Wright Medical Group, Inc. Reports 2012 Third Quarter Financial Results and Updated Guidance
Wright Medical Group, Inc. Reports 2012 Third Quarter Financial Results and
Updated Guidance
Third Quarter Global Foot and Ankle Net Sales Increase 13% As Reported and 14%
Constant Currency
Company Raises Annual EPS and Cash Flow Guidance
Business Wire
ARLINGTON, Tenn. -- November 05, 2012
Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic medical device
company and a leading provider of surgical solutions for the foot and ankle
market, today reported financial results for its third quarter ended September
30, 2012 and updated guidance.
Net sales totaled $110.4 million during the third quarter ended September 30,
2012, representing a 7% decrease as reported and a 5% decrease on a constant
currency basis compared to the third quarter of 2011. During the third quarter
of 2012, as anticipated, global sales were negatively affected by U.S.
ortho-recon customer losses and price decreases in Japan that were effective
in the second quarter of 2012, partially offset by strong growth in the global
foot and ankle business.
Robert Palmisano, President and Chief Executive Officer, commented, “We
continued to make excellent progress on implementing our transformational
changes in our business during the third quarter. In addition to our third
consecutive quarter of accelerating global foot and ankle growth, we continue
to generate strong cash flow. We also completed the conversion of a major
portion of our foot and ankle distributor territories to direct sales
representation. With this conversion now complete, coupled with the favorable
response to our recent new product launches and increased medical education
programs, we believe we are well positioned to exit the year at well above
market growth rates and improve sales productivity in our foot and ankle
business.”
Net loss for the third quarter of 2012 totaled $5.3 million or $0.14 per
diluted share, compared to net loss of $16.0 million or $0.42 per diluted
share in the third quarter of 2011.
Net loss for the third quarter of 2012 included the after-tax effects of $2.7
million of non-cash stock-based compensation expense, $1.7 million of expenses
associated with U.S. governmental inquiries and the Company’s deferred
prosecution agreement (DPA), $1.6 million of charges associated with
distributor conversions and non-competes, $2.7 million of charges related to
the write-off of deferred financing costs associated with the Company’s Senior
Credit Facility and 2014 Convertible Notes, a $1.8 million loss on the
termination of the interest rate swap associated with the Company’s Senior
Credit Facility, $0.7 million of non-cash interest expense related to the 2017
Convertible Notes, and an unrealized gain of $2.3 million related to
mark-to-market adjustments on derivatives. Net income for the third quarter of
2011 included the after-tax effects of $14.0 million of charges associated
with the 2011 cost restructuring plan, a $13.2 million charge for management’s
estimate of the Company’s total liability for claims associated with previous
and estimated future fractures of its titanium PROFEMUR^® long modular necks
in North America, $5.0 million of expenses associated with the Company’s DPA,
$2.2 million of non-cash stock-based compensation expense, and $2.0 million of
expenses related to the settlement of certain employment matters and the
hiring of a new chief executive officer (CEO).
The Company’s third quarter 2012 net income, as adjusted for the above items,
decreased to $0.5 million in 2012 from $7.7 million in 2011, while diluted
earnings per share, as adjusted, decreased to $0.01 in the third quarter of
2012 from $0.20 in the third quarter of 2011. Including stock-based expense,
diluted loss per share, as adjusted, totaled $0.02 in the third quarter of
2012. A reconciliation of U.S. GAAP to “as adjusted” results is included in
the attached financial tables.
Cash and cash equivalents and marketable securities totaled $317.6 million as
of the end of the third quarter of 2012, an increase of $145.9 million
compared to the end of the fourth quarter of 2011. Net cash flow from
operating activities was $16.6 million, which combined with capital
expenditures of $4.7 million, resulted in free cash flow of $11.9 million in
the third quarter of 2012 compared to free cash outflow of $2.1 million in the
third quarter of 2011.
