Wright Medical Group, Inc. Reports Results for First Quarter Ended March 31, 2010

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ARLINGTON, Tenn., May 04, 2010 (BUSINESS WIRE) — Wright Medical Group, Inc. (WMGI 19.34, +0.88, +4.77%), a global orthopaedic medical device company and a leading provider of surgical solutions for the foot and ankle market, today reported financial results for its first quarter ended March 31, 2010.

Net sales totaled $131.2 million during the first quarter ended March 31, 2010, representing a 9% increase over net sales of $120.9 million during the first quarter of 2009. Excluding the impact of foreign currency, net sales increased 7% during the first quarter.

Net loss for the first quarter of 2010 totaled $0.5 million or ($0.01) per diluted share, compared to net income of $3.3 million or $0.09 per diluted share in the first quarter of 2009.

Net loss for the first quarter of 2010 included the after-tax effects of approximately $8.1 million of expenses related to U.S. governmental inquiries, $8.0 million of which is for management’s estimate of a monetary payment for the potential settlement of the ongoing investigation by the U.S. Department of Justice (DOJ), $3.0 million of non-cash stock-based compensation expense, and $544,000 of restructuring charges. Net income for the first quarter of 2009 included the after-tax effects of approximately $4.1 million of expenses related to U.S. governmental inquiries, $2.8 million of non-cash stock-based compensation expense, $66,000 of restructuring charges, and $30,000 of inventory step-up amortization.

Our first quarter net income, as adjusted, increased 9% to $8.5 million in 2010 from $7.8 million in 2009, while diluted earnings per share, as adjusted, increased 5% to $0.21 in the first quarter of 2010 from $0.20 in the first quarter of 2009. A reconciliation of U.S. GAAP to “as adjusted” results is included in the attached financial tables.

With regard to the ongoing DOJ investigation, the Company is currently in discussions with the DOJ and the Office of Inspector General (OIG) as to a potential resolution of this matter. At this point, management believes that it is probable that a settlement will be reached and will include a monetary payment of approximately $8 million. The Company has therefore recognized a liability for this amount during the first quarter of 2010. There can be no assurance that the Company will enter into a consensual resolution of this matter with the DOJ or OIG, or what the terms of any such resolution might be.

Gary D. Henley, President and Chief Executive Officer commented, “We are very pleased with our first quarter financial performance which delivered accelerating constant currency sales growth, operating margin expansion and excellent free cash flow.”

Mr. Henley continued, “Additionally we continued to execute on the key growth drivers of the business, in particular, expansion of our focused foot and ankle sales force and continued progress on our new product pipeline. This first quarter financial and operational performance puts us on track to achieve our 2010 plan.”

Mr. Henley concluded, “We continue to work with the U.S. government with regard to the ongoing DOJ investigation, and we hope that we can bring this matter to resolution in the near future.”

Outlook

The Company’s earnings target, as communicated in the guidance range stated below, excludes the effect of possible future acquisitions, other material future business developments, non-cash stock-based compensation expense, restructuring charges, and costs associated with the Company’s ongoing U.S. governmental inquiries.

The Company is reiterating its previously-communicated as-adjusted earnings per share outlook, representing a target range for the full year 2010 of $0.88 to $0.94 per diluted share, reflecting growth of 4% to 11%, as well as its 2010 net sales outlook of $515 million to $530 million, representing growth of 6% to 9%.

As noted above, the Company’s earnings target excludes the impact of non-cash stock based compensation charges as well as the impact of restructuring charges. While the amount of the non-cash stock-based compensation charges will vary depending upon a number of factors, many of which are not within the Company’s control, the Company currently estimates that the after-tax impact of those expenses will range from $0.20 to $0.24 per diluted share for the full year 2010. With regard to restructuring charges, the Company expects total pre-tax charges related to the closing of the Toulon facilities to be in a range of approximately $28 million to $30 million, of which $27.1 million have been incurred to date. Additionally, we continue to anticipate incurring pre-tax restructuring charges related to our Creteil, France operations totalling $3 million to $4 million, of which $2.6 million of these charges have been incurred to date, the remainder of which we expect to record by the end of the second quarter of 2010.

The Company’s anticipated targets for net sales, adjusted earnings per share, stock-based compensation charges, and restructuring charges are forward-looking statements. They are subject to various risks and uncertainties that could cause the Company’s actual results to differ materially from the anticipated targets. The anticipated targets are not predictions of the Company’s actual performance. See the cautionary information about forward-looking statements in the “Safe-Harbor Statement” section of this press release.

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 866-730-5763 (domestic) or 857-350-1587 (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 atwww.wmt.com. A replay of the conference call by telephone will be available starting at 6:30 p.m. (Central Time) today and continuing until May 11, 2010. To hear this replay, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 34333039. 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, our 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.

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, and effective tax rate, as adjusted. 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 business development activities, including purchased in-process research and development, the financial impact of significant litigation, costs related to the on-going U.S. governmental inquiries, restructuring charges 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.

