and mutual indemnification for losses arising out of or relating to certain breaches of,
and misrepresentations under, the Neovasc Agreement. Additionally, we have entered into a supply agreement
with Neovasc while we transition manufacturing to our Burlington facility.
The purchase price for this acquisition was $4.6 million. We paid Neovasc $4.3 million at the closing of the
acquisition. We paid the remaining $0.3 million in October 2013. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$
12
2,756
1,832
4,600
—
$4,600
The goodwill of $1.8 million will be deductible for tax purposes over 15 years.
Of the $2.8 million of acquired intangible assets, the following table reflects the allocation of the acquired
intangible assets and related estimated useful lives:
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$2,450
306
Weighted
Average
Useful Life
13.0 years
5.0 years
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,756
Clinical Instruments International, Inc.
In July 2013, we entered into an Asset Purchase Agreement with Clinical Instruments International, Inc.
(Clinical Instruments) to acquire substantially all the assets of Clinical Instruments for $1.1 million. We paid
$0.9 million at the closing and the remaining $0.2 million is payable in October 2014. We accounted for the
acquisition as a business combination. Assets acquired include inventory and intellectual property.
The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of
the acquisition:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-17
Allocated
Fair Value
(in thousands)
$ 169
322
614
1,105
—
$1,105
The goodwill of $0.6 million will be deductible for tax purposes over 15 years.
Of the $0.3 million of acquired intangible assets, the following table reflects the allocation of the acquired
intangible assets and related estimated useful lives:
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$ 95
$147
80
Weighted
Average
Useful Life
5.0 years
6.0 years
6.0 years
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$322
InaVein, LLC
In August 2013, we entered into an Asset Purchase Agreement with InaVein, LLC (InaVein) to acquire
substantially all the assets of InaVein for $2.5 million and acquisition-related contingent consideration totaling
$1.4 million in 2014 and 2015 dependent on the sales performance of the acquired business and the timing of
regulatory approval in China. We paid $2.1 million at the closing and the remaining $0.4 million is payable in
August 2014. We accounted for the acquisition as a business combination. Assets acquired include receivables,
inventory, equipment, and intellectual property. Liabilities assumed include payables and service contracts.
The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of
the acquisition:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$ 670
154
1,143
668
2,635
(100)
$2,535
The goodwill of $0.7 million will be deductible for tax purposes over 15 years.
Of the $1.1 million of acquired intangible assets, the following table reflects the allocation of the acquired
intangible assets and related estimated useful lives:
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated
Fair Value
(in thousands)
$
70
163
354
556
Weighted
Average
Useful Life
5.0 years
8.0 years
6.0 years
7.0 years
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,143
We recorded $42,000 as the fair value of contingent consideration at the acquisition date and an additional
$57,000 as a charge to general and administrative expense in 2013.
F-18
Schaublin Medica SA Distribution Agreement
In October 2012, we entered into a definitive agreement with Schaublin Medica SA (Schaublin) to terminate
its distribution of our products in Switzerland and to acquire certain assets and rights from Schaublin effective as
of January 1, 2013 for $0.2 million. The purchase price was paid in three equal installments in October
2012, January 2013, and January 2014. We recorded $0.1 million of intangible assets and recognized a $0.1
million of transition services as selling expense. 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 December 31, 2012 was 7.0 years.
TryTech Distribution Agreement
In December 2012, we entered into a definitive agreement with TryTech Corporation (TryTech) to terminate
its distribution of our products in a certain Japanese territory and to acquire certain assets and rights from TryTech
effective as of April 1, 2013 for $0.1 million. The purchase price is due in three equal installments with payments
made in December 2012 and March 2013 with the final payment due in March 2014. We recorded $0.1 million of
intangible assets and recognized $20,000 of transition services as selling expense. 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 December 31, 2012 was 3.0 years.
Medistim Norge AS Distribution Agreement
In October 2013, we entered into a definitive agreement with Medistim Norge AS (Medistim) to terminate
its distribution of our products in Norway and to acquire certain assets and rights from Medistim effective as of
January 1, 2014 for $0.2 million. The purchase price is due in three installments with payments made in October
2013 and January 2014 with the final payment due in December 2014. 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 December 31, 2013 was 3.5 years.
