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TMCNet:  Wright Medical Group, Inc. Reports 2012 Fourth Quarter and Full-Year Financial Results and Provides 2013 Guidance

[February 21, 2013]

Wright Medical Group, Inc. Reports 2012 Fourth Quarter and Full-Year Financial Results and Provides 2013 Guidance

ARLINGTON, Tenn. --(Business Wire)--

Wright Medical Group, Inc. (NASDAQ: WMGI) reported financial results for its fourth quarter ended December 31, 2012 and provided 2013 guidance.

Net sales totaled $123.5 million during the fourth quarter ended December 31, 2012, representing a 3% decrease as reported and a 2% decrease on a constant currency basis compared to the fourth quarter of 2011. During the fourth quarter of 2012, as anticipated, global sales were negatively affected by U.S. OrthoRecon 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, "Our performance in the fourth quarter reflects continued strong implementation of the transformational changes to our business. Notably, the fourth consecutive quarter of accelerating global foot and ankle growth underscores the positive progress that we continue to make in our foot and ankle business by leveraging our large, direct sales organization, introducing new products, driving productivity gains and increasing our medical education programs. We also generated strong free cash flow in 2012, which was more than triple the amount generated in the prior year."

Palmisano commented further, "We remain optimistic about the longer term outlook for our OrthoRecon business and will continue to focus on driving significant improvements in customer satisfaction and ensuring an R&D product pipeline that meets current and future customer needs. With this focus, our team is confident that we will be able to work towards building a growing global OrthoRecon business that delivers exceptional levels of customer service, market rates of growth and significant cash contribution."

Net income for the fourth quarter of 2012 totaled $5.4 million or $0.14 per diluted share, compared to net income of $1.2 million or $0.03 per diluted share in the fourth quarter of 2011.

Net income for the fourth quarter of 2012 included the after-tax effects of $2.5 million of non-cash stock-based compensation expense, $1.7 million of charges associated with distributor conversions and non-competes, $2.1 million of non-cash interest expense related to the 2017 Convertible Notes, an unrealized loss of $3.5 million related to mark-to-market adjustments on derivatives, $1.8 million of due diligence and transaction costs, a $2.4 million increase to management's estimate of the Company's probable insurance recovery for previously recognized costs associated with product liability claims, and a $15 million gain on the sale of intellectual property. Net income for the fourth quarter of 2011 included the after-tax effects of $2.8 million of charges associated with the 2011 cost restructuring plan, $3.4 million of expenses associated with the Company's DPA, and $2.4 million of non-cash stock-based compensation expense.

The Company's fourth quarter 2012 net income, as adjusted for the above items, decreased to $1.8 million in 2012 from $6.7 million in 2011, while diluted earnings per share, as adjusted, decreased to $0.05 in the fourth quarter of 2012 from $0.17 in the fourth quarter of 2011. Including stock-based expense, diluted earnings per share, as adjusted, totaled $0.01 in the fourth quarter of 2012. The attached financial tables include a reconciliation of U.S. GAAP to "as adjusted" results.

Cash and cash equivalents and marketable securities totaled $333.0 million as of the end of the fourth quarter of 2012, an increase of $161.3 million compared to the end of the fourth quarter of 2011. Net cash flow from operating activities was $11.1 million, which combined with capital expenditures of $6.0 million, resulted in free cash flow of $5.0 million in the fourth quarter of 2012 compared to free cash flow of $0.9 million in the fourth quarter of 2011.

Palmisano concluded, "During 2013, we will continue to make investments to accelerate foot and ankle growth and sales productivity, build a growing global OrthoRecon business and deliver sustained, strong cash flow. We also look forward to closing the transaction with BioMimetic and adding BioMimetic's breakthrough biologics platform and pipeline to our Extremities business. We believe this will significantly accelerate the positive transformation of our business as well as our strategy of building a world-class biologics platform and growing our foot and ankle business at well above market growth rates. Our team is confident that the right organizational alignment and strategic programs are in place to position us for future success and drive growth and shareholder value."

Outlook

Excluding the impact of the proposed transaction with BioMimetic Therapeutics, Inc. that was previously announced on November 19, 2012, the Company anticipates full-year 2013 net sales to be in the range of $485 million to $495 million. This range includes a negative impact from currency of approximately 2 percent as compared to 2012.

