Wright Medical Group N.V. - FORM 10-K - XML - IDEA: XBRL DOCUMENT - February 23, 2016

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EX-31.2 - EXHIBIT 31.2 - Wright Medical Group N.V.wmgi-12272015x10kxex312.htm
EX-32.1 - EXHIBIT 32.1 - Wright Medical Group N.V.wmgi-12272015x10kxex321.htm
EX-21.1 - EXHIBIT 21.1 - Wright Medical Group N.V.wmgi-12272015x10kxex211.htm
EX-12.1 - EXHIBIT 12.1 - Wright Medical Group N.V.wmgi-12272015x10kxex121.htm
EX-31.1 - EXHIBIT 31.1 - Wright Medical Group N.V.wmgi-12272015x10kxex311.htm
EX-10.42 - EXHIBIT 10.42 - Wright Medical Group N.V.wmgi-12272015x10kxex1042.htm
EX-10.43 - EXHIBIT 10.43 - Wright Medical Group N.V.wmgi-12x272015x10kxex1043.htm
EX-10.48 - EXHIBIT 10.48 - Wright Medical Group N.V.wmgi-12272015x10kxex1048.htm
EX-23.1 - EXHIBIT 23.1 - Wright Medical Group N.V.wmgi-12272015x10kxex231.htm
10-K - 10-K - Wright Medical Group N.V.wmgi-12272015x10k.htm
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Business Combination Disclosure [Text Block] us-gaap_BusinessCombinationDisclosureTextBlock
Acquisitions and Disposition
Tornier N.V.
On October 1, 2015, we completed the Wright/Tornier merger. Immediately upon completion of the merger, legacy Wright shareholders owned approximately 52% of the combined company and legacy Tornier shareholders owned approximately 48%. Effective upon completion of the merger, we have operated under the leadership of the legacy Wright management team and our board of directors is comprised of five representatives from legacy Wright’s board of directors and five representatives from legacy Tornier’s board of directors. Because of these and other facts and circumstances, the merger has been accounted for as a “reverse acquisition” under US GAAP. As such, legacy Wright is considered the acquiring entity for accounting purposes; and therefore, legacy Wright’s historical results of operations replaced legacy Tornier’s historical results of operations for all periods prior to the merger. As part of the merger, each legacy Wright share was converted into the right to receive 1.0309 ordinary shares of the combined company. The Wright/Tornier merger added legacy Tornier’s complementary extremity product portfolio to further accelerate growth opportunities in our global extremities business. The results of operations of both companies are included in our consolidated financial statements for all periods after completion of the merger.
The acquired business contributed net sales of $83.4 million and operating loss of $14.6 million to our consolidated results of operations from the date of acquisition through December 27, 2015, which includes $11.4 million of inventory step-up amortization and $4.1 million of intangible asset amortization. This operating loss does not include the merger-related transaction costs discussed below.
Merger-Related Transaction Costs
In conjunction with the merger, we incurred approximately $20.1 million and $8.7 million of merger-related transaction costs in the years ended December 27, 2015 and December 31, 2014, respectively, all of which were recognized as selling, general and administrative expense in our consolidated statements of operations. These expenses primarily related to advisory fees, legal fees, and accounting and tax professional fees.
Purchase Consideration and Net Assets Acquired
The purchase consideration in a reverse acquisition is determined with reference to the value of equity that the accounting acquirer, legacy Wright, would have had to issue to the owners of the accounting acquiree, legacy Tornier, to give them the same percentage interest in the combined entity. The fair value of WMG common stock used in determining the purchase price was $21.02 per share, the closing price on September 30, 2015, which resulted in a total purchase consideration of $1.034 billion.
The calculation of the purchase consideration is as follows (in thousands):
Fair value of ordinary shares effectively transferred to Tornier shareholders
$
1,005,468

Fair value of ordinary shares effectively transferred to Tornier share award holders
8,091

Fair value of ordinary shares effectively issued to Tornier stock option holders
20,676

Fair value of total consideration
$
1,034,235

The acquisition was recorded by allocating the costs of the assets acquired based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired is recorded as goodwill. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.
The following presents the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed on October 1, 2015 (in thousands):
Cash and cash equivalents
30,117

