2018 annual report
BUILT TOWIN
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Corporate Overview
Wright Medical Group N.V. is a global medical device company
focused on Extremities and Biologics. The company is committed
to delivering innovative, value-added solutions improving the quality
of life for patients worldwide. We are a recognized leader of surgical
solutions for the upper extremities (shoulder, elbow, wrist and hand),
lower extremities (foot and ankle) and biologics markets, three of
the fastest growing segments in orthopaedics.
Our ordinary shares are traded on the Nasdaq Global
Select Market under the symbol “WMGI”.
Our Vision
Your First Choice in Extremities and Biologics
Our Mission
We focus on Extremities and Biologics.
Through our team of passionate and dedicated
people, we deliver innovative, value-added solutions
improving quality of life for patients worldwide.
We are committed to compliance and the highest
standards of ethical conduct.
Our Values
• Think Customer
• Enable Change
• Alignment
• eMpowerment
• Sustainability
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leadershipfocused “In 2018, we demonstrated how being
built to win enabled Wright Medical to have
a very good year, with many areas of the
company achieving strong performance. “
Robert J. Palmisano, President and Chief Executive Officer
To our fellow shareholders, customers,
and employees:
Today’s Wright Medical is built to win. Why? Three reasons:
we hold leadership positions in high-growth markets. We have
the most focused, specialized sales forces. And we offer the
best products, with differentiated, enabling technologies.
in our lower extremities sales force, the success of our new
products like PROstep™ and good progress in further building
our Ambulatory Surgery Center (ASC) business.
The U.S. biologics business accelerated its growth in the
In 2018, we demonstrated how being built to win enabled
second half of the year, driven by the approval of AUGMENT®
Wright Medical to have a very good year, with many areas
Injectable. The positive feedback from the market is just what
of the company achieving strong performance. Our total
we expected, given the superior handling characteristics of an
company net sales reached $836 million and we accelerated
our top line organic revenue growth to 12%¹. This growth was
propelled by some important new product launches, including
our PERFORM™ Reversed Glenoid, BLUEPRINT™ adoption,
AUGMENT® Injectable and PROstep™ Minimally Invasive
Surgery (MIS) system. That’s in addition to improved execution
from our U.S. lower extremities sales force and continued
#1 market leadership position in total ankle replacement.
In 2018, we also increased our non-GAAP adjusted EBITDA
margin to 14%. Additionally, our non-GAAP adjusted gross
margins of nearly 80% are some of the best in high-growth
medtech.
Our U.S. upper extremities business grew at more than twice
the market rate, a truly exceptional accomplishment that puts
the #1 market share position in shoulder well within our reach.
Just a few years ago there was approximately a 15 percentage
point gap between the shoulder market share leader and
Wright. Today we believe that gap is only four percentage
points—and shrinking. With our strong momentum,
unmatched shoulder product portfolio and BLUEPRINT™-
enabling technology, we have no doubt that
we can soon become the number one company in shoulder.
Our U.S. lower extremities business is already number one, and
performed in line with our expectations of double-digit sales
growth in the second half of 2018. We exited the year
on a great trajectory, which is a testament to the improvement
injectable combined with the proven efficacy of AUGMENT®.
Finally, in 2018 we added the CARTIVA® synthetic cartilage
implant (SCI) to our lower product offering. We see this
product as a true game-changer. It’s the first and only
premarket approval (PMA) product for the treatment of great
toe osteoarthritis and the only product of its kind backed
by Level 1 clinical evidence. CARTIVA® SCI is a perfect fit,
and I couldn’t be more bullish on what the Wright team can
do with it in 2019 and beyond—especially since the CARTIVA®
synthetic cartilage is a platform technology with many avenues
for growth.
Well-positioned for growth
Wright is the growth leader in three of the fastest-growing
orthopaedic markets. In upper extremities, we estimate an
overall market CAGR of 7% to 9% and anticipate being the
market leader as soon as the end of 2020. In lower extremities,
we estimate an overall market CAGR of 8% to 10% and are
working diligently to maintain our #1 position in foot & ankle.
And in biologics, where we estimate an overall market CAGR
of 5% to 6%, we’re seeking to increase the penetration of our
AUGMENT® Injectable.
Our 2019 strategic priorities for growth, which are driven by
our vision to be the first choice in extremities and biologics,
are focused on generating revenue and cash. We seek to
increase revenue by maximizing our differentiated products
¹Organic constant currency, excluding Cartiva revenue and impact of four fewer selling days in
4Q 2018 is equal to reported constant currency, as the favorable impact of Cartiva revenue was
offset by the unfavorable impact of four fewer selling days.
2018 Annual Report Wright Medical Group N.V. 1
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leadershipfocused across our three markets, driving our proprietary enabling
and improve shoulder function and has allowed people to
technologies and making the best use of the skills of our
return to an active lifestyle. Our growth path is based on our
specialized sales forces. Our plans to grow our cash position
existing shoulder product line combined with new products
are based on improving inventory and instruments efficiency,
we’re introducing in 2019.
leveraging SG&A and continuing to evolve away from
a traditional orthopaedics model.
TRADITIONAL ORTHO
HIGH-GROWTH MEDTECH
REVIVE™ Revision Shoulder System. This system has
a convertible, fully adjustable revision stem to address complex
revisions. The current estimated revision market in the U.S.
is approximately $70 million and growing at double the rate
High Capacity Intensity
Low Capital Intensity
of the primary shoulder market.
Low Differentiation
High Differentiation
Low Growth, Mature Markets
Growth Markets with
Expansion Opportunities
Our growth opportunities are fueled by a strong lineup of
new products:
Upper Extremities
Lower Extremities
Biologics
AUGMENT® Injectable
(in rollout)
REVIVE™ Revision Shoulder
(anticipated launch 1H 2019)
ORTHOLOC™ SPS Shoulder Fracture
(anticipated launch 1H 2019)
PERFORM™ Reversed Glenoid
(in rollout)
SIMPLICITI™ Shoulder System
(in rollout)
CARTIVA® SCI
Synthetic Cartilage Implant
(in rollout)
PROstep™ MIS
(Minimally Invasive Surgery)
(in rollout)
INVISION™ Revision Ankle System
with PROPHECY™
(in rollout)
ORTHOLOC™ 3Di Ankle Fracture
LP System
(in rollout)
BLUEPRINT™ 3D Planning
(rollout of new modules anticipated
throughout 2019)
SALVATION™ 2 Limb Salvage
Line Extensions
(in rollout)
Now let’s drill down for a closer look at our position in
Upper Extremities, Lower Extremities and Biologics.
Upper Extremities: A clear path to #1 in shoulder
At Wright, our upper extremities goal is nothing less than to
transform shoulder arthroplasty (replacement) over the next
three years. This procedure replaces the damaged parts of the
patient’s shoulder joint with implants. It’s done to ease pain
ORTHOLOC™ SPS Shoulder Fracture. ORTHOLOC™ offers
accuracy, adjustability and a solid anchoring system that give
us access to the estimated $190 million global plate and screw
segment of the fracture market.
PERFORM™ Reversed Glenoid. This product is designed to
address all glenoid bone loss. Designed for long-term stability,
the PERFORM™ Reversed Glenoid is specifically shaped for
treating challenging glenoid anatomy and is designed to be
infinitely adjustable. PERFORM’s anticipated growth rate is
partly due to its ability to address the largest segment within
shoulder replacement.
SIMPLICITI™ Shoulder. Our stemless shoulder system provides
maximal bone preservation and early intervention options.
A highlight of our upper extremities product portfolio,
SIMPLICITI™ taps into a U.S. market opportunity
of approximately $200 million to $250 million.
“Our plans to grow our
cash position are based
on improving inventory
and instruments
efficiency, leveraging
SG&A and continuing
to evolve away from
a traditional
orthopaedics model. ”
2 2018 Annual Report Wright Medical Group N.V.
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BLUEPRINT™ Surgeon Controlled 3D Planning Software.
We believe our BLUEPRINT™ software technology represents
the future and offers significant pipeline opportunities to
fuel organic growth. We see BLUEPRINT™ as the foundation
for a comprehensive digital ecosystem—a strong enabling
technology that offers us significant competitive advantages.
INVISION™ Revision Ankle with PROPHECY™. INVISION™
is the first and only system developed specifically for total
ankle revision and designed to provide a unique solution for
even the most difficult revision procedures. A related product,
PROPHECY™ INVISION™, makes procedures easier for physicians
by providing an extra level of confidence that the implants
In 2018, we saw a large increase in surgeon use with case
will be positioned in the optimal alignment. We expect these
penetration increasing from 20% in Q2 to 40% by the end
products to expand our leadership in total ankle technology
of Q4.
and highlight our ability to address the total ankle replacement
continuum of care.
Lower Extremities: Exciting new opportunities
CARTIVA® Synthetic Cartilage Implant. CARTIVA® SCI is the
first and only PMA-approved product for the treatment of
first MTP (big toe) joint osteoarthritis. Compelling Level 1
Biologics: Expanding penetration
AUGMENT® Injectable. We received FDA approval for
AUGMENT® Injectable in June 2018, which we believe will
clinical data supports CARTIVA SCI’s ability to preserve motion
support expanded penetration into existing and new accounts.
over fusion. We expect it to be the most profitable product
in our portfolio by enhancing and accelerating our net sales
Since launching the product, the feedback from the market
is just what we expected, and the combination of Injectable’s
growth—especially with its best-in-class gross margins of
superior handling characteristics with the proven efficacy
over 90%. CARTIVA® SCI extends our leading foot and ankle
of AUGMENT® is driving significant growth.
position and fits perfectly with our sales force. At the same
time, it fast-tracks our synthetic cartilage platform strategy,
Pursuing size, growth and profitability
achieves our financial objectives and gives us a CE-mark for
other synthetic cartilage applications.
PROstep™ Minimally Invasive Surgery (MIS). This promising
new surgical technique for forefoot procedures uses a small
incision that goes to the exact spot that the surgeon needs.
We put small instruments and implants into this incision.
We have announced new three-year financial targets for
2019 through 2021, which are to:
• Deliver double-digit, constant currency net sales
growth each year;
• Maintain adjusted gross margin in the high
The procedure healing time is faster—with patients returning
70% range each year; and
to function in about half the time as open surgery—and
the cosmetic results are dramatic. The U.S. forefoot surgery
market, which includes bunionectomies, already represents
an estimated 1.2 million procedures annually, and we believe
PROstep™ MIS is in an excellent position to capture many
of these procedures over time.
• Expand adjusted EBITDA margin to the mid
20% range exiting 2021.
2018 Annual Report Wright Medical Group N.V. 3
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Sales Growth. I continue to be optimistic as we look forward,
and I believe that we are set up well for double-digit constant
currency net sales growth in 2019 and beyond. We have
leadership positions in three of the fastest growing markets
in orthopaedics. Additionally, we have truly differentiated
products in all of our market segments, differentiated enabling
technologies for shoulder and total ankle, very high gross
margins and specialized sales forces that are performing at
a high level.
EBITDA Expansion. From an EBITDA perspective, we expect
continued significant EBITDA margin expansion in 2019
and beyond, which will put us on track to expand adjusted
EBITDA margin to the mid-20% range exiting 2021. I am
Built to win in 2019 and beyond
We believe that delivering on our long-term financial targets
will result in Wright becoming a $1 billion revenue company
with double-digit top line growth and an adjusted EBITDA
margin in the mid-20% range exiting 2021. This would be a
company with a best-in-class combination of size, growth and
adjusted EBITDA and gross margins.
I believe our leadership in high-growth markets, combined
with specialized sales forces and differentiated technologies,
positions us well to achieve these targets and deliver enhanced
shareholder value.
Before I close, I’d like to let the entire Wright team know how
confident that our targets are achievable and have been set
grateful I am for its outstanding efforts in 2018. These are
appropriately, based on the current trajectory of our business.
exciting times at Wright, and we look forward to keeping you
apprised on our progress over the months ahead.
“...delivering on our
long-term financial
targets will result in
Wright becoming a
$1 billion revenue
company with double-
digit top line growth
and an adjusted EBITDA
margin in the mid-20%
range exiting 2021.”
Sincerely yours,
Robert J. Palmisano
President and Chief Executive Officer
4 2018 Annual Report Wright Medical Group N.V.
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We use certain non-GAAP financial measures, including adjusted gross margins and adjusted EBITDA from continuing operations. These non-GAAP financial
measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In
addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of
our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such
measures for comparison purposes. We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our
results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with
the corresponding GAAP measures.
Wright Medical Group N.V.
Reconciliation of Non-GAAP Adjusted Gross Margins to Gross Margins from Continuing Operations
(dollars in thousands - unaudited)
Fiscal year ended
December 30, 2018
December 31, 2017
Gross profit from continuing operations, as reported
Gross margins from continuing operations, as reported
Reconciling items impacting gross profit:
Inventory step-up amortization
Transaction and transition costs
Non-GAAP gross profit from continuing operations, as adjusted
Net sales from continuing operations
Non-GAAP gross margins from continuing operations
$656,037
78.5%
352
4,421
$660,810
836,190
79.0%
$584,042
78.4%
—
3,095
$587,137
744,989
78.8%
Reconciliation of Non-GAAP Adjusted EBITDA to Net Loss from Continuing Operations
(dollars in thousands - unaudited)
Fiscal year ended
December 30, 2018
December 31, 2017
Net loss from continuing operations
Interest expense, net
Provision from income taxes
Depreciation
Amortization
Non-GAAP EBITDA
Reconciling items impacting EBITDA:
Non-cash share-based compensation expense
Other expense, net
Inventory step-up amortization
Transaction and transition costs
Operating tax studies
Non-GAAP adjusted EBITDA
Net sales from continuing operations
Non-GAAP adjusted EBITDA margin
$(169,304)
80,247
(536)
59,497
26,730
$(3,366)
26,120
81,797
352
12,013
—
$116,916
836,190
14.0%
$(64,937)
74,644
(34,968)
56,832
28,396
$59,967
19,393
5,570
—
12,400
(8,965)
$88,365
744,989
11.9%
2018 Annual Report Wright Medical Group N.V. 5
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:59)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2018
OR
(cid:134)(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35065
WRIGHT MEDICAL GROUP N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
(State or other jurisdiction
of incorporation or organization)
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
(Address of Principal Executive Offices)
98-0509600
(I.R.S. Employer
Identification No.)
None
(Zip code)
Registrant’s telephone number, including area code: (+31) 20 521 4777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary shares, par value €0.03 per share
Contingent Value Rights
Name of each exchange on which registered
Nasdaq Global Select Market
Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:59) Yes (cid:134) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:134) Yes (cid:59) No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (cid:59) Yes (cid:134) No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). (cid:59) Yes (cid:134) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:59)
Non-accelerated filer (cid:134)
Accelerated filer (cid:134)
Smaller reporting company (cid:134)
Emerging growth company (cid:134)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:134) Yes (cid:59) No
The aggregate market value of the ordinary shares held by non-affiliates of the registrant on July 1, 2018 was $2.7 billion based on the closing sale
price of the ordinary shares on that date, as reported by the Nasdaq Global Select Market. For purposes of the foregoing calculation only, the
registrant has assumed that all executive officers and directors of the registrant, and their affiliated entities, are affiliates.
As of February 22, 2019, there were 125,857,608 ordinary shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
6
WRIGHT MEDICAL GROUP N.V.
ANNUAL REPORT ON FORM 10-K
Table of Contents
PART I(cid:3)
Item 1.(cid:3)
Item 1A.(cid:3)
Item 1B.(cid:3)
Item 2.(cid:3)
Item 3.(cid:3)
Item 4.(cid:3)
Item 5.(cid:3)
Item 6.(cid:3)
Item 7.(cid:3)
Item 7A.(cid:3)
Item 8.(cid:3)
Item 9.(cid:3)
Item 9A.(cid:3)
Item 9B.(cid:3)
Business. ................................................................................................................................................ 10(cid:3)
Risk Factors. .......................................................................................................................................... 23(cid:3)
Unresolved Staff Comments. .................................................................................................................. 45(cid:3)
Properties. .............................................................................................................................................. 46(cid:3)
Legal Proceedings. ................................................................................................................................. 47(cid:3)
Mine Safety Disclosures. ........................................................................................................................ 51(cid:3)
PART II(cid:3)
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities................................................................................................................................................ 52(cid:3)
Selected Financial Data........................................................................................................................... 54(cid:3)
Management’s Discussion and Analysis of Financial Condition and Results of Operations. ...................... 55(cid:3)
Quantitative and Qualitative Disclosures About Market Risk. .................................................................. 80(cid:3)
Financial Statements and Supplementary Data. ....................................................................................... 84(cid:3)
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ..................... 143(cid:3)
Controls and Procedures. ....................................................................................................................... 143(cid:3)
Other Information. ................................................................................................................................. 143(cid:3)
PART III(cid:3)
Item 10.(cid:3)
Item 11.(cid:3)
Item 12.(cid:3)
Item 13.(cid:3)
Item 14.(cid:3)
Directors, Executive Officers and Corporate Governance. ...................................................................... 144(cid:3)
Executive Compensation........................................................................................................................ 154(cid:3)
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ... 192(cid:3)
Certain Relationships and Related Transactions, and Director Independence. .......................................... 195(cid:3)
Principal Accounting Fees and Services. ................................................................................................ 195(cid:3)
Item 15.(cid:3)
Item 16.(cid:3)
Exhibits, Financial Statement Schedules................................................................................................. 197(cid:3)
Form 10-K Summary. ............................................................................................................................ 206(cid:3)
SIGNATURES.................................................................................................................................................................. 207(cid:3)
PART IV(cid:3)
7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and that
are subject to the safe harbor created by those sections. These statements reflect management's current knowledge, assumptions,
beliefs, estimates, and expectations and express management's current view of future performance, results, and trends. Forward
looking statements 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 actual results to materially differ from those described in the forward-looking statements. The reader should not place
undue reliance on forward-looking statements. Such statements are made as of the date of this report, and we undertake no
obligation to update such statements after this date. Risks and uncertainties that could cause our actual results to materially differ
from those described in forward-looking statements are discussed in our filings with the U.S. Securities and Exchange Commission
(SEC) (including those described in “Part I. Item 1A. Risk Factors” of this report). By way of example and without implied
limitation, such risks and uncertainties include:
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(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:86)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:30)
failure to achieve our financial guidance or projected goals and objectives, including long-term financial targets, in the
(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:79)(cid:92)(cid:30)
failure to realize the anticipated benefits from previous acquisitions and dispositions, including our recent acquisition
of Cartiva, In(cid:70)(cid:17)(cid:3)(cid:11)(cid:38)(cid:68)(cid:85)(cid:87)(cid:76)(cid:89)(cid:68)(cid:12)(cid:30)(cid:3)(cid:3)
failure to obtain anticipated commercial sales of our AUGMENT® Bone Graft and AUGMENT® Injectable Bone
(cid:42)(cid:85)(cid:68)(cid:73)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
liability for product liability claims on hip/knee (OrthoRecon) products sold by Wright Medical Technology, Inc.
(WMT) pr(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:50)(cid:85)(cid:87)(cid:75)(cid:82)(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:30)
risks and uncertainties associated with our metal-on-metal master settlement agreements and the settlement
agreements with certain of our insurance companies, including without limitation, the resolution of the remaining
unresolved claims, the effect of the broad release of certain insurance coverage for present and future claims, and the
resolution of WMT’(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:88)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:30)
(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:70)(cid:82)(cid:80)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:3)
copycat claims against our modular hip systems resulting from a competitor’(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:75)(cid:76)(cid:83)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:30)(cid:3)(cid:3)
the ability of a creditor of any one particular entity within our corporate structure to reach the assets of the other
entities within our corporate structure not liable for the underlying claims of the one particular entity, despite our
corporate structure which is intended to ring-(cid:73)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:30)(cid:3)(cid:3)
pending and future other litigation, which could have an adverse effect on our business, financial condition, or
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challenges to our intellectual property rights or inability to defend our products against the intellectual property rights
(cid:82)(cid:73)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:30)
the possibility of private securities litigation (cid:82)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:86)(cid:30)(cid:3)(cid:3)
(cid:76)(cid:81)(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:30)(cid:3)(cid:3)
inability to generate sufficient cash flow to satisfy our capital requirements, including future milestone payments, and
existing debt, including the conversion features of our convertible senior notes, or refinance our existing debt as it
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risks associated with our credit, security and guaranty agreement for our senior secured asset-based line of credit and
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inability to raise additional financing when needed (cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:30)
the loss of key suppliers, which may result in our inability to meet customer orders for our products in a timely manner
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the incurrence of significant expenditures of resources to maintain relatively high levels of inventory, which could
(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:82)(cid:69)(cid:86)(cid:82)(cid:79)(cid:72)(cid:86)(cid:70)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:85)(cid:80)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:30)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:79)(cid:92)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:30)
our private label manufacturers failing to provide us with sufficient supply of their products, or failing to meet
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our plans to bring the manufacturing of certain of our products in-house and possible disruptions we may experience
in connection with such tran(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:3)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:82)(cid:3)(cid:86)(cid:82)(cid:30)
(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:69)(cid:88)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:81)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:72)(cid:86)(cid:68)(cid:79)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
not successfully competing against our existing or potential competitors and the effect of significant recent
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(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:30)
insufficient demand for and market acceptance of our new and existi(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
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(cid:79)(cid:68)(cid:70)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:3)
(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
8
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future actions of the SEC, the United States Attorney’s office, the U.S. Food and Drug Administration (FDA), the
Department of Health and Human Services, or other U.S. or foreign government authorities, including those resulting
from increased scrutiny under the U.S. Foreign Corrupt Practices Act and similar laws, that could delay, limit, or
suspend our development, manufacturing, commercialization, and sale of products, or result in seizures, injunctions,
(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:68)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:85)(cid:76)(cid:80)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:76)(cid:89)(cid:76)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:3)
failure or delay in obtaining FDA or other regulatory c(cid:79)(cid:72)(cid:68)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
the compliance of our products and activities with the laws and regulations of the countries in which they are
marketed, which compliance may be costly and time-(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:76)(cid:81)(cid:74)(cid:30)
the use, misuse or off-label use of our products that may harm our image in the marketplace or result in injuries that
(cid:80)(cid:68)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:68)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
changes in healthcare laws, which could generate downward pressure on our product (cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:30)
ability of healthcare providers to obtain reimbursement for our products or a reduction in the current levels of
(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:30)
the potentially negative effect of our ongoing compliance efforts on our relationships with customers and on our ability
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failures of, interruptions to, or unauthorized tampering with, our information technology (cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:30)
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(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:68)(cid:87)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:68)(cid:73)(cid:72)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:30)(cid:3)(cid:3)
(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:80)(cid:76)(cid:91)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:30)(cid:3)(cid:3)
deriving a significant portion of our revenues from operations in certain geographic markets that are subject to
political, economic, and social instability, including in particular France, and risks and uncertainties involved in
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the negative impact of the commercial and credit environment on us(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:85)(cid:86)(cid:30)
(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:87)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:30)
consolidation in the healthcare industry that could lead to demands for price concessions or the exclusion of some
suppliers from certain of our markets, which could have an adverse effect on our business, financial condition, or
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(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:30)
potentially burde(cid:81)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:3)
fluctuations in foreign currency exchange rates.
For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from
what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial
condition, or operating results, see “Part I. Item 1A. Risk Factors” of this report. The risks and uncertainties described above and in
“Part I. Item 1A. Risk Factors” of this report are not exclusive and further information concerning us and our business, including
factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no
obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions
affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects
in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K we file with or
furnish to the SEC.
9
Item 1.
Business.
Overview
PART I
Wright Medical Group N.V. (Wright or we) is a global medical device company focused on extremities and biologics products. We
are committed to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized
leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and
biologics markets, three of the fastest growing segments in orthopaedics. We market our products in approximately 50 countries
worldwide. We believe we are differentiated in the marketplace by our strategic focus on extremities and biologics, our full portfolio
of upper and lower extremities and biologics products, and our specialized and focused sales organization.
Our product portfolio consists of the following product categories:
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(cid:129)
(cid:129) Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or
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(cid:129)
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Sports medicine and other, which include products used across several anatomic sites to mechanically repair tissue-to-
tissue or tissue-to-bone injuries and other ancillary products.
Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in
Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative
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In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe. For
purposes of this report, references to “international” or “foreign” relate to non-U.S. matters while references to “domestic” relate to
U.S. matters.
On October 1, 2015, we became Wright Medical Group N.V. following the merger (the Wright/Tornier merger or the merger) of
legacy Wright with legacy Tornier. References in this section and certain other sections of Part I of this report to “we,” “our” and
“us” refer to Wright Medical Group N.V. and its subsidiaries after the Wright/Tornier merger and Wright Medical Group, Inc. and its
subsidiaries before the merger.
On October 21, 2016, we sold legacy Tornier’s Large Joints business to Corin Orthopaedics Holdings Limited (Corin) allowing us to
devote our full resources and attention on accelerating growth opportunities in the high-growth extremities and biologics markets.
Legacy Wright sold its OrthoRecon business to MicroPort Scientific Corporation (MicroPort) on January 9, 2014. The financial
results of legacy Tornier’s Large Joints business and the OrthoRecon business are reflected within discontinued operations for all
periods presented.
On December 14, 2017, we completed the acquisition of IMASCAP SAS (IMASCAP), a leader in the development of software-
based solutions for preoperative planning of shoulder replacement surgery. The intent of this transaction was to ensure exclusive
access to breakthrough software enabling technology and patents to further differentiate our product portfolio and to further
accelerate growth opportunities in our global extremities business.
On October 10, 2018, we acquired 100% of the outstanding equity on a fully diluted basis of Cartiva, Inc. (Cartiva), an orthopaedic
medical device company focused on treatment of osteoarthritis of the great toe, for $435 million in cash, subject to certain
adjustments as set forth in the definitive agreement. We funded this acquisition with the proceeds from a registered underwritten
public offering of our ordinary shares, resulting in net proceeds of $423.0 million.
Orthopaedic Industry
The total worldwide orthopaedic industry is estimated at approximately $51.2 billion in 2018. Five multinational companies
currently dominate the orthopaedic industry, each with approximately $2 billion or more in annual sales. The size of these
companies often allows them to concentrate their marketing and research and development efforts on products they believe will have
a relatively high minimum threshold level of sales. As a result, there is an opportunity for a mid-sized orthopaedic company, such as
us, to focus on less contested, higher-growth sectors of the orthopaedic market.
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We have focused our efforts into growing our position in the high-growth extremities and biologics markets. We believe a more
active and aging patient population with higher expectations regarding “quality of life,” an increasing global awareness of
extremities and biologics solutions, improved clinical outcomes as a result of the use of such products, and technological advances
resulting in specific designs for such products that simplify procedures and address unmet needs for early interventions, and the
growing need for revisions and revision-related solutions will drive the market for extremities and biologics products.
The extremities market is one of the fastest growing market segments within orthopaedics, with annual growth rates of 7-10%. We
believe the extremities market will continue to grow by approximately 7-10% annually. We currently estimate the market for all
surgical products used by extremities-focused surgeons to be approximately $3.25 billion in the United States. We believe major
trends in the extremities market include procedure-specific and anatomy-specific devices, locking plates, and an increase in total
ankle replacement or arthroplasty procedures.
Upper extremities reconstruction involves implanting devices to replace, reconstruct, or fixate injured or diseased joints and bones in
the shoulder, elbow, wrist, and hand. It is estimated that approximately 60% of the upper extremities market is in total shoulder
replacement or arthroplasty implants. We believe major trends in the upper extremities market include next-generation joint
arthroplasty systems, bone preserving solutions, virtual planning systems, and revision of failed previous shoulder replacements in
older patients.
Lower extremities reconstruction involves implanting devices to replace, reconstruct, or fixate injured or diseased joints and bones
in the foot and ankle. A large segment of the lower extremities market is comprised of plating and screw systems for reconstructing
and fusing joints or repairing bones after traumatic injury. We believe major trends in the lower extremities market include the use
of external fixation devices in diabetic patients, total ankle arthroplasty, advanced tissue fixation devices, virtual planning systems,
and biologics. According to various customer and market surveys, we are a market leader in foot and ankle surgical products. New
technologies have been introduced into the lower extremities market in recent years, including next-generation total ankle
replacement systems. Many of these technologies currently have low levels of market penetration. We believe that market adoption
of total ankle replacement, which currently represents approximately 8% of the U.S. foot and ankle device market, will result in
significant future growth in the lower extremities market.
The field of biologics employs tissue engineering and regenerative medicine technologies focused on remodeling and regeneration
of tendons, ligaments, bone, and cartilage. Biologic products use both biological tissue-based and synthetic materials to allow the
body to regenerate damaged or diseased bone and to repair damaged or diseased soft tissue. These products aid the body’s natural
regenerative capabilities to heal itself. Biologic products provide a lower morbidity solution to “autografting,” a procedure that
involves harvesting a patient’s own bone or soft tissue and transplanting it to a different site. Following an autografting procedure,
the patient typically has pain and, at times, complications result at the harvest site after surgery. Biologically or synthetically derived
soft tissue grafts and scaffolds are used to treat soft tissue injuries and are complementary to many sports medicine applications,
including rotator cuff tendon repair and Achilles tendon repair. Hard tissue biologics products are used in many bone fusion or
trauma cases where healing potential may be compromised and additional biologic factors are desired to enhance healing, where the
surgeon needs additional bone, or in cases where the surgeon wishes to use materials that are naturally incorporated by the body over
time. We estimate that the worldwide orthobiologics market to be over $3.5 billion, and with annual growth rates of 3-5%. Three
multinational companies currently dominate the orthobiologics industry.
The newest addition to our biologics product portfolio is AUGMENT® Bone Graft, which is based on recombinant human platelet-
derived growth factor (rhPDGF-BB), a synthetic copy of one of the body’s principal healing agents. We obtained FDA approval of
AUGMENT® Bone Graft in the United States for ankle and/or hindfoot fusion indications during the third quarter of 2015. In June
2018, we received premarket approval (PMA) from the FDA for AUGMENT® Injectable Bone Graft. We estimate the U.S. market
opportunity for AUGMENT® Bone Graft and AUGMENT® Injectable Bone Graft for ankle and/or hindfoot fusion indications to be
approximately $300 million. The main competitors for AUGMENT® Bone Graft and AUGMENT® Injectable Bone Graft are
autologous bone grafts, allograft, and synthetic bone growth substitutes. Autologous bone grafts, which account for a significant
portion of total graft volume, are taken directly from the patient. This generally necessitates an additional procedure to obtain the
graft, which in turn creates added expense, and increased pain and recovery time. Allografts, which are currently the second most
commonly used bone grafts, are taken from human cadavers and processed by either bone banks or commercial firms. Although an
obvious advantage to allografts is the fact that a second-site harvesting operation is not required, they carry a slight risk of
transmitting pathogens and can also cause immune system reactions. Synthetic grafts are derived from numerous materials,
including polymers, calcium sulfate, calcium phosphate, bovine collagen, and coral.
Product Portfolio
We offer a broad product portfolio of approximately 150 extremities products and approximately 20 biologics products that are
designed to provide solutions to our surgeon customers, with the goal of improving clinical outcomes and the “quality of life” for
their patients. Our product portfolio consists of the following product categories:
(cid:129) Upper extremities, which include joint implants and bone fixation devices for the shoulder, elbow, wrist, (cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:81)(cid:71)(cid:30)
(cid:129)
(cid:47)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:73)(cid:76)(cid:91)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:78)(cid:79)(cid:72)(cid:30)
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(cid:129) Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or
(cid:87)(cid:82)(cid:3)(cid:86)(cid:87)(cid:76)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
Sports medicine and other, which include products used across several anatomic sites to mechanically repair tissue-to-
tissue or tissue-to-bone injuries and other ancillary products.
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Upper Extremities
The upper extremities product category includes joint implants and bone fixation devices for the shoulder, elbow, wrist, and hand.
Our global net sales from this product category was $395.8 million, or 47.3% of total net sales, for the fiscal year ended
December 30, 2018, as compared to $334.7 million, or 44.9% of total net sales, for the fiscal year ended December 31, 2017.
Our shoulder products are used to treat painful shoulder conditions due to arthritis, irreparable rotator cuff tendon tears, bone
disease, fractured humeral heads, or failed previous shoulder replacement surgery. Our shoulder products include the following:
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Total Shoulder Joint Replacement. Our total shoulder joint replacement products have two components: a humeral
implant consisting of a metal stem or base attached to a metal head, and a plastic implant for the glenoid (shoulder
socket). Together, these two components mimic the function of a natural shoulder joint. Our total shoulder joint
replacement products include the AEQUALIS ASCEND®, AEQUALIS® PRIMARY™, AEQUALIS® PERFORM™
and SIMPLICITI® shoulder systems. Our BLUEPRINT™ 3D Planning Software can be used with our AEQUALIS®
PERFORM™ Glenoid System to assist surgeons in accurately positioning the glenoid implant and replicating the pre-
operative surgical plan. In addition, we received FDA 510(k) clearance in June 2016 of our AEQUALIS®
PERFORM™+ Glenoid System, the first anatomic augmented glenoid. This system was designed to specifically
address posterior glenoid deficiencies and deliver bone preservation. SIMPLICITI® is the first minimally invasive,
ultra-short stem total shoulder available in the Unites States.
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(cid:129) Hemi Shoulder Joint Replacement. Our hemi shoulder joint replacement products replace only the humeral head and
allow it to articulate against the native glenoid. These products include our PYC HUMERAL HEAD™ and
INSPYRE™. PYC stands for pyrocarbon, which is a biocompatible material that has low joint surface friction and a
high resistance to wear. The PYC HUMERAL HEAD™ is currently available in certain international markets. The
product received FDA clearance in 2015 for its investigational device exemption to conduct a clinical trial in the
United States. We anticipate that this single arm study will enroll and implant 157 patients from up to 20 centers
across the United States and will evaluate the safety and effectiveness of the device in patients with a primary
diagnosis of partial shoulder replacement or hemi-arthroplasty. The study design uses a primary endpoint that is
measured at two years.
Reversed Shoulder Joint Replacement. Our reversed shoulder joint replacement products are used in arthritic patients
lacking rotator cuff function. The components are different from a traditional “total” shoulder in that the humeral
implant has the plastic socket and the glenoid has the metal head. This design has the biomechanical impact of
shifting the pivot point of the joint away from the body centerline and recruiting the deltoid muscles to enable the
patient to elevate the arm. Our reversed joint replacement products include the AEQUALIS® REVERSED II™
shoulder. We received FDA 510(k) clearance in December 2016 of our AEQUALIS® PERFORM™ REVERSED
Glenoid System, our first reverse augmented glenoid, and we commercially launched it during first quarter of 2017.
This system was designed to specifically address posterior glenoid deficiencies and deliver bone preservation. We
continue to release new options for our BLUEPRINT™ 3D Planning Software, which can be used with our
AEQUALIS® PERFORM™ REVERSED Glenoid System to assist surgeons in accurately positioning the glenoid
implant and replicating the pre-operative surgical plan.
(cid:129) Convertible Shoulder Joint Replacement. Our convertible shoulder joint replacement products are modular implants
that can be converted from a total or hemi shoulder implant to a reversed implant at a later date if the patient requires
it. Our convertible joint replacement products include the AEQUALIS ASCEND® FLEX™ convertible shoulder
system, which provides anatomic and reversed options within a single system and is designed to offer precise intra-
operative implant-to-patient fit and easy conversion to reversed if necessary. We received FDA 510(k) clearance of
AEQUALIS® FLEX REVIVE™ shoulder system in the third quarter of 2018. The AEQUALIS® FLEX REVIVE™
shoulder system is the first system developed specifically for shoulder revision, which was designed to help surgeons
remove the old implant with universal instrumentation designed specifically for shoulder applications, rebuild the new
implant with control of height, version, and fixation, and to restore stability and function from successful humeral and
glenoid reconstruction. AEQUALIS® FLEX REVIVE™ was launched to limited users early in the first quarter of
2019 and full commercial launch is anticipated during the first half of 2019.
Shoulder Resurfacing Implants. An option for some patients is shoulder resurfacing where the damaged humeral head
is sculpted to receive a metal “cap” that fits onto the bone, functioning as a new, smooth humeral head. This
procedure can be less invasive than a total shoulder replacement. Our shoulder resurfacing implants are designed to
preserve bone, which may benefit more active or younger patients with shoulder arthritis. Our resurfacing implants
include the AEQUALIS® RESURFACING HEAD™.
Shoulder Trauma Devices. Our shoulder trauma devices, such as plates, pins, screws, and nails, are non-articulating
implants used to help stabilize fractures of the humerus. Our shoulder trauma products include the AEQUALIS® IM
NAIL™, AEQUALIS® PROXIMAL HUMERAL PLATE™, AEQUALIS® FRACTURE™ shoulder and
AEQUALIS® REVERSED FRACTURE™ shoulder.
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In addition to our shoulder products, our upper extremities product portfolio consists of implants, plates, pins, screws, and nails that
are used to treat the elbow, wrist, and hand, and include the following:
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Total Elbow and Radial Head Replacement. Our total elbow and radial head replacement products address the need
for modularity in the anatomically highly-variable joint of the elbow and give surgeons the ability to reproduce the
natural flexion/extension axis and restore natural kinematics of the elbow. Our total elbow replacement products
include our LATITUDE® EV™ total elbow prosthesis. Our radial head replacement products include our EVOLVE®
modular radial head device, which is a market leading radial head prosthesis that provides different combinations of
heads and stems allowing the surgeon to choose implant heads and stems to accommodate the unpredictable anatomy
of each patient.
Elbow Fracture Repair. We have several plating and screw products designed to repair a fractured elbow. Our radial
head plating systems and screws are for surgeons who wish to repair rather than replace a damaged radial head and
include our EVOLVE® TRIAD™ fixation system. Our EVOLVE® Elbow Plating System addresses fractures of the
distal humerus and proximal ulna. Composed of polished stainless steel, this system was designed to accurately match
the patient anatomy to reduce the need for intra-operative bending while providing a low-profile design to minimize
post-operative irritation. Both of these products and several of our other products incorporate our ORTHOLOC™ 3Di
Polyaxial Locking Technology to enable optimal screw placement and stability.
(cid:129) Wrist Fracture Repair. We have several plating and screw products designed to repair a fractured wrist. Our
MICRONAIL® II Intramedullary Distal Radius System is a next-generation minimally invasive treatment for distal
radius fractures that is designed to provide immediate fracture stabilization with minimal soft tissue disruption. Also,
as the nail is implanted within the bone, it has no external profile on top of the bone, thereby reducing the potential for
tendon irritation or rupture, which is an appreciable problem with conventional plates designed to lie on top of the
bone. In addition, our RAYHACK® system is comprised of a series of precision cutting guides and procedure-specific
plates for ulnar and radial shortening procedures and the surgical treatment of radial malunions and Keinbock’s
Disease.
(cid:129) Hand Fixation. Our hand fixation products include our FUSEFORCE® Hand Fixation System, which is a shape-
memory compression-ready fixation system that can be used in fixation for fractures, fusions, or osteotomies of the
bones in the hand.
Thumb and Finger Joint Replacement. Our Swanson finger joints are used in finger joint replacement for patients
suffering from rheumatoid arthritis of the hand. With nearly 45 years of clinical success, Swanson digit implants are a
foundation in our upper extremities business and are used by a loyal base of hand surgeons worldwide. Our
ORTHOSPHERE® implants are used in thumb joint replacement procedures.
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Lower Extremities
The lower extremities product category includes joint implants and bone fusion and fixation devices, including plates, pins, screws,
and nails, for the foot and ankle. Our global net sales from this product category for the fiscal year ended December 30, 2018 was
$311.5 million, or 37.3% of total net sales, as compared to $286.5 million, or 38.5% of total net sales, for the fiscal year ended
December 31, 2017.
We are a recognized leader in the United States for foot and ankle surgical products. Our lower extremities product portfolio
includes:
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Total Ankle Joint Replacement. Total ankle joint replacement, also known as total ankle arthroplasty, is a surgical
procedure that orthopaedic surgeons use to treat ankle arthritis. Our total ankle joint replacement products include
implants for the ankle that involve replacing the joint with an articulating multi-component implant. These joint
implants may be mobile bearing, in which the plastic component is free to slide relative to the metal bearing surfaces,
or fixed bearing, in which this component is constrained. Our INBONE® Total Ankle Systems, including our third-
generation INBONE® II Total Ankle System, are modular prostheses that are designed to allow the surgeon to tailor
the fixation stems for the tibial and talar components in order to maximize stability of the implant. The INBONE® II
Total Ankle System is the only ankle replacement that offers surgeons multiple implant options with different articular
geometry. Our INFINITY® Total Ankle System features a distinctive talar resurfacing option for preservation of talar
bone. The combination and interchangeability of both the INBONE® and INFINITY® systems provide the surgeon
with an implant continuum of care concept, allowing the surgeon to address a more bone conserving implant option
with INFINITY® all the way to addressing a more complex ankle deformity with INBONE®. Our INBONE® and
INFINITY® Total Ankle Systems can be used with our PROPHECY® Preoperative Navigation Guides, which combine
computer imaging with a patient’s CT scan, and are designed to provide alignment accuracy while reducing surgical
steps. The most recent addition to our Total Ankle System, INVISIONTM Total Ankle Revision System is the first and
only system developed specifically for total ankle revision arthroplasty. The INVISIONTM Total Ankle Revision
System provides a unique solution for even the most difficult revision procedures. Whether leveraged as a standalone
construct or in conjunction with INFINITY® and INBONE® components, the INVISIONTM Total Ankle Revision
System is an important addition to the continuum of care from total ankle replacement through any necessary
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revisions. The INVISIONTM Total Ankle Revision System is designed to help surgeons re-build bone lost through
previous surgeries and provide modularity to help restore natural joint height.
Ankle Fusion. We have several products used in ankle fusion procedures, which fuse together the tibia, fibula, and
talus bones into one bone, and are intended to treat painful, end-stage arthritis in the ankle joint. These products
include our ORTHOLOC™ 3Di Ankle Fusion System, VALOR® TTC fusion nail, and the legacy Tornier Maxlock
ExtremeTM Plate and Screws System.
Ankle Fixation and Fracture Repair. We sell a broad range of anatomically designed plates, screws, and nails used to
stabilize and heal fractured ankle bones, including our ORTHOLOCTM 3Di Ankle Fracture Low Profile System
features a complete range of ankle fracture plates designed specifically for the foot and ankle surgeon. The system
features low-profile, anatomic plate designs and ORTHOLOC™ 3Di polyaxial locking screw technology, providing an
innovative fracture solution that is intended to address a primary need for one of the foot and ankle’s largest market
segments.
Foot Fusion. We have several products used in foot fusion procedures, which fuse together three bones in the back of
the foot into one bone and are used to treat a wide range of conditions, including arthritis, flat feet, rheumatoid
arthritis, and previous injuries, such as fractures caused by wear and tear to bones and cartilage. Our foot fusion
products include our ORTHOLOC™ 3Di Midfoot Plating System, VALOR® TTC fusion nail and the legacy Tornier
Maxlock ExtremeTM Plate and Screws System.
Foot Fixation and Fracture Repair. Our foot fixation and fracture repair products include plates, screws, and nails
used to stabilize and heal foot deformities and fractures. Our CHARLOTTE® CLAW® Compression Plate is the first
ever locking compression plate designed for corrective foot surgeries. Our next-generation CLAW® II Compression
Plating System expands our plate and screw offering by introducing anatomic plates specifically designed for fusions
of the midfoot, and the CLAW® II Polyaxial Compression Plating System incorporates variable-angle locking screw
technology and our ORTHOLOC™ 3Di Reconstruction Plating System utilizes our 3Di polyaxial locking technology.
In April 2016, we further expanded the ORTHOLOC™ 3Di portfolio with the launch of the ORTHOLOC™ 3Di
CROSSCHECK® Plating System. This modular addition is comprised of five uniquely designed plates which offer an
inter-fragmentary solution. Our SALVATION™ limb salvage portfolio, which is designed to address the unique
demands of advanced midfoot reconstruction, was commercially launched in the first half of 2016 and in the third
quarter of 2017, we launched line extensions to the system. We also launched a number of line extensions to the
SALVATION™ limb salvage portfolio in 2018. We expect continued demand for these new products. Other foot
products include the MAXLOCK®, MINIMAX LOCK™ and MINIMAX LOCK EXTREME™ plate and screw
systems, BIOFOAM® Wedge System, BIOARCH® Subtalar Arthroereisis Implant, MDI Metatarsal Resurfacing
Implant, and TENFUSE® Nail Allograft.
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(cid:129) Hammertoe Correction. Hammertoe is a contracture (bending) of one or both joints of the second, third, fourth, or
fifth (little) toes. Our hammertoe correction products include the PRO-TOE® VO Hammertoe Fixation System, PRO-
TOE® C2 Hammertoe Implant, PHALINX® Hammertoe Fixation System, Cannulink Intraosseous Fixation System
(IFS), and TENFUSE® PIP Hammertoe Allograft.
