UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2013
Or
For the transition period from to .
Commission File Number 001-33092
LEMAITRE VASCULAR, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(781) 221-2266
(Registrant’s telephone number, including area code)
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 x 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 x No ¨
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨ No x
The registrant had 15,254,226 shares of common stock, $.01 par value per share, outstanding as of August 2, 2013.
LEMAITRE VASCULAR
TABLE OF CONTENTS
Part I. Financial Information:
Item 1.
Financial Statements
Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012
Unaudited Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2013 and 2012
Unaudited Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended June 30, 2013 and 2012
Unaudited Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2013 and 2012
Notes to Unaudited Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
Item 4.
Controls and Procedures
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures
Index to Exhibits
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Part I. Financial Information
LeMaitre Vascular, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $255 at June 30, 2013 and $326 at December 31, 2012
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Other intangibles, net
Deferred tax assets
Other assets
Total assets
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
Stockholders’ equity:
Preferred stock, $0.01 par value; authorized 3,000,000 shares; none outstanding
Common stock, $0.01 par value; authorized 37,000,000 shares; issued 16,595,284 shares at June 30, 2013, and 16,539,621 shares at December 31, 2012
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock, at cost; 1,341,326 shares at June 30, 2013, and 1,323,537 shares at December 31, 2012
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Operations
(unaudited)
Net sales
Cost of sales
Gross profit
Sales and marketing
General and administrative
Research and development
Loss on divestitures
Medical device excise tax
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Foreign currency loss
Income before income taxes
Provision for income taxes
Net income
Earnings per share of common stock:
Basic
Diluted
Weighted-average shares outstanding:
Cash dividends declared per common share
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Consolidated Statements of Comprehensive Income
Other comprehensive income (loss):
Foreign currency translation adjustment, net
Total other comprehensive income (loss)
Comprehensive income
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Consolidated Statements of Cash Flows
Operating activities
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization
Stock-based compensation
Provision (recovery) of doubtful accounts
Provision for inventory write-downs
Loss on disposal of property and equipment
Foreign currency transaction loss
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable and other liabilities
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Payments related to acquisitions
Receipts related to divestitures
Purchase of technology and licenses
Net cash used in investing activities
Financing activities
Proceeds from issuance of common stock
Purchase of treasury stock
Common stock cash dividend paid
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information (see Note 12)
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Notes to Consolidated Financial Statements
June 30, 2013
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 are balloon catheters, biologic vascular patches, carotid shunts, laparoscopic cholecystectomy devices, radiopaque tape, remote endarterectomy devices, valvulotomes, vascular grafts, vascular patches, and vessel closure systems. Our offices are located in Burlington, Massachusetts; Mississauga, Canada; Sulzbach, Germany; Milan, Italy; Madrid, Spain; and Tokyo, Japan.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments considered necessary for a fair presentation of the results of these interim periods have been included. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Our estimates and assumptions, including those related to bad debts, inventories, intangible assets, sales returns and discounts, share-based compensation, and income taxes are updated as appropriate. The results for the six months ended June 30, 2013 are not necessarily indicative of results to be expected for the entire year. The information contained in these interim financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2012, including the notes thereto, included in our Form 10-K filed with the Securities and Exchange Commission (SEC).
Consolidation
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, and LeMaitre Vascular ULC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Correction of an Error
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 in the current period. Inventory was understated as of December 31, 2011 and 2012 by $0.2 million and $0.4 million, respectively, and cost of sales was overstated by $0.2 million in each of those years. Our financial statements for the three and six months ended June 30, 2013 reflect the correction of 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 and six months ended June 30, 2013. We evaluated the materiality of the error from a qualitative and quantitative perspective and concluded the error was not material to our consolidated financial statements for the years ended December 31, 2011 and 2012, as well as the expected results for the year ending December 31, 2013.
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
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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.
As part of the process of preparing our consolidated financial statements we are required to determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from taxable income during the carryback period or in the future; and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in the statement of operations. We do not provide for income taxes on undistributed earnings of foreign subsidiaries, as our current intention is to permanently reinvest these earnings.