The Company anticipates as-adjusted earnings per share, including stock-based compensation, to be in the range of $0.00 to $0.06 per diluted share, based on approximately 40.0 million shares outstanding. 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 $0.19 per diluted share for the full-year 2013. 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, possible future acquisitions, other material future business developments, the U.S. government inquiry relating to the PROFEMUR® hip products, non-cash interest expense associated with the 2017 Convertible Notes, and non-cash mark-to-market derivative adjustments.

The Company anticipates 2013 free cash flow to be in the range of $35 million to $40 million.

If the proposed transaction with BioMimetic closes as anticipated by the end of the first quarter of 2013, the Company anticipates no change to its full-year 2013 net sales range of $485 million to $495 million. This transaction is anticipated to negatively impact earnings per share in the range of $0.32 to $0.34 per diluted share, resulting in anticipated full-year 2013 loss per share including stock-based compensation for the combined company of $(0.26) to $(0.34) per diluted share, based on approximately 45.8 million shares outstanding, and free cash flow in the range of $0 million to $5 million.

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 800-659-1966 (U.S.) / 617-614-2711 (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 February 28, 2013. To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 37790344. 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 that specializes in the design, manufacture and marketing of devices and biologics for extremity, hip and knee reconstruction and is the recognized leader of surgical solutions for the foot and ankle market. 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, gains or losses on the sale of assets, transaction costs, changes in estimates of the Company's total probable insurance recovery for costs associated with product liability claims, IRS audit liabilities, 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. In addition to those described below, forward looking statements contained in this press release include, without limitation, statements concerning the timing and expected benefits of the previously announced merger agreement with BioMimetic Therapeutics, Inc., including statements about the possibility of FDA approval of Augment Bone Graft, statements regarding market acceptance of, and expected annual market demand for Augment Bone Graft, and statements regarding the expected impact of the transaction on Wright's adjusted EBITDA and other financial results. 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. In addition to those described above, 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, 2012, and as may be supplemented in our Quarterly Reports on Form 10-Q). By way of example and without implied limitation, such risks and uncertainties include: the failure of BioMimetic stockholders to adopt the merger agreement or the failure of either Wright or BioMimetic to meet any of the other conditions to the closing of the transaction, the failure to realize the anticipated benefits from the transaction or delay in realization thereof, 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, including those resulting from increased scrutiny under the Foreign Corrupt Practices Act and similar laws, 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; failure to obtain the FDA or other regulatory clearances needed to market and sell our products; 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; recently enacted healthcare laws and changes in product reimbursement which could generate downward pressure on our product pricing; 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.

ADDITIONAL INFORMATION ABOUT THIS TRANSACTION

This press release may be deemed to be solicitation material regarding the proposed business combination of Wright and BioMimetic. In connection with the proposed transaction, Wright has filed with the SEC a registration statement on Form S-4, which includes a proxy statement/prospectus and other relevant materials in connection with the proposed transaction, and each of Wright and BioMimetic intend to file with the SEC other documents regarding the proposed transaction. The proxy statement/prospectus and this press release are not offers to sell Wright securities and are not soliciting an offer to buy Wright securities in any state where the offer and sale is not permitted. The final proxy statement/prospectus will be mailed to the stockholders of BioMimetic. INVESTORS AND SECURITY HOLDERS OF BIOMIMETIC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND THE OTHER RELEVANT MATERIAL CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT WRIGHT AND BIOMIMETIC AND THE PROPOSED TRANSACTION.

The proxy statement/prospectus and other relevant materials (when they become available), and any and all documents filed with the SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by Wright by directing a written request to Wright Medical Group, Inc, 5677 Airline Road, Arlington, TN 38002, Attention: Investor Relations, and by BioMimetic by directing a written request to BioMimetic Therapeutics, Inc., 389 Nichol Mill Lane, Franklin, TN 37067, Attention: Investor Relations.

BioMimetic and its respective executive officers and directors and other persons, including Wright and its respective executive officers and directors, may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed transaction. Information about the executive officers and directors of BioMimetic and their ownership of BioMimetic common stock is set forth in its annual report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 13, 2012 and the proxy statement for BioMimetic's 2012 annual meeting of stockholders, filed with the SEC on April 27, 2012. Information about the executive officers and directors of Wright Medical Group is set forth in its annual report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 24, 2012 and the proxy statement for Wright Medical Group's 2012 annual meeting of stockholders, filed with the SEC on March 27, 2012. Certain directors and executive officers of BioMimetic and other persons may have direct or indirect interests in the merger due to securities holdings, pre-existing or future indemnification arrangements and rights to severance payments if their employment is terminated prior to or following the transaction. If and to the extent that any of the BioMimetic participants will receive any additional benefits in connection with the transaction, the details of those benefits will be described in the proxy statement/prospectus relating to the transaction. Investors and security holders may obtain additional information regarding the direct and indirect interests of BioMimetic and its executive officers and directors in the transaction.




