Wright Medical Group Inc Annual Report 2010

FY2010 Annual Report · Wright Medical Group Inc

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(1) 2010 adjusted results presented above exclude $13.2 million ($8.8 million after tax eff ect) of non-cash, stock-based compensation expense. The 2010 adjusted results presented above also
exclude $10.9 million ($8.6 million after tax eff ect) of charges related to our U.S. government inquiries and our independent monitor, and $919,000 ($543,000 after tax eff ect) of restructuring
charges associated with the closure of our Toulon, France operations and Creteil, France operations.

(2) 2009 adjusted results presented above exclude $13.2 million ($9.3 million after tax eff ect) of non-cash, stock-based compensation expense. The 2009 adjusted results presented above also
exclude $7.8 million ($5.1 million after tax eff ect) of charges related to our U.S. government inquiries, $3.5 million ($275,000 after tax eff ect) of restructuring charges associated with the closure
of our Toulon, France operations and Creteil, France operations, $2.6 million write off of the cumulative translation adjustment balances from certain subsidiaries following the substantially
complete liquidation of these entities, $5.6 million ($3.8 million after tax eff ect) provision recorded in 2009 for potential losses related to the trade receivable balance of our stocking distributor
in Turkey, and $70,000 ($43,000 after tax eff ect) of acquisition-related inventory step-up amortization.

(3) 2008 adjusted results presented above exclude $13.5 million ($9.8 million after tax eff ect) of non-cash, stock-based compensation expense, $11.2 million tax provision associated with the
write-off of net operating losses in France, $7.6 million ($4.7 million after tax eff ect) of charges related to our U.S. government inquiries, $6.7 million ($3.3 million after tax eff ect) of restructuring
charges associated with the closure of our Toulon, France operations, $2.6 million ($1.6 million after tax eff ect) for charges relating to an unfavorable appellate court decision (including inter-
est), $2.5 million of acquired in-process research and development costs, and $113,000 ($69,000 after tax eff ect) of acquisition-related inventory step-up amortization.

(4) 2007 adjusted results presented above exclude $16.5 million ($12.9 million after tax eff ect) of non-cash, stock-based compensation expense, $18.9 million ($12.5 million after tax eff ect) of
restructuring charges associated with the closure of our Toulon, France operations, $3.9 million ($2.4 million after tax eff ect) of charges related to an unfavorable arbitration ruling (including
interest), and $418,000 ($253,000 after tax eff ect) of acquisition-related inventory step-up amortization.

(5) 2006 adjusted results presented above exclude $13.8 million ($10.9 million after tax eff ect) of non-cash, stock-based compensation expense, a $1.5 million ($1.4 million after tax eff ect) gain
on the sale of an investment, and a $1.1 million income tax benefi t.

2010 Annual Report Wright Medical Group, Inc. 1

Sixty Years of Innovation in Orthopaedics

In 2010, Wright marked its 60th year in orthopaedics. The anniversary presented a great
opportunity to reﬂ ect on our humble beginnings, exciting growth and bright future. Started in
1950 by orthopaedic salesman and innovator Frank O. Wright, our ﬁ rst product was an “all-
rubber walking heel” for leg casts – an original conception of the founder. From there, the
product offering was quickly expanded to include orthopaedic implants and instrumentation
as well as soft goods, like arm slings and splints.

By the time of Frank Wright’s death in 1975, orthopaedic implants and instrumentation had
been ﬁ rmly established as the foundation of the business. Within a few short years, our soft
goods lines slowly disappeared and we were ready to forge ahead as a dedicated provider
of orthopaedic surgical solutions.

Today, Wright Medical is an orthopaedic leader with approximately 1,400 employees
worldwide and annual sales surpassing the half billion dollar mark – a far cry from the small
machining shop and showroom opened by Frank Wright in downtown Memphis, Tennessee
sixty years ago. The same spark of innovation that was ignited our earliest days remains
alive and vibrant today. And we are proud to retain the name of its innovative founder, Frank
O. Wright, to reﬂ ect its commitment to his pioneering spirit.

In 2010, Wright celebrated 60 years of “creating motion”.

2 2010 Annual Report Wright Medical Group, Inc.

2010 Annual Report Wright Medical Group, Inc. 3

to products in Wright’s Foot & Ankle and
Hip product lines.

2010
In 2010, Wright celebrates its 60th year
in orthopaedics. It is a recognized
leader in the Foot & Ankle market,
continues to innovate in the biologics
arena, and remains focused on its core
hip and knee businesses.

With approximately 1,400 employees
worldwide, the global orthopaedic
leader bears little resemblance to the
medical device start-up founded by
Frank Wright 60 years earlier – except,
of course, for the spirit of innovation that
started it all.

1 Theoﬁ los Karachalios, Nikolaos Roidis,
Dimitrios Giotikas, Konstantinos
Bargiotas, Socrates Varitimidis,
Konstantinos N. Malizos, “A Mid-term
Clinical Outcome Study of the Advance
Medial Pivot Knee Arthroplasty,”
The Knee, (2009).

2 James W. Pritchett, “Patients Prefer a
Bicruciate-Retaining or the Medial Pivot
Total Knee Prosthesis,” The Journal of
Arthroplasty, Vol. 00 No. 2010.

Wright – Through the Years

1950
Wright is founded in 1950 by Memphis
orthopaedic salesman Frank O. Wright
to sell his original “all-rubber walking
heel” for leg casts. Although this ﬁ rst
product is small and simple, it offers
an innovative solution to the common
problem of back pain caused by the
rigid steel heels used in leg casts at the
time. Even in its earliest days as a small
medical device company, Wright is
powered by innovation.

1970’s
Innovation continues to mark Wright’s
product offering as it grows throughout
the decades. In the late 70s, it
introduces a new line of implants for
the small joints of the ﬁ ngers and toes.
The products feature an exciting new
silicone technology.

1996
Wright assumes a pioneering role
in the ﬁ eld of Biologics in 1996 when
it introduces its ﬁ rst bone void ﬁ ller,
OSTEOSET® Medical Grade Calcium
Sulfate. The product lays the foundation
for an expansive line of biologic solu-
tions that will be introduced over the
next decade and beyond.

1998
Wright develops a new approach to
knee implant design that focuses on
replicating the kinematics of the natural
knee. This “medial-pivot” design is ﬁ rst
introduced in 1998 as the ADVANCE®
Knee System. After years of clinical
success and patient satisfaction,
Wright’s next generation EVOLUTION™
Medial-Pivot Knee System is introduced
in 2010.1,2

2001
The new millennium ushers in a period
of rapid growth for Wright, underscored
by its successful initial public offering in
2001. Product lines begin to expand
rapidly, and so does Wright’s reach into
the global market.

2004
Focused on providing surgeons with
convenient, quality training, Wright
launches its state-of-the-art Mobile
Medical Education Lab in 2004. Within
a few short years, this mobile facility has
hosted over 1,000 surgeons for product-
speciﬁ c training sessions in locations
across the United States.

2007
In 2007, Wright begins to invest heavily
in its Foot & Ankle business. Key
acquisitions, distribution agreements
and product developments support its
commitment to serving this orthopaedic
specialty.

With expanding product lines across
a variety of market segments, Wright
also begins to focus on developing
“specialties” within its sales force.
The new strategy equips sales
representatives with an unprecedented
level of detailed product knowledge
to enhance service to our surgeon
customers.

2008
In 2008, Wright acquires the ground-
breaking technology of the INBONE®
Total Ankle System. The device offers
a unique surgical solution to a long-
standing orthopaedic challenge and is
immediately recognized as a signiﬁ cant
addition to Wright’s growing Foot &
Ankle product portfolio.

The Company also introduces an
innovative new material designed to
promote bone in-growth at the surface
of an implant. The proprietary material,
called BIOFOAM® Cancellous Titanium™,
features a roughened texture and
inner structure that mimics bone for
enhanced in-growth and ﬁ xation of the
implant.

The material is initially paired with
tibial bases on the ADVANCE® family of
medial-pivot knees and is later added

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“Although at ﬁ rst I was hesitant
to undergo surgery, I was grow-
ing increasingly frustrated by my
inability to enjoy my retirement.”

“I knew in order to return to the
golf course I had to have my
knee replaced.”

After surgery, Georgia committed
herself to performing the physical
therapy required to rebuild the
strength in her knee. Each day
she felt her knee getting stronger
and the pain subsiding. Just four
months later, she returned to the
golf course. And, for the ﬁ rst time
in recent memory, she teed off
and completed 18 holes without a
throbbing sharp pain in her knee.

2010 Annual Report Wright Medical Group, Inc. 9

Medial-Pivot Technology: Ever-Evolving

The EVOLUTION™ Tibial Base now has an 8° medially oriented
lock detail and a shortened dovetail for easier poly insertion. The
keel has been shortened for easier and less invasive insertion.

EVOLUTION™ Tibial Base

EVOLUTION™ Tibial Base
ADVANCE® Tibial Base

ADVANCE® Tibial Base

EVOLUTION™ sizing options have been expanded to 8 sizes. Nearly 300 scans from the
United States, Japan, and Korea were used to assess various aspects of femoral sizing.
There are 3 to 4mm between EVOLUTION™ sizes and the femoral pegs maintain a
common distance across sizes, allowing for easy downsizing.

EVOLUTION™ Sizing

ADVANCE® Sizing

The constant radius on ADVANCE® (0° to 90°) has been
extended from -45° to 100° degrees, allowing for higher
contact area throughout range of motion.

EVOLUTION™ Femur

ADVANCE® Femur

100°

90°

- 45°

0°

Medial-Pivot Technology: Lessons
from the Natural Knee

For over a decade, Wright has
pioneered knee designs that replicate
the movement of the natural knee.

The greatest breakthrough in this
endeavor has been the incorporation
of a mechanism that capitalizes on the
knee joint’s most stabilizing features,
which are found on the medial (inner)
side. Compared to the outer, or lateral,
side of the knee joint, medial structures
provide more stability within the knee’s
natural anatomy. Features such as a
robust ligament structure and concave
tibial surface mean that the medial side
of the knee naturally moves less than
the lateral side. For years, traditional
implant designs ignored this crucial
detail provided by the blue-print of the
natural knee, focusing on replicating
“hinge-like” movement with equal
stability on both sides of the joint. As a
result, a common phenomenon among
recipients of traditionally-designed
total knees is a slight sliding forward
within the joint, known as “paradoxical
motion.” For many patients, this de-
creased stability creates an unsettling
sensation and can even result in a
“clunking” noise.

At Wright, we knew there had to be
a better way to provide mobility for
total knee patients. So we looked
more closely at the movement of
the natural knee, focusing on the
medial compartment’s tendency to
be more stable and provide a “pivot
point” for slightly more movement in
the lateral compartment. The result
was our “medial-pivot” technology
which is centered on a “ball-in-socket”
mechanism, rather than the hinge-
like movement favored by most
traditional knee designs. The ball-
in-socket feature retains the medial
compartment’s natural pivot point to
provide more stability, reducing the
sensation of “sliding forward” in the
joint.

It is a design concept that has been
lauded by surgeons and their patients
for over a decade — and the foundation
for Wright’s family of innovative knee
systems.

12 2010 Annual Report Wright Medical Group, Inc.

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14 2010 Annual Report Wright Medical Group, Inc.

Rotator Cuff Repair Backed by the
Conﬁ dence of Clinical Data

Scientiﬁ c evidence of superior
performance is a signiﬁ cant distinction
for any healthcare product. The use
of Wright’s GRAFTJACKET® Matrix for
augmentation of challenging rotator
cuff repairs was supported by that
distinction in 2010. The results of a
prospective, randomized, controlled
clinical study showed GRAFTJACKET®
Matrix is a superior treatment choice
for rotator cuff tears measuring 3 to
5 cm in width.

As many as 75,000 patients in the
United States are affected by “large to
massive” rotator cuff tears each year.
90% of those patients experience re-
tearing at the treated site, making long-
term repair of this injury a signiﬁ cant
clinical challenge. But the study showed
Wright’s GRAFTJACKET® Matrix offers
exceptional long-term performance
when used to aid repair of this type of
rotator cuff tear. The study included 36
patients with follow-up periods ranging

from 12 to 33 months after surgery.3 Of
the 20 patients with rotator cuff repair
using Wright’s GRAFTJACKET® Matrix,
magnetic resonance imaging (MRI)
revealed that 84% had intact repairs.
For the 16 patients in the control group,
only 46% showed intact repairs at
follow-up. Functionality scores were
also signiﬁ cantly higher for patients
treated with GRAFTJACKET® Matrix.

Wright’s GRAFTJACKET® Matrix
enhances soft tissue repair by working
with the body’s natural repair process
to gradually convert the graft into
the patient’s own living tissue. Now
supported by results of a multi-center,
prospective, randomized, controlled
clinical study, Wright’s GRAFTJACKET®
Matrix may offer substantially improved
outcomes for patients who undergo
surgical repair of extensive rotator cuff
tears.

Using the Natural Healing Process to Enhance Soft Tissue Repair

Charles’s doctor determined that he had a major rotator cuff tear–
an injury of the tendons that support the shoulder. His shoulder
had only 50 percent normal range of motion and he could not
return to work without reconstruction of the rotator cuff.

Charles was treated with GRAFTJACKET® Matrix and then received
physical therapy for several months to regain strength. He has
regained much of his strength and is again able to play with his
kids and maintain his six acres of land. Charles’s only regret is that
he wasn’t treated sooner. “Sometimes men try to be too tough–
we’re going to just keep going until the arm falls off! I should have
had my rotator cuff tear treated right away.”

3 FA Barber, et al, “A Prospective, Randomized Evaluation of Acellular Human Dermal
Matrix Augmentation for Arthroscopic Cuff Repair,” Arthroscopy Association of North
America, Hollywood, FL, May 2010.

16 2010 Annual Report Wright Medical Group, Inc.

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Wright’s PATH® Tissue-Preserving
Surgical Technique: Preserving Soft
Tissue, Retaining Joint Function

The new frontier in hip solutions
focuses not only on advanced implant
technologies, but reﬁ ned surgical
approaches to help get patients moving
more quickly. Wright has made great
strides in providing less invasive hip
surgery options through the development
of its PATH® tissue-preserving surgical
technique. The technique focuses on
minimizing disruption to soft tissues
surrounding the hip joint – and decreasing
patient recovery time from months or
weeks to just days.

While other techniques focus on simply
reducing the surgical incision size, Wright’s
PATH® technique minimizes damage
to muscles and tendons throughout
the surgical site. By preserving these
delicate soft tissues, surgeons can help
patients retain much of their joint function
immediately after surgery, signiﬁ cantly

reduce their postoperative discomfort, and
help them return to normal activities more
quickly than ever before.4

In many cases, patients treated by this
technique are walking, unassisted, within
days, not weeks.5

Watch Fast
Recovery
Patient
Videos Now

See for
yourself what
some of

Wright’s PATH® patients are able to do, just
one day – two days – one week, post-op.
Simply scan the quick response code (QR
code) with your mobile device and click on
“Fast Recovery Videos”. Or you can visit
www.hips4fastrecovery.com.

4 Brad L. Penenberg, MD,
“Percutaneously Assisted
Total Hip Arthroplasty (PATH): A
Preliminary Report,” The Journal
of Bone and Joint Surgery
(American), 2008;90:209-220.

5 Brad L. Penenberg, MD; W.
Seth Bolling, MD; Michelle E.
Riley, PA-C, “Percutaneously
Assisted Total Hip Arthroplasty
(PATH®):A New Soft Tissue
Sparing Technique,” Scientiﬁ c
Exhibit at the 75th AAOS Annual
Meeting.

Hip Articulation Options for
a Variety of Needs

Innovation in orthopaedics often goes
beyond the ﬁ ner scientiﬁ c details of
introducing a technology that is “new”.
It includes assessing the best in proven
technologies and combining them into
one system for maximum versatility.
This approach is certainly illustrated
through the variety of articulating surface
options available in Wright’s DYNASTY®
Acetabular Cup System. While the
system incorporates ground-breaking
technologies, such as Wright’s BIOFOAM®
Cancellous Titanium™, the variety of
articulating surface options available with
the system is an innovation on its own.

In total hip arthroplasty, patient needs fall
across a broad spectrum. Age, activity

level and patient size all play signiﬁ cant
roles in determining the implant options
that are most likely to deliver favorable
outcomes. In acetabular cup systems,
choosing the right articulating surface for a
patient is critical. That’s why Wright gives
surgeons the option to choose metal-
on-metal or cross-linked polyethylene
acetabular liners to pair with metal or
ceramic femoral heads.

For any total joint arthroplasty patient, a
successful surgical result rests in the hands
of a skilled surgeon equipped with quality
implant solutions. The DYNASTY® Acetabular
Cup System provides the surgeon with the
right tools to deliver optimal outcomes for
patients.

20 2010 Annual Report Wright Medical Group, Inc.

2010 Annual Report Wright Medical Group, Inc. 21

22 2010 Annual Report Wright Medical Group, Inc.

NEW from Wright

Dependable Elbow Plating with
Less Soft Tissue Irritation

Broadening our line of upper
extremity solutions, Wright recently
introduced the EVOLVE® Elbow
Plating System (EPS) to treat
fractures of the distal humerus
and proximal ulna. It is estimated
over 200,000 of these fractures
occur annually in the United States
alone, with a signiﬁ cant number
of those injuries requiring surgical
treatment. Because the elbow has
very little soft tissue surrounding
it, surgical ﬁ xation using thick
plates and prominent screws
often results in discomfort for the
patient. To remedy this situation,
the patient may have to endure an
additional procedure to remove
the hardware.

Wright’s EVOLVE® Elbow Plating
System addresses these common
concerns through a low proﬁ le
design to reduce the possibility of
soft tissue irritation. The stainless
steel plate is also anatomically
designed for a more precise
ﬁ t for the patient, reducing the
need for the surgeon to bend the
plate to achieve a proper ﬁ t. For
greater stability, the plate and
screw interface incorporates our
ORTHOLOC™ Polyaxial Locking
technology. The EVOLVE® Elbow
Plating System offers a “complete”
surgical solution that not only
provides dependable fracture
ﬁ xation, but also successfully
addresses the common
procedure-speciﬁ c challenge of
soft tissue irritation.

2010 Annual Report Wright Medical Group, Inc. 23

A Breakthrough in Total Ankle Replacement

As Margie’s arthritis got progressively
worse, everyday tasks became
increasingly more complicated.
Going to the playground with her
grandchildren wasn’t as enjoyable
as it had been, basic housework was
difﬁ cult, and grocery shopping was
nearly impossible. When the pain in her
ankles caused her to sit out some of her
favorite line dances, Margie knew she
needed to seek treatment.

In July of 2008, she was implanted with
her ﬁ rst artiﬁ cial ankle and then returned
in February of 2009 to have her other
arthritic ankle replaced too. The results
have been beyond her expectations.
“Thanks to my two new ankles, I am
enjoying every minute of my life.”