Tag Medical Pty Ltd Distribution Agreement
In October 2013, we entered into a definitive agreement with Tag Medical Pty Ltd (Tag) to terminate its
distribution of our products in Australia and to acquire certain assets and rights from Tag effective as of January 1,
2014 for $0.2 million. The purchase price is due in three installments with payments made in November 2013 and
January 2014 and the final payment due in December 2014. 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 December 31, 2013 was 4.8 years.
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 on future sales. In May 2012, Minvasive
provided notice that it was filing for insolvency protection under German law. As a result, we wrote-off the
remaining balance of approximately $52,000 as a loss on divestitures during the three months ended June 30, 2012.
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. In
addition, Duke assumed our future obligations associated with the UNITE and ENTRUST clinical trials. We received
the initial cash payment on June 30, 2011. The $0.5 million promissory note bore interest at 7% and was payable on
June 30, 2012. We recorded the estimated fair value of the promissory note as $0.2 million receivable in other long
F-19
term assets. As a result of this transaction we recorded a net charge of approximately $0.4 million in cost of sales
during the year ended December 31, 2011. In 2012, we received $0.5 million which was applied to the outstanding
promissory note balance of $0.2 million, interest income, and as a gain on divestiture of $0.3 million.
Endologix Stent Grafts
On July 6, 2011, we entered into an early termination agreement for our distribution rights of Endologix’s
stent graft 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 stent graft 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 these 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.
3. Inventory
Inventory consists of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,647
2,949
6,659
$13,255
$ 2,471
2,084
6,304
$10,859
We held inventory on consignment of $0.7 million as of December 31, 2013 and 2012.
As of December 31,
2013
2012
(in thousands)
4. Property and Equipment
Property and equipment consists of the following:
Computers and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross property and equipment
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
2012
(in thousands)
$ 2,369
6,570
4,104
13,043
(7,233)
$ 5,810
$ 2,196
5,599
2,968
10,763
(6,219)
$ 4,544
Depreciation expense is as follows:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,573
(in thousands)
$1,319
$1,047
Year ended December 31,
2013
2012
2011
F-20
5. Goodwill and Other Intangibles
Goodwill consists of the following:
As of December 31,
2013
2012
(in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,749
1,282
$11,917
1,832
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,031
$13,749
Other intangibles consist of the following:
2013
2012
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 . . . . . . . . . . . . . . .
$ 5,679
1,414
2,835
971
Total identifiable intangible assets . . . . . .
$10,899
$1,932
935
1,441
447
$4,755
(in thousands)
$3,747
479
1,394
524
$5,108
1,157
1,757
673
$6,144
$8,695
$1,339
821
1,001
343
$3,504
Net
Carrying
Value of
Intangible
Assets
$3,769
336
756
330
$5,191
These assets are being amortized over useful lives ranging from 1 to 13 years. The weighted-average
amortization period for these intangibles as of December 31, 2013, is 6.5 years. Amortization expense is included
in general and administrative expense and is as follows:
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2013
2012
2011
(in thousands)
$915
$1,220
$990
Estimated amortization expense for each of the five succeeding fiscal years, based upon the intangible assets
at December 31, 2013, is as follows:
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,414
$1,015
$870
$612
$497
Year ended December 31,
2014
2015
2016
2017
2018
(in thousands)
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 provided 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 loan and grant became 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.
F-21
7. Accrued Expenses
Accrued expenses consist of the following:
Compensation and related taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
2012
(in thousands)
$4,710
885
428
1,970
$3,860
963
521
1,433
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,993
$6,777
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, 2013 and 2012. Rent expense was as follows:
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,264
(in thousands)
$1,030
$1,182
Year ended December 31,
2013
2012
2011
At December 31, 2013, 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 . . . . . . . . . . . . . . . . . . . . .
$1,159
$1,119
(in thousands)
$689
$914
$802
$4,075
Year ended December 31,
2014
2015
2016
2017
2018
Thereafter
Purchase Commitments
As part of our normal course of business, we have purchase commitments to purchase $4.4 million of
inventory through 2015. 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.
9. Income Taxes
Income (loss) before income taxes is as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,692
(364)
(in thousands)
$3,918
75
$3,511
241
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,328
$3,993
$3,752
Year ended December 31,
2013
2012
2011
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.
