The following discussion and analysis of our financial condition and results of operation should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, which are included in Item 8 of this report. Although our financial statements are prepared in accordance with accounting principles which are generally accepted in the United States of America ("GAAP"), our management believes that certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations, and can be useful for period-over-period comparisons of such operations. Included in our management's discussion and analysis of our financial condition and results of operation are references to some non-GAAP financial measures. Readers should consider these non-GAAP measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all, items that may affect our net income. Additionally, these financial measures may not be comparable with similarly-titled measures of other companies.

OVERVIEW

We design, develop, manufacture and market single-use medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of cardiology and radiology devices which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other non-vascular diseases and includes the embolotherapeutic products we acquired through our acquisition of BioSphere. Our endoscopy segment consists of gastroenterology and pulmonology medical devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

For the year ended December 31, 2012, we reported record sales of approximately $394.3 million, up approximately $34.8 million or 9.7%, over 2011 sales of approximately $359.4 million. Gross profits as a percentage of sales was 46.2% for the year ended December 31, 2012, compared to 46.0% for the year ended December 31, 2011.

During the year ended December 31, 2012, we recorded a charge of approximately $2.5 million for acquired in-process research and development, primarily related to the purchase of several new product technologies. These technologies included the purchase of four patents for the development of future products, primarily a new cross-support catheter and an exclusive license for certain nanotechnology.

Net income for the year ended December 31, 2012 was approximately $19.7 million, or $0.46 per share, as compared to $23.0 million, or $.58 per share, for the year ended December 31, 2011.

During the year ended December 31, 2012, we made significant investments to expand our international sales distribution. We expanded our sales presence primarily in Russia, India, Brazil, certain Middle Eastern Countries, and the Balkan countries, as well as countries located in the Pacific Rim. Our international sales for the year ended December 31, 2012 increased by $20.4 million and now represents 37% of our total sales, compared to 35% of our total sales for the corresponding period in 2011. This international growth has been important to our financial results, as we have experienced slower sales growth in U.S. markets.

Our endoscopy operating segment made significant progress during 2012 in reducing its operating loss to approximately $770,000 for the year ended December 31, 2012, when compared to the operating loss of approximately $4.8 million for the corresponding period of 2011. This reduction in operating loss was largely driven by a sales increase of 31% in our endoscopy segment for the year ended December 31, 2012, when compared to the year ended December 31, 2011, and an improvement in gross margins. During the first quarter of 2012, we launched our new EndoMAXX® Fully-Covered Esophageal Stent, which aided our sales growth for the year ended December 31, 2012. We have completed the qualification of a new contract stent manufacturer which will lower our product costs and improve gross profits for this operating segment. It is anticipated that these lower costs should begin to help increase our gross margins starting in the second quarter of 2013, which would help us move toward profitability in the near future for this operating segment.

In December 2012, we completed the largest acquisition in our history when we acquired stock of Thomas Medical from Vital Signs, Inc., a subsidiary of GE Healthcare, in an all-cash transaction valued at approximately $165.6 million (net of cash acquired). The purchase price includes an agreement with GE Healthcare to treat this acquisitions for tax purposes as an asset deal (section
338(h) (10) election) , which could give us approximately $59.0 million in tax savings over a period of fifteen years. Thomas Medical's sales for the year ended December 31, 2012 were approximately $37.8 million, of which approximately $1.9 million occurred subsequent to the acquisition date and is included in our consolidated statement of income for the year ended December 31, 2012. A significant portion of these sales were made to OEM customers as part of their product offerings in catheter-based vascular access delivery devices for diagnostic and therapeutic procedures in electrophysiology ("EP"), cardiac rhythm

management ("CRM"), interventional cardiology and interventional radiology applications. Thomas Medical's primary product was a splittable hemostatic introducer sheath system for the delivery of pacemaker and defibrillator leads. Using the splittable hemostatic introducer sheath as an entry product, we intend to develop a portfolio of premium accessories for EP physicians.