Toe Joint Replacement. As a result of our recent acquisition of Cartiva, our lower extremities product portfolio now
includes Cartiva's Synthetic Cartilage Implant (SCI), the only PMA approved product for treatment of first Metatarsal
Phalangeal (MTP) joint osteoarthritis. We also sell our Swanson line of toe joint replacement products.
(cid:129) Minimally-Invasive Foot and Ankle Surgery. The MICA™ Minimally-Invasive Foot and Ankle system and
PROstep™ Minimally Invasive Surgery System for Foot and Ankle were launched to limited users in the third quarter
of 2017. These systems are designed on the premise that all “current” procedures can be performed through a smaller,
minimally invasive, incision, with a focus on preserving the soft tissues. We have MICA™ Screws, MICA™
Machine, PROstep™ Power Box, PROstep™ Burrs, and instruments to perform minimally invasive procedures such
as MICA™ Chevron, Akin, Calcaneal Osteotomies, Hammer toe/Claw toe, Cheilectomy, Bunionectomy, Bunionette
and DMMO and PROstep™ Chevron, Akin, Calcaneal Osteotomies, Cheilectomy and DMMO. Full commercial
launch of MICA™ and PROstep™ occurred early in the third quarter of 2018.
Biologics
The biologics product category includes a broad line of biologic products that are used to support treatment of damaged or diseased
bone, tendons, and soft tissues and other biological solutions for surgeons and their patients or to stimulate bone growth. These
products focus on supporting biological musculoskeletal repair by utilizing synthetic and human tissue-based materials. Our
biologic products are primarily used in extremities-related procedures as well as in trauma-induced voids of the long bones and some
spine procedures. Internationally, we offer a bone graft product incorporating antibiotic delivery. Our global net sales from this
product category for the fiscal year ended December 30, 2018 was $108.8 million, or 13.0% of total net sales, compared to $100.6
million, or 13.5% of total net sales, for the fiscal year ended December 31, 2017.
Our biologics products include the following:
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AUGMENT® Bone Graft. The newest addition to our biologics product portfolio is AUGMENT® Bone Graft. Our
AUGMENT® Bone Graft product line is based on recombinant human platelet-derived growth factor (rhPDGF-BB), a
synthetic copy of one of the body’s principal healing agents. We obtained FDA approval of AUGMENT® Bone Graft
for ankle and/or hindfoot fusion indications in the United States during third quarter of 2015. Prior to FDA approval,
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this product was available for sale in Canada for foot and ankle fusion indications and in Australia and New Zealand
for hindfoot and ankle fusion indications. In June 2018, we received premarket approval from the FDA for
AUGMENT® Injectable Bone Graft. We acquired the AUGMENT® Bone Graft product line from BioMimetic
Therapeutics, Inc. (BioMimetic) in March 2013.
(cid:129) Hard Tissue Repair. Our other bone or hard tissue repair products include our PRO-DENSE® Injectable Regenerative
Graft. PRO-DENSE® is a composite graft composed of surgical grade calcium sulfate and calcium phosphate, and in
animal studies, has demonstrated excellent bone regenerative characteristics, forming new bone that is over three times
stronger than the natural surrounding bone at the 13-week time point. Beyond 13 weeks, the regenerated bone
gradually remodels to natural bone strength. Our PRO-STIM® Injectable Inductive Graft is built on the PRO-
DENSE® material platform, but adds demineralized bone matrix (DBM), and has demonstrated accelerated healing
compared to autograft in pre-clinical testing. Our other hard tissue repair products, including our IGNITE® Power
Mix Injectable Stimulus, FUSIONFLEX™ Demineralized Moldable Scaffold, ALLOMATRIX® Injectable Putty,
OSTEOSET® Resorbable Bead Kit, MIIG® Injectable Graft, ALLOPURE® Allograft Bone Wedges, and TENSIX®
DBM.
Soft Tissue Repair. Our soft tissue repair products include our GRAFTJACKET® Regenerative Tissue Matrix, which
is a human-derived soft tissue graft designed for augmentation of tendon and ligament repairs, such as those of the
rotator cuff in the shoulder and Achilles tendon in the foot and ankle. GRAFTJACKET® Maxforce Extreme is our
thickest GRAFTJACKET® matrix, which provides excellent suture holding power for augmenting challenging tendon
and ligament repairs. We procure our GRAFTJACKET® product through a distribution agreement that expires
December 31, 2019. In January 2019, we commenced commercialization of GRAFTJACKET NOW®, a ready to use
human acellular dermal scaffold, procured through a separate distribution agreement. Other soft tissue repair products
include our ACTISHIELD™ and ACTISHIELD™ CF Amniotic Barrier Membranes, and VIAFLOW™ and
VIAFLOW™ C Flowable Placental Tissue Matrices.
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Sports Medicine and Other
The sports medicine and other product category includes products used across several anatomic sites to mechanically repair tissue-
to-tissue or tissue-to-bone injuries and other ancillary products. Because of its close relationship to extremities joint replacement
and bone fixation, our sports medicine portfolio is comprised of products used to complement our upper and lower extremities
product portfolios, providing surgeons a variety of products that may be used in upper and lower extremities surgical procedures.
Our global net sales from this product category for the fiscal year ended December 30, 2018 was $20.1 million, or 2.4% of total net
sales, compared to $23.2 million, or 3.1% of total net sales, for the fiscal year ended December 31, 2017.
Sales, Marketing, and Medical Education
Our sales and marketing efforts are focused primarily on orthopaedic, trauma, and podiatric surgeons. Orthopaedic surgeons
focused on the extremities in many instances have completed upper or lower extremities fellowship programs. We offer surgeon-to-
surgeon education on our products using surgeon advisors in an instructional capacity. We have contractual relationships with these
surgeon advisors, who help us train other surgeons in the safe and effective use of our products and help other surgeons perfect new
surgical techniques. Together with these surgeon advisors, we provide surgeons extensive “hands on” orthopaedic training and
education, including upper and lower extremities fellowships and masters courses that are not easily accessible through traditional
medical training programs. We also offer clinical symposia and seminars and publish advertisements and the results of clinical
studies in industry publications. We believe that our history of innovation and focus on quality and improving clinical outcomes and
“quality of life” for patients, along with our training programs, allow us to reach surgeons early in their careers and provide on-going
value, which includes experiencing the clinical benefits of our products.
Due to the nature of specialized training surrounding podiatric and orthopaedic surgeons focused on extremities and biologics, our
target market is well defined. Historically, surgeons are the primary decision-makers in orthopaedic device purchases. While we
market our broad portfolio of products to surgeons, our revenue is generated from sales of our products to healthcare institutions and
stocking distributors.
United States
As of December 30, 2018, our sales and distribution system in the United States consisted of 80 geographic sales territories that are
staffed by over 500 direct sales representatives and 27 independent sales agencies or distributors. These sales representatives and
independent sales agencies and distributors are generally aligned to selling either our upper extremities products or lower extremities
products, but, in some cases, certain agencies or direct sales representatives sell products from both our upper and lower extremities
product portfolios in their territories. Our direct sales representatives and independent sales agencies and distributors are provided
opportunities for product training throughout the year. We also have working relationships with healthcare dealers, including group
purchasing organizations, healthcare organizations, and integrated distribution networks. We believe our success in every market
sector is dependent upon having a robust and compelling product offering, and equally as important, a dedicated, highly trained,
focused sales organization to service our customers. We plan to continue to strategically focus on and invest in building a
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competitively superior U.S. sales organization by training and certifying our sales representatives on our innovative product
portfolio, continuing to develop and implement strong performance management practices, and enhancing sales productivity.
International
Internationally, we utilize several distribution approaches that are tailored to the needs and requirements of each individual market.
Our international sales and distribution system currently consists of 13 direct sales offices and approximately 90 distributors that sell
our products in approximately 50 countries. We have subsidiaries with direct sales offices in the United Kingdom, France, Germany,
Italy, Netherlands, Canada, Japan, Australia, Switzerland, and Norway that employ direct sales employees, and in some cases, use
independent sales representatives to sell our products in their respective markets. Our products are sold in other countries in Europe,
Asia, Africa, and Latin America using stocking distribution partners. Stocking distributors purchase products directly from us for
resale to their local customers, with product ownership generally passing to the distributor upon shipment.
Manufacturing, Facilities, and Quality
We utilize a combination of internal manufacturing and a network of qualified outsourced manufacturing partners to produce our
products and surgical instrumentation. We manufacture our internally-(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:29)(cid:3)(cid:3)(cid:36)(cid:85)(cid:79)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:30)(cid:3)
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Arlington, Tennessee from the Industrial Development Board of the Town of Arlington. Our internal manufacturing operations are
focused on product quality, continuous improvement, and efficient production. Our internal manufacturing operations have been
practicing lean manufacturing concepts for many years with a philosophy focused on high productivity, flexibility, and capacity
optimization. Our operations in France have a long history and deep experience with orthopaedic manufacturing and process
innovation. Additionally, we believe we are the only company to have vertically integrated operations for the manufacturing of
pyrocarbon orthopaedic products. We believe that this capability gives us a competitive advantage in design for manufacturing and
prototyping of this innovative material.
We outsource products to our manufacturing partners when it provides us with cost efficiency, expertise, flexibility, and instances
where we need additional capacity. A significant portion of our lower extremities products and surgical instrumentation is produced
to our specifications by qualified subcontractors who serve medical device companies. We continuously look for opportunities to
optimize our internal manufacturing capacity and insource manufacturing where we believe it makes sense to do so.
We maintain a comprehensive quality system that is certified to the European standards ISO 9001 and ISO 13485 and to the
Canadian Medical Devices Conformity Assessment System (CMDCAS). We are accredited by the American Association of Tissue
Banks (AATB) and have registrations with the FDA as a medical device establishment and as a tissue establishment. These
certifications and registrations require periodic audits and inspections by various global regulatory entities to determine if we have
systems in place to ensure our products are safe and effective for their intended use and that we are compliant with applicable
regulatory requirements. Our quality system exists so that management has the proper oversight, designs are evaluated and tested,
production processes are established and maintained, and monitoring activities are in place to ensure products are safe, effective, and
manufactured according to our specifications. Consequently, our quality system provides the way for us to ensure we design and
build quality into our products while meeting global requirements. We are committed to meet or exceed customer needs as we strive
to improve patient outcomes.
Supply
We use a diverse and broad range of raw materials in the manufacturing of our products. We purchase all of our raw materials and
select components used in the manufacturing of our products from external suppliers. In addition, we purchase some supplies from
single or limited number of sources for reasons of proprietary know-how, quality assurance, sole source, cost-effectiveness, or
constraints resulting from regulatory requirements. We work closely with our suppliers to ensure continuity of supply while
maintaining high quality and reliability.
We rely on a limited number of suppliers for the components used in our products. For certain human biologic products, such as
Allomatrix®, we depend on one supplier of demineralized bone matrix and cancellous bone matrix. We rely on two suppliers for our
GRAFTJACKET® family of soft tissue repair and graft containment products. Additionally, we have other soft tissue repair
products for which we rely on one supplier, which include our ACTISHIELD™ and ACTISHIELD™ CF Amniotic Barrier
Membranes and VIAFLOW™ and VIAFLOW™ C Flowable Placental Tissue Matrices. We maintain adequate stock from these
suppliers in order to meet market demand.
We rely on one supplier for a key component of our AUGMENT® Bone Graft. In December 2013, our supplier notified us of its
intent to terminate the supply agreement in December 2015. This supplier was contractually required to meet our supply
requirements until the termination date, and to use commercially reasonable efforts to assist us in identifying a new supplier and
support the transfer of technology and supporting documentation to produce this component. In April 2016, we entered into a
commercial supply agreement with FUJIFILM Diosynth Biotechnologies U.S.A., Inc. pursuant to which Fujifilm agreed to
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manufacture and sell to us and we agreed to purchase the key component of our AUGMENT® Bone Graft. Pursuant to our supply
agreement with Fujifilm, commercial production of the key component is expected to begin in 2020. Although we believe that our
current supply of the key component from our former supplier should be sufficient to last until after the component becomes
available under the new agreement, no assurance can be provided that it will be sufficient.
Some of our products are provided by suppliers under private-label distribution agreements. Under these agreements, the supplier
generally retains the intellectual property and exclusive manufacturing rights. The supplier private labels the products under our
brands for sale in certain fields of use and geographic territories. These agreements may be subject to minimum purchase or sales
obligations and are terminable by either party upon notice. Our private-label distribution agreements do not, individually or in the
aggregate, represent a material portion of our business and we are not substantially dependent on them.
Our business, and the orthopaedic industry in general, is capital intensive, particularly as it relates to inventory levels and surgical
instrumentation. Our business requires a significant level of inventory driven by our global footprint, the requirement to provide
products within a short period of time, and the number of different sizes of many of our products. In addition, we must maintain a
significant investment in surgical instrumentation as we provide these instruments to healthcare facilities and surgeons for their use
to facilitate the implantation of our products.
Competition
Competition in the orthopaedic device industry is intense and is characterized by extensive research efforts and rapid technological
progress. Competitors include major and mid-sized companies in the orthopaedic and biologics industries, as well as academic
institutions and other public and private research organizations that continue to conduct research, seek patent protection, and
establish arrangements for commercializing products that will compete with our products.
The primary competitive factors facing us include price, quality, innovative design and technical capability, clinical results, breadth
of product line, scale of operations, distribution capabilities, brand reputation, and strong customer service. Our ability to compete
is affected by our ability to accomplish the following:
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(cid:129) Obtain and maintain regulatory clearances or approvals and reimbursement for our (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
(cid:129) Manufacture and sell our products cost-(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
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(cid:129) Respond to competitive pressures specific to each of our geographic markets, including our ability to enforce non-
compete (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)
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(cid:129) Attract and retain qualified scientific, (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
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Support our technology with clinically relevant studies.
Research and Development
Realizing that new product offerings are a key to our future success, we are committed to a strong research and development
program. The intent of our program is to develop new extremities and biologics products and expand our current product offerings
and the markets in which they are offered. Our research and development teams are organized and aligned with our product
marketing teams and are focused on improving clinical outcomes by designing innovative, clinically differentiated products with
improved ease-of-use and by developing new product features and enhanced surgical techniques that can be leveraged across a
broader base of surgeon customers. Our internal research and development teams work closely with external research and
development consultants and a global network of physicians and medical personnel in hospitals and universities to ensure we have
broad access to best-in-class ideas and technologies to drive our product development pipeline. We also have an active business
development team that actively evaluates novel technologies and development stage products. In addition, our clinical and
regulatory departments are devoted to verifying the safety and efficacy of our products according to regulatory standards enforced
by the FDA and other international regulatory bodies. Our research and development expenses totaled $59.1 million, $50.1 million
and $50.5 million in 2018, 2017, and 2016, respectively. Our research and development activities are principally located in
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and Bloomington, Minnesota.
In the extremities area, our research and development activities focus on building upon our already comprehensive portfolio of
surgical solutions for extremities focused surgeons, including procedure and anatomy specific products. With the ultimate goal of
addressing unmet clinical needs, we often pursue multiple product solutions for a particular application in order to offer surgeons the
ability either to use their preferred procedural technique or to provide options and flexibility in the surgical setting with the
understanding that one solution does not work for every case. Additionally, with the acquisition of IMASCAP, whose Glenosys
technology is the preoperative planning software behind our BLUEPRINT™ 3D planning software, we have a rich pipeline of
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potential breakthrough technologies under development. We believe the future of orthopaedic implant surgery will include advanced
elements of artificial intelligence and augmented reality.
In the biologics area, we have research and development projects underway that are designed to provide differentiation of our
advanced materials in the marketplace. We are particularly focused on the integration of our biologic product platforms into
extremities procedures and potential new applications for our AUGMENT® Bone Graft.
Intellectual Property
Patents, trade secrets, know-how, and other proprietary rights are important to the continued success of our business. We currently
own more than 1,800 patents and pending patents throughout the world. We currently have licenses to use approximately 800
patents. We seek to aggressively protect technology, inventions, and improvements that we consider important through the use of
patents and trade secrets in the United States and significant foreign markets. We manufacture and market products under both
patents and license agreements with other parties. These patents and license agreements have a defined life and expire from time to
time. We are not materially dependent on any one or more of our patents. In addition to patents, our knowledge and experience,
creative product development, marketing staff and trade secret information, with respect to manufacturing processes, materials and
product design, are as important as our patents in maintaining our proprietary product lines.
Although we believe that, in the aggregate, our patents are valuable, and patent protection is beneficial to our business and
competitive positioning, our patent protection will not necessarily deter or prevent competitors from attempting to develop similar
products. There can be no assurances that our patents will provide competitive advantages for our products or that competitors will
not challenge or circumvent these rights. In addition, there can be no assurances that the United States Patent and Trademark Office
(USPTO) or foreign patent offices will issue any of our pending patent applications. The USPTO and foreign patent offices may
deny or require a significant narrowing of the claims in our pending patent applications and the patents issuing from such
applications. Any patents issuing from the pending patent applications may not provide us with significant commercial protection.
We could incur substantial costs in proceedings before the USPTO or foreign patent offices, including opposition and other post-
grant proceedings. These proceedings could result in adverse decisions as to the patentability, priority of our inventions, and the
narrowing or invalidation of claims in issued patents. Additionally, the laws of some of the countries in which our products are or
may be sold may not protect our intellectual property to the same extent as the laws in the United States or at all.
While we do not believe that any of our products infringe any valid claims of patents or other proprietary rights held by others, we
are currently subject to patent infringement litigation and there can be no assurances that we do not infringe any patents or other
proprietary rights. If our products were found to infringe any proprietary right of another party, we could be required to pay
significant damages or license fees to such party and/or cease production, marketing, and distribution of those products. Litigation
also may be necessary to defend infringement claims of third parties or to enforce patent rights we hold or to protect trade secrets or
techniques we own.
We rely on trade secrets and other unpatented proprietary technology. There can be no assurances that we can meaningfully protect
our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary
products or processes or otherwise gain access to our proprietary technology.
We protect our proprietary rights through a variety of methods. As a condition of employment, we generally require employees to
execute an agreement relating to the confidential nature of and company ownership of proprietary information and assigning
intellectual property rights to us. We generally require confidentiality agreements with vendors, consultants, and others who may
have access to proprietary information. We generally limit access to our facilities and review the release of company information in
advance of public disclosure. There can be no assurances, however, that confidentiality agreements with employees, vendors, and
consultants will not be breached, adequate remedies for any breach would be available, or competitors will not discover or
independently develop our trade secrets. Litigation also may be necessary to protect trade secrets or techniques we own.
Government Regulation
We are subject to varying degrees of government regulation in the countries in which we conduct business. In some countries, such
as the United States, Europe, Canada, and Japan, government regulation is significant and, we believe there is a general trend toward
increased and more stringent regulation throughout the world. As a manufacturer and marketer of medical devices, we are subject to
extensive regulation by the U.S. Food and Drug Administration, other federal governmental agencies, and state agencies in the
United States and similar foreign governmental authorities in countries located outside the United States. These regulations
generally govern the introduction of new medic(cid:68)(cid:79)(cid:3) (cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:15)(cid:3)
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(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
the healthcare industry, we are also subject to various other U.S. federal, state, and foreign laws.
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We strive to comply with regulatory requirements governing our products and operations and to conduct our affairs in an ethical
manner. This practice is reflected in our Code of Business Conduct, various other compliance policies and through the responsibility
of the nominating, corporate governance and compliance committee of our board of directors, which oversees our corporate
compliance program and compliance with legal and regulatory requirements as well as our ethical standards and policies. We devote
significant time, effort, and expense to addressing the extensive government and regulatory requirements applicable to our business.
Such regulatory requirements are subject to change and we cannot predict the effect, if any, that these changes might have on our
business, financial condition, and results of operations. Governmental regulatory actions against us could result in warning letters,
delays in approving or refusal to approve a product, the recall or seizure of our products, suspension or revocation of the authority
necessary for the production or sale of our products, litigation expense, and civil and criminal penalties against us and our officers
and employees. If we fail to comply with these regulatory requirements, our business, financial condition, and results of operations
could be harmed.
United States
In the United States, our products are strictly regulated by the FDA under the U.S. Food, Drug and Cosmetic Act (FDC Act). Some
of our products are also regulated by state agencies. FDA regulations and the requirements of the FDC Act affect the pre-clinical
and clinical testing, design, manufacture, safety, efficacy, labeling, storage, recordkeeping, advertising, and promotion of our
medical device products. Our tissue-based products are subject to FDA regulations, the National Organ Transplant Act (NOTA), and
various state agency regulations. We are an accredited member of the American Association of Tissue Banks and an FDA-registered
tissue establishment, which includes the packaging, processing, storage, labeling, and distribution of tissue products regulated as
medical devices and the storage and distribution of tissue products regulated solely as human cell and tissue products. In addition,
we maintain the appropriate tissue bank licenses based on state requirements.
Generally, before we can market a new medical device, marketing clearance from the FDA must be obtained through either a
premarket notification under Section 510(k) of the FDC Act or the approval of a de novo or PMA application. Most of our products
are FDA cleared through the 510(k) premarket notification process. The FDA typically grants a 510(k) clearance if the applicant can
establish that the device is substantially equivalent to a predicate device. It usually takes about three months from the date of a
510(k) submission to obtain clearance, but it may take longer, particularly if a clinical trial is required. The FDA may find that a
510(k) is not appropriate or that substantial equivalence has not been shown and, as a result, require a de novo or PMA application.
PMA applications must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically
including the results of human clinical trials, bench tests, and laboratory and animal studies. The PMA application must also contain
a complete description of the device and its components, and a detailed description of the methods, facilities, and controls used to
manufacture the device. In addition, the submission must include the proposed labeling and any training materials. The PMA
application process is expensive and generally takes significantly longer than the 510(k) process. Additionally, the FDA may never
approve the PMA application. As part of the PMA application review process, the FDA generally will conduct an inspection of the
manufacturer’s facilities to ensure compliance with applicable quality system regulatory requirements, which include quality control
testing, documentation control, and other quality assurance procedures. A PMA can include post-approval conditions including,
among other things, restrictions on labeling, promotion, sale and distribution, data reporting (surveillance), or requirements to do
additional clinical studies post-approval. Even after approval of a PMA, the FDA must grant subsequent approvals for a new PMA
or a PMA supplement to authorize certain modifications to the device, its labeling, or its manufacturing process.
One or more clinical trials may be required to support a 510(k) application or a de novo submission and almost always are required
to support a PMA application. Clinical trials of unapproved or uncleared medical devices or devices being studied for uses for
which they are not approved or cleared (investigational devices) must be conducted in compliance with FDA requirements. If
human clinical trials of a medical device are required and the device presents a significant risk, the sponsor of the trial must file an
investigational device exemption (IDE) application prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and/or laboratory testing. If the IDE application is approved by the FDA
and one or more institutional review boards (IRBs), human clinical trials may begin at a specific number of institutional
investigational sites with the specific number of patients approved by the FDA. If the device presents a non-significant risk to the
patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval
from the FDA. Submission of an IDE does not give assurance that the FDA will approve the IDE. If an IDE is approved, there can
be no assurance the FDA will determine that the data derived from the trials support the safety and effectiveness of the device or
warrant the continuation of clinical trials. An IDE supplement must be submitted to and approved by the FDA before a sponsor or
investigator may make a change to the investigational plan in such a way that may affect its scientific soundness, study indication, or
the rights, safety or welfare of human subjects. During the trial, the sponsor must comply with the FDA’s IDE requirements
including, for example, investigator selection, trial monitoring, adverse event reporting, and recordkeeping. The investigators must
obtain patient informed consent, rigorously follow the investigational plan and trial protocol, control the disposition of
investigational devices, and comply with reporting and recordkeeping requirements. We, the FDA and the IRB at each institution at
which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons, including a belief that the
subjects are being exposed to an unacceptable risk. We are currently conducting a few clinical trials.
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After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply and we
continue to be subject to inspection by the FDA to determine our compliance with these requirements, as do our suppliers, contract
manufacturers, and contract testing laboratories. These requirements include, among others, the following:
(cid:129)
(cid:129) Quality System regulations, which govern, among other things, how manufacturers design, test, manufacture, modify,
label, exercise quality (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
labeling and claims regulations, which require that promotion is truthful, not misleading, fairly balanced and provide
adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for
unapproved or “off-label” (cid:88)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:69)(cid:72)(cid:79)(cid:76)(cid:81)(cid:74)(cid:30)
(cid:129)
FDA guidance of off-(cid:79)(cid:68)(cid:69)(cid:72)(cid:79)(cid:3)(cid:71)(cid:76)(cid:86)(cid:86)(cid:72)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)
(cid:129) Medical Device Reporting (MDR) regulation, which requires reporting to the FDA certain adverse experiences
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(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:81)(cid:71)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:85)(cid:68)(cid:70)(cid:78)(cid:15)(cid:3)(cid:80)(cid:82)(cid:81)(cid:76)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
Part 806 reporting of certain correctio(cid:81)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:80)(cid:82)(cid:89)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)
complying with federal law and regulations requiring Unique Device Identifiers (UDI) on devices and also requiring
the submission of certain information about each device to FDA’s Global Unique Device Identification Database
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in some cases, ongoing monitoring and tracking of our products’ performance and periodic reporting to the FDA of
such performance results.
The FDA has statutory authority to regulate allograft-based products, processing, and materials. The FDA and other international
regulatory agencies have been working to establish more comprehensive regulatory frameworks for allograft-based tissue-containing
products, which are principally derived from human cadaveric tissue. The framework developed by the FDA establishes risk-based
criteria for determining whether a particular human tissue-based product will be classified as human tissue, a medical device, or a
biologic drug requiring premarket clearance or approval. All tissue-based products are subject to extensive FDA regulation,
including establishment registration requirements, product listing requirements, good tissue practice requirements for manufacturing,
and screening requirements that ensure that diseases are not transmitted to tissue recipients. The FDA has also proposed extensive
additional requirements that address sub-contracted tissue services, tracking to the recipient/patient, and donor records review. If a
tissue-based product is considered human tissue, the FDA requirements focus on preventing the introduction, transmission, and
spread of communicable diseases to recipients. Neither clinical data nor review of safety and efficacy is required before the tissue
can be marketed. However, if the tissue is considered a medical device or a biologic drug, then FDA clearance or approval is
required.
The FDA and international regulatory authorities periodically inspect us and our third-party manufacturers for compliance with
applicable regulatory requirements. These requirements include labeling regulations, manufacturing regulations, quality system
regulations, regulations governing unapproved or off-label uses, and medical device regulations. Medical device regulations require
a manufacturer to report to the FDA serious adverse events or certain types of malfunctions involving its products.
We are subject to various U.S. federal and state laws concerning healthcare fraud and abuse, including anti-kickback and false
claims laws, and other matters. The U.S. federal Anti-Kickback Statute (and similar state laws) prohibits certain illegal
remuneration to physicians and other health care providers that may financially bias prescription decisions and result in an over-
utilization of goods and services reimbursed by the federal government. The U.S. federal False Claims Act (and similar state laws)
prohibits conduct on the part of a manufacturer which may cause or induce an inappropriate reimbursement for devices reimbursed
by the federal government. We are also subject to the U.S. federal Physician Payments Sunshine Act and various state laws on
reporting remunerative relationships with healthcare providers. These laws impact the kinds of financial arrangements we may have
with hospitals, surgeons or other potential purchasers of our products. They particularly impact how we structure our sales offerings,
including discount practices, customer support, education and training programs, physician consulting, research grants and other
arrangements. These laws are administered by, among others, the U.S. Department of Justice, the Office of Inspector General of the
Department of Health and Human Services and state attorneys general. Many of these agencies have increased their enforcement
activities with respect to medical device manufacturers in recent years. If our operations are found to be in violation of these laws,
we may be subject to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines,
disgorgement, exclusion from participation in government healthcare programs, contractual damages, reputational harm,
administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations.
We are also subject to data privacy and security regulation by both the U.S. federal government and the states in which we conduct
our business. Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information
Technology for Economic and Clinical Health Act (HITECH), and their respective implementing regulations, imposes specified
requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things,
HITECH makes HIPAA’s security standards directly applicable to business associates, defined as service providers of covered
entities that create, receive, maintain, or transmit protected health information in connection with providing a service for or on behalf
of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to
file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs
20
associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in
certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
The FDA, in cooperation with U.S. Customs and Border Protection, administers controls over the import of medical devices into the
United States. The U.S. Customs and Border Protection imposes its own regulatory requirements on the import of our products,
including inspection and possible sanctions for noncompliance. We are also subject to foreign trade controls administered by certain
U.S. government agencies, including the Bureau of Industry and Security within the Commerce Department and the Office of
Foreign Assets Control within the Treasury Department.
International
Outside the United States, we are subject to government regulation in the countries in which we operate and sell our products. We
must comply with extensive regulations governing product approvals, product safety, quality, manufacturing, and reimbursement
processes in order to market our products in all major foreign markets. Although many of the regulations applicable to our products
in these countries are similar to those of the FDA, these regulations vary significantly from country to country and with respect to
the nature of the particular medical device. The time required to obtain foreign approvals to market our products may be longer or
shorter than the time required in the United States, and requirements for such approvals may differ from FDA requirements.
To market our product devices in the member countries of the European Union, we are required to comply with the European
Medical Device Directives and to obtain CE mark certification. CE mark certification is the European symbol of adherence to
quality assurance standards and compliance with applicable European Medical Device Directives. Under the European Medical
Device Directives, all medical devices must qualify for CE marking. To obtain authorization to affix the CE mark to one of our
products, a recognized European Notified Body must assess our quality systems and the product’s conformity to the requirements of
the European Medical Device Directives. We are subject to inspection by the Notified Bodies for compliance with these
requirements. We also are required to comply with regulations of other countries in which our products are sold, such as obtaining
Ministry of Health Labor and Welfare approval in Japan, Health Protection Branch approval in Canada and Therapeutic Goods
Administration approval in Australia. The new European MDR intended to replace the current Medical Device Directives came into
force May 2017. Manufacturers of approved medical devices will have until May 2020 to transition their devices to meet the
requirements of the MDR. After May 2020, manufacturers are offered a grace period which further extends the transition time for
some medical devices. We are currently reviewing our product portfolios, quality system and processes in an effort to meet the new
regulations within the timeframes we are afforded.
Our manufacturing facilities are subject to environmental health and safety laws and regulations, including those relating to the use,
registration, handling, storage, disposal, recycling and human exposure to hazardous materials and discharges of substances in the
air, water and land. For example, in France, requirements known as the Installations Classées pour la Protection de l’Environnement
regime provide for specific environmental standards related to industrial operations such as noise, water treatment, air quality, and
energy consumption. In Ireland, our manufacturing facilities are likewise subject to local environmental regulations, such as related
to water pollution and water quality, which are administered by the Environmental Protection Agency.
Our operations in countries outside the United States are subject to various other laws such as those regarding recordkeeping and
(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:30)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:68)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)-export, and laws regarding transactions in
foreign countries. We are also subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits covered entities and their
intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or
retaining business or other benefits, as well as similar anti-corruption laws of other countries, such as the UK Bribery Act.
Third-Party Reimbursement
Sales of our products depend in part on the availability of coverage and reimbursement from insurers/third-party payors. Third-party
payors may include governmental programs such as the U.S. Medicare and Medicaid programs, private insurance plans, and
workers’ compensation plans. These third-party payors may deny coverage or reimbursement for a product or procedure if they
determine that the product or procedure is investigational or is not medically necessary. Third-party payors also may place
limitations on coverage of products or procedures, such as the types of conditions for which a procedure will be covered, the types
of physicians who can perform specific types of procedures, or the care setting in which the procedure may be performed
(e.g., outpatient or in a hospital). Also, third-party payors are increasingly auditing and challenging the charges submitted for
medical products and services and are raising concerns related to potential upcoding, miscoding, and/or inappropriate modifiers
uses. Some third-party payors may require prior-authorization, pre-determination, or prior approval to determine coverage for
innovative devices or procedures before they will reimburse healthcare providers for associated claims. Even though a new product
may have been approved or cleared for commercial sale by the FDA, demand may be limited if reimbursement barriers are imposed
by governmental and/or private third-party payors. In the United States, there is no uniform coverage and payment policy across all
third-(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:83)(cid:68)(cid:92)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)(cid:76)(cid:81)(cid:86)tead, coverage and payment can be quite different from payor to payor, and from one region of the country to
another. Coverage also depends on our ability to demonstrate the short-term and long-term clinical effectiveness, and in some cases
the cost-effectiveness, of our products. Such supportive data are obtained from clinical trials and published literature. We conduct
research and present results at major scientific and medical meetings, and publish results in respected, peer-reviewed medical
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journals both to promote medical innovation and because we believe data and evidence that can support coverage and payment are
important to the successful commercialization of and market access for our products.
The Centers for Medicare & Medicaid Services (CMS), the U.S. agency responsible for administering the Medicare program, sets
national Medicare coverage and payment policies for the Medicare program. CMS may adopt policy changes that impact our
products through national coverage determinations, Medicare payment regulations or other mechanisms. Local coverage
determinations also can be adopted by CMS contractors. Additionally, Congress periodically adopts legislation that impacts
reimbursement under federal health programs.
Payment to physicians for procedures using our products also can be impacted by changes to Current Procedural Terminology (CPT)
codes, which are used to submit claims to payers for medical services. CPT codes are assigned, maintained and annually updated by
the American Medical Association and its CPT Editorial Board. The relative values assigned to CPT codes, which represent
resources used to perform a procedure, also can be revised by CMS. If the CPT codes that apply to procedures performed using our
products are changed, or the relative values are decreased, reimbursement for performances of these procedures may be adversely
affected.
We believe that the overall escalating cost of medical products and services for governments and private health insurers is increasing
pressures on the healthcare and medical device industry to reduce the costs of products and services. Third-party payors are
developing increasingly-sophisticated methods of controlling healthcare costs through measures including, but not limited to,
bundled payments, episode- of-care risk-sharing methodologies, health technology assessments, coverage with evidence
development requirements, payment linked to quality, pay-for-performance, comparative effectiveness reviews, prospective
reimbursement, capitation programs, group purchasing, redesign of benefit offerings, pre-approvals and second opinion
requirements, careful review of bills, encouragement of healthier lifestyles and promotion of preventative services, and exploration
of more cost-effective methods of delivering healthcare. Adoption or expansion of these or other types of cost control measures
could potentially impact market access and pricing structures for our products, which in turn could impact our future sales. There
can be no assurance that third-party reimbursement will be available or adequate, or that current and future legislation, regulation or
reimbursement policies of third-party payors will not adversely affect the demand for our products or our ability to sell our products
on a profitable basis. If third-party payor reimbursement is unavailable or inadequate, it could have a material adverse effect on our
business, operating results, and financial condition.
Outside the United States, healthcare reimbursement systems vary significantly by country, and many countries have instituted price
ceilings on specific product lines and procedures. We have received increased requests for clinical data to support registration and
reimbursement outside the United States. We have experienced more frequent local, product-specific clinical evidence requirements
being applied as an overlay to medical device regulation. For instance, Australia requires that clinical data for clearance and
reimbursement be in the form of prospective, multi-center studies, a high bar not previously applied. In addition, in France, certain
innovative devices (such as some of our products made from pyrolytic carbon) must provide clinical evidence to support “mark-
specific” reimbursement. There can be no assurances that procedures using our products will be considered medically reasonable
and necessary for a specific indication, that our products will be considered cost-effective by third-party payors, that an adequate
level of reimbursement will be available, or that the third-party payors’ reimbursement policies will not adversely affect our ability
to sell our products profitably.
Environmental
Our operations and properties are subject to extensive U.S. federal, state, local, and foreign environmental protection and health and
safety laws and regulations. These laws and regulations govern, among other things, the generation, storage, handling, use, and
transportation of hazardous materials and the handling and disposal of hazardous waste generated at our facilities. Under such laws
and regulations, we are required to obtain permits from governmental authorities for some of our operations. If we violate or fail to
comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. Under some environmental
laws and regulations, we could also be held responsible for all of the costs relating to any contamination at our past or present
facilities and at third-party waste disposal sites. We believe our costs of complying with current and future environmental laws,
regulations and permits and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not
materially adversely affect our business, results of operations, or financial condition, although there can be no assurances of this.
Seasonality
We traditionally experience lower sales volumes in the third quarter than throughout the rest of the year as many of our products are
used in elective procedures, which generally decline during June, July, and August. This typically results in our selling, general and
administrative expenses and research and development expenses as a percentage of our net sales that are higher during third quarter
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 College of Foot and Ankle Surgeons (ACFAS)
and the American Academy of Orthopaedic Surgeons (AAOS). During these three-day events, we display our most recent and
innovative products.
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Backlog
The time period between the placement of an order for our products and shipment is generally short. As such, we do not consider
our backlog of firm orders to be material to an understanding of our business.
Employees
As of December 30, 2018, we had 2,894 employees. We believe that we have a good relationship with our employees.
Available Information
We are a public company with limited liability (naamloze vennootschap) organized under the laws of the Netherlands. We were
initially formed as a private company with limited liability (besloten vennootschap) in June 2006. Our principal executive offices
are located at Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands. Our telephone number at this address is (+31) 20 521
4777. Our corporate website is located at www.wright.com. The information contained on our website or connected to our website
is not incorporated by reference into and should not be considered part of this report.
We make available, free of charge and through our Internet corporate website, our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after they are electronically filed
with or furnished to the Securities and Exchange Commission.
Item 1A. Risk Factors.
We are affected by risks specific to us as well as factors that affect all businesses operating in a global market. In addition to the
other information set forth in this report, careful consideration should be taken of the factors described below, which could
materially adversely affect our business, financial condition or operating results. The risk factors described below may relate solely
to one or more of the legal entities contained in our corporate structure and may not necessarily apply to Wright Medical Group N.V.
or one or more of the other legal entities contained in our corporate structure.
Risks Related to Our Business
We have a history of operating losses and may never achieve or sustain profitability.
We have a history of operating losses and at December 30, 2018, we had an accumulated deficit of $1.6 billion. Our ability to
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(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:68)(cid:92)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)ncur operating losses for the foreseeable future. These losses
will continue to have an adverse impact on our shareholders’ equity, and we may never achieve or sustain profitability.
Our strategy to become a profitable, high-growth, pure-play medical technology company, and command the market valuation
typically accorded such companies may not be successful.
The divestiture of the OrthoRecon business, the Wright/Tornier merger, the divestiture of legacy Tornier's large joints business and
our acquisitions of IMASCAP and Cartiva are part of our strategy to transform ourselves into a profitable, high-growth, pure-play
medical technology company, and command the market valuation typically accorded such companies. If we are unable to achieve
our growth and profitability objectives due to competition, lack of acceptance of our products, failure to gain regulatory approvals,
or other risks as described in this section or other sections of this report, or due to other events, we will not be successful in
transforming our business and will not be accorded the market valuation we seek.
We may never realize the expected benefits of our strategic business combinations or acquisition transactions.
In addition to developing new products and growing our business internally, we have sought to grow through business combinations
and acquisitions of complementary businesses, technologies and products. Examples include, our acquisition of Cartiva in October
2018, our acquisition of IMASCAP in December 2017, the Wright/Tornier merger in October 2015, legacy Wright’s acquisition of
BioMimetic in early 2013, as well as its acquisitions of Biotech International in November 2013, Solana Surgical, LLC (Solana) in
January 2014, and OrthoPro, L.L.C. (OrthoPro) in February 2014. Business combinations and acquiring new businesses involve a
myriad of risks. Whenever new businesses are combined or acquired, there is a risk we may fail to realize some or all of the
anticipated benefits of the transaction. This can occur if integration of the businesses proves to be more complicated than planned,
resulting in failure to realize operational synergies and/or failure to mitigate operational dis-synergies, diversion of management
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attention, and loss of key personnel. It can also occur if the combined or acquired business fails to meet our net sales projections,
exposes us to unexpected liabilities, or if our pre-acquisition due diligence fails to uncover issues that negatively affect the value or
cost structure of the acquired enterprise. Although we carefully plan our business combinations and acquisitions, there can be no
assurances that these and other risks will not prevent us from realizing the expected benefits of these transactions. If we do not
achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or analysts may not perceive the same
benefits of the acquisition as we do. If these risks materialize, our ordinary share price could be materially adversely affected. Any
difficulties in the integration of acquired businesses or unexpected penalties or liabilities in connection with such businesses could
have a material adverse effect on our business, operating results and financial condition. Additionally, future acquisitions may
require equity or debt financing, the dilutive or other effects of which could negatively impact the anticipated benefits of the
transaction or restrict our business.
We anticipate significant future sales from our AUGMENT® Bone Graft products. If we are wrong, our future operating results,
cash flows, and prospects could be adversely affected.
We obtained FDA approval of AUGMENT® Bone Graft in the United States for ankle and/or hindfoot fusion indications during the
third quarter of 2015 and FDA approval of AUGMENT® Injectable Bone Graft (AUGMENT® Injectable), which combines rhPDGF-
BB with an injectable bone matrix, in June 2018. We expect significant future sales from our AUGMENT® Bone Graft products. If
these sales expectations are not met, our future operating results, cash flows and prospects could be adversely affected.
We may not achieve our financial guidance or projected goals and objectives in the time periods that we anticipate or announce
publicly, which could have an adverse effect on our business and could cause the market price of our ordinary shares to decline.
We typically provide projected financial information, such as our anticipated annual net sales, adjusted earnings and adjusted
earnings before interest, taxes, depreciation, and amortization. These financial projections are based on management’s then current
expectations and typically do not contain any significant margin of error or cushion for any specific uncertainties or for the
uncertainties inherent in all financial forecasting. The failure to achieve our financial projections or the projections of analysts and
investors could have an adverse effect on our business, disappoint analysts and investors, and cause the market price of our ordinary
shares to decline. Our net sales performance has been outside of our guidance range in certain quarters, which negatively impacted
the market price of our ordinary shares, and could do so in the future should our results fall below our guidance range and the
expectations of analysts and investors.
We also set goals and objectives for, and make public statements regarding, the timing of certain accomplishments and milestones
regarding our business or operating results, such as long-term financial targets, the timing of financial objectives, new products,
regulatory actions, pending litigation, and anticipated distributor and sales representative transitions. The achievement of these
goals and objectives and the actual timing of these events can vary dramatically due to a number of factors, including the risk factors
described in this report. As a result, there can be no assurance that we will succeed in achieving our projected goals and objectives
in the time periods that we anticipate or announce publicly. The failure to achieve such projected goals and objectives in the time
periods that we anticipate or announce publicly could have an adverse effect on our business, disappoint investors and analysts, and
cause the market price of our ordinary shares to decline.
Our quarterly operating results are subject to substantial fluctuations, and you should not rely on them as an indication of our future
results.
Our quarterly operating results may vary significantly due to a combination of factors, many of which are beyond our control. These
factors include:
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the number, timing, and significance of new products and product introductions and enhancements by us and our
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changes in pricing policies by us and our (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)
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(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3)(cid:86)(cid:76)(cid:93)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
the timing of material expense- or income-generating events and the related recognition of their associated financial
(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:76)(cid:91)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:30)(cid:3)
prevailing interest rates on our excess cash investme(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)
24
(cid:129)
(cid:129)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical
(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:71)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:129) (cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:86)(cid:87)(cid:82)(cid:83)(cid:83)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:76)(cid:78)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:30)(cid:3)
(cid:129)
(cid:129)
(cid:129)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:39)(cid:36)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:15)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
restructuring, impairment, and other special charges, costs associated with our pending litigation and U.S.
(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:84)(cid:88)(cid:76)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)
variations in cost of sales due to the amount and timing of excess and obsolete inventory charges, commodity prices,
and manufactur(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
increases of interest rates, which can increase the cost of borrowings under our ABL Credit Agreement, and generally
affect the level of economic activity.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
We believe our quarterly sales and operating results may vary significantly in the future and period-to-period comparisons of our
results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. We cannot
assure you that our sales will increase or be sustained in future periods or that we will be profitable in any future period. Any
shortfalls in sales or earnings from levels expected by securities or orthopaedic industry analysts could have an immediate and
significant adverse effect on the trading price of our ordinary shares in any given period.
Although legacy Wright divested the OrthoRecon business, legacy Wright remains responsible, as between it and MicroPort, for
liability claims on OrthoRecon products sold prior to closing, and might still be sued on products sold after closing.
Although OrthoRecon product liability expenses are accounted for under our discontinued operations, the agreement between WMG
and MicroPort requires that legacy Wright, as between it and MicroPort, retain responsibility for product liability claims on
OrthoRecon products sold prior to closing, and for any resulting settlements, judgments, or other costs. Moreover, even though
MicroPort, as between it and legacy Wright, is responsible for liability claims on post-closing sales, there can be no assurance we
will not be named as a defendant in a lawsuit relating to such post-closing sales, or that MicroPort will have adequate resources to
exonerate legacy Wright from any resulting expenses or liabilities.
Product liability lawsuits could harm our business and adversely affect our operating results or results from discontinued operations
and financial condition if adverse outcomes exceed our product liability insurance coverage.