Margie was treated with INBONE® Total
Ankle replacements. The INBONE®
Total Ankle began as a leading foot
and ankle surgeon’s quest to provide
a surgical solution to ankle arthritis
patients for pain reduction and restored
mobility. The INBONE® ankle team
carefully studied previous ankle designs
to determine the causes of implant
failure. With that knowledge in hand,
and using design elements already
proven successful in hip and knee
implants, INBONE® ankle engineers
designed a total ankle replacement
unlike any existing options available.

The prosthesis consists of two main
pieces: a tibial (shin bone) component
and a talar (ankle bone) component.

The tibial component features a
polyethylene (plastic) piece secured
within a titanium (metal) holder. A long
titanium stem securely anchors this
half of the implant within the tibia. The
talar component is an anatomically
shaped, highly polished cobalt chrome
metal piece which also features a
stem. The talar stem is inserted into the
talus (ankle bone) to securely anchor
this half of the implant. Once installed,
the smooth plastic surface of the tibial
component is designed to rotate on
the highly polished metal surface of the
talar component, allowing for smooth,
ﬂ uid movement.

24 2010 Annual Report Wright Medical Group, Inc.

NEW from Wright

Patient-Friendly Fixation for
Hammertoe Deformity

In the United States alone, it is estimated
that between 10% and 20% of the
population is affected by a forefoot
deformity known as “hammertoe.” The
condition is caused by an imbalance
in the soft tissue surrounding the bony
structures of the lesser toes. The result
is an elevation or abnormal bending
of the affected toe, which can cause
severe discomfort for the patient when
shoes are worn.

For decades, the most common surgical
treatment of hammertoe deformities
has involved use of a pin that is placed
through the center of the affected toe
and remains partially exposed for up
to 6 weeks of healing and recovery,
followed by removal during a follow-
up ofﬁ ce visit with the surgeon. Most
complications in hammertoe repair –
and a great deal of patient anxiety –
revolve around the use of a pin. During
recovery, patients are burdened
with the worry of protecting surgical
hardware that protrudes from the
treated toe. And when the occasional
“bump” of the pin does occur, the pain
can be excruciating. A great deal of
anxiety can also surround removal of
the pin at the doctor’s ofﬁ ce.

Wright’s PRO-TOE™ VO Hammertoe
Fixation System offers an alternative
for surgical treatment, eliminating
the use of a pin – and the associated
anxiety for the patient. The system
features a stainless steel screw design
that is implanted within the bone of
the affected toe, providing reliable
ﬁ xation with no exposed hardware.
The unique design and single-use
instrumentation of the PRO-TOE™ VO
Hammertoe Fixation System facilitate
a simpliﬁ ed, more efﬁ cient procedure
for the surgeon and the patient. With
no protruding pin to protect and later
remove, patients can focus on recovery
and getting back on their feet.

26 2010 Annual Report Wright Medical Group, Inc.

2010 Annual Report Wright Medical Group, Inc. 27

Senior Management

Directors

Gary D. Blackford
President & CEO
Universal Hospital Services, Inc.
Director since 2008

Martin J. Emerson
President and CEO
Galil Medical, Inc.
Director since 2006

Lawrence W. Hamilton
Formerly – SVP, HR
Tech Data Corporation
Director since 2007

Ronald K. Labrum
CEO
Fenwal, Inc.
Director since 2011

John L. Miclot
Executive in Residence
Warburg-Pincus
Director since 2007

Amy S. Paul
Formerly – Group VP, International
C.R. Bard, Inc.
Director since 2008

Robert J. Quillinan
Formerly - CFO
Coherent, Inc.
Director since 2006

David D. Stevens
Interim CEO
Wright Medical Group, Inc.
Director since 2004

David D. Stevens
Interim CEO

Lance A. Berry
SVP & Chief Financial Ofﬁ cer

Timothy E. Davis
SVP, Corporate Development

Rhonda L. Fellows
SVP, Government Affairs, National
Accounts & Reimbursements

William L. Grifﬁ n
SVP, Global Operations

Cary P. Hagan
SVP, Commercial Operations – EMEA

Karen L. Harris-Coleman
SVP, Sales & Marketing –
Japan, Latin America & Paciﬁ c Rim

Raymond C. Kolls
SVP, General Counsel & Secretary

Edward A. Steiger
SVP, Human Resources

Eric A. Stookey
SVP & Chief Commercial Ofﬁ cer

John T. Treace
SVP, Global Marketing & US Sales

William J. Flannery
VP, Logistics & Materials

Kyle M. Joines
VP, Manufacturing

Joyce B. Jones
VP & Treasurer

Lisa L. Michels
VP & Chief Compliance Ofﬁ cer

Alicia M. Napoli
VP, Clinical & Regulatory

Jennifer S. Walker
VP & Corporate Controller

28 2010 Annual Report Wright Medical Group, Inc.

table of contents

Management's Discussion and Analysis of Financial

Condition and Results of Operations

current

This annual report contains “forward-looking statements” as
defined under U.S. federal securities laws. These statements reflect
assumptions, beliefs,
knowledge,
management’s
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.

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 our Annual Report
on Form 10-K for the year ended December 31, 2010 within Item 1A),
and the following:

•

the impact of our 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 2011 and the Corporate
Integrity Agreement through September 2015;

demand for and market acceptance of our new and existing
products;

recently enacted healthcare reform legislation and its future
implementation, possible additional legislation, regulation
and other governmental pressures in the United States or
globally, which may affect pricing, reimbursement, taxation
and rebate policies of government agencies and private
payers or other elements of our business;

reform measures,

tax
associated tax risks and potential obligations;

tax authority examinations and

product quality or patient safety issues, leading to product
recalls, withdrawals,
launch delays, sanctions, seizures,
litigation or declining sales;

individual, group or class actions alleging products liability
claims, including an increase in the number of claims during
any period;

future actions of
the United States Food and Drug
Administration or any other regulatory body or government
authority
limit or suspend product
development, manufacturing or sale or result in seizures,
injunctions, monetary sanctions or criminal or civil liabilities;

that could delay,

our ability to enforce our patent rights or patents of third
parties preventing or restricting the manufacture, sale or use
of affected products or technology;

the impact of geographic and product mix on our sales;

retention of our sales representatives and
distributors;

independent

inventory reductions or fluctuations in buying patterns by
wholesalers or distributors; and

any impact of the commercial and credit environment on us
and our customers and suppliers.

Readers should not place undue reliance on forward-looking
statements. Such statements are made as of the date of this
annual report, and we undertake no obligation to update such
statements after this date.

our ability to identify business development and growth
opportunities for existing or future products;

The following management’s discussion and analysis of
financial condition and results of operations (MD&A) describes
the principal factors affecting the results of our operations,
financial condition, and changes in financial condition, as well
as our critical accounting estimates. MD&A is organized as
follows:

Executive overview. This section provides a general
description of our business, a brief discussion of our principal
product lines, significant developments in our business, and
the opportunities, challenges and risks we focus on in the
operation of our business.

Results of operations. This section provides our analysis of
and outlook for the significant line items on our consolidated
statement of operations.

Seasonal nature of business. This section describes the
effects of seasonal fluctuations in our business.

Liquidity and capital resources. This section provides an
analysis of our liquidity and cash flow and a discussion of
our outstanding debt and commitments.

Critical accounting estimates. This section discusses the
accounting estimates that are considered important to our
financial condition and results of operations and require us to
exercise subjective or complex judgments in their application.
All of our significant accounting policies, including our critical
accounting estimates, are summarized in Note 2 to our
consolidated financial statements.

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44
46
47
48
49

Quantitative & Qualitative Disclosures About Market Risk
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations

Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’

Equity and Comprehensive Income

Notes to Consolidated Financial Statements
Management’s Annual Report on Internal Control Over

Financial Reporting

Corporate Information

Executive Overview

Company Description. We are a global orthopaedic medical device company specializing in the design, manufacture and marketing
of devices and biologic products for extremity, hip, and knee repair and reconstruction. Extremity hardware includes implants and
other devices to replace or reconstruct injured or diseased joints and bones of the foot, ankle, hand, wrist, elbow and shoulder, which
we generally refer to as either foot and ankle or upper extremity products. We are a leading provider of surgical solutions for the foot
and ankle market. Reconstructive devices are used to replace or repair knee, hip and other joints and bones that have deteriorated or
been damaged through disease or injury. Biologics are used to repair or replace damaged or diseased bone, to stimulate bone
growth and to provide other biological solutions for surgeons and their patients. Within these markets, we focus on the higher-
growth sectors of the orthopaedic industry, such as the foot and ankle market, as well as on the integration of our biologic products
into reconstructive procedures and other orthopaedic applications. Our extensive foot and ankle product portfolio, our over 180
specialized foot and ankle sales representatives, and our increasing level of training of foot and ankle surgeons has resulted in our
being a recognized leader in the foot and ankle market. We have been in business for over 60 years and have built a well-known and
respected brand name.

Our corporate headquarters and U.S. operations are located in Arlington, Tennessee, where we conduct research and development,
sales and marketing administration, manufacturing, warehousing and administrative activities. Our U.S. sales accounted for 60% of
total revenue in 2010. Outside the U.S., we have research, distribution and administrative facilities in Milan, Italy; distribution and
administrative facilities in Amsterdam, the Netherlands; and sales and distribution offices in Canada, Japan and throughout Europe.
We market our products in approximately 60 countries through a global distribution system that consists of a sales force of
approximately 1,200 individuals who promote our products to orthopaedic surgeons and hospitals and other healthcare facilities. At
the end of 2010, we had approximately 400 sales associates and independent sales distributors in the U.S., and approximately 800
sales representatives internationally, who were employed through a combination of our stocking distribution partners and direct
sales offices.

Principal Products. We primarily sell devices and biologic products for extremity, hip, and knee repair and reconstruction. We
specialize in extremity and biologic products used by extremity focused surgeon specialists for the reconstruction, trauma and
arthroscopy markets. Our biologics sales encompass a broad portfolio of products designed to stimulate and augment the natural
regenerative capabilities of the human body. We also sell orthopaedic products not considered to be part of our knee, hip, extremity
or biologic product lines.

Our extremities product line includes products for both the foot and ankle and the upper extremity markets. Our principal foot and
ankle portfolio includes the CHARLOTTE™ foot and ankle system, the DARCO® MFS, DARCO® MRS and DARCO® FRS locked plating
systems, the INBONE™ total ankle system, the VALOR™ ankle fusion nail system, the SIDEKICK™ external fixation systems, and the
Swanson line of toe joint replacement products. Our upper extremity portfolio includes the EVOLVE® radial head prosthesis for elbow
fractures, the MICRONAIL® intramedullary wrist fracture repair system, the RAYHACK® osteotomy system, and the SWANSON line of
finger joint replacement products.

Our biologic products focus on biological musculoskeletal repair and include synthetic and human tissue-based materials. Our
principal biologic products include the GRAFTJACKET® line of soft tissue repair and containment membranes, the ALLOMATRIX® line of
injectable tissue-based bone graft substitutes, the PRO-DENSE® injectable regenerative graft, the OSTEOSET® synthetic bone graft
substitute, the CANCELLO-PURE™ wedge products, and the PRO-STIM™ injectable inductive graft.

Our knee reconstruction products position us well in the areas of total knee reconstruction, revision replacement implants and limb
preservation products. Our principal knee products are the ADVANCE® knee system, the EVOLUTION™ Medial-Pivot Knee System
launched in July 2010, and the PROPHECY™ pre-operative navigation guides for knee replacement.

Our hip joint reconstruction product portfolio provides offerings in the areas of bone-conserving implants, total hip reconstruction,
revision replacement implants and limb preservation. Our hip reconstruction products include the CONSERVE® family of products, the
PROFEMUR® family of hip stems, the DYNASTY™ acetabular cup system, the ANCA-FIT™ hip system, the PERFECTA® hip system, the
PROCOTYL® Acetabular Revision System and the LINEAGE® acetabular system.

Significant Business Developments. Net sales grew 6% in 2010, totaling $519.0 million, compared to $487.5 million in 2009. Our
extremity product line contributed significantly to our performance in 2010, achieving a 16% growth rate. Additionally, our knee and
hip product lines both grew by 5%.

Our U.S. extremity business experienced year-over-year growth from 2009 to 2010 totaling 14%, primarily due to the continued
success of our INBONE™ total ankle system, increased sales of our ORTHOLOC™ polyaxial trauma plating system, launched in late 2009,
and increased sales of our VALOR™ ankle fusion nail system, which had a full commercial launch in June of 2010.

Our international sales increased by 11% during 2010 as compared to 2009. This increase was driven by continued growth in our
Asian markets and the substantial majority of our European markets, as well as our increased presence in Australia, partially offset by
lower sales to our stocking distributor in Turkey. Additionally, our 2010 sales included a $1.5 million favorable currency impact as
compared to 2009.

Our net income increased to $17.8 million in 2010, from $12.1 million in 2009. The substantial majority of this increase is driven by
changes in certain expenses that are not part of our on-going operations, including the $5.6 million provision for potential losses
associated with a trade receivable recorded in 2009 and the $2.6 million write-off of cumulative translation adjustment (CTA) balances
for certain subsidiaries that were substantially liquidated in 2009, as well as lower levels of restructuring expenses. Additionally,
during 2010 our net income increased due to profits associated with higher levels of sales, as well as lower levels of amortization
expense.

In January 2011, we announced the extension of our supply agreement with LifeCell Corporation, a business unit of Kinetic Concepts,
Inc. (KCI) for the supply of GRAFTJACKET® Regenerative Tissue Matrix through December 2018 for orthopaedic markets. In addition,
we entered into an agreement with KCI to license our GRAFTJACKET® brand to KCI for exclusive use in wound markets. Consideration
to be paid by KCI consists primarily of $8.5 million payable over the next twelve months, as well as payments based on future sales of
licensed products. The license agreement is expected to have a negative impact on our global sales growth rate of approximately 1%
to 2% in 2011 and our U.S. biologics sales growth rate of 8% to 15%. However, we do not expect it to have an impact on our earnings
results.

In February 2011, we entered into an amended and restated credit agreement. At the same time, we announced that we had
commenced a tender offer for any and all of our outstanding 2.625% Convertible Senior Notes due 2014 (Notes). We expect to fund
the purchase of notes tendered in the tender offer and pay the related fees and expenses from 1) borrowings under the amended
and restated credit agreement and 2) our existing cash and cash equivalents and marketable securities balances. Until the expiration
of the tender offer, we are unable to estimate the amount we will draw on the credit agreement, nor the amount of the Notes that will
remain outstanding upon completion of the tender offer. In the event that all of the Notes are validly tendered in the tender offer and
not validly withdrawn, we expect to draw approximately $150 million on the credit agreement to fund the purchase of the Notes.

Opportunities and Challenges. Our results of operations can be substantially affected not only by global economic conditions, but
also by local operating and economic conditions, which can vary substantially by market. Unfavorable conditions can depress sales in
a given market and may result in actions that adversely affect our margins, constrain our operating flexibility, or result in charges
which are unusual or non-recurring. The current state of the global economy has negatively impacted industry growth rates in both
U.S. and international markets, and we are unable to predict when these markets will return to historical rates of growth.

In our U.S. markets, we expect that an expansion of our sales force and product offerings will favorably impact our extremities and
biologics businesses in 2011. However, we continue to expect that our U.S. hip and knee business will continue to be unfavorably
impacted by the economic downturn.

Significant Industry Factors. Our industry is affected by numerous competitive, regulatory, and other significant factors. The growth
of our business relies on our ability to continue to develop new products and innovative technologies, obtain regulatory clearance
and compliance for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture
our products cost-effectively, respond to competitive pressures specific to each of our geographic markets, including our ability to
enforce non-compete agreements, and successfully market and distribute our products in a profitable manner. We, and the entire
industry, are subject to extensive governmental regulation, primarily by the United States Food and Drug Administration (FDA).
Failure to comply with regulatory requirements could have a material adverse effect on our business. Additionally, our industry is
highly competitive and has recently experienced increased pricing pressures, specifically in the areas of reconstructive joint devices.

In December 2007, we received a subpoena from the United States Department of Justice (DOJ) through the United States Attorney’s
Office for the District of New Jersey (USAO) requesting documents for the period January 1998 through the present related to any
consulting and professional service agreements with orthopaedic surgeons in connection with hip or knee joint replacement
procedures or products. This subpoena was served shortly after several of our knee and hip competitors agreed to resolutions with
the DOJ after being subjects of investigations involving the same subject matter.

On September 29, 2010, our wholly-owned subsidiary, Wright Medical Technology, Inc. (WMT) entered into a 12-month Deferred
Prosecution Agreement (DPA) with the USAO and a Civil Settlement Agreement (CSA) with the United States. Under the DPA, the
USAO agrees not to prosecute WMT in connection with the matter if WMT satisfies its obligations during the 12 month term of the
DPA. Pursuant to the CSA, WMT settled civil and administrative claims relating to the matter for a payment of $7.9 million without any
admission by WMT. In conjunction with the CSA, WMT also entered into a five year Corporate Integrity Agreement (CIA) with the
Office of the Inspector General of the United States Department of Health and Human Services. Pursuant to the DPA, an independent
monitor will review and evaluate WMT’s compliance with its obligations under the DPA. Together, these agreements resolve the
investigation commenced by the USAO in December 2007. The USAO specifically acknowledges in the DPA that it does not allege
that WMT’s conduct adversely affected patient health or patient care.

The DPA and CIA impose certain obligations on WMT to maintain compliance with U.S. healthcare regulatory laws. Our failure to do
so could expose us to significant liability including, but not limited to, extension of the term of the DPA by up to six months, exclusion
from federal healthcare program participation, including Medicaid and Medicare, civil and criminal fines or penalties, and additional
litigation cost and expense.

In March 2010, comprehensive health care reform legislation in the form of the Patient Protection and Affordable Health Care Act and

the Health Care and Education Reconciliation Act was enacted. Among other initiatives, these bills impose a 2.3% excise tax on U.S.
sales of medical devices after December 31, 2012.

A detailed discussion of these and other factors is provided in our annual report on Form 10-K for the year ended December 31,
2010 within Item 1A.

