UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 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 15,416,169 shares of common stock, $.01 par value per share, outstanding as of October 31, 2013.
LEMAITRE VASCULAR
TABLE OF CONTENTS
Part I.
Financial Information:
Item 1.
Financial Statements
Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012
Unaudited Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2013 and 2012
Unaudited Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September, 2013 and 2012
Unaudited Consolidated Statements of Cash Flows for the nine-month periods ended September 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
Part II.
Other Information:
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures
Index to Exhibits
2
Part I. Financial Information
LeMaitre Vascular, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $253 at September 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 16,794,467 shares at September 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; 1,375,155 shares at September 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
(Gain) 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:
Foreign currency translation adjustment, net
Total other comprehensive income
Comprehensive income
5
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 for losses in accounts receivable
Provision for inventory write-downs
Loss on divestitures
Loss on disposal of property and equipment
Provision for deferred income taxes
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 intellectual property
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
September 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, vein removal systems, 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 nine months ended September 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 second quarter of 2013. As a result of the 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 nine months ended September 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 nine months ended September 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.
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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.
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.
Our 2013 income tax expense varies from the statutory rate mainly due to discrete items related to a research and development tax credit earned in 2012, but enacted into law in January 2013 and the recognition of uncertain tax positions as a result of the lapse in the statute of limitations, lower statutory rates from our foreign entities and certain permanent items. Our 2012 income tax expense varied from the statutory rate amounts mainly due to the inclusion of certain foreign entities with losses, from lower statutory rates at our foreign German entity, offset by certain permanent and discrete items.
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 September 30, 2013, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $130,000. 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. A reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:
Unrecognized tax benefits at the beginning of year
Additions for tax positions of current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions for lapses of the applicable statutes of limitations
Unrecognized tax benefits at the end of the period
As of September 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 September 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 was paid 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 the acquired intangible assets is 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 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.
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The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of the acquisition:
Current assets
Intangible assets
Total assets acquired
Total liabilities assumed
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
Total intangible assets
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 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.
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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:
Tradename
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 the acquired intangible assets is 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 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 the acquired intangible assets is 3.0 years.
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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 the first payment made in October 2013 and the remaining two payments due in December 2013 and December 2014. We will account for this transaction during the three months ending December 31, 2013.
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 the first payment made in November 2013 and the remaining two payments due in December 2013 and December 2014. We will account for this transaction during the three months ending December 31, 2013.
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.
Our acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in goodwill, due to expectations of synergies that will be realized by combining businesses. These synergies include the use of our existing sales channel to expand sales of the acquired businesses’ products, consolidation of manufacturing facilities, and the leveraging our existing administrative infrastructure. The net assets acquired have been recorded based on estimates of fair value and, for acquisitions completed within the past year, are subject to adjustment upon finalization of the valuation process.
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.
Goodwill consists of the following:
Balance at beginning of year
Additions for acquisitions
Balance at September 30, 2013
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The components of our identifiable intangible assets were as follows:
Patents
Trademarks and technology licenses
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 September 30, 2013 is 7.7 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 September 30, 2013, as part of our normal course of business, we have purchase commitments to purchase $3.6 million of inventory through 2015.
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:
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.
The components of share-based compensation expense were as follows:
Stock option awards
Restricted stock units
Total share-based compensation
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We have computed the fair values of employee stock options for option grants issued during the nine months ended September 30, 2013 and 2012 using the Black-Scholes option model with the following assumptions:
Dividend yield
Volatility
Risk-free interest rate
Weighted average expected option term (in years)
Weighted average fair value per share of options granted
The weighted-average fair value per share of restricted stock unit grants issued for the nine months ended September 30, 2013 was $6.67. The weighted-average fair value per share of restricted stock unit grants issued for the nine months ended September 30, 2012 was $6.23.
We issued approximately 255,000 and 119,000 shares of common stock following the exercise or vesting of underlying stock options or restricted stock units in the nine months ended September 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 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.
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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 September 30, 2013. The following is a summary of the stock repurchase activity for the nine 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
August 21, 2013
Fiscal Year 2012
March 20, 2012
May 18, 2012
August 17, 2012
November 20, 2012
On October 23, 2013, our Board of Directors approved a quarterly cash dividend on our common stock of $0.03 per share payable on December 4, 2013 to stockholders of record at the close of business on November 20, 2013, which will total approximately $0.5 million.