Palmisano concluded, “During the fourth quarter, we will continue to make
investments to accelerate foot and ankle growth, improve customer satisfaction
in our Ortho-Recon business and increase cash generation capabilities. We also
expect continued progress on our inventory reduction initiatives and
accelerating U.S. foot and ankle sales productivity in 2013. In addition, our
recently completed convertible debt offering provides us with significantly
increased flexibility to pursue internal and external development
opportunities that we believe will help us continue to drive the positive
transformation of our business for the remainder of this year and beyond.”
Outlook
The Company continues to anticipate full year 2012 net sales to be in the
range of $476 million to $485 million and has increased its as-adjusted
earnings per share excluding stock-based compensation guidance to be in the
range of $0.34 to $0.40 per diluted share from the previously communicated
range of $0.32 to $0.36. The Company’s earnings target excludes non-compete
and transition costs associated with converting a major portion of independent
foot and ankle territories to direct, costs associated with the previously
announced restructuring, possible future acquisitions, other material future
business developments, non-cash stock-based compensation expense, costs
associated with the Company’s DPA (including the associated independent
monitor) and the U.S. government inquiry relating to the PROFEMUR^® hip
products, non-cash interest expense associated with the 2017 Convertible
Notes, non-cash mark-to-market derivative adjustments, loss on termination of
interest rate swap, and the write-off of unamortized deferred financing
charges.
As noted above, the Company’s earnings target excludes the impact of non-cash
stock-based compensation charges. While the amount of the non-cash stock-based
compensation charges will vary depending upon a number of factors, the Company
currently estimates that the after-tax impact of those expenses will be
approximately $0.18 per diluted share for the full year 2012. Therefore, the
Company now anticipates its full year 2012 as-adjusted earnings per share
including stock-based compensation to be in the range of $0.16 to $0.22 per
diluted share.
From a cash flow perspective, the Company continues to anticipate significant
improvement over 2011, and has upwardly revised its anticipated 2012 free cash
flow to be in the range of $45 million to $50 million, as compared with the
previously announced guidance of $40 million to $45 million. This new guidance
range represents annualized growth of 211% to 245%.
The Company’s anticipated ranges for net sales, adjusted earnings per share,
non-cash stock-based compensation charges and free cash flow are
forward-looking statements, as are any other statements which anticipate or
aspire to future performance against key metrics. They are subject to various
risks and uncertainties that could cause the Company’s actual results to
differ materially from the anticipated targets. The anticipated targets are
not predictions of the Company’s actual performance. See the cautionary
information about forward-looking statements in the “Safe-Harbor Statement”
section of this press release.
Conference Call
As previously announced, the Company will host a conference call starting at
3:30 p.m. Central Time today. The live dial-in number for the call is
800-688-0836 (U.S.) / 617-614-4072 (International). The participant passcode
for the call is “Wright.” To access a simultaneous webcast of the conference
call via the internet, go to the “Corporate - Investor Information” section of
the Company’s website located at www.wmt.com.
A replay of the conference call by telephone will be available starting at
5:30 p.m. Central Time today and continuing until November 12, 2012. To hear
this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and
enter the passcode 67114673. A replay of the conference call will also be
available via the internet starting today and continuing for at least 12
months. To access a replay of the conference call via the internet, go to the
“Corporate - Investor Information - Audio Archives” section of the Company’s
website located at www.wmt.com.
The conference call may include a discussion of non-GAAP financial measures.
Reference is made to the most directly comparable GAAP financial measures, the
reconciliation of the differences between the two financial measures, and the
other information included in this press release, the Form 8-K filed with the
SEC today, or otherwise available in the “Corporate - Investor Information -
Supplemental Financial Information” section of the Company’s website located
at www.wmt.com.
The conference call may include forward-looking statements. See the cautionary
information about forward-looking statements in the “Safe-Harbor Statement”
section of this press release.