The manufacture and sale of medical devices expose us to significant risk of product liability claims. We are currently defendants in
a number of product liability matters, including those relating to the OrthoRecon business, which legacy Wright divested to
MicroPort in 2014. Legacy Wright remains responsible, as between it and MicroPort, for claims associated with products sold
before divesting the OrthoRecon business to MicroPort.
We have been named as a defendant, in some cases with multiple other defendants, in lawsuits in which it is alleged that certain
defects in the design, manufacture, or labeling of certain metal-on-metal and other hip replacement products rendered the products
defective. The pre-trial management of certain of the metal-on-metal claims was consolidated in the federal court system, in the
United States District Court for the Northern District of Georgia under multi-district litigation (MDL) and certain other claims by the
Judicial Counsel Coordinated Proceedings in state court in Los Angeles County, California (JCCP). Pursuant to previously disclosed
settlement agreements with the Court-appointed attorneys representing plaintiffs in the MDL and JCCP, the MDL and JCCP were
closed to new cases effective October 18, 2017 and October 31, 2017, respectively. Excluding claims resolved in the settlement
agreements, as of December 30, 2018, there were approximately 151 unresolved metal-on-metal hip cases pending in the U.S. This
number includes cases ineligible for settlement, cases which opted out of settlement, post-settlement cases, tolled cases, and existing
state court cases that were not part of the MDL or JCCP. As of December 30, 2018, we estimate there also was pending
approximately 33 non-U.S. metal-on metal cases, 35 unresolved U.S. modular neck cases alleging claims related to the release of
metal ions and zero non-U.S. modular neck cases with such metal ion allegations, 19 unresolved U.S. titanium modular neck
fracture cases, 57 unresolved non-U.S. titanium modular neck fracture cases, eleven U.S. cobalt chrome modular neck fracture cases,
and six non-U.S. cobalt chrome modular neck fracture cases. We also estimate that as of December 30, 2018 there were
approximately 534 non-revision claims either dismissed or awaiting dismissal from the MDL and JCCP pursuant to the terms of the
settlement agreements. Although there is a limited time period during which dismissed non-revision claims may be refiled, it is
presently unclear how many non-revision claimants will elect to do so. As of December 30, 2018, one dismissed non-revision case
has been refiled. We believe we have data that supports the efficacy and safety of these hip products and have been vigorously
defending these cases.
Our material product liability litigation is discussed in Note 16 to our consolidated financial statements. These matters are subject to
many uncertainties and outcomes are not predictable. Regardless of the outcome of these matters, legal defenses are costly. We
have incurred and expect to continue to incur substantial legal expenses in connection with the defense of these matters. We could
incur significant liabilities associated with adverse outcomes that exceed our products liability insurance coverage, which could
25
adversely affect our operating results or results from discontinued operations and financial condition. The ultimate cost to us with
respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have
a material adverse effect on our financial position, operating results or results from discontinued operations, and cash flows.
In the future, we may be subject to additional product liability claims. We also could experience a material design or manufacturing
failure in our products, a quality system failure, other safety issues, or heightened regulatory scrutiny that would warrant a recall of
some of our products. Product liability lawsuits and claims, safety alerts and product recalls, regardless of their ultimate outcome,
could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial
monetary awards to or costly settlements with patients, product recalls, loss of revenue, and the inability to commercialize new
products or product candidates, and otherwise have a material adverse effect on our business and reputation and on our ability to
attract and retain customers.
Certain of our settlement agreements with insurance carriers include broad releases of coverage for present and future claims of
personal injury alleged to be caused by metal-on-metal hip components or the release of metal ions, which could result in
inadequate insurance coverage to defend and resolve these claims. In addition, our settlements with these carriers do not resolve
previously disclosed disputes with the remaining carriers concerning the extent of coverage available for metal-on-metal hip claims.
On October 28, 2016, our WMT and WMG subsidiaries entered into a Settlement Agreement with a subgroup of three insurance
carriers, Columbia Casualty Company (Columbia), St. Paul Surplus Lines Insurance Company and AXIS Surplus Lines Insurance
Company (Three Settling Insurers), pursuant to which the Three Settling Insurers paid $60 million (in addition to $10 million
previously paid) in full settlement of all potential liability of the Three Settling Insurers for metal ion and metal-on-metal hip claims,
including but not limited to all claims in the MDL and the JCCP. As part of the settlement, the Three Settling Insurers repurchased
their policies in the five policy years beginning with the 2007-2008 policy year.
On February 22, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Second Insurance
Settlement Agreement) with Federal Insurance Company, a subsidiary of Chubb Insurance (Federal), pursuant to which Federal has
paid us a single lump sum payment of $15 million (in addition to $5 million previously paid by Federal). This amount is in full
satisfaction of all potential liability of Federal relating to designated metal-on-metal hip claims, including but not limited to all
claims asserted by our subsidiary WMT against Federal in the previously disclosed insurance coverage litigation.
On April 19, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Third Insurance Settlement
Agreement) with Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London (Lloyd’s
Syndicate 2003) pursuant to which Lloyd’s Syndicate 2003 has paid us a single lump sum payment of $1.9 million (in addition to
$5 million previously paid by Lloyd’s Syndicate 2003). This amount is in full satisfaction of all potential liability of Lloyd’s
Syndicate 2003 relating to designated metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary
WMT against Lloyd’s Syndicate 2003 in the previously disclosed insurance coverage litigation.
As a result of the above-mentioned settlement agreements, we have no further coverage from the Three Settling Insurers for present
or future metal-on-metal or metal ion claims and we have no further coverage from Federal or Lloyd’s Syndicate 2003 for present or
future metal-on-metal claims (as defined in the settlement agreements).
Our existing product liability insurance coverage may be inadequate to protect us from any liabilities we might incur.
If the product liability claims brought against us involve uninsured liabilities or result in liabilities that exceed our insurance
coverage, our business, financial condition, and operating results could be materially and adversely affected. Further, such product
liability matters may negatively impact our ability to obtain insurance coverage or cost-effective insurance coverage in future
periods. We remain in litigation with the insurance carriers with whom we have not settled (Lexington and Catlin, with remaining
policy limits totaling $30 million and $5 million, respectively) concerning the amount of coverage available to satisfy potential
liabilities associated with the metal-on-metal hip claims against us. An unfavorable outcome in this litigation could have an adverse
effect on our financial condition and results from discontinued operations if we ultimately are subject to liabilities associated with
these claims that exceed coverage amounts not in dispute.
MicroPort’s recall of a certain size of its cobalt chrome modular neck device due to alleged fractures could result in additional
product liability claims against us. Although we have contested these claims, adverse outcomes could harm our business and
adversely affect our results from discontinued operations and financial condition.
In August 2015, MicroPort announced the voluntary recall of a certain size of its PROFEMUR® Long Cobalt Chrome Modular Neck
devices manufactured from June 15, 2009 to July 22, 2015. Because MicroPort did not acquire the OrthoRecon business until
January 2014, many of the recalled devices were sold by legacy Wright prior to the acquisition by MicroPort. Under the asset
purchase agreement with MicroPort, legacy Wright retained responsibility, as between it and MicroPort, for claims for personal
injury relating to sales of these products prior to the acquisition. We were not consulted by MicroPort in connection with its recall,
and we were aware of only 17 lawsuits alleging personal injury related to cobalt chrome neck fractures (11 in the United States and
26
six outside the United States) as of December 30, 2018. However, if the number of product liability claims alleging personal injury
from fractures of cobalt chrome modular necks we sold prior to the MicroPort transaction were to become significant, this could
have an adverse effect on our results from discontinued operations and financial condition.
A competitor’s recall of its modular hip systems, and the liability claims and adverse publicity which ensued, could generate copycat
claims against modular hip systems legacy Wright sold.
On July 6, 2012, Stryker Corporation announced the voluntary recall of its Rejuvenate Modular and ABG II modular neck hip stems
citing risks including the potential for fretting and/or corrosion at or about the modular neck junction. Although Stryker’s recalled
modular neck hip stems differ in design and material from the PROFEMUR® modular neck systems legacy Wright sold before
divestiture of the OrthoRecon business, we have previously noted the risk that Stryker’s recall and the resultant publicity could
negatively impact sales of modular neck systems of other manufacturers, including the PROFEMUR® system, and that Stryker’s
action has increased industry focus on the safety of cobalt chrome modular neck products. We have carefully monitored the clinical
performance of the PROFEMUR® modular neck hip system, which combine a cobalt chrome modular neck and a titanium stem.
With over 33,000 units sold since this version was introduced in 2009, and an extremely low complaint rate, we remain confident in
the safety and efficacy of this product. Nevertheless, in light of Stryker’s recall, the resulting product liability claims to which it has
been subject, and the general negative publicity surrounding “metal-on-metal” articulating surfaces (which do not involve modular
hip stems), there remains a risk that, even in the absence of clinical evidence, claims for personal injury relating to sales of these
products before divestiture of the OrthoRecon business could increase, which could have an adverse effect on our financial condition
and results from discontinued operations since legacy Wright retained responsibility, as between it and MicroPort, for these claims.
Since the 2012 Stryker recall, we have from time to time been subject to product liability claims alleging corrosion of cobalt chrome
modular necks. We presently have approximately 35 such unresolved lawsuits pending in various U.S. courts and zero non-U.S.
cases with such allegations.
Although we believe the use of corporate entities in our corporate structure will preclude creditors of any one particular entity
within our corporate structure from reaching the assets of the other entities within our corporate structure not liable for the
underlying claims of the one particular entity, there is a risk that, despite our corporate structure, creditors could be successful in
piercing the corporate veil and reaching the assets of such other entities, which could have an adverse effect on us and our
operating results, results from discontinued operations, and financial condition.
We maintain separate legal entities within our overall corporate structure. We believe our ring-fenced structure with separate legal
entities should preclude any corporate veil-piercing, alter ego, control person, or other similar claims by creditors of any one
particular entity within our corporate structure from reaching the assets of the other entities within our corporate structure to satisfy
claims of the one particular entity. However, if a court were to disagree and allow a creditor to pierce the corporate veil and reach
the assets of such other entities within our corporate structure, despite such entities not being liable for the underlying claims, it
could have a material adverse effect on us and our operating results, results from discontinued operations, and financial condition.
If we lose any existing or future intellectual property lawsuits, a court could require us to pay significant damages or prevent us from
selling our products.
The medical device industry is litigious with respect to patents and other intellectual property rights. Companies in the medical
device industry have used intellectual property litigation to gain a competitive advantage.
We are party to claims and lawsuits involving patents or other intellectual property. Legal proceedings, regardless of the outcome,
could drain our financial resources and divert the time and effort of our management. If we lose one of these proceedings, a court,
or a similar foreign governing body, could require us to pay significant damages to third parties, indemnify third parties from loss,
require us to seek licenses from third parties, pay ongoing royalties, redesign our products, or prevent us from manufacturing, using
or selling our products. In addition to being costly, protracted litigation to defend or prosecute our intellectual property rights could
result in our customers or potential customers deferring or limiting their purchase or use of the affected products until resolution of
the litigation.
If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our
competitors and be unable to operate our business profitably.
We rely on patents, trade secrets, copyrights, know-how, trademarks, license agreements, and contractual provisions to establish our
intellectual property rights and protect our products. These legal means, however, afford only limited protection and may not
completely protect our rights. In addition, we cannot be assured that any of our pending patent applications will issue. The U.S.
Patent and Trademark Office may deny or require a significant narrowing of the claims in its pending patent applications and the
patents issuing from such applications. Any patents issuing from the pending patent applications may not provide us with significant
commercial protection. We could incur substantial costs in proceedings before the U.S. Patent and Trademark Office. These
proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in
issued patents. In addition, the laws of some of the countries in which our products are or may be sold may not protect our
27
intellectual property to the same extent as U.S. laws or at all. We also may be unable to protect our rights in trade secrets and
unpatented proprietary technology in these countries.
In addition, we hold licenses from third parties that are necessary to utilize certain technologies used in the design and
manufacturing of some of our products. The loss of such licenses would prevent us from manufacturing, marketing, and selling
these products, which could harm our business. If we, or the other parties from whom we would license intellectual property, fail to
obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any
protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our
competitive business position.
We seek to protect our trade secrets, know-how, and other unpatented proprietary technology, in part, with confidentiality
agreements with our employees, independent distributors, and consultants. We cannot be assured, however, that the agreements will
not be breached, adequate remedies for any breach would be available, or our trade secrets, know-how, and other unpatented
proprietary technology will not otherwise become known to or independently developed by our competitors.
We have a significant amount of indebtedness. We may not be able to generate enough cash flow from our operations to service our
indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our business, financial condition,
and operating results.
We have a significant amount of indebtedness including as of December 30, 2018, $675 million in aggregate principal with
additional accrued interest under WMG’s 1.625% cash convertible senior notes due 2023 (2023 Notes), $395 million in aggregate
principal with additional accrued interest under our 2.25% cash convertible senior notes due 2021 (2021 Notes) and $186.6 million
in aggregate principal with additional accrued interest under WMG’s 2.00% cash convertible senior notes due 2020 (2020 Notes,
together with the 2023 Notes and 2021 Notes, the Notes). On February 7, 2019, we exchanged $130.1 million in aggregate principal
of the 2020 Notes for $139.6 million in aggregate principal of the 2023 Notes, resulting in $814.6 million in aggregate principal of
the 2023 Notes and $56.5 million in aggregate principal of the 2020 Notes outstanding. The 2023 Notes and 2020 Notes are
guaranteed by Wright Medical Group N.V. In addition, under our amended and restated credit, security and guaranty agreement,
which was recently amended on February 25, 2019 (as amended, ABL Credit Agreement) with Midcap Funding IV Trust and the
additional lenders from time to time party thereto (ABL Lenders), WMG and certain of our other wholly-owned U.S. subsidiaries
have access to a $175 million senior secured asset based line of credit, subject to the satisfaction of a borrowing base requirement,
and which may be increased by up to $75 million upon our request, subject to the consent of the ABL Lenders (ABL Facility), as
well as a $55 million term loan facility (Term Loan Facility), an initial $20 million of which was funded at closing of this facility in
May 2018. As of December 30, 2018, $17.8 million in aggregate principal plus additional accrued interest was outstanding under the
ABL Facility and $20 million was outstanding under the Term Loan Facility. As of December 30, 2018, our total indebtedness under
the Notes and ABL Credit Agreement was $1.3 billion, excluding accrued interest.
Our ability to make payments on, and to refinance, our indebtedness, including the Notes and amounts borrowed under the ABL
Facility and Term Loan Facility, and our ability to fund planned capital expenditures, contractual cash obligations, research and
development efforts, working capital, acquisitions, and other general corporate purposes depends on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors,
some of which are beyond our control. If we do not generate sufficient cash flow from operations or if future borrowings are not
available to us in an amount sufficient to pay our indebtedness, including payments of principal upon conversion of outstanding
Notes or on their respective maturity dates or in connection with a transaction involving us that constitutes a fundamental change
under the respective indenture governing the Notes, or to fund our liquidity needs, we may be forced to refinance all or a portion of
our indebtedness on or before the maturity dates thereof, sell assets, reduce or delay capital expenditures, seek to raise additional
capital, or take other similar actions. We may not be able to execute any of these actions on commercially reasonable terms or at all.
Our ability to refinance our indebtedness will depend on our financial condition at the time, the restrictions in the instruments
governing our indebtedness, and other factors, including market conditions. In addition, in the event of a default under the Notes or
under the ABL Credit Agreement, the holders and/or the trustee under the indentures governing the Notes or the ABL Lenders may
accelerate payment obligations under the Notes and/or the amounts borrowed under the ABL Credit Agreement, respectfully, which
could have a material adverse effect on our business, financial condition, and operating results. In addition, the Notes and ABL
Credit Agreement contain cross default provisions. Our inability to generate sufficient cash flow to satisfy our debt service
obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would likely have an adverse
effect, which could be material, on our business, financial condition, and operating results.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have
other important consequences. For example, it could:
(cid:129) make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive
(cid:129)
(cid:129)
(cid:129)
(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:79)(cid:72)(cid:91)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:15)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:30)
restrict our ability to make strategic acquisitions or dispositions or to exploit business opportu(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:3)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
28
(cid:129)
limit our ability to borrow additional amounts for working capital, capital expenditures, contractual obligations,
research and development efforts, acquisitions, debt service requirements, execution of our business strategy, or other
purposes.
Any of these factors could materially and adversely affect our business, financial condition, and operating results. In addition, we
may incur additional indebtedness, and if we do, the risks related to our business and our ability to service our indebtedness would
increase.
In addition, under our Notes, we are required to offer to repurchase the Notes upon the occurrence of a fundamental change, which
could include, among other things, any acquisition of ours for consideration other than publicly traded securities. The repurchase
price must be paid in cash, and this obligation may have the effect of discouraging, delaying, or preventing an acquisition of ours
that would otherwise be beneficial to our security holders.
With respect to the 2021 Notes which have been issued by Wright Medical Group N.V., we are dependent on the cash flow of, and
dividends and distributions to us from, our subsidiaries in order to service our indebtedness under these Notes. Our subsidiaries are
separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to any
indebtedness of ours or to make any funds available therefor, except for those subsidiaries that have guaranteed our obligations
under our outstanding indebtedness. The ability of our subsidiaries to pay any dividends and distributions will be subject to, among
other things, the terms of any debt instruments of our subsidiaries then in effect as well as among other things, the availability of
profits or funds and requirements of applicable laws, including surplus, solvency and other limits imposed on the ability of
companies to pay dividends. There can be no assurance that our subsidiaries will generate cash flow sufficient to pay dividends or
distributions to us that enable us to pay interest or principal on our existing indebtedness.
A failure to comply with the covenants and other provisions of the indentures governing the Notes or the ABL Credit Agreement
could result in events of default under such indentures or ABL Credit Agreement, especially in light of the cross default provisions,
which could require the immediate repayment of our outstanding indebtedness. If we are at any time unable to generate sufficient
cash flows from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms
of the indentures, the ABL Credit Agreement and other agreements relating to the indebtedness, seek to refinance all or a portion of
the indebtedness, or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such
terms, that any such refinancing would be possible, or that any additional financing could be obtained on terms that are favorable or
acceptable to us.
The terms of the ABL Credit Agreement could limit our ability to conduct our business, take advantage of business opportunities and
respond to changing business, market, and economic conditions.
Our ABL Credit Agreement includes a number of significant financial and operating restrictions. For example, the ABL Credit
Agreement contains financial covenants that, among other things, require us to maintain minimum liquidity and achieve certain
revenue thresholds and contains provisions that restrict our ability, subject to specified exceptions, to, among other things:
(cid:129) (cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:86)(cid:30)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
create liens or other encumbrances (cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)
(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)
(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
pay dividends.
Due to the terms of the ABL Credit Agreement, we may be unable to comply with these covenants, which could result in a default
under the ABL Facility. In addition, these provisions may limit our ability to conduct our business, take advantage of business
opportunities, and respond to changing business, market, and economic conditions. In addition, they may place us at a competitive
disadvantage relative to other companies that may be subject to fewer, if any, restrictions or may otherwise adversely affect our
business. Transactions that we may view as important opportunities, such as significant acquisitions, may be subject to the consent
of the ABL Lenders, which consent may be withheld or granted subject to conditions specified at the time that may affect the
attractiveness or viability of the transaction.
The ABL Facility involves additional risks that may adversely affect our liquidity, results of operations, and financial condition.
Availability under the ABL Credit Agreement is based on the amount of certain eligible receivables, eligible equipment, eligible
inventory and eligible surgical instrumentation less specified reserves as described in Note 9 to our consolidated financial
statements. As a result, our access to credit under the ABL Facility is potentially subject to fluctuations depending on the value of
the eligible assets in the borrowing base as of any valuation date. Our inability to borrow additional amounts under the ABL Facility
may adversely affect our liquidity, results of operations, and financial condition. In addition, all payments on our accounts
receivable are required under the ABL Credit Agreement to be directed to deposit accounts under the control of the ABL Facility
29
lenders for application to amounts outstanding under the ABL Facility. The lenders may exercise control over such amounts when
they are entitled to exercise default remedies, which may adversely affect our ability to fund our operations.
Our outstanding indebtedness under the ABL Facility bears interest at variable rates, which subjects us to interest rate risk and could
increase the cost of servicing our indebtedness. The impact of increases in interest rates could be more significant for us than it
would be for some other companies because of our indebtedness, thereby affecting our profitability. In the event of a default under
any of our debt instruments, the lenders under the ABL Facility may terminate their commitments to lend additional money and
declare all amounts outstanding thereunder to be immediately due and payable. Additionally, a default under the ABL Facility could
result in a cross-default under the Notes. While an event of default is continuing under the ABL Credit Agreement the lenders
thereunder may elect to increase the rates at which interest accrues. Subject to certain exceptions, amounts outstanding under the
ABL Facility are secured by a senior first priority security interest in substantially all existing and after-acquired assets of our
company and each borrower. Accordingly, under certain circumstances, the lenders under the ABL Facility could seek to enforce
security interests in our assets securing our indebtedness under the ABL Facility, including restricting our access to collections on
our accounts receivable. Any acceleration of amounts due under our ABL Credit Agreement or the exercise by the lenders thereto of
their rights under the security documents, would have a material adverse effect on us. In addition, the ABL Facility is subject to
market deterioration or other factors that could jeopardize the counterparty obligations of one or more of the ABL Lenders, which
could have an adverse effect on our business if we are not able to replace such ABL Facility or find other sources of liquidity on
acceptable terms.
Hedge and warrant transactions entered into in connection with the issuance of our Notes may affect the value of our ordinary
shares.
In connection with the issuance of the Notes, we entered into hedge transactions with various financial institutions with the objective
of reducing the potential dilutive effect of issuing our ordinary shares upon conversion of the Notes and the potential cash outlay
from the cash conversion of the Notes. We also entered into separate warrant transactions with the same financial institutions.
In connection with the hedge and warrant transactions associated with the Notes, these financial institutions purchased our ordinary
shares in secondary market transactions and entered into various over-the-counter derivative transactions with respect to our
ordinary shares. These entities or their affiliates are likely to modify their hedge positions from time to time prior to conversion or
maturity of the Notes by purchasing and selling our ordinary shares, other of our securities, or other instruments they may wish to
use in connection with such hedging. Any of these transactions and activities could adversely affect the value of our ordinary shares
and, as a result, the number and value of the ordinary shares holders will receive upon conversion of the Notes. In addition, subject
to movement in the price of our ordinary shares, if the hedge transactions settle in our favor, we could be exposed to credit risk
related to the other party with respect to the payment we are owed from such other party. If any of the participants in the hedge
transactions is unwilling or unable to perform its obligations for any reason, we would not be able to receive the benefit of such
transaction. We cannot provide any assurances as to the financial stability or viability of any of the participants in the hedge
transactions.
Rating agencies may provide unsolicited ratings on the Notes or the ABL Credit Agreement that could reduce the market value or
liquidity of our ordinary shares.
We have not requested a rating of the Notes or the ABL Credit Agreement from any rating agency and we do not anticipate that the
Notes or the ABL Credit Agreement will be rated. However, if one or more rating agencies independently elects to rate the Notes or
the ABL Credit Agreement and assigns the Notes or the ABL Credit Agreement a rating lower than the rating expected by investors,
or reduces such rating in the future, the market price or liquidity of the Notes or the ABL Credit Agreement and our ordinary shares
could be harmed. Should a decline in the market price of the Notes, as compared to the price of our ordinary shares occur, this may
trigger the right of the holders of the Notes to convert such notes into cash and our ordinary shares, as applicable.
We likely will need additional financing to satisfy our anticipated future liquidity requirements or to make opportunistic acquisitions,
which financing may not be available on favorable terms at the time it is needed and which could reduce our operational and
strategic flexibility.
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents balance of
approximately $191.4 million and the $192.2 million in availability under the ABL Credit Agreement, as of December 30, 2018, but
taking into account the February 2019 amendment, will be sufficient for the next 12 months to fund our working capital
requirements and operations, permit anticipated capital expenditures in 2019 of approximately $90 million, including approximately
$12 million for the purchase of a 40,000 square foot state of the art manufacturing and distribution facility in Arlington, Tennessee,
pay retained metal-on-metal product and other liabilities of the OrthoRecon business, including without limitation amounts under the
MSA and Second Settlement Agreements, net of insurance recoveries, fund contingent consideration, and meet our other anticipated
contractual cash obligations in 2019.
30
In the event that we would require additional working capital to fund future operations, we could seek to acquire that through
borrowings under the additional $75.0 million that may be available under the ABL Facility or additional equity or debt financing
arrangements which may or may not be available on favorable terms at such time. If we raise additional funds by issuing equity
securities, our shareholders may experience dilution. Additional debt financing, if available, may involve additional covenants
restricting our operations or our ability to incur additional debt, in addition to those under our existing indentures and the ABL
Credit Agreement. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or
our shareholders. If we do not have, or are not able to obtain, sufficient funds, we may not be able to develop or enhance our
products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated
customer requirements or we may have to delay development or commercialization of our products or scale back our operations.
If we lose one of our key suppliers, we may be unable to meet customer orders for our products in a timely manner or within our
budget, which could adversely affect our sales and operating results.
We rely on a limited number of suppliers for certain of the components and materials 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, one supplier for the
silicone elastomer used in some of our extremities products, one supplier for our pyrocarbon products, and one supplier to provide a
key ingredient of AUGMENT® Bone Graft. The manufacture of our products is highly exacting and complex, and our business
could suffer if a sole source supply arrangement is unexpectedly terminated or interrupted, and we are unable to obtain an acceptable
new source of supply in a timely fashion.
In April 2016, we entered into a commercial supply agreement with FUJIFILM Diosynth Biotechnologies U.S.A., Inc. pursuant to
which Fujifilm agreed to manufacture and sell to us and we agreed to purchase recombinant human platelet-derived growth factor
(rhPDGF-BB) for use in AUGMENT® Bone Graft. The agreement reflects the culmination of a technology transfer from our former
supplier to Fujifilm which began in December 2013 when we were notified that our former supplier was exiting the rhPDGF-BB
business. Pursuant to our supply agreement with Fujifilm, commercial production of rhPDGF-BB is expected to begin in 2020.
Although we believe that our current supply of rhPDGF-BB from our former supplier should be sufficient to last until after rhPDGF-
BB becomes available under the new agreement, no assurance can be provided that it will be sufficient. In addition, since Fujifilm
has not previously manufactured rhPDGF-BB, its ability to do so and perform its obligations under the agreement are not yet fully
proven.
Our biologic product line includes two suppliers for our GRAFTJACKET® family of soft tissue repair and graft containment
products. In addition, certain biologic products depend upon a single supplier as our source for DBM and cancellous bone matrix
(CBM), and any failure to obtain DBM and CBM from this source in a timely manner will deplete levels of on-hand raw materials
inventory and could interfere with our ability to process and distribute allograft products. We rely on a single not-for-profit tissue
bank to meet all of our DBM and CBM order requirements, a key component in the allograft products we currently produce, market,
and distribute. In addition, we rely on a single supplier of soft tissue graft for BIOTAPE® XM.
We cannot be sure that our supply of DBM, CBM and soft tissue graft for BIOTAPE® XM will continue to be available at current
levels or will be sufficient to meet our needs, or that future suppliers of DBM, CBM, and soft tissue graft for BIOTAPE® XM will be
free from FDA regulatory action impacting their sale of DBM, CBM and soft tissue graft for BIOTAPE® XM. As there are a small
number of suppliers, if we cannot continue to obtain DBM, CBM, and soft tissue graft for BIOTAPE® XM from our current sources
in volumes sufficient to meet our needs, we may not be able to locate replacement sources of DBM, CBM, and soft tissue graft for
BIOTAPE® XM on commercially reasonable terms, if at all. This could interrupt our business, which could adversely affect our
sales.
Suppliers of raw materials and components may decide, or be required, for reasons beyond our control to cease supplying raw
materials and components to us. FDA regulations may require additional testing of any raw materials or components from new
suppliers prior to our use of these materials or components, and in the case of a device with a PMA application, we may be required
to obtain prior FDA permission, either of which could delay or prevent our access to or use of such raw materials or components.
We incur significant expenditures of resources to maintain relatively high levels of instruments and we historically have had a high
level of inventory, which can adversely affect our operating results and reduce our cash flows.
The nature of our business requires us to maintain a certain level of instruments since in order to market effectively we often must
maintain and bring our customers instrument kits. In addition, we historically have maintained extra inventory in the form of back-
up products and products of different size in order to ensure that our customers have the right products when they need them. This
practice has resulted in us maintaining a relatively high level of inventory, which can adversely affect our operating results and
reduce our cash flows. In addition, to the extent that a substantial portion of our inventory becomes obsolete, it could have a
material adverse effect on our earnings and cash flows due to the resulting costs associated with inventory impairment charges and
costs required to replace such inventory.
31
From time to time, we may experience inventory shortages of some of our higher demand products, which could adversely affect our
net sales and operating results.
From time to time, internal or external supply constraints may create temporary shortages of certain of our higher demand products.
While these shortages are likely to be temporary and are usually resolved, no assurance can be provided that such inventory
shortages will not occur in the future, and if they occur, would not adversely affect our future net sales and operating results.
If we fail to compete successfully in the future against our existing or potential competitors, our sales and operating results may be
negatively affected, and we may not achieve future growth.
The markets for our products are highly competitive and subject to rapid and profound technological change. Our success depends,
in part, on our ability to maintain a competitive position in the development of technologies and products for use by our customers.
Many of the companies developing or marketing competitive products enjoy several competitive advantages over us, including
(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)
relationships with surgeons, hospitals and third-(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:83)(cid:68)(cid:92)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)d the ability to offer rebates or bundle products
(cid:87)(cid:82)(cid:3) (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3) (cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:74)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)n
networks. Some of our competitors have indicated an increased focus on the extremities and biologics markets, which are our
primary strategic focus. Our competitors may develop and patent processes or products earlier than us, obtain regulatory clearances
or approvals for competing products more rapidly than us, develop more effective or less expensive products or technologies that
render our technology or products obsolete or non-competitive or acquire technologies and technology licenses complementary to
our products or advantageous to our business, which could adversely affect our business and operating results. Not all of our sales
and other personnel have non-compete agreements. We also compete with other organizations in recruiting and retaining qualified
scientific, sales, and management personnel. If our competitors are more successful than us in these matters, we may be unable to
compete successfully against our existing or future competitors. In addition, the orthopaedic industry has been subject to increasing
consolidation recently and over the last few years. Consolidation in our industry not involving our company could result in existing
competitors increasing their market share through business combinations and result in stronger competitors, which could have a
material adverse effect on our business, financial condition, and operating results. We may be unable to compete successfully in an
increasingly consolidated industry and cannot predict with certainty how industry consolidation will affect our competitors or us.
If we are unable to continue to develop and market new products and technologies, we may experience a decrease in demand for our
products, or our products could become obsolete, and our business would suffer.
We are continually engaged in product development and improvement programs, and new products represent a significant
component of our sales growth rate. We may be unable to compete effectively with our competitors unless we can keep up with
existing or new products and technologies in the orthopaedic market. If we do not continue to introduce new products and
technologies, or if those products and technologies are not accepted, we may not be successful. Moreover, research and
development efforts may require a substantial investment of time and resources before we are adequately able to determine the
commercial viability of a new product, technology, material, or innovation. Demand for our products also could change in ways we
may not anticipate due to evolving customer needs, changing demographics, slow industry growth rates, declines in the extremities
and biologics market, the introduction of new products and technologies, evolving surgical philosophies, and evolving industry
standards, among others. Additionally, our competitors’ new products and technologies may beat our products to market, may be
more effective or less expensive than our products, or may render our products obsolete. Our new products and technologies also
could reduce demand for or render our existing products obsolete and thus adversely affect sales of our existing products and lead to
increased expense for excess and obsolete inventory.
Our business plan relies on certain assumptions about the markets for our products, which, if incorrect, may adversely affect our
business and operating results.
We believe that the aging of the general population and increasingly active lifestyles will continue and that these trends will increase
the need for our extremities and biologics products. The projected demand for our products could materially differ from actual
demand if our assumptions regarding these trends and acceptance of our products by the medical community prove to be incorrect or
do not materialize, or if non-surgical treatments gain more widespread acceptance as a viable alternative to orthopaedic implants.
32
We are subject to substantial government regulation that could have a material adverse effect on our business.
The production and marketing of our products and our ongoing research and development, pre-clinical testing, and clinical trial
activities are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad.
U.S. and foreign regulations govern the testing, marketing, registration and sale of medical devices, in addition to regulating
manufacturing practices, reporting, labeling, relationships with healthcare professionals, and recordkeeping procedures. The
regulatory process requires significant time, effort, and expense to bring our products to market, and we cannot be assured that any
of our products will be approved. Our failure to comply with applicable regulatory requirements could result in governmental
authorities:
(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:81)(cid:68)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:88)(cid:86)(cid:30)(cid:3)
(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)
bringing civil or criminal charges against (cid:88)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:71)(cid:72)(cid:79)(cid:68)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:30)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:68)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) withdrawing or denying approvals or clearances for our products.
Even if regulatory approval or clearance of a product is granted, this could result in limitations on the uses for which the product
may be labeled and promoted. Further, for a marketed product, its manufacturer, such manufacturer’s suppliers, and manufacturing
facilities are subject to periodic review and inspection. Subsequent discovery of problems with a product, manufacturer, or facility
may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market or other
enforcement actions. Our products can only be marketed in accordance with their approved labeling. If we were to promote the use
of our products in an “off-label” manner, we and our directors, officers and employees, would be subject to civil and criminal
sanctions.
We are subject to various U.S. federal and state and foreign laws concerning healthcare fraud and abuse, including false claims laws,
anti-kickback laws and physician self-referral laws. Violations of these laws can result in criminal and/or civil punishment,
including fines, imprisonment and, in the United States, exclusion from participation in government healthcare programs. Greater
scrutiny of marketing practices in our industry has resulted in numerous government investigations by various government
authorities and this industry-wide enforcement activity is expected to continue. If a governmental authority were to determine that
we do not comply with these laws and regulations, then we and our directors, officers and employees could be subject to criminal
and civil penalties, including exclusion from participation in U.S. federal healthcare reimbursement programs.
In order to market our devices in the member countries of the European Union, we are required to comply with the European
Medical Devices Directive and obtain CE mark certification. CE mark certification is the European symbol of adherence to quality
assurance standards and compliance with applicable European Medical Device Directives. Under the European Medical Devices
Directive, all medical devices including active implants must qualify for CE marking. Our failure to comply with the European
Medical Devices Directive could result in our loss of CE mark certification which would harm our business. In 2017, the European
Commission adopted the Medical Devices Regulation, which will replace the European Medical Devices Directive and will be
implemented starting in 2020. The Medical Devices Regulation will impose additional and/or more stringent approval requirements
on medical device manufacturers. These new rules and procedures may result in increased regulatory oversight of any future
devices that we may develop and may increase the costs, time and requirements that need to be met in order to maintain or place
devices in the member countries of the European Union. In addition, we anticipate having to expend significant time, costs and
resources to comply with the new European Medical Devices Directive.
Failure to comply with the U.S. Foreign Corrupt Practices Act or other anticorruption laws could subject us to, among other things,
penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, operating results
and financial condition.
Our international operations expose us to legal and regulatory risks. These risks include the risk that our international distributors
could engage in conduct violative of U.S. or local laws, including the U.S. Foreign Corrupt Practices Act (FCPA). Our U.S.
operations, including those of our U.S. operating subsidiaries, are subject to the FCPA, which generally prohibits covered entities
and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of
obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting standards and requirements on publicly-
traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of
bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper
payments can be made. We also are subject to similar anti-corruption legislation implemented in Europe under the Organization for
Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions. We either operate or plan to operate in a number of jurisdictions that pose a high risk of potential violations of the
FCPA and other anti-corruption laws, and we utilize a number of third-party sales representatives for whose actions we could be held
liable under the FCPA. We inform our personnel and third-party sales representatives of the requirements of the FCPA and other
anti-corruption laws, including, but not limited to their reporting requirements. We also have developed and will continue to
develop and implement systems for formalizing contracting processes, performing due diligence on agents, and improving our
33
recordkeeping and auditing practices regarding these regulations. However, there is no guarantee that our employees, third-party
sales representatives, or other agents have not or will not engage in conduct undetected by our processes and for which we might be
held responsible under the FCPA or other anti-corruption laws. Failure to comply with the FCPA or other anti-corruption laws could
subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on
our business, financial condition, and operating results.
If our employees, third-party sales representatives, or other agents are found to have engaged in such practices, we could suffer
severe penalties, including criminal and civil penalties, disgorgement, and other remedial measures, including further changes or
enhancements to our procedures, policies and controls, as well as potential personnel changes and disciplinary actions.
Investigations of companies in our industry by the SEC and the U.S. Department of Justice have focused on potential FCPA
violations in connection with the sale of medical devices in foreign countries. We believe we have compliance systems, which
enable us to prevent these behaviors. However, if despite our efforts we are not successful in mitigating these risks, we could
become the target of enforcement actions by U.S. or local authorities. Any investigation of any potential violations of the FCPA or
other anti-corruption laws by U.S. or foreign authorities could have a material adverse effect on our business, operating results, and
financial condition.
Certain foreign companies, including some of our competitors, are not subject to prohibitions as strict as those under the FCPA or,
even if subjected to strict prohibitions, such prohibitions may be laxly enforced in practice. If our competitors engage in corruption,
extortion, bribery, pay-offs, theft, or other fraudulent practices, they may receive preferential treatment from personnel of some
companies, giving our competitors an advantage in securing business, or from government officials, who might give them priority in
obtaining new licenses, which would put us at a disadvantage.
Allegations of wrongdoing by the United States Department of Justice and Office of the Inspector General of the United States
Department of Health and Human Services and related publicity could lead to further governmental investigations or actions by
other third parties.
As a result of the allegations of wrongdoing made by the United States Attorney’s Office for the District of New Jersey and the
publicity surrounding legacy Wright’s settlement with the United States Department of Justice and OIG-HHS, and amendments to
the Deferred Prosecution Agreement and Corporate Integrity Agreement, other governmental agencies, including state authorities,
could conduct investigations or institute proceedings that are not precluded by the terms of settlements reflected in the Deferred
Prosecution Agreement and the CIA. In August 2012, legacy Wright received a subpoena from the United States Attorney’s Office
for the Western District of Tennessee requesting records and documentation relating to the PROFEMUR® series of hip replacement
devices for the period from January 1, 2000 to August 2, 2012. These interactions with the authorities could increase our exposure
to lawsuits by potential whistleblowers, including under the U.S. Federal False Claims Act, based on new theories or allegations
arising from the allegations made by the United States Attorney’s Office for the District of New Jersey. The costs of defending or
resolving any such investigations or proceedings could have a material adverse effect on our financial condition, operating results
and cash flows.
Modifications to our marketed devices may require FDA regulatory clearances or approvals or require us to cease marketing or
recall the modified devices until such additional clearances or approvals are obtained.
The FDA requires device manufacturers to make a determination of whether or not a modification to a cleared and commercialized
medical device requires a new approval or clearance. However, the FDA can review a manufacturer’s decision not to submit for
additional approvals or clearances. Any modification to an FDA approved or cleared device that would significantly affect its safety
or efficacy or that would constitute a major change in its intended use would require a new PMA or 510(k) clearance and could be
considered misbranded if the modified device is commercialized and such additional approval or clearance was not obtained. We
cannot assure you that the FDA will agree with our decisions not to seek approvals or clearances for particular device modifications
or that we will be successful in obtaining additional approvals or 510(k) clearances for modifications.
We obtained 510(k) premarket clearance for certain devices we market or marketed in the United States. We have subsequently
modified some of those devices or device labeling since obtaining 510(k) clearance under the view that these modifications did not
significantly affect the safety or efficacy of the device, and did not require new approvals or clearances. If the FDA disagrees with
our decisions and requires us to obtain additional premarket approvals or 510(k) clearances for any modifications to our products
and we fail to obtain such approvals or clearances or fail to secure approvals or clearances in a timely manner, we may be required to
cease manufacturing and marketing the modified device or to recall such modified device until we obtain FDA approval or clearance
and we may be subject to significant regulatory fines or penalties.
34
The European Union and many of its world markets rely on the CE Mark as the path to market our products. Our loss of the CE
Mark would adversely affect our business and operating results.
In order to market our devices in the member countries of the European Union (EU), we are required to comply with the European
Medical Devices Directive, which requires our devices to meet specific quality program criteria and technical documentation
standards, before obtaining the CE Mark certification that is required to market our products in the EU. Additionally, the European
Medical Device Directive requires that many of our products that bear the CE-Mark be supported by post-market clinical data. We
are in the process of implementing systems and procedures to control this activity in order to comply with these requirements,
including establishing contractual relationships with the healthcare provider clinical study sites in accordance with our internal
compliance requirements. We intend to obtain the needed clinical data to support our marketed products, but there can be no
assurance that European regulators will accept the results. Our failure to comply with the European Medical Devices Directive
could result in our failure to obtain CE Mark certification for new devices or our loss of existing device CE mark certification, either
of which could have a material adverse effect on us and our business.
In March 2017, the European Commission adopted the Medical Devices Regulation, which will replace the European Medical
Devices Directive and will be implemented starting in 2020. The Medical Devices Regulation will impose additional and/or more
stringent approval requirements on medical device manufacturers. These new rules and procedures may result in increased
regulatory oversight of any future devices that we may develop and may increase the costs, time and requirements that need to be
met in order to maintain or place devices in the member countries of the European Union. Additionally, we anticipate having to
expend significant time, costs and resources to comply with the Medical Devices Regulation.
Our biologics business is subject to emerging governmental regulations that can significantly impact our business.
The FDA has statutory authority to regulate allograft-based products, processing, and materials. The FDA, European Union and
Health Canada have been working to establish more comprehensive regulatory frameworks for allograft-based, tissue-containing
products, which are principally derived from cadaveric tissue. The framework developed by the FDA establishes risk-based criteria
for determining whether a particular human tissue-based product will be classified as human tissue, a medical device, or biologic
drug requiring 510(k) clearance or PMA approval. All tissue-based products are subject to extensive FDA regulation, including
establishment of registration requirements, product listing requirements, good tissue practice requirements for manufacturing, and
screening requirements that ensure that diseases are not transmitted to tissue recipients. The FDA has also proposed extensive
additional requirements addressing sub-contracted tissue services, traceability to the recipient/patient, and donor records review. If a
tissue-based product is considered human tissue, FDA requirements focus on preventing the introduction, transmission, and spread
of communicable diseases to recipients. Clinical data or review of safety and efficacy is not required before the tissue can be
marketed. However, if tissue is considered a medical device or biologic drug, then FDA clearance or approval is required.
Additionally, our biologics business involves the procurement and transplantation of allograft tissue, which is subject to federal
regulation under the NOTA. NOTA prohibits the sale of human organs, including bone and other human tissue, for valuable
consideration within the meaning of NOTA. NOTA permits the payment of reasonable expenses associated with the transportation,
processing, preservation, quality control, and storage of human tissue. We currently charge our customers for these expenses. In the
future, if NOTA is amended or reinterpreted, we may not be able to charge these expenses to our customers, and, as a result, our
business could be adversely affected.
Our principal allograft-based biologics offerings include ALLOMATRIX®, GRAFTJACKET® and IGNITE® products.
Our business could suffer if the medical community does not continue to accept allograft technology.
New allograft products, technologies, and enhancements may never achieve broad market acceptance due to numerous factors,
including:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:79)(cid:68)(cid:70)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:74)(cid:85)(cid:68)(cid:73)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)
the introduction of competitive tissue repair treatment options that render allograft products and technologies too
(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:69)(cid:86)(cid:82)(cid:79)(cid:72)(cid:87)(cid:72)(cid:30)(cid:3)
lack of available third-(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:85)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:88)(cid:85)(cid:74)(cid:72)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:74)(cid:85)(cid:68)(cid:73)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)
the risk of disease (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
ethical concerns about the commercial aspects of harvesting cadaveric tissue.
Market acceptance also will depend on the ability to demonstrate that existing and new allograft products and technologies are
attractive alternatives to existing tissue repair treatment options. To demonstrate this, we rely upon surgeon evaluations of the
clinical safety, efficacy, ease of use, reliability, and cost effectiveness of our tissue repair options and technologies.
Recommendations and endorsements by influential surgeons are important to the commercial success of allograft products and
35
technologies. In addition, several countries, notably Japan, prohibit the use of allografts. If allograft products and technologies are
not broadly accepted in the marketplace, we may not achieve a competitive position in the market.
We are dependent on various information technology systems, and failures of, interruptions to, or unauthorized tampering of those
systems could have a material adverse effect on our business.