Results of Operations

Comparison of the year ended December 31, 2010 to the year ended December 31, 2009

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands) and
as percentages of net sales:

Net sales
Cost of sales

Gross profit
Operating expenses:

Selling, general and administrative
Research and development
Amortization of intangible assets
Restructuring charges

Total operating expenses

Operating income

Interest expense, net
Other income, net

Income before income taxes

Provision for income taxes

Net income

Year Ended December 31,

2010

2009

Amount

% of Sales

Amount

% of Sales

518,973
158,456
360,517

282,413
37,300
2,711
919
323,343

37,174
6,123
130
30,921
13,080

17,841

100.0 %
30.5 %
69.5 %

54.4 %
7.2 %
0.5 %
0.2 %
62.3 %

7.2 %
1.2 %
0.0 %
6.0 %
2.5 %

3.4 %

487,508
148,715
338,793

270,456
35,691
5,151
3,544
314,842

23,951
5,466
2,873
15,612
3,481

12,131

100.0 %
30.5 %
69.5 %

55.5 %
7.3 %
1.1 %
0.7 %
64.6 %

4.9 %
1.1 %
0.6 %
3.2 %
0.7 %

2.5 %

The following table sets forth our net sales by product line for the periods indicated (in thousands) and the percentage of year-
over-year change:

Hip products
Knee products
Extremity products
Biologics products
Other
Total net sales

Year Ended
December 31,
2010

Year Ended
December 31,
2009

% Change

176,687
128,854
124,490
79,231
9,711
518,973

167,869
122,178
107,375
79,120
10,966
487,508

5.3 %
5.5 %
15.9 %
0.1 %
(11.4 %)
6.5 %

The following graphs illustrate our product line sales as a percentage of total net sales for the years ended December 31, 2010 and
2009:

2010

2009

Net sales. Our U.S. net sales totaled $310.0 million in 2010 and $299.6 million in 2009, representing approximately 60% of total net
sales in 2010, 61% of total net sales in 2009 and a 3% increase in 2010 over 2009. Our international net sales totaled $209.0 million in
2010, an 11% increase as compared to net sales of $187.9 million in 2009. Our 2010 international net sales included a favorable
foreign currency impact of approximately $1.5 million when compared to 2009 net sales, due to the 2010 favorable performance of
the Japanese yen and the Canadian dollar against the U.S. dollar, which was partially offset by the unfavorable performance of the
euro against the U.S. dollar. The favorable currency impact, the growth of our sales in Australia, and an increase in international sales
due to continued growth in our Asian markets, were partially offset by a reduction in sales to our stocking distributor in Turkey.

Our net sales growth in 2010 was led by our extremities product line, which increased 16% over 2009, while our knee and hip
businesses increased 5% and 5%, respectively, and our biologic business was relatively flat.

Our hip product net sales totaled $176.7 million in 2010, representing a 5% increase over 2009. This increase was driven by increased
international sales of our PROFEMUR® hip system, primarily within Japan and Europe, as well as a $1.1 million favorable currency
impact compared to 2009. In 2010, U.S. hip sales declined 3% compared to 2009, due to declines in both unit sales and pricing.

Net sales of our knee products totaled $128.9 million in 2010, representing growth of 5% over 2009. In the U.S., knee sales increased
2% over 2009 due to increased unit sales, which were partially offset by declines in pricing. Internationally, knee sales increased 10%
in 2010 over 2009.

Our extremity product net sales increased to $124.5 million in 2010, representing growth of 16% over 2009. This increase was
primarily driven by our U.S. extremity business, which increased 14%, primarily resulting from the continued success of our INBONE™
total ankle system, increased sales of our ORTHOLOC™ polyaxial trauma plating system, launched in late 2009, and increased sales of
our VALOR™ ankle fusion nail system, which had a limited launch in 2009 and a full commercial launch in June of 2010. International
extremity sales growth of 27% was primarily driven by our Australian subsidiary.

Net sales of our biologic products totaled $79.2 million in 2010, which was relatively flat as compared to 2009. Our U.S. biologics sales
were flat compared to 2009, as increased sales of our PRO-STIM™ osteoinductive bone graft substitute, which had a limited launch in
late 2009 and a full commercial launch in October 2010, were offset by continued declines of our GRAFTJACKET® tissue repair and
containment membranes and our ALLOMATRIX® line of injectable tissue-based bone graft substitutes. Our international net sales of
biologics grew 3% over prior year, due to increased sales by our Australian subsidiary, which were offset by decreased sales to our
stocking distributor in Turkey.

Cost of sales. Our cost of sales as a percentage of net sales was 30.5% in both 2009 and 2010. Unfavorable geographic mix shifts, as
our more profitable U.S. sales decreased as a percentage of total sales, along with unfavorable pricing in our U.S. hip and knee
business were offset by lower levels of excess and obsolete inventory provisions and favorable manufacturing variances. Our cost of
sales and corresponding gross profit percentages can be expected to fluctuate in future periods depending upon changes in our
product sales mix and prices, distribution channels and geographies, manufacturing yields, period expenses, levels of production
volume and currency exchange rates.

Selling, general and administrative. Our selling, general and administrative expenses as a percentage of net sales totaled 54.4% and
55.5% in 2010 and 2009, respectively. Selling, general and administrative expense for 2010 included $9.9 million of non-cash, stock-
based compensation expense (1.9% of net sales) and $10.9 million of costs associated with our U.S. government inquiries and our

DPA (2.1% of net sales). During 2009, selling, general and administrative expense included $10.1 million of non-cash, stock-based
compensation expense (2.1% of net sales), $7.8 million of costs, primarily legal fees, associated with U.S. government inquiries (1.6%
of net sales), and a $5.6 million provision for potential losses associated with a trade receivable (1.1% of net sales). The remaining
expenses declined by 0.3 points as a percentage of net sales primarily as a result of leveraging of expenses in Europe, which were
partially offset by investments in our foot and ankle sales force and higher levels of cash incentive compensation.

We anticipate that our selling, general and administrative expenses will increase in absolute dollars to the extent that additional
growth in net sales results in increases in sales commissions and royalty expense associated with those sales and requires us to
expand our infrastructure. Further, in the near term, we anticipate that these expenses may increase as a percentage of net sales as
we make strategic investments to grow our business, as we incur expenses associated with our compliance with the DPA, and as our
spending related to the global compliance requirements of our industry increases.

Research and development. Our investment in research and development activities represented 7.2% and 7.3% of net sales in 2010
and 2009, respectively. Our research and development expense included non-cash, stock-based compensation expense of $1.9
million (0.4% of net sales) in 2010, compared to $1.8 million (0.4% of net sales) in 2009. The remaining expenses were relatively flat as
a percentage of net sales as spending grew at the same rates as sales.

We anticipate that our research and development expenditures will remain relatively flat as a percentage of net sales, but will
increase in absolute dollars as we continue to increase our investment in product development initiatives and clinical studies to
support regulatory approvals and provide expanded proof of the efficacy of our products.

Amortization of intangible assets. Charges associated with amortization of intangible assets totaled $2.7 million in 2010, as
compared to $5.2 million in 2009. The decrease is due to a significant portion of our intangible assets that became fully amortized at
the end of 2009. Based on the intangible assets held at December 31, 2010, we expect to amortize approximately $2.5 million in 2011,
$2.3 million in 2012, $2.0 million in 2013, $1.8 million in 2014, and $1.7 million in 2015.

Interest expense (income), net. Interest expense (income), net, consists of interest expense of $6.6 million and $6.5 million in 2010
and 2009, respectively, primarily from our $200 million of Convertible Senior Notes due 2014 issued in November 2007. This was
partially offset by interest income of $500,000 and $1.0 million during 2010 and 2009, respectively, generated by our invested cash
balances and investments in marketable securities. The decline in interest income is due to the overall decline in interest rates on our
invested cash balances and investments in marketable securities during 2010.

The amounts of interest income we realize in 2011 and beyond are subject to variability, dependent upon both the rate of invested
returns we realize and the amount of excess cash balances on hand.

Other expense (income), net. Other expense (income), net, totaled $130,000 of expense during 2010 compared to $2.9 million of
expense during 2009. During 2009, we recognized $2.6 million of expense related to the write-off of the CTA balances for certain
subsidiaries that have been substantially liquidated.

Provision for income taxes. We recorded tax provisions of $13.1 million and $3.5 million in 2010 and 2009, respectively. Our effective
tax rate for 2010 and 2009 was 42.3% and 22.3% respectively. The increase in our effective tax rate is primarily due to changes in our
valuation allowance in both years, higher levels of non-deductible expenses in 2010, primarily due to a portion of the civil settlement
payment that is considered not deductible, and the greater impact of certain deductions on our lower income in 2009.

Comparison of the year ended December 31, 2009 to the year ended December 31, 2008

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands) and
as percentages of net sales:

Year Ended December 31,

2009

2008

Amount

% of Sales

Amount

% of Sales

Net sales
Cost of sales

Gross profit
Operating expenses:

Selling, general and administrative
Research and development
Amortization of intangible assets
Restructuring charges
Acquired in-process research and development

Total operating expenses

Operating income

Interest expense (income), net
Other (income) expense, net

Income before income taxes

Provision for income taxes

Net income

487,508
148,715
338,793

270,456
35,691
5,151
3,544
-
314,842

23,951
5,466
2,873
15,612
3,481
12,131

100.0 %
30.5 %
69.5 %

$ 465,547
134,377
331,170

100.0 %
28.9 %
71.1 %

55.5 %
7.3 %
1.1 %
0.7 %
0.0 %
64.6 %

4.9 %
1.1 %
0.6 %
3.2 %
0.7 %
2.5 %

261,396
33,292
4,874
6,705
2,490
308,757

22,413
2,181
(1,338 )
21,570
18,373
3,197

56.1 %
7.2 %
1.0 %
1.4 %
0.5 %
66.3 %

4.8 %
0.5 %
(0.3 %)
4.6 %
3.9 %
0.7 %

The following table sets forth our net sales by product line for the periods indicated (in thousands) and the percentage of year-
over-year change:

Hip products
Knee products
Extremity products
Biologics products
Other

Total net sales

Year Ended
December 31,
2009

Year Ended
December 31,
2008

% Change

167,869
122,178
107,375
79,120
10,966

487,508

160,788
119,895
88,890
82,399
13,575

465,547

4.4 %
1.9 %
20.8 %
(4.0 %)
(19.2 %)

4.7 %

The following graphs illustrate our product line sales as a percentage of total net sales for the years ended December 31, 2009 and
2008:

2009

2008

Net sales. Our U.S. net sales totaled $299.6 million in 2009 and $282.1 million in 2008, representing approximately 61% of total net
sales in each year and a 6% increase over 2008. Our international net sales totaled $187.9 million in 2009, a 2% increase as compared

to net sales of $183.5 million in 2008. Our 2009 international net sales included an unfavorable foreign currency impact of
approximately $3.0 million when compared to 2008 net sales, principally resulting from the 2009 performance of the Japanese yen
and the euro against the U.S. dollar. The unfavorable currency impact, declines in France, and a reduction in sales to our stocking
distributor in Turkey were offset by an increase in international sales due to continued growth in our Asian markets, primarily within
our hip product lines, as well as certain of our European markets.

From a product line perspective, our net sales growth for 2009 was attributable to increases in our extremity, hip and knee product
lines while we experienced declines in our biologics product line. For 2009, we experienced growth of 21%, 4% and 2%, in our
extremity, hip, and knee product lines, respectively, while our biologics product line declined 4%. During 2009, our extremity sales
growth was attributable primarily to the continued success of our CHARLOTTE™ foot and ankle system and our DARCO® plating
systems, as well as sales related to our INBONE™ and Rayhack® products, which were acquired in April 2008 and September 2008,
respectively. The increase in our hip product sales was driven by increased sales of our PROFEMUR® hip system, and our DYNASTY®
acetabular cup system, which was launched during the second quarter 2008. Sales of our knee products increased in 2009 compared
to the prior year as a result of growth in our ADVANCE® knee systems, which was partially offset by declines across our other, more
mature knee product offerings. The decline in our biologics business in 2009 was primarily attributable to lower levels of sales of our
ALLOMATRIX® product line, which was partially offset by increased sales of our PRO-DENSE® injectable regenerative graft and our
GRAFTJACKET® tissue repair products.

Cost of sales. In 2009, our cost of sales as a percentage of net sales increased from 28.9% in 2008 to 30.5% in 2009. This increase was
primarily attributable to higher levels of excess and obsolete inventory provisions, increased raw material and other manufacturing
costs, and unfavorable currency exchange rates.

Operating expenses. Our total operating expenses decreased, as a percentage of net sales, by 1.7 percentage points to 64.6% in 2009
from 2008. Operating expenses include selling, general and administrative expenses, research and development expenses,
amortization of intangibles and restructuring charges. The decrease in operating expenses was attributed primarily to decreased
restructuring expenses, as well as lower levels of expenses due to cost saving initiatives primarily in our European subsidiaries, lower
levels of cash incentive compensation and the 2008 charge for in-process research and development, all of which were partially offset
by costs associated with increased expenses associated with global compliance efforts.

Interest expense (income), net. Interest expense (income), net, consisted of interest expense of $6.5 million and $7.0 million in 2009
and 2008, respectively, primarily from our $200 million of Convertible Senior Notes due 2014 issued in November 2007, our capital
lease agreements, and, in 2008, certain of our factoring agreements. This was partially offset by interest income of $1.0 million and
$4.8 million during 2009 and 2008, respectively, generated by our invested cash balances and investments in marketable securities.
The decline in interest income is due to the overall decline in interest rates on our invested cash balances and investments in
marketable securities during 2009.

Other expense (income), net. Other expense (income), net, totaled $2.9 million of expense during 2009 compared to $1.3 million of
income during 2008. During 2009, we recognized $2.6 million of expense related to the write-off of the CTA balances for certain
subsidiaries that had been substantially liquidated. During 2008, we recognized $900,000 of deferred gain associated with the 2007
disposition of our ADCON®-Gel assets.

Provision for income taxes. Our effective tax rate for 2009 and 2008 was 22.3% and 85.2%, respectively. In 2009, we reduced our
valuation allowance as a result of a change in estimate regarding the jurisdiction where certain deductions would be recognized for
tax purposes, which decreased our effective tax rate by 6 percentage points. Our 2008 effective tax rate includes a tax provision of
$12.8 million to adjust our valuation allowance, primarily to record a valuation allowance against all of our remaining deferred tax
assets associated with net operating losses in France, which increased our effective tax rate by 59 percentage points.

Seasonal Nature of Business

We traditionally experience lower sales volumes in the third quarter than throughout the rest of the year as many of our
reconstructive products are used in elective procedures, which generally decline during the summer months, typically resulting in
selling, general and administrative expenses and research and development expenses as a percentage of sales that are higher during
this period than throughout the rest of the year. In addition, our first quarter selling, general and administrative expenses include
additional expenses that we incur in connection with the annual meeting held by the American Academy of Orthopaedic Surgeons
(AAOS) and the American College of Foot and Ankle Surgeons (ACFAS). The AAOS meeting, which is the largest orthopaedic meeting
in the world, features the presentation of scientific papers and instructional courses for orthopaedic surgeons. During this three-day
event, we display our most recent and innovative products for these surgeons. The ACFAS meeting, similar to AAOS, is another three-
day event to display our latest innovations in the foot and ankle market.

Restructuring
Toulon, France

In 2007, we announced our plans to close our facilities in Toulon, France. This announcement came after a thorough evaluation in
which we determined that we had excess manufacturing capacity and redundant distribution and administrative resources that
would be best eliminated through the closure of this facility. The majority of our restructuring activities were complete by the end of

2007, with production now conducted solely in our existing manufacturing facility in Arlington, Tennessee and the distribution
activities being carried out from our European headquarters in Amsterdam, the Netherlands. We estimated that total pre-tax
restructuring charges would be approximately $28 million to $30 million. We have recognized $27.3 million through December 31,
2010, and have completed our restructuring activities in Toulon, France. We began realizing the benefits from this restructuring
within selling, general and administrative expenses in 2008. While we began realizing the benefits from this restructuring within cost
of sales in 2009, unfavorable currency exchange rates and increased raw material and other manufacturing costs have offset some of
those benefits. See Note 15 to our consolidated financial statements for further discussion of our restructuring charges.

Creteil, France

In October 2009, we announced plans to close our distribution and finance support office in Creteil, France, to migrate all relevant
French distribution and support functions into our European organization based out of our European headquarters in Amsterdam,
the Netherlands. Direct sales in France will continue and will be serviced by independent sales agents. We estimated that total pre-tax
restructuring charges would be approximately $3 million to $4 million. We recognized a total of $2.8 million through June 30, 2010,
when we completed our restructuring activities in Creteil, France. We began realizing the benefits of this restructuring within selling,
general and administrative expenses in the second quarter of 2010 and have realized an improvement in working capital. See Note
15 to our consolidated financial statements for further discussion of our restructuring charges.

Liquidity and Capital Resources

The following table sets forth, for the periods indicated, certain liquidity measures (in thousands):

Cash and cash equivalents
Short-term marketable securities
Long-term marketable securities
Working capital
Line of credit availability

As of December 31,

2010

2009

153,261
19,152
17,193
426,286
100,000

84,409
86,819
-
421,647
100,000

During 2010, we began investing in long-term marketable securities with maturity dates ranging from 17 to 36 months, consisting of
investments in government, agency, and corporate bonds. As of December 31, 2010, the weighted average maturity for these
investments was 21 months.

Operating Activities. Cash provided by operating activities totaled $73.2 and $71.8 million in 2010 and 2009, respectively, as
compared to cash used by operating activities of $3.6 million in 2008. The increase in cash provided by operating activities in 2010 as
compared to 2009 was primarily due to a decrease in our provision for deferred taxes, which was mostly offset by changes in working
capital, primarily due to the decrease in our inventory balance in 2009.

In 2009 compared to 2008, the increase in cash from operating activities was primarily attributable to changes in working capital, as
inventory balances decreased significantly due to a focus on inventory management during 2009, and accounts receivable decreased
as the result of diligent collection efforts, which were partially offset by the 2008 liquidation of our investments in auction rate
securities that were classified as trading securities.

Investing Activities. Our capital expenditures totaled $49.0 million in 2010, $37.2 million in 2009, and $61.9 million in 2008. The
increase in 2010 compared to 2009 is attributable to increased spending on manufacturing equipment and surgical instrumentation
primarily associated with our recent launch of our EVOLUTION™ medial-pivot knee system, as well as increased spending related to
the expansion of our facilities in Arlington, Tennessee. The decrease in 2009 compared to 2008 is attributable to lower levels of
expenditures related to the expansion of our Arlington, Tennessee facilities, as well as lower levels of investments in surgical
instrumentation related to acquired and new products. Our industry is capital intensive, particularly as it relates to surgical
instrumentation. Historically, our capital expenditures have consisted principally of purchased manufacturing equipment, research
and testing equipment, computer systems, office furniture and equipment and surgical instruments. We expect to incur capital
expenditures in 2011 of approximately $50 million for routine capital expenditures.

Financing Activities. During 2010, cash used in financing activities totaled $200,000 compared to cash provided by financing
activities in 2009 of $500,000. This decrease is primarily the result of the payment of financing charges associated with the renewal of
our revolving credit facility in June 2010.