F-22
The provision (benefit) for income taxes is as follows:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2013
2012
2011
(in thousands)
$
504
143
192
839
$ 881
100
154
1,135
1,968
(84)
(1,597)
287
503
12
(228)
287
$ 309
9
132
450
831
116
212
1,159
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,126
$1,422
$1,609
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, 2013, the gross amount of unrecognized tax benefits
exclusive of interest and penalties was $0.1 million, which may decrease within the 12 months ending
December 31, 2014. We remain subject to examination until the statute of limitations expires for each respective
tax jurisdiction. The statute of limitations will be open with respect to these tax positions through 2017. A
reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:
2013
2012
2011
Unrecognized tax benefits at the beginning of year
$ 321
Additions for tax positions of current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Reductions for lapses of the applicable statutes of limitations . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(210)
(in thousands)
$329
—
$277
52
6 —
(14) —
Unrecognized tax benefits at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 111
$321
$329
F-23
Deferred taxes are attributable to the following temporary differences:
Deferred tax assets:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign branch deferred offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
2012
(in thousands)
$
824
2,190
551
313
1,102
203
38
5,221
$
772
2,561
555
263
916
326
288
5,681
(742)
(2,727)
(1,735)
—
(692)
(2,374)
(146)
(26)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,204)
(3,238)
Net deferred tax assets before valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
(969)
2,443
(3,053)
Net deferred tax liabiltity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (952) $ (610)
Deferred tax classification
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term deferred tax asset
Short-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net short-term deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
932
(38)
894
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax asset
Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,615
(3,461)
$
$
$
850
(60)
790
273
(1,673)
Net long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,846) $(1,400)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (952) $ (610)
We have assessed the need for a valuation allowance against our deferred tax assets and continue to carry a
valuation allowance against $1.0 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 2013, we released valuation allowances on certain deferred assets associated with foreign subsidiary
historical losses as well as state research and development credits. Our assessment considered evidence such as
current profitability, utilization of certain available tax assets and liabilities, and projected future earnings. Based
on this evidence, we concluded that it was more likely than not that we would generate sufficient pre-tax income
in future periods to utilize all of our deferred tax assets in France and Italy and a portion of our deferred tax
assets related to state research and development credits.
Realization of our deferred tax assets is dependent on our generating sufficient taxable income in future
periods. Although we believe it is more likely than not that future taxable income will be sufficient to allow us to
recover substantially all of the value of our deferred tax assets, realization is not assured and future events could
cause us to change our judgment. In the event that actual results differ from our estimates, or we adjust these
F-24
estimates in the future periods, further adjustments to our valuation allowance may be recorded, which could
materially impact our financial position and net income (loss) in the period of the adjustment. As of
December 31, 2013, we have net operating loss carryforwards in France of $3.9 million that do not expire, Spain
of $1.5 million that begin to expire in 2029, Italy of $1.1 million that do not expire, Sweden of $0.3 million that
do not expire, Switzerland of $0.3 million that begin to expire in 2019 and others of $0.1 million that do not
expire. We also have Federal and state tax credit carryforwards of approximately $0.9 million that are available
to reduce future tax liabilities, which expire at various dates through 2023, or can be carried forward indefinitely.
Approximately $0.1 million of these Federal and state tax credits relate to excess stock compensation deductions
and as such, the benefit of these tax deductions will be credited to additional paid-in capital when we receive a
cash benefit from these credits 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.
A provision has not been made for U.S. or additional non-U.S. taxes on $1.4 million of undistributed
earnings of international subsidiaries that could be subject to taxation if remitted to the U.S. because we plan to
keep these amounts permanently reinvested overseas except for instances where we can remit such earnings to
the U.S. without an associated net tax cost. However, to the extent such foreign earnings were remitted in the
future a deferred tax liability of $0.5 million would be recorded.