We recognize, measure, present and disclose in our financial statements uncertain tax positions that we have taken or expect to take on a tax return. We operate in multiple taxing jurisdictions, both within the United States and outside of the United States, and may be subject to audits from various tax authorities regarding transfer pricing, the deductibility of certain expenses, intercompany transactions, and other matters. Within specific countries, we may be subject to audit by various tax authorities operating within the country and may be subject to different statutes of limitation expiration dates. Management’s judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any valuation allowance recorded against our net deferred tax assets. We will continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly.
Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense. This policy has been consistently applied in all periods.
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 June 30, 2013, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $321,000. There was no change in the liability during the six months ended June 30, 2013 for uncertain tax positions. Approximately $0.2 million of unrecognized tax positions may be recognized in 2013 as a result of the lapse in the statute of limitations. 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 until 2017.
As of June 30, 2013, a summary of the tax years that remain subject to examination in our most significant tax jurisdictions is as follows:
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Inventories consist of the following:
Raw materials
Work-in-process
Finished products
Total inventory
We held inventory on consignment of $0.6 million and $0.7 million as of June 30, 2013 and December 31, 2012, respectively.
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 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. The remaining $0.3 million is payable in October 2013. We accounted for the acquisition as a business combination. We recorded $2.8 million of intangible assets and $1.8 million of goodwill. The weighted-average amortization period for these intangibles as of December 31, 2012 was 12.0 years. The goodwill of $1.8 million will be deductible for tax purposes over 15 years.
Clinical Instruments International, Inc.
In July 2013, we entered into an Asset Purchase Agreement with Clinical Instruments International, Inc. (Clinical) to acquire substantially all the assets of Clinical for $1.1 million. We paid $0.9 million at the closing and the remaining $0.2 million is payable in July 2014. Assets acquired include inventory, fixed assets, and intellectual property. We will account for this transaction as a business combination during the three months ending September 30, 2013.
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 is due in three equal installments with payments made in October 2012 and January 2013 and the final payment due in January 2014. In 2012, we recorded $0.1 million of intangible assets and recognized $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.
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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 and the final payment due in March 2014. We recorded $0.1 million of intangible assets. 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.
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. 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 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.
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.
There were no changes in the goodwill carrying amount of $13.7 million during the six months ended June 30, 2013.
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The components of our identifiable intangible assets were as follows:
Patents
Trademarks and technology licenses
Customer relationships
Other intangible assets
Total identifiable intangible assets
These intangible assets are being amortized over their useful lives ranging from 1 to 15 years. The weighted-average amortization period for these intangibles as of June 30, 2013 is 6.7 years. Amortization expense is included in general and administrative expense and is as follows:
Amortization expense
Estimated amortization expense for the remainder of 2013 and each of the five succeeding fiscal years is as follows:
Accrued expenses consist of the following:
Compensation and related taxes
Income and other taxes
Professional fees
Other
Total
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Purchase Commitments
As of June 30, 2013, as part of our normal course of business, we have purchase commitments to purchase $2.0 million of inventory through 2014.
The FASB establishes standards for reporting information regarding operating segments in annual financial statements. Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker in making decisions on how to allocate resources and assess performance. We view our operations and manage our business as one operating segment. No discrete operating information is prepared by us except for product sales by product line and by geographic location for local reporting purposes.
Most of our revenues were generated in the United States, Germany, Japan and other European countries, and substantially all of our assets are located in the United States. We analyze our sales using a number of approaches, including sales by legal entity. Our Canadian subsidiary (LeMaitre Vascular ULC) records all sales in Canada. Our German subsidiary (LeMaitre Vascular GmbH) records all sales in Europe excluding direct sales in France (LeMaitre Vascular SAS); Italy (LeMaitre Vascular S.r.l.); Spain (LeMaitre Vascular Spain SL) and Switzerland (LeMaitre Vascular Switzerland GmbH), and to distributors worldwide, excluding distributor sales in North, South and Central America (LeMaitre Vascular, Inc.), Portugal (LeMaitre Vascular Spain SL), and Korea and Taiwan (LeMaitre Vascular GK). Net sales to unaffiliated customers by country were as follows:
United States
Germany
Japan
Other countries
Net Sales
Our 2006 Stock Option and Incentive Plan allows for granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, unrestricted stock awards, and deferred stock awards to our officers, employees, directors, and consultants.
