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8-K - FORM 8-K - WRIGHT MEDICAL GROUP INCg26077e8vk.htm
Exhibit 99
     
(WRIGHT LOGO)   FOR RELEASE 3:05 P.M. CENTRAL
Thursday, February 10, 2011

Contact: Lance Berry
(901) 867-4607
Wright Medical Group, Inc. Reports Results for the Fourth
Quarter Ended December 31, 2010
Company Exceeds Guidance in Both Top- and Bottom-Line Results
ARLINGTON, TN — February 10, 2011 — 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 fourth quarter ended December 31, 2010.
Net sales totaled $138.3 million during the fourth quarter ended December 31, 2010, representing a 6% increase over net sales of $129.9 million during the fourth quarter of 2009. Excluding the impact of foreign currency, net sales increased 7% during the fourth quarter.
Net income for the fourth quarter of 2010 totaled $8.9 million or $0.22 per diluted share, compared to net income of $2.2 million or $0.06 per diluted share in the fourth quarter of 2009.
Net income for the fourth quarter of 2010 included the after-tax effects of approximately $3.0 million of non-cash stock-based compensation expense and $1.3 million of expenses associated with our deferred prosecution agreement (DPA). Net income for the fourth quarter of 2009 included the after-tax effects of approximately $5.6 million of charges to write down a significant international receivable, $3.0 million of non-cash stock-based compensation expense, $2.6 million of non-cash charges to write-off cumulative translation adjustment (CTA) balances associated with the substantially complete liquidation of certain foreign subsidiaries, and $2.6 million of restructuring charges.
Fourth quarter net income, as adjusted, totaled $11.8 million, or $0.29 per diluted share, in 2010 compared to net income, as adjusted, of $10.8 million, or $0.27 per diluted share for the fourth quarter of 2009. A reconciliation of U.S. GAAP to “as adjusted” results is included in the attached financial tables.
Gary D. Henley, President and Chief Executive Officer commented, “We are pleased with our ability to deliver fourth quarter revenue and earnings results above our communicated guidance ranges. Our U.S. business benefited from an accelerating extremities growth rate and favorable early results from the launch of our EVOLUTION™ Medial-Pivot knee system, and our international business continued to deliver the strong revenue results that we have seen throughout 2010. In addition to the better than expected revenue and earnings results, we also finished the year strong from a cash flow perspective, resulting in full year 2010 free cash flow of $24 million.”
Mr. Henley continued, “2010 was a challenging year for the orthopaedic industry. Despite the industry wide challenges, we were able to deliver revenue and earnings results in line with our original guidance for the year and produce free cash flow in excess of our original expectations. This 2010 performance highlights the flexibility of our business model and the advantages of our business profile, which is unique within the orthopaedic industry.”

 


 

(Page 2 of 8)
Outlook
The Company’s earnings target, as communicated in the guidance range stated below, excludes the effect of the new Senior Credit facility and tender offer for the Company’s convertible notes that were announced today, possible future acquisitions, other material future business developments, non-cash stock-based compensation expense, and costs associated with the Company’s DPA (including the associated independent monitor).
The Company anticipates full year 2011 net sales to be in the range of $517 million to $535 million. As previously announced, our license agreement with KCI has a negative impact of approximately 1% to 2% to our 2011 revenue growth rate. Excluding this negative impact, our annualized growth expectations are approximately 1% to 5%. The Company anticipates full year 2011 as-adjusted earnings per share to be in the range of $0.88 to $0.95 per diluted share, which represents annualized growth expectations of -2% to 6%.
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 $0.19 per diluted share for the full year 2011. Therefore, the Company anticipates full year 2011 as-adjusted earnings per share including stock-based compensation to be in the range of $0.69 to $0.76 per diluted share, which represents annualized growth expectations of -1% to 9%.
The Company’s anticipated ranges for net sales, adjusted earnings per share, and non-cash stock-based compensation charges are forward-looking statements. 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 866-383-8008 (domestic) or 617-597-5341 (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 Info” section of the Company’s website located at www.wmt.com. A replay of the conference call by telephone will be available starting at 6:30 p.m. (Central Time) today and continuing until February 17, 2011. To hear this replay, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 12255148. 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 Info — 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, our Form 8-K filed with the SEC today, or otherwise available in the “Corporate — Investor Info — 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.

