Wright Medical Group, Inc. Reports 2011 Fourth Quarter Financial Results And Provides 2012 Guidance

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 877-556-5921 (U.S.) or 617-597-5474 (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 March 1, 2012. To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (international) and enter the passcode 82478477. 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 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.

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, restructuring charges, transaction costs, charges associated with the Company’s liability for PROFEMUR ^® long modular neck claims, 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 contains “forward-looking statements” as defined under U.S. federal securities laws, including statements regarding potential actions by the USAO, independent monitor, OIG and other agencies or their potential impact. 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. 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. 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, 2011, under the heading “Risk Factors” and elsewhere); 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; the impact of any such future actions of the FDA or any other regulatory body or government authority on our settlement of the federal investigation into our consulting arrangements with orthopaedic surgeons relating to our hip and knee products in the United States; the impact of such 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 2012 and the Corporate Integrity Agreement through September 2015; and compliance reviews, the results of which may be required to be disclosed to government authorities, and which may uncover violations of law, including strict liability provisions of the federal Food, Drug and Cosmetic Act, that could lead to adverse action by the FDA or others. Our failure to comply with the Deferred Prosecution Agreement or the Corporate Integrity Agreement could expose us to significant liability including, but not limited to, exclusion from federal healthcare program participation, including Medicaid and Medicare, which would have a material adverse effect on our financial condition, results of operations and cash flows, potential prosecution, including under the previously-filed criminal complaint, civil and criminal fines or penalties, and additional litigation cost and expense. In addition, a breach of the DPA or the CIA could result in an event of default under the Senior Credit Facility, which in turn could result in an event of default under the Indenture.

Additional risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include the possibility of litigation brought by shareholders, including private securities litigation and shareholder derivative suits, which if initiated, could divert management's attention, harm our business and/or reputation and result in significant liabilities; demand for and market acceptance of our new and existing products; future actions of governmental authorities and other third parties; tax measures; business development and growth opportunities; product quality or patient safety issues; products liability claims; enforcement of our intellectual property rights; the geographic and product mix impact on our sales; retention of sales representatives and independent distributors; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; ability to realize the anticipated benefits of restructuring initiatives; impact of the commercial and credit environment on us and our customers and suppliers; and in the implementation of our new compliance enhancements, including the duration and severity of delays related to medical education, research and development and clinical studies, and the impact of any such delays on our relationships with customers.

--Tables Follow--

Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
		Three Months Ended								Twelve Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Net sales		$	126,872			$	138,287			$	512,947			$	518,973
Cost of sales		40,449				40,392				156,906				158,456
Cost of sales - restructuring		571				—				2,471				—
Gross profit		85,852				97,895				353,570				360,517
Operating expenses:
Selling, general and administrative		72,361				73,324				301,588				282,413
Research and development		6,331				8,902				30,114				37,300
Amortization of intangible assets		782				720				2,870				2,711
Restructuring charges		2,273				(220		)		14,405				919
Total operating expenses		81,747				82,726				348,977				323,343
Operating income		4,105				15,169				4,593				37,174
Interest expense, net		1,755				1,573				6,529				6,123
Other (income) expense, net		(56		)		(140		)		4,719				130
Income (loss) before income taxes		2,406				13,736				(6,655		)		30,921
Provision (benefit) for income taxes		1,243				4,867				(1,512		)		13,080
Net income (loss)		$	1,163			$	8,869			$	(5,143	)		$	17,841
Net income (loss) per share, basic		$	0.03			$	0.23			$	(0.13	)		$	0.47
Net income (loss) income per share, diluted		$	0.03			$	0.22			$	(0.13	)		$	0.47
Weighted-average number of shares outstanding-basic		38,430				37,962				38,279				37,802
Weighted-average number of shares outstanding-diluted		38,673				44,235				38,279				37,961

Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
		Three Months Ended											Twelve Months Ended
		December 31, 2011				December 31, 2010				% change			December 31, 2011				December 31, 2010				% change
Geographic
Domestic		$	73,265			$	81,180			(9.7%	)		$	295,943			$	309,983			(4.5%	)
International		53,607				57,107				(6.1%	)		217,004				208,990				3.8%
Total net sales		$	126,872			$	138,287			(8.3%	)		$	512,947			$	518,973			(1.2%	)
Product Line
Hip products		$	42,715			$	46,269			(7.7%	)		$	173,201			176,687				(2.0%	)
Knee products		30,559				35,112				(13.0%	)		123,988				128,854				(3.8%	)
Extremity products		36,077				34,752				3.8%			135,476				124,490				8.8%
Biologics products		15,563				19,935				(21.9%	)		69,409				79,231				(12.4%	)
Other		1,958				2,219				(11.8%	)		10,873				9,711				12.0%
Total net sales		$	126,872			$	138,287			(8.3%	)		$	512,947			$	518,973			(1.2%	)

Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
		Fourth Quarter 2011 Sales Growth
		Domestic As Reported			Int'l Constant Currency			Int'l As Reported			Total Constant Currency			Total As Reported
Hips		(15%	)		(6%	)		(4%	)		(9%	)		(8%	)
Knees		(13%	)		(13%	)		(13%	)		(13%	)		(13%	)
Extremities		5%			1%			1%			4%			4%
Biologics		(24%	)		(8%	)		(9%	)		(22%	)		(22%	)
Total		(10%	)		(8%	)		(6%	)		(9%	)		(8%	)

		2011 Sales Growth
		Domestic As Reported			Int'l Constant Currency			Int'l As Reported			Total Constant Currency			Total As Reported
Hips		(14%	)		0%			6%			(6%	)		(2%	)
Knees		(4%	)		(7%	)		(4%	)		(5%	)		(4%	)
Extremities		7%			9%			15%			8%			9%
Biologics		(15%	)		(5%	)		(2%	)		(13%	)		(12%	)
Total		(5%	)		(1%	)		4%			(3%	)		(1%	)

		Sales as a % of Total Sales
		Three Months Ended December 31, 2011									Twelve Months Ended December 31, 2011
		Domestic			International			Total			Domestic			International			Total
Hips		12	%		22	%		34	%		12	%		22	%		34	%
Knees		13	%		11	%		24	%		13	%		11	%		24	%
Extremities		23	%		5	%		28	%		21	%		5	%		26	%
Biologics		10	%		2	%		12	%		11	%		3	%		14	%
Total		58	%		42	%		100	%		58	%		42	%		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, 2011								December 31, 2011
		International Net Sales				Total Net Sales				International Net Sales				Total Net Sales
Net sales, as reported		$	53,607			$	126,872			$	217,004			$	512,947
Currency impact as compared to prior period		(815		)		(815		)		(10,570		)		(10,570		)
Net sales, excluding the impact of foreign currency		$	52,792			$	126,057			$	206,434			$	502,377