About Wright Medical
Wright Medical Group, Inc. is a global orthopaedic medical device company and
a leading provider of surgical solutions for the foot and ankle market. The
Company specializes in the design, manufacture and marketing of devices and
biologic products for extremity, hip and knee repair and reconstruction. The
Company has been in business for more than 60 years and markets its products
in over 60 countries worldwide. For more information about Wright Medical,
visit the Company’s website at www.wmt.com.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures, such as net sales, excluding the
impact of foreign currency; operating income, as adjusted; net income, as
adjusted; net income, as adjusted, per diluted share; effective tax rate, as
adjusted; and free cash flow. The Company’s management believes that the
presentation of these measures provides useful information to investors. These
measures may assist investors in evaluating the Company’s operations, period
over period. The measures exclude such items as costs related to the U.S.
governmental inquiries and the DPA, costs associated with distributor
conversions and non-competes, non-cash interest expense related to the
Company’s 2017 Convertible Notes, mark-to-market adjustments on derivative
assets and liabilities, losses associated with the termination of derivative
instruments, write-off of unamortized deferred financing costs, restructuring
charges, transaction costs, changes in estimates associated with the Company’s
liability for PROFEMUR^® long modular neck claims, costs related to settlement
of certain employment matters and the hiring of a new CEO, and non-cash
stock-based expense, all of which may be highly variable, difficult to predict
and of a size that could have substantial impact on the Company’s reported
results of operations for a period. Management uses these measures internally
for evaluation of the performance of the business, including the allocation of
resources and the evaluation of results relative to employee performance
compensation targets. Investors should consider these non-GAAP measures only
as a supplement to, not as a substitute for or as superior to, measures of
financial performance prepared in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
This press release may contain “forward-looking statements” as defined under
U.S. federal securities laws. These statements reflect management’s current
knowledge, assumptions, beliefs, estimates, and expectations and express
management’s current view of future performance, results, and trends.
Forward-looking statements may be identified by their use of terms such as
anticipate, believe, could, estimate, expect, intend, may, plan, predict,
project, will, and other similar terms. Forward-looking statements are subject
to a number of risks and uncertainties that could cause actual results to
materially differ from those described in the forward-looking statements. The
reader should not place undue reliance on forward-looking statements. Such
statements are made as of the date of this press release, and we undertake no
obligation to update such statements after this date. Risks and uncertainties
that could cause our actual results to materially differ from those described
in forward-looking statements are discussed in our filings with the Securities
and Exchange Commission (including those described in Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2011 and our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2012, in each case
under the heading “Risk Factors” and elsewhere in such filings). By way of
example and without implied limitation, such risks and uncertainties include:
future actions of the United States Attorney’s office, the FDA, the Department
of Health and Human Services or other U.S. or foreign government authorities
that could delay, limit or suspend our development, manufacturing,
commercialization and sale of products, or result in seizures, injunctions,
monetary sanctions or criminal or civil liabilities; any actual or alleged
breach of the Corporate Integrity Agreement to which we are subject through
September 2015 which could expose us to significant liability including
exclusion from Medicare, Medicaid and other federal healthcare programs,
potential criminal prosecution, and civil and criminal fines or penalties;
adverse outcomes in existing product liability litigation; new product
liability claims; inadequate insurance coverage; the possibility of private
securities litigation or shareholder derivative suits; demand for and market
acceptance of our new and existing products; potentially burdensome tax
measures; lack of suitable business development opportunities; product quality
or patient safety issues; challenges to our intellectual property rights;
geographic and product mix impact on our sales; our inability to retain key
sales representatives, independent distributors and other personnel or to
attract new talent; inventory reductions or fluctuations in buying patterns by
wholesalers or distributors; inability to realize the anticipated benefits of
restructuring initiatives; negative impact of the commercial and credit
environment on us, our customers and our suppliers; and the potentially
negative effect of our ongoing compliance enhancements on our relationships
with customers, and on our ability to deliver timely and effective medical
education, clinical studies, and new products.