 

Wright Medical Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data--unaudited)

 
    Three Months Ended     Twelve Months Ended

December 31,
2012

   

December 31,
2011

December 31,
2012

   

December 31,
2011

Net sales $ 123,477 $ 126,872 $ 483,776 $ 512,947
Cost of sales 39,649 40,449 149,978 156,906
Cost of sales - restructuring -   571   435   2,471  
Gross profit 83,828 85,852 333,363 353,570
Operating expenses:
Selling, general and administrative 74,200 72,361 290,261 301,588
Research and development 7,456 6,331 27,033 30,114
Amortization of intangible assets 1,949 782 5,772 2,870
Gain on sale of intellectual property (15,000 ) - (15,000 ) -
Restructuring charges -   2,273   1,153   14,405  
Total operating expenses 68,605 81,747 309,219 348,977
Operating income 15,223 4,105 24,144 4,593
Interest expense, net 3,920 1,755 10,188 6,529
Other (income) expense, net 3,360   (56 ) 5,395   4,719  
Income (loss) before income taxes 7,943 2,406 8,561 (6,655 )
Provision (benefit) for income taxes 2,591   1,243   3,277   (1,512 )
Net income (loss) $ 5,352   $ 1,163   $ 5,284   $ (5,143 )
Net income (loss) per share, basic $ 0.14   $ 0.03   $ 0.14   $ (0.13 )
Net income (loss) income per share, diluted $ 0.14   $ 0.03   $ 0.14   $ (0.13 )
Weighted-average number of shares outstanding-basic 38,959   38,430   38,769   38,279  
Weighted-average number of shares outstanding-diluted 39,342   38,673   39,086   38,279  
 
 

Wright Medical Group, Inc.

Consolidated Sales Analysis

(dollars in thousands--unaudited)

 
    Three Months Ended     Twelve Months Ended

December 31,
2012

   

December 31,
2011

   

%
change

December 31,
2012

   

December 31,
2011

   

%
change

Geographic
Domestic $ 70,657 $ 73,265 (3.6 %) $ 275,686 $ 295,943 (6.8 %)
International   52,820   53,607 (1.5 %)   208,090   217,004 (4.1 %)
Total net sales $ 123,477 $ 126,872 (2.7 %) $ 483,776 $ 512,947 (5.7 %)
 
Three Months Ended Twelve Months Ended

December 31,
2012

December 31,
2011

%
change

December 31,
2012

December 31,
2011

%
change

OrthoRecon
Hips $ 35,929 $ 42,715 (15.9 %) $ 150,550 $ 173,201 (13.1 %)
Knees 27,968 30,559 (8.5 %) 114,896 123,988 (7.3 %)
Other   1,200   923 30.0 %   4,225   5,005 (15.6 %)
Total OrthoRecon 65,097 74,197 (12.3 %) 269,671 302,194 (10.8 %)
 
Extremities
Foot and Ankle 35,360 29,524 19.8 % 122,897 107,734 14.1 %
Upper Extremity 5,876 6,553 (10.3 %) 24,977 27,742 (10.0 %)
Biologics 15,240 15,563 (2.1 %) 60,495 69,409 (12.8 %)
Other   1,904   1,035 84.0 %   5,736   5,868 (2.2 %)
Total Extremities 58,380 52,675 10.8 % 214,105 210,753 1.6 %
           
Total Sales $ 123,477 $ 126,872 (2.7 %) $ 483,776 $ 512,947 (5.7 %)
 
 

Wright Medical Group, Inc.

