Wright Medical 10-Q 5 May 10 2010 Q1 Quarterly report Financial data

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$109,039	$84,409
Marketable securities	77,807	86,819
Accounts receivable, net	102,391	101,720
Inventories	162,145	163,535
Prepaid expenses	10,715	13,122
Deferred income taxes	34,770	34,824
Other current assets	4,976	6,175
Total current assets	501,843	490,604
Property, plant and equipment, net	141,359	139,708
Goodwill	53,386	53,860
Intangible assets, net	17,074	17,727
Deferred income taxes	5,873	5,248
Other assets	6,757	7,137
Total assets	726,292	714,284
Current liabilities:
Accounts payable	20,275	13,978
Accrued expenses and other current liabilities	60,744	54,643
Current portion of long-term obligations	341	336
Total current liabilities	81,360	68,957
Long-term debt and capital lease obligations	200,246	200,326
Deferred income taxes	148	157
Other liabilities	4,434	4,436
Total liabilities	286,188	273,876
Commitments and contingencies (Note 10)
Stockholder's equity
Common stock, $.01 par value, authorized: 100,000,000 shares; issued and outstanding: 38,817,415 shares at March 31, 2010 and 38,668,882 shares at December 31, 2009	375	374
Additional paid-in capital	379,735	376,647
Accumulated other comprehensive income	20,038	22,906
Retained earnings	39,956	40,481
Total stockholders' equity	440,104	440,408
Total Liabilities and Stockholder's Equity	$726,292	$714,284

PARENTHETICAL DATA TO THE CONDE

PARENTHETICAL DATA TO THE CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
	Mar. 31, 2010	Dec. 31, 2009
Stockholder's equity
Common stock, par value	0.01	0.01
Common stock, authorized	100,000,000	100,000,000
Common stock, issued and outstanding	38,817,415	38,668,882

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data	3 Months Ended Mar. 31, 2010		3 Months Ended Mar. 31, 2009
Income Statement [Abstract]
Net sales	$131,244		$120,912
Cost of sales	40,141	[1]	38,021	[1]
Gross profit	91,103		82,891
Operating Expenses
Selling, general and administrative	76,438	[1]	66,609	[1]
Research and development	9,835	[1]	8,906	[1]
Amortization of intangible assets	649		1,317
Restructuring charges (Note 9)	544		66
Total operating expenses	87,466		76,898
Operating income	3,637		5,993
Interest expense, net	1,508		1,253
Other expense (income), net	132		(363)
Income before income taxes	1,997		5,103
Provision for income taxes	2,522		1,786
Net (loss) income	($525)		$3,317
Net (loss) income per share
Basic	-0.01		0.09
Diluted	-0.01		0.09
Weighted-average number of shares outstanding-basic	37,540		37,229
Weighted-average number of shares outstanding-diluted	37,540		37,340
[1]See parenthetical Data to the Condensed Consolidated Statements of Operations.

1_PARENTHETICAL DATA TO THE CON

PARENTHETICAL DATA TO THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Stock-based compensation expense	$3,005	$2,788
Cost of sales [Member]
Stock-based compensation expense	340	292
Selling, general and administrative [Member]
Stock-based compensation expense	2,267	2,101
Research and development [Member]
Stock-based compensation expense	$398	$395