Safe-Harbor Statement

This press release contains “forward-looking statements” as defined under U.S. federal securities laws. 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. Such risks and uncertainties 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, 2009, under the heading “Risk Factors”). Readers 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.

Wright Medical Group, Inc. is a global orthopaedic medical device company specializing in the design, manufacture and marketing of devices and biologic products for the extremity, hip and knee repair and reconstruction. The Company is a leading provider of surgical solutions for the foot and ankle market. The Company has been in business for more than 50 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.

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                                    right Medical Group, Inc.
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                         ondensed Consolidated Statements of Operations
                                                (
                         in thousands, except per share data--unaudited)
                                                                      Three Months Ended
                                                               ---------------------------------
                                                                       M                M
                                                                   arch 31,         arch 31,
                                                                     2010             2009
                                                               -------------    -------------
Net sales                                                          $ 131,244        $ 120,912
Cost of sales                                                         40,141           38,021
                                                               --------------   --------------
      Gross profit                                                    91,103           82,891
Operating expenses:
   Selling, general and administrative                                76,438           66,609
   Research and development                                            9,835            8,906
   Amortization of intangible assets                                     649            1,317
   Restructuring charges                                                 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
                                                               ===== ======= =  ===== =======
Net (loss) income per share, diluted                               $   (0.01 )      $    0.09
                                                               ===== ======= =  ===== =======
Weighted-average number of common shares outstanding, basic           37,540           37,229
                                                               ==============   ==============
Weighted-average number of common shares outstanding, diluted         37,540           37,340
                                                               ==============   ==============
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                right Medical Group, Inc.
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               onsolidated Sales Analysis
                            (
            dollars in thousands--unaudited)
                             Three Months Ended
                    -------------------------------------
                          M             M           %
                      arch 31,      arch 31,     change
                        2010          2009
                    -----------   -----------   -------
Geographic
------------------
Domestic               $  77,725     $  74,353   4.5 %
International             53,519        46,559  14.9 %
                    ------------- ------------- ---- ---
Total net sales        $ 131,244     $ 120,912   8.5 %
                    ==== =======  ==== =======  ==== ===
Product Line
------------------
Hip products           $  46,285     $  41,914  10.4 %
Knee products             32,418        30,388   6.7 %
Extremity products        30,104        25,941  16.0 %
Biologics products        19,792        19,771   0.1 %
Other                      2,645         2,898  (8.7 %)
                    ------------- ------------- ---- ---
Total net sales        $ 131,244     $ 120,912   8.5 %
                    ==== =======  ==== =======  ==== ===
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                   right Medical Group, Inc.
                               S
                 upplemental Sales Information
                               (
                          unaudited)
                      First Quarter 2010 Sales Growth
             -------------------------------------------------
             Domestic    Int'l     Int'l     Total     Total
                As     Constant     As     Constant     As
             Reported  Currency  Reported  Currency  Reported
             --------  --------  --------  --------  --------
Hips            3%        12%       17%       8%        10%
Knees           4%        6%        10%       5%        7%
Extremities     14%       18%       26%       15%       16%
Biologics      (3%)       11%       18%      (1%)       0%
Total           5%        10%       15%       7%        9%
          Sales as a % of Total Sales
-----------------------------------------------
              Three months ended March 31, 2010
             ----------------------------------
             Domestic   International   Total
             --------  -------------  --------
Hips            15%          21%         35%
Knees           14%          11%         25%
Extremities     18%          4%          23%
Biologics       12%          3%          15%
Total           59%          41%        100%
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                               right Medical Group, Inc.
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             econciliation of Net Sales to Net Sales Excluding the Impact
                                  of Foreign Currency
                                           (
                           dollars in thousands--unaudited)
                                                             Three Months Ended
                                                               March 31, 2010
                                                     ---------------------------
                                                       International        Total
                                                         Net Sales        Net Sales
                                                     -------------    --------------
Net sales, as reported                                    $ 53,519         $ 131,244
Currency impact as compared to prior period                 (2,441 )         ( 2,441 )
                                                            ------ -         ------- -
Net sales, excluding the impact of foreign currency       $ 51,078         $ 128,803
                                                     ====== ======    ====== =======
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                                         right Medical Group, Inc.
                                                     R
                        econciliation of As Reported Results to Non-GAAP Financial
                                                 Measures
                                                     (
                              in thousands, except per share data--unaudited)
                                                                              Three Months Ended
                                                                     -------------------------------------
                                                                          March 31,          March 31,
                                                                            2010               2009
                                                                     ----------------   ----------------
Operating Income
  Operating income, as reported                                             $    3,637         $    5,993
      Reconciling items impacting Gross Profit:
        Inventory step-up amortization                                               -                 30
        Non-cash, stock-based compensation                                         340                292
                                                                     ------------------ ------------------
                   Total                                                           340                322
    Reconciling items impacting Selling, General and Administrative
    expenses:
        Non-cash, stock-based compensation                                       2,267              2,101