We rely extensively on information technology (IT) systems to conduct business. These systems include, but are not limited to,
ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers,
processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, and
providing data security and other processes necessary to manage our business. In addition, we continue to grow in part through
strategic business combinations and acquisitions. As a result of these transactions, we may face risks due to implementation,
modification, or remediation of the IT controls, procedures, and policies at the acquired businesses. We continue to consolidate and
integrate the number of systems we operate into one enterprise resource planning (ERP) system and plan to continue to otherwise
upgrade and expand our IT system capabilities. We may experience difficulties in our business operations, or difficulties in
operating our business under the ERP, either of which could disrupt our operations, including our ability to timely ship and track
product orders, project inventory requirements, manage our supply chain, and otherwise adequately service our customers, and lead
to increased costs and other difficulties. In the event we experience significant disruptions as a result of the ERP implementation or
otherwise, we may not be able to fix our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce
the efficiency of our entire operations and have a material adverse effect on our operating results and cash flows.
In addition, if our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events
to power outages to security breaches, and our business continuity plans do not effectively compensate timely, we may suffer
interruptions in our ability to manage operations. Increased global cybersecurity vulnerabilities, threats and more sophisticated and
targeted cybersecurity attacks pose a risk to the security of our systems and networks and those of our customers, suppliers and
third-party service providers, and the confidentiality, availability and integrity of any underlying information and data. We have
programs, processes and technologies in place to prevent, detect, contain, respond to and mitigate security related threats and
potential incidents. We regularly undertake improvements to our IT systems in order to minimize vulnerabilities, in accordance with
industry and regulatory standards. Because the techniques used to obtain unauthorized access change frequently and can be difficult
to detect, anticipating, identifying or preventing these intrusions or mitigating them if and when they occur, may be challenging.
Our IT systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and
develop new systems to keep pace with continuing changes in technology and regulatory standards. We also outsource certain
elements of our IT systems to third parties that, as a result of this outsourcing, could have access to certain confidential information
and whose systems may also be vulnerable to these types of attacks or disruptions. There can be no assurance that our protective
measures or those of these third parties will prevent or detect security breaches that could have a significant impact on our business,
reputation, operating results and financial condition. The failure of these systems to operate or integrate effectively with other
internal, customer, supplier or third-party service provider systems and to protect the underlying IT system and data integrity,
including from cyber-attacks, intrusions or other breaches or unauthorized access of these systems, or any failure by us to remediate
any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in product fulfillment and
reduced efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or
breach, all of which could adversely affect our business, operating results and financial condition. We maintain cyber liability
(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:30)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)ver the financial, legal, business or reputational losses that may result
from an interruption or breach of our systems.
Our inability to maintain effective internal controls could cause investors to lose confidence in our reported financial information.
Effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud.
The integration of combined or acquired businesses is likely to result in our systems and controls becoming increasingly complex
and more difficult to manage. We devote significant resources and time to comply with the internal control over financial reporting
requirements of the Sarbanes-Oxley Act of 2002. However, we cannot be certain that these measures will ensure that we design,
implement, and maintain adequate control over our financial processes and reporting in the future, especially in light of anticipated
changes in accounting standards and in the context of acquisitions of other businesses.
In the fourth quarter of 2016, we identified a material weakness in our internal control over financial reporting related to information
technology general controls. Although we remediated this material weakness during the third quarter of 2017 and concluded that
our internal control over financial reporting is effective and have taken additional measures to improve our control environment, we
cannot be certain that these measures will ensure that we continue to maintain adequate control over our financial processes and
reporting in the future. If we fail to maintain the adequacy of our internal control over financial reporting or our disclosure controls
and procedures, we could be subjected to regulatory scrutiny, civil or criminal penalties or shareholder litigation, the defense of any
of which could cause the diversion of management’s attention and resources, we could incur significant legal and other expenses,
and we could be required to pay damages to settle such actions if any such actions were not resolved in our favor. Continued or
future failure to maintain adequate internal control over financial reporting could also result in financial statements that do not
accurately reflect our financial condition or results of operations. There can be no assurance that we will not identify any significant
deficiencies or material weaknesses that will impair our ability to report our financial condition and results of operations accurately
36
or on a timely basis. Inferior internal controls could also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our ordinary shares and our access to capital.
We operate in markets outside the United States that are subject to political, economic, and social instability and expose us to
additional risks.
Operations in countries outside of the United States accounted for approximately 25% of our net sales for our fiscal year ended
December 30, 2018. Our operations outside of the United States are accompanied by certain financial and other risks. We intend to
continue to pursue growth opportunities in sales outside the United States, especially in emerging markets, which could expose us to
greater risks associated with international sales operations. Our international sales operations expose us and our representatives,
agents, and distributors to risks inherent in operating in foreign jurisdictions. These risks include:
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(cid:129)
(cid:129)
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(cid:129)
the imposition of additional U.S. and foreign governmental controls or regulations on orthopaedic implants and
(cid:69)(cid:76)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:129) withdrawal from or revision to international trade policies or agreements and the imposition or increases in import and
export licensing and other compliance requirements, customs duties and tariffs, import and export quotas and other
trade restrictions, license obligations, and other non-(cid:87)(cid:68)(cid:85)(cid:76)(cid:73)(cid:73)(cid:3)(cid:69)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:30)
(cid:88)(cid:81)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:68)(cid:85)(cid:76)(cid:73)(cid:73)(cid:86)(cid:15)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:69)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)
the imposition of U.S. or international sanctions against a country, company, person, or entity with whom we do
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:92)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:30)
(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:30)
economic w(cid:72)(cid:68)(cid:78)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:73)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:30)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:68)(cid:74)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
scrutiny of foreign tax authorities, which could result in significant fines, penalties, and additional taxes being imposed
(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:88)(cid:86)(cid:30)(cid:3)
difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax,
(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:30)
a shortage of high-(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)
changes in third-party reimbursement policy that may require some of the patients who receive our products to directly
(cid:68)(cid:69)(cid:86)(cid:82)(cid:85)(cid:69)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:88)(cid:81)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
diff(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)
changes in tariffs and other trade restrictions, particularly related to the exportation of our biologic products, and
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:88)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:30)
(cid:129) work stoppages or strikes in the healthcare industry, such as those that have affected our operations in France, Canada,
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:54)(cid:82)(cid:88)(cid:87)(cid:75)(cid:3)(cid:46)(cid:82)(cid:85)(cid:72)(cid:68)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:30)(cid:3)
(cid:71)(cid:76)(cid:73)(cid:73)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:72)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:30)(cid:3)
foreign currency exchange controls that might prevent us from repatriating cash earned in countries outside the
(cid:49)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:86)(cid:30)(cid:3)
longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal
(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:30)
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:79)(cid:68)(cid:92)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:79)(cid:76)(cid:70)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:68)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:76)(cid:86)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:86)(cid:30)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:91)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:68)(cid:69)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
exposure to different legal and political standards due to our conducting business in approximately 50 countries.
In addition, in June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union,
commonly referred to as “Brexit.” In March 2017, the United Kingdom formally gave notice of its intent to withdraw from the
European Union. Serving this notice began a two-year period for the United Kingdom to negotiate terms for its withdrawal from the
European Union and future terms of the United Kingdom’s relationship with the European Union, including the terms of trade
between the United Kingdom and the European Union. Although it is unknown what those terms will be, it is possible that there
will be greater restrictions on the movement of goods and people between the United Kingdom and European Union countries and
increased regulatory complexities, which could affect our ability to sell our products in certain European Union countries. Brexit
could adversely affect European and worldwide economic and market conditions and could contribute to instability in global
financial and foreign exchange markets, including volatility in the value of the British pound and Euro. We do not know to what
extent these changes will impact our business. Any of these effects of Brexit, and others that we cannot anticipate, could adversely
affect our business, operations and financial results. In addition, other European countries may seek to conduct referenda with
respect to continuing membership with the European Union. At this time, it is not certain what steps may be taken to facilitate the
United Kingdom’s exit from the European Union, which has created significant uncertainty about the future relationship between the
United Kingdom and the European Union. This development has had and may continue to have a material adverse effect on global
economic conditions and the stability of global financial markets. Given the lack of comparable precedent, it is unclear how the
withdrawal of the United Kingdom from the European Union will impact our business, financial condition and operating results.
37
Since we conduct operations through U.S. operating subsidiaries, not only are we subject to the laws of non-U.S. jurisdictions, but
we also are subject to U.S. laws governing our activities in foreign countries, such as the FCPA, as well as various import-export
laws, regulations, and embargoes. If our business activities were determined to violate these laws, regulations, or rules, we could
suffer serious consequences.
Healthcare regulation and reimbursement for medical devices vary significantly from country to country. This changing
environment could adversely affect our ability to sell our products in some jurisdictions.
The costs of complying with the requirements of the new EU-wide General Data Protection Regulation and the potential liability
associated with failure to do so could materially adversely affect our business and results of operations.
In May 2018, the EU-wide General Data Protection Regulation (GDPR) became effective, replacing the current data protection laws
of each EU member state. The GDPR implemented more stringent operational requirements for personal data, including, for
example, expanded disclosures about how personal information is to be used, limitations on retention of information, increased
requirements pertaining to health data and pseudonymised (i.e., key-coded) data, mandatory data breach notification requirements
and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.
Any failure or perceived failure by us to comply with privacy or security laws, policies, legal obligations or industry standards or
any security incident that results in the unauthorized release or transfer of personally identifiable information may result in
governmental enforcement actions and investigations including by European Data Protection Authorities, fines and penalties,
litigation and/or adverse publicity, and could cause our customers to lose trust in us, which could have an adverse effect on our
reputation and business. Such failures could have a material adverse effect on our operating results and financial condition. If the
third parties we work with violate applicable laws, contractual obligations or suffer a security breach, such violations may also put
us in breach of our obligations under privacy laws and regulations and/or could in turn have a material adverse effect on our
business. In addition, we have spent and expect to continue to expend significant time, costs and resources to comply with the
GDPR.
Worldwide economic instability could adversely affect our net sales, financial condition, or results of operations.
The health of the global economy, and the credit markets and the financial services industry in particular, affects our business and
operating results. While the health of the credit markets and the financial services industry appears to have stabilized, there is no
assurance that it will remain stable and there can be no assurance that there will not be deterioration in the global economy. If the
credit markets are not favorable, we may be unable to raise additional financing when needed or on favorable terms. Our customers
may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability
to purchase our products or to pay for our products on a timely basis, if at all. In addition, any economic crisis could also adversely
impact our suppliers’ ability to provide us with materials and components, either of which may negatively impact our business. As
with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future
business activities. Further, there are concerns for the overall stability and suitability of the Euro as a single currency, given the
economic and political challenges facing individual Eurozone countries and Brexit. Continuing deterioration in the creditworthiness
of the Eurozone countries, the withdrawal of one or more member countries from the European Union, or the failure of the Euro as a
common European currency could adversely affect our sales, financial condition, or operating results.
The collectability of our accounts receivable may be affected by general economic conditions.
Our liquidity is dependent on, among other things, the collection of our accounts receivable. Collections of our receivables may be
affected by general economic conditions. Although current economic conditions have not had a material adverse effect on our
ability to collect such receivables, we can make no assurances regarding future economic conditions or their effect on our ability to
collect our receivables, particularly from our international stocking distributors. In addition, some of our trade receivables are with
national health care systems in many countries (including, but not limited to, Greece, Ireland, Portugal, and Spain). Repayment of
these receivables is dependent upon the financial stability of the economies of those countries. In light of these global economic
fluctuations, we continue to monitor the creditworthiness of customers located outside of the United States. Failure to receive
payment of all or a significant portion of these receivables could adversely affect our operating results.
A significant portion of our product sales are made through independent distributors and sales agents who we do not control.
A significant portion of our product sales are made through independent sales representatives and distributors. Because the
independent distributor often controls the customer relationships within its territory (and, in certain countries outside the United
States, the regulatory relationship), there is a risk that if our relationship with the distributor ends, our relationship with the customer
will be lost (and, in certain countries outside the United States, that we could experience delays in amending or transferring our
product registrations). Also, because we do not control a distributor’s field sales agents, there is a risk we will be unable to ensure
that our sales processes, compliance, and other priorities will be consistently communicated and executed by the distributor. If we
fail to maintain relationships with our key distributors, or fail to ensure that our distributors adhere to our sales processes,
compliance, and other priorities, this could have an adverse effect on our operations. Changes to or turnover within our independent
distributor organization or transitions to direct selling models also could adversely affect our business if these transitions are not
38
managed effectively. Additionally, the terms of our distributor agreements or local laws could make it difficult for us to exit a
distribution arrangement we no longer find favorable. Further, the legacy independent distributors and sales agents of companies we
have acquired may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with us. A
loss of a significant number of our distributors or agents could have a material adverse effect on our business and results of
operations.
In addition, our success is partially dependent upon our ability to retain and motivate our distributors, independent sales agencies,
and their representatives to sell our products in certain territories. They may not be successful in implementing our marketing plans.
Some of our distributors and independent sales agencies do not sell our products exclusively and may offer similar products from
other orthopaedic companies. Our distributors and independent sales agencies may terminate their contracts with us, may devote
insufficient sales efforts to our products, or may focus their sales efforts on other products that produce greater commissions for
them, which could have an adverse effect on our operations and operating results.
The results of our clinical trials may not support our product claims or may result in the discovery of adverse side effects.
Our ongoing research and development, pre-clinical testing, and clinical trial activities are subject to extensive regulation and review
by numerous governmental authorities both in the United States and abroad. We are currently conducting post-market clinical
studies of some of our products to gather additional information about these products’ safety, efficacy, or optimal use. In the future
we may conduct additional clinical trials to support approval of new products. Clinical studies must be conducted in compliance
with FDA regulations or the FDA may take enforcement action. The data collected from these clinical trials may ultimately be used
to support market approval or clearance for these products or gather additional information about approved or cleared products.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product claims or that the
FDA or foreign authorities will agree with our conclusions regarding them. Success in pre-clinical testing and early clinical trials
does not always ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results
of prior trials and studies. The clinical trial process may fail to demonstrate that our products are safe and effective for the proposed
indicated uses, which could cause us to abandon a product and may delay development of others. Any delay or termination of our
clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our products and generate
revenue. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of
the product’s profile.
If the third parties on which we rely to conduct our clinical trials and to assist us with clinical development do not perform as
contractually required or expected, we may not be able to obtain, or in some cases, maintain regulatory clearance or approval for or
commercialize our products.
We often must rely on third parties, such as contract research organizations, medical institutions, clinical investigators, and contract
laboratories to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain
is compromised due to their failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our pre-
clinical and clinical development activities or clinical trials may be extended, delayed, suspended, or terminated, and we may not be
able to obtain or, in some cases maintain, regulatory clearance or approval for, or successfully commercialize, our products on a
timely basis, if at all, and our business, operating results, and prospects may be adversely affected. Furthermore, our third-party
clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.
Fluctuations in insurance cost and availability could adversely affect our profitability or our risk management profile.
We hold a number of insurance policies, including product liability insurance, directors’ and officers’ liability insurance, property
insurance, and workers’ compensation insurance. If the costs of maintaining adequate insurance coverage should increase
significantly in the future, our operating results could be materially adversely impacted. Likewise, if any of our current insurance
coverage should become unavailable to us or become economically impractical, we would be required to operate our business
without indemnity from commercial insurance providers.
Our inability to maintain contractual relationships with healthcare professionals could have a negative impact on our research and
development and medical education programs.
We maintain contractual relationships with respected surgeons and medical personnel in hospitals and universities who assist in
product research and development and in the training of surgeons on the safe and effective use of our products. We continue to place
emphasis on the development of proprietary products and product improvements to complement and expand our existing product
lines as well as providing high quality training on those products. If we are unable to enter into and maintain these relationships, our
ability to develop and market new and improved products and train on the use of those products could decrease, and our future
operating results could be unfavorably affected. In addition, it is possible that U.S. federal and state and international laws requiring
us to disclose payments or other transfers of value, such as free gifts or meals, to surgeons and other healthcare providers could have
a chilling effect on these relationships with individuals or entities that may, among other things, want to avoid public scrutiny of
their financial relationships with us.
39
If adequate levels of reimbursement from third-party payors for our products are not obtained, surgeons and patients may be
reluctant to use our products and our sales may decline.
In the United States, healthcare providers who purchase our products generally rely on third-party payors, principally U.S. federally-
funded Medicare, state-funded Medicaid, and private health insurance plans, to pay for all or a portion of the cost of joint
reconstructive procedures and products utilized in those procedures. We may be unable to sell our products on a profitable basis if
third-party payors deny coverage or reduce their current levels of reimbursement. Our sales depend largely on governmental
healthcare programs and private health insurers reimbursing patients’ medical expenses. Surgeons, hospitals, and other healthcare
providers may elect not to purchase our products if they do not receive adequate reimbursement from third-party payors for
procedures using our products. In light of healthcare reform measures, payors continue to review their coverage policies for existing
and new therapies and may deny or restrict coverage for treatments that include the use of our products.
In addition, some healthcare providers in the United States have adopted or are considering new payment models such as bundled
payment methodologies and/or managed care systems in which the providers contract to provide comprehensive healthcare on a
fixed cost per person basis or on other “pay-for-performance” bases where reimbursement may depend on cost savings achieved.
Healthcare providers and/or payors may attempt to control costs by authorizing fewer elective surgical procedures, including joint
reconstructive surgeries, or by requiring the use of the least expensive implant available. Changes in reimbursement methodologies,
policies or healthcare cost containment initiatives that limit or restrict reimbursement for our products may cause our sales to decline
or could impact the prices we are able to charge for our products.
If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, international sales of our
products may decline. Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets
have government-managed healthcare systems that govern reimbursement for medical devices and procedures. Canada, and some
European and Asian countries, in particular France, Japan, Taiwan, and South Korea, have tightened reimbursement rates.
Additionally, Brazil, China, Russia, and the United Kingdom have recently begun landmark reforms that will significantly alter their
healthcare systems. Finally, some foreign reimbursement systems provide for limited payments in a given period and therefore
result in extended payment periods.
Our business could be significantly and adversely impacted by healthcare reform legislation.
Comprehensive healthcare reform legislation has significantly and adversely impacted our business and uncertainty regarding future
healthcare reform legislation could further adversely impact our business. For example, the Affordable Care Act (ACA) imposed a
2.3% excise tax on U.S. sales of medical devices, which has been suspended until December 31, 2019. On December 14, 2018, the
United States District Court for the Northern District of Texas issued a ruling declaring an integral tax provision of the ACA
unconstitutional and, as a result, declared the ACA invalid in its entirety. The ruling is subject to appeal and the ACA will remain in
effect pending the appeal. It is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will
impact the ACA and our business. The ACA includes numerous provisions to limit Medicare spending through reductions in various
fee schedule payments and by instituting more sweeping payment reforms, such as bundled payments for episodes of care and the
establishment of “accountable care organizations” under which hospitals and physicians would be able to share savings that result
from cost control efforts. Many of these provisions were not yet fully implemented at the time of the District Court’s ruling, and
their impact on our business cannot be fully known until and unless they are implemented. If the ACA is ultimately upheld, these
and other provisions of the law could adversely impact our business. In addition, the constitutionality of the ACA may not be
affirmed on appeal or it could be replaced by new healthcare reform legislation. A repeal of the ACA or any replacement or material
modification of the ACA could cause significant uncertainty in the U.S. healthcare market, could increase our costs, decrease our
sales or inhibit our ability to sell our products. Various healthcare reform proposals have also emerged at the state level. We cannot
predict with certainty the impact that these U.S. federal and state health reforms will have on us. However, an expansion in
government’s role in the U.S. healthcare industry may lower reimbursements for products, reduce medical procedure volumes, and
adversely affect our business and operating results, possibly materially.
We are also subject to certain data privacy and security regulation by both the U.S. federal government and the states in which we
conduct our business. There is an increasing trend for more criminal prosecutions and compliance enforcement activities for
noncompliance with the HIPAA as well as for data breaches involving protected health information (PHI). In the ordinary course of
our business, we may receive PHI. If we are unable to comply with HIPAA or experiences a data breach involving PHI, we could be
subject to criminal and civil sanctions.
If we cannot retain our key personnel, we may be unable to manage and operate our business successfully and meet our strategic
objectives.
Our future success depends, in part, upon our ability to retain and motivate key managerial, scientific, sales, and technical personnel,
as well as our ability to continue to attract and retain additional highly qualified personnel. We compete for such personnel with
other companies, academic institutions, governmental entities, and other organizations. There can be no assurance that we will be
successful in retaining our current personnel or in hiring or retaining qualified personnel in the future. Key personnel may depart
because of difficulties with change or a desire not to remain with our company, especially in the case of employees of acquired
40
companies. Any unanticipated loss or interruption of services of our management team and our key personnel could significantly
reduce our ability to meet our strategic objectives because it may not be possible for us to find appropriate replacement personnel
should the need arise. Loss of key personnel or the inability to hire or retain qualified personnel in the future could have a material
adverse effect on our ability to operate successfully. Further, any inability on our part to enforce non-compete or non-solicitation
arrangements related to key personnel who have left the business could have a material adverse effect on our business.
If a natural or man-made disaster adversely affects our manufacturing facilities or distribution channels, we could be unable to
manufacture or distribute our products for a substantial amount of time, and our sales could be disrupted.
We principally rely on five manufacturing facilities, one of which is in France, one of which is in Ireland, two of which are in
Tennessee, and one in Georgia. The facilities and the manufacturing equipment we use to produce our products would be difficult to
replace and could require substantial lead-time to repair or replace. For example, the machinery associated with our manufacturing
of pyrocarbon in one of our French facilities is highly specialized and would take substantial lead-time and resources to replace. We
also maintain a facility in Bloomington, Minnesota, a facility in Arlington, Tennessee, and a warehouse in Montbonnot, France,
which contain large amounts of our inventory. Our facilities, warehouses, or distribution channels may be affected by natural or
man-made disasters. For example, in the event of a natural or man-made disaster at one of our warehouses, we may lose substantial
amounts of inventory that would be difficult to replace. Our manufacturing facility in Arlington, Tennessee is located near the New
Madrid fault line. In the event our facilities, warehouses, or distribution channels are affected by a disaster, we would be forced to
rely on, among others, third-party manufacturers and alternative warehouse space and distribution channels, which may or may not
be available, and our sales could decline. Although we believe we have adequate disaster recovery plans in place and possess
adequate insurance for damage to our property and the disruption of our business from casualties, such plans and insurance may not
cover such disasters or be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable
terms or at all.
Fluctuations in foreign currency exchange rates could result in declines in our reported net sales and earnings.
Because a majority of our international sales are denominated in local currencies and not in U.S. dollars, our reported net sales and
earnings are subject to fluctuations in foreign currency exchange rates. Foreign currency exchange rate fluctuations favorably
impacted our net sales by $4.8 million during 2018. Operating costs related to these sales are largely denominated in the same
respective currencies, thereby partially limiting our transaction risk exposure. However, cost of sales related to these sales are
(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3) (cid:71)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:56)(cid:17)(cid:54)(cid:17)(cid:3) (cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86)(cid:30)(cid:3) (cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)re, as the U.S. dollar strengthens, the gross margin associated with our sales
denominated in foreign currencies experience declines.
Although we address currency risk management through regular operating and financing activities, and in the past through hedging
activities, these actions may not prove to be fully effective, and hedging activities, if we choose to engage in them, involve
additional risks.
We may be unable to maintain competitive global cash management and a competitive effective corporate tax rate.
We cannot give any assurance as to our future effective tax rate because of, among other things, uncertainty regarding the tax
policies of the jurisdictions where we operate and uncertainty regarding the level of net income that we will earn in those
jurisdictions in the future. Our actual effective tax rate may vary from this expectation and that variance may be material.
Additionally, the tax laws of the Netherlands and other jurisdictions in which we operate could change in the future, and such
changes could cause a material change in our effective tax rate.
Our provision for income taxes will be based on certain estimates and assumptions made by management in consultation with our
tax and other advisors. Our group income tax rate will be affected by, among other factors, the amount of net income earned in our
various operating jurisdictions, the availability of benefits under tax treaties, the rates of taxes payable in respect of that income, and
withholding taxes on dividends paid from one jurisdiction to the next. We will enter into many transactions and arrangements in the
ordinary course of business in respect of which the tax treatment is not entirely certain. We will, therefore, make estimates and
judgments based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws
and tax treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a
greater share of income than will be provided for by us. The final outcome of any audits by taxation authorities may differ from the
estimates and assumptions we may use in determining our consolidated tax provisions and accruals. This could result in a material
adverse effect on our consolidated income tax provision, financial condition, and the net income for the period in which such
determinations are made.
In particular, dividends, distributions, and other intra-group payments from our U.S. affiliates to certain of our non-U.S. subsidiaries
may be subject to U.S. withholding tax at a rate of 30% unless the entity receiving such payments can demonstrate that it qualifies
for reduction or elimination of the U.S. withholding tax under the income tax treaty (if any) between the United States and the
jurisdiction in which the entity is organized or is a tax resident. In certain cases, treaty qualification may depend on whether at least
50% of our ultimate beneficial owners are qualified residents of the United States or the treaty jurisdiction within the meaning of the
applicable treaty. There can be no assurance that we will satisfy this beneficial ownership requirement at the time when such
41
dividends, distributions, or other payments are made. Moreover, the U.S. Internal Revenue Service (IRS) may challenge our
determination that the beneficial ownership requirement is satisfied. If we do not satisfy the beneficial ownership requirement, such
dividends, distributions, or other payments may be subject to 30% U.S. withholding tax.
We may face potential limitations on the utilization of our U.S. tax attributes.
Following the acquisition of a U.S. corporation by a non-U.S. corporation, Section 7874 of the Internal Revenue Code of 1986, as
amended (Code) can limit the ability of the acquired U.S. corporation and its U.S. affiliates to utilize U.S. tax attributes such as net
operating losses and certain tax credits to offset U.S. taxable income resulting from certain transactions. Based on the limited
guidance available, we currently expect that this limitation likely will not apply to us and as a result, our U.S. affiliates likely will
not be limited by Section 7874 of the Code in their ability to utilize their U.S. tax attributes to offset their U.S. taxable income, if
any, resulting from certain specified taxable transactions. However, no assurances can be given in this regard. If, however,
Section 7874 of the Code were to apply to the Wright/Tornier merger and if our U.S. affiliates engage in transactions that would
generate U.S. taxable income subject to this limitation in the future, it could take us longer to use our net operating losses and tax
credits and, thus, we could pay U.S. federal income tax sooner than we otherwise would have. Additionally, if the limitation were to
apply and if we do not generate taxable income consistent with our expectations, it is possible that the limitation under Section 7874
on the utilization of U.S. tax attributes could prevent our U.S. affiliates from fully utilizing their U.S. tax attributes prior to their
expiration.
Future changes to U.S. tax laws could materially affect us, including our status as a non-U.S. corporation.
Under current U.S. federal income tax law, a corporation generally will be considered to be resident for U.S. federal income tax
purposes in its place of organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, we,
as a Netherlands incorporated entity, would be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident).
Section 7874 of Code, however, contains specific rules (more fully discussed below) that can cause a non-U.S. corporation to be
treated as a U.S. corporation for U.S. federal income tax purposes. These rules are complex and there is little or no guidance as to
their application.
We currently expect we should continue to be treated as a foreign corporation for U.S. federal tax purposes, however, it is possible
that the IRS could disagree with that position and assert that Section 7874 applies to treat us as a U.S. corporation. In addition, new
statutory or regulatory provisions under Section 7874 or otherwise could be enacted or promulgated that adversely affect our status
as a foreign corporation for U.S. federal tax purposes, and any such provisions could have retroactive application. If we were to be
treated as a U.S. corporation for federal tax purposes, we would be subject to U.S. corporate income tax on our worldwide income,
and the income of our foreign subsidiaries would be subject to U.S. tax when repatriated or when deemed recognized under the U.S.
tax rules for controlled foreign subsidiaries. In such a case, we would be subject to substantially greater U.S. tax liability than
currently contemplated. Moreover, in such a case, a non-U.S. shareholder of our company would be subject to U.S. withholding tax
on the gross amount of any dividends paid by us to such shareholder.
Any such U.S. corporate income or withholding tax could be imposed in addition to, rather than in lieu of, any Dutch corporate
income tax or withholding tax that may apply.
Our tax position may be adversely affected by changes in tax law relating to multinational corporations, or by increased scrutiny by
tax authorities.
Recent legislative proposals have aimed to expand the scope of U.S. corporate tax residence, limit the ability of foreign-owned
corporations to deduct interest expense, and make other changes in the taxation of multinational corporations.
On December 22, 2017, the United States enacted the statute commonly called the “Tax Cuts and Jobs Act” (the 2017 Tax Act)
which enacts a broad range of changes to the Code. The 2017 Tax Act, among other things, includes changes to U.S. federal tax
rates, imposes significant additional limitations on the deductibility of U.S. interest and U.S. net operating losses, allows for the
expensing of certain U.S. capital expenditures, and puts into effect a number of changes impacting applicable operations outside of
the United States including, but not limited to, the imposition of a onetime tax on accumulated post-1986 deferred foreign income
that has not previously been subject to tax, and modifications to the treatment of certain intercompany transactions. Our net deferred
tax assets and liabilities were revalued to the extent applicable at the newly enacted U.S. corporate rate, and the impact was
recognized as a tax benefit in 2017, the year of enactment. We are continuing to evaluate the overall impact of this tax legislation on
our U.S. and non-U.S. operations. There can be no assurance that changes in tax laws or regulations, both within the U.S. and the
other jurisdictions in which we operate, will not materially and adversely affect our effective tax rate, tax payments, financial
condition and results of operations. Similarly, changes in tax laws and regulations that impact our customers and counterparties or
the economy generally may also impact our financial condition and results of operations.
Additionally, the U.S. Congress, government agencies in jurisdictions where we and our affiliates do business, and the Organization
for Economic Co-operation and Development have focused on issues related to the taxation of multinational corporations. One
42
example is in the area of “base erosion and profit shifting,” where payments are made between affiliates from a jurisdiction with
high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the United States, the Netherlands and other countries
in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could impact the
expected tax treatment for us and adversely affect our financial results.
Moreover, U.S. and non-U.S. tax authorities may carefully scrutinize companies involved or recently involved in cross-border
business combinations, such as us, which may lead such authorities to assert that we owe additional taxes.
Our exposure to several tax jurisdictions may have an adverse effect on us and this may increase the aggregate tax burden on us and
our shareholders.
We are subject to a large number of different tax laws and regulations in the various jurisdictions in which we operate. These laws
and regulations are often complex and are subject to varying interpretations. The combined effect of the application of tax laws,
including the application or disapplication of tax treaties of one or more of these jurisdictions and their interpretation by the relevant
tax authorities could, under certain circumstances, produce contradictory results. We often rely on generally available interpretations
of tax laws and regulations to determine the existence, scope, and level of our liability to tax in the jurisdictions in which we operate.
In addition, we take positions in the course of our business with respect to various tax matters, including the compliance with the
arm’s length principles in respect of transactions with related parties, the tax deductibility of interest and other costs, and the amount
of depreciation or write-down of our assets that we can recognize for tax purposes. There is no assurance that the tax authorities in
the relevant jurisdictions will agree with such interpretation of these laws and regulations or with the positions taken by us. If such
tax positions are challenged by relevant tax authorities, the imposition of additional taxes could increase our effective tax rate and
cost of operations.
Furthermore, because we are incorporated under Dutch law, we are treated for Dutch corporate income tax purposes as a resident of
the Netherlands. Based on our management structure and the current tax laws of the United States and the Netherlands, as well as
applicable income tax treaties and current interpretations thereof, we expect to remain a tax resident solely of the Netherlands. If we
were to be treated as a tax resident of a jurisdiction other than or in addition to the Netherlands, we could be subject to corporate
income tax in that other jurisdiction, and could be required to withhold tax on any dividends paid by us to our shareholders under the
applicable laws of that jurisdiction.
Our future results will suffer if we do not effectively manage our expanded operations as a result of our business combination and
acquisition transactions.
As a result of our prior business combinations and acquisition transactions, the size of our business has increased significantly. Our
future success depends, in part, upon our ability to manage this expanded business, which may pose substantial challenges for our
management, including challenges related to the management and monitoring of new operations and associated increased costs and
complexity. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost
savings, and other benefits anticipated from these transactions.
Our Corporate Compliance Program requires the cooperation of many individuals, involves substantial investment and diverts a
significant amount of time and resources from our other business activities. Our failure to maintain an effective Corporate
Compliance Program could adversely affect our business, reputation and financial results.
We are committed to a robust Corporate Compliance Program. Accordingly, we have devoted and continue to devote a significant
amount of time and resources from our financial, human resources, and compliance personnel, as well as all of our employees in
furtherance of this strategic objective. Our failure to maintain an effective Corporate Compliance Program could result in significant
legal and regulatory problems and could adversely affect our business, reputation and financial results.
We have a significant amount of goodwill and other intangible assets on our consolidated balance sheet as a result of our prior
business combinations and acquisitions, which if these acquired businesses do not perform as anticipated, may be subject to future
impairment, which would harm our operating results.
As of December 30, 2018, we had $1.3 billion in goodwill and $282.3 million in intangible assets primarily as a result of our prior
business combinations and acquisitions. Under U.S. generally accepted accounting principles (US GAAP), we must assess, at least
annually and potentially more frequently, whether the value of our goodwill and other indefinite-lived intangible assets have been
impaired. Amortizing intangible assets will be assessed for impairment in the event of an impairment indicator. A decrease in the
long-term economic outlook and future cash flows of our acquired businesses and technologies could significantly impact asset
values and potentially result in the impairment of intangible assets, including goodwill. If the operating performance of our acquired
businesses and technologies significantly decreases, if competing or alternative technologies emerge, or if market conditions or
future cash flow estimates decline, we could be required, under current US GAAP, to record a non-cash charge to operating earnings
for the amount of the impairment. Any write-off of a material portion of our unamortized intangible assets would negatively affect
our results of operations.
43
Risks Relating to Our Ordinary Shares and Jurisdiction of Incorporation
The trading volume and prices of our ordinary shares have been and may continue to be volatile, which could result in substantial
losses to our shareholders.
The trading volume and prices of our ordinary shares have been and may continue to be volatile and could fluctuate widely due to
factors beyond our control. During 2018, the sale price of our ordinary shares ranged from $19.01 to $30.75. Such volatility may be
the result of broad market and industry factors. In addition to market and industry factors, the price and trading volume for our
ordinary shares may be highly volatile for factors specific to our own operations, including the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
variations in our net sales, earnings, and cash flow, and in particular variations that deviate from our projected
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
announcements of new investments, acquisitions, strategic partnerships, or join(cid:87)(cid:3)(cid:89)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:88)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)
(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79)(cid:30)(cid:3)
sales of our equity securities by our significant shareholders or management or sales of additional equity securities by
(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3)
(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
fluctuations in market prices for our products.
Any of these factors may result in large and sudden changes in the volume and price at which our ordinary shares trade.
Shareholders of a public company sometimes bring securities class action suits against the company following periods of instability
in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of
our management’s attention and other resources from our business and operations, which could harm our operating results and
require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be
required to pay significant damages, which could have a material adverse effect on our financial condition and operating results.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their
recommendations regarding our ordinary shares, the market price for our ordinary shares and trading volume could decline.
The trading market for our ordinary shares is influenced by research or reports that industry or securities analysts publish about us or
our business. If one or more analysts who cover us downgrade our ordinary shares, the market price for our ordinary shares likely
would decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ordinary shares to decline.
The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales could occur, could
adversely affect the market price of our ordinary shares and could materially impair our ability to raise capital through equity
offerings in the future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any
other shareholder or the availability of these securities for future sale will have on the market price of our ordinary shares.
Rights of a holder of ordinary shares are governed by Dutch law and differ from the rights of shareholders under U.S. law.
We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs and the rights of holders of
our ordinary shares are governed by Dutch law and our articles of association. The rights of our shareholders and the responsibilities
of members of our board of directors may be different from those in companies governed by the laws of U.S. jurisdictions. For
example, Dutch law does not provide for a shareholder derivative action. In addition, in the performance of its duties, our board of
directors is required by Dutch law to act in the interest of our company and our affiliated business, and to consider the interests of
our company, our shareholders, our employees, and other stakeholders, in all cases with reasonableness and fairness. It is possible
that some of these parties will have interests that are different from, or in addition to, interests of our shareholders.
As a result of different shareholder voting requirements in the Netherlands relative to laws in effect in certain states in the United
States, we may have less flexibility with respect to the issuance of our ordinary shares than companies organized in the United
States.
Currently, our articles of association provide for an authorized share capital consisting of one class of shares, being 320,000,000
ordinary shares, each with a nominal value of €0.03. Under Dutch law, our authorized share capital can be increased by an
amendment to our articles of association. Our articles of association can be amended upon a proposal of our board of directors by
44
the general meeting of shareholders, which resolution can be adopted with a simple majority in a meeting where at least one-third of
the outstanding shares are represented. New ordinary shares may be issued pursuant to a resolution of shareholders, or pursuant to
such resolution of the board of directors if designated thereto by shareholders. Additionally, subject to specified exceptions, Dutch
law grants statutory preemption rights to existing shareholders where shares are being issued for cash consideration. The right of
our shareholders to subscribe for ordinary shares pursuant to preemptive rights may be limited or restricted by our shareholders and
our shareholders may delegate such authority to the board of directors. Such designations of authority to our board of directors may
remain in effect for up to five years and may be renewed for additional periods of up to five years.
Currently our board of directors is authorized to issue shares up to a maximum amount equal to the authorized but unissued share
capital and to limit or exclude pre-emptive rights in respect of such issue of shares until June 18, 2020, without further shareholder
approval. We cannot provide any assurance that these authorizations will always be approved on a timely basis, especially since our
shareholders did not approve these two authorizations the last time we submitted them to a vote of our shareholders at our annual
general meeting in June 2016. The failure to renew these authorizations on a timely basis could limit our ability to issue equity and
thereby adversely affect our ability to run our business and the holders of our securities.
U.S. investors may not be able to enforce judgments obtained in U.S. courts in civil and commercial matters against us or members
of our board of directors or officers.
We are organized under the laws of the Netherlands, and, as such, the rights of holders of our ordinary shares and the civil liability of
our directors are governed by the laws of the Netherlands and our articles of association. The rights of shareholders under the laws
of the Netherlands may differ from the rights of shareholders of companies incorporated in other jurisdictions. A substantial portion
of our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within
the United States on us, or to enforce outside the United States any judgments obtained against us in U.S. courts in any action,
including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for
investors to enforce rights predicated upon the U.S. federal securities laws in original actions brought in courts in jurisdictions
located outside the United States (including the Netherlands) or enforce claims for punitive damages.
The United States and the Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of
judgments in civil and commercial matters (other than arbitral awards). A final judgment for the payment of money rendered by any
federal or state court in the United States which is enforceable in the United States, whether or not predicated solely upon U.S.
federal securities laws, would not automatically be recognized or enforceable in the Netherlands. In order to obtain a judgment
which is enforceable in the Netherlands, the party in whose favor a final and conclusive judgment of the U.S. court has been
rendered will be required to file its claim with a court of competent jurisdiction in the Netherlands. Such party may submit to a
Dutch court the final judgment rendered by the U.S. court. If and to the extent that the Dutch court finds that the jurisdiction of the
U.S. court has been based on grounds which are internationally acceptable and that proper legal procedures have been observed, the
Dutch court will generally tend to give binding effect to the judgment of the court of the United States without substantive re-
examination or re-litigation on the merits of the subject matter, unless the judgment contravenes principles of public policy of the
Netherlands.
There can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors or officers who
are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and
commercial matters, including judgments under the U.S. federal securities laws.
We do not anticipate paying dividends on our ordinary shares.
Our articles of association prescribe that profits or reserves appearing from our annual accounts adopted by the general meeting shall
be at the disposal of the general meeting. We have power to make distributions to shareholders and other persons entitled to
distributable profits only to the extent that our equity exceeds the sum of the paid and called-up portion of the ordinary share capital
and the reserves that must be maintained in accordance with provisions of Dutch law or our articles of association. The profits must
first be used to set up and maintain reserves required by law and must then be set off against certain financial losses. We may not
make any distribution of profits on ordinary shares that we hold. The general meeting, whether or not upon the proposal of our
board of directors, determines whether and how much of the remaining profit they will reserve and the manner and date of such
distribution. All calculations to determine the amounts available for dividends will be based on our Dutch annual accounts, which
may be different from our consolidated financial statements prepared in accordance with US GAAP. Beginning with our fiscal year
2015, our statutory accounts have been prepared and we expect will continue to be prepared under International Financial Reporting
Standards and are deposited with the Trade Register in Amsterdam, the Netherlands. We have not previously declared or paid cash
dividends and we have no plan to declare or pay any dividends in the near future on our ordinary shares. We currently intend to
retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Item 1B.
Unresolved Staff Comments.
None.
45
Item 2.
Properties.
Our global corporate headquarters are located in Amsterdam, the Netherlands.
Our U.S. headquarters are located in Memphis, Tennessee, where we conduct our principal executive, research and development,
sales and marketing, and administrative activities. We lease 121,000 square feet of office space with research and development
facilities under a lease agreement that is renewable through 2034. Our upper extremities sales and marketing, U.S. distribution and
customer service operations are located in a 54,000 square foot facility in Bloomington, Minnesota that we lease through 2022. Our
U.S. manufacturing operations consist of a 100,000 square foot state of the art manufacturing facility in Arlington, Tennessee. We
lease the manufacturing facility from the Industrial Development Board of the Town of Arlington. At this facility, we produce
primarily orthopaedic implants and some related surgical instrumentation while utilizing lean manufacturing philosophies. We are
currently building a new 40,000 square foot state of the art facility in Arlington, Tennessee which will be used for manufacturing and
distribution. We expect this building to be completed in the summer of 2019. We also lease a 31,000 square foot manufacturing and
warehousing facility in Franklin, Tennessee, a 11,400 square foot manufacturing and warehousing facility in Alpharetta, Georgia,
and conduct research and development operations in an 11,000 square foot leased facility in Warsaw, Indiana, which ended in
February of 2019. A new facility in Columbia City, Indiana with 16,000 square feet of space replaced the Warsaw lease in February
2019.
Outside the United States, our primary manufacturing facilities are located in Montbonnot, France and Macroom, Ireland. In the
92,000 square foot Montbonnot campus, we conduct manufacturing and manufacturing support activities, sales and marketing,
research and development, quality and regulatory assurance, distribution and administrative functions. In our 73,000 square foot
Macroom facility, we conduct manufacturing operations and manufacturing support, such as purchasing, engineering, and quality
assurance functions. In addition, we maintain subsidiary sales offices and distribution warehouses in various countries, including
France, Germany, Italy, the Netherlands, Switzerland, United Kingdom, Belgium, Japan, Canada, and Australia. We have
international research and development facilities in Costa Rica and Plouzané, France.
We believe that our facilities are adequate and suitable for their use.
Below is a summary of our material facilities. All of our reportable segments use the facilities described below except as otherwise
indicated:
City
Memphis
Arlington
Bloomington
Columbia City
Alpharetta
Franklin
Montbonnot
Montbonnot
Plouzané
Macroom
State/Country
Tennessee,
United States
Tennessee,
United States
Minnesota,
United States
Indiana,
United States
Georgia
Tennessee,
United States
France
France
France
Ireland
Owned or
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned 51%
Leased
Leased
Occupancy
Offices/R&D
U.S. Lower Extremities & Biologics
Manufacturing/Warehouse/Distribution
U.S. Upper Extremities
Offices/Warehouse/Distribution
Offices/R&D
U.S. Lower Extremities
Offices/Manufacturing/Warehouse
U.S. Lower Extremities & Biologics
Offices/Manufacturing/Warehouse
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:40)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:9)(cid:3)(cid:37)(cid:76)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:86)(cid:30)
U.S. Upper Extremities
Warehouse/Distribution/Offices/R&D
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:40)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:9)(cid:3)(cid:37)(cid:76)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:86)(cid:30)
U.S. Upper Extremities
Manufacturing/Offices
Upper Extremities
R&D
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:40)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:9)(cid:3)(cid:37)(cid:76)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:86)(cid:30)
Manufacturing/Offices
46
Item 3.
Legal Proceedings.
From time to time, we or our subsidiaries are subject to various pending or threatened legal actions and proceedings, including those
that arise in the ordinary course of our business and some of which involve claims for damages that are substantial in amount. These
actions and proceedings may relate to, among other things, product liability, intellectual property, distributor, commercial, and other
matters. These actions and proceedings could result in losses, including damages, fines, or penalties, any of which could be
substantial, as well as criminal charges. Although such matters are inherently unpredictable, and negative outcomes or verdicts can
occur, we believe we have significant defenses in all of them, are vigorously defending all of them, and do not believe any of them
will have a material adverse effect on our financial position. However, we could incur judgments, pay settlements, or revise our
expectations regarding the outcome of any matter. Such developments, if any, could have a material adverse effect on our results of
operations in the period in which applicable amounts are accrued, or on our cash flows in the period in which amounts are paid.
The actions and proceedings described in this section relate primarily to WMT, an indirect subsidiary of Wright Medical Group N.V.,
and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities. Maintaining separate legal entities
within our corporate structure is intended to ring-fence liabilities. We believe our ring-fenced structure should preclude corporate
veil-piercing efforts against entities whose assets are not associated with particular claims.