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating activities:
Net (loss) income	($525)	$3,317
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation	8,436	7,877
Stock-based compensation expense	3,005	2,788
Amortization of intangible assets	649	1,317
Amortization of deferred financing costs	246	246
Deferred income taxes	(924)	(881)
Excess tax benefit from stock-based compensation arrangements	(93)	0
Non-cash restructuring charges	121	0
Other	1,061	(345)
Changes in assets and liabilities (net of acquisitions):
Accounts receivable	(2,638)	(5,192)
Inventories	1,455	5,488
Prepaid expenses and other current assets	3,684	7,446
Accounts payable	6,400	(190)
Accrued expenses and other liabilities	7,810	(6,527)
Net cash provided by operating activities	28,687	15,344
Investing activities:
Capital expenditures	(11,603)	(9,826)
Acquisitions of businesses	(237)	(489)
Purchase of intangible assets	(751)	(282)
Proceeds from maturity of available-for-sale marketable securities	20,090	14,444
Investment in available-for-sale marketable securities	(11,435)	(8,603)
Net cash used in investing activities	(3,936)	(4,756)
Financing activities:
Issuance of common stock	206	0
Principal payments of bank and other financing	(55)	(32)
Financing under factoring agreements, net	5	(62)
Excess tax benefit from stock-based compensation arrangements	93	0
Net cash provided by (used in) financing activities	249	(94)
Effect of exchange rates on cash and cash equivalents	(370)	(1,528)
Net increase (decrease) in cash and cash equivalents	24,630	8,966
Cash and cash equivalents, beginning of period	84,409	87,865
Cash and cash equivalents, end of period	$109,039	$96,831

Summary of Significant Accounti

Summary of Significant Accounting Policies
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Summary of Significant Accounting Policies	1.Summary of Significant Accounting Policies Basis of Presentation. The unaudited condensed consolidated interim financial statements of Wright Medical Group, Inc. have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10 K for the year ended December 31, 2009, as filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of our interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not indicative of results for the full fiscal year. The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned domestic and international subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Fair Value of Financial Instruments. The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate the fair values of these financial instruments as of March 31, 2010 and December 31, 2009 due to their short maturities. Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), for financial assets and liabilities measured at fair value on a recurring basis. Effective January 1, 2009, we adopted the provisions of SFAS 157 for nonfinancial assets and liabilities measured at fair value on a recurring basis. SFAS 157 applies to all financial and nonfinancial assets and liabilities that are being measured and reported on a fair value basis, establishes a framework for measuring the fair value of assets and liabilities, and expands disclosures about fair value measurements. The adoption of SFAS 157 had no impact to our condensed consolidated interim financial statements. Effective July 1, 2009, this standard was incorporated into the Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (FASB ASC 820). FASB ASC 820-10-50 requires fair value measurements be classified and disclosed in one of the following three categories: Level 1:Financial instruments with unadjusted, quoted prices listed on active market exchanges.Level 2:Financial instruments determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yi

Inventories

Inventories
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Inventories	2.Inventories Inventories consist of the following (in thousands): March 31, 2010December 31, 2009Raw materials$8,320$8,606Work-in-process24,74123,766 Finished goods129,084131,163 $162,145$163,535

Property, Plant and Equipment,

Property, Plant and Equipment, Net
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Property, Plant and Equipment, Net	3. Property, Plant and Equipment, Net Property, plant and equipment consist of the following (in thousands): March 31, December 31, 2010 2009 Property, plant and equipment, at cost $ 290,034 $ 286,086 Less: Accumulated depreciation (148,675 ) (146,378 ) $ 141,359 $ 139,708

Long-Term Debt and Capital Leas

Long-Term Debt and Capital Lease Obligations
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Long-Term Debt and Capital Lease Obligations	4. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consist of the following (in thousands): March 31, December 31, 2010 2009 Capital lease obligations $ 587 $ 662 Convertible senior notes 200,000 200,000 200,587 200,662 Less: current portion (341 ) (336 ) $ 200,246 $ 200,326 In November 2007, we issued $200 million of Convertible Senior Notes due 2014. The notes will mature on December 1, 2014. The notes pay interest semiannually at an annual rate of 2.625% and are convertible into shares of our common stock at an initial conversion rate of 30.6279 shares per $1,000 principal amount of the notes, which represents a conversion price of $32.65 per share. The notes are unsecured obligations and are subordinated to all existing and future secured debt, our revolving credit facility, and all liabilities of our subsidiaries. On March 31, 2010, our revolving credit facility had availability of $100 million, which can be increased by up to an additional $50 million at our request and subject to the agreement of the lenders. We currently have no borrowings outstanding under the credit facility. Borrowings under the credit facility will bear interest at the sum of a base annual rate plus an applicable annual rate that ranges from 0% to 1.75% depending on the type of loan and our consolidated leverage ratio, with a current annual base rate of 3.25%. The term of the credit facility extends through June 30, 2011.

