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

Stocks in this article: WMGI

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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