In early 2009, we terminated certain accounts receivable factoring agreements. While these factoring agreements were active, the
cash proceeds, net of the amount of factored receivables collected, were reflected as cash flows from financing activities in our
consolidated statements of cash flows. The proceeds received under these agreements during 2008 totaled $6.6 million. These
proceeds were offset by payments for factored receivables collected of $7.0 million in 2008.

In 2011, we will make continued payments under our long-term capital leases, including interest, of $1.2 million.

On June 30, 2010, we renewed our revolving credit facility. The revolving credit facility has 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 rate or a
Eurodollar rate plus an applicable margin that ranges from 0.25% to 2.50% depending on the type of loan and our consolidated
leverage ratio, with a current annual base rate of 3.25% and a Eurodollar rate of 0.46% (6 month rate).

The payment of our indebtedness under the credit facility is secured by pledges of 100% of the capital stock of our U.S. subsidiaries
and 65% of the capital stock of our foreign subsidiaries, and is guaranteed by our U.S. subsidiaries. The credit agreement contains
customary financial and non-financial covenants. Upon the occurrence of an event of default, the lenders may declare that all
principal, interest and other amounts owed are immediately due and payable and may exercise any other available right or remedy.
The events of default include, but are not limited to, non-payment of amounts owed, failure to perform covenants, breach of
representations and warranties, institution of insolvency proceedings, entry of certain judgments, and occurrence of a change in
control.

The credit facility was amended and restated as described below.

On February 10, 2011, we entered into an amended and restated revolving credit agreement. This credit facility has revolver
availability of $200 million, and availability in a delayed draw term loan of up to $150 million. The total availability can be increased by
up to an additional $100 million at our request and subject to the agreement of the lenders. As of the date of this filing, there are no
amounts outstanding under this agreement. Borrowings under the restated credit agreement will bear interest at the sum of a base
rate or a Eurodollar rate plus an applicable margin that ranges from 0.0% to 2.75%, depending on the type of loan and our
consolidated leverage ratio. The term of the restated revolving credit agreement extends through June 1, 2014; however, if at least
$100 million of our Convertible Senior Notes due 2014 are tendered (as discussed below), the term will be extended through
February 10, 2016.

During 2007, we issued $200 million of 2.625% Convertible Senior Notes due 2014 (Notes), which generated net proceeds of $193.5
million. The Notes require us to pay interest semiannually at an annual rate of 2.625%. The Notes 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 (subject to adjustment upon
the occurrence of specified events), which represents an initial conversion price of $32.65 per share. On February 10, 2011, we
announced the commencement of a tender offer to purchase for cash any and all of our outstanding 2.625% Convertible Senior
Notes due 2014. The tender offer is expected to expire at 8:00 A.M. New York City time on March 11, 2011, unless extended by us or
earlier terminated. At this time, we cannot estimate the amount, if any, of the Notes that will be tendered, nor the amount of Notes or
aggregate indebtedness that will remain outstanding upon the completion of the tender offer. We will make scheduled interest
payments in 2011 related to the Notes of up to $5.3 million, depending upon the amount of Notes tendered in the tender offer. We
expect to fund the purchase of the Notes tendered from borrowings under the restated credit facility and existing cash and
marketable securities balances.

Contractual Cash Obligations. At December 31, 2010, we had contractual cash obligations and commercial commitments as
follows (in thousands):

Total

2011

Payments Due by Periods
2012-2013

2014-2015

After 2015

Amounts reflected in consolidated balance sheet:
Lease obligations(1)
Convertible senior notes(2)
Amounts not reflected in consolidated balance sheet:
Operating leases
Interest on convertible senior notes(3)
Purchase obligations
Royalty and consulting agreements

3,064
200,000

20,672
20,563
2,300
992

1,161
-

1,887
-

16
200,000

9,920
5,250
2,300
202

8,498
10,500
-
349

1,327
4,813
-
294

-
-

927
-
-
147

Total contractual cash obligations

247,591

18,833

21,234

206,450

1,074

(1)
(2)

(3)

Payments include amounts representing interest.
Represents long-term debt payment provided holders of the Convertible Senior Notes due 2014 do not exercise the option to convert each
$1,000 note into 30.6279 shares of our common stock. Our Convertible Senior Notes are discussed further in Note 8 to our consolidated
financial statements. On February 10, 2011, we announced the commencement of a tender offer to purchase for cash any and all of our
outstanding 2.625% Convertible Senior Notes due 2014.
Represents interest on Convertible Senior Notes due 2014 payable semiannually with an annual interest rate of 2.625%.

The amounts reflected in the table above for capital lease obligations represent future minimum lease payments under our capital
lease agreements, which are primarily for certain property and equipment. The present value of the minimum lease payments are
recorded in our balance sheet at December 31, 2010. The minimum lease payments related to these leases are discussed further in
Note 8 to our consolidated financial statements.

The amounts reflected in the table above for operating leases represent future minimum lease payments under non-cancelable
operating leases primarily for certain equipment and office space. Portions of these payments are denominated in foreign currencies
and were translated in the table above based on their respective U.S. dollar exchange rates at December 31, 2010. These future

payments are subject to foreign currency exchange rate risk. In accordance with U.S. generally accepted accounting principles, our
operating leases are not recognized in our consolidated balance sheet; however, the minimum lease payments related to these
agreements are disclosed in Note 16 to our consolidated financial statements.

Our purchase obligations reflected in the table above consist of minimum purchase obligations related to certain supply agreements.
The royalty and consulting agreements in the above table represent minimum payments under non-cancelable contracts with
consultants that are contingent upon future services. Portions of these payments are denominated in foreign currencies and were
translated in the table above based on their respective U.S. dollar exchange rates at December 31, 2010. These future payments are
subject to foreign currency exchange rate risk. Our purchase obligations and royalty and consulting agreements are disclosed in Note
16 to our consolidated financial statements.

Contingent consideration of up to $400,000 may be paid related to the acquisition of certain assets associated with the EZ Concept
Surgical Device Corporation (EZ Frame). The potential additional cash payments are based on the future financial performance of the
acquired assets.

In addition to the contractual cash obligations discussed above, all of our U.S. sales and a portion of our international sales are subject
to commissions based on net sales. A substantial portion of our global sales are subject to royalties earned based on product sales.

Additionally, as of December 31, 2010, we had $3.2 million of unrecognized tax benefits recorded within “Other liabilities” in our
consolidated balance sheet. This represents the tax benefits associated with various tax positions taken, or expected to be taken, on
U.S. and international tax returns that have not been recognized in our financial statements due to uncertainty regarding their
resolution. We are unable to make a reliable estimate of the eventual cash flows by period that may be required to settle these
matters. Certain of these matters may not require cash settlement due to the existence of net operating loss carryforwards. Therefore,
our unrecognized tax benefits are not included in the table above. See Note 10 to our consolidated financial statements.

Other Liquidity Information. We have funded our cash needs since 2000 through various equity and debt issuances and through
cash flow from operations. In 2001, we completed our initial public offering of 7,500,000 shares of common stock, which generated
$84.8 million in net proceeds. In 2002, we completed a secondary offering of 3,450,000 shares of common stock, which generated
$49.5 million in net proceeds. In 2007, we issued $200 million of 2.625% Convertible Senior Notes due 2014, which generated net
proceeds totaling $193.5 million.

Although it is difficult for us to predict our future liquidity requirements, we believe that our current cash balance of approximately
$153.3 million, our marketable securities balances totaling $36.3 million and available borrowings under the new credit agreement
will be sufficient for the foreseeable future to fund our working capital requirements and operations, permit anticipated capital
expenditures in 2011 of approximately $50 million, meet our contractual cash obligations in 2011, and purchase any of our 2.625%
Convertible Senior Notes tendered in the tender offer.

Critical Accounting Estimates
All of our significant accounting policies and estimates are described in Note 2 to our consolidated financial statements. Certain of
our more critical accounting estimates require the application of significant judgment by management in selecting the appropriate
assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We
develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry,
information provided by our customers and information available from other outside sources, as appropriate. Different, reasonable
estimates could have been used in the current period. Additionally, changes in accounting estimates are reasonably likely to occur
from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in
financial condition or results of operations.

We believe that the following financial estimates are both important to the portrayal of our financial condition and results of
operations and require subjective or complex judgments. Further, we believe that the items discussed below are properly recorded in
the financial statements for all periods presented. Our management has discussed the development, selection and disclosure of our
most critical financial estimates with the audit committee of our board of directors and with our independent auditors. The
judgments about those financial estimates are based on information available as of the date of the financial statements. Those
financial estimates include:

Revenue recognition. Our revenues are primarily generated through two types of customers, hospitals and surgery centers and
stocking distributors, with the majority of our revenue derived from sales to hospitals. Our products are sold through a network of
employee and independent sales representatives in the U.S. and by a combination of employee sales representatives, independent
sales representatives and stocking distributors outside the U.S. We record revenues from sales to hospitals and surgery centers when
they take title to the product, which is generally when the product is surgically implanted in a patient.

We record revenues from sales to our stocking distributors at the time the product is shipped to the distributor. Our stocking
distributors, who sell the products to their customers, take title to the products and assume all risks of ownership. Our distributors are
obligated to pay us within specified terms regardless of when, if ever, they sell the products. In general, our distributors do not have
any rights of return or exchange; however, in limited situations we have repurchase agreements with certain stocking distributors.
Those certain agreements require us to repurchase a specified percentage of the inventory purchased by the distributor within a

specified period of time prior to the expiration of the contract. During those specified periods, we defer the applicable percentage of
the sales. Approximately $250,000 and $186,000 of sales related to these types of agreements were deferred and not yet recognized
as revenue as of December 31, 2010 and 2009, respectively.

We must make estimates of potential future product returns related to current period product revenue. To do so, we analyze our
historical experience related to product returns when evaluating the adequacy of the allowance for sales returns. Judgment must be
used and estimates made in connection with establishing the allowance for product returns in any accounting period. Our allowances
for product returns of approximately $563,000 and $551,000 are included as a reduction of accounts receivable at December 31, 2010
and 2009, respectively. Should actual future returns vary significantly from our historical averages, our operating results could be
affected.

Allowances for doubtful accounts. We experience credit losses on our accounts receivable and accordingly, we must make estimates
related to the ultimate collection of our accounts receivable. Specifically, we analyze our accounts receivable, historical bad debt
experience, customer concentrations, customer creditworthiness and current economic trends when evaluating the adequacy of our
allowance for doubtful accounts.

We believe that the amount included in our allowance for doubtful accounts has been a historically appropriate estimate of the
amount of accounts receivable that are ultimately not collected. While we believe that our allowance for doubtful accounts is
adequate, the financial condition of our customers and the geo-political factors that impact reimbursement under individual
countries’ healthcare systems can change rapidly, which would necessitate additional allowances in future periods. Our allowances
for doubtful accounts were $9.5 million and $8.6 million, at December 31, 2010 and 2009, respectively, which includes a $1.1 million
provision recorded in 2010 and a $5.6 million provision recorded in 2009 for potential losses related to the trade receivable balances
of certain of our non-U.S. stocking distributors.

Excess and obsolete inventories. We value our inventory at the lower of the actual cost to purchase and/or manufacture the
inventory on a first-in, first-out (FIFO) basis or its net realizable value. We regularly review inventory quantities on hand for excess and
obsolete inventory and, when circumstances indicate, we incur charges to write down inventories to their net realizable value. Our
review of inventory for excess and obsolete quantities is based primarily on our forecast of product demand and production
requirements for the next 24 months. A significant decrease in demand could result in an increase in the amount of excess inventory
quantities on hand. Additionally, our industry is characterized by regular new product development that could result in an increase in
the amount of obsolete inventory quantities on hand due to cannibalization of existing products. Also, our estimates of future
product demand may prove to be inaccurate in which case we may be required to incur charges for excess and obsolete inventory. In
the future, if additional inventory write-downs are required, we would recognize additional cost of goods sold at the time of such
determination. Regardless of changes in our estimates of future product demand, we do not increase the value of our inventory
above its adjusted cost basis. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product
demand, significant unanticipated decreases in demand or technological developments could have a significant impact on the value
of our inventory and our reported operating results.

Charges incurred for excess and obsolete inventory were $9.3 million, $12.5 million and $8.7 million for the years ended December 31,
2010, 2009 and 2008, respectively.

Goodwill and long-lived assets. We have approximately $54.2 million of goodwill recorded as a result of the acquisition of
businesses. Goodwill is tested for impairment annually, or more frequently if changes in circumstances or the occurrence of events
suggest that impairment exists. Based on our single business approach to decision-making, planning and resource allocation, we
have determined that we have only one reporting unit for purposes of evaluating goodwill for impairment. The annual evaluation of
goodwill impairment may require the use of estimates and assumptions to determine the fair value of our reporting unit using
projections of future cash flows. We performed our annual impairment test during the fourth quarter of 2010 and determined that
the fair value of our reporting unit exceeded its carrying value and, therefore, no impairment charge was necessary.

Our business is capital intensive, particularly as it relates to surgical instrumentation. We depreciate our property, plant and
equipment and amortize our intangible assets based upon our estimate of the respective asset's useful life. Our estimate of the useful
life of an asset requires us to make judgments about future events, such as product life cycles, new product development, product
cannibalization and technological obsolescence, as well as other competitive factors beyond our control. We account for the
impairment of long-lived assets in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Section 360, Property, Plant and Equipment (FASB ASC 360). Accordingly, we evaluate impairments of our property,
plant and equipment based upon an analysis of estimated undiscounted future cash flows. If we determine that a change is required
in the useful life of an asset, future depreciation and amortization is adjusted accordingly. Alternatively, if we determine that an asset

has been impaired, an adjustment would be charged to income based on the asset’s fair market value, or discounted cash flows if the
fair market value is not readily determinable, reducing income in that period.

Product liability claims and other litigation. Periodically, claims arise involving the use of our products. We make provisions for
claims specifically identified for which we believe the likelihood of an unfavorable outcome is probable and an estimate of the
amount of loss has been developed. We have recorded at least the minimum estimated liability related to those claims where a range
of loss has been established. As additional information becomes available, we reassess the estimated liability related to our pending
claims and make revisions as necessary. Future revisions in our estimates of the liability could materially impact our results of
operation and financial position. We maintain insurance coverage that limits the severity of any single claim as well as total amounts
incurred per policy year, and we believe our insurance coverage is adequate. We use the best information available to us in
determining the level of accrued product liabilities, and we believe our accruals are adequate. Our accrual for product liability claims
was approximately $1.8 million and $1.1 million at December 31, 2010 and 2009, respectively.

We are also involved in legal proceedings involving contract, patent protection and other matters. We make provisions for claims
specifically identified for which we believe the likelihood of an unfavorable outcome is probable and an estimate of the amount of
loss can be developed.

Accounting for income taxes. Our effective tax rate is based on income by tax jurisdiction, statutory rates and tax saving initiatives
available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate
and evaluating our tax positions. This process includes assessing temporary differences resulting from differing recognition of items
for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our
consolidated balance sheet. Realization of deferred tax assets in each taxable jurisdiction is dependent on our ability to generate
future taxable income sufficient to realize the benefits. Management evaluates deferred tax assets on an ongoing basis and provides
valuation allowances to reduce net deferred tax assets to the amount that is more likely than not to be realized.

Our valuation allowance balances totaled $14.9 million and $17.2 million as of December 31, 2010 and 2009, respectively, due to
uncertainties related to our ability to realize, before expiration, some of our deferred tax assets for both U.S. and foreign income tax
purposes. These deferred tax assets primarily consist of the carryforward of certain tax basis net operating losses and general business
tax credits.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), effective January 1, 2007,
which requires the tax effects of an income tax position to be recognized only if they are “more-likely-than-not” to be sustained based
solely on the technical merits as of the reporting date. Effective July 1, 2009, this standard was incorporated into FASB ASC Section
740, Income Taxes. As a multinational corporation, we are subject to taxation in many jurisdictions and the calculation of our tax
liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If
we ultimately determine that the payment of these liabilities will be unnecessary, we will reverse the liability and recognize a tax
benefit in the period in which we determine the liability no longer applies. Conversely, we record additional tax charges in a period in
which we determine that a recorded tax liability is less than we expect the ultimate assessment to be. Our liability for unrecognized
tax benefits totaled $3.2 million and $2.8 million as of December 31, 2010 and 2009, respectively. See Note 10 to our consolidated
financial statements for further discussion of our unrecognized tax benefits.

We operate within numerous taxing jurisdictions. We are subject to regulatory review or audit in virtually all of those jurisdictions, and
those reviews and audits may require extended periods of time to resolve. Management makes use of all available information and
makes reasoned judgments regarding matters requiring interpretation in establishing tax expense, liabilities and reserves. We believe
adequate provisions exist for income taxes for all periods and jurisdictions subject to review or audit.

Stock-based compensation. We calculate the grant date fair value of non-vested shares as the closing sales price on the trading day
immediately prior to the grant date. We use the Black-Scholes option pricing model to determine the fair value of stock options and
employee stock purchase plan shares. The determination of the fair value of these stock-based payment awards on the date of grant
using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective
variables, which include the expected life of the award, the expected stock price volatility over the expected life of the awards,
expected dividend yield and risk-free interest rate.

We estimate the expected life of options evaluating the historical activity as required by FASB ASC Topic 718, Compensation – Stock
Compensation. We estimate the expected stock price volatility based upon historical volatility of our common stock. The risk-free
interest rate is determined using U.S. Treasury rates where the term is consistent with the expected life of the stock options. Expected
dividend yield is not considered as we have never paid dividends and have no plans of doing so in the future.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares.
Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair
values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based
compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early
termination or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock

options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the
grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that is significantly
higher than the fair values originally estimated on the grant date and reported in our financial statements. There is not currently a
market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these
valuation models.

We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ
from those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only
for those awards that are expected to vest. All stock-based awards are amortized on a straight-line basis over their respective requisite
service periods, which are generally the vesting periods.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, such
stock-based compensation expense in future periods may differ significantly from what we have recorded in the current period and
could materially affect our operating income, net income and net income per share. A change in assumptions may also result in a lack
of comparability with other companies that use different models, methods and assumptions.

See Note 13 to our consolidated financial statements for further information regarding our stock-based compensation disclosures.

Acquisition method accounting. Prior to January 1, 2009, we accounted for acquired businesses using the purchase method of
accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective
fair values. Our consolidated financial statements and results of operations reflect an acquired business after the completion of the
acquisition. The cost to acquire a business, including transaction costs, is allocated to the underlying net assets of the acquired
business in proportion to their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets
acquired is recorded as goodwill.

The amount of the purchase price allocated to intangible assets is determined by estimating the future cash flows associated with the
asset and discounting the net cash flows back to their present values. The discount rate used is determined at the time of the
acquisition in accordance with standard valuation methods. The estimates of future cash flows include forecasted revenues, which
are inherently difficult to predict. Significant judgments and assumptions are required in the forecast of future operating results used
in the preparation of the estimated future cash flows, including profit margins, long-term forecasts of the amounts and timing of
overall market growth and our percentage of that market, discount rates and terminal growth rates.