In January 2013, legislation was signed into law which retroactively reinstated various tax provisions which
had previously expired January 1, 2012, principally related to the Federal R&D credit. As this legislation was
enacted in January 2013, our financial statements reflect the effects of the legislation in 2013. Had this tax
legislation been enacted in 2012, we would have recognized an additional $0.2 million of additional U.S. tax
credits in our consolidated financial statements for the year ending December 31, 2012.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subpart F income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign deferred tax liability offset
Manufacturing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research & development tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italian permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
2011
34.0% 34.0% 34.0%
0.4% 2.3% 1.7%
(4.1%) (4.9%) (1.6%)
2.2% 2.1% 2.4%
(38.2%) (6.6%) 3.6%
36.1% 3.2% 0.0%
(2.9%) (3.5%) (0.7%)
(8.0%) 0.6% 0.7%
3.6% 3.4% 3.0%
(5.1%) (0.4%) 1.9%
5.2% 4.9% 0.0%
3.0% 4.1% 1.4%
(0.2%) (3.8%) (3.5%)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.0% 35.4% 42.9%
In March 2014, the German tax authority notified our German subsidiary that the tax years 2009 through
2012 would be audited. We expect the audit to commence during the third quarter of 2014. We believe there will
be no material changes to its income tax liability as a result of this audit. We are not currently under audit in any
other tax jurisdictions. As of December 31, 2013, a summary of the tax years that remain subject to examination
in our most significant tax jurisdictions are:
United States
Foreign
2010 and forward
2007 and forward
F-25
10. Stockholders’ Equity
Authorized Shares
On June 14, 2012, our stockholders approved an amendment (Charter Amendment) to our Second Amended
and Restated Certificate of Incorporation to reduce the number of authorized shares of common stock from
100,000,000 to 37,000,000 shares and of undesignated preferred stock from 5,000,000 to 3,000,000 shares. The
Charter Amendment was previously approved by our Board of Directors on April 12, 2012, subject to approval
by our stockholders. The Charter Amendment was filed with the Secretary of State of the State of Delaware on
June 14, 2012.
Stock Award Plans
Under our 1997, 1998, 2000, and 2004 stock option plans, we authorized for the granting of options in the
form of incentive stock options or non-qualified stock options to employees, directors, and consultants to
purchase up to 1,688,702 shares of common stock. The stock options provide the holder the right to purchase
common stock at a specific exercise price and the expected term will not exceed ten years. Incentive stock
options are required to be issued at not less than fair market value at the date of the grant and generally vest over
four or five years. The term of the options is determined by our Board of Directors but in no event will exceed
ten years from date of grant, except with respect to one non-qualified option issued under our 1997 stock option
plan.
In May 2006 we approved a 2006 Stock Option and Incentive Plan (the 2006 Plan), which became effective
upon the initial public offering. In 2010 we amended the 2006 Plan to increase the aggregate pool of available
shares to 3,000,000 of common stock. The plan allows for granting of incentive stock options, non-qualified
stock options, stock appreciation rights, RSUs, unrestricted stock awards, and deferred stock awards to our
officers, employees, directors, and consultants. In connection with the adoption of the 2006 Plan, no further
option grants are permitted under the 1997, 1998, 2000, and 2004 stock option plans and any expirations,
cancellations, or terminations under the previous plans are available for issuance under the 2006 Plan. We may
satisfy awards upon exercise of stock options or RSUs with either newly issued or treasury shares. The total
number of shares currently authorized for stock award plans is 4,618,003 of which approximately 783,012
remain available for grant as of December 31, 2013.
We have computed the fair value of employee stock options using the following weighted average
assumptions:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected option term (in years) . . . . . . . . . .
Weighted average fair value per share of options granted . . . .
Aggregate intrinsic value of options exercised . . . . . . . . . . . . .
1.8%
57.8%
1.5%
5.5
$
3.01
$1,009,726
1.6%
61.8%
0.6%
5.5
$
2.91
$340,678
1.1%
66.1%
1.4%
4.8
$
3.57
$321,584
2013
2012
2011
F-26
A summary of option activity as of December 31, 2013 and the year then ended is presented below:
Number of
Shares
Weighted
Average
Exercise
Price
Balance outstanding at December 31, 2012 . . . . . . . . . . . . . . . .
Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled / Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,012,060
367,277
(307,425)
(209,112)
Balance outstanding at December 31, 2013(3) . . . . . . . . . . . . . .
1,862,800
Vested and exercisable at December 31, 2013 . . . . . . . . . . . . . .
Expected to vest at December 31, 2013(4) . . . . . . . . . . . . . . . . .
1,002,215
639,094
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,641,309
$5.64
$6.92
$3.96
$8.84
$5.81
$5.70
$4.57
Weighted
Average
Remaining
Contractual
Term
(in years)
4.47
4.82
4.82
4.63
Aggregate
Intrinsic
Value
$2,154,440
$1,009,726
$4,815,870
$3,482,730
(1) The aggregate intrinsic value represents the difference between the exercise price and the closing price of
our stock on the day of grant.
(2) The aggregate intrinsic value represents the difference between the exercise price and the closing price of
our stock on the day of exercise.