Goodwill and Intangible Assets

Goodwill and Intangible Assets
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Goodwill and Intangible Assets	5. Goodwill and Intangible Assets Changes in the carrying amount of goodwill occurring during the three months ended March 31, 2010, are as follows (in thousands): Goodwill at December 31, 2009 $ 53,860 Foreign currency translation (474 ) Goodwill at March 31, 2010 $ 53,386 During the three months ended March 31, 2010, we made payments for contingent consideration of $237,000 associated with the acquisition of assets of Creative Medical Designs, Inc. and Rayhack LLC, completed in 2008, all of which was accrued as of December 31, 2009. The components of our identifiable intangible assets are as follows (in thousands): March 31, 2010 December 31, 2009 Accumulated Accumulated Cost Amortization Cost Amortization Distribution channels $ 21,059 $ 20,818 $ 22,207 $ 22,025 Completed technology 12,387 5,410 12,537 5,213 Licenses 7,235 3,863 7,245 3,777 Customer relationships 3,750 810 3,750 720 Trademarks 2,753 616 2,733 570 Other 2,568 1,161 2,620 1,060 49,752 $ 32,678 51,092 $ 33,365 Less: Accumulated amortization (32,678 ) (33,365 ) Intangible assets, net $ 17,074 $ 17,727 Based on the intangible assets held at March 31, 2010, we expect to amortize approximately $2.5 million for the full year of 2010, $2.3 million in 2011, $2.2 million in 2012, $1.9 million in 2013, and $1.7 million in 2014.

Stock-Based Compensation

Stock-Based Compensation
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Stock-Based Compensation	6. Stock-Based Compensation Amounts recognized within the condensed consolidated financial statements are as follows: Three Months Ended March 31, 2010 2009 Total cost of share-based payment plans $ 2,924 $ 2,767 Amounts capitalized as inventory and intangible assets (262 ) (273 ) Amortization of capitalized amounts 343 294 Charged against income before income taxes 3,005 2,788 Amount of related income tax benefit (836 ) (872 ) Impact to net (loss) income 2,169 $ 1,916 Impact to basic earnings per share $ 0.06 $ 0.05 Impact to diluted earnings per share $ 0.06 $ 0.05 In the three-month period ended March 31, 2010, we granted approximately 3,000 stock options, 128,000 non-vested shares of common stock, and 14,000 restricted stock units at weighted-average fair values of $7.67, $18.32 and $17.63, respectively, which will be recognized on a straight line basis over the requisite service period of four years. As of March 31, 2010, we had approximately 3.9 million stock options (of which approximately 2.9 million were exercisable), 1.2 million non-vested shares of common stock, 29,000 stock-settled phantom stock units, and 66,000 restricted stock units outstanding. As of March 31, 2010, we had $21.3 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted to employees. That cost is expected to be recognized over a weighted-average period of 2.6 years.