        U.S. governmental inquiries                                              8,071              4,067
                                                                     ------------------ ------------------
           Total                                                                10,338              6,168
    Reconciling items impacting Research and Development expenses:
        Non-cash, stock-based compensation                                         398                395
    Other Reconciling Items:
        Restructuring charges                                                      544                 66
                                                                     ------------------ ------------------
  Operating income, as adjusted                                             $   15,257         $   12,944
                                                                     ======== ========  ======== ========
                                                                                 11.6%              10.7%
  Operating income, as adjusted, as a percentage of net sales
                                                                     ======== ========  ======== ========
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                            right Medical Group, Inc.
                                        R
           econciliation of As Reported Results to Non-GAAP Financial
                                    Measures
                                        (
                                   continued)
                                                    Three Months Ended
                                           -------------------------------------
                                                March 31,          March 31,
                                                  2010               2009
                                           ----------------   ----------------
Net Income
  Income before income taxes, as reported         $    1,997         $    5,103
      U.S. governmental inquiries                      8,071              4,067
      Non-cash, stock-based compensation               3,005              2,788
      Restructuring charges                              544                 66
      Inventory step-up amortization                       -                 30
                                           ------------------ ------------------
  Income before income taxes, as adjusted             13,617             12,054
                                           ------------------ ------------------
  Provision for income taxes, as reported              2,522              1,786
      U.S. governmental inquiries                      1,580              1,589
      Non-cash, stock-based compensation                 836                872
      Restructuring charges                              211                 26
      Inventory step-up amortization                       -                 12
                                           ------------------ ------------------
  Provision for income taxes, as adjusted              5,149              4,285
                                                    --------           --------
  Effective tax rate, as adjusted                      37.8%              35.5%
                                                    ========           ========
  Net income, as adjusted                         $    8,468         $    7,769
                                           ======== ========  ======== ========
                                                             Three Months Ended           Three Months Ended
                                                               March 31, 2010               March 31, 2009
                                                        ----------------------------- ---------------------------
                                                          As Reported    As Adjusted   As Reported   As Adjusted
                                                        --------------- ------------- ------------- -------------
Basic net (loss) income                                   $   (525 )        $  8,468      $  3,317      $  7,769
Interest expense on convertible notes                          N/A               935           N/A           935
                                                            ------            ------        ------        ------
Diluted net (loss) income                                 $   (525 )        $  9,403      $  3,317      $  8,704
Basic shares                                                37,540            37,540        37,229        37,229
Dilutive effect of stock options and restricted shares           N                 2             1             1
                                                                /A                83            11            11
Dilutive effect of convertible notes                           N/A             6,126           N/A         6,126
                                                            ------            ------        ------        ------
Diluted shares                                              37,540            43,949        37,340        43,466
Net (loss) income per share, diluted                      $  (0.01 )        $   0.21      $   0.09      $   0.20
                                                        === ====== ===  ===== ======  ===== ======  ===== ======
                                                          Three Months Ended
                                                     -----------------------------
                                                        March 31,      March 31,
                                                          2010           2009
                                                     -----------    -----------
Net Income per Diluted Share
  Net (loss) income, as reported, per diluted share    $ (0.01 )      $  0.09
  Interest expense on convertible notes                   0.02           0.02
  Dilutive effect of convertible notes                    0.00          (0.01 )
  U.S. governmental inquiries                             0.15           0.06
  Non-cash, stock-based compensation                      0.05           0.04
  Restructuring charges                                   0.01           0.00
  Inventory step-up amortization                          0.00           0.00
                                                         -----          -----
  Net income, as adjusted, per diluted share           $  0.21        $  0.20
                                                     === =====      === =====
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                            right Medical Group, Inc.
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                      ondensed Consolidated Balance Sheets
                                        (
                        dollars in thousands--unaudited)
                                                      March 31,          D
                                                        2010        ecember 31,
                                                                       2009
                                                   ------------   ------------
Assets
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 and other current assets              50,461         54,121
                                                         -------        -------
      Total current assets                               501,843        490,604
                                                         -------        -------
Property, plant and equipment, net                       141,359        139,708
Intangible assets, net                                    70,460         71,587
Other assets                                              12,630         12,385
                                                         -------        -------
    Total assets                                       $ 726,292      $ 714,284
                                                   ===== =======  ===== =======
Liabilities and stockholders' equity
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 obligations                                    200,246        200,326
Other liabilities                                          4,582          4,593
                                                         -------        -------
    Total liabilities                                    286,188        273,876
                                                         -------        -------
Stockholders' equity                                     440,104        440,408
                                                         -------        -------
    Total liabilities and stockholders' equity         $ 726,292      $ 714,284
                                                   ===== =======  ===== =======

SOURCE: Wright Medical Group, Inc.

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