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
Three Months Ended Nine Months Ended
September September September September
30, 30, 30, 30,
2012 2011 2012 2011
Net sales $ 110,363 $ 118,184 $ 360,299 $ 386,075
Cost of sales 35,089 36,185 110,329 116,457
Cost of Sales - — 1,900 435 1,900
restructuring
Gross profit 75,274 80,099 249,535 267,718
Operating expenses:
Selling, general and 70,851 83,581 216,061 229,227
administrative
Research and 6,612 6,769 19,577 23,783
development
Amortization of 1,827 721 3,823 2,088
intangible assets
Restructuring — 12,132 1,153 12,132
charges
Total operating 79,290 103,203 240,614 267,230
expenses
Operating (loss) (4,016 ) (23,104 ) 8,921 488
income
Interest expense, 2,574 1,464 6,268 4,774
net
Other expense, net 2,027 59 2,035 4,775
(Loss) income before (8,617 ) (24,627 ) 618 (9,061 )
income taxes
(Benefit) provision (3,278 ) (8,582 ) 686 (2,755 )
for income taxes
Net loss $ (5,339 ) $ (16,045 ) $ (68 ) $ (6,306 )
Net loss per share, $ (0.14 ) $ (0.42 ) $ (0.00 ) $ (0.16 )
basic
Net loss per share, $ (0.14 ) $ (0.42 ) $ (0.00 ) $ (0.16 )
diluted
Weighted-average
number of shares 38,907 38,406 38,706 38,228
outstanding-basic
Weighted-average
number of shares 38,907 38,406 38,706 38,228
outstanding-diluted
Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
Three Months Ended Nine Months Ended
September September % September September %
30, 30, 30, 30,
2012 2011 change 2012 2011 change
Geographic
Domestic $ 65,751 $ 69,382 (5.2 %) $ 205,029 $ 222,678 (7.9 %)
International 44,612 48,802 (8.6 %) 155,270 163,397 (5.0 %)
Total net $ 110,363 $ 118,184 (6.6 %) $ 360,299 $ 386,075 (6.7 %)
sales
Three Months Ended Nine Months Ended
September September % September September %
30, 30, 30, 30,
2012 2011 change 2012 2011 change
OrthoRecon
Hips $ 33,048 $ 39,045 (15.4 %) $ 114,621 $ 130,486 (12.2 %)
Knees 25,657 27,204 (5.7 %) 86,928 93,429 (7.0 %)
Other 770 1,464 (47.4 %) 3,025 4,082 (25.9 %)
Total 59,475 67,713 (12.2 %) 204,574 227,997 (10.3 %)
OrthoRecon
Extremities
Foot and 29,030 25,681 13.0 % 87,537 78,210 11.9 %
Ankle
Upper 6,207 6,692 (7.2 %) 19,101 21,189 (9.9 %)
Extremity
Biologics 14,614 16,610 (12.0 %) 45,255 53,846 (16.0 %)
Other 1,037 1,488 (30.3 %) 3,832 4,833 (20.7 %)
Total 50,888 50,471 0.8 % 155,725 158,078 (1.5 %)
Extremities
Total Sales $ 110,363 $ 118,184 (6.6 %) $ 360,299 $ 386,075 (6.7 %)
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Third Quarter 2012 Sales Growth
Domestic Int'l Int'l Total Total
As Constant As Constant As
Reported Currency Reported Currency Reported
OrthoRecon
Hips (15%) (12%) (15%) (13%) (15%)
Knees (9%) 1% (2%) (4%) (6%)
Other (60%) (42%) (44%) (46%) (47%)
Total (12%) (9%) (12%) (10%) (12%)
OrthoRecon
Extremities
Foot and 12% 23% 17% 14% 13%
Ankle
Upper (8%) (4%) (6%) (7%) (7%)
Extremity
Biologics (14%) (2%) (3%) (12%) (12%)
Other (46%) (12%) (19%) (27%) (30%)
Total 0% 7% 3% 2% 1%
Extremities
Total Sales (5%) (5%) (9%) (5%) (7%)
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Sales as a % of Total Sales
Three Months Ended September 30, Nine Months Ended September 30, 2012
2012
Domestic International Total Domestic International Total
OrthoRecon
Hips 11% 19% 30% 11% 21% 32%
Knees 12% 11% 23% 12% 12% 24%
Other 0% 1% 1% 0% 1% 1%
Total 24% 30% 54% 23% 34% 57%
OrthoRecon
Extremities
Foot and 22% 5% 26% 20% 5% 24%
Ankle
Upper 4% 2% 6% 4% 2% 5%
Extremity
Biologics 10% 3% 13% 10% 3% 13%
Other 0% 1% 1% 0% 1% 1%
Total 36% 10% 46% 34% 10% 43%
Extremities
Total Sales 60% 40% 100% 57% 43% 100%
Wright Medical Group, Inc.
Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency
(dollars in thousands--unaudited)
Three Months Ended Nine Months Ended
September 30, 2012 September 30, 2012
International Total International Total
Net Sales Net Sales
Net Sales Net Sales
Net
sales, as $ 44,612 $ 110,363 $ 155,270 $ 360,299
reported
Currency
impact as
compared 1,739 1,739 4,313 4,313
to prior
period
Net
sales,
excluding
the
impact $ 46,351 $ 112,102 $ 159,583 $ 364,612
of
foreign
currency
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share data--unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September
2012 2011 2012 30,
2011
Operating
(Loss) Income
Operating
(loss) income, $ (4,016 ) $ (23,104 ) $ 8,921 $ 488
as reported
Reconciling
items impacting
Gross Profit:
Non-cash,
stock-based 359 356 1,053 1,063
compensation
Cost of sales - — 1,900 435 1,900
restructuring
Inventory
step-up 48 — 144 —
amortization
Employment — 99 — 99
matters ^(1)
Total 407 2,355 1,632 3,062
Reconciling
items impacting
Selling,
General and
Administrative
expenses:
Non-cash,
stock-based 2,188 1,715 6,879 5,083
compensation
U.S.
governmental 1,707 4,974 6,647 9,541
inquiries/DPA
related
Distributor 416 — 624 —
conversions
Employment — 1,783 — 1,783
matters
Product — 13,199 — 13,199
liability
Total 4,311 21,671 14,150 29,606
Reconciling
items impacting
Research and
Development
expenses:
Non-cash,
stock-based 147 150 534 542
compensation
Employment — 135 — 135
matters ^(1)
Total 147 285 534 677
Reconciling
items impacting
Amortization of
Intangible
Assets
Amortization of
distributor 1,169 — 1,740 —
non-competes
Other
Reconciling
Items:
Restructuring — 12,132 1,153 12,132
charges
Operating
income, as $ 2,018 $ 13,339 $ 28,130 $ 45,965
adjusted
Operating
income, as
adjusted, as a 1.8 % 11.3 % 7.8 % 11.9 %
percentage of
net sales
(1) Costs associated with settlement of certain employment matters and the
hiring of a new CEO.
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share data--unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September
2012 2011 2012 30,
2011
Net (Loss)
Income
(Loss) income
before taxes, $ (8,617 ) $ (24,627 ) $ 618 $ (9,061 )
as reported
Pre-tax impact
of reconciling
items:
Non-cash,
stock-based 2,694 2,221 8,466 6,688
compensation
U.S.
governmental 1,707 4,974 6,647 9,541
inquiries/DPA
related
Restructuring — 14,032 1,588 14,032
charges
Inventory
step-up 48 — 144 —
amortization
Distributor
conversion and 1,585 — 2,364 —
non-competes
Loss on
interest rate 1,769 — 1,769 —
swap
termination
Non-cash
interest
expense on 2017 687 — 687 —
Convertible
Notes
Derivatives
mark-to-market (2,330 ) — (2,330 ) —
adjustment
Write-off of
deferred
financing fees
associated with
Senior Credit 2,721 — 2,721 —
Facility and
2014
Convertible
Notes
Employment — 2,017 — 2,017
matters (1)
Product
liability — 13,199 — 13,199
provision
Write-off of
deferred
financing fees
and transaction
costs — — — 4,099
associated with
Convertible
Notes Tender
Offer
Income before
taxes, as 264 11,816 22,674 40,515
adjusted
(Benefit)
provision for (3,278 ) (8,582 ) 686 (2,755 )
income taxes,
as reported
Non-cash,
stock-based 1,305 744 2,689 2,093
compensation
U.S.