Accounts receivable
63,510

Inventories
140,715

Other current assets
9,256

Property, plant and equipment, net
123,099

Intangible assets, net
204,200

Deferred income taxes
1,399

Other assets
8,658

Total assets acquired
580,954

Current liabilities
(105,500
)
Long-term debt
(79,554
)
Deferred income taxes
(36,544
)
Other non-current liabilities
(8,434
)
Total liabilities assumed
(230,032
)
Net assets acquired
350,922

 
 
Goodwill
683,313

 
 
Total preliminary purchase consideration
$
1,034,235


Any changes in the estimated fair values of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction will change the allocation of the purchase price. Any subsequent changes to the purchase allocation during the measurement period that are material will be recorded in the reporting period in which the adjustment amounts are determined.
The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of Tornier. The goodwill is not expected to be deductible for tax purposes.
Trade receivables and payables, as well as other current and non-current assets and liabilities, were valued at the existing carrying values as they represented the fair value of those items at the acquisition date, based on management’s judgments and estimates. Trade receivables included gross contractual amounts of $73.9 million and our best estimate of $10.4 million which represents contractual cash flows not expected to be collected at the acquisition date.
The fair value of property, plant and equipment utilized a combination of the cost and market approaches, depending on the characteristics of the asset classification.
Of the $204.2 million of acquired intangible assets, $91.0 million was assigned to customer relationships (20 year life), $89.2 million was assigned to developed technology (10 year life), $15.7 million was assigned to in-process research and development, and $8.3 million was assigned to trade names (2.6 year life).
Pro Forma Condensed Combined Financial Information (Unaudited)
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the Wright/Tornier merger had been completed as of January 1, 2014. Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the merger. The unaudited pro forma results include adjustments to reflect, among other things, the amortization of the inventory step-up, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset, and to eliminate interest expense related to legacy Tornier's former bank term debt and line of credit, which was repaid upon completion of the Wright/Tornier merger. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the merger had occurred as of January 1, 2014 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
 
Year ended
December 27, 2015
 
Year ended
December 31, 2014
Net sales
656,417

 
627,435

Net loss from continuing operations
(293,419
)
 
(330,231
)
The pro forma net loss for the year ended December 27, 2015 includes the following non-recurring items: $32.1 million of merger-related transaction expenses, $30.1 million of non-cash share-based compensation charges, and $5.5 million of contractual change-in-control severance charges. The pro forma net loss for the year ended December 31, 2014 includes $12.4 million of non-recurring merger-related transaction expenses.
Divestiture of Certain Tornier Ankle Replacement and Toe Assets
On October 1, 2015, simultaneous with the completion of the Wright/Tornier merger, legacy Tornier completed the divestiture of the U.S. rights to legacy Tornier's SALTO TALARIS® and SALTO TALARIS® XT™ line of ankle replacement products and line of silastic toe replacement products, among other assets, for cash. We retained the right to sell these products outside the United States for up to 20 years unless the purchaser exercises an option to purchase the ex-United States rights to the products. The completion of the asset divestiture was subject to and contingent upon the completion of the Wright/Tornier merger and we believe was necessary in order to obtain U.S. Federal Trade Commission approval of the Wright/Tornier merger. As these assets were not part of Wright/Tornier merger, they were not part of the purchase allocation. Additionally, the pro forma results exclude the divested operations as if the divestiture were to have occurred on January 1, 2014.
Solana Surgical, LLC
On January 30, 2014, we acquired 100% of the outstanding equity of Solana Surgical, LLC (Solana), a privately held Memphis, Tennessee orthopaedic company, for approximately $48.0 million in cash and $41.4 million of WMG common stock. The transaction added Solana's complementary extremity product portfolio to further accelerate growth opportunities in our global extremities business. The operating results from this acquisition are included in our condensed consolidated financial statements from the acquisition date.
The acquisition was recorded by allocating the costs of the assets acquired based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired is recorded as goodwill. The following is a summary of the estimated fair values of the assets acquired (in thousands):
Cash and cash equivalents
 
$
416

Accounts receivable
 
2,366

Inventory
 
2,244

Prepaid and other current assets
 
372

Property, plant and equipment
 
360

Intangible assets
 
21,584

Accounts payable and accrued liabilities
 
(2,196
)
Total net assets acquired
 
$
25,146

 
 