Our product pipeline is promising with new cardiology, radiology and endoscopy products in the queue. We expect to launch a number of new products in 2013, including the TIO™ Three-in-One Oral Airway Bite Block, the One Snare™ Single-Loop Device, the basixTOUCH™ Inflation Device, the PHD™ Hemostasis Valve, the PreludeEASE™ Hydrophilic Radial Sheath, the ASAP LP™ Aspiration Catheter, the Worley™ Snare System, the Bearing™ NS PVA Embolization Particles, Steerable EP Sheath, the DialEase™ Splittable Sheath, the EndoMAXX EDT™ Esophageal Stent, the Merit SureCross™ Support Catheter and the ConcierGE® Guiding Catheter.

We are facing several head winds during 2013 that will effect our earnings. The Medical Device Excise Tax ("MDET"), which was included as part of the Patient Protection and Affordable Care Act, will take effect on January 1, 2013. We have raised our prices to most of our OEM customers to offset the associated MDET to this customer group, but have chosen not to raise the prices to our direct U.S. hospital customers which make up a majority of our U.S. customers. The MDET will decrease our gross profits and earnings by $3.5 to $4.0 million dollars in 2013 for sales made to our direct U.S. hospital customers. Expectations from many of our U.S. hospitals was for the medical manufacturing companies to absorb the costs of the MDET. We have decided that we would rather have our sales force promoting our products and increasing our market share, instead of defending a price increase for the MDET which could influence the hospital to seek competitive products.

In addition to the MDET, we will complete the construction of two new buildings in the U.S. Both buildings will provide production, warehouse and administration offices. The new South Jordan building of 253,000 square feet will be completed during the first quarter of 2013 and the new Pearland, Texas facility of 94,000 square is expected to be completed in October of 2013. The additional costs associated with the new facilities over the current production facilities will have an effect on our gross margins, operating expenses and earnings for 2013 of approximately $2.5 to $3.5 million. Some of the building costs will be expensed into selling, general and administrative costs as opposed to cost of sales, during a transition period of three to six months as it will take this long to complete the movement and qualification of production equipment from the old facilities into the new facilities. These new facilities in the U.S. are needed to allow us to expand our manufacturing operations for new and existing products and increase our research and development pilot lab capacity for new product development, given the growth we are experiencing in our international markets.

RESULTS OF OPERATIONS

The following table sets forth certain operational data as a percentage of sales for the years indicated:

                                              2012   2011   2010
Net sales                                     100%   100%   100%
Gross profit                                  46.2   46.0   43.3
Selling, general, and administrative expenses 31.0   29.1   29.5
Research and development expenses             7.0    6.1    5.2
Acquired in-process research and development  0.6    1.6     -
Goodwill impairment charge                     -      -     2.8
Income from operations                        7.5    9.2    5.8
Income before income taxes                    7.0    9.1    5.7
Net income                                    5.0    6.4    4.2

Listed below are the sales by product category within each business segment for the years ended December 31, 2012, 2011 and 2010 (in thousands):

                          % Change      2012       % Change      2011       % Change      2010
Cardiovascular
Stand-alone devices         12%      $ 114,242       15%      $ 101,959       16%      $  88,586
Custom kits and procedure
trays                        3%         94,586       11%         91,532       11%         82,799
Inflation devices            2%         68,979        8%         67,353        2%         62,495
Catheters                   17%         64,878       23%         55,357       18%         44,824
Embolization devices         8%         33,870       247%        31,229        -%          9,003
CRM/EP                       -%          1,938        -%              -        -%              -
Total                        9%        378,493       21%        347,430       15%        287,707

Endoscopy
Endoscopy devices           31%         15,795       33%         12,019       18%          9,048

Total                       10%      $ 394,288       21%      $ 359,449       15%      $ 296,755