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Earnings Per Share	7. Earnings Per ShareFASB ASC Topic 260, Earnings Per Share, requires the presentation of basic anddiluted earnings per share. Basic earnings per share is calculated based on theweighted-average number of shares of common stock outstanding during the period.Diluted earnings per share is calculated to include any dilutive effect of ourcommon stock equivalents. Our common stock equivalents consist of stock options,non-vested shares of common stock, stock-settled phantom stock units, restrictedstock units, and convertible debt. The dilutive effect of the stock options,non-vested shares of common stock, stock-settled phantom stock units, andrestricted stock units is calculated using the treasury-stock method. Thedilutive effect of convertible debt is calculated by applying the "if-converted"method. This assumes an add-back of interest, net of income taxes, to net incomeas if the securities were converted at the beginning of the period. The weighted-average number of shares outstanding for basic and diluted earningsper share is as follows (in thousands): Three Months Ended March 31, 2010 2009 Weighted-average number of shares outstanding, basic 37,540 37,229Common stock equivalents - 111 Weighted-average number of shares outstanding, diluted 37,540 37,340 For the three-month periods ending March 31, 2010 and 2009, the convertible debthad an anti-dilutive effect on earnings per share and we therefore excluded itfrom the dilutive shares calculation. In addition, 283,000 common stockequivalents have been excluded from the computation of diluted net loss pershare for the three months ended March 31, 2010, because their effect isanti-dilutive as a result of our net loss. Additionally, the following potentialcommon shares were excluded from common stock equivalents as their effect wouldhave been anti-dilutive (in thousands): Three Months Ended March 31, 2010 2009 Stock options 3,564 3,758Non-vested shares, restricted stock units, and stock-settled phantom stock units290 542 Convertible debt 6,126 6,126

Other Comprehensive Income

Other Comprehensive Income
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Other Comprehensive Income	8. Other Comprehensive Income The difference between our net (loss) income and our comprehensive loss is attributable to foreign currency translation, unrealized gains and losses on our available-for-sale marketable securities, and adjustments related to our minimum pension liability in Japan. The following table provides a reconciliation of net (loss) income to comprehensive loss (in thousands): Three Months Ended March 31, 2010 2009 Net (loss) income $ (525 ) $ 3,317 Changes in foreign currency translation (2,918 ) (3,203 ) Unrealized gain (loss) on marketable securities 46 (240 ) Minimum pension liability adjustment 4 4 Comprehensive loss $ (3,393 ) $ (122 )

Restructuring

Restructuring
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Restructuring	9. RestructuringToulon, FranceIn June 2007, we announced plans to close our manufacturing, distribution, andadministrative facility located in Toulon, France. The facility's closureaffected approximately 130 Toulon-based employees. The majority of ourrestructuring activities were complete by the end of 2007, with production nowconducted solely in our existing manufacturing facility in Arlington, Tennesseeand the distribution activities being carried out from our European headquartersin Amsterdam, the Netherlands.Management estimates that the pre-tax restructuring charges will totalapproximately $28 million to $30 million. These charges consist of the followingestimates: - $14 million for severance and other termination benefits; - $3 million of non-cash asset impairments of property, plant and equipment; - $2 million of inventory write-offs and manufacturing period costs; - $3 million to $4 million of external legal and professional fees; and - $6 million to $7 million of other cash and non-cash charges (includingemployee litigation). Charges associated with the restructuring are presented in the following table.All of the following amounts were recognized within "Restructuring charges" inour consolidated statement of operations, with the exception of the inventorywrite-offs and manufacturing period costs, which were recognized within "Cost ofsales - restructuring." Three Months Cumulative Ended Charges as of(in thousands) March 31, 2010 March 31, 2010Severance and other termination benefits $ 17 $ 13,567 Employee litigation accrual - 5,048Asset impairment charges - 3,093Inventory write-offs and manufacturing period costs - 2,139Legal/professional fees 50 3,067Other - 194 Total restructuring charges $ 67 $ 27,108 Activity in the restructuring liability for the three months ended March 31,2010 is presented in the following table (in thousands): Beginning balance as of December 31, 2009 $ 4,964 Charges: Severance and other termination benefits 17Legal/professional fees 50 Total accruals 67 Payments: Severance and other termination benefits (14 )Legal/professional fees (246 ) Total payments (260 ) Changes in foreign currency translation (273 ) Restructuring liability at March 31, 2010 $ 4,498 In connection with the closure of our Toulon, France facility, 103 of our formeremployees have filed claims to challenge the economic justification for theirdismissal. To date, we have received judgments for 86 of those claims, thesubstantial majority of which were unfavorable to us. All of these judgmentshave been appealed, or are expected to be appealed, by both parties. Managementhas estimated the probable liability upon the ultimate resolution of these 103claims to be $4.3 million, and has therefore recorded this amount as a liabilitywithin "Accrued expenses and other current liabilities" in our consolidatedbalance sheet as of March 31, 2010.Creteil, FranceIn October 2009, we announced plans to close our distribution and financesupport office in Creteil, France, in order to migrate all relevant Frenchdistribution and support functions into our European organization based out ofour European headquarters in Amsterdam, the Netherlands.Management estimates

