UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-69286
WRIGHT MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1532765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5677 Airline Road, Arlington, Tennessee 38002-0100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 867-9971
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of Class A Common Stock, par value
$.001 at September 30, 1997: 9,695,625
Page 1 of 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wright Medical Technology, Inc. & Subsidiaries:
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996...........................................3
Condensed Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
September 30, 1997 and September 30, 1996.......................4
Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 1997 and
September 30, 1996..............................................5
Notes to Consolidated Financial Statements......................6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................10
Page 2 of 21
<PAGE>
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
----------------- ------------------
(in thousands) (in thousands)
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 936 $ 910
Trade receivables, net 20,021 18,289
Inventories, net 59,032 59,107
Prepaid expenses 2,195 1,692
Deferred income taxes 978 978
Other 3,042 2,540
----------------- ------------------
Total Current Assets 86,204 83,516
----------------- ------------------
Property, Plant and Equipment, net 28,295 33,659
Investment in Joint Venture 2,693 3,597
Other Assets 43,092 45,554
----------------- ------------------
$ 160,284 $ 166,326
================= ==================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 75 $ 138
Short-term borrowing 18,675 8,390
Accounts payable 7,033 6,063
Accrued expenses and other current liabilities 15,059 18,453
----------------- ------------------
Total Current Liabilities 40,842 33,044
----------------- ------------------
Long-Term Debt 84,738 84,668
Preferred Stock Dividends 23,883 17,999
Other Liabilities 2,927 3,189
Deferred Income Taxes 978 978
----------------- ------------------
Total Liabilities 153,368 139,878
----------------- ------------------
Commitments and Contingencies
Mandatorily Redeemable Series B Preferred Stock, $.01 par value, (aggregate
liquidation value of $81.0 million, including accrued and unpaid dividends
of $4.5 million, 800,000 shares authorized, 765,395 and 711,910 shares
issued and outstanding) 66,562 59,959
Redeemable Convertible Series C Preferred Stock, $.01 par value, (aggregate
liquidation value of $43.5 million, including accrued and unpaid dividends of
$8.5 million, 350,000 shares authorized, issued and outstanding) 28,330 24,995
Stockholders' Investment:
Series A preferred stock, $.01 par value, (aggregate liquidation value of
$27.4 million, including accrued and unpaid dividends of $10.9 million),
1,200,000 shares authorized, 915,325 shares issued 9 9
Undesignated preferred stock, $.01 par value, 650,000 shares authorized,
no shares issued - -
Class A common stock, $.001 par value, 46,000,000 shares authorized,
10,581,000 and 10,023,421 shares issued 11 10
Class B common stock, $.01 par value, 1,000,000 shares authorized,
no shares issued - -
Additional capital 57,182 53,853
Accumulated deficit (143,683) (111,855)
Other (454) 516
----------------- ------------------
(86,935) (57,467)
Less - Notes receivable from stockholders (1,039) (1,037)
Series A preferred treasury stock, 86,688 shares (1) (1)
Class A common treasury stock, 884,630 shares (1) (1)
----------------- ------------------
Total Stockholders' Investment (87,976) (58,506)
----------------- ------------------
$ 160,284 $ 166,326
================= ==================
The accompanying notes are an integral part of these consolidated balance sheets.