Effective January 1, 2009, we adopted the provisions of Statement of Financial Accounting Standards No. 141R, Business
Combinations, which significantly changes the accounting for acquired businesses. Effective July 1, 2009, this standard was
incorporated into FASB ASC Section 805, Business Combinations (FASB ASC 805). Under this standard, an acquiring entity is required to
recognize all assets acquired and liabilities assumed at the acquisition date fair value. Legal fees and other transaction-related costs
are expensed as incurred and are no longer included in goodwill as a cost of acquiring the business. FASB ASC 805 also requires,
among other things, acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any
subsequent changes in the fair value of contingent consideration in earnings. In addition, restructuring costs the acquirer expected,
but was not obligated to incur, will be recognized separately from the business acquisition.

Restructuring charges. We evaluate impairment issues for long-lived assets under the provisions of FASB ASC 360. We record
severance-related expenses once they are both probable and estimable in accordance with the provisions of FASB ASC Section 712,
Compensation-Nonretirement Postemployment Benefits, for severance provided under an ongoing benefit arrangement. One-time
termination benefit arrangements and other costs associated with exit activities are accounted for under the provisions of FASB ASC
Section 420, Exit or Disposal Cost Obligations. We estimated the expense for our restructuring initiatives by accumulating detailed
estimates of costs, including the estimated costs of employee severance and related termination benefits, impairment of property,
plant and equipment, contract termination payments for leases and any other qualifying exit costs. Such costs represented
management’s best estimates, which were evaluated periodically to determine if an adjustment was required.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to interest rate risk arises principally from the interest rates associated with our invested cash balances. On
December 31, 2010, we have invested short term cash and cash equivalents and marketable securities of approximately $114 million.
Based on this level of investment, a decrease of 0.25% in interest rates would have a negative annual impact of $284,000 to our
interest income. We currently do not hedge our exposure to interest rate fluctuations, but may do so in the future.

Foreign Currency Exchange Rate Fluctuations

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results.
Approximately 29% and 28% of our total net sales were denominated in foreign currencies during the years ended December 31,
2010 and 2009, and we expect that foreign currencies will continue to represent a similarly significant percentage of our net sales in
the future. Cost of sales related to these sales are primarily denominated in U.S. dollars; however, operating costs related to these
sales are largely denominated in the same respective currencies, thereby partially limiting our transaction risk exposure. For sales not
denominated in U.S. dollars, an increase in the rate at which a foreign currency is exchanged for U.S. dollars will require more of the
foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, if we price our products in the
foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in
U.S. dollars and our competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could
result in our prices not being competitive in a market where business is transacted in the local currency.

A substantial majority of our sales denominated in foreign currencies are derived from European Union countries, which are
denominated in the euro; from Japan, which are denominated in the Japanese yen; from the United Kingdom, which are
denominated in the British pound; and from Canada, which are denominated in the Canadian dollar. Additionally, we have significant
intercompany receivables from our foreign subsidiaries which are denominated in foreign currencies, principally the euro, the yen,
the British pound, and the Canadian dollar. Our principal exchange rate risk, therefore, exists between the U.S. dollar and the euro, the
U.S. dollar and the yen, the U.S. dollar and the British pound, and the U.S. dollar and the Canadian dollar. Fluctuations from the
beginning to the end of any given reporting period result in the revaluation of our foreign currency-denominated intercompany
receivables and payables, generating currency translation gains or losses that impact our non-operating income and expense levels
in the respective period.

As discussed in Note 2 to our consolidated financial statements, we enter into certain short-term derivative financial instruments in
the form of foreign currency forward contracts. These forward contracts are designed to mitigate our exposure to currency
fluctuations in our intercompany balances denominated in euros, Japanese yen, British pounds and Canadian dollars. Any change in
the fair value of these forward contracts as a result of a fluctuation in a currency exchange rate is expected to be offset by a change in
the value of the intercompany balance. These contracts are effectively closed at the end of each reporting period.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Wright Medical Group, Inc.:

We have audited the accompanying consolidated balance sheets of Wright Medical Group, Inc. and subsidiaries (the Company) as
of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated February 10, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.

Memphis, Tennessee

February 10, 2011

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Wright Medical Group, Inc.:

We have audited the effectiveness of internal control over financial reporting of Wright Medical Group, Inc. and subsidiaries (the
Company) as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting
based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2010, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of December 31, 2010 and 2009, and the related consolidated statements of
operations, changes in stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period
ended December 31, 2010, and our report dated February 10, 2011 expressed an unqualified opinion on those consolidated financial
statements.

Memphis, Tennessee

February 10, 2011

Wright Medical Group, Inc.
Consolidated Balance Sheets (In thousands, except share data)

December 31, December 31,

2010

2009

Assets:
Current assets:

Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventories
Prepaid expenses
Deferred income taxes
Other current assets

Total current assets

Property, plant and equipment, net
Goodwill
Intangible assets, net
Marketable securities
Deferred income taxes
Other assets

Total assets

Liabilities and Stockholders’ Equity:
Current liabilities:

Accounts payable
Accrued expenses and other current liabilities
Current portion of long-term obligations

Total current liabilities

Long-term debt and capital lease obligations
Deferred income taxes
Other liabilities

Total liabilities

Commitments and contingencies (Note 16)

Stockholders’ equity:

Common stock, $.01 par value,

authorized: 100,000,000 shares; issued and
outstanding: 39,171,501 shares at December 31, 2010 and
38,668,882 shares at December 31, 2009

Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Total stockholders’ equity

153,261
19,152
105,336
166,339
5,333
32,026
16,143

497,590

158,247
54,172
16,501
17,193
4,125
7,411

755,239

15,862
54,409
1,033

71,304

201,766
5,705
5,492

284,267

379
390,098
22,173
58,322
470,972

Total liabilities and stockholders’ equity

755,239

84,409
86,819
101,720
163,535
6,413
34,824
12,884

490,604

139,708
53,860
17,727
-
5,248
7,137

714,284

13,978
54,643
336

68,957

200,326
157
4,436

273,876

374
376,647
22,906
40,481
440,408

714,284

The accompanying notes are an integral part of these consolidated financial statements.

Wright Medical Group, Inc.
Consolidated Statements of Operations (In thousands, except per share data)

Year Ended December 31,
2009

2008

2010

Net sales
Cost of sales 1

Gross profit

Operating expenses:

Selling, general and administrative 1
Research and development 1
Amortization of intangible assets
Restructuring charges (Note 15)
Acquired in-process research and development

Total operating expenses

Operating income

Interest expense , net
Other expense (income), net

Income before income taxes

Provision for income taxes

Net income

Net income per share (Note 11):

Basic

Diluted

518,973
158,456
360,517

487,508
148,715
338,793

282,413
37,300
2,711
919
-

323,343

37,174
6,123
130

30,921
13,080

270,456
35,691
5,151
3,544
-

314,842

23,951
5,466
2,873

15,612
3,481

17,841

12,131

0.47

0.32

Weighted-average number of shares outstanding-basic

Weighted-average number of shares outstanding-diluted

37,802

37,961

37,366

37,443

465,547
134,377
331,170

261,396
33,292
4,874
6,705
2,490

308,757

22,413
2,181
(1,338 )

21,570
18,373

3,197

0.09

36,933

37,401

_______________________
1 These line items include the following amounts of non-cash, stock-based compensation expense for the periods indicated:

Cost of sales
Selling, general and administrative
Research and development

Year Ended December 31,
2009

2008

2010

1,301
9,924
1,952

1,285
10,077
1,829

1,244
10,644
1,613

The accompanying notes are an integral part of these consolidated financial statements.

Wright Medical Group, Inc.
Consolidated Statements of Cash Flows (In thousands)

Operating activities:
Net income

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:

Depreciation
Stock-based compensation expense
Acquired in-process research and development costs
Amortization of intangible assets
Deferred income taxes
Non-cash write-off of cumulative translation adjustment

(CTA) balances (See Note 2)

Excess tax benefits from stock-based compensation

arrangements

Provision for losses on accounts receivable
Non-cash restructuring charges
Other

Changes in assets and liabilities (net of acquisitions):

Accounts receivable
Inventories
Marketable securities
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other liabilities
Net cash provided by (used in) operating activities

Investing activities:

Capital expenditures
Acquisition of businesses
Purchase of intangible assets
Investment in held-to-maturity marketable securities
Sale and maturities of available-for-sale marketable securities
Investment in available-for-sale marketable securities
Other

Net cash used in investing activities

Financing activities:

Issuance of common stock
Financing under factoring agreements, net
Principal payments of bank and other financing
Excess tax benefits from stock-based compensation arrangements

Net cash (used in) provided by financing activities

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

Year Ended December 31,
2009

2008

2010

17,841

12,131

3,197

35,559
13,177
-
2,711
9,244

32,717
13,191
-
5,151
(9,247 )

26,462
13,501
2,490
4,874
18,325

2,643

(289 )
1,073
246
1,684

(4,666 )
(1,754 )
-
(5,094 )
1,970
1,492
73,194

(49,038 )
(2,923 )
(1,690 )
(4,671 )
135,219
(81,070 )
-

(4,173 )

663
-
(1,150 )
289
(198 )

(63 )
5,339
-
1,815

(4,003 )
13,049
-
5,953
(1,950 )
(4,975 )
71,751

(37,190 )
(6,785 )
(1,037 )
-
71,499
(101,443 )
-

(74,956 )

680
(58 )
(153 )
63
532

(783 )

(1,278 )
939
(63 )
294

(18,729 )
(57,797 )
15,535
(6,666 )
(5,009 )
315
(3,610 )

(61,936 )
(28,914 )
(3,418 )
-
-
(57,037 )
2,363

(148,942 )

12,018
(605 )
(285 )
1,278
12,406

(1,015 )

68,852
84,409
153,261

(3,456 )
87,865
84,409

(141,161 )
229,026
87,865

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Wright Medical Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
For the Years Ended December 31, 2008, 2009 and 2010 (In thousands, except share data)

Common Stock, Voting

Number of
Shares

Amount

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders'
Equity

36,493,183 $

365

338,640 $

25,153

24,623

388,781

Balance at December 31, 2007
2008 Activity:
Net income
Foreign currency translation
Unrealized gain on marketable

securities

Minimum pension liability

adjustment

Total comprehensive loss
Issuances of common stock
Issuance of previously granted

restricted stock

Grant of non-vested shares of

common stock

Cancellation of non-vested shares

of common stock
Tax effect of stock based
compensation activity
Stock-based compensation
Balance at December 31, 2008
2009 Activity:
Net income
Foreign currency translation
Unrealized loss on marketable

securities

Minimum pension liability

adjustment

Total comprehensive income
Write-off of cumulative translation
adjustment (CTA) balances (See
Note 2)

Issuances of common stock
Grant of non-vested shares of

common stock

Cancellation of non-vested shares

of common stock

Vesting of stock-settled phantom
stock units and non-vested
shares of common stock

Tax effect of stock based
compensation activity
Stock-based compensation
Balance at December 31, 2009
2010 Activity:
Net income
Foreign currency translation
Unrealized gain on marketable

securities

Minimum pension liability

adjustment

Total comprehensive income
Issuances of common stock
Grant of non-vested shares of

common stock

Cancellation of non-vested shares

of common stock

Vesting of stock-settled phantom
stock units and non-vested
shares of common stock

Tax effect of stock based
compensation activity
Stock-based compensation
Balance at December 31, 2010

-
-

616,836

434,005

558,184

(80,247 )

-
-

12,011

-
-

38,021,961 $

-
-
372

720
13,223
364,594 $

3,197
-

-
-
28,350

12,131
-

-
-

-
(6,781 )

399

-
-

18,312 $

-
2,398

(438 )

(9 )

2,643
-

3,197
(6,781 )

399

71
(3,114 )
12,018

720
13,223
411,628

12,131
2,398

(438 )

(9 )
14,082

2,643
680

-
-

-
680

(2 )

(1,892 )
13,267
376,647 $

-
-

662

(4 )

-
-
40,481

17,841
-

-
-
22,906

(1,892 )
13,267
440,408

-
(826 )

17,841
(826 )

18
17,108
663

-
-

64,446

718,010

(147,971 )

12,436

-
-
38,668,882 $

-
-

79,976

504,999

(110,540 )

28,184

-
-

-
-
374

-
-

-
-
39,171,501

-
-
379

(424 )
13,217
390,098

-
-
58,322

-
-
22,173

(424 )
13,217
470,972

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Organization and Description of Business

1.
Wright Medical Group, Inc., through Wright Medical Technology, Inc. and other operating subsidiaries (Wright), is a global
orthopaedic medical device company specializing in the design, manufacture and marketing of devices and biologic products for
extremity, hip and knee repair and reconstruction. We are a leading provider of surgical solutions for the foot and ankle market. Our
products are sold primarily through a network of employee sales representatives and independent sales representatives in the United
States (U.S.) and by a combination of employee sales representatives, independent sales representatives and stocking distributors
outside the U.S. We promote our products in approximately 60 countries with principal markets in the U.S., Europe, Canada, Australia
and Japan. We are headquartered in Arlington, Tennessee.

Summary of Significant Accounting Policies

Principles of Consolidation. The accompanying consolidated financial statements include our accounts and those of our wholly
owned U.S. and international subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. The most significant areas requiring the use of management estimates relate
to revenue recognition, the determination of allowances for doubtful accounts and excess and obsolete inventories, the evaluation of
goodwill and long-lived assets, product liability claims and other litigation, income taxes, stock-based compensation, purchase
accounting for business combinations, and accounting for restructuring charges.

Cash and Cash Equivalents. Cash and cash equivalents include all cash balances and short-term investments with original maturities
of three months or less.

Inventories. Our inventories are valued at the lower of cost or market on a first-in, first-out (FIFO) basis. Inventory costs include
material, labor costs and manufacturing overhead. We regularly review inventory quantities on hand for excess and obsolete
inventory and, when circumstances indicate, we incur charges to write down inventories to their net realizable value. Our review of
inventory for excess and obsolete quantities is based primarily on our estimated forecast of product demand and production
requirements for the next twenty-four months. Charges incurred for excess and obsolete inventory included in “Cost of sales” were
$9.3 million, $12.5 million, and $8.7 million for the years ended December 31, 2010, 2009, and 2008, respectively.

Product Liability Claims and Other Litigation. We make provisions for claims specifically identified for which we believe the
likelihood of an unfavorable outcome is probable and an estimate of the amount of loss has been developed. We have recorded at
least the minimum estimated liability related to those claims where a range of loss has been established. Our accrual for product
liability claims was $1.8 million and $1.1 million at December 31, 2010 and 2009, respectively.

Property, Plant and Equipment. Our property, plant and equipment is stated at cost. Depreciation, which includes amortization of
assets under capital lease, is generally provided on a straight-line basis over the estimated useful lives generally based on the
following categories:

Land improvements
Buildings
Machinery and equipment
Furniture, fixtures and office equipment
Surgical instruments

15 to 25 years
10 to 45 years
3 to 12 years
1 to 14 years
6 years

Expenditures for major renewals and betterments, including leasehold improvements, that extend the useful life of the assets are
capitalized and depreciated over the remaining life of the asset or lease term, if shorter. Maintenance and repair costs are charged to
expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation are eliminated from the respective
accounts and any resulting gain or loss is included in income.

Intangible Assets and Goodwill. Goodwill is recognized for the excess of the purchase price over the fair value of net assets of
businesses acquired. Goodwill is required to be tested for impairment at least annually. Unless circumstances otherwise dictate, the
annual impairment test is performed in the fourth quarter. Accordingly, during the fourth quarter of 2010, we evaluated goodwill for
impairment and determined that the fair value of our reporting unit exceeded its carrying value, indicating that goodwill was not
impaired. Based on our single business approach to decision-making, planning and resource allocation, management has determined
that we have only one reporting unit for purposes of evaluating goodwill for impairment.

Our intangible assets with estimable useful lives are amortized on a straight line basis over their respective estimated useful lives to
their estimated residual values, and are reviewed for impairment in accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Section 360, Property, Plant and Equipment (FASB ASC 360). The weighted average
amortization periods for completed technology, distribution channels, trademarks, licenses, customer relationships and other
intangible assets are 9 years, 10 years, 8 years, 8 years, 10 years and 6 years, respectively. The weighted average amortization period of
our intangible assets on a combined basis is 9 years. Additionally, we have two trademarks and one in-process research and
development (IPRD) intangible asset, each of which has an indefinite life.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Valuation of Long-Lived Assets. Management periodically evaluates carrying values of long-lived assets, including property, plant
and equipment and intangible assets, when events and circumstances indicate that these assets may have been impaired. We account
for the impairment of long-lived assets in accordance with FASB ASC 360. Accordingly, we evaluate impairment of our property, plant
and equipment based upon an analysis of estimated undiscounted future cash flows. If it is determined that a change is required in
the useful life of an asset, future depreciation and amortization is adjusted accordingly. Alternatively, should we determine that an
asset is impaired, an adjustment would be charged to income based on the asset’s fair market value or discounted cash flows if the fair
market value is not readily determinable, reducing income in that period.

Allowances for Doubtful Accounts. We experience credit losses on our accounts receivable and, accordingly, we must make
estimates related to the ultimate collection of our accounts receivable. Specifically, management analyzes our accounts receivable,
historical bad debt experience, customer concentrations, customer credit-worthiness and current economic trends when evaluating
the adequacy of our allowance for doubtful accounts.

The majority of our accounts receivable are from hospitals, many of which are government funded. Accordingly, our collection history
with this class of customer has been favorable. Historically, we have experienced minimal bad debts from our hospital customers and
more significant bad debts from certain international stocking distributors, typically as a result of specific financial difficulty or geo-
political factors. We write off accounts receivable when we determine that the accounts receivable are uncollectible, typically upon
customer bankruptcy or the customer’s non-response to continued collection efforts. Our allowance for doubtful accounts totaled
$9.5 million and $8.6 million at December 31, 2010 and 2009, respectively, which includes a $5.6 million provision recorded in 2009 for
potential losses related to the trade receivable balance of our stocking distributor in Turkey.

Concentration of Credit Risk. Financial instruments which potentially subject us to concentrations of credit risk consist principally of
accounts receivable. Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and
by monitoring credit exposure on a regular basis. An allowance for possible losses on accounts receivable is established based upon
factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is
generally not required for accounts receivable. As of December 31, 2010, one customer, our stocking distributor in Turkey, accounted
for more than 8% of our accounts receivable balance. As of December 31, 2010 and 2009, the balance due from this customer was $8.9
million and $10.7 million, respectively. As of December 31, 2010, we have recorded a $5.6 million provision for potential losses related
to the trade receivable balance of our stocking distributor in Turkey.