(3) The aggregate intrinsic value represents the difference between the exercise price and $8.01, the closing
price of our stock on December 31, 2013, for all in-the-money options outstanding.
(4) Options outstanding that are expected to vest are net of estimated future option forfeitures in accordance
with the provisions set forth by the FASB.
Restricted Stock Units
A summary of our RSU activity, which is subject to fair value accounting requirements, is as follows:
Balance outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
278,931
117,873
(112,284)
(30,223)
Balance outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254,297
Weighted
Average
Grant
Date Fair
Value
$5.30
$6.67
$4.37
$6.04
$6.25
(1) The number of RSUs vested includes the shares that we withheld on behalf of employees to satisfy
minimum statutory tax withholding requirements.
The fair values of the RSUs that vested during 2013, 2012, and 2011 were $0.8 million, $0.7 million, and
$0.9 million, respectively.
We repurchase shares of our common stock in order to cover any minimum tax withholding liability
associated with RSU vestings. A summary of our repurchases is as follows:
Shares of common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share repurchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregage purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,259
6.90
$
$284,583
42,991
6.11
$
$262,719
2013
2012
F-27
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 789
464
(in thousands)
$ 692
521
$ 591
506
Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,253
$1,213
$1,097
2013
2012
2011
We expect to record the unamortized portion of share-based compensation expense of $2.6 million for
existing stock options and RSUs outstanding at December 31, 2013, over a weighted-average period of 3.4 years.
Stock Repurchase Plan
In July 2009, our Board of Directors authorized a repurchase of our common stock from time to time on the
open market or in privately negotiated transactions. In November 2011, our Board of Directors increased this
authorization 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 concluded as of
December 31, 2013. The following is a summary of the stock repurchase activity for the year ended.
Share repurchases . . . . . . . . . . . . . . . . . . . . .
15,323
$88
304,846
$1,759
300,326
$1,904
December 31, 2013
December 31, 2012
December 31, 2011
Shares
Purchased
Total
Purchased
Shares
Purchased
Total
Purchased
Shares
Purchased
Total
Purchased
( $ in thousands)
Dividends
On February 24, 2011, our Board of Directors approved a policy for the payment of quarterly cash dividends
on our common stock. 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 periods presented is as follows:
Record Date
Payment Date
Per Share Amount
Dividend Payment
Fiscal Year 2013
March 20, 2013
May 22, 2013
August 21, 2013
November 20, 2013
Fiscal Year 2012
March 20, 2012
May 18, 2012
August 17, 2012
November 20, 2012
April 3, 2013
June 5, 2013
September 4, 2013
December 4, 2013
April 3, 2012
June 4, 2012
August 31, 2012
December 4, 2012
$0.030
$0.030
$0.030
$0.030
$0.025
$0.025
$0.025
$0.025
(in thousands)
$457
$457
$460
$464
$381
$379
$380
$378
On February 20, 2014, our Board of Directors approved a quarterly cash dividend on our common stock of
$0.035 per share payable on April 3, 2014, to stockholders of record at the close of business on March 20, 2014,
which will total approximately $0.5 million.
F-28
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
the Plan in an amount determined by our Board of Directors. Our contributions vest ratably over six years of
employment and amounted to approximately $40,000 for 2013 and were $0.1 million for 2011. Our 2012
contributions were funded from employee forfeitures.
12. Restructuring Charges
In October 2010, we adopted a reorganization plan (Biomateriali Plan) that was designed to eliminate
redundant costs resulting from our 2007 acquisition of Biomateriali and to improve efficiencies in our
manufacturing operations. 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 (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 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 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.
The components of the restructuring charges are as follows:
Distributor termination charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italian government loan and grant termination charge . . . . . . . . . . . . . . . . . . . . . . . .
Non cash asset write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended
December 31, 2011
(in thousands)
$ 572
446
291
79
732
41
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,161
F-29
Activity related to accrued restructuring costs is as follows:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus:
Current year restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Payment for termination of contractual obligations . . . . . . . . . . . . . . . . . .
Payment of employee severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment related to transfer manufacturing equipment
. . . . . . . . . . . . . . .
Payment of Italian loan and grant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash fixed asset write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2012
$101
—
—
101
—
—
—
—
2011
$ 922
2,161
572
680
446
469
83
732
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
$ 101
In February 2014, we committed to a plan intended to improve operational efficiencies, which includes a
reduction in force of approximately 10% of our workforce and other cost-cutting measures. The plan was
implemented during the first quarter of 2014. We estimate that termination costs will be $0.2 million to $0.4
million. We expect to record the majority of these charges in 2014.
