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 September 30, 2002 | ||
| [ ] |
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.
(Exact name of registrant as specified in its charter)
| 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.
[X] Yes [ ] No
As of November 4, 2002 a total of 32,498,984 shares of common stock, par value $.01 per share, of the registrant were outstanding.
WRIGHT MEDICAL GROUP, INC.
INDEX
| PAGE | |||||
| NUMBER | |||||
PART I – FINANCIAL INFORMATION |
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Item 1 - Financial Statements |
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Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 |
1 | ||||
Consolidated Statements of Operations for the three and nine months ended
September 30, 2002 and 2001 |
2 | ||||
Consolidated Statement of Cash Flows for the nine months ended September 30, 2002
and 2001 |
3 | ||||
Notes to Consolidated Financial Statements |
4 | ||||
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 | ||||
Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
21 | ||||
Item 4 - Controls and Procedures |
22 | ||||
PART II – OTHER INFORMATION |
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Item 1 - Legal Proceedings |
23 | ||||
Item 2 - Changes in Securities and Use of Proceeds |
23 | ||||
Item 3 - Defaults Upon Senior Securities |
23 | ||||
Item 4 - Submission of Matters to a Vote of Security Holders |
23 | ||||
Item 5 - Other Information |
23 | ||||
Item 6 - Exhibits and Reports on Form 8-K |
23 | ||||
SIGNATURES |
25 | ||||
CERTIFICATIONS |
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Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act |
26 | ||||
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
27 | ||||
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act |
28 | ||||
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
29 | ||||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| September 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (unaudited) | ||||||||||||
Assets |
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Current Assets: |
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Cash and cash equivalents |
$ | 48,837 | $ | 2,770 | ||||||||
Accounts receivable, net |
36,646 | 32,805 | ||||||||||
Inventories |
53,925 | 41,878 | ||||||||||
Prepaid expenses |
6,488 | 3,506 | ||||||||||
Deferred income taxes |
8,711 | 9,131 | ||||||||||
Other current assets |
2,356 | 2,908 | ||||||||||
Total current assets |
156,963 | 92,998 | ||||||||||
Property, plant and equipment, net |
56,014 | 50,965 | ||||||||||
Intangible assets, net |
31,129 | 30,733 | ||||||||||
Goodwill |
14,035 | 16,848 | ||||||||||
Other assets |
1,854 | 2,175 | ||||||||||
| $ | 259,995 | $ | 193,719 | |||||||||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | 9,508 | $ | 8,530 | ||||||||
Accrued expenses and other current liabilities |
29,229 | 33,092 | ||||||||||
Current portion of long-term obligations |
5,316 | 3,830 | ||||||||||
Total current liabilities |
44,053 | 45,452 | ||||||||||
Long-term obligations |
17,531 | 19,804 | ||||||||||
Deferred income taxes |
8,228 | 10,131 | ||||||||||
Other liabilities |
806 | 1,032 | ||||||||||
Total liabilities |
70,618 | 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 – 70,000,000; shares issued and
outstanding – 32,491,621 in 2002, 23,257,532 in 2001 |
325 | 233 | ||||||||||
Common stock, non-voting, $.01 par value,
shares authorized – 30,000,000; shares issued
and outstanding – 5,288,595 in 2001 |
— | 53 | ||||||||||
Additional paid-in capital |
258,557 | 207,197 | ||||||||||
Deferred compensation |
(3,570 | ) | (4,798 | ) | ||||||||
Accumulated other comprehensive income (loss) |
1,527 | (3,238 | ) | |||||||||
Accumulated deficit |
(67,462 | ) | (82,147 | ) | ||||||||
Total stockholders’ equity |
189,377 | 117,300 | ||||||||||
| $ | 259,995 | $ | 193,719 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Net sales |
$ | 46,086 | $ | 39,062 | $ | 148,563 | $ | 126,764 | ||||||||||
Cost of sales |
11,976 | 11,314 | 40,968 | 37,967 | ||||||||||||||
Gross profit |
34,110 | 27,748 | 107,595 | 88,797 | ||||||||||||||
Operating expenses: |
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Selling, general and administrative |
26,338 | 23,233 | 79,625 | 69,784 | ||||||||||||||
Research and development |
2,763 | 2,242 | 7,889 | 6,842 | ||||||||||||||
Amortization of intangible assets |