Commitments and Contingencies

Commitments and Contingencies
	3 Months Ended Mar. 31, 2010
Notes To Financial Statements [Abstract]
Commitments and Contingencies	10. Commitments and Contingencies In 2000, Howmedica Osteonics Corp. (Howmedica), a subsidiary of StrykerCorporation, filed a lawsuit against us in the United States District Court forthe District of New Jersey (District Court) alleging that we infringedHowmedica's U.S. Patent No. 5,824,100 related to our ADVANCE knee product line.The lawsuit seeks an order of infringement, injunctive relief, unspecifieddamages, and various other costs and relief and could impact a substantialportion of our knee product line. We believe, however, that we have strongdefenses against Howmedica's claims and are vigorously defending this lawsuit.In November 2005, the District Court issued a Markman ruling on claimconstruction. Howmedica conceded to the District Court that, if the claimconstruction as issued was applied to our knee product line, our products do notinfringe their patent. Howmedica appealed the Markman ruling. In September 2008,the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) overturnedthe District Court's Markman ruling on claim construction. The case was remandedto the District Court for further proceedings on alleged infringement and on ouraffirmative defenses, which include patent invalidity and unenforceability. In2009, we received a favorable ruling from the District Court ruling thatHowmedica's asserted patent is invalid. However, Howmedica has the right toappeal the decision to the Federal Circuit. The District Court decided to ruleon our defense of inequitable conduct before Howmedica will be allowed toappeal. A trial on inequitable conduct is scheduled for July 1, 2010. Noprovision has been made for this contingency as of March 31, 2010. These claimsare covered in part by our patent infringement insurance. Management does notbelieve that the outcome of this lawsuit will have a material adverse effect onour consolidated financial position or results of operations. In December 2007, we received a subpoena from the U.S. Department of Justice(DOJ) through the U.S. Attorney for the District of New Jersey requestingdocuments for the period January 1998 through the present related to anyconsulting and professional service agreements with orthopaedic surgeons inconnection with hip or knee joint replacement procedures or products. Thissubpoena was served shortly after several of our knee and hip competitors agreedto resolutions with the DOJ after being subjects of investigation involving thesame subject matter. We are cooperating fully with the DOJ's investigation. Theconclusion of the investigation could result in our being subject to additionalgovernment oversight and sanctions requiring the payment of criminal fines,civil fines, and/or settlement amounts. We are currently in discussions with theDOJ and the Office of Inspector General (OIG) as to a potential resolution ofthis matter. At this point, management believes that it is probable that asettlement will be reached and will, among other things, include a monetarypayment of approximately $8 million. We have therefore recognized a contingentliability for this amount during the first quarter of 2010. There can be noassurance that we will enter into a consensual resolution of

Document Information

Document Information
	3 Months Ended Mar. 31, 2010
Document Information [Text Block]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31

Entity Information

Entity Information (USD $)
	3 Months Ended Mar. 31, 2010	Dec. 31, 2009
Entity [Text Block]
Entity Registrant Name	WRIGHT MEDICAL GROUP INC
Entity Central Index Key	0001137861
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	Yes
Entity Current Reporting Status	No
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$622,880,113
Entity Common Stock, Shares Outstanding	38,815,186
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1