Supplemental Sales Information

(unaudited)

 
    Fourth Quarter 2012 Sales Growth

Domestic
As
Reported

   

Int'l
Constant
Currency

   

Int'l
As
Reported

   

Total
Constant
Currency

   

Total
As
Reported

OrthoRecon
Hips (17 %) (13 %) (15 %) (14 %) (16 %)
Knees (17 %) 4 % 2 % (8 %) (8 %)
Other 154 %     11 %     10 %     30 %     30 %
Total OrthoRecon (17 %) (7 %) (9 %) (11 %) (12 %)
 
Extremities
Foot and Ankle 16 % 37 % 36 % 20 % 20 %
Upper Extremity (17 %) 10 % 8 % (10 %) (10 %)
Biologics (8 %) 21 % 22 % (2 %) (2 %)
Other 100 %     76 %     76 %     84 %     84 %
Total Extremities 6 % 30 % 30 % 11 % 11 %
                         
Total Sales (4 %)     0 %     (1 %)     (2 %)     (3 %)
 
 

Wright Medical Group, Inc.

Supplemental Sales Information

(unaudited)

 
    2012 Sales Growth

Domestic
As
Reported

   

Int'l
Constant
Currency

   

Int'l
As
Reported

   

Total
Constant
Currency

   

Total
As
Reported

OrthoRecon
Hips (18 %) (8 %) (10 %) (12 %) (13 %)
Knees (13 %) 2 % 0 % (6 %) (7 %)
Other (13 %)     (14 %)     (16 %)     (14 %)     (16 %)
Total OrthoRecon (15 %) (5 %) (7 %) (9 %) (11 %)
 
Extremities
Foot and Ankle 12 % 26 % 22 % 15 % 14 %
Upper Extremity (13 %) (1 %) (3 %) (9 %) (10 %)
Biologics (16 %) 1 % 0 % (13 %) (13 %)
Other 12 %     (6 %)     (9 %)     0 %     (2 %)
Total Extremities 0 % 11 % 8 % 2 % 2 %
                         
Total Sales (7 %)     (2 %)     (4 %)     (5 %)     (6 %)
 
   
Sales as a % of Total Sales

Three Months Ended
December 31, 2012

   

Twelve Months Ended
December 31, 2012

Domestic     International     Total Domestic     International     Total
OrthoRecon
Hips 10 % 19 % 29 % 10 % 21 % 31 %
Knees 11 % 12 % 23 % 12 % 12 % 24 %
Other 0 %     1 %     1 % 0 %     1 %     1 %
Total OrthoRecon 21 % 32 % 53 % 23 % 33 % 56 %
 
Extremities
Foot and Ankle 23 % 6 % 29 % 21 % 5 % 25 %
Upper Extremity 3 % 2 % 5 % 4 % 2 % 5 %
Biologics 9 % 3 % 12 % 10 % 3 % 13 %
Other 1 %     1 %     2 % 0 %     1 %     1 %
Total Extremities 36 % 11 % 47 % 34 % 10 % 44 %
                           
Total Sales 57 %     43 %     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     Twelve Months Ended
December 31, 2012 December 31, 2012

International
Net Sales

   

Total
Net Sales

International
Net Sales

   

Total
Net Sales

Net sales, as reported $ 52,820 $ 123,477 $ 208,090 $ 483,776
Currency impact as compared to prior period   1,030   1,030   5,346   5,346

Net sales, excluding the impact of foreign currency

$ 53,850 $ 124,507 $ 213,436 $ 489,122
 
 

Wright Medical Group, Inc.

Reconciliation of As Reported Results to Non-GAAP Financial Measures

(in thousands, except per share data--unaudited)

 
    Three Months Ended     Twelve Months Ended

December 31,
2012

   

December 31,
2011

December 31,
2012

   

December 31,
2011

Operating Income
Operating income, as reported $ 15,223 $ 4,105 $ 24,144 $ 4,593
Reconciling items impacting Gross Profit:
Non-cash, stock-based compensation 347 349 1,401 1,412
Cost of sales - restructuring - 571 435 2,471
Employment matters (1) - - - 99
Inventory step-up amortization 16   32   158   32  
Total 363   952   1,994   4,014  
Reconciling items impacting Selling, General and Administrative expense:
Non-cash, stock-based compensation 2,018 1,945 8,898 7,028
U.S. governmental inquiries/DPA related (54 ) 3,379 6,593 12,920
Distributor conversions 403 - 1,027 -
Due diligence and transactions costs 1,798 - 1,798 -
Employment matters (1) - - - 1,783
Product liability insurance recovery (2,432 ) - (2,432 ) -
Product liability provision -   -   -   13,199  
Total 1,733   5,324   15,884   34,930  
Reconciling items impacting Amortization of Intangible Assets:
Amortization of distributor non-competes 1,290 - 3,029 -
Reconciling items impacting Research and Development expense:
Non-cash, stock-based compensation 141 126 675 668
Employment matters (1) -   -   -   135  
Total 141   126   675   803  
Other Reconciling Items:
Gain on sale of intellectual property (15,000 ) - (15,000 ) -
Restructuring charges -   2,273   1,153   14,405  
Operating income, as adjusted $ 3,750   $ 12,780   $ 31,879   $ 58,745  