Cardiovascular Sales. Our cardiovascular sales for the year ended December 31, 2012 were approximately $378.5 million, up 8.9%, when compared to the corresponding period for 2011 of approximately $347.4 million. Sales were favorably affected by an increase in sales of our stand-alone devices (particularly our hemostasis valves, guidewires and newly-acquired Scion Clo-SurPLUS P.A.D.™) of approximately $12.3 million, or 12.0%; an increase in sales of catheter devices (particularly our Prelude® sheath product line, micro catheter product line, aspiration catheter product line and diagnostic catheters) of approximately $9.5 million, or 17.2%; and an increase in custom kits and procedure trays of approximately $3.1 million, or 3.3%. Our cardiovascular sales for the year ended December 31, 2011 were approximately $347.4 million, up 20.8%, when compared to the corresponding period for 2010 of approximately $287.7 million. Sales were favorably affected by an increase in sales of our embolization devices of approximately $22.2 million, or 246.9%, compared to $9.0 million for the three and half months in 2010; an increase in sales of our stand-alone devices (particularly our Merit Laureate® Hydrophilic guide wire, hemostasis valves and manifolds) of approximately $13.4 million, or 15.1%; and increased sales of catheter devices (particularly our Prelude® sheath product line, aspiration catheter product line and diagnostic catheter product line) of approximately $10.5 million, or 23.5%. Our cardiovascular sales for 2010 of approximately $287.7 million, compared to 2009 cardiovascular sales of $249.8 million, were up $37.9 million or approximately 15%. This improvement was largely the result of an increase in sales of $22.2 million, or 9.5% of sales, related to our base business (which excludes EN Snare® and embolization devices sales); our acquisition of embolization devices from BioSphere of approximately $9.0 million, or 3.6% of sales; and approximately $6.7 million, or 2.7% of sales, related to the EN Snare® products we acquired from Hatch Medical, L.L.C., a Georgia limited liability company, ("Hatch") in June of 2009. Our growth in the cardiovascular business segment was favorably affected by increased sales of our base business growth of custom kits and procedure trays of approximately $8.3 million, or 3.3% of base business sales, catheters (particularly our Prelude® sheath product line, micro access catheter product line and new microcatheter product line) of approximately $6.7 million, or 2.7% of base business sales, and our stand-alone devices (particularly our hemostasis valves and stopcocks) of approximately $5.8 million, or 2.3% of base business sales (excludes approximately $6.7 million in EN Snare® sales).

Our sales increased during 2012, 2011 and 2010 notwithstanding the fact that the markets for many of our products experienced slight pricing declines as our customers tried to reduce their costs. Substantially all of the increase in our revenues was attributable to increased unit sales. Sales by our European direct sales force are subject to foreign currency exchange rate fluctuations between the natural currency of a foreign country and the U.S. Dollar. Foreign currency exchange rate fluctuations decreased sales by 0.7% in 2012 compared to 2011, and decreased sales by 0.5% in 2011 compared to 2010, decreased sales by 0.3% in 2010 compared to 2009. New products and market share gains in our existing product lines were additional sources of revenue growth.

Endoscopy Sales. Our endoscopy sales for the year ended December 31, 2012 were approximately $15.8 million, up 31.4%, when compared to sales in the corresponding period of 2011 of approximately $12.0 million. This increase was primarily related to the increase sales related to our new EndoMAXX® Fully-Covered Esophageal Stent. Our endoscopy sales for the year ended December 31, 2011 were approximately $12.0 million, up 32.8%, when compared to sales in the corresponding period of 2010 of approximately $9.0 million. This increase was due primarily to an increase in sales of approximately $2.4 million of our Aero® Tracheobronchial stent, in large part, accelerated by a competitor's withdrawal from the airway stent market. Our endoscopy sales for 2010 of approximately $9.0 million, when compared to 2009 sales of approximately $7.7 million (sales for 2009 includes only nine and one-half months), were down on an annualized basis, primarily due to the elimination of sales of certain stent procedures and sales force turnover.

International sales for the year ended December 31, 2012 were approximately $146.3 million, or 37% of total sales; international sales for the year ended December 31, 2011 were approximately $125.9 million, or 35% of total sales; international sales for the year ended December 31, 2010 were approximately $95.2 million, or 32% of total sales. This increase in our international sales during 2012 was primarily related to year-over-year sales increases in China of approximately $5.9 million, up 29%, Europe Direct of approximately $2.7 million, up 7% (would have been up 16% in constant currency), United Arab Emirates ("UAE") of approximately $2.0 million, up 55%, Russia of approximately $1.8 million, up 67%, Japan of approximately $1.8 million, up 14%, and Brazil of approximately $1.7 million, up 50%. The increase in our international sales during 2011 was primarily related to year-over-year sales increases in Europe Direct of approximately $9.7 million, up 31%, China of approximately $8.1 million, up 66%, Europe, the Middle East, and Africa ("EMEA") distributor of approximately $5.6 million, up 46%, and Pacific Rim (excluding China) of approximately $4.8 million, up 21%. The increase in our international sales during 2010 was primarily related to year-over-year sales increases in China, Japan, Germany and the U.K. Our total European direct sales were approximately $42.6 million, $39.9 million, and $29.7 million in 2012, 2011, and 2010, respectively.

