FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended June 30, 2002 | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission File Number 0-32883
WRIGHT MEDICAL GROUP, INC.
| Delaware | 13-4088127 | |
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| (State or other jurisdiction of incorporation) |
(IRS employer Identification number) |
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| 5677 Airline Road Arlington, Tennessee |
38002 | |
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| (Address of principal executive offices) | (Zip code) | |
| Registrant’s telephone number | (901) 867-9971 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
As of August 2, 2002 a total of 32,490,717 shares of common stock, par value $.01 per share, of the registrant were outstanding.
WRIGHT MEDICAL GROUP, INC.
INDEX
| PAGE NUMBER |
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PART I – FINANCIAL INFORMATION |
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Item 1 - Financial Statements |
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Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 |
1 | ||||
Consolidated Statements of Operations for the three and six months ended
June 30, 2002 and 2001 |
2 | ||||
Consolidated Statements of Cash Flows for the six months ended June 30,
2002 and 2001 |
3 | ||||
Notes to Consolidated Financial Statements |
4-8 | ||||
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations |
9-18 | ||||
Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
19 | ||||
PART II – OTHER INFORMATION |
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Item 1 - Legal Proceedings |
20 | ||||
Item 2 - Changes in Securities and Use of Proceeds |
20 | ||||
Item 3 - Defaults Upon Senior Securities |
20 | ||||
Item 4 - Submission of Matters to a Vote of Security Holders |
20 | ||||
Item 5 - Other Information |
20 | ||||
Item 6 - Exhibits and Reports on Form 8-K |
20-22 | ||||
SIGNATURES |
23 | ||||
PART I – FINANCIAL INFORMATION
WRIGHT MEDICAL GROUP, INC.
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (unaudited) | ||||||||||||
Assets |
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Current Assets: |
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Cash and cash equivalents |
$ | 51,716 | $ | 2,770 | ||||||||
Accounts receivable, net |
40,256 | 32,479 | ||||||||||
Inventories |
49,576 | 41,878 | ||||||||||
Prepaid expenses |
2,925 | 3,506 | ||||||||||
Deferred income taxes |
9,315 | 9,131 | ||||||||||
Other current assets |
3,705 | 3,234 | ||||||||||
Total current assets |
157,493 | 92,998 | ||||||||||
Property, plant and equipment, net |
54,684 | 50,965 | ||||||||||
Intangible assets, net |
30,494 | 31,911 | ||||||||||
Goodwill |
15,246 | 16,848 | ||||||||||
Other assets |
836 | 997 | ||||||||||
| $ | 258,753 | $ | 193,719 | |||||||||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | 9,834 | $ | 8,530 | ||||||||
Accrued expenses and other current liabilities |
29,336 | 33,092 | ||||||||||
Current portion of long-term obligations |
5,223 | 3,830 | ||||||||||
Total current liabilities |
44,393 | 45,452 | ||||||||||
Long-term obligations |
17,604 | 19,804 | ||||||||||
Deferred income taxes |
9,130 | 10,131 | ||||||||||
Other liabilities |
882 | 1,032 | ||||||||||
Total liabilities |
72,009 | 76,419 | ||||||||||
Commitments and Contingencies (Note 9) |
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Stockholders’ equity: |
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Common stock, voting, $.01 par value, shares
authorized – 100,000,000; shares issued and
outstanding – 32,461,567 in 2002, 23,257,532 in 2001 |
325 | 233 | ||||||||||
Common stock, non-voting, $.01 par value,
shares authorized – 100,000,000; shares issued
and outstanding – 5,288,595 in 2001 |
— | 53 | ||||||||||
Additional paid-in capital |
258,428 | 207,197 | ||||||||||
Deferred compensation |
(3,976 | ) | (4,798 | ) | ||||||||
Accumulated other comprehensive income (loss) |
1,951 | (3,238 | ) | |||||||||
Accumulated deficit |
(69,984 | ) | (82,147 | ) | ||||||||
Total stockholders’ equity |
186,744 | 117,300 | ||||||||||
| $ | 258,753 | $ | 193,719 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
WRIGHT MEDICAL GROUP, INC.