 
Goodwill
 
64,326

 
 
 
Total purchase consideration
 
$
89,472


The purchase price allocation was adjusted in the quarter ended June 30, 2014 for the finalization of the valuation of the acquired intangible assets. Intangible assets decreased $0.5 million during the quarter ended June 30, 2014. During the quarter ended September 30, 2014 the purchase price allocation was adjusted to record certain tax-related liabilities existing at the date of acquisition. Accrued liabilities increased $0.2 million during the quarter ended September 30, 2014. The purchase price allocation is now considered final.
The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of Solana. The goodwill is expected to be deductible for tax purposes.
Of the $21.6 million of acquired intangible assets, $11.7 million was assigned to purchased technology (10 year life), $9.3 million was assigned to customer relationships (12 year life), and $0.6 million was assigned to trademarks (2 year life).
The acquired business contributed revenues of $14.3 million and operating income of $1.3 million, which excludes transaction and transition costs, to our consolidated results from the date of acquisition through December 31, 2014. Our consolidated results include $7.2 million of transaction and transition expenses recognized in the twelve months ended December 31, 2014.
Our consolidated results of operations would not have been materially different than reported results had the Solana acquisition occurred at the beginning of 2013; and therefore, pro forma financial information has not been presented.
OrthoPro, L.L.C.
On February 5, 2014, we acquired 100% of the outstanding equity of OrthoPro, a privately held Salt Lake City, Utah orthopaedic company, for approximately $32.5 million in cash at closing, subject to a working capital adjustment, plus contingent consideration to be paid upon the achievement of certain revenue milestones in 2014 and 2015 (estimated fair value of contingent consideration is $0 as of December 31, 2014 and December 27, 2015). The transaction added OrthoPro's complementary extremity product portfolio to further accelerate growth opportunities in our global extremities business. The operating results from this acquisition are included in our condensed consolidated financial statements from the acquisition date.
During the quarter ended June 30, 2014, we finalized the calculation of the acquisition date fair value of contingent consideration, which was reduced by $2.9 million at that time.
The acquisition was recorded by allocating the costs of the assets acquired based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired was recorded as goodwill. The following is a summary of the estimated fair values of the assets acquired (in thousands):
Cash and cash equivalents
 
$
98

Accounts receivable
 
1,308

Inventory
 
2,156

Prepaid and other current assets
 
49

Property, plant and equipment
 
1,801

Intangible assets
 
7,772

Accounts payable and accrued liabilities
 
(949
)
Total net assets acquired
 
$
12,235

 
 
 
Goodwill
 
20,801

 
 
 
Total purchase consideration
 
$
33,036


The purchase price allocation was adjusted in the quarter ended June 30, 2014 for the finalization of the valuation of acquired intangible assets. Intangible assets decreased $1.8 million during the quarter ended June 30, 2014. The purchase price allocation was adjusted in the quarter ended September 30, 2014 to record certain tax related liabilities that existed at the date of acquisition. Accrued liabilities increased $0.4 million during the quarter ended September 30, 2014. The purchase price allocation is now considered final.
The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of OrthoPro. The goodwill is expected to be deductible for tax purposes.
Of the $7.8 million of acquired intangible assets, $4.2 million was assigned to customer relationships (12 year life), $3.4 million was assigned to purchased technology (10 year life), and $0.2 million was assigned to trademarks (2 year life).
The acquired business contributed revenues of $8.1 million and operating income of $0.5 million, which excludes transaction and transition costs, to our consolidated results from the date of acquisition through December 31, 2014. Our consolidated results include $5.1 million of transaction and transition expenses recognized in the twelve months ended December 31, 2014.
Our consolidated results of operations would not have been materially different than reported results had the OrthoPro acquisition occurred at the beginning of 2013; and therefore, pro forma financial information has not been presented.
Biotech International
On November 15, 2013, we acquired 100% of the outstanding equity shares of Biotech International (Biotech), a privately held French orthopaedic extremities company, for approximately $55.0 million in cash and $21.0 million of WMG common stock, plus additional contingent consideration to be paid upon the achievement of certain revenue milestones in 2014 and 2015 (estimated fair value of contingent consideration is $0 as of December 27, 2015 and December 31, 2014). All WMG common stock issued in connection with the transaction was subject to a lockup period of one year. The transaction significantly expanded our direct sales channel in France and international distribution network and added Biotech’s complementary extremity product portfolio to further accelerate growth opportunities in our global extremities business. The operating results from this acquisition are included in our consolidated financial statements from the acquisition date.
During the quarter ended September 30, 2014, we finalized the calculation of the acquisition date fair value of contingent consideration, which was reduced by $4.2 million at that time.
The acquisition was recorded by allocating the costs of the assets and liabilities acquired based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the fair value of the net assets and liabilities acquired was recorded as goodwill. The following is a summary of the estimated fair values of the assets acquired (in thousands):
Cash and cash equivalents
$
252