Governmental Inquiries
On August 3, 2012, we received a subpoena from the United States Attorney's Office for the Western District of Tennessee
requesting records and documentation relating to the PROFEMUR® series of hip replacement devices. The subpoena covers the
period from January 1, 2000 to August 2, 2012. We will continue to cooperate as required.
Patent Litigation
On September 23, 2014, Spineology filed a patent infringement lawsuit, Case No. 0:14-cv-03767, in the U.S. District Court in
Minnesota, alleging that our X-REAM® bone reamer infringes U.S. Patent No. RE42,757 entitled “EXPANDABLE REAMER.” In
January 2015, on the deadline for service of its complaint, Spineology dismissed its complaint without prejudice and filed a new,
identical complaint. We filed an answer to the new complaint with the Court on April 27, 2015. The Court conducted a Markman
hearing on March 23, 2016. Mediation was held on August 11, 2016, but no agreement could be reached. The Court issued a
Markman decision on August 30, 2016, in which it found all asserted product claims invalid as indefinite under applicable patent
laws and construed several additional claim terms. The parties completed fact and expert discovery with respect to the remaining
asserted method claims. We filed a motion for summary judgment of non-infringement of the remaining asserted patent claims and
motions to exclude testimony from Spineology’s technical and damages experts. Spineology filed a motion for summary judgment
of infringement. On July 25, 2017, the Court granted our motion for summary judgment of non-(cid:76)(cid:81)(cid:73)(cid:85)(cid:76)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:71)(cid:72)(cid:81)(cid:76)(cid:72)(cid:71)(cid:3)(cid:54)(cid:83)(cid:76)(cid:81)(cid:72)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)’s
(cid:80)(cid:82)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:76)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:81)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)ing motions as moot. The Court also entered judgment in our
favor and against Spineology on all issues. Spineology appealed the judgment to the U.S. Court of Appeals for the Federal Circuit
and on July 6, 2018, the Court of Appeals affirmed the judgment of non-infringement in our favor and directed the District Court to
enter judgment of non-infringement as to all of Spineology’s asserted patent claims. On September 6, 2018, the Court of Appeals
denied Spineology’s petition for rehearing and, on September 18, 2018, the District Court entered final judgment of non-
infringement.
On September 13, 2016, we filed a civil action, Case No. 2:16-cv-02737-JPM, against Spineology in the U.S. District Court for the
Western District of Tennessee alleging breach of contract, breach of implied warranty against infringement, and seeking a judicial
declaration of indemnification from Spineology for patent infringement claims brought against us stemming from our sale and/or use
of certain expandable reamers purchased from Spineology. Spineology filed a motion to dismiss on October 17, 2016, but withdrew
the motion on November 28, 2016. On December 7, 2016, Spineology filed an answer to our complaint and counterclaims,
including counterclaims relating to a 2004 non-disclosure agreement between Spineology and WMT. On December 28, 2016, we
filed a motion to dismiss the counterclaims relating to that 2004 agreement. On January 4, 2017, Spineology filed a motion for
summary judgment on certain claims set forth in our complaint. We opposed that motion. On January 27, 2017, we filed a motion
for summary judgment on certain issues pertaining to our indemnification claims. Spineology opposed that motion. On July 7,
2017, the Court extended the deadlines for completing discovery until after it ruled on those pending motions. On August 29, 2017,
the Court ruled on the motions to dismiss and for summary judgment. In view of that decision, on September 22, 2017, the parties
stipulated to, and the Court entered, a judgment that effectively ended the case in a draw. We appealed the judgment as to our claims
against Spineology to the U.S. Court of Appeals for the Sixth Circuit and oral argument occurred on August 2, 2018. On August 24,
2018, the Court of Appeals ruled in our favor on our breach of contract claim and remanded the case to the District Court for further
proceedings. Spineology did not appeal the District Court’s dismissal of its contract counterclaim. We have reached an agreement
in principle with Spineology to settle our breach of contract claim pursuant to which Spineology will pay us an immaterial amount.
47
Product Liability
We have been named as a defendant, in some cases with multiple other defendants, in lawsuits in which it is alleged that as yet
unspecified defects in the design, manufacture, or labeling of certain metal-on-metal hip replacement products rendered the products
defective. The lawsuits generally employ similar allegations that use of the products resulted in excessive metal ions and particulate
in the patients into whom the devices were implanted, in most cases resulting in revision surgery (collectively, the CONSERVE®
Claims) and generally seek monetary damages. We anticipate that additional lawsuits relating to metal-on-metal hip replacement
products may be brought.
Because of the similar nature of the allegations made by several plaintiffs whose cases were pending in federal courts, upon motion
of one plaintiff, Danny L. James, Sr., the United States Judicial Panel on Multidistrict Litigation on February 8, 2012 transferred
certain actions pending in the federal court system related to metal-on-metal hip replacement products to the United States District
Court for the Northern District of Georgia, for consolidated pre-trial management of the cases before a single United States District
Court Judge (the MDL). The consolidated matter is known as In re: Wright Medical Technology, Inc. Conserve Hip Implant
Products Liability Litigation.
Certain plaintiffs have elected to file their lawsuits in state courts in California. In doing so, most of those plaintiffs have named a
surgeon involved in the design of the allegedly defective products as a defendant in the actions, along with his personal corporation.
Pursuant to contractual obligations, we have agreed to indemnify and defend the surgeon in those actions. Similar to the MDL
proceeding in federal court, because the lawsuits generally employ similar allegations, certain of those pending lawsuits in
California were consolidated for pre-trial handling on May 14, 2012 pursuant to procedures of California State Judicial Counsel
Coordinated Proceedings (the JCCP). The consolidated matter is known as In re: Wright Hip Systems Cases, Judicial Counsel
Coordination Proceeding No. 4710. Pursuant to previously disclosed settlement agreements with the Court-appointed attorneys
representing plaintiffs in the MDL and JCCP described below, the MDL and JCCP were closed to new cases effective October 18,
2017 and October 31, 2017, respectively.
Every hip implant case, including metal-on-metal hip cases, involves fundamental issues of law, science and medicine that often are
uncertain, that continue to evolve, and which present contested facts and issues that can differ significantly from case to case. Such
contested facts and issues include medical causation, individual patient characteristics, surgery specific factors, statutes of limitation,
and the existence of actual, provable injury. We believe we have data that supports the efficacy and safety of these hip products.
Excluding claims resolved in the settlement agreements described below, as of December 30, 2018, there were approximately 151
unresolved metal-on-metal hip cases pending in the U.S. This number includes cases ineligible for settlement, cases which opted out
of settlement, post-settlement cases, tolled cases, and existing state court cases that were not part of the MDL or JCCP. As of
December 30, 2018, we estimate there also were pending approximately 33 non-U.S. metal-on metal cases, and 35 unresolved U.S.
modular neck cases alleging claims related to the release of metal ions, and zero non-U.S. modular neck cases with such metal ion
allegations. We also estimate that as of December 30, 2018 there were approximately 534 non-revision claims either dismissed or
awaiting dismissal from the MDL and JCCP pursuant to the terms of the settlement agreements. Although there is a limited time
period during which dismissed non-revision claims may be refiled, it is presently unclear how many non-revision claimants will
elect to do so. As of December 30, 2018, one dismissed non-revision case has been refiled.
On November 1, 2016, WMT entered into the MSA with Court-appointed attorneys representing plaintiffs in the MDL and JCCP.
Under the terms of the MSA, the parties agreed to settle 1,292 specifically identified CONSERVE®, DYNASTY® and LINEAGE®
claims that meet the eligibility requirements of the MSA and are either pending in the MDL or JCCP, or subject to court-approved
tolling agreements in the MDL or JCCP, for a settlement amount of $240 million. Due to apparent demand from additional
claimants excluded from settlement because of the 1,292 claims ceiling, but otherwise eligible for participation, on May 5, 2017,
WMT agreed to settle an additional 53 such claims, on terms substantially identical to the MSA settlement terms, for a maximum
additional settlement amount of $9.4 million.
On October 3, 2017, WMT entered into the Second Settlement Agreements with the Court-appointed attorneys representing
plaintiffs in the MDL and JCCP. Under the terms of the Second Settlement Agreements, the parties agreed to settle 629 specifically
identified CONSERVE®, DYNASTY® and LINEAGE® claims that meet the eligibility requirements of the Second Settlement
Agreements and are either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for a
maximum settlement amount of $89.75 million. The comprehensive settlement amount was contingent on WMT’s recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers by December 31, 2017. On December 29, 2017,
WMT entered into a First Amendment to the Third Settlement Agreement pursuant to which the deadline for the recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers was extended through February 28, 2018 and, on
February 23, 2018, WMT entered into a Second Amendment to the Third Settlement Agreement pursuant to which the deadline was
extended through March 30, 2018. On March 29, 2018, WMT entered into a Third Amendment to the Third Settlement Agreement
which eliminated the contingency and gave WMT the option, by September 30, 2018, to either pay or make available for payment
the then outstanding deficit on the insurance contingency or transfer to eligible claimants WMT’s claims against the insurance
carriers with whom WMT has not settled, and pay or make available for payment such insurance deficit in March 2019, subject to
the right to recover these funds from any plaintiff recoveries from carriers plus ten percent interest, plus an additional $5 million in
48
costs, in each case after recovery by plaintiffs’ counsel of costs and fees. In connection with such transfer agreement, WMT would
also enter into a stipulated judgment in the amount of $541 million, which judgment would not be recoverable against WMT or its
affiliates. On September 27, 2018, WMT elected not to transfer WMT’s claims against the insurance carriers with whom WMT has
not settled.
The first state court metal-on-metal hip trial not part of the MDL or JCCP, Donald Deline v. Wright Medical Technology, Inc., et al,
commenced on October 24, 2016 in the Circuit Court of St. Louis County, Missouri. On November 3, 2016, the jury returned a
verdict in our favor. The plaintiff appealed, and the appellate court heard oral argument on November 8, 2017. On February 20,
2018, the Missouri Court of Appeals, Eastern District, denied the plaintiff’s appeal and upheld the verdict of the trial court. The
plaintiff’s time for seeking any further relief from the verdict has lapsed and this matter is closed.
We have received claims for personal injury against us associated with fractures of the PROFEMUR® titanium modular neck
product (Titanium Modular Neck Claims). As of December 30, 2018, there were approximately 19 unresolved pending U.S.
lawsuits and approximately 57 unresolved pending non-U.S. lawsuits alleging such claims. These lawsuits generally seek monetary
damages.
We are aware that MicroPort has recalled a certain size of its cobalt chrome modular neck product as a result of alleged fractures. As
of December 30, 2018, there were eleven pending U.S. lawsuits and six pending non-U.S. lawsuits against us alleging personal
injury resulting from the fracture of a cobalt chrome modular neck. These lawsuits generally seek monetary damages.
Insurance Litigation
On June 10, 2014, St. Paul Surplus Lines Insurance Company (Travelers), which was an excess carrier in our coverage towers across
multiple policy years, filed a declaratory judgment action in the Chancery Court of Shelby County, Tennessee naming us and certain
of our other insurance carriers as defendants and asking the Court to rule on the rights and responsibilities of the parties with regard
to the CONSERVE® Claims. This case is known as St. Paul Surplus Lines Insurance Company v. Wright Medical Group, Inc., et al.
Among other things, Travelers appeared to dispute our contention that the CONSERVE® Claims arise out of more than a single
occurrence thereby triggering multiple policy periods of coverage. Travelers further sought a determination as to the applicable
policy period triggered by the alleged single occurrence. On June 17, 2014, we filed a separate lawsuit in the Superior Court of the
State of California, County of San Francisco for declaratory judgment against certain carriers and breach of contract against the
primary carrier, and moved to dismiss or stay the Tennessee action on a number of grounds, including that California is the most
appropriate jurisdiction. This case is known as Wright Medical Group, Inc. et al. v. Federal Insurance Company, et al. On
September 9, 2014, the California Court granted Travelers' motion to stay our California action.
On October 28, 2016, WMT and WMG entered into a Settlement Agreement, Indemnity and Hold Harmless Agreement and Policy
Buyback Agreement (Insurance Settlement Agreement) with a subgroup of three insurance carriers, namely Columbia, Travelers and
AXIS Surplus Lines Insurance Company (collectively, the Three Settling Insurers), pursuant to which the Three Settling Insurers
paid WMT an aggregate of $60 million (in addition to $10 million previously paid by Columbia) in a lump sum. This amount is in
full satisfaction of all potential liability of the Three Settling Insurers relating to metal-on-metal hip and similar metal ion release
claims, including but not limited to all claims in the MDL and the JCCP, and all claims asserted by WMT against the Three Settling
Insurers in the Tennessee action described above. The amount due under the Insurance Settlement Agreement was paid in the fourth
quarter of 2016 and the Three Settling Insurers have been dismissed from the Tennessee action.
On December 13, 2016, we filed a motion in the Tennessee action described above to include allegations of bad faith against the
primary insurance carrier. The motion was subsequently amended on February 8, 2017 to add similar bad faith claims against the
remaining excess carriers. On April 13, 2017, the Court denied our motion, without prejudice to our right to re-assert the motion at a
later time. On August 29, 2017, we refiled the motion to add a bad faith claim against the primary and excess insurance carriers.
The Court granted our motion on October 19, 2017 and, on October 23, 2017, we filed amended cross-claims alleging bad faith
against all of the insurance carriers.
On February 22, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Second Insurance
Settlement Agreement) with Federal Insurance Company (a subsidiary of Chubb Insurance) (Federal), pursuant to which Federal has
paid us a single lump sum payment of $15 million (in addition to $5 million previously paid by Federal). This is in full satisfaction
of all potential liability of Federal relating to designated metal-on-metal hip claims, including but not limited to all claims asserted
by our subsidiary WMT against Federal in the previously disclosed insurance coverage litigation. On March 20, 2018, Federal was
dismissed from the Tennessee and California actions described above.
On April 19, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Third Insurance Settlement
Agreement) with Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London (Lloyd’s
Syndicate 2003) pursuant to which Lloyd’s Syndicate 2003 has paid us a single lump sum payment of $1.9 million (in addition to
$5 million previously paid by Lloyd’s Syndicate 2003). This amount is in full satisfaction of all potential liability of Lloyd’s
Syndicate 2003 relating to designated metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary
WMT against Lloyd’s Syndicate 2003 in the previously disclosed insurance coverage litigation. On May 1, 2018, Lloyd’s Syndicate
49
2003 was dismissed from the Tennessee action described above. Lloyd’s Syndicate 2003 was dismissed from the California action
on May 3, 2018.
Following the settlements with the Three Settling Insurers, Federal, and Lloyd’s Syndicate 2003, the only remaining insurer in the
Tennessee and California coverage litigation is Catlin Specialty Insurance Company, a high-level excess insurer that provided
“follow-form” coverage during the 2011/2012 policy period. Litigation with this carrier is continuing. Trial is set for July 2019.
In March 2017, Lexington Insurance Company (Lexington), which had been dismissed from the Tennessee action, requested
arbitration under five Lexington insurance policies in connection with the CONSERVE® Claims. We subsequently engaged in
discussions and correspondence with Lexington about the scope of the requested arbitration(s). On or about October 27, 2017,
Lexington filed an Application for Order to Compel Arbitration in the Commonwealth of Massachusetts, Suffolk County Superior
Court, naming WMT, Wright Medical Group, Inc., and Wright Medical Group N.V. We opposed the Application. On February 28,
2018, the Massachusetts Court ordered the parties to arbitrate the two Lexington insurance policies containing Massachusetts
arbitration clauses but did not order arbitration under the remaining three Lexington policies at issue. We have appealed that ruling.
While the appeal is pending, we are proceeding with the arbitration, but the selection of the arbitrators is still in dispute by the
parties. In the arbitration, Lexington has asserted a claim for declaratory relief, and we have asserted counter-claims for breach of
contract, declaratory relief, and bad faith.
On September 26, 2018, Lexington sought to add a claim alleging our filing of the Tennessee lawsuit referred to below was not in
good faith. We objected to Lexington’s additional claim and argued that such claim could only be added upon agreement of the
arbitrators (who are yet to be selected). The American Arbitration Association agreed with our position.
On May 22, 2018, we initiated a lawsuit against Lexington under the three policies that the court did not order into arbitration in
Massachusetts. The lawsuit, filed in the Chancery Court of Tennessee, alleges breach of contract, declaratory relief, and bad faith in
connection with Lexington’s failure and refusal to provide coverage for the underlying metal-on-metal claims under policies issued
for 2009-2012. On July 12, 2018, Lexington brought a motion to stay the litigation and compel arbitration under the 2009-2011
Lexington policies. On February 21, 2019, we filed a motion to strike Lexington’s motion to stay. The motions remain pending.
During the second quarter of 2018, we resolved the previously reported insurance arbitration. See Note 16 to our consolidated
financial statements for additional information.
Wright/Tornier Merger Related Litigation
On November 26, 2014, a class action complaint was filed in the Circuit Court of Tennessee, for the Thirtieth Judicial District, at
Memphis (Tennessee Circuit Court), by a purported shareholder of WMG under the caption City of Warwick Retirement System v.
Gary D. Blackford et al., CT-005015-14. An amended complaint in the action was filed on January 5, 2015. The amended complaint
names as defendants WMG, Tornier, Trooper Holdings Inc. (Holdco), Trooper Merger Sub Inc. (Merger Sub), and the members of
the WMG board of directors. The amended complaint asserts various causes of action, including, among other things, that the
members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering
into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly fails to disclose
material information about the merger. The amended complaint further alleges that Tornier, Holdco, and Merger Sub aided and
abetted the alleged breaches of fiduciary duties by the WMG board of directors. The plaintiff is seeking, among other things,
injunctive relief enjoining or rescinding the merger and an award of attorneys’ fees and costs.
On December 2, 2014, a separate class action complaint was filed in the Tennessee Chancery Court by a purported shareholder of
WMG under the caption Paulette Jacques v. Wright Medical Group, Inc., et al., CH-14-1736-1. An amended complaint in the action
was filed on January 27, 2015. The amended complaint names as defendants WMG, Tornier, Holdco, Merger Sub, Warburg Pincus
LLC and the members of the WMG board of directors. The amended complaint asserts various causes of action, including, among
other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in
connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that
allegedly fails to disclose material information about the merger. The amended complaint further alleges that WMG, Tornier,
Warburg Pincus LLC, Holdco and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of
directors. The plaintiff is seeking, among other things, injunctive relief enjoining or rescinding the merger and an award of
attorneys’ fees and costs.
In an order dated March 31, 2015, the Tennessee Circuit Court transferred City of Warwick Retirement System v. Gary D. Blackford
et al., CT-005015-14 to the Tennessee Chancery Court for consolidation with Paulette Jacques v. Wright Medical Group, Inc., et al.,
CH-14-1736-1 (Consolidated Tennessee Action). In an order dated April 9, 2015, the Tennessee Chancery Court stayed the
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:86)(cid:87)(cid:68)(cid:92)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:18)(cid:55)(cid:82)(cid:85)(cid:81)(cid:76)(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:17)(cid:3)(cid:3)(cid:50)(cid:81)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)mber 19, 2016, the
Tennessee Chancery Court entered an agreed order, dismissing the Jacques case without prejudice.
50
Other
In addition to those noted above, we are subject to various other legal proceedings, product liability claims, corporate governance,
and other matters which arise in the ordinary course of business.
Item 4.
Mine Safety Disclosures.
Not applicable.
51
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
PART II
Market Information
Our ordinary shares are traded on the Nasdaq Global Select Market under the symbol “WMGI.”
Holders
As of February 22, 2019, there were 316 holders of record of our ordinary shares.
Dividends
We have not previously declared or paid cash dividends on our ordinary shares. We currently intend to retain all future earnings for
the operation and expansion of our business. We do not anticipate declaring or paying cash dividends on our ordinary shares in the
foreseeable future. Any payment of cash dividends on our ordinary shares will be at the discretion of our board of directors and will
depend upon our results of operations, earnings, capital requirements, contractual restrictions, and other factors deemed relevant by
our board of directors. Additionally, our ABL Credit Agreement restricts our ability to pay dividends.
Purchases of Equity Securities by the Company
We did not purchase any ordinary shares or other equity securities of our company during the fourth fiscal quarter ended
December 30, 2018.
Recent Sales of Unregistered Securities
We did not issue any ordinary shares or other equity securities of our company that were not registered under the Securities Act of
1933, as amended, during the fourth fiscal quarter ended December 30, 2018.
Comparison of Total Shareholder Returns
The graph below compares the cumulative total shareholder returns for legacy Tornier ordinary shares from the period from
December 31, 2012 to October 1, 2015, the date of the Wright/Tornier merger, and our combined company ordinary shares from
October 1, 2015 to December 30, 2018 (our fiscal year-end). The graph also reflects cumulative total shareholder returns from an
index composed of U.S. companies whose stock is listed on the Nasdaq Global Select Market (Nasdaq U.S. Composite Index) and
an index consisting of Nasdaq-listed companies in the surgical, medical and dental instruments and supplies industry (Nasdaq
Medical Equipment Subsector), as well as an index of companies with the SIC Code 384 - Surgical, Medical, and Dental
Instruments Supplies (Surgical, Medical, and Dental Instruments Index). Total returns for the indices are weighted based on the
market capitalization of the companies included therein. In addition, due to the “reverse acquisition” nature of the Wright/Tornier
merger and the fact that the historical financial statements of legacy Wright have replaced the historical financial statements of
legacy Tornier, the graph below also includes the cumulative total shareholder returns for WMG common stock from December 31,
2012 to October 1, 2015, the date of the Wright/Tornier merger.
The graph assumes that $100.00 was invested on December 31, 2012, in legacy Tornier/Wright Medical Group N.V. ordinary shares,
legacy Wright common stock, the Nasdaq U.S. Composite Index, the Nasdaq Medical Equipment Subsector, and the Surgical,
Medical, and Dental Instruments Supplies Index, and that all dividends were reinvested. Total returns for the Nasdaq indices are
weighted based on the market capitalization of the companies included therein.
52
Historical price performance of our ordinary shares is not indicative of future share price performance. We do not make or endorse
any prediction as to future share price performance.
Legacy Tornier / Wright Medical Group N.V.
Legacy Wright
Nasdaq Stock Market (US Companies)
Nasdaq Medical Equipment Index
SIC Code 384 – Surgical, Medical, and Dental
Instruments and Supplies
2013
$ 100.00
100.00
100.00
100.00
100.00
2014
$ 139.20
88.21
117.56
117.40
122.41
2015
$ 128.81
69.79
125.74
137.79
129.24
2016
$ 127.45
—
138.99
152.21
140.74
2017
$ 121.38
—
146.41
216.51
180.72
2018
$ 144.94
—
142.89
245.51
181.37
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2019.
53
Item 6.
Selected Financial Data.
The following tables set forth certain of our selected consolidated financial data as of the dates and for the years indicated. Due to
the “reverse acquisition” nature of the Wright/Tornier merger, the historical financial statements of legacy Wright replaced the
historical financial statements of legacy Tornier. You should read the following information together with the more detailed
information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and the related notes included elsewhere in this report. Historical results are not necessarily
indicative of the results to be expected for any future period. These tables are presented in thousands, except per share data.
Consolidated Statement of Operations:
Net sales
Cost of sales 2
Gross profit
Operating expenses:
Selling, general and administrative 2
Research and development 2
Amortization of intangible assets
Total operating expenses
Operating loss 3
Interest expense, net 4
Other expense (income), net 5
Loss before income taxes
Benefit for income taxes 6
Net loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Net loss from continuing operations per shares —
basic and diluted:
Weighted-average number of ordinary shares
outstanding — basic and diluted
Consolidated Balance Sheet Data:
Cash and cash equivalents
Restricted cash
Marketable securities
Working capital
Total assets
Long-term liabilities
Shareholders’ equity
Cash flow (used in) provided by operating activities
Cash flow (used in) provided by investing activities
Cash flow provided by financing activities
Depreciation 1
Share-based compensation expense
Capital expenditures
December
30, 2018
December
31, 2017
Fiscal year ended
December
25, 2016
December
27, 20151
December
31, 2014
$ 836,190
180,153
656,037
$ 744,989
160,947
584,042
$ 690,362
192,407
497,955
$ 405,326
113,622
291,704
$ 298,027
73,223
224,804
577,961
59,142
26,730
663,833
(7,796)
80,247
81,797
(169,840)
(536)
(169,304)
(201)
$(169,505)
525,222
50,115
28,396
603,733
(19,691)
74,644
5,570
(99,905)
(34,968)
(64,937)
(137,661)
$(202,598)
541,558
50,514
28,841
620,913
(122,958)
58,530
(3,148)
(178,340)
(13,406)
(164,934)
(267,439)
$(432,373)
424,377
39,339
16,754
480,470
(188,766)
41,358
10,884
(241,008)
(3,652)
(237,356)
(61,345)
$(298,701)
289,620
24,963
10,027
324,610
(99,806)
17,398
129,626
(246,830)
(6,334)
(240,496)
(19,187)
$ (259,683)
$
(1.50)
$
(0.62)
$
(1.60)
$
(3.66)
$
(4.69)
112,592
December
30, 2018
104,531
December
31, 2017
102,968
December
25, 2016
64,808
December
27, 2015
51,293
December
31, 2014
$ 191,351
—
—
136,106
2,694,401
1,294,816
932,459
$ 167,740
—
—
151,599
2,128,724
1,124,733
588,696
$ 262,265
150,000
—
285,107
2,290,586
1,129,204
686,864
$ 139,804
—
—
352,946
2,073,494
811,530
1,055,026
$ 227,326
—
2,575
249,958
885,068
419,204
278,803
December
30, 2018
$ (63,729)
(510,239)
598,140
59,497
26,120
71,467
December
31, 2017
$(184,810)
(109,421)
46,816
56,832
19,393
63,474
Fiscal year ended
December
25, 2016
$ 37,824
(34,241)
270,417
55,830
14,416
50,099
December
27, 2015
$(195,870)
(15,970)
126,862
28,390
24,964
43,666
December
31, 2014
$ (116,002)
145,630
33,051
18,582
11,487
48,603
1
The 2015 results were restated for the divestiture of our Large Joints business. (See Note 4 to consolidated financial statements).
54
2
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
Cost of sales
Selling, general and administrative
Research and development
$
December
30, 2018
585
23,608
1,927
$
December
31, 2017
565
17,705
1,123
Fiscal year ended
December
25, 2016
414
13,216
786
$
$
December
27, 2015
287
22,777
1,900
$
December
31, 2014
254
10,149
1,084
3
4
5
6
During the fiscal year ended December 30, 2018, we recognized: (a) $12.0 million of transaction and transition costs related to both the
Cartiva acquisition and Wright/Tornier merger and (b) $0.4 million of inventory step-up amortization. During the fiscal year ended December
31, 2017, we recognized: (a) $12.4 million of transaction and transition costs related to the Wright/Tornier merger and (b) a benefit of
$9.0 million from incentive and indirect tax projects. During the fiscal year ended December 25, 2016, we recognized: (a) $37.7 million of
inventory step-up amort(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:7)(cid:22)(cid:25)(cid:17)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:18)(cid:55)(cid:82)(cid:85)(cid:81)(cid:76)(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:7)(cid:20)(cid:17)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:11)(cid:71)(cid:12)(cid:3)(cid:7)(cid:20)(cid:17)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:72)(cid:12)(cid:3)(cid:7)(cid:19)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)lion of costs
associated with debt refinancing. During the fiscal year ended December 27, 2015, we recognized: (a) $82.2 million of due diligence,
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:18)(cid:55)(cid:82)(cid:85)(cid:81)(cid:76)(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12) $14.2 million of share-based compensation (cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(c) $10.3 million of inventory step-up amortization. During the fiscal year ended December 31, 2014, we recognized: (a) $14.1 million of due
diligence, transaction, and transition costs related to the Biotech, Solana, and OrthoPro acquis(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:7)(cid:20)(cid:20)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:58)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:18)(cid:55)(cid:82)(cid:85)(cid:81)(cid:76)(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:7)(cid:24)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:50)(cid:85)(cid:87)(cid:75)(cid:82)(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:30)(cid:3)(cid:11)(cid:71)(cid:12)(cid:3)(cid:7)(cid:21)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)associated with
distributor conversions and non-(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:72)(cid:12)(cid:3)(cid:7)(cid:20)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:73)(cid:12) $0.9 million of costs
associated with a patent dispute settlement.
During the fiscal year ended December 30, 2018, we recognized: (a) $49.2 million of non-cash interest expense related to the amortization of
the debt discount on our 2020, 2021, and 2023 convertible notes. During the fiscal year ended December 31, 2017, we recognized:
(a) $45.5 million of non-cash interest expense related to the amortization of the debt discount on our 2017, 2020 and 2021 convertible notes
and (b) $0.2 million of interest income from incentive and indirect tax projects. During the fiscal year ended December 25, 2016, we
recognized: (a) $36.6 million of non-cash interest expense related to the amortization of the debt discount on our 2017, 2020 and 2021
convertible notes and (b) a $0.8 million of interest income related to the settlement of an IRS audit.
During the fiscal year ended December 30, 2018, we recognized: (a) a $39.9 million non-cash loss on extinguishment of debt to write-off
(cid:88)(cid:81)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3) (cid:73)(cid:72)(cid:72)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:91)(cid:87)(cid:76)(cid:81)(cid:74)(cid:88)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:23)(cid:19)(cid:19)(cid:17)(cid:19)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30) (b) a
$35.9 million loss for the mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:68)(cid:3)(cid:7)(cid:22)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
(cid:11)(cid:71)(cid:12)(cid:3)(cid:7)(cid:20)(cid:17)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:72)(cid:12)(cid:3)(cid:68)(cid:3)(cid:7)(cid:19)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:80)(cid:68)rk-to-market
adjustments on the CVRs issued in connection with the BioMimetic acquisition. During the fiscal year ended December 31, 2017, we
recognized: (a) a $5.3 million loss from mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:57)(cid:53)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:76)(cid:82)(cid:48)(cid:76)(cid:80)(cid:72)(cid:87)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
(b) $4.8 million gain for the mark-to-market adjustment of our derivative instrum(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:68)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:19)(cid:17)(cid:25) million from incentive and indirect
(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:71)(cid:12) $0.1 million of charges due to the fair value adjustment to contingent consideration. During the fiscal year ended
December 25, 2016, we recognized: (a) $28.3 million gain for the mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3) (cid:11)(cid:69)(cid:12)(cid:3) (cid:68)(cid:3)
$12.3 million non-cash loss on extinguishment of debt to write-off unamortized debt discount and deferred financing fees associated with the
partial settlement of 2017 and 2020 conve(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:68)(cid:3)(cid:7)(cid:27)(cid:17)(cid:26)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)-to-market adjustments on the Contingent Value
(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:11)(cid:38)(cid:57)(cid:53)(cid:86)(cid:12)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:76)(cid:82)(cid:48)(cid:76)(cid:80)(cid:72)(cid:87)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:71)(cid:12)(cid:3)(cid:7)(cid:19)(cid:17)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:71)(cid:77)ustment to
contingent consideration. During the fiscal year ended December 27, 2015, we recognized: (a) $9.8 million gain for the mark-to-market
adjustment of our derivative instruments and (b) a $7.6 million gain from mark-to-market adjustments on the CVRs issued in connection with
the BioMimetic acquisition. During the fiscal year ended December 31, 2014, we recognized: (a) approximately $125 million from mark-to-
(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:57)(cid:53)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:76)(cid:82)(cid:48)(cid:76)(cid:80)(cid:72)(cid:87)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12) $2.0 million of charges for the mark-to-market
(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3) (cid:7)(cid:20)(cid:17)(cid:27)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)ideration
associated with our acquisition of WG Healthcare.
During the fiscal year ended December 30, 2018, we recognized: (a) a $3.6 million tax benefit related to the realizability of deferred tax assets
(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:68)(cid:85)(cid:87)(cid:76)(cid:89)(cid:68)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:68)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:21)(cid:17)(cid:26)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)o realize certain
(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:68) $0.2 million U.S. tax benefit within continuing operations recorded as a result of the year to date pre-tax gain
recognized within discontinued operations due to the previously announced $30.75 million insurance settlement. During the fiscal year ended
December 31, 2017, we recognized: (a) a $25.0 million tax benefit related to the realizability of net operating losses and (b) tax law reform
changes in the U.S. and France resulting in an $8.3 million tax benefit. During the fiscal year ended December 25, 2016, we recognized a
$2.3 million income tax benefit related to the settlement of an IRS audit.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management's discussion and analysis of financial condition and results of operations describes the principal factors
affecting the results of our operations, financial condition, and changes in financial condition, as well as our critical accounting
estimates.
On October 21, 2016, we, Corin, and certain other entities related to us entered into a business sale agreement and simultaneously
completed and closed the sale of our former Large Joints business. The financial results of our Large Joints business, including costs
associated with corporate employees and infrastructure transferred as a part of the sale and services we were providing Corin under a
transitional services agreement and supply agreement, are reflected within discontinued operations for all periods presented, unless
otherwise noted.
55
On January 9, 2014, legacy Wright completed the sale of its former OrthoRecon business to MicroPort. The financial results of the
OrthoRecon business are reflected within discontinued operations for all periods presented, unless otherwise noted.
All current and historical operating results for the Large Joints and OrthoRecon businesses are reflected within discontinued
operations in the consolidated financial statements.
Other than the discontinued operations discussed in Note 4 to our consolidated financial statements contained in “Item 8. Financial
Statements and Supplementary Data”, unless otherwise stated, all discussion of assets and liabilities in the notes to the consolidated
financial statements and in this section reflects the assets and liabilities held and used in our continuing operations, and all
discussion of revenues and expenses reflects those associated with our continuing operations.
On August 24, 2018, we entered into a definitive agreement to acquire 100% of the outstanding equity on a fully diluted basis of
Cartiva, an orthopaedic medical device company focused on treatment of osteoarthritis of the great toe, for a total price of
$435 million in cash, subject to certain adjustments as set forth in the agreement. On October 10, 2018, we completed the
acquisition, which adds a differentiated PMA approved technology for a high-volume foot and ankle procedure and further
accelerates growth opportunities in our global extremities business. We funded the acquisition with the proceeds from a registered
underwritten public offering of 18.2 million ordinary shares which had net proceeds of $423.0 million. See Note 13 to our
consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for additional details related
to the public offering.
References in this section to “we,” “our” and “us” refer to Wright Medical Group N.V. and its subsidiaries after the Wright/Tornier
merger and Wright Medical Group, Inc. and its subsidiaries before the merger. Our fiscal year-end is generally determined on a
52-week basis and runs from the Monday nearest to the 31st of December of a year, and ends on the Sunday nearest to the 31st of
December of the following year. Every few years, it is necessary to add an extra week to the year making it a 53-week period. The
fiscal years ended December 30, 2018 and December 25, 2016 were 52-week periods. The fiscal year ended December 31, 2017
was a 53-week period. References in this report to a particular year generally refer to the applicable fiscal year. Accordingly,
references to “2018” or “the year ended December 30, 2018” mean the fiscal year ended December 30, 2018.
Executive Overview
Company Description. We are a global medical device company focused on extremities and biologics products. We are committed
to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized leader of
surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics
markets, three of the fastest growing segments in orthopaedics.
Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in
Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative
(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:12)(cid:30)(cid:3)(cid:37)(cid:79)(cid:82)(cid:82)(cid:80)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:76)(cid:81)(cid:81)(cid:72)(cid:86)(cid:82)(cid:87)(cid:68)(cid:3)(cid:11)(cid:88)(cid:83)(cid:83)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:36)(cid:85)(cid:79)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)
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(cid:44)(cid:81)(cid:71)(cid:76)(cid:68)(cid:81)(cid:68)(cid:3) (cid:11)(cid:85)(cid:72)(cid:86)(cid:72)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:12)(cid:30)(cid:3) (cid:36)(cid:79)(cid:83)(cid:75)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:68)(cid:15)(cid:3) (cid:42)(cid:72)(cid:82)(cid:85)(cid:74)(cid:76)(cid:68)(cid:3) (cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3) (cid:48)(cid:82)(cid:81)(cid:87)(cid:69)(cid:82)(cid:81)(cid:81)(cid:82)(cid:87)(cid:15)(cid:3) (cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:51)(cid:79)(cid:82)(cid:88)(cid:93)(cid:68)(cid:81)(cid:112)(cid:15)(cid:3)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:72)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:68)(cid:70)(cid:85)(cid:82)(cid:82)(cid:80)(cid:15)(cid:3)(cid:44)(cid:85)(cid:72)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:12).
In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe.
We offer a broad product portfolio of approximately 150 extremities products and approximately 20 biologics products that are
designed to provide solutions to our surgeon customers, with the goal of improving clinical outcomes and the “quality of life” for
their patients. Our product portfolio consists of the following product categories:
(cid:129) (cid:56)(cid:83)(cid:83)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:73)(cid:76)(cid:91)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:72)(cid:85)(cid:15)(cid:3)(cid:72)(cid:79)(cid:69)(cid:82)(cid:90)(cid:15)(cid:3)(cid:90)(cid:85)(cid:76)(cid:86)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:81)(cid:71)(cid:30)
(cid:129)
(cid:129) Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or
Lower (cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:73)(cid:76)(cid:91)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:78)(cid:79)(cid:72)(cid:30)
(cid:129)
(cid:87)(cid:82)(cid:3)(cid:86)(cid:87)(cid:76)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
Sports medicine and other, which include products used across several anatomic sites to mechanically repair tissue-to-
tissue or tissue-to-bone injuries and other ancillary products.
Our sales and distribution system in the United States currently consists of 80 geographic sales territories that are staffed by over
500 direct sales representatives and 27 independent sales agencies or distributors. These sales representatives and independent sales
agencies and distributors are generally aligned to selling either our upper extremities products or lower extremities products, but, in
some cases, certain agencies or direct sales representatives sell products from both our upper and lower extremities product
portfolios in their territories. Internationally, we utilize several distribution approaches that are tailored to the needs and
requirements of each individual market. Our international sales and distribution system currently consists of 13 direct sales offices
and approximately 90 distributors that sell our products in approximately 50 countries, with principal markets outside the United
56
States in Europe, Asia, Canada, Australia, and Latin America. Our U.S. sales accounted for 74.6% and 74.4% of total net sales for
2018 and 2017, respectively.
Principal Products. We have focused our efforts into growing our position in the high-growth extremities and biologics markets.
We believe a more active and aging patient population with higher expectations regarding “quality of life,” an increasing global
awareness of extremities and biologics solutions, improved clinical outcomes as a result of the use of such products, and
technological advances resulting in specific designs for such products that simplify procedures and address unmet needs for early
interventions, and the growing need for revisions and revision-related solutions will drive the market for extremities and biologics
products.
The extremities market is one of the fastest growing market segments within orthopaedics, with annual growth rates of 7-10%. We
believe major trends in the extremities market include procedure-specific and anatomy-specific devices, locking plates, and an
increase in total ankle replacement or arthroplasty procedures. Upper extremities reconstruction involves implanting devices to
replace, reconstruct, or fixate injured or diseased joints and bones in the shoulder, elbow, wrist, and hand. It is estimated that
approximately 60% of the upper extremities market is in total shoulder replacement or arthroplasty implants. We believe major
trends in the upper extremities market include next-generation joint arthroplasty systems, bone preserving solutions, virtual planning
systems, and revision of failed previous shoulder replacements in older patients. Lower extremities reconstruction involves
implanting devices to replace, reconstruct, or fixate injured or diseased joints and bones in the foot and ankle. A large segment of
the lower extremities market is comprised of plating and screw systems for reconstructing and fusing joints or repairing bones after
traumatic injury. We believe major trends in the lower extremities market include the use of external fixation devices in diabetic
patients, total ankle arthroplasty, advanced tissue fixation devices, virtual planning systems, and biologics. New technologies have
been introduced into the lower extremities market in recent years, including next-generation total ankle replacement systems.
Our principal upper extremities products include the AEQUALIS ASCEND® FLEX™ convertible shoulder system and
SIMPLICITI® total shoulder replacement system, AEQUALIS® PERFORM™ Glenoid System, and the AEQUALIS® REVERSED
II™ reversed shoulder system. SIMPLICITI® is the first minimally invasive, canal sparing total shoulder available in the United
States. We believe SIMPLICITI® allows us to expand the market to include younger patients that historically have deferred these
procedures. Our BLUEPRINT™ 3D Planning Software can be used with our products to assist surgeons in accurately positioning
the glenoid and humeral implants and replicating the pre-operative surgical plan. Other principal upper extremities products include
the EVOLVE® radial head prosthesis for elbow fractures, the EVOLVE® Elbow Plating System, and the RAYHACK® osteotomy
system. FDA 510(k) clearance of the AEQUALIS® FLEX REVIVE™ shoulder system was received in the third quarter of 2018.
AEQUALIS® FLEX REVIVE™ was launched to limited users early in the first quarter of 2019 and full commercial launch is
anticipated during the first half of 2019.
Our principal lower extremities products include the INBONE®, INFINITY®, and INVISIONTM Total Ankle Replacement Systems,
all of which can be used with our PROPHECY® Preoperative Navigation Guides, which combine computer imaging with a patient’s
CT scan, and are designed to provide alignment accuracy while reducing surgical steps. As a result of our recent acquisition of
Cartiva, our lower extremities product portfolio now includes Cartiva's SCI, the only PMA approved product for treatment of first
MTP joint osteoarthritis. Our lower extremities products also include the Salvation external fixation system for the treatment of
Charcot diabetic foot, the CLAW® II Polyaxial Compression Plating System, the ORTHOLOC™ 3Di Reconstruction Plating
System, the PhaLinx® System used for hammertoe indications, PRO-TOE® VO Hammertoe System, the DARCO® family of locked
plating systems, the VALOR® ankle fusion nail system, and the Swanson line of toe joint replacement products. The PROstep™
Minimally Invasive Surgery System for Foot and Ankle was launched to limited users in the third quarter of 2017, and was fully
launched early in the third quarter of 2018. We also launched a number of line extensions to the SALVATION™ limb salvage
portfolio in 2018. We expect continued demand for these new products.
The field of biologics employs tissue engineering and regenerative medicine technologies focused on remodeling and regeneration
of tendons, ligaments, bone, and cartilage. Biologic products use both biological tissue-based and synthetic materials to allow the
body to regenerate damaged or diseased bone and to repair damaged or diseased soft tissue. These products aid the body’s natural
regenerative capabilities to heal itself. Biologic products provide a lower morbidity solution to “autografting,” a procedure that
involves harvesting a patient’s own bone or soft tissue and transplanting it to a different site. Following an autografting procedure,
the patient typically has pain and, at times, complications result at the harvest site after surgery. Biologically or synthetically
derived soft tissue grafts and scaffolds are used to treat soft tissue injuries and are complementary to many sports medicine
applications, including rotator cuff tendon repair and Achilles tendon repair. Hard tissue biologics products are used in many bone
fusion or trauma cases where healing potential may be compromised and additional biologic factors are desired to enhance healing,
where the surgeon needs additional bone, or in cases where the surgeon wishes to use materials that are naturally incorporated by the
body over time. We estimate that the worldwide orthobiologics market to be over $3.5 billion, and with annual growth rates of
3-5%. Three multinational companies currently dominate the orthobiologics industry.
Our biologic products use both biological tissue-based and synthetic materials to allow the body to regenerate damaged or diseased
bone and to repair damaged or diseased soft tissue. The newest addition to our biologics product portfolio is AUGMENT® Bone
Graft, which is based on recombinant human platelet-derived growth factor (rhPDGF-BB), a synthetic copy of one of the body’s
principal healing agents. FDA approval of AUGMENT® Bone Graft in the United States for ankle and/or hindfoot fusion
57
indications occurred during the third quarter of 2015. Prior to FDA approval, this product was available for sale in Canada for foot
and ankle fusion indications and in Australia and New Zealand for hindfoot and ankle fusion indications. In June 2018, we received
premarket approval (PMA) from the FDA for AUGMENT® Injectable Bone Graft. The AUGMENT® Bone Graft product line was
acquired from BioMimetic in March 2013. Our other principal biologics products include the GRAFTJACKET® line of soft tissue
repair and containment membranes, the ACTISHIELD™ and VIAFLOW™ products which are derived from amniotic and placental
tissues, the ALLOMATRIX® line of injectable tissue-based bone graft substitutes, the PRO-DENSE® Injectable Graft, the
OSTEOSET® synthetic bone graft substitute, and the PRO-STIM® Injectable Inductive Graft.
Significant Business Developments. On October 1, 2015, simultaneous with the completion of the Wright/Tornier merger, we
completed the divestiture of the U.S. rights to legacy Tornier's SALTO TALARIS® and SALTO TALARIS® XT™ line of ankle
replacement products and line of silastic toe replacement products, among other assets, for cash. We retained the right to sell these
products outside the United States for up to 20 years unless the purchaser exercises an option to purchase the ex-United States rights
to the products. On October 4, 2018, the purchaser exercised its option to acquire the rights and assets associated with the
international Salto ankle and silastic toe replacement products. We are currently in discussions with the purchaser over the exact
terms and timing of the acquisition. Net sales of the associated products totaled $4.3 million, $4.7 million, and $5.4 million for the
fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, respectively.