Page 3 of 21
<PAGE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
<S> <C> <C> <C> <C>
Net sales $ 28,581 $ 29,065 $ 92,964 $ 91,202
Cost of goods sold 11,202 11,589 34,726 32,656
---------------- ---------------- ---------------- ----------------
Gross profit 17,379 17,476 58,238 58,546
---------------- ---------------- ---------------- ----------------
Operating expenses:
Selling 11,820 11,468 37,564 34,570
General and administrative 7,195 4,616 16,297 13,638
Research and development 3,175 3,322 9,347 9,621
Equity in loss of joint venture 311 151 903 151
---------------- ---------------- ---------------- ----------------
22,501 19,557 64,111 57,980
---------------- ---------------- ---------------- ----------------
Operating income (loss) (5,122) (2,081) (5,873) 566
Interest expense, net 3,404 2,910 9,631 8,823
Other (income) expense, net 130 203 255 (90)
----------------- ---------------- ---------------- ----------------
Loss before income taxes (8,656) (5,194) (15,759) (8,167)
Provision for income taxes - 22 - 47
----------------- ---------------- ---------------- ----------------
Net loss $ (8,656) $ (5,216) $ (15,759) $ (8,214)
================= ================ ================ ================
Loss applicable to common stock $ (14,024) $ (10,392) $ (31,840) $ (23,760)
================= ================ ================ ================
Loss per share of common stock $ (1.47) $ (1.14) $ (3.43) $ (2.63)
================= ================ ================ ================
Weighted average common shares outstanding 9,520 9,115 9,276 9,030
================= ================ ================ ================
The accompanying notes are an integral part of these statements.
Page 4 of 21
</TABLE>
<PAGE>
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
-------------------------------
Sept. 30, Sept. 30,
1997 1996
------------- -------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (15,759) $ (8,214)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 5,013 5,341
Instrument amortization 4,417 2,383
Provision for instrument reserves 2,714 2,158
Provision for excess/obsolete inventory 2,264 (111)
Provision for sales returns 16 (234)
Deferred income - 1,740
Amortization of intangible assets 2,564 2,152
Amortization of deferred financing costs 1,041 1,021
Loss on disposal of equipment 96 477
Equity in loss of joint venture 904 151
Amortization of deferred income 270 -
Other 1,122 228
Changes in assets and liabilities net of effect of purchases of
businesses:
(Increase) Decrease in Accounts Receivable (1,762) (694)
(Increase) Decrease in Inventories (4,895) (4,840)
(Increase) Decrease in Other Current Assets (1,005) 829
Increase (Decrease) in Accounts Payable 970 (1,601)
Increase (Decrease) in Accrued Expenses and Other Liabilities (312) (6,255)
(Increase) Decrease in Other Assets (843) (150)
------------- -------------
Net cash used in operating activities (3,185) (5,619)
------------- -------------
Cash Flows From Investing Activities:
Capital expenditures (4,162) (2,545)
Other (124) (423)
------------- -------------
Net cash used in investing activities (4,286) (2,968)
------------- -------------
Cash Flows From Financing Activities:
Net proceeds from short-term borrowings 10,285 8,750
Proceeds from issuance of stock and stock warrants 22 1,275
Payments of debt (2,753) (727)
Other (57) (46)
------------- -------------
Net cash provided by financing activities 7,497 9,252
------------- -------------
Net increase in cash and cash equivalents 26 665
Cash and cash equivalents, beginning of period 910 1,126
------------- -------------
Cash and cash equivalents, end of period $ 936 $ 1,791
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 10,492 $ 10,201
============= =============
Cash paid for income taxes $ - $ -
============= =============
The accompanying notes are an integral part of these statements.
Page 5 of 21
</TABLE>
<PAGE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements as of September 30, 1997 and for the
three and nine month periods ended September 30, 1997 and September 30, 1996
include the accounts of Wright Medical Technology, Inc. and its wholly-owned
domestic and foreign subsidiaries and joint ventures ("the Company").
The accompanying unaudited financial information, in management's opinion,
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented. The results of the periods presented are
not necessarily indicative of the results to be expected for the full year.