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The components of share-based compensation expense were as follows:
Stock option awards
Restricted stock units
Total share-based compensation
We did not issue option grants in the six months ended June 30, 2013 and 2012. We did not issue restricted stock unit grants in the six months ended June 30, 2013 and 2012.
We issued approximately 56,000 and 22,000 shares of common stock following the exercise or vesting of underlying stock options or restricted stock units in the six months ended June 30, 2013 and 2012, respectively.
The computation of basic and diluted net income per share was as follows:
Basic:
Net income available for common stockholders
Weighted average shares outstanding
Basic earnings per share
Diluted:
Weighted-average shares outstanding
Common stock equivalents, if diluted
Shares used in computing diluted earnings per common share
Diluted earnings per share
Shares excluded in computing diluted earnings per share as those shares would be anti-dilutive
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
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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 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 may be suspended or discontinued at any time and will conclude no later than December 31, 2013, unless otherwise extended by our Board of Directors. The repurchase program is being funded using our available cash and cash equivalents. We have the authority to purchase $3.5 million of shares of our common stock remaining under the repurchase program as of June 30, 2013. The following is a summary of the stock repurchase activity for the six months ended:
Share repurchases
Dividends
In February 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
Fiscal Year 2013
March 20, 2013
May 22, 2013
Fiscal Year 2012
March 20, 2012
May 18, 2012
August 17, 2012
November 20, 2012
On July 24, 2013, our Board of Directors approved a quarterly cash dividend on our common stock of $0.03 per share payable on September 4, 2013 to stockholders of record at the close of business on August 21, 2013, which will total approximately $0.5 million.
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Cash paid (refunded) for income taxes, net
Supplemental non-cash financing activities:
Common stock repurchased for RSU tax withholdings
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 June 30, 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 $10.5 million.
We had no Level 2 or Level 3 assets being measured at fair value on a recurring basis as of June 30, 2013.
Our accumulated other comprehensive loss consisted of foreign currency translation for the six months ended June 30, 2013 and 2012, respectively.
Beginning balance
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Ending Balance
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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements other than statements of historical fact contained in this Quarterly Report, including statements about: the impact to our gross profit in 2013 and 2014 as a result of our XenoSure acquisition and related manufacturing transfer; and the adequacy of our cash reserves for the next twelve months. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by such forward-looking statements. Moreover, the forward-looking statements represent our estimates and assumptions only as of the date hereof. Forward-looking statements are subject to risks and uncertainties; our failure to manage the anticipated growth of our business; and the unavailability of additional, required capital on acceptable terms. Further information on potential risk factors that could affect our business and financial results is detailed in Part II, Item IA. “Risk Factors” in this Quarterly Report on Form 10-Q. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report and our other SEC filings, including our audited consolidated financial statements and the related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 27, 2013.
Unless the context requires otherwise, references to “LeMaitre Vascular,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to LeMaitre Vascular, Inc. and its subsidiaries.
LeMaitre, AlboGraft, AlboSure, LifeSpan, UnBalloon, and XenoSure are registered trademarks of LeMaitre Vascular, and MultiTASC is an unregistered trademark of LeMaitre Vascular. This Quarterly Report on Form 10-Q also includes the registered and unregistered trademarks of other persons which are the property of their respective owners.
Overview
We are a medical device company that develops, manufactures, and markets medical devices and implants for the treatment of peripheral vascular disease. Our principal product offerings are sold throughout the world, primarily in the United States, the European Union and, to a lesser extent, Japan. We estimate that the annual worldwide market for all peripheral vascular devices approximates $3 to $4 billion, within which our core product lines address roughly $750 million. We have grown our business by using a three-pronged strategy: focusing on the vascular surgeon customer, competing in niche markets, and expanding our sales platform by increasing 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: balloon catheters, biologic vascular patches, carotid shunts, laparoscopic cholecystectomy devices, radiopaque marking tape, remote endarterectomy devices, valvulotomes, vascular grafts, and vessel closure systems.
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
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medical community in connection with the demand for our products, including potential new product launches. We also use this information to help determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements.