 


 

(Page 3 of 8)
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 business development activities, including purchased in-process research and development, the financial impact of significant litigation, costs related to the U.S. governmental inquiries and DPA, restructuring charges 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.
Safe-Harbor Statement
This press release contains “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 views of future performance, results, and trends and 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 our actual results to materially differ from those described in the forward-looking statements. Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those 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, 2010 to be filed with the SEC today, under the heading “Risk Factors” ), and the following: the impact of our settlement of the federal investigation into our consulting arrangements with orthopaedic surgeons relating to our hip and knee products in the United States, including our compliance with the Deferred Prosecution Agreement through September 2011 and the Corporate Integrity Agreement through September 2015; demand for and market acceptance of our new and existing products; recently enacted healthcare reform legislation and its future implementation, possible additional legislation, regulation and other governmental pressures in the United States or globally, which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business; tax reform measures, tax authority examinations and associated tax risks and potential obligations; our ability to identify business development and growth opportunities for existing or future products; product quality or patient safety issues, leading to product recalls, withdrawals, launch delays, sanctions, seizures, litigation, or declining sales; individual, group or class action alleging products liability claims, including an increase in the number of claims during any period; future actions of the FDA or any other regulatory body or government authority that could delay, limit or suspend product development, manufacturing or sale or result in seizures, injunctions, monetary sanctions or criminal or civil liabilities; our ability to enforce our patent rights or patents of third parties preventing or restricting the manufacture, sale or use of affected products or technology; the impact of geographic and product mix on our sales; retention of our sales representatives and independent distributors; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; and any impact of the commercial and credit environment on us and our customers and suppliers. Readers 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.
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.
—Tables Follow—

 


 

(Page 4 of 8)
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations

(in thousands, except per share data—unaudited)
                                 
    Three Months Ended     Twelve Months Ended  
    December 31,
2010
    December 31,
2009
    December 31,
2010
    December 31,
2009
 
 
                               
Net sales
  $ 138,287     $ 129,928     $ 518,973     $ 487,508  
Cost of sales
    40,392       38,069       158,456       148,715  
 
                       
Gross profit
    97,895       91,859       360,517       338,793  
 
                               
Operating expenses:
                               
Selling, general and administrative
    73,324       74,323       282,413       270,456  
Research and development
    8,902       9,231       37,300       35,691  
Amortization of intangible assets
    720       1,252       2,711       5,151  
Restructuring charges
    (220 )     2,553       919       3,544  
 
                       
Total operating expenses
    82,726       87,359       323,343       314,842  
 
                               
Operating income
    15,169       4,500       37,174       23,951  
Interest expense, net
    1,573       1,492       6,123       5,466  
Other (income) expense, net
    (140 )     3,231       130       2,873  
 
                       
Income before income taxes
    13,736       (223 )     30,921       15,612  
Provision for income taxes
    4,867       (2,458 )     13,080       3,481  
 
                       
Net income
  $ 8,869     $ 2,235     $ 17,841     $ 12,131  
 
                       
 
                               
Net income per share, basic
  $ 0.23     $ 0.06     $ 0.47     $ 0.32  
 
                       
Net income per share, diluted
  $ 0.22     $ 0.06     $ 0.47     $ 0.32  
 
                       
Weighted-average number of common shares outstanding, basic
    37,962       37,470       37,802       37,366  
 
                       
Weighted-average number of common shares outstanding, diluted
    44,235       37,718       37,961       37,443  
 
                       
Wright Medical Group, Inc.
Consolidated Sales Analysis

(dollars in thousands—unaudited)
                                                 
    Three Months Ended     Twelve Months Ended  
    December 31,
2010
    December 31,
2009
    %
change
    December 31,
2010
    December 31,
2009
    %
change
 
Geographic
                                               
Domestic
  $ 81,180     $ 78,307       3.7 %   $ 309,983     $ 299,587       3.5 %
International
    57,107       51,621       10.6 %     208,990       187,921       11.2 %
 
                                   
Total net sales
  $ 138,287     $ 129,928       6.4 %   $ 518,973     $ 487,508       6.5 %
 
                                   
 
                                               
Product Line
                                               
Hip products
  $ 46,269     $ 44,839       3.2 %   $ 176,687     $ 167,869       5.3 %
Knee products
    35,112       31,451       11.6 %     128,854       122,178       5.5 %
Extremity products
    34,752       30,259       14.8 %     124,490       107,375       15.9 %
Biologics products
    19,935       20,448       (2.5 %)     79,231       79,120       0.1 %
Other
    2,219       2,931       (24.3 %)     9,711       10,966       (11.4 %)
 
                                   
Total net sales
  $ 138,287     $ 129,928       6.4 %   $ 518,973     $ 487,508       6.5 %
 
                                   

 


 