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Net sales |
$ | 50,771 | $ | 42,369 | $ | 102,477 | $ | 87,702 | ||||||||||||
Cost of sales |
14,234 | 12,981 | 28,992 | 26,653 | ||||||||||||||||
Gross profit |
36,537 | 29,388 | 73,485 | 61,049 | ||||||||||||||||
Operating expenses: |
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Selling, general and administrative |
26,332 | 23,246 | 53,287 | 46,551 | ||||||||||||||||
Research and development |
2,565 | 2,486 | 5,126 | 4,600 | ||||||||||||||||
Amortization of intangible assets |
921 | 1,355 | 1,774 | 2,652 | ||||||||||||||||
Stock-based expense1 |
457 | 443 | 897 | 1,101 | ||||||||||||||||
Arbitration settlement award (Note 8) |
— | — | (4,200 | ) | — | |||||||||||||||
Total operating expenses |
30,275 | 27,530 | 56,884 | 54,904 | ||||||||||||||||
Income from operations |
6,262 | 1,858 | 16,601 | 6,145 | ||||||||||||||||
Interest expense, net |
338 | 2,903 | 772 | 6,023 | ||||||||||||||||
Other (income) expense, net |
(1,149 | ) | 62 | (1,133 | ) | 489 | ||||||||||||||
Income (loss) before income taxes |
7,073 | (1,107 | ) | 16,962 | (367 | ) | ||||||||||||||
Provision for income taxes |
1,829 | 106 | 4,799 | 661 | ||||||||||||||||
Net income (loss) |
$ | 5,244 | $ | (1,213 | ) | $ | 12,163 | $ | (1,028 | ) | ||||||||||
Net income (loss) per share (Note 5): |
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Net income (loss) applicable to common
stockholders |
$ | 5,244 | $ | (2,386 | ) | $ | 12,163 | $ | (3,360 | ) | ||||||||||
Net income (loss) per common share: |
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Basic |
$ | 0.16 | $ | (33.87 | ) | $ | 0.39 | $ | (48.93 | ) | ||||||||||
Diluted |
$ | 0.15 | $ | (33.87 | ) | $ | 0.36 | $ | (48.93 | ) | ||||||||||
Weighted-average number of common
shares outstanding-basic |
32,447 | 70 | 31,163 | 69 | ||||||||||||||||
Weighted-average number of common
shares outstanding-diluted |
34,839 | 70 | 33,542 | 69 | ||||||||||||||||
Pro forma net income (loss) per share (Note 5): |
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Net income (loss) applicable to common
stockholders |
$ | 5,244 | $ | (1,213 | ) | $ | 12,163 | $ | (1,028 | ) | ||||||||||
Net income (loss) per common share: |
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Basic |
$ | 0.16 | $ | (0.06 | ) | $ | 0.39 | $ | (0.05 | ) | ||||||||||
Diluted |
$ | 0.15 | $ | (0.06 | ) | $ | 0.36 | $ | (0.05 | ) | ||||||||||
Weighted-average number of common
shares outstanding-pro forma basic |
32,447 | 19,358 | 31,163 | 19,208 | ||||||||||||||||
Weighted-average number of common
shares outstanding-pro forma diluted |
34,839 | 19,358 | 33,542 | 19,208 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 | Amounts presented include selling, general and administrative expenses of $429 and $415 for the three months ended June 30, 2002 and 2001, respectively and $841 and $1,067 for the six months ended June 30, 2002 and 2001, respectively. Amounts presented also include research and development expenses of $28 for each of the three months ended June 30, 2002 and 2001 and $56 and $34 for the six months ended June 30, 2002 and 2001, respectively. |
2
WRIGHT MEDICAL GROUP, INC.