1,076 | 1,372 | 2,850 | 4,024 | ||||||||||||||
Stock-based expense1 |
419 | 486 | 1,316 | 1,587 | ||||||||||||||
Arbitration settlement award (Note 8) |
— | — | (4,200 | ) | — | |||||||||||||
Total operating expenses |
30,596 | 27,333 | 87,480 | 82,237 | ||||||||||||||
Income from operations |
3,514 | 415 | 20,115 | 6,560 | ||||||||||||||
Interest (income) expense, net |
(79 | ) | 1,342 | 693 | 7,365 | |||||||||||||
Other expense (income), net |
145 | (311 | ) | (988 | ) | 178 | ||||||||||||
Income (loss) before income taxes and extraordinary item |
3,448 | (616 | ) | 20,410 | (983 | ) | ||||||||||||
Provision for income taxes |
926 | 428 | 5,725 | 1,089 | ||||||||||||||
Income (loss) before extraordinary item |
2,522 | (1,044 | ) | 14,685 | (2,072 | ) | ||||||||||||
Extraordinary loss on early retirement of debt, net of taxes |
— | (1,611 | ) | — | (1,611 | ) | ||||||||||||
Net income (loss) |
$ | 2,522 | $ | (2,655 | ) | $ | 14,685 | $ | (3,683 | ) | ||||||||
Net income (loss) per share (Note 5): |
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Net income (loss) applicable to common stockholders |
$ | 2,522 | $ | (2,869 | ) | $ | 14,685 | $ | (6,229 | ) | ||||||||
Basic net income (loss) per common share: |
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Income (loss) before extraordinary item |
$ | 0.08 | $ | (0.05 | ) | $ | 0.46 | $ | (0.57 | ) | ||||||||
Extraordinary charge |
— | (0.07 | ) | — | (0.20 | ) | ||||||||||||
| $ | 0.08 | $ | (0.12 | ) | $ | 0.46 | $ | (0.77 | ) | |||||||||
Diluted net income (loss) per common share: |
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Income (loss) before extraordinary item |
$ | 0.07 | $ | (0.05 | ) | $ | 0.43 | $ | (0.57 | ) | ||||||||
Extraordinary charge |
— | (0.07 | ) | — | (0.20 | ) | ||||||||||||
| $ | 0.07 | $ | (0.12 | ) | $ | 0.43 | $ | (0.77 | ) | |||||||||
Weighted-average number of common shares outstanding-basic |
32,496 | 23,715 | 31,612 | 8,037 | ||||||||||||||
Weighted-average number of common shares outstanding-diluted |
34,745 | 23,715 | 34,025 | 8,037 | ||||||||||||||
Pro forma net income (loss) per share (Note 5): |
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Net income (loss) applicable to common stockholders |
$ | 2,522 | $ | (2,655 | ) | $ | 14,685 | $ | (3,683 | ) | ||||||||
Basic net income (loss) per common share: |
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Income (loss) before extraordinary item |
$ | 0.08 | $ | (0.04 | ) | $ | 0.46 | $ | (0.09 | ) | ||||||||
Extraordinary charge |
— | (0.06 | ) | — | (0.07 | ) | ||||||||||||
| $ | 0.08 | $ | (0.10 | ) | $ | 0.46 | $ | (0.17 | ) | |||||||||
Diluted net income (loss) per common share: |
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Income (loss) before extraordinary item |
$ | 0.07 | $ | (0.04 | ) | $ | 0.43 | $ | (0.09 | ) | ||||||||
Extraordinary charge |
— | (0.06 | ) | — | (0.07 | ) | ||||||||||||
| $ | 0.07 | $ | (0.10 | ) | $ | 0.43 | $ | (0.17 | ) | |||||||||
Weighted-average number of common shares outstanding-pro
forma basic |
32,496 | 27,116 | 31,612 | 21,873 | ||||||||||||||
Weighted-average number of common shares outstanding-pro
forma diluted |
34,745 | 27,116 | 34,025 | 21,873 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 | Amounts presented include selling, general and administrative expenses of $392 and $448 for the three months ended September 30, 2002 and 2001, respectively and $1,233 and $1,515 for the nine months ended September 30, 2002 and 2001, respectively. Amounts presented also include research and development expenses of $27 and $38 for the three months ended September 30, 2002 and 2001, respectively, and $83 and $72 for the nine months ended September 30, 2002 and 2001, respectively. |
2
WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Cash flow from operating activities: |
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Net income (loss) |
$ | 14,685 | $ | (3,683 | ) | |||||
Non-cash items included in net income (loss): |
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Depreciation |
10,083 | 7,228 | ||||||||
Amortization of deferred financing costs |
196 | 457 | ||||||||
Amortization of intangible assets |
2,850 | 4,024 | ||||||||
Deferred income taxes |
5,401 | 500 | ||||||||
Stock-based expense |
1,316 | 1,587 | ||||||||
Debt extinguishment |
— | 1,589 | ||||||||
Other |
367 | (52 | ) | |||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(2,450 | ) | < | |||||||