Operating income, as adjusted, as a percentage of net sales

3.0 % 10.1 % 6.6 % 11.5 %

____________________________

(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     Twelve Months Ended

December 31,
2012

   

December 31,
2011

December 31,
2012

   

December 31,
2011

Net Income
Income (loss) before taxes, as reported $ 7,943 $ 2,406 $ 8,561 $ (6,655 )
Pre-tax impact of reconciling items:
Non-cash, stock-based compensation 2,507 2,420 10,974 9,108
U.S. governmental inquiries/DPA related (54 ) 3,379 6,593 12,920
Restructuring charges - 2,844 1,588 16,876
Inventory step-up amortization 16 32 158 32
Distributor conversion and non-competes 1,693 - 4,055 -
Loss on interest rate swap termination - - 1,769 -
Non-cash interest expense on 2017 Convertible Notes 2,086 - 2,773 -
Derivatives mark-to-market adjustment 3,472 - 1,142 -
Due diligence and transactions costs 1,798 - 1,798 -

Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes

- - 2,721 -
Employment matters (1) - - - 2,017
Product liability insurance recovery (2,432 ) - (2,432 ) -
Product liability provision - - - 13,199
Gain on sale of intellectual property (15,000 ) - (15,000 ) -
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer -   -  

-

 

 

4,099  
Income before taxes, as adjusted 2,029   11,081   24,700   51,596  
 
Provision (benefit) for income taxes, as reported $ 2,591 $ 1,243 $ 3,277 $ (1,512 )
Non-cash, stock-based compensation 1,078 853 3,767 2,946
U.S. governmental inquiries/DPA related 85 1,754 2,380 5,125
Restructuring charges - 1,591 620 6,165
Inventory step-up amortization 1 12 57 12
Distributor conversion and non-competes 661 - 1,456 -
Loss on interest rate swap termination - - 691 -
Non-cash interest expense on 2017 Convertible Notes 727 - 996 -
Derivatives mark-to-market adjustment 1,310 - 420 -
Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes - - 1,063 -
Employment matters (1) - - - 720
Product liability insurance recovery (853 ) - (853 ) -
Product liability provision - - - 4,740
Gain on sale of intellectual property (5,387 ) - (5,387 ) -
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer - - - 1,599
IRS audit liability -   (1,041 ) -   (1,041 )
Provision for income taxes, as adjusted $ 213   $ 4,412   $ 8,487   $ 18,754  
Effective tax rate, as adjusted 10.5 % 39.8 % 34.4 % 36.3 %
Net income, as adjusted $ 1,816   $ 6,669   $ 16,213   $ 32,842  

____________________________

(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
December 31, 2012 December 31, 2011
As Reported     As Adjusted As Reported     As Adjusted
Basic net income $ 5,352 $ 1,816 $ 1,163 $ 6,669
Interest expense on convertible notes N/A N/A N/A 137
Diluted net income $ 5,352 $ 1,816 $ 1,163 $ 6,806
 
Basic shares 38,959 38,959 38,430 38,430
Dilutive effect of stock options and restricted shares 383 383 243 243
Dilutive effect of convertible notes N/A N/A N/A 891
Diluted shares 39,342 39,342 38,673 39,564
 
Net income per share, diluted $ 0.14 $ 0.05 $ 0.03 $ 0.17
 
       
Twelve Months Ended Twelve Months Ended
December 31, 2012 December 31, 2011
As Reported     As Adjusted As Reported     As Adjusted
Basic net income (loss) $ 5,284 $ 16,213 $ (5,143) $ 32,842
Interest expense on convertible notes N/A N/A N/A 1,203
Diluted net income $ 5,284 $ 16,213 $ (5,143) $ 34,045
 
Basic shares 38,769 38,769

38,279 

38,279
Dilutive effect of stock options and restricted shares 317 317 N/A 136
Dilutive effect of convertible notes N/A N/A

N/A

1,909
Diluted shares 39,086 39,086

38,279 

40,324
 
Net income per share, diluted $ 0.14 $ 0.41 $ (0.13) $ 0.84
 
 

Wright Medical Group, Inc.