Our business opportunities include the following:
the long-term growth of our sales force in North America, Europe and Japan, sometimes in connection with terminations of certain distributor relationships in order to expand our sales presence in new countries;
the addition of complementary products through acquisitions;
the updating of existing products and introduction of new products through research and development;
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 June 30, 2013 our sales force was comprised of 85 sales representatives in North America, Europe, 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; and Milan, Italy. For the six months ended June 30, 2013 approximately 93% of our net sales were generated in markets in which we employ direct sales representatives.
Historically we have experienced comparatively greater success in niche product markets characterized by low or limited competition and higher product technology differentiation, for example the market for valvulotome devices. 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 more competitive product markets where there is less product technology differentiation, such as prosthetic polyester and ePTFE grafts, where we face stronger competition from larger companies with greater resources. While there can be no assurance that we will be successful in more competitive and less differentiated markets, we believe that these challenging market dynamics can be mitigated by our strong relationships with our vascular surgeon customers. For example, in the biologic patch market, we have been able to increase our market share significantly, mainly through the conversion of competitor accounts to our vascular biologic patch.
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 our Canadian customers from our sales office in Mississauga, Canada.
We anticipate that the expansion of our direct sales organization in Canada and Switzerland will result in increased sales and marketing expenses during 2013.
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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., a manufacturer of shunts and catheters, for $1.1 million.
In addition to relying upon acquisitions to grow our business, we also rely on our product development efforts to bring differentiated technology and next-generation products to market. These efforts have led to the following recent product developments:
In December 2011, we launched the Over-The-Wire LeMaitre Valvulotome.
In March 2013, we launched the MultiTASC device.
In April 2013, we launched the 1.5mm LeMaitre Valvulotome.
In June 2013, we launched AlboSure.
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.
In November 2012, we initiated a project to build a third clean room for our newly acquired XenoSure biologic vascular patch. We expect this transition to our Burlington facility to continue into the second half of 2013 resulting in a negative impact to our gross profit. Once the transition is complete, we expect the gross margins on our XenoSure biologic vascular patch to improve beginning in 2014; however, there can be no assurance that these results will be achieved, if at all. Further, the production of the XenoSure biologic vascular patch will be 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 during the transition.
Our execution of these strategies 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.
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the six months ended June 30, 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 report less in U.S. dollars than we did before the rate increase went into effect.
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Results of Operations
Comparison of the three and six months ended June 30, 2013 to the three and six months ended June 30, 2012.
The following tables set forth, for the periods indicated, our results of operations, net sales by geography, and the change between the specified periods expressed as a percentage increase or decrease:
Net sales by geography:
Americas
International
Net sales. Net sales increased 11% to $15.9 million for the three months ended June 30, 2013, compared to $14.4 million for the three months ended June 30, 2012. Sales increases for the three months ended June 30, 2013 were primarily driven by increased sales in biologic vascular patches of $0.7 million, valvulotomes of $0.4 million, Dacron grafts of $0.3 million, catheters of $0.3 million, and vessel closure systems of $0.2 million, and were partially offset by decreased sales of shunts of $0.1 million and radiopaque tape of $0.1 million.
Net sales increased 11% to $31.3 million for the six months ended June 30, 2013, compared to $28.3 million for the six months ended June 30, 2012. Sales increases for the six months ended June 30, 2013 were primarily driven by increased sales in biologic vascular patches of $1.3 million, valvulotomes of $0.7 million, catheters of $0.5 million, vessel closure systems of $0.4 million, and Dacron grafts of $0.4 million, and were partially offset by decreased sales of radiopaque tape, shunts and non-occlusive modeling catheters of $0.1 million each. The primary drivers in the increased sales were higher average selling prices across all product lines, increases in unit sales, and the recovery of Dacron graft sales in certain European countries as they had been prohibited there in 2012.
Direct-to-hospital net sales were 93% for the six months ended June 30, 2013, down from 95% for the six months ended June 30, 2012.
Net sales by geography. Net sales in the Americas increased by $0.7 million for the three months ended June 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, vessel closure systems, valvulotomes, and catheters, as well as higher average selling prices across nearly all product lines, and was partially offset by decreased sales of radiopaque tape and shunts. International net sales increased $0.9 million for the three months ended June 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, valvulotomes, Dacron grafts, and catheters.