Our gross profit as a percentage of sales was 46.2%, 46.0%, and 43.3% in 2012, 2011 and 2010, respectively. Gross profit for 2012, compared to the corresponding period 2011, remained relatively unchanged. The increase in gross profit in 2011 was attributable to an increase in sales of higher-margin BioSphere products of approximately 1.9% of sales and higher prices and unit sales through our distribution system in China of approximately 0.6% of sales. The improvement in gross profit in 2010 was primarily the result of the addition of higher-margin EN Snare® and embolization devices (offset by $1.7 million in costs related to mark-up on finished goods) acquired from Hatch and BioSphere, respectively.

Our selling, general and administrative expenses increased approximately $17.6 million, or 17%, in 2012 compared to 2011; approximately $16.9 million, or 19%, in 2011 compared to 2010; approximately $22.8 million, or 35%, in 2010 compared to 2009. The increase in selling, general and administrative expenses in 2012 was primarily due to the hiring of additional sales and marketing representatives, both domestically and internationally, to expand our sales distribution and increase market share for new and existing products. In connection with the Thomas Medical acquisition, we had approximately $2.7 million or 0.7% of total sales, in non-recurring severance costs and acquisition costs included in selling, general and administrative costs. The increase in selling, general and administrative expenses in 2011 was primarily related to the addition of sales and marketing employees, trade shows, commissions and amortization of intangibles relating to the BioSphere acquisition and starting up our Chinese distribution system. The increase in selling, general and administrative expenses in 2010 was largely the result of our acquisition of BioSphere in September 2010 and subsequent integration expenses (including additional sales representatives, marketing support and advertising costs). In connection with the BioSphere acquisition, we had approximately $2.8 million in non-recurring severance costs and approximately $2.5 million in acquisition costs included in selling, general and administrative expenses. Selling, general and administrative expenses as a percentage of sales was 31.0% (30.3 % without non-recurring Thomas Medical acquisition costs), 29.1%, and 29.5% (27.8% in 2009 without non-recurring BioSphere acquisition costs) in 2012, 2011 and 2010, respectively.

Research and development expenses increased by 26.7% to approximately $27.8 million in 2012, compared to approximately $21.9 million in 2011. The increase was primarily due to headcount additions for our research and development group to support new products and personnel increases in our regulatory department to support product registrations in foreign countries as we expand our international sales distribution. Research and development expenses increased by 43.1% to approximately $21.9 million in 2011, compared to approximately $15.3 million in 2010. This increase was primarily related to headcount additions to support various new product launches, regulatory costs for seeking product approvals from the U.S. Food and Drug Administration (the "FDA") and international regulatory agencies, additional regulatory costs incurred for the start-up of our Hi-Quality clinical trial and the development of several new products for our endoscopy product line. Research and development expenses increased 37% to approximately $15.3 million in 2010, compared to approximately $11.2 million in 2009. The increase in research and development expenses in 2010 was primarily the result of product development initiatives for the endoscopy business segment and embolization devices acquired from BioSphere, as well as related regulatory support. Our research and development expenses as a percentage of sales were 7.0% for 2012, 6.1% for 2011, and 5.2% for 2010. We have a pipeline of new products and we believe that we have an effective level of capabilities and expertise to continue the flow of new internally-developed products into the future with average gross margins that are higher than our historical gross margins.

During 2012, we incurred in-process research and development charges of approximately $2.5 million related to the purchase of several new product technologies. These technologies included the purchase of four patents for the development of future products, primarily a new cross-support catheter and an exclusive license for certain nanotechnology. During 2011, we incurred in-process research and development charges of approximately $5.8 million related to the purchase of several new product technologies. These technologies included the acquisition of intellectual property for a vena cava filter for $1.0 million, flexible sheath technology for approximately $1.9 million, and support guide catheter technology for $2.0 million. In addition to these

acquisitions, we abandoned the development of certain biomaterial technology and our covered biliary in-process research and development, resulting in charges of $500,000 and $400,000, respectively.