Reconciliation of As Reported Results to Non-GAAP Financial Measures

(continued)

 
    Three Months Ended     Twelve Months Ended

December 31,
2012

   

December 31,
2011

December 31,
2012

   

December 31,
2011

Net Income per Diluted Share

Net income (loss), as reported, per diluted share

$ 0.14 $ 0.03 $ 0.14 $ (0.13 )
Interest expense on convertible notes N/A 0.00 N/A 0.03
Effect of convertible notes on diluted shares N/A (0.00 ) N/A 0.01
Non-cash, stock-based compensation 0.04 0.04 0.18 0.15
U.S. governmental inquiries/DPA related 0.00 0.04 0.11 0.19
Restructuring charges - 0.03 0.02 0.27
Inventory step-up amortization 0.00 0.00 0.00 0.00
Distributor conversion and non-competes 0.03 - 0.07 -
Loss on interest rate swap termination - - 0.03 -
Non-cash interest expense on 2017 Convertible Notes 0.03 - 0.05 -
Derivatives mark-to-market adjustment 0.05 - 0.02 -
Due diligence and transactions costs 0.05 - 0.05 -
Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes - - 0.04 -
Employment matters (1) - - - 0.03
Product liability insurance recovery (0.04 ) - (0.04 ) -
Product liability provision - - - 0.21
Gain on sale of intellectual property (0.24 ) - (0.25 ) -
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer - - - 0.06
IRS audit liability -   0.03   -   0.03  

Net income, as adjusted, per diluted share (2)

$ 0.05   $ 0.17   $ 0.41   $ 0.84  

____________________________

(1) Costs associated with settlement of certain employment matters and the hiring of a new CEO.

(2) Reconciling items may not add to total net income, as adjusted, per diluted share due to rounding differences.

 
   

Wright Medical Group, Inc.

Reconciliation of Free Cash Flow

(dollars in thousands--unaudited)

 
    Three Months Ended   Twelve Months Ended

December 31,
2012

   

December 31,
2011

December 31,
2012

   

December 31,
2011

Net cash provided by operating activities 11,070     12,655 68,822     61,441
Capital expenditures (6,032 )     (11,759 ) (19,323 )     (46,957 )
Free cash flow 5,038       896   49,499       14,484  
 
 

Wright Medical Group, Inc.

Segment Income Statement

(In thousands, except share data)

(unaudited)

 
    Three months ended December 31, 2012
OrthoRecon     Extremities     Corporate     Other(1)     Total
Net sales $ 65,097 $ 58,380 $ - $ - $ 123,477
Cost of sales 26,136       13,150       -       363       39,649  
Gross profit 38,961 45,230 - (363 ) 83,828
 
Operating expenses:
Selling, general and administrative 30,937 27,369 14,161 1,733 74,200
Research and development 3,769 3,546 - 141 7,456
Amortization of intangible assets 58 601 - 1,290 1,949
Gain on sale of intellectual property - - - (15,000 ) (15,000 )
Restructuring charges -       -       -       -       -  
Total operating expenses 34,764 31,516 14,161 (11,836 ) 68,605
                         
Operating income (loss) $ 4,197       $ 13,714       $ (14,161 )     $ 11,473       $ 15,223  
 
Operating income (loss) as a percent of net sales 6.4 %     23.5 %     N/A     N/A     12.3 %
 
Three months ended December 31, 2012
OrthoRecon Extremities Corporate Other(1) Total
Depreciation expense $ 5,522 $ 2,892 $ 679 $ - $ 9,093
Amortization expense 58 601 - 1,290 1,949
Capital expenditures 1,297 1,142 3,593 - 6,032

____________________________

(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 December 31, 2011
OrthoRecon     Extremities     Corporate     Other(1)     Total
Net sales $ 74,197 $ 52,675 $ - $ - $ 126,872
Cost of sales 26,625       13,443       -       952       41,020  
Gross profit 47,572 39,232 - (952 ) 85,852
 