(Page 5 of 8)
Wright Medical Group, Inc.
Supplemental Sales Information

(unaudited)
                                         
    Fourth Quarter 2010 Sales Growth
    Domestic   Int’l   Int’l   Total   Total
    As   Constant   As   Constant   As
    Reported   Currency   Reported   Currency   Reported
Hips
    (9 %)     12 %     12 %     3 %     3 %
Knees
    6 %     20 %     19 %     12 %     12 %
Extremities
    14 %     18 %     16 %     15 %     15 %
Biologics
    (1 %)     (10 %)     (10 %)     (3 %)     (3 %)
Total
    4 %     11 %     11 %     7 %     6 %
                                         
    2010 Sales Growth
    Domestic   Int’l   Int’l   Total   Total
    As   Constant   As   Constant   As
    Reported   Currency   Reported   Currency   Reported
Hips
    (3 %)     11 %     12 %     5 %     5 %
Knees
    2 %     10 %     10 %     5 %     5 %
Extremities
    14 %     26 %     27 %     16 %     16 %
Biologics
    0 %     1 %     3 %     0 %     0 %
Total
    3 %     10 %     11 %     6 %     6 %
                                                 
    Sales as a % of Total Sales
    Three Months Ended   Twelve Months Ended
    December 31, 2010   December 31, 2010
    Domestic   International   Total   Domestic   International   Total
Hips
    12 %     21 %     33 %     14 %     20 %     34 %
Knees
    14 %     12 %     25 %     13 %     11 %     25 %
Extremities
    20 %     5 %     25 %     19 %     5 %     24 %
Biologics
    12 %     2 %     14 %     13 %     3 %     15 %
Total
    59 %     41 %     100 %     60 %     40 %     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, 2010     December 31, 2010  
    International     Total     International     Total  
    Net Sales     Net Sales     Net Sales     Net Sales  
Net sales, as reported
  $ 57,107     $ 138,287     $ 208,990     $ 518,973  
Currency impact as compared to prior period
    344       344       (1,496 )     (1,496 )
 
                       
Net sales, excluding the impact of foreign currency
  $ 57,451     $ 138,631     $ 207,494     $ 517,477  
 
                       

 


 

(Page 6 of 8)
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,
2010
    December 31,
2009
    December 31,
2010
    December 31,
2009
 
Operating Income
                               
 
                               
Operating income, as reported
  $ 15,169     $ 4,500     $ 37,174     $ 23,951  
 
                               
Reconciling items impacting Gross Profit:
                               
Inventory step-up amortization
                      70  
Non-cash, stock-based compensation
    321       347       1,301       1,285  
 
                       
Total
    321       347       1,301       1,355  
 
                               
Reconciling items impacting Selling, General and Administrative expenses:
                               
Non-cash, stock-based compensation
    2,224       2,255       9,924       10,077  
U.S. governmental inquiries/DPA related
    1,283       186       10,902       7,845  
Write-down of international receivable
          5,579             5,579  
 
                       
Total
    3,507       8,020       20,826       23,501  
 
                               
Reconciling items impacting Research and Development expenses:
                               
Non-cash, stock-based compensation
    452       389       1,952       1,829  
 
                               
Other Reconciling Items:
                               
Restructuring charges
    (220 )     2,553       919       3,544  
 
                       
 
                               
Operating income, as adjusted
  $ 19,229     $ 15,809     $ 62,172     $ 54,180  
 
                       
Operating income, as adjusted, as a percentage of net sales
    13.9 %     12.2 %     12.0 %     11.1 %
 
                       
                                 
    Three Months Ended     Twelve Months Ended  
    December 31,
2010
    December 31,
2009
    December 31,
2010
    December 31,
2009
 
 
                               
Net Income
                               
 
                               
Income before taxes, as reported
  $ 13,736     $ (223 )   $ 30,921     $ 15,612  
Pre-tax impact of reconciling items:
                               
Non-cash, stock-based compensation
    2,997       2,991       13,177       13,191  
Restructuring charges
    (220 )     2,553       919       3,544  
Inventory step-up amortization
                      70  
U.S. governmental inquiries/DPA related
    1,283       186       10,902       7,845  
Write-down of international receivable
          5,579             5,579  
CTA write-off
          2,643             2,643  
 
                       
Income before taxes, as adjusted
    17,796       13,729       55,919       48,484  
 
                       
 