The financial information has been prepared in accordance with the
instructions to Form 10-Q and, therefore, does not include all information and
footnote disclosures necessary for fair presentation of financial statements
prepared in accordance with generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
Components of inventory are as follows (in thousands):
Sept. 30, Dec. 31,
1997 1996
--------------------- -------------------
(unaudited)
Raw materials $ 2,721 $ 2,214
Work in process 9,923 10,186
Finished goods 35,275 36,388
Surgical instruments 11,113 10,319
--------------------- -------------------
Total $ 59,032 $ 59,107
===================== ===================
Page 6 of 21
<PAGE>
NOTE 3 - ACCRUED EXPENSES
A detail of accrued expenses is as follows (in thousands):
Sept. 30, Dec. 31,
1997 1996
------------------- -----------------
(unaudited)
Interest $ 2,629 $ 4,668
Employee benefits 1,480 3,489
Joint venture 1,497 2,105
Commissions 1,507 1,358
Professional fees 3,315 1,088
Taxes - other than income 1,103 761
Other 3,528 4,984
------------------- -----------------
Total $ 15,059 $ 18,453
=================== =================
NOTE 4 - LEGAL PROCEEDINGS
Mitek Surgical Products, Inc. ("Mitek"), had previously alleged in the
Federal District Court for the Northern District of California that the
Company's ANCHORLOK(R) soft tissue anchor infringes its patent. That court
recently rendered an opinion of non-infringement in favor of the Company, which
opinion was reversed on November 3, 1997, after reconsideration by the Court. On
July 18, 1997, Howmedica, Inc. alleged in the Federal District Court for the
District of New Jersey that certain of the Company's products infringe its
patent related to a type of porous coating and seeks unspecified money damages.
The Company is evaluating that claim. On August 22, 1997, Osteonics, Inc.
alleged in the Federal District Court for the District of New Jersey that the
Company's Bridge Hip System infringes its patent and seeks money damages and
injunctive relief. The Company is evaluating that claim.
The Company and its counsel believe it has meritorious defenses to these
actions at this time, and accordingly, do not believe that the outcome of these
matters will have a material impact on its consolidated financial position or
results of operations.
No material developments occurred in the Company's other legal proceedings
in the period covered by this report.
Page 7 of 21
<PAGE>
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"), which establishes new standards for computing and presenting earnings
per share. SFAS No. 128 is in effect for financial statements for both interim
and annual periods ending after December 15, 1997. At this time, management does
not believe that adoption of this standard will have a material impact on the
Company's earnings per share.
SHORT-TERM BORROWING
In the third quarter the Company experienced large non-recurring expenses
related to the exchange of the Company's senior debt and the costs associated
with the Company's reduction in force. As a result, the Company sought and was
granted, from Sanwa Credit Corporation ("Sanwa"), on October 24, 1997, a
modification of terms for the Cash Flow Coverage Ratio from 1.15 to 1.0 for the
twelve month period ended September 30, 1997. This modification does not extend
to future measurement dates. Based on current estimates, management believes
that the Company will meet the 1.15 cash flow coverage ratio requirement for the
twelve month period ending December 31, 1997 and throughout 1998.
SUBSEQUENT EVENTS
On November 3, 1997, the Company completed an exchange offer pursuant to a
registration statement filed on Form S-4 (File #333-34853), of its 11 3/4%
Series C Senior Secured Step-Up Notes ("Series C Notes") for 11 3/4% Series D
Senior Secured Step-Up Notes. The terms for the Series D Notes are the same as
the Series C Notes except that the Series D Notes are registered securities.
On August 6, 1997, the Company had completed the exchange of its 10 3/4%
Series B Senior Secured Notes for the Series C Notes. (See the Company's Form
10-Q for the period ending June 30, 1997 filed August 11, 1997.)
On November 5, 1997, the Company announced the retirement of its President
and Chief Executive Officer, Richard D. Nikolaev, as of November 30, 1997. Mr.
Nikolaev will remain closely associated with the company as a consultant and as
a member of
Page 8 of 21
<PAGE>
the Board of Directors. Mr. Richard H. Mazza was named Chief Operating Officer
and will be responsible for the day to day management of the company. He will
report directly to the Board of Directors.
Page 9 of 21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion includes forecasts and projections that are forward looking
statements based on management's current expectations of the Company's near term
results, based on currently available information pertaining to the Company.
