Wright Medical Group, Inc. Reports 2012 Second Quarter Financial Results

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, costs associated with distributor conversions and non-competes, 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 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, 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.

Wright Medical Group, Inc. Condensed Consolidated Statements of Operations(in thousands, except per share data--unaudited)
			Three Months Ended										Six Months Ended
			June 30, 2012					June 30, 2011					June 30, 2012					June 30, 2011
Net sales			$	123,280				$	132,505				$	249,936				$	267,891
Cost of sales			38,434					41,504					75,240					80,272
Cost of Sales - restructuring			—					—					435					—
Gross profit			84,846					91,001					174,261					187,619
Operating expenses:
Selling, general and administrative			72,862					70,821					145,210					145,646
Research and development			6,744					7,807					12,965					17,014
Amortization of intangible assets			1,254					677					1,996					1,367
Restructuring charges			710					—					1,153					—
Total operating expenses			81,570					79,305					161,324					164,027
Operating income			3,276					11,696					12,937					23,592
Interest expense, net			1,887					1,475					3,694					3,310
Other (income) expense, net			(153		)			257					8					4,716
Income before income taxes			1,542					9,964					9,235					15,566
Provision for income taxes			832					3,817					3,964					5,827
Net income			$	710				$	6,147				$	5,271				$	9,739
Net income per share, basic			$	0.02				$	0.16				$	0.14				$	0.26
Net income per share, diluted			$	0.02				$	0.16				$	0.14				$	0.25
Weighted-average number of shares outstanding-basic			38,715					38,240					38,604					38,137
Weighted-average number of shares outstanding-diluted			38,997					39,261					38,898					38,347

Wright Medical Group, Inc. Consolidated Sales Analysis(dollars in thousands--unaudited)
			Three Months Ended														Six Months Ended
			June 30, 2012					June 30, 2011					% change				June 30, 2012					June 30, 2011					% change
Geographic
Domestic			$	69,216				$	75,354				(8.1	%)			$	139,278				$	153,296				(9.1	%)
International			54,064					57,151					(5.4	%)			110,658					114,595					(3.4	%)
Total net sales			$	123,280				$	132,505				(7.0	%)			$	249,936				$	267,891				(6.7	%)
			Three Months Ended														Six Months Ended
			June 30, 2012					June 30, 2011					% change				June 30, 2012					June 30, 2011					% change
OrthoRecon
Hips			$	40,073				$	45,544				(12.0	%)			$	81,573				$	91,441				(10.8	%)
Knees			30,189					33,392					(9.6	%)			61,271					66,225					(7.5	%)
Other			1,054					1,329					(20.7	%)			2,255					2,618					(13.9	%)
Total OrthoRecon			71,316					80,265					(11.1	%)			145,099					160,284					(9.5	%)
Extremities
Foot and Ankle			28,880					25,804					11.9	%			58,507					52,529					11.4	%
Upper Extremity			6,349					6,949					(8.6	%)			12,894					14,497					(11.1	%)
Biologics			15,454					17,929					(13.8	%)			30,641					37,236					(17.7	%)
Other			1,281					1,558					(17.8	%)			2,795					3,345					(16.4	%)
Total Extremities			51,964					52,240					(0.5	%)			104,837					107,607					(2.6	%)
Total Sales			$	123,280				$	132,505				(7.0	%)			$	249,936				$	267,891				(6.7	%)

Wright Medical Group, Inc. Supplemental Sales Information(unaudited)
			Second Quarter 2012 Sales Growth
			Domestic As Reported			Int'l Constant Currency			Int'l As Reported			Total Constant Currency			Total As Reported
OrthoRecon
Hips			(19%)			(4%)			(8%)			(10%)			(12%)
Knees			(15%)			0%			(3%)			(8%)			(10%)
Other			(13%)			(19%)			(22%)			(18%)			(21%)
Total OrthoRecon			(17%)			(3%)			(7%)			(9%)			(11%)
Extremities
Foot and Ankle			11%			23%			14%			13%			12%
Upper Extremity			(10%)			(1%)			(4%)			(8%)			(9%)
Biologics			(16%)			0%			(3%)			(13%)			(14%)
Other			25%			(27%)			(32%)			(14%)			(18%)
Total Extremities			(1%)			7%			1%			1%			(1%)
Total Sales			(8%)			(1%)			(5%)			(5%)			(7%)