13. Segment and Enterprise-wide Disclosures
The FASB establishes standards for reporting information regarding operating segments in 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 is prepared by us except for product sales by product line
and by legal entity for local reporting purposes.
Most of our revenues were generated in the United States, Germany, Japan, Canada, and other European
countries, and substantially all of our assets are located in the United States. Net sales to unaffiliated customers
by country were as follows:
Year ended December 31,
2013
2012
2011
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,240
6,939
2,413
15,957
(in thousands)
$36,542
5,647
2,674
11,872
$35,366
7,276
2,283
12,760
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$64,549
$56,735
$57,685
Total property and equipment held by geography were as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
2012
(in thousands)
$5,391
229
190
$4,162
232
150
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,810
$4,544
F-30
14. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are as follows:
Cash paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2013
2012
2011
(in thousands)
$544
$1,019
$717
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.
As of December 31, 2013, 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 $8.3 million.
We had no Level 2 assets being measured at fair value on a recurring basis as of December 31, 2013.
As discussed in Notes 1and 2, several measurements of acquisition-related assets and impairments of
intangible assets were measured using Level 3 techniques. The following table provides a rollforward of the fair
value, as determined by Level 3 inputs, of the contingent consideration.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value included in earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended
December 31, 2013
(in thousands)
$—
42
—
57
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 99
16. Quarterly Financial Data (unaudited)
2013
Three months ended
March 31
June 30 (1)
September 30 December 31
(in thousands, except per share data)
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share
$15,382
11,206
1,123
846
$15,951
11,237
1,447
889
$15,300
10,716
776
721
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.06
0.05
$
$
0.06
0.06
$
$
0.05
0.05
$17,916
11,956
1,172
746
$
$
0.05
0.05
F-31
2012
Three months ended
March 31
June 30
September 30 December 31
(in thousands, except per share data)
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share
$13,928
9,870
854
386
$14,361
10,545
1,455
824
$13,645
10,015
1,001
663
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.03
0.02
$
$
0.05
0.05
$
$
0.04
0.04
$14,801
10,438
930
698
$
$
0.05
0.04
(1) During the second quarter of 2013, we identified an error in our historic inventory valuation that resulted in
an understatement of the periodic carrying amount of our inventory. We corrected this error which resulted
in an understatement of cost of sales of $0.4 million and an overstatement of net income of $0.3 million in
the three months ended June 30, 2013.
F-32
Exhibit
Number
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
EXHIBIT INDEX
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
Purchase Option Agreement dated December 30, 2008 by
and among the Registrant, Neovasc Inc. and Neovasc
Medical Inc.
Amendment No. 1 to Exclusive Distribution Agreement and
Purchase Option Agreement dated January 22, 2009 by and
among the Registrant, Neovasc Inc. and Neovasc Medical
Inc.
Amendment No. 2 to Purchase Option Agreement dated
January 5, 2012 by and among the Registrant, Neovasc Inc.
and Neovasc Medical Inc.
Amendment No. 3 to Purchase Option Agreement dated
October 1, 2012 by and among the Registrant, Neovasc Inc.
and Neovasc Medical Inc.
Asset Purchase Agreement dated August 28, 2013 between
Registrant and InaVein, LLC
Amended and Restated By-laws of the Registrant
10-K
3/27/13
2.1
10-K
3/27/13
2.2
10-K
3/27/13
2.3
10-K
3/27/13
2.4
10-Q
11/7/13
S-1/A
5/26/06
2.1
3.1
Second Amended and Restated Certificate of Incorporation
of the Registrant
10-K
3/29/10
3.2
Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant
8-K
6/15/12
Specimen Certificate evidencing shares of common stock
S-1/A
6/22/06
3.3
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.