Accounts receivable
4,364

Inventory
5,188

Prepaid and other current assets
303

Deferred tax asset - current
501

Property, plant and equipment
2,573

Intangible assets
17,800

Accounts payable and accrued liabilities
(2,552
)
Deferred tax liability - noncurrent
(4,228
)
       Net assets acquired
24,201

 
 
Goodwill
51,836

Total purchase consideration
$
76,037


The purchase price allocation was adjusted in 2014 for the finalization of the valuation of acquired intangible assets, to record certain tax-related liabilities, and to adjust accounts receivable and inventory to acquisition date fair value. Intangible assets, net of tax, increased $1.5 million, tax liabilities increased $0.5 million, accounts receivable decreased $0.7 million, inventory decreased $0.4 million, and deferred tax assets increased $0.5 million during 2014. The purchase price allocation is now considered final.
The goodwill is attributable to the workforce of the acquired business and strategic opportunities that arose from the acquisition of Biotech. The goodwill is not expected to be deductible for tax purposes.
Of the estimated $17.8 million of acquired intangible assets, $10.1 million was assigned to customer relationships (12 year life), $7.1 million was assigned to purchased technology (10 year life), and $0.6 million was assigned to trademarks (2 year life).
The acquired business contributed revenues of $13.7 million and operating loss of $5.3 million, which excludes transaction and transition costs, to our consolidated results during 2014. Our consolidated results include $1.5 million of transition expenses recognized in the twelve months ended December 31, 2014.
Our consolidated results of operations would not have been materially different than reported results had the Biotech acquisition occurred at the beginning of 2013; and therefore, pro forma financial information has not been presented.
Allowance for Sales Returns [Member]  
Valuation Allowances and Reserves, Balance us-gaap_ValuationAllowancesAndReservesBalance $ 282,000
Valuation Allowances and Reserves, Balance us-gaap_ValuationAllowancesAndReservesBalance 66,000
Biotech [Member] | Customer Relationships [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 10,100,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 12 years
Biotech [Member] | Trademarks [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 600,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 2 years
Biotech [Member] | Completed Technology [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 7,100,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 10 years
OrthoPro [Member] | Customer Relationships [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 4,200,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 12 years
OrthoPro [Member] | Trademarks [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 200,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 2 years
OrthoPro [Member] | Completed Technology [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 3,400,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 10 years
Solana [Member] | Customer Relationships [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 9,300,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 12 years
Solana [Member] | Trademarks [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 600,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 2 years
Solana [Member] | Completed Technology [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 11,700,000
Acquired Finite-lived Intangible Assets, Useful Life wmgi_AcquiredFiniteLivedIntangibleAssetsUsefulLife 10 years
Tornier N.V. [Member] | Customer Relationships [Member]  
Finite-Lived Intangible Asset, Useful Life us-gaap_FiniteLivedIntangibleAssetUsefulLife 20 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 91,000,000
Tornier N.V. [Member] | In Process Research and Development [Member]  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 15,700,000
Tornier N.V. [Member] | Technology-Based Intangible Assets [Member]  
Finite-Lived Intangible Asset, Useful Life us-gaap_FiniteLivedIntangibleAssetUsefulLife 10 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 89,200,000
Tornier N.V. [Member] | Trade Names [Member]  
Finite-Lived Intangible Asset, Useful Life us-gaap_FiniteLivedIntangibleAssetUsefulLife 2 years 7 months 6 days
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredAndLiabilitiesAssumedIntangibleAssetsOtherThanGoodwill $ 8,300,000

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