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, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Operating Income
Operating income, as reported		$	4,105			$	15,169			$	4,593			$	37,174
Reconciling items impacting Gross Profit:
Non-cash, stock-based compensation		349				321				1,412				1,301
Cost of sales - restructuring		571				—				2,471				—
Employment matters (1)		—				—				99				—
Inventory step-up amortization		32				—				32				—
Total		952				321				4,014				1,301
Reconciling items impacting Selling, General and Administrative expenses:
Non-cash, stock-based compensation		1,945				2,224				7,028				9,924
U.S. governmental inquiries/DPA related		3,379				1,283				12,920				10,902
Employment matters (1)		—				—				1,783				—
Product liability provision		—				—				13,199				—
Total		5,324				3,507				34,930				20,826
Reconciling items impacting Research and Development expenses:
Non-cash, stock-based compensation		126				452				668				1,952
Employment matters (1)		—				—				135				—
Total		126				452				803				1,952
Other Reconciling Items:
Restructuring charges		2,273				(220		)		14,405				919
Operating income, as adjusted		$	12,780			$	19,229			$	58,745			$	62,172
Operating income, as adjusted, as a percentage of net sales		10.1		%		13.9		%		11.5		%		12.0		%
_______________________________
(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, 2011				December 31, 2010				December 31, 2011					December 31, 2010
Net Income
Income (loss) before taxes, as reported		$	2,406			$	13,736			$	(6,655		)		$	30,921
Pre-tax impact of reconciling items:
Non-cash, stock-based compensation		2,420				2,997				9,108					13,177
U.S. governmental inquiries/DPA related		3,379				1,283				12,920					10,902
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer		—				—				4,099					—
Restructuring charges		2,844				(220		)		16,876					919
Employment matters (1)		—				—				2,017					—
Product liability provision		—				—				13,199					—
Inventory step-up amortization		32				—				32					—
Income before taxes, as adjusted		11,081				17,796				51,596					55,919
Provision (benefit) for income taxes, as reported		$	1,243			$	4,867			$	(1,512	)			$	13,080
Non-cash, stock-based compensation		853				1,144				2,946					4,410
U.S. governmental inquiries/DPA related		1,754				81				5,125					2,266
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer		—				—				1,599					—
Restructuring charges		1,591				(67		)		6,165					376
Employment matters (1)		—				—				720					—
Product liability provision		—				—				4,740					—
Inventory step-up amortization		12				—				12					—
IRS audit liability		(1,041		)		—				(1,041		)			—
Provision for income taxes, as adjusted		$	4,412			$	6,025			$	18,754				$	20,132
Effective tax rate, as adjusted		39.8		%		33.9		%		36.3			%		36.0		%
Net income, as adjusted		$	6,669			$	11,771			$	32,842				$	35,787
_______________________________
(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, 2011								December 31, 2010
		As Reported				As Adjusted				As Reported				As Adjusted
Basic net income		$	1,163			$	6,669			$	8,869			$	11,771
Interest expense on convertible notes		N/A				137				935				935
Diluted net income		$	1,163			$	6,806			$	9,804			$	12,706
Basic shares		38,430				38,430				37,962				37,962
Dilutive effect of stock options and restricted shares		243				243				147				147
Dilutive effect of convertible notes		N/A				891				6,126				6,126
Diluted shares		38,673				39,564				44,235				44,235
Net income per share, diluted		$	0.03			$	0.17			$	0.22			$	0.29
		Twelve Months Ended								Twelve Months Ended
		December 31, 2011								December 31, 2010
		As Reported				As Adjusted				As Reported				As Adjusted
Basic net (loss) income		$	(5,143	)		$	32,842			$	17,841			$	35,787
Interest expense on convertible notes		N/A				1,203				N/A				3,740
Diluted net income		$	(5,143	)		$	34,045			$	17,841			$	39,527
Basic shares		38,279				38,279				37,802				37,802
Dilutive effect of stock options and restricted shares		N/A				136				159				159
Dilutive effect of convertible notes		N/A				1,909				N/A				6,126
Diluted shares		38,279				40,324				37,961				44,087
Net income per share, diluted		$	(0.13	)		$	0.84			$	0.47			$	0.90
		Three Months Ended								Twelve Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Net Income per Diluted Share
Net income (loss), as reported, per diluted share		$	0.03			$	0.22			$	(0.13	)		$	0.47
Interest expense on convertible notes		0.00				N/A				0.03				0.08
Effect of convertible notes on diluted shares		(0.00		)		N/A				0.01				(0.07		)
Non-cash, stock-based compensation		0.04				0.04				0.15				0.20
U.S. governmental inquiries/DPA related		0.04				0.03				0.19				0.20
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer		—				—				0.06				—
Restructuring charges		0.03				(0.00		)		0.27				0.01
Employment matters (1)		—				—				0.03				—
Product liability provision		—				—				0.21				—
IRS audit liability		0.03					—			0.03				—
Net income, as adjusted, per diluted share		$	0.17			$	0.29			$	0.84			$	0.90
_______________________________
(1) Costs associated with settlement of certain employment matters and the hiring of a new CEO.

Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
		December 31, 2011				December 31, 2010
Assets
Current assets:
Cash and cash equivalents		$	153,642			$	153,261
Marketable securities		13,597				19,152
Accounts receivable, net		98,995				105,336
Inventories		164,600				166,339
Prepaid expenses and other current assets		69,699				53,502
Total current assets		500,533				497,590
Property, plant and equipment, net		160,284				158,247
Goodwill and intangible assets, net		75,651				70,673
Marketable securities		4,502				17,193
Other assets		13,610				11,536
Total assets		$	754,580			$	755,239
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	11,651			$	15,862
Accrued expenses and other current liabilities		55,831				54,409
Current portion of long-term obligations		8,508				1,033
Total current liabilities		75,990				71,304
Long-term obligations		166,792				201,766
Other liabilities		43,334				11,197
Total liabilities		286,116				284,267
Stockholders' equity		468,464				470,972
Total liabilities and stockholders' equity		$	754,580			$	755,239

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