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Cash paid (refunded) for income taxes, net
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:
As of September 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 $8.3 million.
We had no Level 2 assets being measured at fair value on a recurring basis as of September 30, 2013.
We determine the fair value of acquisition-related contingent consideration based on assessment of the probability that we would be required to make such future payment. The following table provides a rollforward of the fair value, as determined by Level 3 inputs:
Beginning balance
Additions
Change in fair value included in earnings
Ending Balance
Our accumulated other comprehensive loss consisted of foreign currency translation for the nine months ended September 30, 2013 and 2012, respectively.
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
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This Quarterly Report on Form 10-Q 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 report regarding our strategy, future operations, future financial position, future net sales, projected costs, projected expenses, prospects and plans and objectives of management are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the expectations underlying any of our forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections, or expectations prove incorrect, our actual results, performance, or financial condition may vary materially and adversely from those anticipated, estimated, or expected. These risk and uncertainties include, but are not limited to: the risk that the Company may not realize the anticipated benefits of its strategic activities; the risk that assumptions about the market for the Company’s products and the productivity of the Company’s direct sales force and distributors may not be correct; risks related to the integration of acquisition targets; risks related to product demand and market acceptance of the Company’s products; the risk that the XenoSure product is not as accretive and does not achieve the gross margins currently anticipated by the Company; the risk that the Company experiences increased expense, production delays or quality difficulties in the transition of the XenoSure manufacturing operations; risks related to attracting, training and retaining sales representatives and other employees in new markets such as Australia and Norway; and the risk that the Company is not successful in transitioning to a direct-selling model in new territories.
Forward-looking statements reflect management’s analysis as of the date of this quarterly report. Further information on potential risk factors that could affect our business and financial results is detailed in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission, including under the section headed “Risk Factors” in our most recent Annual Report on Form 10-K. 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. 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.
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, Trivex, 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 and Canada. 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: 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.
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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, vascular patches, vein removal systems, and vessel closure systems.
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.
Our business opportunities include the following:
We sell our products primarily through a direct sales force. As of September 30, 2013 our sales force was comprised of 87 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 nine months ended September 30, 2013 approximately 93% of our net sales were generated in markets in which we employ direct sales representatives.
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:
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We anticipate that the expansion of our direct sales organization in Canada and Switzerland will result in increased sales and marketing expenses during 2013. We anticipate that going direct in Norway and Australia will result in increased administrative, selling, and marketing expenses in 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 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 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 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 quarter of 2014 resulting in a negative impact to our gross profit. Once the transition is complete, we
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expect the gross margins on our XenoSure biologic vascular patch to improve beginning in the second half of 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 this transfer.
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.
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the nine months ended September 30, 2013, approximately 34% of our sales were from outside the Americas. We expect 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 sales in U.S. dollars than we did before the rate increase went into effect.
Adjustments to Previously Issued Unaudited Preliminary Results of Operations
We recorded an additional provision for income taxes of $60,000 for the three months ending September 30, 2013 due to higher income taxes than expected on certain stock option exercises since the reporting of our preliminary results on October 29, 2013, which reduced net income by $60,000 in the period.
Results of Operations
Comparison of the three and nine months ended September 30, 2013 to the three and nine months ended September 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 12% to $15.3 million for the three months ended September 30, 2013, compared to $13.6 million for the three months ended September 30, 2012. Sales increases for the three months ended September 30, 2013 were primarily driven by increased sales in biologic vascular patches of $0.7 million, catheters of $0.3 million, shunts of $0.3 million, valvulotomes of $0.2 million, and Dacron grafts of $0.2 million, and were partially offset by decreased sales of radiopaque tape of $0.2 million. The Clinical and InaVein acquisitions contributed $0.3 million of sales during the three months ended September 30, 2013.
Net sales increased 11% to $46.6 million for the nine months ended September 30, 2013, compared to $41.9 million for the nine months ended September 30, 2012. Sales increases for the nine months ended September 30, 2013 were primarily driven by increased sales in biologic vascular patches of $1.9 million, valvulotomes of $0.9 million, catheters of $0.8 million, Dacron grafts of $0.5 million, and vessel closure systems of $0.5 million, and were partially offset by decreased sales of radiopaque tape and non-occlusive modeling catheters. 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 previously prohibited in certain European countries.
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Direct-to-hospital net sales were 93% for the nine months ended September 30, 2013, down from 95% for the nine months ended September 30, 2012.