Concentrations of Supply of Raw Material. We rely on a limited number of suppliers for the components used in our products. Our
reconstructive joint devices are produced from various surgical grades of titanium, cobalt chrome, stainless steel, various grades of
high density polyethylenes, and ceramics. We rely on one source to supply us with a certain grade of cobalt chrome alloy and one
supplier for the silicone elastomer used in some of our extremity products. We are aware of only two suppliers of silicone elastomer to
the medical device industry for permanent implant usage. Additionally, we rely on one supplier of ceramics for use in our hip
products. For certain biologic products, we depend on one supplier of demineralized bone matrix (DBM), cancellous bone matrix
(CBM) and soft tissue graft for BIOTAPE® XM. We rely on one supplier for our GRAFTJACKET® family of soft tissue repair and graft
containment products, and one supplier for our xenograph bone wedge product. We maintain adequate stock from these suppliers in
order to meet market demand.

Income Taxes. Income taxes are accounted for pursuant to the provisions of FASB ASC Section 740, Income Taxes (FASB ASC 740). Our
effective tax rate is based on income by tax jurisdiction, statutory rates and tax saving initiatives available to us in the various
jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and evaluating our tax
positions. This process includes assessing temporary differences resulting from differing recognition of items for income tax and
financial accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our
consolidated balance sheet. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We provide for unrecognized tax benefits based upon our assessment of whether a tax position is “more-likely-than-not” to be
sustained upon examination by the tax authorities. If a tax position meets the more-likely-than-not standard, then the related tax
benefit is measured based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon
ultimate settlement or disposition of the underlying tax position.

Other Taxes. Taxes assessed by a governmental authority that are imposed concurrent with our revenue transactions with customers
are presented on a net basis in our consolidated statement of operations.

Revenue Recognition. Our revenues are primarily generated through two types of customers, hospitals and surgery centers, and
stocking distributors, with the majority of our revenue derived from sales to hospitals. Our products are primarily sold through a
network of employee sales representatives and independent sales representatives in the U.S. and by a combination of employee sales
representatives, independent sales representatives, and stocking distributors outside the U.S. Revenues from sales to hospitals are
recorded when the hospital takes title to the product, which is generally when the product is surgically implanted in a patient.

We record revenues from sales to our stocking distributors outside the U.S. at the time the product is shipped to the distributor.
Stocking distributors, who sell the products to their customers, take title to the products and assume all risks of ownership. Our

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

distributors are obligated to pay within specified terms regardless of when, if ever, they sell the products. In general, the distributors
do not have any rights of return or exchange; however, in limited situations we have repurchase agreements with certain stocking
distributors. Those certain agreements require us to repurchase a specified percentage of the inventory purchased by the distributor
within a specified period of time prior to the expiration of the contract. During those specified periods, we defer the applicable
percentage of the sales. Approximately $250,000 and $186,000 of deferred revenue related to these types of agreements was
recorded at December 31, 2010 and 2009, respectively.

We must make estimates of potential future product returns related to current period product revenue. We develop these estimates
by analyzing historical experience related to product returns. Judgment must be used and estimates made in connection with
establishing the allowance for sales returns in any accounting period. An allowance for sales returns of $563,000 and $551,000 is
included as a reduction of accounts receivable at December 31, 2010 and 2009, respectively.

Shipping and Handling Costs. We incur shipping and handling costs associated with the shipment of goods to customers,
independent distributors and our subsidiaries. Amounts billed to customers for shipping and handling of products are included in net
sales. Costs incurred related to shipping and handling of products are included in cost of sales. All other shipping and handling costs
are included in selling, general and administrative expenses.

Research and Development Costs. Research and development costs are charged to expense as incurred.

Foreign Currency Translation. The financial statements of our international subsidiaries whose functional currency is the local
currency are translated into U.S. dollars using the exchange rate at the balance sheet date for assets and liabilities and the weighted
average exchange rate for the applicable period for revenues, expenses, gains and losses. Translation adjustments are recorded as a
separate component of comprehensive income in stockholders’ equity. Gains and losses resulting from transactions denominated in
a currency other than the local functional currency are included in “Other expense (income), net” in our consolidated statement of
operations.

In accordance with FASB ASC Section 830, Foreign Currency Matters, we are required to recognize the cumulative translation
adjustment (CTA) balance from stockholders’ equity upon the complete or substantially complete liquidation of a foreign subsidiary.
During 2009, we wrote-off approximately $2.6 million from the CTA balance for the substantially complete liquidation of two of our
French subsidiaries and our subsidiary in Spain. This net cumulative foreign currency loss is included in “Other expense (income), net”
in our consolidated statements of operations.

Pension Benefits. Our subsidiary in Japan provides benefits to employees under a plan that we account for as a defined benefit plan
in accordance with FASB ASC Section 715, Compensation – Retirement Benefits. This plan is unfunded and determining the minimum
pension liability requires the use of assumptions and estimates, including discount rates and mortality rates, and actuarial methods.
Our minimum pension liability totaled $2.2 million and $1.6 million as of December 31, 2010 and 2009, respectively.

Comprehensive Income. Comprehensive income is defined as the change in equity during a period related to transactions and other
events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The difference between our net income and our comprehensive income is
attributable to foreign currency translation, adjustments to our minimum pension liability, and unrealized gains and losses on our
available-for-sale marketable securities.

Stock-Based Compensation. We account for stock-based compensation in accordance with FASB ASC Section 718, Compensation –
Stock Compensation (FASB ASC 718). Under the fair value recognition provisions of FASB ASC 718, stock-based compensation cost is
measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the
requisite service period, which is the vesting period. The determination of the fair value of stock-based payment awards, such as
options, on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number
of complex and subjective variables, which include the expected life of the award, the expected stock price volatility over the
expected life of the awards, expected dividend yield and risk-free interest rate.

We recorded $13.2 million, $13.2 million, and $13.5 million of stock-based compensation expense during the years ended December
31, 2010, 2009, and 2008, respectively. See Note 13 for further information regarding our stock-based compensation assumptions and
expenses.

Fair Value of Financial Instruments. The carrying value of cash and cash equivalents, accounts receivable and accounts payable
approximates the fair value of these financial instruments at December 31, 2010 and 2009 due to their short maturities or variable
rates.

The fair value of our Convertible Senior Notes due 2014 was approximately $188 million and $176 million as of December 31, 2010 and
2009, respectively, based on a quoted price in an active market (Level 1).

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. SFAS 157 applies to all financial
assets and liabilities that are being measured and reported on a fair value basis, and establishes a framework for measuring the fair

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

value of assets and liabilities and expands disclosures about fair value measurements. The adoption of SFAS 157 had no impact to our
consolidated financial statements. Effective July 1, 2009, this standard was incorporated into the FASB ASC Section 820, Fair Value
Measurements and Disclosures (FASB ASC 820). FASB ASC 820 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 yield curves that are observable at
commonly quoted intervals.

Level 3:

Financial instruments that are not actively traded on a market exchange. This category includes situations where
there is little, if any, market activity for the financial instrument. The prices are determined using significant
unobservable inputs or valuation techniques.

As of December 31, 2010 and 2009, we had current marketable securities totaling $19.2 million and $86.8 million, respectively,
consisting of investments in treasury bills, government and agency bonds, corporate bonds, and certificates of deposits, all of which
are valued at fair value using a market approach. In addition, we had noncurrent marketable securities totaling $17.2 million as of
December 31, 2010, consisting of investments in government, agency, and corporate bonds, all of which are valued at fair value using
a market approach.

The following table summarizes the valuation of our financial instruments (in thousands):

Quoted Prices
In Active
Markets
(Level 1)

Total

Prices with
Other
Observable
Inputs
(Level 2)

Prices with

Unobservable

Inputs
(Level 3)

At December 31, 2010
Assets
Cash and cash equivalents
Available–for-sales marketable securities
Municipal debt securities
U.S. agency debt securities
Certificates of deposits
Corporate debt securities

U.S. government debt securities
Total available-for-sale marketable securities

153,261 $

- $

897
14,511
38
3,183

13,045
31,674

897
14,511
-
3,183

13,045
31,636

-
-
38
-

-
38

Held-to-maturity time deposits

4,671
189,606 $

184,897 $

4,671
4,709 $

-
-
-
-

-
-

Liabilities

Contingent consideration

Convertible Senior Notes

At December 31, 2009
Assets
Cash and cash equivalents
Available–for-sales marketable securities
U.S. agency debt securities
Certificates of deposits

U.S. government debt securities
Total available-for-sale marketable securities

Liabilities

Convertible Senior Notes

356

- $

188,000

188,356

188,000 $

- $

356

Quoted Prices
In Active
Markets
(Level 1)

Total

Prices with
Other
Observable
Inputs
(Level 2)

Prices with

Unobservable

Inputs
(Level 3)

84,409 $

- $

69,780
1,430

15,609
86,819
171,228 $

69,780
-

15,609
85,389
169,798 $

-
1,430

-
1,430
1,430 $

176,000

176,000 $

176,000

176,000 $

- $

-
-

-
-
-

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

As part of the acquisition of EZ Concepts Surgical Device Corporation, d/b/a EZ Frame, completed in 2010, we may be obligated to
pay contingent consideration of up to $400,000 upon the achievement of certain revenue milestones. The $356,000 fair value of the
contingent consideration as of the acquisition date was determined using a discounted cash flow model and probability adjusted
estimates of the future earnings and is classified in Level 3. This obligation is included in current liabilities in our 2010 consolidated
balance sheet. Changes in the fair value of contingent consideration will be recorded in our consolidated statements of operations.

Derivative Instruments. We account for derivative instruments and hedging activities under FASB ASC Section 815, Derivatives and
Hedging (FASB ASC 815). Accordingly, all of our derivative instruments are recorded in the accompanying consolidated balance sheets
as either an asset or liability and measured at fair value. The changes in the derivative's fair value are recognized currently in earnings
unless specific hedge accounting criteria are met.

We employ a derivative program using 30-day foreign currency forward contracts to mitigate the risk of currency fluctuations on our
intercompany receivable and payable balances that are denominated in foreign currencies. These forward contracts are expected to
offset the transactional gains and losses on the related intercompany balances. These forward contracts are not designated as
hedging instruments under FASB ASC 815. Accordingly, the changes in the fair value and the settlement of the contracts are
recognized in the period incurred in the accompanying consolidated statements of operations.

We recorded a net loss of $2.6 million, net gain of $655,000 and a net loss of $4.5 million for the years ended December 31, 2010, 2009
and 2008, respectively, on foreign currency contracts, which are included in “Other expense (income), net” in our consolidated
statements of operations. These losses substantially offset translation gains recorded on our intercompany receivable and payable
balances, also included in “Other expense (income), net.” At December 31, 2010 and 2009, we had no foreign currency contracts
outstanding.

Supplemental Cash Flow Information. Cash paid for interest and income taxes was as follows (in thousands):

2010

Year Ended December 31,
2009

2008

Interest
Income taxes

$ 5,524
$ 6,670

$ 5,492
$ 10,419

$ 5,963
$ 4,960

During 2008, we sold certain assets of our Toulon, France facility. As part of that sale, the buyer assumed our capital lease obligations
of approximately $700,000 for certain machinery and equipment located in that facility. In 2010, we entered into capital leases of
approximately $2.5 million. We entered into insignificant amounts of capital leases during 2008 and 2009.

Inventories

Inventories consist of the following (in thousands):

Raw materials
Work-in-process
Finished goods

Marketable Securities

December 31,

2010

2009

8,962
24,723
132,654
166,339

8,606
23,766
131,163
163,535

We have historically invested in treasury bills, government and agency bonds, and certificates of deposit with maturity dates of less
than 12 months. Beginning in the second quarter of 2010, we also invested in marketable securities with maturity dates greater than
12 months. Our investments in these marketable securities are classified as available-for-sale securities in accordance with FASB ASC
Topic 320, Investments – Debt and Equity Securities. These securities are carried at their fair value, and all unrealized gains and losses
are recorded within other comprehensive income. In the third quarter of 2010, we invested in a bank deposit with a maturity date of
12 months. This investment, which is classified as held-to-maturity, is carried at its amortized cost. Marketable securities are classified
as short-term for those expected to mature or be sold within 12 months and the remaining portion is classified as long-term. The cost
of investment securities sold is determined by the specific identification method.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

The following tables present a summary of our marketable securities (in thousands):

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
(losses)

Estimated
Fair Value

At December 31, 2010
Available-for-sale marketable securities
Municipal debt securities
U.S. agency debt securities
Certificates of deposits
Corporate debt securities

U.S. government debt securities
Total available-for-sale marketable securities

897 $

14,501
38
3,176

13,027
31,639

Held-to-maturity time deposits
Total marketable securities

4,671
36,310 $

-
11
-
7

18
36

-
36

-
(1 )
-
-

-
(1 )

-
(1 ) $

897
14,511
38
3,183

13,045
31,674

4,671
36,345

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
(losses)

Estimated
Fair Value

At December 31, 2009
Available-for-sale marketable securities
U.S. agency debt securities
Certificates of deposits

U.S. government debt securities

Total available-for-sale marketable securities

69,819 $
1,435

15,604
86,858 $

11
-

10
21

(50 ) $
(5 )

(5 )
(60 ) $

69,780
1,430

15,609
86,819

The maturities of available-for-sale and held-to-maturity debt securities at December 31, 2010 are as follows:

Available-for-sale

Held-to-maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Due in one year or less
Due after one year through two years
Due after two years

11,953 $
16,686
3,000
31,639 $

11,965
16,709
3,000
31,674

4,671
-
-
4,671

Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

Land and land improvements
Buildings
Machinery and equipment
Furniture, fixtures and office equipment
Construction in progress
Surgical instruments

Less: Accumulated depreciation

December 31,

2010

2009

5,469
30,024
68,401
42,584
13,887
162,781

4,229
26,489
53,357
36,346
9,433
156,232

323,146
(164,899 )
158,247 $

286,086
(146,378 )
139,708

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

The components of property, plant and equipment recorded under capital leases consist of the following (in thousands):

Machinery and equipment
Furniture, fixtures and office equipment

Less: Accumulated depreciation

December 31,

2010

2009

2,853
405

3,258
(350 )
2,908

469
466

935
(647 )
288

Depreciation expense approximated $35.6 million, $32.7 million, and $26.5 million for the years ended December 31, 2010, 2009, and
2008, respectively, and included depreciation of assets under capital leases.

Goodwill and Intangibles

Changes in the carrying amount of goodwill occurring during the year ended December 31, 2010, are as follows (in thousands):

Goodwill at December 31, 2009
Goodwill from contingent consideration associated with acquisitions prior to 2010
Goodwill associated with acquisition in 2010
Foreign currency translation
Goodwill at December 31, 2010

53,860
711
167
(566 )
54,172

During 2010, we recognized contingent consideration of $160,000 associated with our acquisition of Inbone Technologies, Inc.,
completed in 2008, and $551,000 associated with the acquisition of assets of Creative Medical Designs and Rayhack LLC, completed in
2008. During 2010, we acquired certain assets of EZ Concepts Surgical Device Corporation, d/b/a EZ Frame. The purchase price
consisted of an initial cash payment of $300,000 and potential additional contingent consideration, with an acquisition date fair value
of $356,000 based on the probability of the achievement of the revenue target. As a result of the immaterial acquisition, we recorded
a customer relationship intangible of $138,000 (5 year useful life), a trademark intangible of $73,000 (indefinite life), in process
research and development (indefinite life) of $278,000 and goodwill of $167,000.

During 2010, we made payments for contingent consideration totaling $2.6 million, of which $1.9 million was accrued as of
December 31, 2009.

The components of our identifiable intangible assets are as follows (in thousands):

Distribution channels
Completed technology
Licenses
Customer relationships
Trademarks
Other

Less: Accumulated amortization

Intangible assets, net

December 31, 2010

December 31, 2009

Cost

Accumulated
Amortization

Cost

Accumulated
Amortization

20,719 $
12,627
5,613
3,888
2,706
2,859

48,412 $

(31,911 )

16,501

20,563 $
6,162
2,040
1,087
633
1,426

31,911

22,207 $
12,537
7,245
3,750
2,733
2,620

51,092 $

(33,365 )

17,727

22,025
5,213
3,777
720
570
1,060

33,365

As of December 31, 2010, we have trademarks with indefinite lives totaling $1.5 million and our in process research and development
indefinite lived intangible totaling $278,000.

Based on the intangible assets held at December 31, 2010, we expect to amortize approximately $2.5 million in 2011, $2.3 million in
2012, $2.0 million in 2013, $1.8 million in 2014, and $1.7 million in 2015.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

December 31,

2010

2009

Employee benefits
Royalties
Taxes other than income
Commissions
Professional and legal fees
Contingent consideration
Restructuring liability (see Note 15)
Other

11,469
5,755
4,785
6,892
7,992
356
152
17,008

54,409

11,327
5,900
5,084
5,738
5,124
1,912
6,781
12,777

54,643

Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following (in thousands):

Capital lease obligations
Convertible senior notes

Less: current portion

December 31,
2010

December 31,
2009

2,799
200,000

202,799
(1,033 )

201,766

662
200,000

200,662
(336 )

200,326

In November 2007, we issued $200 million of 2.625% Convertible Senior Notes due 2014 (Notes). 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 subject to adjustment upon the
occurrence of specified events, which represents an initial conversion price of $32.65 per share. The holder of the Notes may convert
at any time on or prior to the close of business on the business day immediately preceding the maturity date of Notes. Beginning on
December 6, 2011, we may redeem the notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the
notes, plus accrued and unpaid interest, if the closing price of our common stock has exceeded 140% of the conversion price for at
least 20 days during any consecutive 30-day trading period. Additionally, if we experience a fundamental change event, as defined in
the indenture governing the Notes, the holders may require us to purchase for cash all or a portion of the notes, for 100% of the
principal amount of the notes, plus accrued and unpaid interest. If upon a fundamental change event, a holder elects to convert its
Notes, we may, under certain circumstances, increase the conversion rate for the Notes surrendered. The Notes are unsecured
obligations and are effectively subordinated to (i) all of our existing and future secured debt, including our obligations under our
credit agreement, to the extent of the value of the assets securing such debt, and (ii) because the Notes are not guaranteed by any of
our subsidiaries, to all liabilities of our subsidiaries.

On February 10, 2011, we announced the commencement of a tender offer to purchase for cash any and all of our outstanding Notes.
The tender offer is expected to expire at 8:00 A.M. New York City time on March 11, 2011, unless extended by us or earlier terminated.
At this time, we cannot estimate the amount, if any, of the Notes that will be tendered, nor the amount of Notes or aggregate
indebtedness that will remain outstanding upon the completion of the tender offer.