Actual future results and trends may differ materially depending on a variety of
factors, including competition in the marketplace, changing market conditions,
demographic trends, product research and development, government approvals,
government reimbursement schedules and other factors. The Company assumes no
obligation for updating any such forward looking statements.
Sales for the third quarter were slightly below the prior year period due
primarily to softened domestic sales of the Company's ADVANTIM(R) Knee System
and continued heavy discounting. Sales of the company's new ADVANCE(R) Knee
System continued to grow and the company has accelerated the commercial launch
of the ADVANCE(R) PCR (posterior cruciate ligament retaining) design to offset
the sales erosion of the ADVANTIM(R) knee. Sales of the Company's OSTEOSET(R)
products continued to expand consistent with the Company's expectations.
In the face of softer overall sales, in the third quarter the Company
instituted a wide ranging cost reduction plan in an effort to increase
profitability and improve cash flow. As part of that plan, the Company reduced
its workforce by approximately 58 full time and 18 temporary employees, or
approximately 12% of its workforce. The Company also made a significant
contribution of stock to the employees retirement plan as a method of increasing
and motivating its workforce. These activities resulted in a one time charge to
earnings in the third quarter of approximately $1.7 million.
In addition, the Company completed an exchange of its senior notes
principally to relieve the Company of the sinking fund obligations of its old
notes. On August 7, 1997, pursuant to a private exchange, the Company's 10 3/4%
Series B Senior Secured Notes were exchanged for 11 3/4% Series C Senior Secured
Step-Up Notes (the "Series C Notes"). On November 3, 1997, the Series C
Page 10 of 21
<PAGE>
Notes were exchanged, pursuant to the Company's report on Form S-4 (File
#333-34853), for registered 11 3/4% Series D Senior Secured Step-Up Notes
otherwise identical in all respects to the Series C Notes. Expenses related to
these transactions (the "Exchange Offer") of $2.8 million were charged to the
third quarter.
Net of the expenses related to the Exchange Offer, the reduction in force
and the stock contribution to the employees retirement plan, the Company's
operating loss decreased from $5.1 million to $0.6 million for the period. Net
of the semi-annual bond interest payment, the Company also reported positive
cash flow for the third quarter. As a result of the cost cutting measures
instituted, the Company also expects cash flow and operating earnings to improve
in the fourth quarter and in 1998.
Results of Operations
The Company's net sales for the quarter were $28.6 million as compared to
$29.1 million for the same period in the prior year. Although sales were lower
for the 1997 period by $0.5 million due to a sales decline in knees, management
was satisfied with the performance of the remaining product lines with hips,
trauma, biologics and spine showing growth of $1.8 million. Knee sales for the
period were less than third quarter 1996, but are expected to rebound in 1998
with the introduction of the cruciate retaining and revision line extensions of
the Company's new ADVANCE(R) Knee System.
Year to date net sales for the nine months ended September 30, 1997 were
$1.8 million higher or $93.0 million, as compared to sales of $91.2 million for
the same period in 1996. All product lines posted higher sales in 1997 compared
to the prior year, except knee sales which declined 3%.
International sales for the third quarter were down 3% when compared to the
third quarter of 1996 due to a non-recurring distributor stocking order in Latin
America in 1996. Year to date international sales were favorable in 1997
compared to the nine months ended September 30, 1996, by $2.7 million with
strong showings in most product lines especially knees which posted sales of
$16.1 million or $1.9 million higher than the previous year. All three of the
Company's knee systems, ADVANTIM(R), AXIOM(R), and ADVANCE(R) contributed to
this strong year to date favorable variance.
Page 11 of 21
<PAGE>
Selling
Selling expenses were $11.8 million and $37.6 million for the three and
nine month periods ended September 30, 1997 up from $11.5 million and $34.6
million respectively for the same periods in 1996.
The increase for both periods was primarily the result of the on-going
expenses related to the previously independent distributorships which were
purchased by the Company earlier in 1997 and the expenses due to the
reorganization of operations in the New England territories which also occurred
earlier in the year.