Net sales by geography. Net sales in the Americas increased by $0.9 million for the three months ended September 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, vessel closure systems, and newly acquired products, as well as higher average selling prices across nearly all product lines, and was partially offset by decreased sales of radiopaque tape. International net sales increased $0.8 million for the three months ended September 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, catheters, valvulotomes, and Dacron grafts.
Net sales in the Americas increased by $2.3 million for the nine months ended September 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 of $0.4 million. International net sales increased $2.4 million for the nine months ended September 30, 2013. The increase was primarily driven by increased sales of biologic vascular patches, catheters, Dacron grafts, and valvulotomes.
Gross margin
Gross Profit. Gross profit increased 7% to $10.7 million for the three months ended September 30, 2013, while gross margin decreased 3.4% to 70% in the same period. The gross margin decrease was largely driven by, unfavorable geographic and product mix, start-up costs associated with our biologic vascular patch manufacturing as well as transition costs associated with our newly acquired Clinical manufacturing facility. 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 9% to $33.2 million for the nine months ended September 30, 2013, while gross margin decreased 1.5% to 71.1% in the same period. The gross margin decrease was largely driven by unfavorable geographic mix, increased sales of our lower margin biologic vascular patches, and start-up costs associated with our biologic vascular patch. These decreases were partially offset by non-recurring inventory write-offs associated with our Dacron graft manufacturing in 2012, higher average selling prices across all product lines, improved manufacturing efficiencies and the correction of an inventory valuation error recorded in the second quarter of 2013. The gross profit increase was a result of higher sales.
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 continue to negatively affect gross margin through the second quarter of 2014 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 the second half of 2014.
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Sales and marketing. For the three months ended September 30, 2013, sales and marketing expense increased 6% to $5.2 million. Selling expense increased $0.4 million while marketing expense decreased by $0.1 million. Selling expense increases were driven by increased compensation and other personnel related costs of $0.3 million, primarily due to additional sales personnel in Switzerland and Canada. Marketing expense decreases were largely driven by a reduction of direct marketing and advertising expenses. As a percentage of net sales, sales and marketing expense was 34% in the three months ended September 30, 2013.
For the nine months ended September 30, 2013, sales and marketing expense increased by 6% to $16.2 million. Selling expense increased $1.3 million while marketing expense decreased by $0.3 million. Selling expense increases were driven by increased compensation and other personnel related costs of $1.0 million, partially due to additional sales personnel in Switzerland and Canada, and increased sales meetings and related costs of $0.2 million. Marketing expense decreases were largely driven by a $0.3 million reduction in advertising costs which was offset by an increase in compensation expenses of $0.1 million. As a percentage of net sales, sales and marketing expense was 35% in the nine months ended September 30, 2013.
General and administrative. For the three months ended September 30, 2013, general and administrative expense increased 13% to $3.3 million. The increase was largely the result of expenses associated with our newly formed subsidiary in Canada, increased compensation costs of $0.2 million, increased professional services costs of $0.2 million, and increased intangible amortization of $0.1 million, which was partially offset by decreased employee termination and bad debt costs. As a percentage of net sales, general and administrative expense was 21% in the three months ended September 30, 2013.
For the nine months ended September 30, 2013, general and administrative expense increased 12% to $9.2 million. The increase was largely the result of expenses associated with our newly formed subsidiary in Canada, increased compensation costs of $0.5 million, increased professional services costs of $0.5 million, and increased intangibles amortization of $0.2 million, which was partially offset by decreased employee termination and bad debt costs. As a percentage of net sales, general and administrative expense was 20% in the nine months ended September 30, 2013.
Research and development. For the three months ended September 30, 2013, research and development expense increased 3% to $1.3 million. Product development expense decreased $0.1 million primarily due to decreased product testing costs. Clinical and regulatory expense increased $0.1 million primarily due to increased testing costs. As a percentage of net sales, research and development expense was 8% for the three months ended September 30, 2013.
For the nine months ended September 30, 2013, research and development expense increased 9% to $3.8 million. Product development expense increased $0.1 million primarily due to increased compensation expense.
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Clinical and regulatory expense increased $0.2 million mainly due to increased compensation and outside services. As a percentage of net sales, research and development expense was 8% for the nine months ended September 30, 2013.