On June 30, 2010, we renewed our revolving credit facility. On December 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 rate or Eurodollar rate plus an applicable margin that ranges from 0.25% to 2.50% depending on the type of loan and
our consolidated leverage ratio, with a current annual base rate of 3.25% and a Eurodollar rate of 0.46% (6 month rate).

The credit facility was amended and restated as described below.

On February 10, 2011, we entered into an amended and restated revolving credit agreement. This credit facility has revolver
availability of $200 million, and availability in a delayed draw term loan of up to $150 million. The total availability can be increased by
up to an additional $100 million at our request and subject to the agreement of the lenders. As of the date of this filing, there are no
amounts outstanding under this agreement. Borrowings under the restated credit agreement will bear interest at the sum of a base
rate or a Eurodollar rate plus an applicable margin that ranges from 0.0% to 2.75%, depending on the type of loan and our
consolidated leverage ratio. The term of the restated revolving credit agreement extends through June 1, 2014; however, if at least
$100 million of the Notes are tendered, the term will be extended through February 10, 2016.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

As discussed in Note 5, we have acquired certain property and equipment pursuant to capital leases. At December 31, 2010, future
minimum lease payments under capital lease obligations, together with the present value of the net minimum lease payments, are as
follows (in thousands):

2011
2012
2013
2014
2015
Total minimum payments
Less amount representing interest

Present value of minimum lease payments
Current portion

Long-term portion

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

Unrecognized tax benefits (See Note 10)
Other

1,161
1,049
838
14
2
3,064
(265 )

2,799
(1,033 )

1,766

December 31,

2010

2009

3,221
2,271

5,492

2,786
1,650

4,436

10.

Income Taxes

The components of our income before income taxes are as follows (in thousands):

U.S.
Foreign

Income before income taxes

Year Ended December 31,
2009

2008

2010

24,507
6,414

30,921

9,062
6,550

15,612

3,036
18,534

21,570

The components of our provision for income taxes are as follows (in thousands):

Current provision (benefit):

U.S:

Federal

State

Foreign

Deferred (benefit) provision:

U.S:

Federal

State

Foreign

Total provision for income taxes

Year Ended December 31,
2009

2008

2010

(11 )
1,160
2,593

10,229
1,003
1,453

9,166
375
(203 )
13,080

(8,203 )
(1,162 )
161
3,481

3,192
(720 )
(2,880 )

(2,812 )
(105 )
21,698
18,373

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows:

Income tax provision at statutory rate
State income taxes
Change in valuation allowance
Research and development credit
Foreign income tax rate differences
Stock-based compensation expense
Other non-deductible expenses
Other, net
Total

Year Ended December 31,
2009

2010

2008

35.0 %
4.0
1.8
(2.7 )
(3.5 )
2.0
5.3
0.4

42.3 %

35.0
2.9
(6.0 )
(4.2 )
(9.8 )
6.0
1.4
(3.0 )
22.3 %

35.0 %
(4.4 )
59.1
(8.5 )
(5.6 )
6.6
1.1
1.9
85.2 %

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

The significant components of our deferred income taxes as of December 31, 2010 and 2009 are as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards
General business credit carryforward

Reserves and allowances
Stock-based compensation expense
Amortization
Other
Valuation allowance

Total deferred tax assets

Deferred tax liabilities:
Depreciation
Intangible assets
Other

Total deferred tax liabilities

Net deferred tax assets

December 31,

2010

2009

18,675
2,386
26,726
9,388
-
6,540
(14,897 )

48,818

15,037
2,481
866

18,384

30,434

20,623
1,581
26,170
8,097
611
12,548
(17,216 )

52,414

7,357
3,186
1,973

12,516

39,898

In September 2010, we reached a settlement to resolve a United States Department of Justice investigation into our consulting and
professional service agreements with orthopaedic surgeons in connection with hip or knee joint replacement procedures or products.
Under the terms of the settlement, we paid a civil settlement amount of $7.9 million, and we recorded an expense in that amount. We
have recorded a tax benefit for the amount of the settlement that we believe will be deductible for income tax purposes.

Outside basis differences that have not been tax-effected in accordance with FASB ASC 740 are primarily related to undistributed
earnings of certain of our foreign subsidiaries. Deferred tax liabilities for U.S. federal income taxes are not provided on the
undistributed earnings of our foreign subsidiaries that are considered permanently reinvested. The determination of the amount of
unrecognized deferred tax liabilities is not practicable.

At December 31, 2010, we had net operating loss carry forwards for U.S. federal income tax purposes of approximately $12.0 million,
which begin to expire in 2018. Additionally, we had general business credit carryforwards of approximately $2.4 million, which begin
to expire in 2011 and extend through 2030. At December 31, 2010, we had foreign net operating loss carryforwards of approximately
$43.3 million, all of which do not expire.

Certain of our U.S. and foreign net operating losses and general business credit carryforwards are subject to various limitations. We
maintain valuation allowances for those net operating losses and tax credit carryforwards that we do not expect to utilize due to these
limitations and it is more likely than not that such tax benefits will not be realized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1, 2010
Additions for tax positions related to current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Foreign currency translation

Balance at December 31, 2010

2,786
653
-
(110 )
-
(108 )

3,221

As of December 31, 2010, our liability for unrecognized tax benefits totaled $3.2 million and is recorded in our consolidated balance
sheet within “Other liabilities,” all of which, if recognized, would affect our effective tax rate. Our U.S. federal income taxes represent
the substantial majority of our income taxes, and our 2008 U.S. federal income tax return is currently under examination by the
Internal Revenue Service. It is possible that our unrecognized tax benefits will change within the next twelve months as the
examination proceeds.

We accrue interest required to be paid by the tax law for the underpayment of taxes on the difference between the amount claimed
or expected to be claimed on the tax return and the tax benefit recognized in the financial statements. Management has made the
policy election to record this interest as interest expense. As of December 31, 2010, accrued interest related to our unrecognized tax
benefits totaled approximately $112,000 which is recorded in our consolidated balance sheet within “Other liabilities.”

We file numerous consolidated and separate company income tax returns in the U.S. and in many foreign jurisdictions. We are no
longer subject to foreign income tax examinations by tax authorities in significant jurisdictions for years before 2005. With few
exceptions, we are subject to U.S. federal, state and local income tax examinations for years 2007 through 2009. However, tax

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

authorities have the ability to review years prior to these to the extent that we utilize tax attributes carried forward from those prior
years.

11.

Earnings Per Share

FASB ASC Section 260, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Basic earnings per share is
calculated based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per
share is calculated to include any dilutive effect of our common stock equivalents. Our common stock equivalents consist of stock
options, non-vested shares of common stock, stock-settled phantom stock units, restricted stock units, and convertible debt. The
dilutive effect of the stock options, non-vested shares of common stock, stock-settled phantom stock units, and restricted stock units
is calculated using the treasury-stock method. The dilutive 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 income as if the securities were converted at the beginning
of the period. We determined that for the years ended December 31, 2008, 2009, and 2010, the convertible debt had an anti-dilutive
effect on earnings per share and we therefore excluded it from the dilutive shares calculation.

The weighted-average number of common shares outstanding for basic and diluted earnings per share purposes is as follows (in
thousands):

Weighted-average number of common shares
outstanding – basic
Common stock equivalents
Weighted-average number of common shares
outstanding – diluted

Year Ended December 31,
2009

2010

2008

37,802
159

37,961

37,366
77

37,443

36,933
468

37,401

The following potential common shares were excluded from the computation of diluted earnings per share as their effect would
have been anti-dilutive (in thousands):

Stock options
Non-vested shares, restricted stock units, and stock-settled

phantom stock units

Convertible debt

12.

Capital Stock

Year Ended December 31,
2009

2010

2008

3,766

621
6,126

3,872

1,151
6,126

2,604

502
6,126

We are authorized to issue up to 100,000,000 shares of voting common stock. We have 60,828,499 shares of voting common stock
available for future issuance at December 31, 2010.

13.

Stock-Based Compensation Plans

We have three stock-based compensation plans which are described below. Amounts recognized in the consolidated financial
statements with respect to these plans are as follows:

Total cost of share-based payment plans
Amounts capitalized as inventory and intangible assets
Amortization of capitalized amounts

Charged against income before income taxes
Amount of related income tax benefit recognized in income

Impact to net income

Impact to basic earnings per share

Impact to diluted earnings per share

2010

13,217
(1,353 )
1,313

13,177
(4,410 )

8,767

0.23

Year Ended December 31,
2009

2008

13,267
(1,361 )
1,285

13,191
(3,901 )

9,290

0.25

13,223
(1,492 )
1,770

13,501
(3,674 )

9,827

0. 27

0. 26

As of December 31, 2010, we had $20.3 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 2.4
years.

Equity Incentive Plan

On December 7, 1999, we adopted the 1999 Equity Incentive Plan, which was subsequently amended and restated on July 6, 2001,
May 13, 2003, May 13, 2004, May 12, 2005 and May 14, 2008 and amended on October 23, 2008. The 1999 Equity Incentive Plan
expired December 7, 2009. The 2009 Equity Incentive Plan (the Plan) was adopted on May 13, 2009, which was subsequently amended

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

and restated on May 13, 2010. The Plan authorizes us to grant stock options and other stock-based awards, such as non-vested shares

of common stock, with respect to up to 11,917,051 shares of common stock, of which full value awards (such as non-vested shares) are
limited to 2,729,555 shares. Under the plan, stock based compensation awards generally are exercisable in increments of 25%
annually on each of the first through fourth anniversaries of the date of grant. All of the options issued under the plan expire after ten
years. These awards are recognized on a straight-line basis over the requisite service period, which is generally four years. As of
December 31, 2010, there were 1,448,759 shares available for future issuance under the Plan, of which full value awards are limited to
665,697 shares.

Stock options

We estimate the fair value of stock options using the Black-Scholes valuation model. The Black-Scholes option-pricing model requires
the input of estimates, including the expected life of stock options, expected stock price volatility, the risk-free interest rate and the
expected dividend yield. The expected life of options is estimated based on historical option exercise and employee termination data.
The expected stock price volatility assumption was estimated based upon historical volatility of our common stock. The risk-free
interest rate was determined using U.S. Treasury rates where the term is consistent with the expected life of the stock options.
Expected dividend yield is not considered as we have never paid dividends and have no plans of doing so in the future. We are
required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from
those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for
those awards that are expected to vest. The fair value of stock options is amortized on a straight-line basis over the respective
requisite service period, which is generally the vesting period.

The weighted-average grant date fair value of stock options granted to employees in 2010, 2009, and 2008 was $7.11 per share, $6.23
per share, and $11.17 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-
Scholes option valuation model using the following assumptions:

Risk-free interest rate
Expected option life
Expected price volatility

2010
2.1% - 2.2%
6 years
40%

Year Ended December 31,
2009
2.1% - 2.6%
6 years
39%

2008
2.0% - 3.4%
6 years
36%

A summary of our stock option activity during 2010 is as follows:

Shares
(000’s)

Weighted-
Average Exercise
Price

Weighted-Average
Remaining
Contractual Life

Aggregate
Intrinsic Value*
($000’s)

Outstanding at December 31, 2009

Granted
Exercised
Forfeited or expired

Outstanding at December 31, 2010

Exercisable at December 31, 2010

______________________________________

3,965
231
(52 )
(403 )
3,741

3,022

23.79
18.37
5.37
24.73
23.62

24.20

5.3 years

4.6 years

134

124

The aggregate intrinsic value is calculated as the difference between the market value of our common stock as of December 31,
2010, and the exercise price of the shares. The market value as of December 31, 2010 is $15.53 per share, which is the closing sale
price of our common stock reported for transactions effected on the Nasdaq Global Select Market on December 31, 2010.

The total intrinsic value of options exercised during 2010, 2009, and 2008 was $582,000, $371,000, and $5.9 million, respectively.

A summary of our stock options outstanding and exercisable at December 31, 2010, is as follows (shares in thousands):

Range of Exercise
Prices

Number
Outstanding

Weighted-Average
Remaining
Contractual Life

Weighted-Average
Exercise Price

Number

Exercisable

Weighted-Average
Exercise Price

Options Outstanding

Options Exercisable

$
$
$
$

0.00 – $8.50
8.51 – $16.00
16.01 – $24.00
24.01 – $35.87

14
256
1,627
1,844
3,741

7.60
15.43
20.44
27.67
23.62

14
83
1,327
1,598
3,022

7.60
15.35
20.82
27.60
24.20

0.4 $
7.7
5.5
4.7
5.3 $

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Non-vested shares
We calculate the grant date fair value of non-vested shares of common stock using the closing sale prices on the trading day
immediately prior to the grant date. We are required to estimate forfeitures at the time of grant and revise those estimates in
subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures and record
stock-based compensation expense only for those awards that are expected to vest.

We granted 500,000, 700,000, and 526,000 non-vested shares of common stock to employees with weighted-average grant-date fair
values of $18.35 per share, $15.56 per share, and $28.15 per share during 2010, 2009, and 2008, respectively. The fair value of these
shares will be recognized on a straight-line basis over the respective requisite service period, which is generally the vesting period.

During 2010, 2009 and 2008, we granted certain independent distributors and other non-employees non-vested shares of common
stock of 5,000, 18,000 and 27,000 shares at a weighted-average grant date fair values of $18.20 per share, $16.76 per share and $26.49
per share, respectively.

A summary of our non-vested shares of common stock activity during 2010 is as follows:

Shares
(000’s)

Weighted-Average
Grant-Date
Fair Value

Aggregate Intrinsic Value*

($000’s)

Non-vested at December 31, 2009
Granted
Vested
Forfeited

Non-vested at December 31, 2010

1,161
505
(378 )
(108 )

1,180

20.07
18.35
20.78
20.80

19.03

$ 18,332

______________________________________
*

The aggregate intrinsic value is calculated as the market value of our common stock as of December 31, 2010. The market value as
of December 31, 2010 is $15.53 per share, which is the closing sale price of our common stock reported for transactions effected on
the Nasdaq Global Select Market on December 31, 2010.

The total fair value of shares vested during 2010, 2009 and 2008 was $5.9 million, $4.1 million and $2.6 million, respectively.

Stock settled phantom stock units and restricted stock units
We calculate the grant date fair value of stock settled phantom stock units and restricted stock units using the closing sale prices on the
trading day immediately prior to the grant date. We are required to estimate forfeitures at the time of the grant and revise those
estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting
forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

During 2010 and 2009, we granted 88,000 and 86,000 stock settled phantom stock units and restricted stock units, respectively to
employees with a weighted-average fair value of $18.31 and $15.44 per share. The fair value of these shares will be recognized on a
straight-line basis over the respective requisite service period, which is generally the vesting period.

A summary of our non-vested shares of common stock and restricted stock units activity during 2010 is as follows:

Shares
(000’s)

Weighted-Average
Grant-Date
Fair Value

Aggregate Intrinsic Value*
($000’s)

Stock settled phantom stock and restricted stock units

at December 31, 2009

Granted
Vested
Forfeited

Stock settled phantom stock and restricted stock units

at December 31, 2010

110
88
(28 )
(34 )

136

19.75
18.31
20.22
20.33

18.57

$2,106

______________________________________
The aggregate intrinsic value is calculated as the market value of our common stock as of December 31, 2010. The market value
as of December 31, 2010 is $15.53 per share, which is the closing sale price of our common stock reported for transactions
effected on the Nasdaq Global Select Market on December 31, 2010.

The total fair value of shares vested during 2010 was $453,000.

Inducement Stock Options.

During 2010, we granted 65,000 stock options under an Inducement Stock Option agreement with an exercise price of $16.43.
These options were granted to induce Raymond C. Kolls to commence employment with us as our General Counsel and Secretary
and have substantially the same terms as grants made under the 1999 and 2009 Equity Incentive Plans. The grant date fair value of
these options was $6.52, which was calculated using the Black-Scholes option valuation model using the same assumptions as the
stock options granted under the 2009 Equity Incentive Plan. As of December 31, 2010, all of the options were outstanding, none of
which were exercisable, with a remaining contractual life of 9.4 years.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Employee Stock Purchase Plan.

On May 30, 2002, our shareholders approved and adopted the 2002 Employee Stock Purchase Plan (the ESPP). The ESPP authorizes us
to issue up to 200,000 shares of common stock to our employees who work at least 20 hours per week. Under the ESPP, there are two
six-month plan periods during each calendar year, one beginning January 1 and ending on June 30, and the other beginning July 1
and ending on December 31. Under the terms of the ESPP, employees can choose each plan period to have up to 5% of their annual
base earnings, limited to $5,000, withheld to purchase our common stock. The purchase price of the stock is 85 percent of the lower
of its beginning-of-period or end-of-period market price. Under the ESPP, we sold to employees approximately 28,000, 27,000, and
15,000 shares in 2010, 2009, and 2008, respectively, with weighted-average fair values of $5.41, $5.76, and $9.09 per share,
respectively. As of December 31, 2010, there were 68,958 shares available for future issuance under the ESPP. During 2010, 2009, and
2008, we recorded nominal amounts of non-cash, stock-based compensation expense related to the ESPP.

In applying the Black-Scholes methodology to the purchase rights granted under the ESPP, we used the following
assumptions:

Year Ended December 31,

2010
0.6% - 0.9 %
6 months
40%

2009
0.9% - 1.1 %
6 months
39%

2008
2.9% - 3.3%
6 months
36%

Risk-free interest rate
Expected option life
Expected price volatility

14.

Employee Benefit Plans

We sponsor a defined contribution plan under Section 401(k) of the Internal Revenue Code, which covers U.S. employees who are
21 years of age and over. Under this plan, we match voluntary employee contributions at a rate of 100% for the first 2% of an
employee's annual compensation and at a rate of 50% for the next 2% of an employee's annual compensation. Employees vest in our
contributions after three years of service. Our expense related to the plan was $1.8 million, $1.6 million, and $1.4 million in 2010, 2009,
and 2008, respectively.

15.

Restructuring

Toulon, France

In June 2007, we announced plans to close our manufacturing, distribution and administrative facility located in Toulon, France. The
facility’s closure affected approximately 130 Toulon-based employees. The majority of our restructuring activities were complete by
the end of 2007, with production now conducted solely in our existing manufacturing facility in Arlington, Tennessee and European
distribution activities being carried out from our European headquarters in Amsterdam, the Netherlands.

As of December 31, 2010, we have concluded our restructuring efforts in Toulon, incurring a total of $27.3 million of charges, however
certain liabilities remain to be paid.

Charges associated with the restructuring are presented in the following table. All of the following amounts were recognized within
“Restructuring charges” in our consolidated statement of operations, with the exception of the inventory write-offs and
manufacturing period costs, which were recognized within “Cost of sales – restructuring.”