governmental 146 1,873 2,295 3,371
inquiries/DPA
related
Restructuring — 4,574 620 4,574
charges
Inventory
step-up 19 — 56 —
amortization
Distributor
conversion and 477 — 816 —
non-competes
Loss on
interest rate 691 — 691 —
swap
termination
Non-cash
interest
expense on 2017 268 — 268 —
Convertible
Notes
Derivatives
mark-to-market (910 ) — (910 ) —
adjustment
Write-off of
deferred
financing fees
associated with
Senior Credit 1,063 — 1,063 —
Facility and
2014
Convertible
Notes
Employment — 720 — 720
matters ^(1)
Product
liability — 4,740 — 4,740
provision
Write-off of
deferred
financing fees
and transaction
costs — — — 1,599
associated with
Convertible
Notes Tender
Offer
(Benefit)
provision for $ (219 ) $ 4,069 $ 8,274 $ 14,342
income taxes,
as adjusted
Effective tax
rate, as (83.0 %) 34.4 % 36.5 % 35.4 %
adjusted
Net income, as $ 483 $ 7,747 $ 14,400 $ 26,173
adjusted
(1) Costs associated with settlement of certain employment matters and the
hiring of a new CEO.
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
Three Months Ended Three Months Ended
September 30, 2012 September 30, 2011
As Reported As Adjusted As Reported As Adjusted
Basic net (loss) $ (5,339 ) $ 483 $ (16,045 ) $ 7,747
income
Interest expense
on 2014 N/A N/A N/A 137
convertible
notes
Diluted net $ (5,339 ) $ 483 $ (16,045 ) $ 7,884
(loss) income
Basic shares 38,907 38,907 38,406 38,406
Dilutive effect
of stock options N/A 379 — 130
and restricted
shares
Dilutive effect
of 2014 N/A N/A N/A 891
convertible
notes
Diluted shares 38,907 39,286 38,406 39,427
Net (loss)
income per $ (0.14 ) $ 0.01 $ (0.42 ) $ 0.20
share, diluted
Nine Months Ended Nine Months Ended
September 30, 2012 September 30, 2011
As Reported As Adjusted As Reported As Adjusted
Basic net income $ (68 ) $ 14,400 $ (6,306 ) $ 26,173
(loss)
Interest expense
on 2014 N/A N/A N/A 1,066
convertible
notes
Diluted net $ (68 ) $ 14,400 $ (6,306 ) $ 27,239
income (loss)
Basic shares 38,706 38,706 38,228 38,228
Dilutive effect
of stock options N/A 374 — 149
and restricted
shares
Dilutive effect
of 2014 N/A N/A N/A 2,249
convertible
notes
Diluted shares 38,706 39,080 38,228 40,626
Net income
(loss) per $ (0.00 ) $ 0.37 $ (0.16 ) $ 0.67
share, diluted
Three Months Ended Nine Months Ended
September September September 30, September
30, 30, 2012 30,
2012 2011 2011
Net (Loss)
Income per
Diluted Share
Net (loss)
income, as
reported, per $ (0.14 ) $ (0.42 ) $ (0.00 ) $ (0.16 )
diluted share
Interest expense
on convertible N/A — 0.00 0.03
notes
Effect of
convertible N/A 0.01 0.00 0.01
notes on diluted
shares
Non-cash,
stock-based 0.04 0.04 0.15 0.11
compensation
U.S.