General and Administrative
General and administrative expenses were higher $2.6 million for the
quarter and $2.7 million for the nine month periods ended September 30, 1997
when compared to the same periods in the prior year. However, net of expenses
related to the Exchange Offer ($2.8 million), and the reduction in force ($0.2
million) general and administrative expenses decreased when compared to the
prior period. (The Exchange Offer is discussed in greater detail in the overview
section of this management discussion and analysis and in the Form S-4.)
Research and Development
Research and development expenses remained relatively flat for the three
months ended September 30, 1997 at $3.2 million compared to $3.3 million for the
same period in the prior year. For the first nine months of 1997 expenses were
$9.3 million compared to $9.6 million during the same period in the prior year.
Other
Equity in loss of joint venture of $0.3 million and $0.9 million for the
third quarter and 1997 year to date respectively, represented the Company's 50%
share of expenses incurred related to the joint venture with Tissue Engineering,
Inc. Research continues in that venture in the development of a collagen based
tissue patch, a collagen and calcium phosphate based bone cement, and a collagen
based ligament prosthesis.
Interest expense increased by $0.5 million and $0.8 million
Page 12 of 21
<PAGE>
for the three and nine month periods ended September 30, 1997 when compared to
the same periods in 1996. This increase was primarily due to the higher interest
rates paid by the Company on the Series C Notes, and a higher usage of the
Company's line of credit.
Other (income)/expense of $0.1 million remained relatively flat for the
third quarter of 1997 when compared to the same period in 1996. As of September
30, 1997, year to date other (income)/ expense was unfavorable when compared to
the same period in 1996 by $0.3 million due to the sale of the company jet in
1996 which had a favorable impact to other income in the 1996 year to date
results.
For the three and nine month periods ended September 30, 1997 earnings
before interest, taxes, depreciation, and amortization ("EBITDA") is detailed in
the table below. The operating loss for the three and nine month periods ended
September 30, 1997 includes a one time charge of $4.5 million due to the
expenses related to the Exchange Offer ($2.8 million), the reduction in force
($0.8 million), and the stock contribution ($0.9 million).
Three Nine
Months Months
Ended Ended
September September
30, 1997 30, 1997
------------ ------------
Operating Loss $ (5,122) $ (5,873)
Depreciation and Instrument Amortization 3,223 9,430
Provision for Instrument Reserves 840 2,714
Provision for Excess/Obsolete Inventory 793 2,264
Amortization of Intangibles 804 2,564
Amortization of Other Assets 133 400
*Other Non Cash Addbacks 980 1,193
------------ ------------
EBITDA after Certain Adjustments $ 1,651 $ 12,692
============ ============
*Other Non Cash Addbacks include the stock contribution to the employees
retirement plan and non-employee stock option expense.
Page 13 of 21
<PAGE>
Liquidity and Capital Resources
In July, 1993, the Company was founded to acquire substantially all the
assets of the large joint orthopaedic implant business of Dow Corning Wright
Corporation, a subsidiary of Dow Corning Corporation (collectively "DCW") (the
"Acquisition"). Since that date, the Company's strategy has been to attain
growth through new product development and acquisition of new technologies
through license agreements, joint ventures and purchases of other companies in
the orthopaedic field. As anticipated, the Company's substantial needs for
working capital have been funded through the sale of $85 million of senior debt
securities and $15 million of equity at the time of the DCW Acquisition, through
the issuance of Series B Preferred Stock in 1994 to the California Public
Employees' Retirement System ($60 million), through the issuance of Series C
Preferred Stock to the Princes Gate purchasers in September 1995 ($35 million),
and through borrowings on the Company's revolving line of credit.