Medical device excise tax. Commencing in 2013, we were subject to a medical device excise tax of 2.3% of sales within the United States. The medical device excise tax was $0.2 million and $0.5 million for the three months and nine months ended September 30, 2013, respectively. We estimate this tax will negatively affect income from operations by approximately $0.7 million in 2013.
Gain / loss on divestitures. We recorded a $0.1 million gain on divestiture relating to our TAArget and UniFit stent graft product lines as a result of payments received from Duke Vascular during the three months ended September 30, 2012. We recorded a $0.1 million write-off on a note receivable associated with our 2010 Optilock divesture as the acquirer provided notice that it was filing for insolvency protection under German law in the second quarter of 2012.
Foreign exchange gains / losses. Foreign exchange losses for the nine months ended September 30, 2013 were $0.1 million. For the nine months ended September 30, 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 $0.1 million on pre-tax income of $0.8 million for the three months ended September 30, 2013, compared to $0.4 million on pre-tax income of $1.1 million for the three months ended September 30, 2012. We recorded a provision for taxes of $0.8 million on pre-tax income of $3.2 million for the nine months ended September 30, 2013, compared to $1.3 million on a pre-tax income of $3.1 million for the nine months ended September 30, 2012. Our 2013 provision was based on the estimated annual effective tax rate of 35.2%, 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 discrete items related to a $0.2 million research and development tax credit earned in 2012, but enacted into law in January 2013 and the recognition of $0.2 million of uncertain tax positions as a result of the lapse in the statute of limitations, lower statutory rates from our foreign entities and certain permanent items. Our September 30, 2012 provision for taxes was based on the estimated annual effective tax rate of 39.4% 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 the inclusion of certain foreign entities with losses, from lower statutory rates at our foreign German entity, offset by certain permanent and discrete items. 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 September 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 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, reductions in uncertain tax positions due to the lapse of the statute of limitations and the benefit from the exercise of certain stock options.
Liquidity and Capital Resources
At September 30, 2013, our cash and cash equivalents were $13.6 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 September 30, 2013. All of our cash held outside of the United States is available for corporate use.
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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 offering and private placements of equity securities, short-term borrowings, and funds generated from our operations.
We recognized operating income of $3.3 million for the nine months ended September 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:
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 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.
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Cash Flows
Cash flows provided by (used in):
Net cash provided by operating activities. Net cash provided by operating activities was $4.0 million for the nine months ended September 30, 2013, and consisted of $2.5 million net income, adjusted for non-cash items of $3.4 million (including depreciation and amortization of $2.0 million, stock-based compensation of $1.0 million, and provision for inventory write-offs of $0.4 million) and was offset by changes in working capital of $1.9 million. The net cash used by changes in working capital was principally the result of an increase in inventory.
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Net cash provided by operating activities was $4.3 million for the nine months ended September 30, 2012, and consisted of $1.9 million net income, adjusted for non-cash items of $3.9 million (including depreciation and amortization of $1.6 million, provision for inventory write-offs of $0.9 million, stock-based compensation of $0.9 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 $3.1 million and in accounts payable and other liabilities of $1.6 million.
Net cash used in investing activities. Net cash used in investing activities was $5.9 million for the nine months ended September 30, 2013. This was primarily driven by acquisition related payments to InaVein and Clinical Instruments of $3.2 million and the purchase of property and equipment of $2.4 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 $0.7 million for the nine months ended September 30, 2012. This was primarily driven by the purchase of property and equipment and was partially offset by a $0.3 million collection of a note receivable related to our 2011 stent graft divestiture.
Net cash used in financing activities. Net cash used in financing activities was $1.0 million for the nine months ended September 30, 2013, driven primarily by payment of common stock dividends of $1.4 million and $0.3 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 $0.7 million.
Net cash used in financing activities was $3.1 million for the nine months ended September 30, 2012, driven primarily by the purchase of $2.0 million of our shares of common stock under our stock repurchase plan and the payment of common stock dividends of $1.1 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 September 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 September 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.
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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 nine months ended September 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.
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 September 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 September 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
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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 November 7, 2013, that management believes would have a material adverse effect on our financial position, results of operations or cash flows.
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
July 1, 2013 through July 31, 2013
August 1, 2013 through August 31, 2013
September 1, 2013 through September 30, 2013
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Exhibit
Number
Filed
Herewith
The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the SEC 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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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 November 7, 2013.
/s/ George W. LeMaitre
/s/ Joseph P. Pellegrino, Jr.
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EXHIBIT INDEX