On August 24, 2018, we entered into a definitive agreement to acquire 100% of the outstanding equity on a fully diluted basis of
Cartiva, an orthopaedic medical device company focused on treatment of osteoarthritis of the great toe, for a total price of
$435 million in cash, subject to certain adjustments as set forth in the agreement. On October 10, 2018, we completed the
acquisition. We funded the acquisition with the proceeds from a registered underwritten public offering of 18.2 million ordinary
shares, at an initial price to the public of $24.60 per share, for a total price of $448.9 million. The net proceeds to us were
$423.0 million, after deducting underwriting discounts and commissions of $25.4 million and offering costs of $0.5 million. The
offering closed on August 30, 2018, and on October 10, 2018, the proceeds were used to fund the Cartiva acquisition, as well as
costs and expenses related thereto. The Cartiva acquisition adds a differentiated PMA approved technology for a high-volume foot
and ankle procedure and further accelerates growth opportunities in our global extremities business.
In June 2018, we received premarket approval from the FDA for AUGMENT® Injectable Bone Graft for the same clinical
indications as AUGMENT® Bone Graft. AUGMENT® Injectable is a combination product consisting of recombinant human platelet
derived growth factor (rhPDGF-BB) and a blend of Type I collagen and Beta tri-calcium phosphate, which provides a clinically
proven and safe and effective alternative to autograft for use in hindfoot and ankle fusion in an easy to use flowable formulation.
On May 7, 2018, we amended and restated the ABL Credit Agreement to add a $40 million Term Loan Facility. The initial
$20 million term loan tranche was funded at closing. We may at any time borrow the second $20 million term loan tranche, but will
(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:82)(cid:3)(cid:86)(cid:82)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:26)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)(cid:30)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)itted
to extend the borrowing requirement for up to an additional two years. All borrowings under the Term Loan Facility are subject to
the satisfaction of customary conditions, including the absence of default and the accuracy of representations and warranties in all
material respects. In February 2019, we amended the ABL Credit Agreement to, among other things, increase the amount of
commitments under the line of credit from $150 million to $175 million and under the second tranche of the Term Loan Facility
from $20 million to $35 million. As a result of the increase under the line of credit, the amount of additional commitments we are
able to activate under the line of credit was reduced from $100 million to $75 million. See Note 19 to our consolidated financial
statements contained in “Item 8. Financial Statements and Supplementary Data.”
In June 2018, we issued $675 million of 2023 Notes and settled $400.9 million of 2020 Notes and received cash of $215.5 million,
net of premium and interest paid on the 2020 Notes. We also paid $141.3 million for hedges associated with the 2023 Notes and
received approximately $102.1 million for the issuance of warrants associated with the 2023 Notes. Finally, during June 2018, we
wrote off a pro rata share of the 2020 unamortized debt discount and deferred financing fees which totaled $39.9 million. In
February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
In September 2015, the third insurance carrier in the policy year applicable to titanium modular neck fracture claims denied
coverage under its $25 million excess liability policy despite full payout by the other carriers in that policy year. We strongly
disputed the carrier's position and, in accordance with the dispute resolution provisions of the policy, initiated an arbitration
proceeding in London, England seeking payment of these funds. The arbitration proceeding was completed on February 15, 2018
and, on April 11, 2018, the arbitration tribunal issued its ruling. Thereafter, we and the insurance carrier agreed to resolve the entire
matter in exchange for a single lump sum payment by the carrier to us in the amount of $30.75 million, representing the full policy
limits of $25 million plus an additional $5.75 million for legal costs and interest. We received payment of this sum from the carrier
on May 8, 2018. This insurance recovery is reflected within our results of discontinued operations for 2018.
58
Financial Highlights. Net sales increased 12.2% totaling $836.2 million in 2018, compared to $745.0 million in 2017, driven
primarily by 12.4% growth in our U.S. net sales.
Our U.S. net sales increased by $69.0 million, or 12.4%, in 2018 as compared to 2017, driven primarily by continued success of our
AEQUALIS® PERFORMTM Reversed Glenoid System and our SIMPLICITI® shoulder system, as well as net sales growth of our
INFINITY® total ankle replacement system and our AUGMENT® Injectable Bone Graft products. The impact from Cartiva revenue
was approximately $9.2 million. These increases were partially offset by four fewer selling days in 2018, which we estimate to be
approximately $9.0 million.
Our international net sales increased $22.2 million, or 11.6%, in 2018 as compared to 2017, primarily due to continued growth in our
upper extremities business in both our direct and indirect markets, and a $4.8 million favorable impact from foreign currency
exchange rates.
In 2018, our net loss from continuing operations totaled $169.3 million, compared to a net loss from continuing operations of
$64.9 million in 2017. This increase in net loss from continuing operations was primarily driven by increases in other expense, net
from a $39.9 million non-cash loss on extinguishment of debt to write-off unamortized debt discount and deferred financing fees
associated with the extinguishment of $400.0 million of the 2020 Notes and a $35.9 million loss for the mark-to-market adjustment
of our derivative instruments. Additionally, 2017 included a $25.0 million tax benefit related to a change in the realizability of
certain U.S. net operating losses following the completion of a tax project.
These unfavorable changes in net loss from continuing operations were partially offset by improved profitability in our U.S. lower
extremities and U.S. upper extremities businesses due to leveraging fixed expenses over increased net sales.
Opportunities and Challenges. We intend to continue to leverage the global strengths of our product brands as a pure-play
extremities and biologics business. Additionally, we believe the highly complementary nature of our businesses gives us significant
diversity and scale across a range of geographies and product categories. We believe our December 2017 acquisition of IMASCAP,
a leader in the development of software-based solutions for preoperative planning of shoulder replacement surgery, ensures
exclusive access to breakthrough software enabling technology and patents, including BLUEPRINT™, to further differentiate our
product portfolio and to further accelerate growth opportunities in our global extremities business. BLUEPRINT™ is proving to be
integral to our ability to convert competitive surgeons, and we believe that impact will increase as we execute our plans to make the
system easier to use and release additional enhancements. As of December 30, 2018, approximately 40% of our U.S. shoulder
customers are using BLUEPRINT™.
Further, we were delighted to add Cartiva’s SCI, the first and only PMA product for the treatment of great toe osteoarthritis, to our
market-leading lower extremities portfolio. Supported by compelling clinical performance and backed by Level I clinical evidence,
Cartiva is experiencing rapid commercial adoption and is well positioned for future growth as it addresses large markets with
significant unmet needs and strong patient demand. We expect this acquisition to support our growth prospects in our core lower
extremities business throughout 2019.
We believe we have significant opportunity to increase sales with the recent and anticipated launch of new products, including our
AEQUALIS® PERFORMTM Reversed Glenoid System, our PROstep™ Minimally Invasive Surgery System, AUGMENT®
Injectable Bone Graft, and through driving BLUEPRINT™ adoption and by focusing on implementing initiatives to help us better
compete at ambulatory surgery centers.
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 maintain 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 FDA. Failure to comply with
regulatory requirements could have a material adverse effect on our business, operating results, and financial condition. We, as well
as other participants in our industry, are subject to product liability claims, which could have a material adverse effect on our
business, operating results, and financial condition.
59
Results of Operations
The discussion below is on a continuing operations basis, unless otherwise noted.
Comparison of the fiscal year ended December 30, 2018 to the fiscal year ended December 31, 2017
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 1
Gross profit
Operating expenses:
Selling, general and administrative 1
Research and development 1
Amortization of intangible assets
Total operating expenses
Operating loss
Interest expense, net
Other expense, net
Loss from continuing operations before income
taxes
Benefit for income taxes
Net loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
$
Fiscal year ended
December 30, 2018
December 31, 2017
$
Amount
836,190
180,153
656,037
% of net sales
100.0%
21.5%
78.5%
$
Amount
744,989
160,947
584,042
% of net sales
100.0%
21.6%
78.4%
577,961
59,142
26,730
663,833
(7,796)
80,247
81,797
(169,840)
(536)
(169,304)
(201)
(169,505)
69.1%
7.1%
3.2%
79.4%
(0.9)%
9.6%
9.8%
(20.3)%
(0.1)%
(20.2)%
525,222
50,115
28,396
603,733
(19,691)
74,644
5,570
(99,905)
(34,968)
(64,937)
(137,661)
(202,598)
$
70.5%
6.7%
3.8%
81.0%
(2.6)%
10.0%
0.7%
(13.4)%
(4.7)%
(8.7)%
1
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
Cost of sales
Selling, general and administrative
Research and development
Fiscal year ended
December 30,
2018
% of net sales
December 31,
2017
$
585
23,608
1,927
0.1% $
2.8%
0.2%
565
17,705
1,123
% of net sales
0.1%
2.4%
0.2%
The following table sets forth our net sales by product line for our U.S. and International businesses for the periods indicated (in
thousands) and the percentage of year-over-year change:
U.S.
Lower extremities
Upper extremities
Biologics
Sports med & other
Total U.S.
International
Lower extremities
Upper extremities
Biologics
Sports med & other
Total International
Total net sales
December 30,
2018
Fiscal year ended
December 31,
2017
% change
$
$
$
$
$
250,735
281,314
83,077
8,412
623,538
60,749
114,460
25,757
11,686
212,652
836,190
$
$
$
$
$
228,044
239,965
78,361
8,141
554,511
58,473
94,699
22,276
15,030
190,478
744,989
10.0%
17.2%
6.0%
3.3%
12.4%
3.9%
20.9%
15.6%
(22.2)%
11.6%
12.2%
60
Net sales
U.S. net sales. U.S. net sales totaled $623.5 million in 2018, a 12.4% increase from $554.5 million in 2017, primarily due to
continued growth in our U.S. upper extremities business. Additionally, our U.S. lower extremities business had strong sales growth
due to continued growth in both our core products and total ankle as well as $9.2 million of net sales from Cartiva. These increases
were partially offset by four fewer selling days in 2018, the impact of which we estimate to be approximately $9.0 million. U.S.
sales represented approximately 74.6% of total net sales in 2018, compared to 74.4% of total net sales in 2017.
Our U.S. lower extremities net sales increased to $250.7 million in 2018 compared to $228.0 million in 2017, representing growth of
10.0%. This growth was driven by a 15% growth in our INFINITY® total ankle replacement products and net sales growth in our
core lower extremities business primarily due to increased contributions from our expanded sales organization. Additionally, the
impact from Cartiva revenue was approximately $9.2 million. These increases were partially offset by the impact of four fewer
selling days in 2018.
Our U.S. upper extremities net sales increased to $281.3 million in 2018 from $240.0 million in 2017, representing growth of 17.2%.
This growth was driven by our innovative shoulder product portfolio, including the ongoing launch of our AEQUALIS®
PERFORMTM Reversed Glenoid System, continued contributions from our SIMPLICITI® shoulder system, and accelerating
adoption of our BLUEPRINT™ enabling technology. These increases were partially offset by the impact of four fewer selling days
in 2018.
Our U.S. biologics net sales totaled $83.1 million in 2018, up from $78.4 million in 2017, representing a 6.0% increase over 2017.
This increase was driven by net sales volume growth in our core biologics products and AUGMENT® Injectable Bone Graft, which
launched at the end of the second quarter of 2018 after receiving FDA approval. These increases were partially offset by the impact
of four fewer selling days in 2018.
International net sales. Net sales in our international regions totaled $212.7 million in 2018, compared to $190.5 million in 2017.
This 11.6% increase was primarily due to continued growth in our upper extremities business in both our direct and indirect markets.
We also had a $4.8 million favorable impact from foreign currency exchange rates (a 3 percentage point favorable impact
international sales growth rate).
Our international lower extremities net sales increased 3.9% to $60.7 million in 2018 from $58.5 million in 2017 primarily due to
increased sales volumes to our distributor markets and a $1.3 million favorable impact from foreign currency exchange rates
(a 2 percentage point favorable impact to international lower extremities sales growth rate).
Our international upper extremities net sales increased 20.9% to $114.5 million in 2018 from $94.7 million in 2017 due to a 12.9%
increase in sales in our direct markets and significant increased sales volume to our distributor markets. The majority of our direct
markets experienced significant growth during 2018. We also had a $3.1 million favorable impact from foreign currency exchange
rates (a 3 percentage point favorable impact to international upper extremities sales growth rate).
Our international biologics net sales increased 15.6% to $25.8 million in 2018 from $22.3 million in 2017. This increase was
primarily attributable to increased sales volumes to our distributor markets. The net impact from foreign currency exchange rates
was immaterial.
Cost of sales
Our cost of sales totaled $180.2 million, or 21.5% of net sales, in 2018, compared to $160.9 million, or 21.6% of net sales, in 2017.
Our cost of sales as a percentage of net sales remained relatively constant as favorable manufacturing expenses were offset by
unfavorable changes in customer and geographical mix.
Our cost of sales and corresponding gross profit percentages can be expected to fluctuate in future periods depending upon, among
other factors, 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 totaled $578.0 million, or 69.1% of net sales, in 2018, compared to $525.2 million,
or 70.5% of net sales, in 2017. In 2018, selling, general and administrative expenses included transaction and transition costs of
$7.6 million, or 0.9% of net sales. In 2017, selling, general and administrative expenses included transaction and transition cost of
$9.0 million, or 1.2% of net sales, offset by a benefit from incentive and indirect tax projects of $9.0 million, or 1.2% of net sales.
The remaining selling, general and administrative expenses as a percentage of net sales decreased 2.3 percentage points due to
leveraging corporate and certain U.S. selling, general and administrative expenses over increased net sales, partially offset by higher
levels of cash incentive compensation expense and non-cash share-based compensation expense.
61
Our selling, general and administrative expenses are expected to decrease as a percentage of net sales in 2019 through opportunities
to continue to improve efficiency and leverage our fixed expenses as we expect net sales to continue to increase at a higher rate than
expenses.
Research and development
Our investment in research and development expense totaled $59.1 million in 2018 compared to $50.1 million in 2017. Research
and development costs remained constant at approximately 7% of net sales.
Our research and development expenses are estimated to range from 7% to 8% as a percentage of net sales in 2019.
Amortization of intangible assets
Charges associated with amortization of intangible assets totaled $26.7 million in 2018 compared to $28.4 million in 2017. Based
on intangible assets held at December 30, 2018, we expect to incur charges associated with amortization of intangible assets of
approximately $30.2 million in 2019, $29.5 million in 2020, $29.3 million in 2021, $29.3 million in 2022, and $29.2 million in
2023.
Interest expense, net
Interest expense, net, totaled $80.2 million in 2018 and $74.6 million in 2017. Increased interest expense was driven by the increase
in debt outstanding following the issuance of the 2023 Notes in the second quarter of 2018 and the 2021 Term Loan Facility that was
established during the second quarter of 2018 (see Note 9 to our consolidated financial statements contained in “Item 8. Financial
Statements and Supplementary Data” for further discussion of changes in our outstanding debt).
Our interest expense in 2018 related primarily to non-cash interest expense associated with the amortization of the discount on the
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financing charges tota(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:24)(cid:17)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:21)(cid:27)(cid:17)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)
2021 Notes, 2020 Notes, and borrowings under our ABL Facility and the 2021 Term Loan Facility. Our interest expense was
partially offset by interest income of $2.7 million as result of the investment of the net proceeds from the 2023 Notes issued in the
second quarter of 2018. Our interest expense in 2017 related primarily to non-cash interest expense associated with the amortization
of the discount on the 2021 Notes and 2020 Notes of $18.1 million and $27.3 million, resp(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)(cid:3) (cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:23)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:21)(cid:19)20
Notes, 2017 Notes, and our ABL Facility totaling $23.5 million. An insignificant amount of interest income was recorded during
2017.
Other expense, net
Other expense, net was $81.8 million of expense in 2018, compared to $5.6 million of expense in 2017.
In 2018, other expense, net, primarily consisted of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
a $39.9 million charge for the write-off of unamortized deferred financing fees and debt discount associated with the
(cid:72)(cid:91)(cid:87)(cid:76)(cid:81)(cid:74)(cid:88)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:23)(cid:19)(cid:19)(cid:17)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)
a $35.9 million loss for the net mark-to-market adj(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
(cid:68)(cid:3)(cid:7)(cid:22)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
a $1.8 million loss on fair value adjustments to contingent consideration, including mark-to-market adjustments on
CVRs issued in connection with the BioMimetic acquisition.
In 2017, other income, net, primarily consisted of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:68)(cid:3)(cid:7)(cid:23)(cid:17)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
a $5.3 million loss for the mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:38)(cid:57)(cid:53)(cid:86)(cid:30)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)
a $4.8 million gain for the net mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
a benefit of $0.6 million related to incentive and indirect tax projects.
Benefit for income taxes
We recorded a tax benefit of $0.5 million in 2018 and $35.0 million in 2017. During 2018, our effective tax rate was approximately
0.3%, as compared to 35.0% in 2017. Our 2018 net tax benefit included an approximately $3.6 million tax benefit recorded due to a
change in our valuation allowance as a result of the Cartiva acquisition, a tax provision of $2.7 million due to a change in judgment
regarding our ability to realize certain foreign deferred tax assets, and a $0.2 million U.S. tax benefit within continuing operations as
62
a result of the pre-tax gain within discontinued operations. These amounts were offset by income tax provision for net income
earned in jurisdictions where we do not have a valuation allowance. Our 2017 tax benefit included approximately $25.0 million
recorded due to a change in our valuation allowance with respect to certain deferred tax assets that we had previously determined
were not more-likely-than-not to be realized and a $8.3 million benefit resulting primarily from the effects of lower statutory tax
rates and provisions regarding certain tax attributes resulting from tax reform legislation enacted in the United States and France.
The remaining tax benefit in 2017 was primarily related to losses, including amortization of intangible assets, in jurisdictions where
we do not have a valuation allowance.
Loss from discontinued operations, net of tax
For the fiscal years ended December 30, 2018 and December 31, 2017, our loss from discontinued operations, net of tax, totaled
$0.2 million and $137.7 million, respectively. Loss from discontinued operations, net of tax, consists primarily of costs associated
with legal defense, income/loss associated with product liability insurance recoveries/denials, and changes to any contingent
liabilities associated with the OrthoRecon business that was sold to MicroPort and, to a lesser degree, costs associated with the Large
Joints business that was sold to Corin.
In 2018, charges associated with product liability claims from the OrthoRecon business were fully offset by insurance recoveries.
As described within Note 16, in September 2015, the third insurance carrier in the policy year applicable to titanium modular neck
fracture claims denied coverage under its $25 million excess liability policy despite full payout by the other carriers in that policy
year. We strongly disputed the carrier's position and, in accordance with the dispute resolution provisions of the policy, initiated an
arbitration proceeding in London, England seeking payment of these funds. The arbitration proceeding was completed on February
15, 2018 and, on April 11, 2018, the arbitration tribunal issued its ruling. Thereafter, we and the insurance carrier agreed to resolve
the entire matter in exchange for a single lump sum payment by the carrier to us in the amount of $30.75 million, representing the
full policy limits of $25 million plus an additional $5.75 million for costs and interest. We received payment of this sum from the
carrier on May 8, 2018 and have reflected this insurance recovery within our results of discontinued operations for 2018.
During the fiscal year ended 2017, the majority of our loss from discontinued operations was the result of our retained metal-on-
metal product liability claims. During 2017, we recognized charges, net of insurance proceeds, of $94.0 million, for certain retained
metal-on-metal product liability claims associated with the OrthoRecon business.
See Note 4 and Note 16 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary
Data” for further discussion regarding our discontinued operations and our retained contingent liabilities associated with the
OrthoRecon business.
Reportable segments
The following tables set forth, for the periods indicated, net sales and operating income of our reportable segments expressed as
dollar amounts (in thousands) and as a percentage of net sales:
Net sales
Operating income
Operating income as a percent of net sales
Net sales
Operating income
Operating income as a percent of net sales
Fiscal year ended December 30, 2018
U.S. Lower
Extremities &
Biologics
U.S. Upper
Extremities
International
Extremities
& Biologics
$
337,433
96,153
28.5%
$
286,105
97,644
34.1%
212,652
1,492
0.7%
Fiscal year ended December 31, 2017
U.S. Lower
Extremities &
Biologics
U.S. Upper
Extremities
International
Extremities
& Biologics
$
309,713
79,889
25.8%
$
244,798
78,866
32.2%
190,478
3,631
1.9%
$
$
Net sales of our U.S. lower extremities and biologics segment increased $27.7 million in 2018 over the prior year. Operating income
of our U.S. lower extremities and biologics segment increased $16.3 million in 2018 over the prior year. These increases to both net
sales and operating income were driven primarily by net sales growth from our total ankle replacement products, our core lower
extremities and biologics businesses, AUGMENT® Injectable Bone Graft, which received FDA approval in the second quarter of
2018, and leveraging certain selling, general and administrative expenses over increased net sales. Additionally, the impact from the
Cartiva acquisition had an impact of approximately $9.2 million and $4.3 million on sales and operating income, respectively, for
our U.S. lower extremities and biologics segment.
63
Net sales of our U.S. upper extremities segment increased $41.3 million in 2018 over the prior year. Operating income of our U.S.
upper extremities segment increased $18.8 million in 2018 over the prior year. These increases to both net sales and operating
income were primarily driven by net sales growth within our innovative shoulder product portfolio, including continued success of
our PERFORMTM Reversed Glenoid System and our SIMPLICITI® shoulder system, and leveraging certain selling, general and
administrative expenses over increased net sales.
Net sales of our International extremities and biologics segment increased $22.2 million in 2018 over the prior year. This increase
was primarily due to increased sales in our direct markets in Europe and Canada, with continued growth in our international upper
extremities business. Operating income of our International extremities and biologics segment decreased $2.1 million in 2018 over
the prior year, primarily due to investments made in sales and marketing in our direct markets, as well as spending associated with
the new European MDR.
Comparison of the fiscal year ended December 31, 2017 to the fiscal year ended December 25, 2016
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 1,2
Gross profit
Operating expenses:
Selling, general and administrative 2
Research and development 2
Amortization of intangible assets
Total operating expenses
Operating loss
Interest expense, net
Other expense (income), net
Loss from continuing operations before income taxes
Benefit for income taxes
Net loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
$
Fiscal year ended
December 31, 2017
$
Amount
744,989
160,947
584,042
% of net sales
100.0%
21.6%
78.4%
December 25, 2016
$
Amount
690,362
192,407
497,955
% of net sales
100.0%
27.9%
72.1%
525,222
50,115
28,396
603,733
(19,691)
74,644
5,570
(99,905)
(34,968)
(64,937)
(137,661)
(202,598)
70.5%
6.7%
3.8%
81.0%
(2.6)%
10.0%
0.7%
(13.4)%
(4.7)%
(8.7)%
541,558
50,514
28,841
620,913
(122,958)
58,530
(3,148)
(178,340)
(13,406)
(164,934)
(267,439)
(432,373)
$
78.4%
7.3%
4.2%
89.9%
(17.8)%
8.5%
(0.5)%
(25.8)%
(1.9)%
(23.9)%
1
2
Cost of sales includes amortization of inventory step-up adjustment of $37.7 million for the fiscal year ended December 25, 2016.
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
Cost of sales
Selling, general and administrative
Research and development
Fiscal year ended
December 31,
2017
% of net sales
December 25,
2016
$
565
17,705
1,123
0.1% $
2.4%
0.2%
414
13,216
786
% of net sales
0.1%
1.9%
0.1%
64
The following table sets forth our net sales by product line for our U.S. and International businesses for the periods indicated (in
thousands) and the percentage of year-over-year change:
U.S.
Lower extremities
Upper extremities
Biologics
Sports med & other
Total U.S.
International
Lower extremities
Upper extremities
Biologics
Sports med & other
Total International
Total net sales
Net sales
December 31,
2017
Fiscal year ended
December 25,
2016
% change
$
$
$
$
$
228,044
239,965
78,361
8,141
554,511
58,473
94,699
22,276
15,030
190,478
744,989
$
$
$
$
$
222,936
201,579
74,603
8,429
507,547
62,701
86,502
18,883
14,729
182,815
690,362
2.3%
19.0%
5.0%
(3.4)%
9.3%
(6.7)%
9.5%
18.0%
2.0%
4.2%
7.9%
U.S. net sales. U.S. net sales totaled $554.5 million in 2017, a 9.3% increase from $507.5 million in 2016, primarily due to
continued growth in our U.S. upper extremities business. U.S. sales represented approximately 74.4% of total net sales in 2017,
compared to 73.5% of total net sales in 2016.
Our U.S. lower extremities net sales increased to $228.0 million in 2017 from $222.9 million, representing growth of 2.3%, as
16.9% growth in our total ankle replacement products was partially offset by declines in foot and ankle fixation products driven
primarily by slower developing benefits from the hiring and training of approximately 100 new direct quota-carrying sales
representatives in the first quarter of 2017.
Our U.S. upper extremities net sales increased to $240.0 million in 2017 from $201.6 million, representing growth of 19.0%. This
growth was driven primarily by our innovative shoulder product portfolio, including the recent launch of our PERFORMTM
Reversed Glenoid System and continued success from our SIMPLICITI® shoulder system.
Our U.S. biologics net sales totaled $78.4 million in 2017, representing a 5.0% increase over 2016, driven primarily by continued
sales volume growth of AUGMENT® Bone Graft, partially offset by declines in our other biologics products.
International net sales. Net sales in our international regions totaled $190.5 million in 2017, compared to $182.8 million in 2016.
This 4.2% increase was due to a 7.6% increase in sales in our direct markets in Europe and Canada and a $0.9 million favorable
impact from foreign currency exchange rates. This growth was partially offset by lower levels of sales to stocking distributors.
Our international lower extremities net sales decreased 6.7% to $58.5 million in 2017 from $62.7 million in 2016 primarily due to
lower sales volumes to stocking distributors.
Our international upper extremities net sales increased 9.5% to $94.7 million in 2017 from $86.5 million in 2016, driven primarily
by a 16.7% increase in sales in our direct markets in Europe and Canada, and a $0.9 million favorable impact from foreign currency
exchange rates (a 1 percentage point favorable impact to international upper extremities sales growth rate). This growth was
partially offset by lower levels of sales to stocking distributors due to stocking orders in 2016.
Our international biologics net sales increased 18.0% to $22.3 million in 2017 from $18.9 million in 2016. This increase was
primarily attributable to new stocking distributors and accounts in China, as well as a $0.1 million favorable impact from foreign
currency exchange rates (a 1 percentage point favorable impact to international biologics sales growth rate).
65
Cost of sales
Our cost of sales totaled $160.9 million, or 21.6% of net sales, in 2017, compared to $192.4 million, or 27.9% of net sales, in 2016,
representing a decrease of 6.3 percentage points as a percentage of net sales. This decrease was primarily driven by $37.7 million
(5.5% of net sales) of inventory step-up amortization in 2016 associated with inventory acquired from the Wright/Tornier merger.
The remaining decrease in cost of sales as a percentage of net sales was primarily driven by manufacturing efficiencies as compared
to the prior year period.
Selling, general and administrative
Our selling, general and administrative expenses totaled $525.2 million, or 70.5% of net sales, in 2017, compared to $541.6 million,
or 78.4% of net sales, in 2016. These decreases were driven primarily by a decrease in spending on transition and transaction costs
which totaled $9.0 million (1.2% of net sales) and $31.9 million (4.6% of net sales) for 2017 and 2016, respectively, as well as a
benefit recognized in 2017 related to incentive and indirect tax projects completed during the fourth quarter of 2017 totaling
$9.0 million (1.2% of net sales). The remaining decrease as a percentage of net sales was primarily driven by leverage of relatively
flat general and administrative expenses over increased net sales and lower levels of cash incentive compensation expense.
Research and development
Our investment in research and development expense totaled $50.1 million in 2017 compared to $50.5 million in 2016. Research
and development costs remained constant at approximately 7% of net sales.
Amortization of intangible assets
Charges associated with amortization of intangible assets totaled $28.4 million in 2017, compared to $28.8 million in 2016.
Interest expense, net
Interest expense, net, totaled $74.6 million in 2017 and $58.5 million in 2016. Increased interest expense was driven by the increase
in debt outstanding following the issuance of the 2021 Notes in the second quarter of 2016 and borrowings under our ABL Facility
established in the fourth quarter of 2016 (see Note 9 to our consolidated financial statements contained in “Item 8. Financial
Statements and Supplementary Data” for further discussion of changes in our outstanding debt). Our interest expense in 2017
related primarily to non-cash interest expense associated with the amortization of the discount on the 2021 Notes and 2020 Notes of
(cid:7)(cid:20)(cid:27)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)(cid:21)(cid:26)(cid:17)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)on of deferred financing charges on the 2021 Notes, 2020 Notes, 2017
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:37)(cid:47)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:23)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20) Notes,
2020 Notes, 2017 Notes and our ABL Facility totaling $23.5 million. Our interest expense in 2016 related primarily to non-cash
interest expense associated with the amortization of the discount on the 2021 Notes and 2020 Notes of $9.8 million and
$25.9 million, resp(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) charges on the 2021 Notes, 2020 Notes, and 2017 Notes totaling
$3.9 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:20)(cid:26)(cid:17)(cid:27) million. An insignificant
amount of interest income was recorded during 2017 and 2016.
Other expense (income), net
Other expense, net was $5.6 million of expense in 2017, compared to $3.1 million of income in 2016.
In 2017, other expense, net, primarily consisted of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:68)(cid:3)(cid:7)(cid:23)(cid:17)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)
a loss of $5.3 million for the mark-to-market adjustment on CVRs issued in connection with the BioMimetic
(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)
a gain of $4.8 million for the net mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
a benefit of $0.6 million related to incentive and indirect tax projects.
In 2016, other income, net, primarily consisted of:
(cid:129)
(cid:129)
(cid:129)
a gain of $28.3 million for the mark-to-(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)
a $12.3 million write-off of unamortized (cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
a loss of $8.7 million for the mark-to-market adjustment on the CVRs issued in connection with the BioMimetic
acquisition.
66
Benefit for income taxes
We recorded a tax benefit of $35.0 million in 2017 and $13.4 million in 2016. During 2017, our effective tax rate was
approximately 35.0%, as compared to 7.5% in 2016. Our 2017 tax benefit included approximately $25.0 million recorded due to a
change in our valuation allowance with respect to certain deferred tax assets that we had previously determined were not more-
likely-than-not to be realized. In addition, our 2017 tax benefit included approximately $8.3 million resulting primarily from the
effects of lower statutory tax rates and provisions regarding certain tax attributes resulting from tax reform legislation enacted in the
United States and France. The remaining tax benefit in 2017 was primarily related to losses, including amortization of intangible
assets, in jurisdictions where we do not have a valuation allowance. Our 2016 tax benefit included a $5.6 million benefit
representing the deferred tax effects associated with the acquired Tornier operations, as well as a $2.3 million benefit related to the
resolution of an IRS tax audit. The remaining tax benefit in 2016 was primarily related to losses, including amortization of
inventory fair value step-up and intangible assets, in jurisdictions where we do not have a valuation allowance.
Loss from discontinued operations, net of tax
Loss from discontinued operations, net of tax, consists primarily of costs associated with legal defense, income/loss associated with
product liability insurance recoveries/denials, and changes to any contingent liabilities associated with the OrthoRecon business that
was sold to MicroPort and, to a lesser degree, costs associated with the Large Joints business that was sold to Corin. During 2017
and 2016, we recognized charges, net of insurance proceeds, of $94.0 million and $196.6 million, respectively, for certain retained
metal-on-metal product liability claims associated with the OrthoRecon business. See Note 4 and Note 16 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion regarding our
discontinued operations and our retained contingent liabilities associated with the OrthoRecon business.
Reportable segments
The following tables set forth, for the periods indicated, net sales and operating income of our reportable segments expressed as
dollar amounts (in thousands) and as a percentage of net sales:
Net sales
Operating income
Operating income as a percent of net sales
Net sales
Operating income
Operating income as a percent of net sales
Fiscal year ended December 31, 2017
U.S. Lower
Extremities &
Biologics
U.S. Upper
Extremities
International
Extremities
& Biologics
$
309,713
79,889
25.8%
$
244,798
78,866
32.2%
190,478
3,631
1.9%
Fiscal year ended December 25, 2016
U.S. Lower
Extremities &
Biologics
U.S. Upper
Extremities
International
Extremities
& Biologics
$
300,847
85,645
28.5%
$
206,700
65,231
31.6%
182,815
5,872
3.2%
$
$
Net sales of our U.S. lower extremities and biologics segment increased $8.9 million in 2017 over the prior year. This increase was
driven by continued growth in our total ankle replacement products and continued sales volume growth of AUGMENT® Bone Graft
and was offset by declines in foot and ankle fixation products driven primarily by slower developing benefits from the hiring and
training of approximately 100 new direct quota-carrying sales representatives in the first quarter of 2017. Operating income of our
U.S. lower extremities and biologics segment decreased $5.8 million in 2017 over the prior year. This decrease was primarily due to
investments in research and development for product development and clinical studies, as well as higher levels of selling, general
and administrative expenses to support the initiative to hire and train approximately 100 new direct quota-carrying sales
representatives.
Net sales of our U.S. upper extremities segment increased $38.1 million in 2017 over the prior year. Operating income of our U.S.
upper extremities segment increased $13.6 million in 2017 over the prior year. These increases to both net sales and operating
income were primarily driven by our innovative shoulder product portfolio, including the launch of our PERFORMTM Reversed
glenoid system and continued contribution from our SIMPLICITI® shoulder system.
Net sales of our International extremities and biologics segment increased $7.7 million in 2017 over the prior year. This increase
was primarily due to increased sales in our total direct markets, with continued growth in our international upper extremities
business. Operating income of our International extremities and biologics segment decreased $2.2 million in 2017 over the prior
year, primarily due to higher levels of sales and marketing expenses.
67
Seasonality and Quarterly Fluctuations
We traditionally experience lower sales volumes in the third quarter than throughout the rest of the year as many of our products are
used in elective procedures, which generally decline during the summer months. This typically results in selling, general and
administrative expenses and research and development expenses as a percentage of net sales that are higher during this period than
throughout the rest of the year.
We have experienced and expect to continue to experience meaningful variability in our net sales and cost of sales as a percentage of
net sales among quarters, as well as within each quarter, as a result of a number of factors including, among other things, the number
(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:76)(cid:91)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)ts and
(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:85)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:79)(cid:72)(cid:68)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:30)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:80)(cid:82)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:30)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:30)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:87)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)’ (cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:70)(cid:68)(cid:79)(cid:72)(cid:81)(cid:71)(cid:68)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:71)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
and other special charges.
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, certain liquidity measures (in thousands):
Cash and cash equivalents
Working capital 1
December 30,
2018
December 31,
2017
$
191,351
136,106
$
167,740
151,599
1
The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash upon satisfaction of certain
circumstances as described below. On or after August 15, 2019, holders may convert their 2020 Notes solely into cash, regardless of the
foregoing circumstances. Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020
Notes were classified as current liabilities as of December 30, 2018. The respective balances were classified as long-term as of December 31,
2017.
Operating activities. Cash (used in) provided by operating activities totaled $(63.7) million, $(184.8) million, and $37.8 million in
2018, 2017, and 2016, respectively. The decrease in cash used in operating activities in 2018 as compared to 2017 was primarily
due to lower levels of cash settlements for product liabilities associated with discontinued operations. Cash used in operating
activities by the OrthoRecon business totaled $91.4 million and $221.6 million in 2018 and 2017, respectively (see Note 16 to our
consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion of
product liability settlements liabilities and insurance recoveries), as well as improved cash profitability of continuing operations,
partially offset by the 2018 payment of $42.0 million upon reaching the CVR product sales milestone payment associated with sales
for AUGMENT® Bone Graft.
The increase in cash used in operating activities in 2017 as compared to the cash provided by operating activities in 2016 was driven
by cash payments for previously agreed upon product liability settlements related to the former OrthoRecon business and the 2016
receipt of $60 million insurance proceeds associated with metal-on-metal product liabilities (see Note 16 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion of these liabilities).
Other working capital changes were more than offset by an increase in cash profitability.
Investing activities. In 2018, the majority of our cash used in financing activities was associated with the acquisition of Cartiva for
$434.3 million, net of cash acquired.
Our capital expenditures totaled $71.5 million in 2018, $63.5 million in 2017, and $50.1 million in 2016. Historically, our capital
expenditures have consisted principally of surgical instrumentation, purchased manufacturing equipment, research and testing
equipment, and computer systems. In 2017 and 2016, we also incurred capital expenditures associated with integration activities of
the Wright/Tornier merger, including spending on computer systems and facilities as we integrated operations in certain international
markets.
In addition to capital expenditures, during 2017, we paid $44.1 million in conjunction with the IMASCAP acquisition, net of cash
acquired. See Note 3 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data”
for additional information regarding this acquisition.
During 2016, we received proceeds of $20.7 million related to the sale of the Large Joints business. See Note 4 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data” for additional information regarding this
sale.
68
Financing activities. Cash provided by financing activities totaled $598.1 million, $46.8 million, and $270.4 million in 2018, 2017
and 2016, respectively. Cash provided by financing activities in 2018 was primarily attributable to the net cash proceeds received
from the registered equity offering and 2023 Notes issuance. During August 2018, we entered into an underwriting agreement with
J.P. Morgan, relating to a registered public offering of our ordinary shares. The discounted proceeds to Wright for the equity
offering to fund the Cartiva acquisition were $448.9 million. Payments of equity offering costs were $25.9 million during 2018.
Proceeds were subsequently used in October 2018 to fund the $435 million purchase price of Cartiva.
During June 2018, we issued $675.0 million of 2023 Notes, settled $400.9 million of 2020 Notes, and paid a premium of
$55.6 million on the 2020 Notes. We also paid $141.3 million for hedges associated with the 2023 Notes and received
approximately $102.1 million for the issuance of warrants associated with the 2023 Notes. As part of the 2023 Notes issuance, Term
Loan Facility and 2023 warrants, we paid $14.7 million for deferred financing costs. Other debt proceeds were primarily made up
of the Term Loan Facility which were used to pay down a portion of the asset-based line of credit under the ABL Facility. In July
2018, we settled a pro rata share of the 2020 Notes hedges and 2020 warrants which resulted in net proceeds of $10.6 million.
Cash provided by financing activities in 2017 was primarily attributable to $34.9 million of debt proceeds largely from additional
borrowings from the ABL Facility, partially offset by $11.5 million of debt payments including a $2.0 million payment of the 2017
Notes and net payments due to the weekly lockbox repayment/re-borrowing arrangement underlying the ABL Facility.
During 2016, cash provided by financing activities was primarily attributable to the $30 million proceeds received from the ABL
Facility and proceeds received from the issuance of convertible notes, partially offset by the partial settlement of previously
outstanding convertible notes. See Note 6 and Note 9 of our consolidated financial statements contained in “Item 8. Financial
Statements and Supplementary Data” for additional information regarding our derivative and debt activity, respectively.
During 2018, we also received $21.6 million of cash from the issuance of ordinary shares in connection with option exercises under
our share-based compensation plans, as compared to $27.6 million and $8.5 million in 2017 and 2016, respectively.
Repatriation. As of December 30, 2018, approximately $0.2 million of our cash and cash equivalents was held by certain U.S.-
controlled non-U.S. subsidiaries which may not represent available liquidity for general corporate purposes. Our current plans do
not foresee a need to repatriate funds that are designated as permanently reinvested in order to fund our operations or meet currently
anticipated liquidity and capital investment needs.
Discontinued operations. Cash flows from discontinued operations are combined with cash flows from continuing operations in the
consolidated statements of cash flows. Cash flows from discontinued operations include those related to both the Large Joints and
OrthoRecon businesses.
During the fiscal year ended December 30, 2018, cash provided by operating activities from the Large Joints business totaled
$2.8 million, and cash used in operating activities by the OrthoRecon business totaled $91.4 million.
During the fiscal year ended December 31, 2017, cash used in operating activities by the Large Joints business totaled $6.5 million,
and cash used in operating activities by the OrthoRecon business totaled $221.6 million.
During the fiscal year ended December 25, 2016, cash provided by operating and investing activities from the Large Joints business
totaled $5.2 million and $20.7 million, respectively. Cash provided by operating activities from the OrthoRecon business totaled
$16.7 million, primarily due to the receipt of the $60 million insurance settlement offset by legal defense costs and settlement of
product liabilities.
We expect significant cash outflows resulting from product liabilities during 2019 associated with the metal-on-metal settlements
described in Note 16 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
We do not expect that the future cash outflows from discontinued operations, including the payment of these retained liabilities of
the OrthoRecon business, will have an impact on our ability to meet contractual cash obligations and fund our working capital
requirements, operations, and anticipated capital expenditures.
69
Contractual cash obligations. At December 30, 2018, we had contractual cash obligations and commercial commitments as follows
(in thousands):
Contractual obligations
Amounts reflected in consolidated balance sheet:
Capital lease obligations 1
Notes payable 2
Amounts not reflected in consolidated balance sheet:
Operating leases
Minimum supply obligations
Interest on notes payable 3
Purchase option for building
Payments due by periods
$
$
Total
28,685
1,286,542
41,232
4,480
86,813
11,980
Less than 1
year
$
$
7,369
190,597
9,606
1,913
24,679
11,980
1-3 years
3-5 years
$
$
10,651
418,588
13,517
2,567
41,107
—
$
$
5,983
675,977
7,111
—
21,027
—
More than 5
years
$
$
4,682
1,380
10,998
—
—
—
Total contractual cash obligations
$ 1,459,732
$
246,144
$
486,430
$
710,098
$
17,060
1
2
3
Payments include amounts representing interest.
Our notes payable include 2020 Notes, 2021 Notes, 2023 Notes, ABL Term Loan Facility, and other debt. See further discussion in Note 9 to
our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Represents interest on 2020 Notes, 2021 Notes, 2023 Notes, ABL Term Loan Facility, and other debt. See further discussion in Note 9 to our
consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
The amounts reflected in the table above exclude the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
product liabilities, including the settlement of certain metal-on-metal hip replacement product liability litigation,
described in Note 16 to our consolidated financial statements contained in “Item 8. Financial Statements and
Supplementary Data”
debt outstanding under the ABL Facility (we have reflected this debt as a current liability on our consolidated balance
sheet as of December 30, 2018 as required by US GAAP due to the weekly lockbox repayment/re-borrowing
arrangement underlying the agreement, as well as the ability for the lenders to accelerate the repayment of the debt
under certain circumstances) as described in Note 9 to our consolidated financial statements contained in “Item 8.
Financial Statements and Supplementary Data”
2023, 2021, and 2020 Notes Conversion Derivatives (see “Item 7A. Quantitative and Qualitative Disclosures About
Market Risk” for quantitative analysis on possible cash obligations upon maturity at various assumed stock prices)
contingent consideration of up to $42 million related to the BioMimetic acquisition which is payable if, prior to March
1, 2019, sales of AUGMENT® Bone Graft reach $70 million over 12 consecutive months
contingent consideration related to the IMASCAP acquisition of approximately €16.7 million or $19.2 million that
may be required in potential sales earnouts and milestone payments for new software modules and a potential future
implant system as described in Note 6 and Note 12 to our consolidated financial statements contained in “Item 8.
Financial Statements and Supplementary Data”
unrecognized tax benefits of approximately $5 million, as certain of these matters may not require cash settlement due
to the existence of net operating loss carryforwards as described in Note 11 to our consolidated financial statements
contained in “Item 8. Financial Statements and Supplementary Data.”
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 30, 2018. These future payments are subject to foreign currency exchange rate risk.
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 consolidated balance sheet at December 30, 2018. The minimum lease payments related to these leases are
discussed further in Note 9 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary
Data.”
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. In accordance with US GAAP, our operating leases are not
(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)in
Note 16 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
70
In addition to the contractual cash obligations discussed above, all of our U.S. net sales and a portion of our international net sales
are subject to commissions based on net sales. A substantial portion of our global net sales are subject to royalties earned based on
product sales.
Other liquidity information. We have funded our cash needs through borrowings under credit facilities, including most recently our
ABL Facility, various equity and debt issuances and through cash flow from operations.
In August 2018, we entered into an underwriting agreement with J.P. Morgan, relating to a registered public offering. The net
proceeds to Wright were $423.0 million. The proceeds were subsequently used to fund the $435 million purchase of Cartiva in
October 2018 as well as costs and expenses related thereto.
On December 23, 2016, we, together with WMG and certain of our other wholly-owned U.S. subsidiaries, entered into an ABL
Credit Agreement with Midcap Financial Trust, as administrative agent (Agent) and a lender and the additional lenders from time to
time party thereto. The ABL Credit Agreement provides for a $150 million senior secured asset based line of credit, subject to the
satisfaction of a borrowing base requirement (ABL Facility). The ABL Facility may be increased by up to $100 million upon our
request, subject to the consent of the Agent and each of the other lenders providing such increase and the satisfaction of customary
conditions. We are required to maintain net revenue at or above specified minimum levels, to maintain liquidity in the United States
above a specified level and to comply with other covenants under the ABL Credit Agreement. We are in compliance with all
covenants as of December 30, 2018. As of December 30, 2018, we had $17.8 million in borrowings outstanding under the ABL
Facility and $132.2 million in unused availability under the ABL Facility. As of December 31, 2017, we had $53.6 million in
borrowings outstanding under the ABL Facility and $96.4 million in unused availability under the ABL Facility.