The Company has available to it a $30 million revolving line of credit
under the Sanwa Agreement (the "Sanwa Agreement") which provided an eligible
borrowing base at September 30, 1997 of $28.7 million. (The maximum allowable
borrowing base recently increased to $30 million as a result of the Exchange
Offer.) As of September 30, 1997, the Company had drawn $18.7 million against
this line of credit. The Company's strategy and it's interest obligations to its
noteholders have resulted in a continued dependence on the Sanwa Agreement and
other funding sources to meet working capital needs. During the third quarter of
1997 the Company's cash flow, net of its semi-annual interest obligation paid on
July 1, 1997, was positive. During the nine months ended September 30, 1997,
borrowing under the Sanwa Agreement reached $21.6 million compared to the same
period in 1996 when borrowings (under the former Heller Agreement) reached $16.1
million.
The Company's capitalization includes debt facilities totaling $87.1
million of which $85 million were recently exchanged pursuant to the Exchange
Offer and various series of preferred stock with an aggregate liquidation value
of $151.9 million including accrued but unpaid dividends of $23.9 million at
September 30, 1997. These securities currently bear interest or dividend rates
ranging from 10.0% to 21.7%. The Series D Notes eliminated provisions related to
the Company's obligation to make the sinking fund payments and certain
restrictive covenants of the Old Indenture. On October 24, 1997, Sanwa
Page 14 of 21
<PAGE>
agreed to modify the terms of the Cash Flow Coverage Ratio from 1.15 to 1.0 for
the twelve month period ended September 30, 1997 (see Subsequent Event footnote
to the Financial Statements).
At September 30, 1997, the Company had approximately $2.9 million in
outstanding capital commitments, and has budgeted expenditures for 1997 of
approximately $4.3 million for the purchase of machinery and related capital
equipment. The Company has spent $4.2 million through the first nine months of
the year.
In assessing the impact of the "Year 2000" on the Company's information
systems, as well as other information system needs, Management has begun
discussions with a limited number of computer software companies. Currently,
Management estimates the cost of new information system software to approximate
$1.5 million, the majority of which will be incurred in 1998.
As of September 30, 1997, the Company had net working capital (current
assets less current liabilities) of $45.4 million, compared with $50.5 million
as of December 31, 1996. Of this $5.1 million decline, $10.3 million was
attributed to growth in short term borrowings against the Company's line of
credit offset, principally, by $1.8 million growth in accounts receivable and
$3.4 million decrease to accrued expenses.
Page 15 of 21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4. in the "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS" On Page 7.
ITEM 2. CHANGES IN SECURITIES.
See Short-Term Borrowing in the "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" On Pages 8.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of August 11, 1997, a majority of the holders of
Class A Common and Series A Preferred of the Company,
by written consent in lieu of a meeting pursuant to
Delaware General Corporate Law Section 228, voted to
increase the number of shares reserved for issuance
pursuant to options granted under the 1993 Stock
Option Plan to 1,810,000 and under the 1994
Distributor Stock Option Plan to 570,000.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) See Exhibit Index at page 18.
B) No reports on Form 8-K were filed during the
quarter for which this report on Form 10-Q is
filed.
Page 16 of 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 11/12/97 /s/Richard D. Nikolaev
Richard D. Nikolaev
President and Chief Executive Officer
Date: 11/12/97 /s/Gregory K. Butler
Gregory K. Butler
Vice President and
Chief Financial Officer
Page 17 of 21
<PAGE>
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
11.1 Statement regarding Computation of Earnings 19
Per Share
12.1 Statement regarding Computation of Ratio of 20
Earnings to Fixed Charges and Preferred
Dividends
27.1 Financial Data Schedule 21
Page 18 of 21
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except loss per share)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- ------------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net loss $ (8,656) $ (5,216) $ (15,759) $ (8,214)
Dividends on preferred stock (3,749) (3,561) (11,233) (10,702)
Accretion of preferred stock discount (1,619) (1,615) (4,848) (4,844)
------------------ ------------------ ------------------ ------------------
Net loss applicable to common
and common equivalent shares $ (14,024) $ (10,392) $ (31,840) $ (23,760)
================== ================== ================== ==================
Weighted average shares of
common stock outstanding (a) 9,520 9,115 9,276 9,030
================== ================== ================== ==================
Loss per share of common stock $ (1.47) $ (1.14) $ (3.43) $ (2.63)
================== ================== ================== ==================
<FN>
(a) Because of the net loss applicable to common stock for the three and nine
months ended September 30, 1997 and September 30, 1996, the assumed
exercise of common stock equivalents has not been included in the
computation of weighted average shares outstanding because their effect
would be anti-dilutive.