| Six months ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
Cash flow from operating activities: |
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Net income (loss) |
$ | 12,163 | $ | (1,028 | ) | |||||
Non-cash items included in net income: |
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Depreciation |
6,518 | 4,480 | ||||||||
Amortization of deferred financing costs |
131 | 311 | ||||||||
Amortization of intangible assets |
1,774 | 2,652 | ||||||||
Provision for inventory reserves |
2,106 | 2,565 | ||||||||
Deferred income taxes |
4,582 | 484 | ||||||||
Stock-based expenses |
897 | 1,101 | ||||||||
Other |
133 | 616 | ||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(6,000 | ) | (3,605 | ) | ||||||
Inventories |
(9,170 | ) | (2,013 | ) | ||||||
Other current assets |
(789 | ) | 3,416 | |||||||
Accounts payable |
746 | 1,549 | ||||||||
Accrued expenses and other liabilities |
(3,709 | ) | (8,390 | ) | ||||||
Net cash provided by operating activities |
9,382 | 2,138 | ||||||||
Cash flow from investing activities: |
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Capital expenditures |
(8,518 | ) | (8,127 | ) | ||||||
Purchased intangibles |
(2,279 | ) | — | |||||||
Other |
— | 268 | ||||||||
Net cash used in investing activities |
(10,797 | ) | (7,859 | ) | ||||||
Cash flow from financing activities: |
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Issuance of common stock, net of offering costs |
51,196 | (1,453 | ) | |||||||
Proceeds from bank and other financing |
— | 1,854 | ||||||||
Payments of bank and other borrowings |
(1,333 | ) | (4,223 | ) | ||||||
Issuance of senior subordinated notes |
— | 92 | ||||||||
Issuance of preferred shares |
— | 158 | ||||||||
Net cash provided by (used in) financing activities |
49,863 | (3,572 | ) | |||||||
Effect of exchange rates on cash and cash equivalents |
498 | (143 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
48,946 | (9,436 | ) | |||||||
Cash and cash equivalents, beginning of period |
2,770 | 16,300 | ||||||||
Cash and cash equivalents, end of period |
$ | 51,716 | $ | 6,864 | ||||||
Supplemental disclosure of cash flow information: |
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Cash paid for interest |
$ | 535 | $ | 3,460 | ||||||
Cash (received) paid for income taxes |
$ | (188 | ) | $ | 208 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
3
WRIGHT MEDICAL GROUP, INC.
1. Organization
Wright Medical Group, Inc. (the “Company”) is a global medical device company specializing in the design, manufacture and marketing of orthopaedic implants and bio-orthopaedic materials used in joint reconstruction and bone regeneration. The Company is focused on the reconstructive joint device and bio-orthopaedic materials sectors of the orthopaedic industry. The Company markets its products principally through independent sales representatives in the United States and through a combination of employee sales representatives, independent sales representatives and stocking distributors in its international markets. The Company is headquartered in suburban Memphis, Tennessee.
On March 6, 2002, the Company and certain selling stockholders completed a secondary offering of 6.9 million shares, including the overallotment option of 900,000 shares, of voting common stock at $15.40 per share. Of the 6.9 million shares, the Company offered 3.45 million shares in the secondary offering. Following the closing of the secondary offering, Warburg, Pincus Equity Partners, L.P. converted all of its shares of non-voting common stock into shares of voting common stock. Consequently, there are no outstanding shares of non-voting common stock.
2. Basis of Presentation
The unaudited consolidated interim financial statements included in this Form 10-Q have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to these rules and regulations. These unaudited consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s 2001 Annual Report on Form 10-K as filed with the SEC.
The accompanying unaudited consolidated interim financial statements include the accounts of the Company and its wholly-owned domestic and international subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, these statements reflect all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.
3. Inventories
Inventories consist of the following (in thousands):
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||