On May 7, 2018, we amended and restated the ABL Credit Agreement to add a $40 million term loan facility (Term Loan Facility).
The initial $20 million term loan tranche was funded at closing. The borrowers under the ABL Credit Agreement (Borrowers) may
at any time borrow the second $20 million term loan tranche, but will be required to do so no later than May 7, 2019 unless certain
(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)(cid:30)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82) an
additional two years. All borrowings under the Term Loan Facility are subject to the satisfaction of customary conditions, including
the absence of default and the accuracy of representations and warranties in all material respects. As of December 30, 2018, we had
$20 million outstanding under the Term Loan Facility.
In February 2019, we amended the ABL Credit Agreement to, among other things, increase the amount of commitments under the
line of credit from $150 million to $175 million and under the second tranche of the Term Loan Facility from $20 million to $35
million. As a result of the increase under the line of credit, the amount of additional commitments we are able to activate under the
line of credit was reduced from $100 million to $75 million. See Note 19 to our consolidated financial statements contained in “Item
8. Financial Statements and Supplementary Data.”
On November 1, 2016, WMT entered into the MSA with Court-appointed attorneys representing plaintiffs in the metal-on-metal hip
replacement product liability litigation pending before the United States District Court for the MDL and the JCCP. Under the terms
of the MSA, the parties agreed to settle 1,292 specifically identified claims associated with CONSERVE®, DYNASTY® and
LINEAGE® products that meet the eligibility requirements of the MSA and were either pending in the MDL or JCCP, or subject to
court-approved tolling agreements in the MDL or JCCP, for a settlement amount of $240 million.
On October 3, 2017, WMT entered into two settlement agreements (collectively, the Second Settlement Agreements) with the Court-
appointed attorneys representing plaintiffs in the MDL and JCCP. Under the terms of the Second Settlement Agreements, the parties
agreed to settle 629 specifically identified CONSERVE®, DYNASTY®, and LINEAGE® claims that meet the eligibility
requirements of the Second Settlement Agreements and are either pending in the MDL or JCCP, or subject to court-approved tolling
agreements in the MDL or JCCP, for a maximum settlement amount of $89.75 million. The comprehensive settlement amount was
contingent on WMT’s recovery of new insurance payments totaling at least $35 million from applicable insurance carriers by
December 31, 2017. On March 29, 2018, WMT entered into a Third Amendment to the Third Settlement Agreement which
eliminated the contingency and gave WMT the option, by September 30, 2018, to either pay or make available for payment the then
outstanding deficit on the insurance contingency or transfer to eligible claimants WMT’s claims against the insurance carriers with
whom WMT has not settled, and pay or make available for payment such insurance deficit in March 2019, subject to the right to
recover these funds from any plaintiff recoveries from carriers plus ten percent interest, plus an additional $5 million in costs, in
each case after recovery by plaintiffs’ counsel of costs and fees. In connection with such transfer agreement, WMT would also enter
into a stipulated judgment in the amount of $541 million, which judgment would not be recoverable against WMT or its affiliates.
On September 27, 2018, WMT elected not to transfer WMT’s claims against the insurance carriers with whom WMT has not settled.
As of December 30, 2018, our accrual for metal-on-metal claims totaled $74.5 million, of which $51.9 million is included in our
consolidated balance sheet within “Accrued expenses and other current liabilities” and $22.6 million is included within “Other
liabilities.” As of December 31, 2017, our accrual for metal-on-metal claims totaled $177.5 million, of which $127.4 million is
included in our consolidated balance sheet within “Accrued expenses and other current liabilities” and $50.1 million is included
within “Other liabilities.” See Note 16 to our consolidated financial statements for additional discussion regarding the MSA and
Second Settlement Agreements and our accrual methodologies for the metal-on-metal hip replacement product liability claims.
71
In June 2018, WMG issued $675 million aggregate principal amount of the 2023 Notes, which, after consideration of the exchange
of approximately $400.9 million principal amount of the 2020 Notes, generated proceeds of approximately $215.5 million net of
premium and interest paid. We also paid $141.3 million for hedges associated with the 2023 Notes and received approximately
$102.1 million for the issuance of warrants associated with the 2023 Notes. In July 2018, we settled a pro rata share of the 2020
Notes hedges and 2020 warrants which resulted in net proceeds of $10.6 million.
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
In May 2016, we issued $395 million aggregate principal amount of the 2021 Notes, which, after consideration of the exchange of
approximately $54 million principal amount of the 2017 Notes and $45 million principal amount of the 2020 Notes, generated net
proceeds of approximately $237.5 million. In connection with the offering of the 2021 Notes, we entered into convertible note
hedging transactions with two counterparties. We also entered into warrant transactions in which we sold stock warrants for an
aggregate of 18.5 million ordinary shares to these two counterparties. We used approximately $45 million of the net proceeds from
the offering to pay the cost of the convertible note hedging transactions (after such cost was partially offset by the proceeds we
received from the sale of the warrants).
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents balance of
approximately $191.4 million and the $192.2 million in availability under the ABL Credit Agreement, as of December 30, 2018, but
taking into account the February 2019 amendment, will be sufficient for the next 12 months to fund our working capital
requirements and operations, permit anticipated capital expenditures in 2019 of approximately $90 million, including approximately
$12 million for the purchase of a 40,000 square foot state of the art manufacturing and distribution facility in Arlington, Tennessee,
pay retained metal-on-metal product and other liabilities of the OrthoRecon business, including without limitation amounts under the
MSA and Second Settlement Agreements, net of insurance recoveries, fund contingent consideration, and meet our other anticipated
contractual cash obligations in 2019.
In-process research and development. In connection with the IMASCAP acquisition, we acquired in-process research and
development (IPRD) technology related to a patient specific implant system that had not yet reached technological feasibility as of
the acquisition date. This project was assigned a fair value of $5.3 million on the acquisition date.
In connection with the Cartiva acquisition, we acquired IPRD technology related to a thumb implant (CMC) that is in development.
This project was assigned a fair value of $1.0 million on the acquisition date.
The current IPRD projects we acquired in our IMASCAP and Cartiva acquisitions are as follows:
(cid:129)
(cid:129)
The patient specific implant is a reverse shoulder replacement implant having glenoid or glenoid and humeral implant
(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:79)(cid:73)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:30)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
risks and uncertainties associated with completion are dependent upon testing validations and FDA and CE mark
clearance. We have incurred expenses of approximately $0.1 million in the fiscal year ended December 30, 2018.
Project cost to complete is estimated to be less than $2 million.
The CMC thumb implant is an arthroplasty device designed to resurface the CMC joint for the treatment of
(cid:82)(cid:86)(cid:87)(cid:72)(cid:82)(cid:68)(cid:85)(cid:87)(cid:75)(cid:85)(cid:76)(cid:87)(cid:76)(cid:86)(cid:17)(cid:3) (cid:3) (cid:58)(cid:72)(cid:3) (cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:48)(cid:38)(cid:3) (cid:87)(cid:75)(cid:88)(cid:80)(cid:69)(cid:3) (cid:76)(cid:80)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:21)(cid:19)(cid:21)(cid:20)(cid:30)(cid:3) (cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
associated with completion are dependent upon testing validations and FDA clearance. Project cost to complete is
estimated to be less than $3 million.
Critical Accounting Estimates
All of our significant accounting policies and estimates are described in Note 2 to our consolidated financial statements contained in
“Item 8. Financial Statements and Supplementary Data.” 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
our financial statements for all periods presented. Our management has discussed the development, selection, and disclosure of our
72
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 our financial statements. Those
financial estimates include:
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.
We estimate excess and obsolete inventory based on both the current age of kit inventory as compared to its estimated life cycle and
our forecasted product demand and production requirements for other inventory items for the next 36 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.
Total charges incurred to write down excess and obsolete inventory to net realizable value included in “Cost of sales” were
approximately $20.9 million, $19.2 million, and $21.5 million for the fiscal years ended December 30, 2018, December 31, 2017,
and December 25, 2016, respectively. During the fiscal years ended December 30, 2018, December 31, 2017, and December 25,
2016, our excess and obsolete charges included product rationalization initiative adjustments of $4.4 million, $3.1 million, and $4.1
million, respectively.
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.
Business combinations, goodwill and long-lived assets. We account for acquired businesses using the purchase method of
accounting. Under the purchase method, our consolidated financial statements include the financial results of an acquired business
starting from the date the acquisition is completed. In addition, the assets acquired, liabilities assumed, and any contingent
consideration must be recorded at the date of acquisition at their respective estimated fair values, with any excess of the purchase
price over the estimated fair values of the net assets acquired recorded as goodwill. Significant judgment is required in estimating
the fair value of contingent consideration and intangible assets and in assigning their respective useful lives. Accordingly, we
typically obtain the assistance of third-party valuation specialists for significant acquisitions. The fair value estimates are based on
available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently
uncertain.
We use a discounted cash flow analysis given probability and estimated timing of payout to determine the fair value of contingent
consideration on the date of acquisition. Significant changes in the discount rate used could affect the accuracy of the fair value
calculation. Contingent consideration is adjusted based on experience in subsequent periods and the impact of changes related to
assumptions are recorded in operating expenses as incurred.
We typically use an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future
cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a
consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth
rates and profitability), the underlying product or technology life cycles, the economic barriers to entry, and the discount rate applied
to the cash flows. Unanticipated market or macroeconomic events and circumstances may result in a triggering event for which we
would test for impairment.
Determining the useful life of an intangible asset also requires judgment. Our assessment as to trademarks and brands that have a
finite life is based on a number of factors including competitive environment, market share, trademark and/or brand history,
underlying product life cycles, operating plans, and the macroeconomic environment of the countries in which the trademarks or
brands are sold. All of our acquired technology and customer-related intangibles are expected to have finite useful lives.
We estimate fair value attributed to in-process research and development (IPRD) acquired as part of acquisitions that has not reached
technological feasibility but that has advanced to a stage of development where management reasonably believes net future cash
flow forecasts could be prepared and where there is a reasonable possibility of technical success.
IPRD is recorded as an indefinite-lived intangible asset until completion or abandonment of the associated research and development
projects. Accordingly, no amortization expense is reflected in the results of operations. If a project is completed, the carrying value
of the related intangible asset will be amortized over the remaining estimated life of the asset beginning with the period in which the
project is completed. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset will be written
down to its fair value and an impairment charge will be taken in the period the impairment occurs. These intangible assets are tested
for impairment on an annual basis, or earlier if impairment indicators are present.
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As of December 30, 2018, we had approximately $1.3 billion of goodwill recorded as a result of our acquisition of businesses,
including the Cartiva and IMASCAP acquisitions and the Wright/Tornier merger. Goodwill is tested for impairment annually, or
more frequently if changes in circumstances or the occurrence of events suggest that impairment exists. The annual evaluation of
goodwill impairment may require the use of estimates and assumptions to determine the fair value of our reporting units using
projections of future cash flows. Unless circumstances otherwise dictate, the annual impairment test is performed on October 1 each
year.
We performed a qualitative analysis of goodwill for impairment as of October 1, 2018 for our reporting units and determined that it
is not more likely than not that the respective carrying values of our reporting units exceeded their fair value, indicating that
goodwill was not impaired.
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 finite, long-lived assets in accordance with the FASB ASC Section 360, Property, Plant and Equipment. 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 related insurance recoveries 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. As additional information becomes available, we reassess the
estimated liability related to our pending claims and make revisions as necessary.
The product liability claims described in this section relate primarily to Wright Medical Technology, Inc., an indirect subsidiary of
Wright Medical Group N.V., and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities.
Maintaining separate legal entities within our corporate structure is intended to ring-fence liabilities. We believe our ring-fenced
structure should preclude corporate veil-piercing efforts against entities whose assets are not associated with particular claims.
We have received claims for personal injury against us associated with fractures of the PROFEMUR® long titanium modular neck
product (PROFEMUR® Claims). As of December 30, 2018, there were approximately 19 unresolved pending U.S. lawsuits and
approximately 57 unresolved pending non-U.S. lawsuits alleging such claims. The overall fracture rate for the product is low and
the fractures appear, at least in part, to relate to patient demographics. Beginning in 2009, we began offering a cobalt-chrome
version of the PROFEMUR® modular neck, which has greater strength characteristics than the alternative titanium version.
Historically, we have reflected our liability for these claims as part of our standard product liability accruals on a case-by-case basis.
However, during the fiscal quarter ended September 30, 2011, as a result of an increase in the number and monetary amount of these
claims, management estimated our liability to patients in the United States and Canada who have previously required a revision
following a fracture of a PROFEMUR® long titanium modular neck, or who may require a revision in the future. Management has
estimated that this aggregate liability is $17.5 million. We have classified $12.3 million of this liability as current in “Accrued
expenses and other current liabilities,” as we expect to pay such claims within the next twelve months, and $5.2 million as non-
current in “Other liabilities” on our consolidated balance sheet. We expect to pay the majority of these claims within the next three
years. Any claims associated with this product outside of the United States and Canada, or for any other products, will be managed
as part of our standard product liability accrual methodology on a case-by-case basis.
We are aware that MicroPort has recalled a certain size of its cobalt chrome modular neck product as a result of alleged fractures. As
of December 30, 2018, there were eleven pending U.S. lawsuits and six pending non-U.S. lawsuits against us alleging personal
injury resulting from the fracture of a cobalt chrome modular neck. These claims will be managed as part of our standard product
liability accrual methodology on a case-by-case basis.
We have maintained product liability insurance coverage on a claims-made basis. During the fiscal quarter ended March 31, 2013,
we received a customary reservation of rights from our primary product liability insurance carrier asserting that present and future
claims related to fractures of the PROFEMUR® titanium modular neck hip products and which allege certain types of injury
(Titanium Modular Neck Claims) would be covered as a single occurrence under the policy year the first such claim was asserted.
The effect of this coverage position would be to place Titanium Modular Neck Claims into a single prior policy year in which
applicable claims-made coverage was available, subject to the overall policy limits then in effect. Management agreed with the
assertion that the Titanium Modular Neck Claims should be treated as a single occurrence, but notified the carrier that it disputed the
carrier's selection of available policy years. During the second quarter of 2013, we received confirmation from the primary carrier
confirming their agreement with our policy year determination. Based on our insurer's treatment of Titanium Modular Neck Claims
as a single occurrence, we increased our estimate of the total probable insurance recovery related to Titanium Modular Neck Claims
by $19.4 million, and recognized such additional recovery as a reduction to our selling, general and administrative expenses for the
fiscal quarter ended March 31, 2013, within results of discontinued operations. In the fiscal quarter ended June 30, 2013, we
74
received payment from the primary insurance carrier of $5 million. In the fiscal quarter ended September 30, 2013, we received
payment of $10 million from the next insurance carrier in the tower. We requested, but did not receive, payment of the remaining
$25 million from the third insurance carrier in the tower for that policy period. The policies with the second and third carrier in this
tower are “follow form” policies and management believed the third carrier should follow the coverage position taken by the
primary and secondary carriers. On September 29, 2015, that third carrier asserted that the terms and conditions identified in its
reservation of rights would preclude coverage for the Titanium Modular Neck Claims. Pursuant to applicable accounting standards,
we reduced our insurance receivable balance for this claim to $0 and recorded a $25 million charge within “Net loss from
discontinued operations” during the fiscal year ended December 27, 2015. We strongly disputed the carrier's position and, in
accordance with the dispute resolution provisions of the policy, initiated an arbitration proceeding in London, England seeking
payment of these funds. The arbitration proceeding was completed on February 15, 2018 and on April 11, 2018, the arbitration
tribunal issued its ruling. Thereafter, we and the insurance carrier agreed to resolve the entire matter in exchange for a single lump
sum payment by the carrier to us in the amount of $30.75 million, representing the full policy limits of $25 million plus an additional
$5.75 million for legal costs and interest. We received payment of this sum from the carrier on May 8, 2018. This insurance
recovery is reflected within our results of discontinued operations for 2018.
Claims for personal injury have also been made against us associated with metal-on-metal hip products (primarily the
CONSERVE® product line). The pre-trial management of certain of these claims was consolidated in the federal court system, in the
United States District Court for the Northern District of Georgia under multi-district litigation (MDL) and certain other claims by the
Judicial Counsel Coordinated Proceedings in state court in Los Angeles County, California (JCCP) in state court in Los Angeles
County, California (collectively the Consolidated Metal-on-Metal Claims). Pursuant to previously disclosed settlement agreements
with the Court-appointed attorneys representing plaintiffs in the MDL and JCCP described below, the MDL and JCCP were closed to
new cases effective October 18, 2017 and October 31, 2017, respectively.
Excluding claims resolved in the settlement agreements described below, as of December 30, 2018, there were approximately
151 unresolved metal-on-metal hip cases pending in the U.S. This number includes cases ineligible for settlement, cases which
opted out of settlement, post-settlement cases, tolled cases, and existing state court cases that were not part of the MDL or JCCP. As
of December 30, 2018, we estimate there also were pending approximately 33 unresolved non-U.S. metal-on metal cases,
35 unresolved U.S. modular neck cases alleging claims related to the release of metal ions, and zero non-U.S. modular neck cases
with such metal ion allegations. We also estimate that as of December 30, 2018 there were approximately 534 non-revision claims
either dismissed or awaiting dismissal from the MDL and JCCP pursuant to the terms of the settlement agreements. Although there
is a limited time period during which dismissed non-revision claims may be refiled, it is presently unclear how many non-revision
claimants will elect to do so. As of December 30, 2018, one dismissed non-revision case has been refiled.
We believe we have data that supports the efficacy and safety of these hip products. Every hip implant case, including metal-on-
metal hip cases, involves fundamental issues of law, science, and medicine that often are uncertain, that continue to evolve, and
which present contested facts and issues that can differ significantly from case to case. Such contested facts and issues include
medical causation, individual patient characteristics, surgery specific factors, statutes of limitation, and the existence of actual,
provable injury.
On November 1, 2016, WMT entered into the MSA with Court-appointed attorneys representing plaintiffs in the MDL and JCCP.
Under the terms of the MSA, the parties agreed to settle 1,292 specifically identified claims associated with CONSERVE®,
DYNASTY® and LINEAGE® products that meet the eligibility requirements of the MSA and are either pending in the MDL or
JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for a settlement amount of $240 million.
The $240 million settlement amount is a maximum settlement based on the pool of 1,292 specific, existing claims comprised of an
identified mix of CONSERVE®, DYNASTY® and LINEAGE® products (Initial Settlement Pool), with a value assigned to each
product type, resulting in a total settlement of $240 million for the 1,292 claims in the Initial Settlement Pool.
Actual settlements paid to individual claimants are determined under the claims administration procedures contained in the MSA and
may be more or less than the amounts used to calculate the $240 million settlement for the 1,292 claims in the Initial Settlement
Pool. However in no event will variations in actual settlement amounts payable to individual claimants affect WMT’s maximum
settlement obligation of $240 million or the manner in which it may be reduced due to opt outs, final product mix, or elimination of
ineligible claims.
Claims in the Initial Settlement Pool that were ineligible due to failure to meet the eligibility criteria of the MSA were replaced with
new eligible claims involving the same product, so that the number and mix of claims in the final settlement pool (before opt-outs)
(Final Settlement Pool) equaled the number and mix of claims in the Initial Settlement Pool. Additionally, where DYNASTY® or
LINEAGE® claims in the Final Settlement Pool were determined to have been misidentified as CONSERVE® claims, or vice versa,
the total settlement amount was adjusted based on the value for each product type (not to exceed $240 million).
The MSA contains specific eligibility requirements and establishes procedures for proof and administration of claims, negotiation
and execution of individual settlement agreements, determination of the final total settlement amount, and funding of individual
settlement amounts by WMT. Eligibility requirements include, without limitation, that the claimant has a claim pending or tolled in
75
the MDL or JCCP, that the claimant has undergone a revision surgery within eight years of the original implantation surgery, and that
the claim has not been identified by WMT as having possible statute of limitation issues. Claimants who have had bilateral revision
surgeries will be counted as two claims but only to the extent both claims separately satisfy all eligibility criteria.
The MSA includes a 95% opt-in requirement, meaning the MSA could have been terminated by WMT prior to any settlement
disbursement if claimants holding greater than 5% of eligible claims in the Final Settlement Pool elected to “opt-out” of the
settlement. WMT has confirmed that of the 1,292 eligible claims, 1,279 opted to participate in the settlement and 13 opted out,
resulting in a final opt-in percentage of approximately 99%, well in excess of the required 95% threshold. On March 2, 2017, WMT
agreed to replace the 13 opt-out claims with 13 additional claims that would have been eligible to participate in the MSA but for the
1,292 claim limit, bringing the total MSA settlement to the maximum limit of $240 million to settle 1,292 claims. Due to apparent
demand from additional claimants excluded from settlement because of the 1,292 claims ceiling, but otherwise eligible for
participation, on May 5, 2017, WMT agreed to settle an additional 53 such claims, on terms substantially identical to the MSA
settlement terms, for a maximum additional settlement amount of $9.4 million.
During 2016, WMT escrowed $150 million to secure its obligations under the MSA, all of which had been disbursed as of December
31, 2017. As additional security, Wright Medical Group N.V., the indirect parent company of WMT, agreed to guarantee WMT’s
obligations under the MSA.
On October 3, 2017, WMT entered into the Second Settlement Agreements with the Court-appointed attorneys representing
plaintiffs in the MDL and JCCP. Under the terms of the Second Settlement Agreements, the parties agreed to settle 629 specifically
identified CONSERVE®, DYNASTY® and LINEAGE® claims that meet the eligibility requirements of the Second Settlement
Agreements and are either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for a
maximum settlement amount of $89.75 million. The comprehensive settlement amount was contingent on WMT’s recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers by December 31, 2017. On December 29, 2017,
WMT entered into a First Amendment to the Third Settlement Agreement pursuant to which the deadline for the recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers was extended through February 28, 2018 and, on
February 23, 2018, WMT entered into a Second Amendment to the Third Settlement Agreement pursuant to which the deadline was
extended through March 30, 2018. On March 29, 2018, WMT entered into a Third Amendment to the Third Settlement Agreement
which eliminated the contingency and gave WMT the option, by September 30, 2018, to either pay or make available for payment
the then outstanding deficit on the insurance contingency or transfer to eligible claimants WMT’s claims against the insurance
carriers with whom WMT has not settled, and pay or make available for payment such insurance deficit in March 2019, subject to
the right to recover these funds from any plaintiff recoveries from carriers plus ten percent interest, plus an additional $5 million in
costs, in each case after recovery by plaintiffs’ counsel of costs and fees. In connection with such transfer agreement, WMT would
also enter into a stipulated judgment in the amount of $541 million, which judgment would not be recoverable against WMT or its
affiliates. On September 27, 2018, WMT elected not to transfer WMT’s claims against the insurance carriers with whom WMT has
not settled.
The $89.75 million settlement amount is a maximum settlement based on the pool of 629 specific, existing claims comprised of an
identified mix of CONSERVE®, DYNASTY® and LINEAGE® products (Second Settlement Initial Settlement Pool), with a value
assigned to each product type. Actual settlements paid to individual claimants will be determined under the claims administration
procedures contained in the Second Settlement Agreements and may be more or less than the amounts used to calculate the $89.75
million settlement for the 629 claims in the Second Settlement Initial Settlement Pool. However in no event will variations in actual
settlement amounts payable to individual claimants affect WMT’s maximum settlement obligation of $89.75 million or the manner
in which it may be reduced due to opt outs, final product mix, or elimination of ineligible claims.
The total maximum settlement amount of $89.75 million is allocated among the following three tranches: (1) Tranche 1:
$7.9 million to settle 49 additional claims that would have been eligible to participate in the MSA but for the claim limit contained
(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:71)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:72)(cid:3)(cid:21)(cid:29)(cid:3)$5.1 million to settle 39 eligible claims of the oldest
(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:11)(cid:69)(cid:92)(cid:3)(cid:68)(cid:74)(cid:72)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:72)(cid:3)(cid:22)(cid:29)(cid:3)(cid:7)(cid:26)(cid:25)(cid:17)(cid:26)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:24)(cid:20)(cid:20)(cid:3)(cid:72)ligible
claims pending or tolled in the MDL and JCCP existing as of June 30, 2017, and 30 new eligible claims which were presented
between July 1, 2017 and October 1, 2017. Settlement funds for Tranche 3 were or will be made available for payment as follows:
$45 million (less the remaining insurance deficit, which was $13.1 million) on June 30, 2018, the remaining insurance deficit
($13.1 million) by September 30, 2018, and the balance by September 30, 2019. Funding of the Second Settlement Agreements has
begun and $41.9 million was funded as of December 30, 2018.
The Second Settlement Agreements contain specific eligibility requirements and establish procedures for proof and administration of
claims, negotiation and execution of individual settlement agreements, determination of the final total settlement amount, and
funding of individual settlement amounts by WMT. Eligibility requirements include, without limitation, that the claimant has a
claim pending or tolled in the MDL or JCCP and that, with limited exceptions, the claimant has undergone a revision surgery.
Claimants who have had bilateral revision surgeries will be counted as two claims but only to the extent both claims separately
satisfy all eligibility criteria.
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Each of the Second Settlement Agreements includes a 95% opt-in requirement, meaning WMT could have terminated either
Settlement Agreement prior to any settlement disbursement if claimants holding greater than 5% of eligible claims in Tranches 1 and
2, collectively, or claimants holding greater than 5% of eligible claims in Tranche 3, elected to “opt-out” of the settlement. On
January 2, 2018, WMT received notification that 100% of the claimants in Tranches 1 and 2 opted-in. WMT reviewed proof of
claim documentation for these claimants and confirmed a final opt-in percentage of 100%. On or about May 1, 2018, WMT
received notice from plaintiffs that the 95% opt-in threshold had also been met for Tranche 3. WMT reviewed proof of claim
documentation for Tranche 3 claimants and confirmed that the 95% opt-in threshold had been met. On July 31, 2018, WMT
confirmed a final opt-in percentage of 100% for Tranche 3.
While the Second Settlement Agreements did not require WMT to escrow any amount to secure its obligations thereunder, as
additional security, Wright Medical Group N.V., the indirect parent company of WMT, agreed to guarantee WMT’s obligations
under the Second Settlement Agreements.
The MSA (which reference includes the supplemental settlements described above) and the Second Settlement Agreements were
entered into solely as a compromise of the disputed claims being settled and are not evidence that any claim has merit nor are they
an admission of wrongdoing or liability by WMT. WMT will continue to vigorously defend metal-on-metal hip claims not settled
pursuant to the above agreements. The Second Settlement Agreements are contingent upon the dismissal without prejudice of
pending and tolled claims in the MDL and JCCP that do not meet the inclusion criteria of the MDL or JCCP. Additionally, the
Second Settlement Agreements are contingent upon the dismissal without prejudice of all remaining non-revision claims in the MDL
and JCCP (presently estimated to number approximately 534 claims either dismissed or awaiting dismissal), pursuant to a tolling
agreement that tolls applicable statutes of limitation and repose for three months from a revision of the products or determination
that a revision of the products is necessary. The MDL and JCCP courts have both entered orders closing these proceedings to new
claims.
As a result of entering into the Second Settlement Agreements during the third quarter of 2017, we recorded an additional accrual of
$82.7 million for the 629 matters included within the settlement and for matters that have the same eligibility criteria.
As of December 30, 2018, our accrual for metal-on-metal claims totaled $74.5 million, of which $51.9 million is included in our
consolidated balance sheet within “Accrued expenses and other current liabilities” and $22.6 million is included within “Other
liabilities.” Our accrual is based on (i) case by case accruals for specific cases where facts and circumstances warrant, and (ii) the
implied settlement values for eligible claims under the MSA or Second Settlement Agreements. We are unable to reasonably
estimate the high-end of a possible range of loss for claims which elected to opt-out of the MSA or Second Settlement Agreements.
Claims we can confirm would meet MSA or Second Settlement Agreements eligibility criteria but are excluded from the settlements
due to the maximum settlement cap, or because they are cases not part of the MDL or JCCP, have been accrued as of the respective
settlement rates. Due to the general uncertainties surrounding all metal-on metal claims as noted above, as well as insufficient
information about individual claims, we are pre(cid:86)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:88)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:30)(cid:3)(cid:75)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)
not accrued for these claims at the present time.
We continue to believe the high-end of a possible range of loss for existing revision claims that do not meet eligibility criteria of the
MSA or Second Settlement Agreements will not, on an average per case basis, exceed the average per case accrual we take for
revision claims we can confirm do meet eligibility criteria of the MSA or Second Settlement Agreements, as applicable. Future
claims will be evaluated for accrual on a case by case basis using the accrual methodologies described above (which could change if
future facts and circumstances warrant).
The first state court metal-on-metal hip trial not part of the MDL or JCCP commenced on October 24, 2016, in St. Louis, Missouri.
On November 3, 2016, the jury returned a verdict in our favor. The plaintiff appealed, and the appellate court heard oral argument on
November 8, 2017. On February 20, 2018, the Missouri Court of Appeals, Eastern District, denied the plaintiff’s appeal and upheld
the verdict of the trial court. The plaintiff’s time for seeking any further relief from the verdict has lapsed and this matter is closed.
We have maintained product liability insurance coverage on a claims-made basis. During the fiscal quarter ended September 30,
2012, we received a customary reservation of rights from our primary product liability insurance carrier asserting that certain present
and future claims which allege certain types of injury related to the CONSERVE® metal-on-metal hip products
(CONSERVE® Claims) would be covered as a single occurrence under the policy year the first such claim was asserted. The effect
of this coverage position would be to place CONSERVE® Claims into a single prior policy year in which applicable claims-made
coverage was available, subject to the overall policy limits then in effect. Management agrees that there is insurance coverage for the
CONSERVE® Claims, but has notified the carrier that it disputes the carrier's characterization of the CONSERVE® Claims as a
single occurrence.
In June 2014, Travelers, which was an excess carrier in our coverage towers across multiple policy years, filed a declaratory
judgment action in Tennessee state court naming us and certain of our other insurance carriers as defendants and asking the court to
rule on the rights and responsibilities of the parties with regard to the CONSERVE® Claims. Among other things, Travelers
appeared to dispute our contention that the CONSERVE® Claims arise out of more than a single occurrence thereby triggering
multiple policy periods of coverage. Travelers further sought a determination as to the applicable policy period triggered by the
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alleged single occurrence. We filed a separate lawsuit in state court in California for declaratory judgment against certain carriers
and breach of contract against the primary carrier and moved to dismiss or stay the Tennessee action on a number of grounds,
including that California is the most appropriate jurisdiction. During the third quarter of 2014, the California Court granted
Travelers' motion to stay our California action.
On October 28, 2016, WMT and Wright Medical Group, Inc. (Wright Entities) entered into a Settlement Agreement, Indemnity and
Hold Harmless Agreement and Policy Buyback Agreement (Insurance Settlement Agreement) with a subgroup of three insurance
carriers, namely Columbia Casualty Company, Travelers and AXIS Surplus Lines Insurance Company (collectively, the Three
Settling Insurers), pursuant to which the Three Settling Insurers paid WMT an aggregate of $60 million (in addition to $10 million
previously paid by Columbia) in a lump sum. This amount is in full satisfaction of all potential liability of the Three Settling
Insurers relating to metal-on-metal hip and similar metal ion release claims, including but not limited to all claims in the MDL and
the JCCP, and all claims asserted by WMT against the Three Settling Insurers in the Tennessee action described above.
As part of the settlement with the Three Settling Insurers, the Three Settling Insurers bought back from WMT their policies in the
five policy years beginning with the August 1, 2007- August 1, 2008 policy year (Repurchased Policy Years). Consequently, the
Wright Entities have no further coverage from the Three Settling Insurers for any present or future claims falling in the Repurchased
Policy Years, or any other period in which a released claim is asserted. Additionally, the Insurance Settlement Agreement contains a
so-called most favored nation provision which could require us to refund a pro rata portion of the settlement amount if we
voluntarily enter into a settlement with the remaining carriers in the Repurchased Policy Years on certain terms more favorable than
analogous terms in the Insurance Settlement Agreement. The amount due to the Wright Entities under the Insurance Settlement
Agreement was paid in the fourth quarter of 2016 and the Three Settling Insurers have been dismissed from the Tennessee action.
On December 13, 2016, we filed a motion in the Tennessee action described above to include allegations of bad faith against the
primary insurance carrier. The motion was subsequently amended on February 8, 2017 to add similar bad faith claims against the
remaining excess carriers. On April 13, 2017, the Court denied our motion, without prejudice to our right to re-assert the motion at a
later time. On August 29, 2017, we refiled the motion to add a bad faith claim against the primary and excess insurance carriers.
The Court granted our motion on October 19, 2017 and, on October 23, 2017, we filed amended cross-claims alleging bad faith
against all of the insurance carriers. On November 9, 2017, our primary insurance carrier brought a motion to dismiss and strike our
bad faith claim. The remaining excess carriers either joined the primary insurer’s motion or brought their own separate motions. On
December 22, 2017 and December 29, 2017, we opposed the insurers’ motions to dismiss and strike our claim for bad faith. The
motions remain pending.
On February 22, 2018, we and certain of our subsidiaries entered into the Second Insurance Settlement Agreement with the primary
insurance carrier, Federal, pursuant to which Federal has paid us a single lump sum payment of $15 million (in addition to
$5 million previously paid by Federal). This amount is in full satisfaction of all potential liability of Federal relating to designated
metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary WMT against Federal in the previously
disclosed insurance coverage litigation. We recorded a $15 million receivable as a result of this agreement within “Other current
assets” as of December 31, 2017. On March 20, 2018, Federal was dismissed from the Tennessee and California actions described
above.
On April 19, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Third Insurance Settlement
Agreement) with Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London (Lloyd’s
Syndicate 2003) pursuant to which Lloyd’s Syndicate 2003 has paid us a single lump sum payment of $1.9 million (in addition to
$5 million previously paid by Lloyd’s Syndicate 2003). This amount is in full satisfaction of all potential liability of Lloyd’s
Syndicate 2003 relating to designated metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary
WMT against Lloyd’s Syndicate 2003 in the previously disclosed insurance coverage litigation. On May 1, 2018, Lloyd’s Syndicate
2003 was dismissed from the Tennessee action described above. The Lloyd’s Syndicate 2003 was dismissed from the California
action on May 3, 2018.
Following the settlements with the Three Settling Insurers, Federal, and Lloyd’s Syndicate 2003, the only remaining insurer in the
Tennessee and California coverage litigation is Catlin Specialty Insurance Company, a high-level excess insurer that provided
“follow-form” coverage during the 2011/2012 policy period. Litigation with this carrier is continuing. Trial is set for July 2019.
In March 2017, Lexington, which had been dismissed from the Tennessee action, requested arbitration under five Lexington
insurance policies in connection with the CONSERVE® Claims. We subsequently engaged in discussions and correspondence with
Lexington about the scope of the requested arbitration(s). On or about October 27, 2017, Lexington filed an Application for Order
to Compel Arbitration in the Commonwealth of Massachusetts, Suffolk County Superior Court, naming WMT, Wright Medical
Group, Inc., and Wright Medical Group N.V. We opposed the Application. On February 28, 2018, the Massachusetts Court ordered
the parties to arbitrate the two Lexington insurance policies containing Massachusetts arbitration clauses but did not order arbitration
under the remaining three Lexington policies at issue. We have appealed that ruling. While the appeal is pending, we are
proceeding with the arbitration, but the selection of the arbitrators is still in dispute by the parties. In the arbitration, Lexington has
asserted a claim for declaratory relief, and we have asserted counter-claims for breach of contract, declaratory relief, and bad faith.
On September 26, 2018, Lexington sought to add a claim alleging Wright’s filing of the Tennessee lawsuit referred to below was not
78
in good faith. Wright objected to Lexington’s additional claim and argued that such claim could only be added upon agreement of
the arbitrators (who are yet to be selected). The American Arbitration Association agreed with Wright’s position.
On May 22, 2018, Wright initiated a lawsuit against Lexington under the three policies that the court did not order into arbitration in
Massachusetts. The lawsuit, filed in the Chancery Court of Tennessee, alleges breach of contract, declaratory relief, and bad faith in
connection with Lexington’s failure and refusal to provide coverage for the underlying metal-on-metal claims under policies issued
for 2009-2012. On July 12, 2018, Lexington brought a motion to stay the litigation and compel arbitration under the 2009-2011
Lexington policies. On February 21, 2019, we filed a motion to strike Lexington’s motion to stay. These motions remain pending.
As of December 30, 2018, our insurance carriers have paid an aggregate of $101.9 million of insurance proceeds related to the
metal-on-metal claims, including amounts received under the three above referenced settlement agreements, of which $95.2 million
has been paid directly to us and $6.7 million has been paid directly to claimants. Except as provided in the Insurance Settlement
Agreement, the Second Insurance Settlement Agreement and the Third Insurance Settlement Agreement, our acceptance of the
insurance proceeds was not a waiver of any other claim we may have against the insurance carriers unrelated to metal-on-metal
coverage and our disputes with carriers relating thereto. However, the amount we ultimately receive will depend on the outcome of
our dispute with the remaining carriers (Lexington and Catlin, with remaining policy limits totaling $30 million and $5 million,
respectively) concerning the number of policy years available. We believe our contracts with the insurance carriers are enforceable
(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)d, therefore, we believe it is probable we will receive additional recoveries from the remaining carriers.
Given the substantial or indeterminate amounts sought in these matters, and the inherent unpredictability of such matters, an adverse
outcome in these matters in excess of the amounts included in our accrual for contingencies could have a material adverse effect on
our financial condition, results of operations and cash flow. Future revisions to our estimates of these provisions could materially
impact our results of operations and financial position. We use the best information available to determine the level of accrued
product liabilities, and believe our accruals are adequate.
Accounting for income taxes. We account for income taxes in accordance with provisions which set forth an asset and liability
approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and liabilities. 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 $400.2 million and $366.8 million as of
December 30, 2018 and December 31, 2017, respectively, due to uncertainties related to our ability to realize, before expiration,
certain of our deferred tax assets for both U.S. and foreign income tax purposes.
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. In accordance with
ASC 740 Income Taxes, we recognize the tax effects of an income tax position only if they are “more-likely-than-not” to be
sustained based solely on the technical merits as of the reporting date. 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 unrecognized tax benefits totaled $4.6 million and $6.0 million as
of December 30, 2018 and December 31, 2017, respectively.
In December 2017, the United States enacted new legislation under the 2017 Tax Act. We recognized the income tax effects of the
2017 Tax Act in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts under a one-year
measurement period. We finalized our accounting for the provisions of the 2017 Tax Act in the fourth-quarter 2018 with no material
impact on our financial statements.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2 to the consolidated financial statements in “Item 8.
Financial Statements and Supplementary Data”.
79
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our exposure to interest rate risk arises principally from variable interest rates applicable to borrowings under our ABL Facility and
the interest rates associated with our invested cash balances.
Borrowings under our ABL Facility bear interest at variable rates. The interest rate margin applicable to borrowings under the ABL
Facility is, at the option of the Borrowers, equal to either (a) 3.25% for base rate loans or (b) 4.25% for LIBOR rate loans, subject to
a 0.75% LIBOR floor. As of December 30, 2018, we had $17.8 million of borrowings under our ABL Facility. Based upon this debt
level, and the LIBOR floor on our interest rate, a 100 basis point increase in the annual interest rate on such borrowings would have
an immaterial impact on our interest expense on an annual basis.
On December 30, 2018, we had invested cash and cash equivalents of approximately $191.4 million. We believe that a 10 basis
point change in interest rates is reasonably possible in the near term. Based on our current level of investment, an increase or
decrease of 10 basis points in interest rates would have an annual impact of approximately $0.2 million to our interest income.
As of December 30, 2018, we had outstanding $186.6 million, $395.0 million, and $675.0 million principal amount of our 2020,
2021, and 2023 Notes, respectively. Additionally, we had $20.0 million principal outstanding under our Term Loan Facility. We
carry these instruments at face value less unamortized discount on our consolidated balance sheets. Since these instruments bear
interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of these
instruments fluctuates when interest rates change, and when the market price of our ordinary shares fluctuates. We do not carry the
2020, 2021, and 2023 Notes at fair value, but present the fair value of the principal amount of our 2020, 2021, and 2023 Notes for
disclosure purposes.
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Equity Price Risk
On February 13, 2015, WMG issued $632.5 million of the 2020 Notes, which generated net proceeds of approximately $613 million.
As of December 30, 2018, $186.6 million was outstanding on the 2020 Notes. The holders of the 2020 Notes may convert their
notes at any time prior to August 15, 2019 solely into cash upon satisfaction of certain circumstances as described in Note 9. On or
after August 15, 2019, holders may convert their 2020 Notes solely into cash, regardless of the foregoing circumstances. Due to the
ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020 Notes and the fair value of the
2020 Notes Conversion Derivatives were classified as current liabilities and the fair value of the 2020 Notes Hedges was classified
as current assets as of December 30, 2018. The respective balances were all classified as long-term as of December 31, 2017.
The conversion and settlement provisions of the 2020 Notes are based on the price of our ordinary shares at conversion or at
maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions
that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may
be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares.
The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares
that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of
our ordinary shares.
Upon the expiration of our warrants issued in connection with the 2020 Notes, we will issue ordinary shares to the purchasers of the
warrants to the extent the price of our ordinary shares exceeds the warrant strike price at that time. On November 24, 2015, Wright
Medical Group N.V. assumed WMG’s obligations pursuant to the warrants, and the strike price of the warrants was adjusted from
$40.00 to $38.8010 per ordinary share. The following table shows the number of shares that we would issue to warrant
counterparties at expiration of the warrants based on the warrants outstanding as of December 30, 2018 assuming various closing
prices of our ordinary shares on the date of warrant expiration:
Share price
$42.68
$46.56
$50.44
$54.32
$58.20
(10% greater than strike price)
(20% greater than strike price)
(30% greater than strike price)
(40% greater than strike price)
(50% greater than strike price)
80
Shares (in thousands)
566
1,039
1,438
1,780
2,077
The fair value of the 2020 Notes Conversion Derivative and the 2020 Notes Hedge is directly impacted by the price of our ordinary
shares. We entered into the 2020 Notes Hedges in connection with the issuance of the 2020 Notes with the option counterparties.
The 2020 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are required
to make upon conversion of the 2020 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds
the conversion price. The following table presents the fair values of the 2020 Notes Conversion Derivative and 2020 Notes Hedge
as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our
share price is reasonably possible in the near term:
(in thousands)
2020 Notes Hedges (Asset)
2020 Notes Conversion Derivative (Liability)
Fair value of security
given a 10% decrease in
share price
$10,985
$10,175
Fair value of security as
of December 30, 2018
$17,822
$17,386
Fair value of security
given a 10% increase in
share price
$26,430
$26,678
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. See Note 19 to our
consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
On May 20, 2016, we issued $395.0 million aggregate principal amount of the 2021 Notes. The holders of the 2021 Notes may
convert their 2021 Notes into cash upon the satisfaction of certain circumstances as described in Note 9. The conversion and
settlement provisions of the 2021 Notes are based on the price of our ordinary shares at conversion or at maturity of the notes. In
addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the
price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide
to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that
we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required
to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.
Upon the expiration of our warrants issued in connection with the 2021 Notes, we will issue ordinary shares to the purchasers of the
warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $30.00 at that time. The following table
shows the number of shares that we would issue to warrant counterparties at expiration of the warrants based on the warrants
outstanding as of December 30, 2018 assuming various closing prices of our ordinary shares on the date of warrant expiration:
Share price
$33.00
$36.00
$39.00
$42.00
$45.00
(10% greater than strike price)
(20% greater than strike price)
(30% greater than strike price)
(40% greater than strike price)
(50% greater than strike price)
Shares (in thousands)
1,681
3,082
4,268
5,284
6,164
The fair value of the 2021 Notes Conversion Derivative and the 2021 Notes Hedge is directly impacted by the price of our ordinary
shares. We entered into the 2021 Notes Hedges in connection with the issuance of the 2021 Notes with the option counterparties.
The 2021 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are required
to make upon conversion of the 2021 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds
the conversion price. The following table presents the fair values of the 2021 Notes Conversion Derivative and 2021 Notes Hedge
as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our
share price is reasonably possible in the near term:
(in thousands)
2021 Notes Hedges (Asset)
2021 Notes Conversion Derivative (Liability)
Fair value of security
given a 10% decrease in
share price
$151,765
$146,904
Fair value of security as
of December 30, 2018
$188,301
$187,539
Fair value of security
given a 10% increase in
share price
$226,860
$230,385
81
On June 28, 2018, we issued $675.0 million aggregate principal amount of the 2023 Notes. The holders of the 2023 Notes may
convert their 2023 Notes into cash upon the satisfaction of certain circumstances as described in Note 9. The conversion and
settlement provisions of the 2023 Notes are based on the price of our ordinary shares at conversion or at maturity of the notes. In
addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the
price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide
to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that
we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required
to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.