			Sales as a % of Total Sales
			Three Months Ended June 30, 2012									Six Months Ended June 30, 2012
			Domestic			International			Total			Domestic			International			Total
OrthoRecon
Hips			11%			22%			33%			10%			22%			33%
Knees			12%			12%			24%			12%			12%			25%
Other			0%			1%			1%			0%			1%			1%
Total OrthoRecon			23%			35%			58%			23%			35%			58%
Extremities
Foot and Ankle			19%			4%			23%			19%			4%			23%
Upper Extremity			4%			2%			5%			4%			2%			5%
Biologics			10%			3%			13%			10%			2%			12%
Other			0%			1%			1%			0%			1%			1%
Total Extremities			33%			9%			42%			33%			9%			42%
Total Sales			56%			44%			100%			56%			44%			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								Six Months Ended
			June 30, 2012								June 30, 2012
			International Net Sales				Total Net Sales				International Net Sales				Total Net Sales
Net sales, as reported			$	54,064			$	123,280			$	110,658			$	249,936
Currency impact as compared to prior period			2,406				2,406				2,574				2,574
Net sales, excluding the impact of foreign currency			$	56,470			$	125,686			$	113,232			$	252,510

Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures(in thousands, except per share data--unaudited)
			Three Months Ended										Six Months Ended
			June 30, 2012					June 30, 2011					June 30, 2012					June 30, 2011
Operating Income
Operating income, as reported			$	3,276				$	11,696				$	12,937				$	23,592
Reconciling items impacting Gross Profit:
Non-cash, stock-based compensation			348					360					694					707
Cost of sales - restructuring			—					—					435					—
Inventory step-up amortization			48					—					96					—
Total			396					360					1,225					707
Reconciling items impacting Selling, General and Administrative expenses:
Non-cash, stock-based compensation			2,805					1,300					4,691					3,368
DPA related			2,072					2,385					4,940					4,567
Distributor conversions			208					—					208					—
Total			5,085					3,685					9,839					7,935
Reconciling items impacting Research and Development expenses:
Non-cash, stock-based compensation			236					(53		)			387					392
Reconciling items impacting Amortization of Intangible Assets:
Amortization of distributor non-competes			571					—					571					—
Other Reconciling Items:
Restructuring charges			710					—					1,153					—
Operating income, as adjusted			$	10,274				$	15,688				$	26,112				$	32,626
Operating income, as adjusted, as a percentage of net sales			8.3		%			11.8		%			10.4		%			12.2		%

Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures(in thousands, except per share data--unaudited)
			Three Months Ended										Six Months Ended
			June 30, 2012					June 30, 2011					June 30, 2012					June 30, 2011
Net Income
Income before taxes, as reported			$	1,542				$	9,964				$	9,235				$	15,566
Pre-tax impact of reconciling items:
Non-cash, stock-based compensation			3,389					1,607					5,772					4,467
DPA related			2,072					2,385					4,940					4,567
Restructuring charges			710					—					1,588					—
Inventory step-up amortization			48					—					96					—
Distributor conversion and non-competes			779					—					779					—
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer			—					—					—					4,099
Income before taxes, as adjusted			8,540					13,956					22,410					28,699
Provision for income taxes, as reported			832					3,817					3,964					5,827
Non-cash, stock-based compensation			1,090					219					1,384					1,066
DPA related			681					930					2,149					1,782
Restructuring charges			276					—					620					—
Inventory step-up amortization			18					—					37					—
Distributor conversion and non-competes			339					—					339					—
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer			—					—					—					1,599
Provision for income taxes, as adjusted			$	3,236				$	4,966				$	8,493				$	10,274
Effective tax rate, as adjusted			37.9		%			35.6		%			37.9		%			35.8		%
Net income, as adjusted			$	5,304				$	8,990				$	13,917				$	18,425

Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures (continued)
			Three Months Ended								Three Months Ended
			June 30, 2012								June 30, 2011
			As Reported				As Adjusted				As Reported					As Adjusted
Basic net income			$	710			$	5,304			$	6,147				$	8,990
Interest expense on convertible notes				N/A				N/A				137					137
Diluted net income			$	710			$	5,304			$	6,284				$	9,127
Basic shares				38,715				38,715				38,240					38,240
Dilutive effect of stock options and restricted shares				282				282				130					130
Dilutive effect of convertible notes				N/A				N/A				891					891
Diluted shares				38,997				38,997				39,261					39,261
Net income per share, diluted			$	0.02			$	0.14			$	0.16				$	0.23
			Six Months Ended								Six Months Ended
			June 30, 2012								June 30, 2011
			As Reported				As Adjusted				As Reported					As Adjusted
Basic net income			$	5,271			$	13,917			$	9,739				$	18,425
Interest expense on convertible notes				N/A				275				N/A					929
Diluted net income			$	5,271			$	14,192			$	9,739				$	19,354
Basic shares				38,604				38,604				38,137					38,137
Dilutive effect of stock options and restricted shares				294				294				210					210
Dilutive effect of convertible notes				N/A				891				N/A					2,927
Diluted shares				38,898				39,789				38,347					41,274
Net income per share, diluted			$	0.14			$	0.36			$	0.25				$	0.47
			Three Months Ended								Six Months Ended
			June 30, 2012				June 30, 2011				June 30, 2012					June 30, 2011
Net Income per Diluted Share
Net income, as reported, per diluted share			$	0.02			$	0.16			$	0.14				$	0.25
Interest expense on convertible notes				N/A				N/A				0.01					0.02
Effect of convertible notes on diluted shares				N/A				N/A				(0.01	)				(0.02	)
Non-cash, stock-based compensation				0.06				0.04				0.11					0.08
DPA related				0.04				0.04				0.08					0.07
Restructuring charges				0.01				—				0.02					—
Inventory step-up amortization				0.00				—				0.00					0.00
Distributor conversion and non-competes				0.01				—				0.01					—
Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer				N/A				—				N/A					0.06
Net income, as adjusted, per diluted share			$	0.14			$	0.23			$	0.36				$	0.47

Wright Medical Group, Inc. Reconciliation of Free Cash Flow(dollars in thousands--unaudited)
			Three Months Ended									Six Months Ended
			June 30, 2012				June 30, 2011					June 30, 2012				June 30, 2011
Net cash provided by operating activities			22,033				20,868					41,113				39,016
Capital expenditures			(4,042	)			(13,291	)				(8,573	)			(23,376	)
Free cash flow			17,991				7,577					32,540				15,640

WRIGHT MEDICAL GROUP, INC. Segment Income Statement (In thousands, except share data) (unaudited)
			Three Months Ended June 30, 2012
			OrthoRecon					Extremities					Corporate					Other (1)					Total
Net sales			$	71,316				$	51,964				$	—				$	—				$	123,280
Cost of sales			26,485					11,553					—					396					38,434
Gross profit			44,831					40,411					—					(396		)			84,846
Operating expenses:
Selling, general and administrative			30,720					24,336					12,721					5,085					72,862
Research and development			3,141					3,367					—					236					6,744
Amortization of intangible assets			83					600					—					571					1,254
Restructuring charges			—					—					—					710					710
Total operating expenses			33,944					28,303					12,721					6,602					81,570
Operating income			$	10,887				$	12,108				$	(12,721	)			$	(6,998	)			$	3,276
Operating income as a percent of net sales			15.3		%			23.3		%			N/A					N/A					2.7		%
			Three Months Ended June 30, 2012
			OrthoRecon					Extremities					Corporate					Other					Total
Depreciation expense			$	6,175				$	2,789				$	588				$	—				$	9,552
Amortization expense			83					600					—					571					1,254
Capital expenditures			680					2,277					1,085					—					4,042
______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.