Director Compensation Policy
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
S-1
4/25/06
10.1
S-1/A
5/26/06
10.2
10-K
3/27/12
10.27
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
4/25/06
10.11
4/25/06
10.12
Exhibit Description
Incorporated By Reference
Form
Date
Number
Filed
Herewith
2000 Stock Option Plan and form of agreements thereunder
2004 Stock Option Plan and form of agreements thereunder
S-1
S-1
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
10.10†
10.11†
10.12†
10.13†
10.14†
Form of Restricted Stock Unit Award Agreement under the
Registrant’s 2006 Stock Option and Incentive Plan
10.15†
Management Incentive Compensation Plan
10.16
10.17
10.18
10.19†
10.20†
10.21†
10.22
10.23
10.24
10.25
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
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
8-K
8-K
12/26/06
99.1
4/27/07
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
10-K
3/27/12
10.28
10-K
3/27/12
10.29
Exhibit
Number
10.26
10.27
10.28
10.29
Exhibit Description
Third Amendment of Northwest Park Lease dated
August 31, 2012, by and between NWP Building 4 LLC, as
successor-in-interest to Trustees of Northwest Associates,
and Registrant
Incorporated By Reference
Form
Date
Number
Filed
Herewith
10-K
3/27/13
10.26
Lease dated December 20, 2013, by and between N.W.
Building 3 Trust and Registrant
8-K
12/23/13
10.1
Fourth Amendment of Lease dated December 20, 2013, by
and between NWP Building 4 LLC, as successor-in-interest
to the Trustees of Northwest Associates, and Registrant
Sixth Amendment of Lease dated December 20, 2013, by
and between NWP Building 5 LLC, as successor-in-interest
to the Trustees of Northwest Associates, and Registrant
10.30†
Amended and Restated Management Incentive
Compensation Plan
21.1
23.1
31.1
31.2
32.1*
32.2*
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.
8-K
12/23/13
10.2
8-K
12/23/13
10.3
8-K
2/25/14
10.1
X
X
X
X
X
X
X
X
X
X
X
X
†
*
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
Lawrence J. Jasinski1, 2, 3
John J. O’Connor1
Chief Executive Officer
Argo Medical Technologies
Director since 2003
Cornelia W. LeMaitre
Vice President, Human Resources
LeMaitre Vascular, Inc.
Director since 1992
George W. LeMaitre
Chairman & Chief Executive Officer
LeMaitre Vascular, Inc.
Director since 1992
Retired Vice Chairman of Services
PricewaterhouseCoopers LLP
Director since 2008
David B. Roberts
President
LeMaitre Vascular, Inc.
Director since 2001
John A. Roush1
Chief Executive Officer
GSI Group Inc.
Director since 2014
Michael H. Thomas2,3
Retired Chief Executive Officer
Bionostics, Inc.
Director since 2013
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
2012 HIGH LOW
First Quarter
$6.20
$5.42
Second Quarter
$6.00
$4.79
Third Quarter
$6.50
$5.61
Fourth Quarter
$6.50
$5.69
2013 HIGH LOW
First Quarter
$6.40
$5.70
Second Quarter
$6.75
$5.90
Third Quarter
$7.19
$6.38
Fourth Quarter
$8.96
$6.57
Registrar And Transfer Company
10 Commerce Drive
Crawford, NJ 07016
800-368-5948
Foreign Shareowners: 908-497-2300
Independent Auditors
Ernst & Young LLP
Boston, MA
Auditors since 1998
Annual Meeting
The annual meeting of stockholders will take
place on Tuesday, June 3, 2014, beginning at
10:00 a.m. at our corporate headquarters at 63
Second Avenue, Burlington, Massachusetts.
Other Information
Reports on Form 10-K and 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 to us at:
Investor Relations
LeMaitre Vascular, Inc.
63 Second Avenue
Burlington, MA 01803 USA
Executive Committee
George W. LeMaitre
Chairman & Chief Executive Officer
David B. Roberts
President
Joseph P. Pellegrino, Jr.
Chief Financial Officer
Peter R. Gebauer
President, International
Trent G. Kamke
Senior Vice President, Operations
Robert V. Linden
Senior Vice President, Sales, The Americas
Laurie A. Churchill
General Counsel
Kimberly L. Cieslak
Vice President, Marketing
Ryan H. Connelly
Vice President, Research & Development
Giovannella Deiure
Country Manager, Italy
Maik D. Helmers
Vice President, Central European Sales
Andrew Hodgkinson
Senior Vice President, Clinical, Regulatory & Quality
Affairs
Roli Kumar-Choudhury
Director, Quality Assurance
Cornelia W. LeMaitre
Vice President, Human Resources
Wolfgang Meichelboeck, Dipl.-Ing.
Vice President, Marketing International
Jonathan W. Ngau
Vice President, Information Technology
Nobuhiro Okabe
Country Manager, Japan
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