governmental 0.04 0.08 0.12 0.15
inquiries/DPA
related
Restructuring — 0.24 0.02 0.23
charges
Inventory
step-up 0.00 — 0.00 —
amortization
Distributor
conversion and 0.03 — 0.04 —
non-competes
Loss on interest
rate swap 0.03 — 0.03 —
termination
Non-cash
interest expense
on 2017 0.01 — 0.01 —
Convertible
Notes
Derivatives
mark-to-market (0.04 ) — (0.04 ) —
adjustment
Write-off
deferred
financing fees
associated with 0.04 — 0.04 —
Senior Credit
Facility and
2014 Convertible
Notes
Employment — 0.03 — 0.03
matters ^(1)
Product
liability — 0.22 — 0.21
provision
Write-off
deferred
financing fees
and transaction — — — 0.06
costs associated
with Convertible
Notes Tender
Offer
Net income, as
adjusted, per $ 0.01 $ 0.20 $ 0.37 $ 0.67
diluted share
Wright Medical Group, Inc.
Reconciliation of Free Cash Flow
(dollars in thousands--unaudited)
Three Months Ended Nine Months Ended
September September September September
30, 30, 30, 30,
2012 2011 2012 2011
Net cash
provided by 16,639 9,770 57,752 48,786
operating
activities
Capital (4,718 ) (11,822 ) (13,291 ) (35,198 )
expenditures
Free cash flow 11,921 (2,052 ) 44,461 13,588
Wright Medical Group, Inc.
Segment Income Statement
(In thousands, except share data)
(unaudited)
Three Months Ended September 30, 2012
OrthoRecon Extremities Corporate Other^(1) Total
Net sales $ 59,475 $ 50,888 $ — $ — $ 110,363
Cost of sales 23,219 11,463 — 407 35,089
Gross profit 36,256 39,425 — (407 ) 75,274
Operating expenses:
Selling, general and 28,948 25,512 12,080 4,311 70,851
administrative
Research and 3,125 3,340 — 147 6,612
development
Amortization of 58 600 — 1,169 1,827
intangible assets
Restructuring charges — — — — —
Total operating 32,131 29,452 12,080 5,627 79,290
expenses
Operating income $ 4,125 $ 9,973 $ (12,080 ) $ (6,034 ) $ (4,016 )
(loss)
Operating income
(loss) as a percent 6.9 % 19.6 % N/A N/A (3.6 )%
of net sales
Three Months Ended September 30, 2012
OrthoRecon Extremities Corporate Other^(1) Total
Depreciation expense $ 5,834 $ 2,841 $ 611 $ — $ 9,286
Amortization expense 58 600 — 1,169 1,827
Capital expenditures 1,711 1,464 1,543 — 4,718
_____________________
^(1) Other consists exclusively of the reconciling items from Operating Income, as reported,
to Operating Income, as adjusted, as included in the reconciliations above.
Wright Medical Group, Inc.
Segment Income Statement
(continued)
Three Months Ended September 30, 2011
OrthoRecon Extremities Corporate Other^(1) Total
Net sales $ 67,713 $ 50,471 $ — $ — $ 118,184
Cost of sales 21,332 14,398 — 2,355 38,085
Gross profit 46,381 36,073 — (2,355 ) 80,099
Operating expenses:
Selling, general and 29,385 22,078 10,447 21,671 83,581
administrative
Research and 3,056 3,428 — 285 6,769
development
Amortization of 132 589 — — 721
intangible assets
Restructuring charges — — — 12,132 12,132
Total operating 32,573 26,095 10,447 34,088 103,203
expenses
Operating income $ 13,808 $ 9,978 $ (10,447 ) $ (36,443 ) $ (23,104 )
(loss)
Operating income
(loss) as a percent 20.4 % 19.8 % N/A N/A (19.5 )%
of net sales
Three Months Ended September 30, 2011
OrthoRecon Extremities Corporate Other^(1) Total
Depreciation expense $ 6,600 $ 2,793 $ 583 $ — $ 9,976
Amortization expense 132 589 — — 721
Capital expenditures 2,722 4,689 4,411 — 11,822
_____________________
^(1) Other consists exclusively of the reconciling items from Operating Income, as reported,
to Operating Income, as adjusted, as included in the reconciliations above.