Our operating profits by business segment for the years ended December 31, 2012, 2011 and 2010 were as follows (in thousands):

                           2012         2011         2010
Operating Income (Loss)
Cardiovascular          $ 30,411     $ 38,010     $ 30,176
Endoscopy                   (770 )     (4,820 )    (12,972 )
Total operating income  $ 29,641     $ 33,190     $ 17,204

Cardiovascular Operating Income. Our cardiovascular operating income for the year ended December 31, 2012 was approximately $30.4 million, compared to operating income of approximately $38.0 million for the year ended December 31, 2011. This decrease was due primarily to higher selling, general and administrative expenses and higher research and development expenses. Our cardiovascular operating income for the year ended December 31, 2011 was approximately $38.0 million, compared to operating income of approximately $30.2 million for the year ended December 31, 2010. This increase was favorably affected by higher sales and gross margins, and was negatively affected by higher selling, general and administrative expenses, research and development expenses and acquired in-process research and development expenses. Our cardiovascular operating income for 2010 was approximately $30.2 million, compared to operating income of approximately $35.8 million for 2009. This decrease in operating income was primarily related to the non-recurring acquisition costs of approximately $6.9 million related to the acquisition of BioSphere.

Endoscopy Net Operating Loss. Our endoscopy net operating loss from operations for the year ended December 31, 2012 was approximately $770,000, compared to an operating loss of approximately $4.8 million for the year ended December 31, 2011. The decrease in net operating loss from operations was favorably affected by higher sales and gross margins, lower research and development expenses and was negatively affected by higher selling, general and administrative expenses as we added some additional sales representatives to this segment. Our endoscopy net operating loss from operations for the year ended December 31, 2011 was approximately $4.8 million, compared to an operating loss of approximately $13.0 million for the year ended December 31, 2010. Excluding the abandonment of certain biomaterial technology and our covered biliary in-process research and development, which resulted in charges of $500,000 and $400,000, respectively, our net operating loss for the year ended December 31, 2011 would have been $3.9 million. Excluding a goodwill impairment charge of approximately $8.3 million that we recognized during 2010, our net operating loss for 2010 would have been approximately $4.6 million. Excluding these nonrecurring charges, the decrease in our 2011 operating loss was favorably affected by higher sales and gross margins, which were partially offset by higher research and development expenses and selling, general and administrative expenses. Our endoscopy net operating loss from operations for 2010 was approximately $13.0 million. The increase in research and development expense in the endoscopy segment during 2011 was principally the result of our investment in new product development to help this business segment to profitability. Our endoscopy net operating loss from operations for 2010 was approximately $13.0 million, compared to an operating loss of approximately $3.0 million for 2009. The increase in loss from operations for 2010 was primarily affected by a goodwill impairment charge of approximately $8.3 million and approximately $2.0 million in additional research and development expenses over 2009. The increase in research and development expense in the endoscopy segment during 2010 was principally the result of our investment in new product development to help move this business segment to profitability. We continue to invest heavily in expanding our product offering in this business segment in an effort to continue to reduce our operating losses. In addition, we have completed the qualification of a new contract stent manufacturer which will lower our product costs and improve gross profits for this operating segment. It is anticipated that these lower costs should begin to help increase our gross margins starting in the second quarter of 2013, which would help us move toward profitability in the near future for this operating segment.

Our effective income tax rates for 2012, 2011 and 2010 were 29%, 30% and 26%, respectively. During 2012, our effective tax rate was negatively impacted by a valuation allowance related to a capital loss carryforward. Excluding the effect of this discrete item, our 2012 effective tax rate would have been approximately 25%. The decrease in the effective income tax rate for the year ended December 31, 2012, when compared to the same period of 2011, was the result of a higher mix of foreign income, which is primarily due to Ireland being taxed at a lower rate than our U.S. income. The increase in the effective income tax rate for 2011 compared to 2010 is primarily related to the increased profit of our U.S. operations, which are taxed at a higher rate than our foreign (primarily Ireland) operations income. The decrease in the effective income tax rate for 2010 over 2009 was largely due to the fact that our Irish operations, which are taxed at a lower income tax rate than our U.S. and other foreign operations,

made up a greater portion of our 2010 consolidated income compared to 2009. The decrease in the tax rate was also due to permanent tax benefits (such as certain tax credits) being applied to a lower pre-tax book income in 2010. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which includes a reinstatement of the federal research and development credit for the tax year ended December 31, 2012. We estimate that our credit for 2012 will be approximately $500,000. As a result, we will recognize the . . .