WRIGHT MEDICAL GROUP, INC. Segment Income Statement (continued)
			Three Months Ended June 30, 2011
			OrthoRecon					Extremities					Corporate					Other (1)					Total
Net sales			$	80,267				$	52,238				$	—				$	—				$	132,505
Cost of sales			25,865					15,279					—					360					41,504
Gross profit			54,402					36,959					—					(360		)			91,001
Operating expenses:
Selling, general and administrative			32,125					21,499					13,512					3,685					70,821
Research and development			4,552					3,308					—					(53		)			7,807
Amortization of intangible assets			106					571					—					—					677
Total operating expenses			36,783					25,378					13,512					3,632					79,305
Operating income			$	17,619				$	11,581				$	(13,512	)			$	(3,992	)			$	11,696
Operating income as a percent of net sales			22.0		%			22.2		%			N/A					N/A					8.8		%
			Three Months Ended June 30, 2011
			OrthoRecon					Extremities					Corporate					Other					Total
Depreciation expense			$	6,629				$	2,640				$	527				$	—				$	9,796
Amortization expense			106					571					—					—					677
Capital expenditures			6,197					2,535					4,559					—					13,291
____________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.

WRIGHT MEDICAL GROUP, INC.Segment Income Statement(continued)
			Six Months Ended June 30, 2012
			OrthoRecon					Extremities					Corporate					Other (1)					Total
Net sales			$	145,099				$	104,837				$	—				$	—				$	249,936
Cost of sales			51,688					22,762					—					1,225					75,675
Gross profit			93,411					82,075					—					(1,225		)			174,261
Operating expenses:
Selling, general and administrative			62,060					48,422					24,889					9,839					145,210
Research and development			5,927					6,651					—					387					12,965
Amortization of intangible assets			217					1,208					—					571					1,996
Restructuring charges			—					—					—					1,153					1,153
Total operating expenses			68,204					56,281					24,889					11,950					161,324
Operating income			$	25,207				$	25,794				$	(24,889	)			$	(13,175	)			$	12,937
Operating income as a percent of net sales			17.4%					24.6%					N/A					N/A					5.2%
			Six Months Ended June 30, 2012
			OrthoRecon					Extremities					Corporate					Other					Total
Depreciation expense			$	12,572				$	5,653				$	1,671				$	—				$	19,896
Amortization expense			217					1,208					—					571					1,996
Capital expenditures			2,574					4,450					1,549					—					8,573
______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.

WRIGHT MEDICAL GROUP, INC. Segment Income Statement (continued)
			Six Months Ended June 30, 2011
			OrthoRecon					Extremities				Corporate					Other (1)					Total
Net sales			$	160,284				$	107,607			$	—				$	—				$	267,891
Cost of sales			51,510					28,055				—					707					80,272
Gross profit			108,774					79,552				—					(707		)			187,619
Operating expenses:
Selling, general and administrative			65,570					45,968				26,173					7,935					145,646
Research and development			9,200					7,422				—					392					17,014
Amortization of intangible assets			192					1,175				—					—					1,367
Total operating expenses			74,962					54,565				26,173					8,327					164,027
Operating income			$	33,812				$	24,987			$	(26,173	)			$	(9,034	)			$	23,592
Operating income as a percent of net sales			21.1		%			23.2		%		N/A					N/A					8.8		%
			Six Months Ended June 30, 2011
			OrthoRecon					Extremities				Corporate					Other					Total
Depreciation expense			$	13,002				$	5,170			$	1,066				$	—				$	19,238
Amortization expense			192					1,175				—					—					1,367
Capital expenditures			11,286					5,136				6,954					—					23,376
______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.

WRIGHT MEDICAL GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited)
			June 30, 2012				December 31, 2011
Assets:
Current assets:
Cash and cash equivalents			$	176,591			$	153,642
Marketable securities			16,297				13,597
Accounts receivable, net			102,591				98,995
Inventories			157,123				164,600
Prepaid expenses and other current assets			58,641				69,699
Total current assets			511,243				500,533
Property, plant and equipment, net			147,032				160,284
Goodwill and intangible assets, net			79,247				75,651
Marketable securities			—				4,502
Other assets			14,471				13,610
Total assets			$	751,993			$	754,580
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable			$	9,385			$	11,651
Accrued expenses and other current liabilities			57,514				55,831
Current portion of long-term obligations			10,346				8,508
Total current liabilities			77,245				75,990
Long-term obligations			150,679				166,792
Other liabilities			45,539				43,334
Total liabilities			$	273,463			$	286,116
Stockholders’ equity:			478,530				468,464
Total liabilities and stockholders’ equity			$	751,993			$	754,580

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