Net sales in the Americas increased by $1.5 million for the six months ended June 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, valvulotomes, vessel closure systems, and catheters, as well as higher average selling prices across nearly all product lines, and was partially offset by decreased sales of radiopaque tape and shunts. International net sales increased $1.6 million for the six months ended June 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, catheters, Dacron grafts, and valvulotomes.
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Gross margin
Gross Profit. Gross profit increased 7% to $11.2 million for the three months ended June 30, 2013, while gross margin decreased 3% to 70.4% in the same period. The gross margin decrease was largely driven by inventory write-offs of $0.4 million related to our non-occlusive modeling catheters, manufacturing inefficiencies, start-up costs associated with our biologic vascular patch manufacturing as well as unfavorable geographic and product mix. These decreases were partially offset by non-recurring inventory write-offs associated with our Dacron graft manufacturing in 2012 and higher average selling prices across all product lines. The gross profit increase was a result of higher sales.
Gross profit increased 10% to $22.4 million for the six months ended June 30, 2013, while gross margin decreased 0.6% to 71.6% in the same period. The gross margin decrease was largely driven by unfavorable geographic mix, increased sales growth of our lower margin bovine vascular patches, start-up costs associated with our biologic vascular patch, and inventory write-offs of $0.4 million related to our non-occlusive modeling catheters. These decreases were partially offset by non-recurring inventory write-offs associated with our Dacron graft manufacturing in 2012 and higher average selling prices across all product lines. The gross profit increase was a result of higher sales.
Our gross profit was also impacted by an inventory valuation error, which we identified and corrected during the second quarter of 2013. As a result of this error, inventory was understated as of December 31, 2011 and 2012 by $0.2 million and $0.4 million, respectively, and cost of sales was overstated by $0.2 million in each of those years. Our financial statements for the three and six months ended June 30, 2013 reflect the correction of this error, which resulted in an understatement of cost of sales of $0.4 million during both periods. We evaluated the materiality of the error from a qualitative and quantitative perspective and concluded the error was not material to our consolidated financial statements for the years ended December 31, 2011 and 2012, as well as the expected results for the year ending December 31, 2013.
In October 2012, we entered into a definitive agreement with Neovasc, Inc. to acquire the manufacturing and distribution rights of the XenoSure biologic vascular patch, which we expect will negatively affect gross profit in 2013 as we transition production to our Burlington facility. We expect to realize efficiencies which may improve gross margins on our XenoSure biologic vascular patch beginning in 2014.
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Sales and marketing. For the three months ended June 30, 2013, sales and marketing expense increased 2% to $5.3 million. Selling expense increased $0.3 million while marketing expense decreased by $0.1 million. Selling expense increases were driven by increased compensation costs of $0.2 million, primarily due to additional sales personnel in Switzerland and Canada. Marketing expense decreases were largely driven by a $0.1 million reduction in advertising costs. As a percentage of net sales, sales and marketing expense was 33% in the three months ended June 30, 2013.
For the six months ended June 30, 2013, sales and marketing expense increased by 6% to $11.1 million. Selling expense increased $0.9 million while marketing expense decreased by $0.3 million. Selling expense increases were driven by increased compensation costs of $0.6 million, partially due to additional sales personnel in Switzerland and Canada, and increased sales meetings and related costs of $0.3 million. Marketing expense decreases were largely driven by a $0.2 million reduction in advertising costs. As a percentage of net sales, sales and marketing expense was 35% in the six months ended June 30, 2013.
General and administrative. For the three months ended June 30, 2013, general and administrative expense increased 13% to $3.1 million. The increase was largely the result of expenses associated with our newly formed subsidiary in Canada and increased compensation costs of $0.1 million. As a percentage of net sales, general and administrative expense was 19% in the three months ended June 30, 2013.
For the six months ended June 30, 2013, general and administrative expense increased 10% to $5.9 million. The increase was largely the result of expenses associated with our newly formed subsidiary in Canada, increased compensation costs of $0.3 million, and increased professional fees costs. As a percentage of net sales, general and administrative expense was 19% in the six months ended June 30, 2013.