                               
Provision for income taxes, as reported
    4,867       (2,458 )     13,080       3,481  
Non-cash, stock-based compensation
    1,144       896       4,410       3,901  
Restructuring charges
    (67 )     2,882       376       3,269  
Inventory step-up amortization
                      27  
U.S. governmental inquiries/DPA related
    81       (208 )     2,266       2,789  
Write-down of international receivable
          1,817             1,817  
 
                       
Provision for income taxes, as adjusted
    6,025       2,929       20,132       15,284  
 
                       
 
                               
Effective tax rate, as adjusted
    33.9 %     21.3 %     36.0 %     31.5 %
 
                       
 
                               
Net income, as adjusted
  $ 11,771     $ 10,800     $ 35,787     $ 33,200  
 
                       

 


 

(Page 7 of 8)
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
                                 
    Three Months Ended     Three Months Ended  
    December 31, 2010     December 31, 2009  
    As Reported     As Adjusted     As Reported     As Adjusted  
Basic net income
  $ 8,869     $ 11,771     $ 2,235     $ 10,800  
Interest expense on convertible notes
    935       935       N/A       935  
 
                       
Diluted net income
  $ 9,804     $ 12,706     $ 2,235     $ 11,735  
 
                               
Basic shares
    37,962       37,962       37,470       37,470  
Dilutive effect of stock options and restricted shares
    147       147       248       248  
Dilutive effect of convertible notes
    6,126       6,126       N/A       6,126  
 
                       
Diluted shares
    44,235       44,235       37,718       43,844  
 
                               
Net income per share, diluted
  $ 0.22     $ 0.29     $ 0.06     $ 0.27  
 
                       
                                 
    Twelve Months Ended     Twelve Months Ended  
    December 31, 2010     December 31, 2009  
    As Reported     As Adjusted     As Reported     As Adjusted  
Basic net income
  $ 17,841     $ 35,787     $ 12,131     $ 33,200  
Interest expense on convertible notes
    N/A       3,740       N/A       3,740  
 
                       
Diluted net income
  $ 17,841     $ 39,527     $ 12,131     $ 36,940  
 
                               
Basic shares
    37,802       37,802       37,366       37,366  
Dilutive effect of stock options and restricted shares
    159       159       77       77  
Dilutive effect of convertible notes
    N/A       6,126       N/A       6,126  
 
                       
Diluted shares
    37,961       44,087       37,443       43,569  
 
                               
Net income per share, diluted
  $ 0.47     $ 0.90     $ 0.32     $ 0.85  
 
                       
                                 
    Three Months Ended     Twelve Months Ended  
    December 31,     December 31,     December 31,     December 31,  
    2010     2009     2010     2009  
Net Income per Diluted Share
                               
Net income, as reported, per diluted share
  $ 0.22     $ 0.06     $ 0.47     $ 0.32  
Interest expense on convertible notes
    N/A       0.02       0.08       0.09  
Dilutive effect of convertible notes
    N/A       (0.01 )     (0.07 )     (0.05 )
Non-cash, stock-based compensation
    0.04       0.05       0.20       0.21  
Restructuring charges
    0.00       (0.01 )     0.01       0.01  
Inventory step-up amortization
                      0.00  
U.S. governmental inquiries/DPA related
    0.03       0.01       0.20       0.12  
Write-down of international receivable
          0.09             0.09  
CTA write-off
          0.06             0.06  
 
                       
Net income, as adjusted, per diluted share
  $ 0.29     $ 0.27     $ 0.90     $ 0.85  
 
                       

 


 

(Page 8 of 8)
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands—unaudited)
                 
    December 31,     December 31,  
    2010     2009  
 
               
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 153,261     $ 84,409  
Marketable securities
    19,152       86,819  
Accounts receivable, net
    105,336       101,720  
Inventories
    166,339       163,535  
Prepaid expenses and other current assets
    53,502       54,121  
 
           
Total current assets
    497,590       490,604  
 
           
 
               
Property, plant and equipment, net
    158,247       139,708  
Goodwill and intangible assets, net
    70,673       71,587  
Marketable securities
    17,193        
Other assets
    11,536       12,385  
 
           
Total assets
  $ 755,239     $ 714,284  
 
           
 
               
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable
  $ 15,862     $ 13,978  
Accrued expenses and other current liabilities
    54,409       54,643  
Current portion of long-term obligations
    1,033       336  
 
           
Total current liabilities
    71,304       68,957  
 
           
Long-term obligations
    201,766       200,326  
Other liabilities
    11,197       4,593  
 
           
Total liabilities
    284,267       273,876  
 
           
 
               
Stockholders’ equity
    470,972       440,408  
 
           
Total liabilities and stockholders’ equity
  $ 755,239     $ 714,284