(in thousands)

Severance and other termination benefits
Employee litigation accrual
Asset impairment charges
Inventory write-offs and manufacturing period costs
Legal/professional fees
Other
Total restructuring charges

Year Ended

December 31, 2010

Cumulative
Charges as of
December 31,
2010

12
(230 )
-
-
466
-
248

13,562
4,818
3,093
2,139
3,483
194
27,289

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

Activity in the restructuring liability for the year ended December 31, 2010 is presented in the following table (in thousands):

Beginning balance as of December 31, 2009
Charges (reversals):

Severance and other termination benefits
Employee litigation accrual
Legal/professional fees

Total accruals

Payments:

Severance and other termination benefits
Employee litigation
Legal/professional fees
Total payments

Changes in foreign currency translation
Restructuring liability at December 31, 2010

4,964

12
(230 )
466
248

(84 )
(4,103 )
(601 )
(4,788 )
(314 )
110

In connection with the closure of our Toulon, France facility, 103 of our former employees filed claims to challenge the economic
justification for their dismissal. On November 11, 2010, we entered into settlement agreements with each of the former employees
who had filed claims. Under the settlement agreements, we paid the former employees an aggregate amount of approximately
$4.3 million. Management previously recorded a provision related to this litigation. Therefore, the settlement of this litigation did not
have a material impact to our results of operations. These settlements close all outstanding litigation related to the closure of our
facility in Toulon, France, and reflect the completion of activity associated with our Toulon restructuring efforts.

Creteil, France

In October 2009, we announced plans to close our distribution and finance support office in Creteil, France, in order to migrate all
relevant French distribution and support functions into our European organization based out of our European headquarters in
Amsterdam, the Netherlands.

As of December 31, 2010, we have concluded our restructuring efforts in Creteil, incurring a total of $2.8 million of charges, however
certain liabilities remain to be paid.

(in thousands)

Severance and other termination benefits
Asset disposals
Legal/professional fees
Contract termination costs
Other
Total restructuring charges

Year Ended

December 31, 2010

Cumulative
Charges as of
December 31,
2010

52
121
66
133
299
671

876
121
328
1,128
299
2,752

Activity in the restructuring liability for the year ended December 31, 2010 is presented in the following table (in thousands):

Beginning balance as of December 31, 2009
Charges:

Severance and other termination benefits
Contract termination costs
Legal/professional fees

Other

Total accruals

Payments:

Severance and other termination benefits
Contract termination costs
Legal/professional fees

Other

Total payments

Changes in foreign currency translation

Restructuring liability at December 31, 2010

16.

Commitments and Contingencies

1,817

52
6
66
299
423

(671 )
(936 )
(199 )
(311 )
(2,117 )
(81 )

Operating Leases. We lease certain equipment and office space under non-cancelable operating leases. Rental expense under
operating leases approximated $11.3 million, $11.0 million, and $10.1 million for the years ended December 31, 2010, 2009, and 2008,

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

respectively. Future minimum payments, by year and in the aggregate, under non-cancelable operating leases with initial or
remaining lease terms of one year or more, are as follows at December 31, 2010 (in thousands):

2011
2012
2013
2014
2015
Thereafter

9,920
5,582
2,916
796
531
927
20,672

Royalty and Consulting Agreements. We have entered into various royalty and other consulting agreements with third party
consultants. We incurred royalty and consulting expenses of $216,000, $238,000, and $475,000 during the years ended December 31,
2010, 2009, and 2008, respectively, under non-cancelable contracts with minimum obligations that were contingent upon
performance of services. The amounts in the table below represent minimum payments to consultants that are contingent upon
future performance services. These fees are accrued when it is deemed probable that the performance thresholds are met. Future
minimum payments under these agreements for which we have not recorded a liability are as follows at December 31, 2010 (in
thousands):

2011
2012
2013
2014
2015
Thereafter

202
202
147
147
147
147
992

Purchase Obligations. We have entered into certain supply agreements for our products, which include minimum purchase
obligations. During the years ended December 31, 2010, 2009, and 2008, we paid approximately $6.1 million, $3.1 million, and $4.5
million, respectively, under those supply agreements. At December 31, 2010, we are obligated for $2.3 million of minimum purchases
in 2011 under those supply agreements.

Portions of our payments for operating leases, royalty and consulting agreements are denominated in foreign currencies and were
translated in the tables above based on their respective U.S. dollar exchange rates at December 31, 2010. These future payments are
subject to foreign currency exchange rate risk.

Legal Proceedings. In December 2007, our wholly-owned subsidiary, Wright Medical Technology, Inc. (WMT) received a subpoena
from the United States Department of Justice (DOJ) through the United States Attorney’s Office for the District of New Jersey (USAO)
requesting documents for the period January 1998 through the present related to any consulting and professional service
agreements with orthopaedic surgeons in connection with hip or knee joint replacement procedures or products. This subpoena was
served shortly after several of our knee and hip competitors agreed to resolutions with the DOJ after being subjects of investigations
involving the same subject matter.

On September 29, 2010, WMT entered into a 12-month Deferred Prosecution Agreement (DPA) with the USAO and a Civil Settlement
Agreement (CSA) with the United States. Under the DPA, the USAO filed a criminal complaint in the United States District Court for the
District of New Jersey charging us with conspiracy to commit violations of the Anti-Kickback Statute (42 U.S.C. § 1320a-7b) during the
years 2002 through 2007. The USAO has the discretion to extend the term of the DPA by up to six months. The court deferred
prosecution of the criminal complaint during the term of the DPA. If we comply with the provisions of the DPA, the USAO will seek
dismissal of the criminal complaint.

Pursuant to the CSA, WMT settled civil and administrative claims relating to the matter for a payment of $7.9 million without any
admission by WMT. In conjunction with the CSA, WMT also entered into a five year Corporate Integrity Agreement (CIA) with the
Office of the Inspector General of the United States Department of Health and Human Services. Pursuant to the DPA, an independent
monitor will review and evaluate WMT’s compliance with its obligations under the DPA. Together, these agreements resolve the
investigation commenced by the USAO in December 2007. The USAO specifically acknowledges in the DPA that it does not allege that
WMT’s conduct adversely affected patient health or patient care.

We have a dispute with a former distributor in Belgium claiming damages of approximately $12.6 million. The case was pleaded
during the first quarter of 2010, and the former distributor was awarded approximately $80,000, for which we have included a
provision in our consolidated balance sheet as of December 31, 2010. The former distributor has appealed this decision. Management
believes we have strong defenses against these claims and is vigorously contesting the allegations; thus, we do not believe the results
of the appeal will have a material impact on the Company’s consolidated financial position or results of operations.

Other. As of December 31, 2010, the trade receivable balance due from our stocking distributor in Turkey was $8.9 million, of which a
significant portion is past due. We have recorded a reserve of $5.6 million against this balance as of December 31, 2010. It is possible

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

that the future realization of this accounts receivable balance could be less than the remaining unreserved balance of $3.3 million.

In addition to the stocking distributor in Turkey, our next ten largest international stocking distributors have net trade receivable
balances totaling approximately $18 million as of December 31, 2010. We have recorded a reserve of $1.1 million for the portion of
these balances that management believes collection is not probable. It is at least reasonably possible that changes in global economic
conditions and/or local operating and economic conditions in the regions these distributors operate, or other factors, could affect the
future realization of the remaining unreserved balances.

In addition to those noted above, we are subject to various other legal proceedings, product liability claims and other matters which
arise in the ordinary course of business. In the opinion of management, the amount of liability, if any, with respect to these matters,
will not materially affect our consolidated results of operations or financial position.

17.

Segment Data

We have one reportable segment, orthopaedic products, which includes the design, manufacture and marketing of devices and
biologic products for extremity, hip, and knee repair and reconstruction. Our geographic regions consist of the United States, Europe
(which includes the Middle East and Africa) and Other (which principally represents Latin America, Asia and Canada). Long-lived assets
are those assets located in each region. Revenues attributed to each region are based on the location in which the products were sold.

Net sales of orthopaedic products by product line and information by geographic region are as follows (in thousands):

Net sales by product line:
Hip products
Knee products
Extremity products
Biologics products
Other

Total net sales

Net sales by geographic region:
United States
Europe
Other
Total

Operating income (loss) by geographic region:
United States
Europe
Other
Total

Long-lived assets:
United States
Europe
Other
Total

Year Ended December 31,
2009

2008

2010

176,687 $
128,854
124,490
79,231
9,711

167,869
122,178
107,375
79,120
10,966

518,973

487,508

160,788
119,895
88,890
82,399
13,575

465,547

309,983
102,431
106,559
518,973

299,587
102,379
85,542
487,508

282,081
112,771
70,695
465,547

7,838
1,619
27,717
37,174

16,268
(11,683 )
19,366
23,951

21,546
(14,909 )
15,776
22,413

December 31,

2010

2009

129,450
12,383
16,414
158,247

108,389
17,510
13,809
139,708

Our subsidiary in Japan represented approximately 11%, 10%, and 8% of our total net sales in 2010, 2009, and 2008, respectively. No
other single foreign country accounted for more than 10% of our total net sales during 2010, 2009, or 2008.

During 2010, 2009, and 2008, our operating income included restructuring charges associated with the closure of our facility in
Toulon, France. During 2010 and 2009 our operating income also included restructuring charges associated with the closure of our
facility in Creteil, France. Our U.S. region recognized $675,000, $3.3 million and $1.6 million of restructuring charges in 2010, 2009 and
2008, respectively, and our European region recognized $244,000, $279,000 and $5.1 million of restructuring charges in 2010, 2009
and 2008, respectively. Additionally, in 2010, 2009 and 2008, our U.S. region recognized $10.9 million, $7.8 million and $7.6 million of
charges related to the U.S. government inquiries and, in 2010, our DPA. In 2009, our European region recognized a provision of $5.6
million related to the trade receivable balance of our stocking distributor in Turkey. In 2008, our U.S. region recognized $2.5 million of
acquired in-process research and development costs related to our Inbone acquisition and $2.6 million related to an unfavorable
appellate court decision.

Notes to Consolidated Financial Statements

Wright Medical Group, Inc.

18.

Quarterly Results of Operations (unaudited):

The following table presents a summary of our unaudited quarterly operating results for each of the four quarters in 2010 and 2009,
respectively (in thousands). This information was derived from unaudited interim financial statements that, in the opinion of
management, have been prepared on a basis consistent with the financial statements contained elsewhere in this filing and include
all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of such information when read in
conjunction with our audited financial statements and related notes. The operating results for any quarter are not necessarily
indicative of results for any future period.

Net sales
Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative
Research and development
Amortization of intangible assets
Restructuring charges

Total operating expenses

Operating income

Net (loss) income

Net (loss) income per share, basic

Net (loss) income per share, diluted

Net sales
Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative
Research and development
Amortization of intangible assets
Restructuring charges

Total operating expenses

Operating income

Net income

Net income per share, basic

Net income per share, diluted

First Quarter

Second
Quarter

Third Quarter

Fourth Quarter

2010

131,244
40,141
91,103

127,734
39,934
87,800

121,708
37,989
83,719

138,287
40,392
97,895

76,438
9,835
649
544
87,466

67,774
9,784
634
461
78,653

64,877
8,779
708
134
74,498

73,324
8,902
720
(220 )
82,726

3,637

9,147

9,221

15,169

(525 )

4,847

4,650

8,869

(0.01 )

0.13

0.12

(0.01 )

0.13

0.12

0.23

0.22

First Quarter

Second
Quarter

Third Quarter

Fourth Quarter

2009

120,912
38,021

82,891

118,926
36,745

82,181

117,742
35,880

81,862

66,609
8,906
1,317
66
76,898

65,821
9,017
1,308
794
76,940

63,703
8,537
1,274
131
73,645

129,928
38,069

91,859

74,323
9,231
1,252
2,553
87,359

5,993

5,241

8,217

4,500

3,317

2,427

4,152

2,235

0.09

0.07

0.11

0.06

0.09

0.06

0.11

0.06

Our operating income in 2010 included charges related to the U.S. government inquiries and, in the fourth quarter of 2010, our DPA,
for which we recognized $8.1 million, $606,000, $942,000 and $1.3 million during the first, second, third and fourth quarters of 2010,
respectively. Net income in 2010 included the after-tax effect of these amounts.

Our operating income in 2009 included charges related to the U.S. government inquiries, for which we recognized $4.1 million, $2.0
million, and $1.6 million during the first, second, and third quarters of 2009, respectively. A minimal amount was recognized in the
fourth quarter of 2009. In addition, our operating income during the fourth quarter of 2009 included $2.1 million of restructuring
charges related to the closure of our office in Creteil, France and a $5.6 million provision for the trade receivable balance from our
stocking distributor in Turkey. Net income in 2009 included the after-tax effect of these amounts as well as the after-tax effect of
$2.6 million of charges related to the write-off of CTA balances from three foreign subsidiaries following their substantially complete
liquidation (see Note 2).

Management’s Annual Report on Internal Control Over Financial Reporting

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934. Our disclosure controls and procedures are designed to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within our
organization. Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December
31, 2010 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and
communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow
timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of December 31, 2010.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the
supervision and with the participation of our management, including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010, based on the
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, our management concluded that our internal control over financial reporting was
effective as of December 31, 2010. Our internal control over financial reporting as of December 31, 2010, has been audited by KPMG
LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting

During the three months ended December 31, 2010, there were no significant changes in our internal control over financial reporting
that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

corporate information

Transfer Agent and Registrar
American Stock Transfer & Trust Company, Inc. acts as
transfer agent and registrar for us and maintains all
stockholder records. Communications concerning stock
holdings, lost certificates, transfer of shares, duplicate
mailings or changes of address should be directed to:

Wright Medical Group, Inc.
c/o American Stock Transfer & Trust Company
6201 15th Avenue, Brooklyn, NY 11219
800.937.5449 info@amstock.com

Cash Dividend Policy
We have never declared or paid cash dividends on
common stock and do not anticipate a change in this
policy in the foreseeable future. We currently intend to
retain any future earnings for the operation and
expansion of our business.

Stock Prices and Trading Data
Our common stock is traded on the Nasdaq Global
Select Market under the symbol “WMGI.” Stock price
quotations are available in the investor relations section
of our website at www.wmt.com and are printed daily
in major newspapers, including The Wall Street Journal.

The ranges of high and low sale prices per share for our
common stock for 2010 and 2009 are set forth below.
Price data reflect actual transactions. In all cases, the
prices shown are inter-dealer prices and do not reflect
markups, markdowns, or commissions.

Stockholders
As of February 4, 2011, there were 631 stockholders of
record and an estimated 10,935 beneficial owners of
our common stock.

Independent Auditors
KPMG LLP
Memphis, Tennessee

Index), and an

Comparison of Total Stockholder Returns
The graph below compares the cumulative total stockholder
returns for the period from December 31, 2005 to December 31,
2010, for our common stock, an
index composed of U.S.
companies whose stock is listed on the Nasdaq Global Select
index
Market (the Nasdaq U.S. Companies
consisting of Nasdaq-listed companies in the surgical, medical, and
dental instruments and supplies industry (the Nasdaq Medical
Equipment Companies Index). The graph assumes that $100.00
was invested on December 31, 2005, in our common stock, the
Nasdaq U.S. Companies Index, and the Nasdaq Medical Equipment
Companies Index, and that all dividends were reinvested. Total
returns for the two Nasdaq indices are weighted based on the
market capitalization of the companies included therein. Historic
stock price performance is not indicative of future stock price
performance. We do not make or endorse any prediction as to
future stock price performance.

Cumulative Total Stockholder Returns

Based on Reinvestment of $100.00 Beginning on December 31, 2005

160.00

140.00

120.00

100.00

80.00

60.00

40.00

20.00

0.00

Wright Medical Group, Inc.
Nasdaq U.S. Companies
Index
Nasdaq Medical Equipment
Companies Index

12/31/2005
$100.00
100.00

12/31/2006
$114.09
109.84

12/31/2007
$142.96
119.14

12/31/2008
$100.13
57.41

12/31/2009
$92.84
82.53

12/31/2010
$76.13
97.95

100.00

105.40

134.02

72.17

105.24

112.23

2010 High*
$19.25

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

$19.61

$17.70

$15.99

Low*
$15.72

$16.00

$13.03

$12.98

2009 High*
$22.35

$16.97

$18.38

$19.40

Low*
$11.17

$12.03

$13.37

$15.32

*denotes high & low sale prices

Non-GAAP Financial Measures
We use non-GAAP financial measures, such as gross profit, as adjusted, operating income, as adjusted, net income, as adjusted, net income, as
adjusted, per diluted share and free cash flow. Our management believes that the presentation of these measures provides useful information to
investors. These measures may assist investors in evaluating our 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 of the U.S.
government inquiries and our deferred prosecution agreement, 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 our reported results of operations for a period. Free cash
flow is calculated by subtracting capital expenditures from cash provided by operating activities.

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. This annual report
includes discussion of non-GAAP financial measures. Reference is made to the most directly comparable GAAP financial measures and the
reconciliation of the differences between the two financial measures, which is found on page 1 of this annual report and is otherwise available in
the “Corporate - Investor Information - Supplemental Financial Information” section of our website located at www.wmt.com.

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Corporate Information

Wright Medical Group, Inc. is a global orthopaedic medical device
company specializing in the design, manufacture and marketing of
devices and biologic products for extremity, hip and knee repair and
reconstruction. We are a leading provider of surgical solutions for the foot
and ankle market.

Our product offerings include hardware for the foot, ankle, hand, wrist,
elbow and shoulder; biologic products using both biological tissue-based
and synthetic materials; and large joint implants for the hip and knee.

We participate in the worldwide orthopaedic market and distribute our
products through a combination of direct sales personnel and a network
of independent distributors and sales personnel.

Headquartered in Arlington, Tennessee, we have been in business
for 60 years and retain approximately 1,400 employees who provide
outstanding service and innovative products throughout the world.

Our common stock is traded on the Nasdaq Global Select Market under
the symbol “WMGI”.

Investor Relations Information

Stockholders, securities analysts, and investors
seeking more information can access the
following information via the internet at
www.wmt.com:

• News releases describing our signiﬁ cant
events and sales and earnings results for
each quarter and the ﬁ scal year.

• Annual, Quarterly, and Current Reports
ﬁ led with the Securities and Exchange
Commission describing our business and
ﬁ nancial condition.

• Corporate governance information such as
committee charters, code of business
conduct, etc.

In addition, investors are welcome to call, write,
or fax us to request the information above
– including a copy of our Annual Report or
Form 10-K, free of charge. Inquires should be
directed to:

Wright Medical Group, Inc.
Attn: Investor Relations
5677 Airline Road, Arlington, TN 38002
901.867.4113
901.867.4390 Fax

Annual Meeting

The annual meeting of our stockholders will
be held on May 11, 2011 beginning at 8:00 am
(Central Time) at the:

Hilton Memphis
939 Ridge Lake Boulevard
Memphis, TN 38120
901.684.6664

The Notice of Annual Meeting and Proxy
Statement are being mailed to stockholders
with this annual report.