Research and development. For the three months ended June 30, 2013, research and development expense increased 12% to $1.3 million. Product development expense increased $0.1 million primarily due to increased product testing costs of $0.1 million. Clinical and regulatory expense was relatively flat. As a percentage of net sales, research and development expense was 8% for the three months ended June 30, 2013.
For the six months ended June 30, 2013, research and development expense increased 12% to $2.5 million. Product development expense increased $0.2 million primarily due to increased product testing costs of $0.1 million. Clinical and regulatory expense increased $0.1 million mainly due to increased regulatory specialist compensation. As a percentage of net sales, research and development expense was 8% for the six months ended June 30, 2013.
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Medical device excise tax. Commencing in 2013, we are subject to a medical device excise tax of 2.3% on sales within the United States. The medical device excise tax was $0.2 million and $0.3 million for the three months and six months ended June 30, 2013, respectively. We estimate this tax to negatively affect income from operations by approximately $0.7 million in 2013.
Foreign exchange gains / losses. Foreign exchange losses for the six months ended June 30, 2013 were $0.1 million. For the six months ended June, 2012, foreign exchange losses were $0.2 million, primarily the result of a cumulative translation adjustment recorded at our Biomateriali subsidiary upon the liquidation and dissolution of that legal entity.
Income tax expense. We recorded a provision for taxes of $0.5 million on pre-tax income of $1.4 million for the three months ended June 30, 2013, compared to $0.6 million on pre-tax income of $1.4 million for the three months ended June 30, 2012. We recorded a provision for taxes of $0.7 million on pre-tax income of $2.4 million for the six months ended June 30, 2013, compared to $0.9 million on a pre-tax income of $2.1 million for the six months ended June 30, 2012. Our 2013 provision was based on the estimated annual effective tax rate of 35.0%, comprised of estimated federal and state income taxes of approximately $1.6 million, as well as foreign income taxes of $0.3 million. Our income tax expense for the current period varies from the statutory rate amounts mainly due to a discrete item related to a $0.1 million research and development tax credit earned in 2012 but enacted into law in January 2013, lower statutory rates from our foreign entities and certain permanent items. Our June 30, 2012 provision for taxes was based on the estimated annual effective tax rate of 41.2% and was comprised of estimated federal and state income taxes of approximately $1.0 million, as well as a foreign income tax benefit of $0.1 million. Our 2012 income tax expense varied from the statutory rate amounts mainly due to certain permanent items and lower statutory rates at our foreign German entity. We monitor the mix of profitability by tax jurisdiction and adjust our annual expected rate on a quarterly basis as needed. While it is often difficult to predict the final outcome or timing of the resolution for 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 June 30, 2013, we will continue to carry a valuation allowance against $3.1 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.
For the remainder of 2013, we expect that our effective tax rate will be comparable to the statutory tax rates less the benefits related to research and development tax credits from both 2012 and 2013 as a result of legislation enacted in January 2013, and any reductions in uncertain tax positions due to the lapse of the statute of limitations.
Liquidity and Capital Resources
At June 30, 2013, our cash and cash equivalents were $14.9 million as 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 June 30, 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, and pay our long-term liabilities. Since our inception, we have funded our operations through public offerings and private placements of equity securities, short-term borrowings, and funds generated from our operations.
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We recognized operating income of $2.6 million for the six months ended June 30, 2013. 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 the $1.1 million acquisition of Clinical Instruments International, Inc.;
payments associated with potential future quarterly cash dividends to our common stockholders;
payments associated with our stock repurchase plan;
payments associated with U.S income taxes or other taxes, such as the medical device tax which we estimate will be approximately $0.7 million in 2013;
the costs associated with expanding our manufacturing, marketing, sales, and distribution efforts;
the rate of progress and cost of our research and development activities;
the costs of obtaining and maintaining FDA and other regulatory clearances of our existing and future products;
the effects of competing technological and market developments; and
the number, timing, and nature of acquisitions and other strategic transactions.
Our cash balances may decrease as we continue to use cash to fund our operations, make acquisitions, make purchases under our share repurchase program, make payments under our quarterly dividend program, and make deferred payments related to prior acquisitions. We believe that our cash and cash equivalents 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. 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.