Operating expenses:
Selling, general and administrative 32,075 22,443 12,519 5,324 72,361
Research and development 2,088 4,117 - 126 6,331
Amortization of intangible assets 134 648 - - 782
Restructuring charges -       -       -       2,273       2,273  
Total operating expenses 34,297 27,208 12,519 7,723 81,747
                         
Operating income (loss) $ 13,275       $ 12,024       $ (12,519 )     $ (8,675 )     $ 4,105  
 
Operating income (loss) as a percent of net sales 17.9 % 22.8 % N/A N/A 3.2 %
 
Three months ended December 31, 2011
OrthoRecon Extremities Corporate Other(1) Total
Depreciation expense $ 6,468 $ 2,913 $ 1,632 $ - $ 11,013
Amortization expense 134 648 - - 782
Capital expenditures 5,023 3,101 3,635 - 11,759

____________________________

(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)

 
    Twelve months ended December 31, 2012
OrthoRecon     Extremities     Corporate     Other(1)     Total
Net sales $ 269,671 $ 214,105 $ - $ - $ 483,776
Cost of sales 101,044       47,375       -       1,994       150,413  
Gross profit 168,627 166,730 - (1,994 ) 333,363
 
Operating expenses:
Selling, general and administrative 121,945 101,303 51,129 15,884 290,261
Research and development 12,821 13,537 - 675 27,033
Amortization of intangible assets 334 2,409 - 3,029 5,772
Gain on sale of intellectual property - - - (15,000 ) (15,000 )
Restructuring charges -       -       -       1,153       1,153  
Total operating expenses 135,100 117,249 51,129 5,741 309,219
                         
Operating income (loss) $ 33,527       $ 49,481       $ (51,129 )     $ (7,735 )     $ 24,144  
 
Operating income as a percent of net sales 12.4 %     23.1 %     N/A     N/A     5.0 %
 
Twelve months ended December 31, 2012
OrthoRecon Extremities Corporate Other(1) Total
Depreciation expense $ 23,928 $ 11,386 $ 2,961 $ - $ 38,275
Amortization expense 334 2,409 - 3,029 5,772
Capital expenditures 5,582 7,056 6,685 - 19,323

____________________________

(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)

 
    Twelve months ended December 31, 2011
OrthoRecon     Extremities     Corporate     Other(1)     Total
Net sales $ 302,194 $ 210,753 $ - $ - $ 512,947
Cost of sales 99,467       55,896       -       4,014       159,377  
Gross profit 202,727 154,857 - (4,014 ) 353,570
 
Operating expenses:
Selling, general and administrative 127,030 90,489 49,139 34,930 301,588
Research and development 14,344 14,967 - 803 30,114
Amortization of intangible assets 458 2,412 - - 2,870
Restructuring charges -       -       -       14,405       14,405  
Total operating expenses 141,832 107,868 49,139 50,138 348,977
                         
Operating income (loss) $ 60,895       $ 46,989       $ (49,139 )     $ (54,152 )     $ 4,593  
 
Operating income as a percent of net sales 20.2 %     22.3 %     N/A     N/A     0.9 %
 
Twelve months ended December 31, 2011
OrthoRecon Extremities Corporate Other(1) Total
Depreciation expense $ 26,070 $ 10,876 $ 3,281 $ - $ 40,227
Amortization expense 458 2,412 - - 2,870
Capital expenditures 19,031 12,926 15,000 - 46,957

____________________________

(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

(dollars in thousands--unaudited)

 
   

December 31,
2012

 

December 31,
2011

Assets
Current assets:
Cash and cash equivalents $ 320,360 $ 153,642
Marketable securities 12,646 13,597
Accounts receivable, net 98,636 98,995
Inventories 144,250 164,600
Prepaid expenses and other current assets 76,253 69,699
Total current assets 652,145 500,533
 
Property, plant and equipment, net 138,242 160,284
Goodwill and intangible assets, net 79,360 75,651
Marketable securities - 4,502
Other assets 83,706 13,610
Total assets $ 953,453 $ 754,580
 

Liabilities and stockholders' equity

Current liabilities:
Accounts payable $ 10,342 $ 11,651
Accrued expenses and other current liabilities 65,304 55,831
Current portion of long-term obligations 786 8,508
Total current liabilities 76,432 75,990
Long-term obligations 258,504 166,792
Other liabilities 95,076 43,334
Total liabilities 430,012 286,116
 

Stockholders' equity

523,441 468,464

Total liabilities and stockholders' equity

$ 953,453 $ 754,580
 


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