</FN>
Page 19 of 21
</TABLE>
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands, except ratios)
(unaudited)
<CAPTION>
Nine Months Ended Year Ended Year Ended Year Ended
--------------------------------
Sept. 30, 1997 Sept. 30, 1996 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- -------------- ------------- ------------- -------------
Earnings:
<S> <C> <C> <C> <C> <C>
Loss before income taxes $ (15,759) $ (8,167) $ (14,589) $ (4,873) $ (57,261)
Add back: Interest expense 8,591 7,891 10,718 10,899 9,311
Amortization of debt issuance cost 1,040 1,021 1,361 1,036 829
Portion of rent expense representative
of interest factor 380 349 459 451 349
-------------- -------------- ------------- ------------- -------------
Earnings (loss) as adjusted $ (5,748) $ 1,094 $ (2,051) $ 7,513 $ (46,772)
============== ============== ============= ============= =============
Fixed charges:
Interest expense $ 8,591 $ 7,891 $ 10,718 $ 10,899 $ 9,311
Amortization of debt issuance cost 1,040 1,021 1,361 1,036 829
Portion of rent expense representative
of interest factor 380 349 459 451 349
-------------- -------------- ------------- ------------- -------------
$ 10,011 $ 9,261 $ 12,538 $ 12,386 $ 10,489
============== ============== ============= ============= =============
Preferred dividends $ 11,233 $ 17,261 $ 14,251 $ 16,863 $ 3,997
Accretion of preferred stock 4,848 7,812 6,458 4,573 394
-------------- -------------- ------------- ------------- -------------
$ 16,081 $ 25,073 $ 20,709 $ 21,436 $ 4,391
============== ============== ============= ============= =============
Ratio of earnings to fixed charges (a) (a) (a) (a) (a)
============== ============== ============= ============= =============
Ratio of earnings to fixed charges, preferred
dividends and accretion of preferred stock (b) (b) (b) (b) (b)
============== ============== ============= ============= =============
<FN>
(a) Earnings were inadequate to cover fixed charges by $15.8 million, $8.2
million, $14.6 million, $4.9 million and $57.3 million, respectively, for
the nine months ended September 30, 1997 and September 30, 1996, for the
years ended December 31, 1996, December 31, 1995, and December 31, 1994.
(b) Earnings were inadequate to cover fixed charges, preferred dividends and
accretion of preferred stock by $31.8 million, $33.2 million, $35.3
million, $26.3 million and $61.7 million, respectively, for the nine
months ended September 30, 1997 and September 30, 1996, for the years
ended December 31, 1996, December 31, 1995 and December 31, 1994. Certain
of the preferred dividends are, at the option of the Company, payable in
kind.
</FN>
Page 20 of 21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 936
<SECURITIES> 0
<RECEIVABLES> 20,685
<ALLOWANCES> 664
<INVENTORY> 59,032
<CURRENT-ASSETS> 86,204
<PP&E> 62,117
<DEPRECIATION> 33,822
<TOTAL-ASSETS> 160,284
<CURRENT-LIABILITIES> 40,842
<BONDS> 84,551
94,892
9
<COMMON> 11
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 160,284
<SALES> 92,964
<TOTAL-REVENUES> 92,964
<CGS> 34,726
<TOTAL-COSTS> 34,726
<OTHER-EXPENSES> 64,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,631
<INCOME-PRETAX> (15,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,759)
<EPS-PRIMARY> (3.43)
<EPS-DILUTED> (3.43)
</TABLE>