Wright Medical Group, Inc.
Segment Income Statement
(continued)
Nine Months Ended September 30, 2012
OrthoRecon Extremities Corporate Other^(1) Total
Net sales $ 204,574 $ 155,725 $ — $ — $ 360,299
Cost of sales 74,907 34,225 — 1,632 110,764
Gross profit 129,667 121,500 — (1,632 ) 249,535
Operating expenses:
Selling, general and 91,008 73,934 36,969 14,150 216,061
administrative
Research and 9,052 9,991 — 534 19,577
development
Amortization of 275 1,808 — 1,740 3,823
intangible assets
Restructuring charges — — — 1,153 1,153
Total operating 100,335 85,733 36,969 17,577 240,614
expenses
Operating income $ 29,332 $ 35,767 $ (36,969 ) $ (19,209 ) $ 8,921
(loss)
Operating income as a 14.3 % 23.0 % N/A N/A 2.5 %
percent of net sales
Nine Months Ended September 30, 2012
OrthoRecon Extremities Corporate Other^(1) Total
Depreciation expense $ 18,406 $ 8,494 $ 2,282 $ — $ 29,182
Amortization expense 275 1,808 — 1,740 3,823
Capital expenditures 4,285 5,914 3,092 — 13,291
_____________________
^(1) Other consists exclusively of the reconciling items from Operating Income, as reported,
to Operating Income, as adjusted, as included in the reconciliations above.
Wright Medical Group, Inc.
Segment Income Statement
(continued)
Nine Months Ended September 30, 2011
OrthoRecon Extremities Corporate Other^(1) Total
Net sales $ 227,997 $ 158,078 $ — $ — $ 386,075
Cost of sales 72,842 42,453 — 3,062 118,357
Gross profit 155,155 115,625 — (3,062 ) 267,718
Operating expenses:
Selling, general and 94,955 68,046 36,620 29,606 229,227
administrative
Research and 12,256 10,850 — 677 23,783
development
Amortization of 324 1,764 — — 2,088
intangible assets
Restructuring charges — — — 12,132 12,132
Total operating 107,535 80,660 36,620 42,415 267,230
expenses
Operating income $ 47,620 $ 34,965 $ (36,620 ) $ (45,477 ) $ 488
(loss)
Operating income as a 20.9 % 22.1 % N/A N/A 0.1 %
percent of net sales
Nine Months Ended September 30, 2011
OrthoRecon Extremities Corporate Other^(1) Total
Depreciation expense $ 19,602 $ 7,963 $ 1,649 $ — $ 29,214
Amortization expense 324 1,764 — — 2,088
Capital expenditures 14,008 9,825 11,365 — 35,198
_____________________
^(1) Other consists exclusively of the reconciling items from Operating Income, as reported,
to Operating Income, as adjusted, as included in the reconciliations above.
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
September 30, December 31,
2012 2011
Assets:
Current assets:
Cash and cash equivalents $ 304,009 $ 153,642
Marketable securities 13,613 13,597
Accounts receivable, net 96,516 98,995
Inventories 153,176 164,600
Prepaid expenses and other current assets 69,767 69,699
Total current assets 637,081 500,533
Property, plant and equipment, net 143,277 160,284
Goodwill and intangible assets, net 81,115 75,651
Marketable securities — 4,502
Other assets 91,520 13,610
Total assets $ 952,993 $ 754,580
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable $ 13,369 $ 11,651
Accrued expenses and other current 63,592 55,831
liabilities
Current portion of long-term obligations 975 8,508
Total current liabilities 77,936 75,990
Long-term obligations 256,477 166,792
Other liabilities 103,696 43,334
Total liabilities $ 438,109 $ 286,116
Stockholders’ equity: 514,884 468,464
Total liabilities and stockholders’ equity $ 952,993 $ 754,580
Contact:
Wright Medical Group, Inc.
Julie D. Tracy, 901-290-5817
Sr. Vice President, Chief Communications Officer
julie.tracy@wmt.com
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