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Payment Date
On July 24, 2013, our Board of Directors approved a quarterly cash dividend on our common stock of $0.03 per share payable on September 4, 2013, to stockholders of record at the close of business on August 21, 2013, which will total approximately $0.5 million.
Cash Flows
Cash flows provided by (used in):
Net cash provided by operating activities. Net cash provided by operating activities was $1.6 million for the six months ended June 30, 2013, and consisted of $1.7 million net income, adjusted for non-cash items of $2.3 million (including depreciation and amortization of $1.3 million, stock-based compensation of $0.6 million, and provision for inventory write-offs of $0.4 million) and was offset by changes in working capital of $2.4 million. The net cash used by changes in working capital was principally the result of an increase in inventory of $1.3 million, an increase in accounts receivable of $0.7 million, and a decrease in accounts payable and other liabilities.
Net cash provided by operating activities was $2.4 million for the six months ended June 30, 2012, and consisted of $1.2 million net income, adjusted for non-cash items of $2.8 million (including depreciation and amortization of $1.1 million, provision for inventory write-offs of $0.7 million, stock-based compensation of $0.5 million, and the effects of foreign currency translations of $0.3 million) and was offset by changes in working capital of $1.5 million. The net cash used by changes in working capital was principally the result of an increase in inventory of $1.9 million, an increase of accounts receivable, and a decrease in accounts payable and other liabilities.
Net cash used in investing activities. Net cash used in investing activities was $2.2 million for the six months ended June 30, 2013. This was primarily driven by the purchase of property and equipment of $2.1 million of which $0.9 million related to facility buildout and manufacturing equipment associated with our XenoSure biologic patch.
Net cash used in investing activities was $0.5 million for the six months ended June 30, 2012. This was primarily driven by the purchase of property and equipment and was partially offset by the $0.1 million payment of a note receivable related to our stent graft divestiture in 2011.
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Net cash used in financing activities. Net cash used in financing activities was $0.8 million for the six months ended June 30, 2013, driven primarily by payment of common stock dividends of $0.9 million which were partially offset by proceeds from stock option exercises of $0.2 million.
Net cash used in financing activities was $1.8 million for the six months ended June 30, 2012, driven primarily by the purchase of $1.1 million of our outstanding shares under our stock repurchase plan and the payment of common stock dividends of $0.8 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 June 30, 2013:
Contractual obligations
Operating leases
Purchase commitments for inventory
Total contractual obligations
The commitments under our operating leases consist primarily of lease payments for our Burlington, Massachusetts, corporate headquarters and manufacturing facility, expiring in 2017; our Mississauga, 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; and our Madrid, Spain office, expiring in 2014. They also include automobile and equipment leases.
The purchase commitments for inventory are intended to be used in operations in the normal course of business and do not represent excess commitments or loss contracts.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 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.
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, or U.S. GAAP. Our most significant accounting policies are described in note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. There has been no material changes in our critical accounting policies during the six months ended June 30, 2013. The preparation of our consolidated financial statements in conformity with U.S. 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, share-based compensation, and income taxes are reviewed on an ongoing basis and updated as appropriate. Actual results may differ from those estimates.
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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.
Quantitative and Qualitative Disclosures About Market Risk
This item is not applicable to us as a smaller reporting company.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is reported, processed, and summarized within the time periods specified in the SEC’s rules and forms. As of June 30, 2013, or the Evaluation Date, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control
There have been no changes in our internal control over financial reporting for the quarter ended June 30, 2013, that have materially affected, or are 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 a 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 is also 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, a 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.
Part II. Other Information
In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, employment, product liability, commercial arrangements and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of August 9, 2013, that management believes would have a material adverse effect on our financial position, results of operations or cash flows.
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In addition to the information set forth in this report, you should consider the risks and uncertainties discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition, or future results. There have been no substantive changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on March 27, 2013.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
Period
April 1, 2013 through April 30, 2013
May 1, 2013 through May 31, 2013
June 1, 2013 through June 30, 2013
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Exhibit
Number
Filed
Herewith
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SIGNATURES
Pursuant to the requirements 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 August 9, 2013.
/s/ George W. LeMaitre
/s/ Joseph P. Pellegrino, Jr.
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EXHIBIT INDEX