Upon the expiration of our warrants issued in connection with the 2023 Notes, we will issue ordinary shares to the purchasers of the
warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $40.86 at that time. The following table
shows the number of shares that we would issue to warrant counterparties at expiration of the warrants based on the warrants
outstanding as of December 30, 2018 assuming various closing prices of our ordinary shares on the date of warrant expiration:
Share price
$44.95
$49.03
$53.12
$57.20
$61.29
(10% greater than strike price)
(20% greater than strike price)
(30% greater than strike price)
(40% greater than strike price)
(50% greater than strike price)
Shares (in thousands)
1,839
3,371
4,668
5,780
6,743
The fair value of the 2023 Notes Conversion Derivative and the 2023 Notes Hedge is directly impacted by the price of our ordinary
shares. We entered into the 2023 Notes Hedges in connection with the issuance of the 2023 Notes with the option counterparties.
The 2023 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are required
to make upon conversion of the 2023 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds
the conversion price. The following table presents the fair values of the 2023 Notes Conversion Derivative and 2023 Notes Hedge
as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our
share price is reasonably possible in the near term:
(in thousands)
2023 Notes Hedges (Asset)
2023 Notes Conversion Derivative (Liability)
Fair value of security
given a 10% decrease in
share price
$88,057
$85,073
Fair value of security as
of December 30, 2018
$115,923
$116,833
Fair value of security
given a 10% increase in
share price
$146,830
$152,500
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 to our consolidated
financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
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 23% of our net sales from continuing operations were denominated in foreign currencies during the fiscal year ended
December 30, 2018 and we expect that foreign currencies will continue to represent a similarly significant percentage of our net
(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86)(cid:30)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)osts 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.
82
In 2018, approximately 90% of our net sales denominated in foreign currencies were derived from European Union countries, which
(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:30)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:46)(cid:76)(cid:81)(cid:74)(cid:71)(cid:82)(cid:80)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:85)(cid:76)(cid:87)(cid:76)(cid:86)(cid:75)(cid:3)(cid:83)(cid:82)(cid:88)(cid:81)(cid:71)(cid:30)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:71)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:81)(cid:3) (cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:30)(cid:3) (cid:68)nd from Canada, which are denominated in the Canadian dollar. Additionally, we have
significant intercompany receivables, payables, and debt from our foreign subsidiaries that are denominated in foreign currencies,
principally the Euro, the Japanese yen, the British pound, the Australian dollar, and the Canadian dollar. Our principal exchange rate
risk, therefore, exists between the U.S. dollar and the Euro, British pound, Australian 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, payables, and debt generating currency translation gains or losses that impact our non-operating income
and expense levels in the respective period.
A uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which our transactions are denominated
would have resulted in an increase in operating income of approximately $3.8 million for the fiscal year ended December 30, 2018.
This hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. This
sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels
or local currency prices, which can also be affected by the change in exchange rates.
We also have exposure to currency fluctuations in our intercompany balances denominated currently in Euros, British pounds, and
Canadian dollars. Any change in the currency exchange rate is expected to be offset by a change in the value of the intercompany
balance.
83
Item 8.
Financial Statements and Supplementary Data.
Wright Medical Group N.V.
Consolidated Financial Statements
for the Fiscal Years Ended December 30, 2018, December 31, 2017, and December 25, 2016
Index to Financial Statements
Page
Reports of Independent Registered Public Accounting Firm .................................................................................................... 85
Consolidated Financial Statements:
Consolidated Balance Sheets .............................................................................................................................................. 87
Consolidated Statements of Operations ............................................................................................................................... 88
Consolidated Statements of Comprehensive Loss ................................................................................................................ 89
Consolidated Statements of Cash Flows .............................................................................................................................. 90
Consolidated Statements of Changes in Shareholders’ Equity .............................................................................................. 92
Notes to Consolidated Financial Statements ........................................................................................................................ 93
84
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Wright Medical Group N.V.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Wright Medical Group N.V. and subsidiaries (the Company) as of
December 30, 2018 and December 31, 2017, the related consolidated statements of operations, comprehensive loss, cash flows and
shareholders’ equity for the years ended December 30, 2018, December 31, 2017, and December 25, 2016, and the related notes and
the financial statement schedule (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 30, 2018 and December 31,
2017, and the results of their operations and their cash flows for the years ended December 30, 2018, December 31, 2017, and
December 25, 2016, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 30, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 26, 2019 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Memphis, Tennessee
February 26, 2019
85
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Wright Medical Group N.V.:
Opinion on Internal Control Over Financial Reporting
We have audited Wright Medical Group N.V. and subsidiaries’ (the Company) internal control over financial reporting as of
December 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 30, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 30, 2018 and December 31, 2017, the related
consolidated statements of operations, comprehensive loss, cash flows and shareholders’ equity for the years ended December 30,
2018, December 31, 2017, and December 25, 2016, and the related notes and financial statement schedule (collectively, the
“consolidated financial statements”), and our report dated February 26, 2019 expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
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, included in the accompanying Item 9A of the Company’s Annual
Report on Form 10-K as of December 30, 2018. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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 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
(cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3) (cid:11)(cid:21)(cid:12) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of managem(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:22)(cid:12) 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.
/s/ KPMG LLP
Memphis, Tennessee
February 26, 2019
86
Wright Medical Group N.V.
Consolidated Balance Sheets
(In thousands, except share data)
Assets:
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories (Note 5)
Prepaid expenses
Other current assets 1
Total current assets
Property, plant and equipment, net (Note 7)
Goodwill (Note 8)
Intangible assets, net (Note 8)
Deferred income taxes (Note 11)
Other assets 1
Total assets
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities (Note 12) 1
Current portion of long-term obligations (Note 9) 1
Total current liabilities
Long-term debt and capital lease obligations (Note 9) 1
Deferred income taxes (Note 11)
Other liabilities (Note 12) 1
Total liabilities
Commitments and contingencies (Note 16)
Shareholders’ equity:
(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:188)(cid:19)(cid:17)(cid:19)(cid:22)(cid:3)(cid:83)(cid:68)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:29)(cid:3)(cid:22)(cid:21)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:29)(cid:3)(cid:3)
125,555,751 shares at December 30, 2018 and 105,807,424 shares at December 31, 2017
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
___________________________
December 30,
2018
December 31,
2017
$
191,351
141,019
180,690
11,823
78,349
603,232
$
167,740
130,610
168,144
13,555
86,845
566,894
224,929
1,268,954
282,332
942
314,012
$ 2,694,401
212,379
933,662
231,001
937
183,851
$ 2,128,724
$
48,359
217,081
201,686
467,126
$
41,831
314,558
58,906
415,295
913,441
13,146
368,229
1,761,942
836,208
15,780
272,745
1,540,028
4,589
2,514,295
(8,083)
(1,578,342)
932,459
$ 2,694,401
3,896
1,971,347
22,290
(1,408,837)
588,696
$ 2,128,724
1
The holders of the 2020 Notes will have the ability to begin converting their 2020 Notes beginning August 15, 2019 through
their maturity. Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020
Notes and the fair value of the 2020 Notes Conversion Derivative were classified as current liabilities, and the fair value of the
2020 Notes Hedges was classified as current assets as of December 30, 2018. The respective balances were classified as long-
term as of December 31, 2017. See Note 6 and Note 9.
The accompanying notes are an integral part of these consolidated financial statements.
87
Wright Medical Group N.V.
Consolidated Statements of Operations
(In thousands, except per share data)
Net sales
Cost of sales 1, 2
Gross profit
Operating expenses:
Selling, general and administrative 2
Research and development 2
Amortization of intangible assets
Total operating expenses
Operating loss
Interest expense, net
Other expense (income), net
Loss from continuing operations before income taxes
Benefit for income taxes (Note 11)
Net loss from continuing operations
Loss from discontinued operations, net of tax (Note 4)
Net loss
Net loss from continuing operations per share-basic and diluted (Note 13):
Net loss from discontinued operations per share-basic and diluted (Note 13):
Net loss per share-basic and diluted (Note 13):
$
December 30,
2018
836,190
180,153
656,037
Fiscal year ended
December 31,
2017
744,989
160,947
584,042
$
$
December 25,
2016
690,362
192,407
497,955
577,961
59,142
26,730
663,833
(7,796)
80,247
81,797
(169,840)
(536)
(169,304)
(201)
(169,505)
(1.50)
0.00
(1.51)
$
$
$
$
525,222
50,115
28,396
603,733
(19,691)
74,644
5,570
(99,905)
(34,968)
(64,937)
(137,661)
(202,598)
(0.62)
(1.32)
(1.94)
541,558
50,514
28,841
620,913
(122,958)
58,530
(3,148)
(178,340)
(13,406)
(164,934)
(267,439)
(432,373)
(1.60)
(2.60)
(4.20)
$
$
$
$
$
$
$
$
Weighted-average number of ordinary shares outstanding-basic and diluted
112,592
104,531
102,968
___________________________
1
2
Cost of sales includes amortization of inventory step-up adjustment of $37.7 million for the fiscal year ended December 25,
2016.
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
Cost of sales
Selling, general and administrative
Research and development
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
$
$
585
23,608
1,927
$
565
17,705
1,123
414
13,216
786
The accompanying notes are an integral part of these consolidated financial statements.
88
Wright Medical Group N.V.
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss
Other comprehensive (loss) income, net of tax:
Changes in foreign currency translation
Other comprehensive (loss) income
December 30,
2018
(169,505)
$
Fiscal year ended
December 31,
2017
(202,598)
$
December 25,
2016
(432,373)
$
(30,373)
(30,373)
41,751
41,751
(8,977)
(8,977)
Comprehensive loss
$
(199,878)
$
(160,847)
$
(441,350)
The accompanying notes are an integral part of these consolidated financial statements.
89
Wright Medical Group N.V.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation
Share-based compensation expense (Note 14)
Amortization of intangible assets
Amortization of deferred financing costs and debt discount
Deferred income taxes (Note 11)
Provision for excess and obsolete inventory
Non-cash loss on extinguishment of debt
Amortization of inventory step-up adjustment
Non-cash adjustment to derivative fair value
Loss on sale of business (Note 4)
Mark-to-market adjustment for CVRs (Note 2)
Other
Changes in assets and liabilities (net of acquisitions):
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other liabilities
CVR product sales milestone payment
Metal on metal product liabilities (Note 16)
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired (Note 3)
Purchase of intangible assets
Proceeds from sale of assets / businesses
Other investing
Net cash used in investing activities
Financing activities:
Issuance of ordinary shares
Proceeds from equity offering
Payment of equity offering costs
Issuance of warrants
Payment of notes hedge options
Repurchase of stock warrants
Payment of notes premium
Proceeds from notes hedge options
Proceeds from exchangeable senior notes
Proceeds from other debt
Payments of debt
Redemption of convertible notes
Payments of deferred financing costs
Payment of equity issuance costs
Payment of contingent consideration
Payments of capital leases
Net cash provided by financing activities
Effect of exchange rates on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year 1
Cash, cash equivalents and restricted cash, end of year 1
___________________________
$
$
90
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
$ (169,505)
$ (202,598)
$ (432,373)
59,497
26,120
26,730
54,630
(4,543)
20,913
39,935
352
35,934
—
140
(1,617)
(8,223)
(35,887)
45,712
6,022
(14,839)
(42,044)
(103,056)
(63,729)
(71,467)
(434,289)
(2,483)
—
(2,000)
(510,239)
21,618
448,924
(25,896)
102,137
(141,278)
(23,972)
(55,643)
34,553
675,000
25,243
(38,637)
(400,911)
(14,701)
(1,870)
(919)
(5,508)
598,140
(561)
23,611
167,740
191,351
56,832
19,393
28,396
50,379
(13,791)
19,171
—
—
(4,797)
—
5,320
1,385
2,483
(29,526)
(22,744)
6,260
(21,834)
—
(79,139)
(184,810)
(63,474)
(44,128)
(2,099)
280
—
(109,421)
27,551
—
—
—
—
—
—
—
—
34,901
(11,517)
—
—
—
(1,429)
(2,690)
46,816
2,890
(244,525)
412,265
167,740
56,782
14,416
29,180
40,487
(20,583)
22,046
12,343
41,503
(28,273)
21,342
8,688
4,425
(1,118)
(187)
22,441
1,495
(11,251)
—
256,461
37,824
(50,099)
—
(4,845)
20,703
—
(34,241)
8,460
—
—
54,629
(99,816)
(3,319)
(1,619)
3,892
—
425,821
—
(102,974)
(10,110)
(998)
(1,035)
(2,514)
270,417
(1,539)
272,461
139,804
412,265
$
$
$
$
1
As of December 30, 2018, December 31, 2017, and December 25, 2016, we had cash and cash equivalents of $191.4 million,
$167.7 million, and $262.3 million, respectively. As of December 25, 2016, we had $150.0 million in restricted cash to secure
our obligations under a Master Settlement Agreement (MSA) that WMT entered into in connection with the metal-on-metal hip
litigation as described in Note 16.
The accompanying notes are an integral part of these consolidated financial statements.
91
Wright Medical Group N.V.
Consolidated Statements of Changes in Shareholders’ Equity
For the fiscal years ended December 25, 2016, December 31, 2017, and December 30, 2018
(In thousands, except share data)
Balance at December 27, 2015 1
2016 Activity:
Net loss
Foreign currency translation
Issuances of ordinary shares
Vesting of restricted stock units
Share-based compensation
Issuance of stock warrants, net of
repurchases and equity issuance costs
Balance at December 25, 2016
2017 Activity:
Net loss
Foreign currency translation
Issuances of ordinary shares
Shares issued in connection with
IMASCAP acquisition
Vesting of restricted stock units
Share-based compensation
Balance at December 31, 2017
2018 Activity:
Net loss
Foreign currency translation
Issuances of ordinary shares
Shares issued for public offering (Note
13)
Vesting of restricted stock units
Share-based compensation
Issuance of stock warrants, net of
repurchases and equity issuance costs
Balance at December 30, 2018
___________________________
Ordinary shares
Number of
shares
102,672,678
Amount
3,790
$
Additional
paid-in
capital
$ 1,835,586
Accumulated
deficit
(773,866)
$
Accumulated
other
comprehensive
(loss) income
(10,484)
$
Total
shareholders’
equity
$ 1,055,026
—
—
440,355
287,962
—
—
—
15
10
—
—
—
8,455
(10)
14,406
(432,373)
—
—
—
—
—
(8,977)
—
—
—
(432,373)
(8,977)
8,470
—
14,406
—
103,400,995
$
—
3,815
50,312
$ 1,908,749
—
$ (1,206,239)
$
—
(19,461)
50,312
$ 686,864
—
—
1,352,549
—
—
45
—
—
27,506
(202,598)
—
—
661,753
392,127
—
105,807,424
$
23
13
—
3,896
15,620
(13)
19,485
$ 1,971,347
—
—
—
$ (1,408,837)
$
—
—
1,043,685
18,248,932
455,710
—
—
—
36
641
16
—
—
—
21,582
422,387
(16)
26,039
(169,505)
—
—
—
—
—
—
41,751
—
—
—
—
22,290
—
(30,373)
—
—
—
—
—
125,555,751
$
—
4,589
72,956
$ 2,514,295
—
$ (1,578,342)
$
—
(8,083)
$
(202,598)
41,751
27,551
15,643
—
19,485
$ 588,696
(169,505)
(30,373)
21,618
423,028
—
26,039
72,956
932,459
1
During 2015, the 2014 balances of ordinary shares and additional paid in capital were restated to meet post-merger conversion
values.
The accompanying notes are an integral part of these consolidated financial statements.
92
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Description of Business
Wright Medical Group N.V. is a global medical device company focused on extremities and biologics products. We are committed
to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized leader of
surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics
markets, three of the fastest growing segments in orthopaedics. We market our products in approximately 50 countries worldwide.
Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in
Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative
(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:12)(cid:30)(cid:3)(cid:37)(cid:79)(cid:82)(cid:82)(cid:80)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:76)(cid:81)(cid:81)(cid:72)(cid:86)(cid:82)(cid:87)(cid:68)(cid:3)(cid:11)(cid:88)(cid:83)(cid:83)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:36)(cid:85)(cid:79)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)
(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:41)(cid:85)(cid:68)(cid:81)(cid:78)(cid:79)(cid:76)(cid:81)(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:38)(cid:82)(cid:79)(cid:88)(cid:80)(cid:69)(cid:76)(cid:68)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)
(cid:44)(cid:81)(cid:71)(cid:76)(cid:68)(cid:81)(cid:68)(cid:3) (cid:11)(cid:85)(cid:72)(cid:86)(cid:72)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:12)(cid:30)(cid:3) (cid:36)(cid:79)(cid:83)(cid:75)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:68)(cid:15)(cid:3) (cid:42)(cid:72)(cid:82)(cid:85)(cid:74)(cid:76)(cid:68)(cid:3) (cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3) (cid:48)(cid:82)(cid:81)(cid:87)(cid:69)(cid:82)(cid:81)(cid:81)(cid:82)(cid:87)(cid:15)(cid:3) (cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:12)(cid:30)(cid:3)(cid:51)(cid:79)(cid:82)(cid:88)(cid:93)(cid:68)(cid:81)(cid:112)(cid:15)(cid:3)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:11)(cid:85)(cid:72)(cid:86)(cid:72)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:68)(cid:70)(cid:85)(cid:82)(cid:82)(cid:80)(cid:15)(cid:3)(cid:44)(cid:85)(cid:72)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:12)(cid:17)(cid:3)(cid:3)
In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe. For
purposes of this report, references to “international” or “foreign” relate to non-U.S. matters while references to “domestic” relate to
U.S. matters. Our common stock is traded on the Nasdaq Global Select Market under the symbol “WMGI.”
Our fiscal year-end is generally determined on a 52-week basis and runs from the Monday nearest to the 31st of December of a year,
and ends on the Sunday nearest to the 31st of December of the following year. Every few years, it is necessary to add an extra week
to the year making it a 53-week period. The fiscal years ended December 30, 2018 and December 25, 2016 were 52-week periods.
The fiscal year ended December 31, 2017 was a 53-week period. References in this report to a particular year generally refer to the
applicable fiscal year. Accordingly, references to “2018” or “the year ended December 30, 2018” mean the fiscal year ended
December 30, 2018.
The consolidated financial statements and accompanying notes present our consolidated results for each of the fiscal years in the
three-year period ended December 30, 2018, December 31, 2017, and December 25, 2016.
All amounts are presented in U.S. dollars ($), except where expressly stated as being in other currencies, e.g., Euros (€).
References in these notes to consolidated financial statements to “we,” “our” and “us” refer to Wright Medical Group N.V. and its
subsidiaries after the Wright/Tornier merger and Wright Medical Group, Inc. and its subsidiaries before the Wright/Tornier merger.
2.
Summary of Significant Accounting Policies
Principles of consolidation. The accompanying consolidated financial statements include our accounts and those of our controlled
subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with US GAAP 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, accounting for business combinations and
the evaluation of goodwill and long-lived assets, valuation of in-process research and development, product liability claims, product
liability insurance recoveries and other litigation, income taxes, and share-based compensation.
Discontinued operations. On October 21, 2016, pursuant to a binding offer letter dated as of July 8, 2016, Tornier France SAS and
certain other entities related to us and Corin entered into a business sale agreement and simultaneously completed and closed the
sale of our Large Joints business. Pursuant to the terms of the agreement, we sold substantially all of our assets related to our Large
Joints business to Corin for approximately €29.7 million in cash, less approximately €11.1 million for net working capital
adjustments. Upon closing, the parties also executed a transitional services agreement and supply agreement, among other ancillary
agreements required to implement the transaction. These agreements were on arm’s length terms and were not material to our
financial statements.
On January 9, 2014, pursuant to an Asset Purchase Agreement, dated as of June 18, 2013 (the MicroPort Agreement), by and among
us and MicroPort, we completed the divesture and sale of our business operations operating under our prior OrthoRecon operating
segment (the OrthoRecon Business) to MicroPort. Pursuant to the terms of the MicroPort Agreement, the purchase price (as defined
in the agreement) for the OrthoRecon Business was approximately $283 million (including a working capital adjustment), which
MicroPort paid in cash.
All historical operating results for the Large Joints and OrthoRecon businesses, including costs associated with corporate employees
and infrastructure transferred as a part of the sales, are reflected within discontinued operations in the consolidated statements of
operations. See Note 4 for further discussion of discontinued operations. Other than Note 4, unless otherwise stated, all discussion
93
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
of assets and liabilities in these Notes to the Consolidated Financial Statements reflect the assets and liabilities held and used in our
continuing operations, and all discussion of revenues and expenses reflect those associated with our continuing operations.
Cash and cash equivalents. Cash and cash equivalents include all cash balances and short-term investments with original maturities
of three months or less. Any such investments are readily convertible into known amounts of cash, and are so near their maturity that
they present insignificant risk of changes in value because of interest rate variation.
Inventories. Our inventories are valued at the lower of cost or market on a FIFO basis. Inventory costs include material, labor costs,
and manufacturing overhead. Our excess and obsolete inventory reserve is based on both the current age of kit inventory as
compared to its estimated life cycle and our forecasted product demand and production requirements for other inventory items for
the next 36 months.
Total charges incurred to write down excess and obsolete inventory to net realizable value included in “Cost of sales” were
approximately $20.9 million, $19.2 million, and $21.5 million for the fiscal years ended December 30, 2018, December 31, 2017,
and December 25, 2016, respectively. During the fiscal years ended December 30, 2018, December 31, 2017, and December 25,
2016, our excess and obsolete charges included product rationalization initiative adjustments of $4.4 million, $3.1 million, and
$4.1 million, respectively.
Product liability claims and related insurance recoveries and other litigation. We are involved in legal proceedings involving
product liability claims as well as contract, patent protection, and other matters. See Note 16 for additional information regarding
product liability claims, product liability insurance recoveries, and other litigation.
We make provisions for claims specifically identified for which we believe the likelihood of an unfavorable outcome is probable and
the amount of loss can be estimated. For unresolved contingencies with potentially material exposure that are deemed reasonably
possible, we evaluate whether a potential loss or range of loss can be reasonably estimated. Our evaluation of these matters is the
result of a comprehensive process designed to ensure that recognition of a loss or disclosure of these contingencies is made in a
timely manner. In determining whether a loss should be accrued or a loss contingency disclosed, we evaluate a number of factors
including: the procedural status (cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:88)(cid:76)(cid:87)(cid:30)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:80)(cid:76)(cid:86)(cid:86)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:88)(cid:76)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)
(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:68)(cid:85)(cid:69)(cid:76)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)agement’s
estimate of the likelihood of success prior to or at trial. The estimates used to establish a range of loss and the amounts to accrue are
based on previous settlement experience, consultation with legal counsel, and management’s settlement strategies. If the estimate of
a probable loss is in a range and no amount within the range is more likely, we accrue the minimum amount of the range. We
recognize legal fees as an expense in the period incurred. These expenses are reflected in either continuing or discontinued
operations depending on the product associated with the claim.
We record insurance recoveries from product liability insurance that is in force when they are realized or realizable, when we believe
it is probable that the insurance carrier will settle the claim.
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 and building improvements
Machinery and equipment
Furniture, fixtures and office equipment
Surgical instruments
15 to 25 years
10 to 40 years
3 to 14 years
3 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.
Valuation of long-lived assets. Management periodically evaluates carrying values of long-lived assets, including property, plant and
equipment and finite-lived 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
long-lived assets 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 difference between the asset’s fair market value and the
asset's carrying value.
94
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Intangible assets and goodwill. Goodwill is recognized for the excess of the purchase price over the fair value of net assets of
businesses acquired. FASB ASC 350-30-35-18 requires companies to evaluate for impairment intangible assets not subject to
amortization, such as our IPRD assets, if events or changes in circumstances indicate than an asset might be impaired. Further,
FASB ASC 350-20-35-30 requires companies to evaluate goodwill and intangibles not subject to amortization for impairment
between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. Unless circumstances otherwise dictate, the annual impairment test is performed on
October 1 each year. See Note 8 for discussion of our 2018 goodwill impairment analysis.
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. This method of amortization approximates the expected future cash flow generated from their use.
Finite-lived intangibles are reviewed for impairment in accordance with FASB ASC Section 360, Property, Plant and Equipment
(FASB ASC 360). The weighted average amortization periods for our intangible assets are as follows:
Completed technology
Distribution channels
Trademarks
Licenses
Customer relationships
Non-compete agreements
Other intangible assets
10 years
10 years
5 years
11 years
17 years
4 years
3 years
Allowances for doubtful accounts. (cid:58)(cid:72)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:15)(cid:3) (cid:90)(cid:72)(cid:3) (cid:80)(cid:88)(cid:86)(cid:87)(cid:3) (cid:80)(cid:68)(cid:78)(cid:72)(cid:3)
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.
The majority of our accounts receivable are from hospitals and surgery centers. Our collection history has been favorable with
minimal bad debts from these customers. 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 repeated collection efforts. Our allowance for
doubtful accounts totaled $3.0 million and $4.3 million at December 30, 2018 and December 31, 2017, respectively.
Concentration of credit risk. Financial instruments that 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. Collateral or other security is generally not required for accounts receivable.
Concentrations of supply of raw material. We rely on a limited number of suppliers for the components used in our products. For
certain human biologic products, such as Allomatrix®, we depend on one supplier of demineralized bone matrix and cancellous bone
matrix. We rely on two suppliers for our GRAFTJACKET® family of soft tissue repair and graft containment products.
Additionally, we have other soft tissue repair products for which we rely on one supplier, which include our ACTISHIELD™ and
ACTISHIELD™ CF Amniotic Barrier Membranes and VIAFLOW™ and VIAFLOW™ C Flowable Placental Tissue Matrices. We
maintain adequate stock from these suppliers in order to meet market demand.
We rely on one supplier for a key component of our AUGMENT® Bone Graft. In December 2013, our supplier notified us of its
intent to terminate the supply agreement in December 2015. This supplier was contractually required to meet our supply
requirements until the termination date, and to use commercially reasonable efforts to assist us in identifying a new supplier and
support the transfer of technology and supporting documentation to produce this component. In April 2016, we entered into a
commercial supply agreement with FUJIFILM Diosynth Biotechnologies U.S.A., Inc. pursuant to which Fujifilm agreed to
manufacture and sell to us and we agreed to purchase the key component of our AUGMENT® Bone Graft. Pursuant to our supply
agreement with Fujifilm, commercial production of the key component is expected to begin in 2020. Although we believe that our
current supply of the key component from our former supplier should be sufficient to last until after the component becomes
available under the new agreement, no assurance can be provided that it will be sufficient.
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. See Note 11 for further discussion
of our consolidated deferred tax assets and liabilities, and the associated valuation allowance.
95
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
In December 2017, the United States enacted new legislation under the 2017 Tax Act. We recognized the income tax effects of the
2017 Tax Act in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts under a one-year
measurement period. We finalized our accounting for the provisions of the 2017 Tax Act in the fourth-quarter 2018 with no material
impact on our financial statements.
During 2018, we have adopted ASU 2018-02, Reclassification of Certain Income Tax Effects from Accumulated Other
Comprehensive Income, issued in February 2018, allowing the reclassification of income tax effects of the 2017 Tax Act, referred to
as “stranded tax effects” by FASB, from accumulated other comprehensive income (AOCI) to retained earnings. This adoption did
not have a material impact on our financial statements.
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 statements 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 and surgery centers. Our products are sold
through a network of employee and independent sales representatives in the United States and by a combination of employee sales
representatives, independent sales representatives, and stocking distributors outside the United States. We record revenues from
sales to hospitals and surgery centers upon transfer of control of promised products in an amount that reflects the consideration we
expect to receive in exchange for those products, which is generally when the product is surgically implanted in a patient.
We record revenues from sales to our stocking distributors at a point in time upon transfer of control of promised products to the
distributor. Our stocking distributors, who sell the products to their customers, take control of the products and assume all risks of
ownership upon transfer. Our stocking distributors are obligated to pay us within specified terms regardless of when, if ever, they
(cid:86)(cid:72)(cid:79)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:30)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)ituations,
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. An insignificant amount of sales related to these
types of agreements was deferred and not yet recognized as revenue as of December 30, 2018 and December 31, 2017.
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 to customers are included in selling, general and
administrative expenses. Shipping and handling costs within selling, general and administrative expenses totaled $52.0 million,
$49.4 million and $44.0 million for the fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016,
respectively. These amounts include instrument depreciation which totaled $28.4 million, $27.1 million, and $26.1 million for the
fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, respectively. All other shipping and handling
costs are included in cost of sales.
Research and development costs. Research and development costs are charged to expense as incurred.
Foreign currency translation. The financial statements of our 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 loss in shareholders’ 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 statements of operations.
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 loss and our comprehensive loss is attributable
to foreign currency translation.
Share-based compensation. We account for share-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, share-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 share-based payment awards, such as
96
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. The determination of the fair value of performance-
based share-based payment awards, such as performance share units, is based on the estimated achievement of the established
performance criteria on the date of grant and updated at the end of each reporting period until the performance period ends. Share-
based compensation expense is only recognized for performance share units that we expect to vest, which we estimate based upon an
assessment of the probability that the performance criteria will be achieved.
We recorded share-based compensation expense of $26.1 million, $19.4 million, and $14.4 million during the fiscal years ended
December 30, 2018, December 31, 2017, and December 25, 2016, respectively, within our results of continuing operations. See
Note 14 for further information regarding our share-based compensation assumptions and expenses.
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.
During 2016 and 2017, we employed a derivative program using foreign currency forward contracts to mitigate the risk of currency
fluctuations on our intercompany receivable and payable balances that were denominated in foreign currencies. These forward
contracts were expected to offset the transactional gains and losses on the related intercompany balances. These forward contracts
were not designated as hedging instruments under FASB ASC 815. Accordingly, the changes in the fair value and the settlement of
the contracts were recognized in the period incurred in the accompanying consolidated statements of operations. We discontinued
our foreign currency forward contracts derivative program in 2018.
We recorded a net loss of approximately $4.6 million and $0.8 million on our foreign currency contracts for the fiscal years ended
December 31, 2017 and December 25, 2016, respectively. These losses substantially offset translation gains recorded on our
intercompany receivable and payable balances, and are also included in “Other (income) expense, net.”
On February 13, 2015, May 20, 2016, and June 28, 2018, we issued the 2020 Notes, 2021 Notes, and 2023 Notes, respectively, as
defined and described in Note 9. The 2020 Notes Conversion Derivatives, 2021 Notes Conversion Derivatives, and 2023 Notes
Conversion Derivatives each as defined and described in Note 6, require bifurcation from the 2020 Notes, 2021 Notes, and 2023
Notes in accordance with ASC Topic 815, and are accounted for as derivative liabilities. We also entered into 2020, 2021, and 2023
Notes Hedges, as defined and described in Note 6, in connection with the issuance of the 2020, 2021, and 2023 Notes. The 2020,
2021, and 2023 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are
required to make upon conversion of the 2020, 2021, and 2023 Notes in excess of the principal amount of converted notes if our
ordinary share price exceeds the conversion price. The 2020, 2021, and 2023 Notes Hedges are accounted for as derivative assets in
accordance with ASC Topic 815.
Supplemental cash flow information. Cash paid for interest and income taxes was as follows (in thousands):
Interest
Income taxes
December 30,
2018
30,552
6,254
$
$
Fiscal year ended
December 31,
2017
24,641
7,359
$
$
December 25,
2016
18,678
4,334
$
$
Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2014-09, Revenue from Contracts with Customers, and has subsequently issued several supplemental and/or
clarifying ASUs (collectively ASC 606). Accounting Standards Codification (ASC) 606 prescribes a single common revenue
standard that replaces most existing US GAAP revenue recognition guidance. ASC 606 outlines a five-step model, under which we
recognize revenue as performance obligations within a customer contract are satisfied. ASC 606 is intended to provide more
consistent interpretation and application of the principles outlined in the standard across filers in multiple industries and within the
same industries compared to current practices, which should improve comparability. We adopted ASC 606 during 2018. Revenue is
recognized at a point in time, generally upon surgical implantation or shipment of products to distributors. Therefore, adoption of
ASC 606 did not have a material effect on our consolidated financial statements except for the additional disclosures included within
Note 18.
On February 25, 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying
ASUs (collectively ASC 842). ASC 842 introduces a lessee model that brings most leases on the balance sheet. The new standard
also aligns many of the underlying principles of the new lessor model with those in FASB ASC 606, the FASB’s new revenue
recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, ASC 842 addresses other
97
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
concerns related to the current leases model. ASC 842 will be effective for us beginning in fiscal year 2019. We have evaluated the
practical expedients and plan to adopt the hindsight practical expedient, the practical expedient for short-term leases, the practical
expedient package which primarily limits the need for reassessing lease classification on existing leases, and to issue our financial
statements showing comparative lease disclosures under current GAAP. We anticipate this adoption will add approximately $40
million on our consolidated balance sheet as of March 31, 2019 as a right of use asset and a right of use liability. We do not
anticipate adoption will have a material impact on net earnings or cash flows.
On August 29, 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) to
provide guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. Specifically,
the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a
customer should apply ASC 350-40, Internal Use Software, to determine which implementation costs should be capitalized in such a
CCA. The ASU will be effective for us beginning in fiscal year 2020. We are in the initial phases of our adoption plans and,
accordingly, we are unable to estimate any effect this may have on our consolidated financial statements.
3.
Acquisitions
Cartiva, Inc.
On October 10, 2018, we completed the acquisition of Cartiva, Inc. (Cartiva), an orthopaedic medical device company focused on
treatment of osteoarthritis of the great toe. Under the terms of the agreement with Cartiva, we acquired 100% of the outstanding
equity on a fully diluted basis of Cartiva for a total price of $435 million in cash, subject to certain adjustments which totaled
$1.1 million, as set forth in the purchase agreement, $0.7 million of which was refunded in 2019. We funded the acquisition with the
proceeds from a registered underwritten public offering of 18.2 million ordinary shares which had net proceeds of $423.0 million.
See Note 13 for additional details related to the public offering. This acquisition adds a differentiated PMA approved technology for
a high-volume foot and ankle procedure and further accelerates growth opportunities in our global extremities business. The results
of operations of Cartiva is included in our consolidated financial statements for all periods after completion of the acquisition.
The acquired business contributed net sales of $9.5 million and operating income of $2.4 million to our consolidated results of
operations from the date of acquisition through December 30, 2018, which included $0.4 million of inventory step-up amortization
and $1.9 million of intangible asset amortization. This operating income does not include the merger-related transaction costs
discussed below.
Merger-Related Transaction Costs
In conjunction with the merger, we incurred approximately $6.5 million of merger-related transaction costs during the fiscal year
ended December 30, 2018, which was recognized within selling, general and administrative expense in our consolidated statements
of operations. These expenses primarily related to advisory fees, legal fees, and accounting and tax professional fees.
Purchase Consideration and Net Assets Acquired
The following presents the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed on
October 10, 2018 (in thousands):
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Total assets acquired
Current liabilities
Deferred income taxes
Total liabilities assumed
Net assets acquired
Goodwill
Total preliminary purchase consideration
98
$
$
$
309
4,352
2,686
486
1,446
81,000
90,279
(4,226)
(3,622)
(7,848)
82,431
351,445
433,876
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition
date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.
Wright’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date)
as we finalize our valuations of assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the
purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.
Trade receivables and payables, as well as certain other current assets and property, plant and equipment, were valued at the existing
carrying values as they approximated the fair value of those items at the acquisition date, based on management’s judgments and
estimates. Trade receivables included gross contractual amounts of $5.8 million and our best estimate of $1.4 million which
represented contractual cash flows not expected to be collected at the acquisition date. Inventory was recorded at estimated selling
price less costs of disposal and a reasonable selling profit. The resulting inventory step-up adjustment is being recognized in cost of
sales as the related inventory is sold.
In determining the fair value of intangibles, we used an income method which is based on forecasts of the expected future cash flows
attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other
marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability),
technology life cycles, customer attrition rates, and the discount rate applied to the cash flows.
Of the $81.0 million of acquired intangible assets, $52.0 million was assigned to customer relationships (15 year life), $28.0 million
was assigned to developed technology (7 year life), and $1.0 million was assigned to in-process research and development.
The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The goodwill is
primarily attributable to strategic opportunities that arose from the acquisition of Cartiva. The goodwill is not expected to be
deductible for tax purposes.
Pro Forma Condensed Combined Financial Information (Unaudited)
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as
if the Cartiva acquisition had been completed as of December 26, 2016, the beginning of Wright's fiscal year 2017.
Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are
directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect the amortization of the
inventory step-up and the incremental intangible asset amortization to be incurred based on the preliminary values of each
identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been
obtained if the acquisition had occurred as of December 26, 2016 or that may be obtained in the future, and do not reflect future
synergies, integration costs, or other such costs or savings.
Net sales
Net loss from continuing operations
Year ended
December 30, 2018
861,475
(179,800)
$
Year ended
December 31, 2017
769,111
(68,722)
$
The pro forma net loss for the year ended December 30, 2018 includes the following non-recurring items: $15.3 million of
acquisition-related transaction expenses.
IMASCAP
On December 14, 2017, we completed the acquisition of IMASCAP, a leader in the development of software-based solutions for
preoperative planning of shoulder replacement surgery. The intent of this transaction is to ensure exclusive access to breakthrough
software enabling technology and patents to further differentiate our product portfolio and to further accelerate growth opportunities
in our global extremities business. Under the terms of the agreement with IMASCAP, we acquired 100% of IMASCAP’s
outstanding equity on a fully diluted basis for an initial payment of €52.9 million, or approximately $62.3 million, consisting of
approximately €39.7 million, or approximately $46.7 million, in cash and approximately €13.2 million, or approximately $15.6
million, representing 661,753 Wright ordinary shares, payable at closing. Additionally, the purchase price included an estimated
€15.1 million, or approximately $17.8 million, of contingent consideration related to the achievement of certain technical milestones
and sales earnouts. The technical milestones involve the development and approval of a next generation reverse shoulder implant
system and new software modules. The sales earnouts relate to certain guides and the next generation reverse shoulder implant
system.
99
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Purchase Consideration and Net Assets Acquired
The following presents the allocation of the purchase consideration to the assets acquired and liabilities assumed on December 14,
2017 (in thousands):
Cash and cash equivalents
Accounts receivable
Other current assets
Property, plant and equipment
Intangible assets
Total assets acquired
Current liabilities
Long-term debt
Deferred income taxes
Total liabilities assumed
Net assets acquired
Goodwill
Total purchase consideration
$
$
$
2,559
102
925
20
10,865
14,471
(2,173)
(886)
(2,343)
(5,402)
9,069
71,064
80,133
The purchase consideration was allocated to the net assets acquired based on their estimated fair values at the acquisition date. The
fair values were based on management’s analysis, including work performed by third-party valuation specialists.
Operating assets and liabilities were valued at their existing carrying values as they approximated the fair value of those items at the
acquisition date, based on management’s judgments and estimates.
In determining the fair value of intangibles, we used an income method which is based on forecasts of the expected future cash flows
attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other
marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability),
technology life cycles, and the discount rate applied to the cash flows.
Of the $10.9 million of acquired intangible assets, $5.6 million was assigned to developed technology (6 year life) and $5.3 million
was assigned to in-process research and development.
The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The goodwill is
primarily attributable to strategic opportunities that arose from the acquisition of IMASCAP. The goodwill is not expected to be
deductible for tax purposes.
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:48)(cid:36)(cid:54)(cid:38)(cid:36)(cid:51)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:30)(cid:3)other
c(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:7)(cid:19)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)decrease in
the preliminary value of goodwill determined as of December 14, 2017.
4.
Discontinued Operations
For the fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, our loss from discontinued operations,
net of tax, totaled $0.2 million, $137.7 million, and $267.4 million, respectively, and was attributable primarily to expenses
associated with Wright’s former OrthoRecon business and, to a lesser degree, the former Large Joints business.
Large Joints Business
On October 21, 2016, pursuant to a binding offer letter dated as of July 8, 2016, Tornier France, Corin, and certain other entities
related to us and Corin entered into a business sale agreement and simultaneously completed and closed the sale of our Large Joints
business. Pursuant to the terms of the agreement, we sold substantially all of the assets related to our Large Joints business to Corin
for approximately €29.7 million in cash, less approximately €11.1 million for net working capital adjustments. Upon closing, the
parties also executed a transitional services agreement and supply agreement, among other ancillary agreements required to
implement the transaction. These agreements are on arm’s length terms and are not expected to be material to our consolidated
financial statements.
All historical operating results for the Large Joints business as well as continued involvement in accordance with the transitional
service agreement and supply agreement are reflected within discontinued operations in the consolidated statements of operations.
100
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
We recognized an impairment loss on assets held for sale of $21.3 million, before the effect of income taxes during 2016, based on
the difference between the net carrying value of the assets and liabilities held for sale and the purchase price, less estimated
adjustments and costs to sell. This loss was recorded within “Net loss from discontinued operations” in our consolidated statements
of operations for the fiscal year ended December 25, 2016.
For the fiscal year ended December 30, 2018, our loss from discontinued operations for the Large Joints business, net of tax, totaled
$0.7 million and was primarily attributable to costs associated with transition services. For the fiscal year ended December 31,
2017, our loss from discontinued operations for the Large Joints business, net of tax, totaled $4.1 million and was primarily
attributable to professional fees and internal costs to support transition activities, costs associated with transition services and
working capital adjustments.
The following table summarizes the results of discontinued operations for the Large Joints business (in thousands) for the fiscal year
ended December 25, 2016:
Net sales
Cost of sales
Selling, general and administrative
Loss from discontinued operations before income taxes
Impairment loss on assets held for sale, before income taxes
Total loss from discontinued operations before income taxes
Benefit for income taxes
Total loss from discontinued operations, net of tax
Fiscal year ended
December 25, 2016
35,318
20,244
18,808
(3,734)
21,342
(25,076)
(5,615)
(19,461)
$
$
Cash provided by operating activities from the Large Joints business totaled $2.8 million for the fiscal year ended December 30,
2018. Cash used in operating activities by the Large Joints business totaled $6.5 million for the fiscal year ended December 31,
2017. Cash provided by operating activities and investing activities from the Large Joints business totaled $5.2 million and $20.7
million, respectively, for the fiscal year ended December 25, 2016.
OrthoRecon Business
On January 9, 2014, legacy Wright completed the divestiture and sale of its OrthoRecon business to MicroPort. Pursuant to the
terms of the agreement, the purchase price (as defined in the agreement) was approximately $283.0 million (including a working
capital adjustment), which MicroPort paid in cash. As a result of the transaction, we recognized approximately $24.3 million as the
gain on disposal of the OrthoRecon business, before the effect of income taxes.
Certain liabilities associated with the OrthoRecon business, including product liability claims associated with hip and knee products
sold by legacy Wright prior to the closing, were not assumed by MicroPort. Charges associated with these product liability claims,
including legal defense, settlements and judgments, income associated with product liability insurance recoveries, and changes to
any contingent liabilities associated with the OrthoRecon business have been reflected within results of discontinued operations, and
we will continue to reflect these within results of discontinued operations in future periods.
All current and historical operating results for the OrthoRecon business are reflected within discontinued operations in the
consolidated financial statements. The following table summarizes the results of discontinued operations for the OrthoRecon
business (in thousands, except per share data):
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
Net sales
Selling, general and administrative
Income (loss) from discontinued operations before income taxes
Provision (benefit) for income taxes
Total income (loss) from discontinued operations, net of tax
$
$
— $
— $
(746)
746
221
525
135,235
(135,235)
(1,707)
$ (133,528)
—
247,978
(247,978)
—
$ (247,978)
In 2018, charges associated with product liability claims from the OrthoRecon business were fully offset by insurance recoveries.
As described within Note 16, in September 2015, the third insurance carrier in the policy year applicable to titanium modular neck
fracture claims denied coverage under its $25 million excess liability policy despite full payout by the other carriers in that policy
year. We strongly disputed the carrier’s position and, in accordance with the dispute resolution provisions of the policy, initiated an
101
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
arbitration proceeding in London, England seeking payment of these funds. The arbitration proceeding was completed on February
15, 2018 and, on April 11, 2018, the arbitration tribunal issued its ruling. Thereafter, we and the insurance carrier agreed to resolve
the entire matter in exchange for a single lump sum payment by the carrier to us in the amount of $30.75 million, representing the
full policy limits of $25 million plus an additional $5.75 million for legal costs and interest. We received payment of this sum from
the carrier on May 8, 2018 and have reflected this insurance recovery within our results of discontinued operations for 2018.
During the fiscal years ended 2017 and 2016, the majority of our loss from discontinued operations was the result of our retained
metal-on-metal product liability claims. During the fiscal years ended December 31, 2017 and December 25, 2016, we recognized
charges, net of insurance proceeds, of $94.0 million, and $196.6 million respectively, within discontinued operations related to the
retained metal-on-metal product liability claims associated with the OrthoRecon business (see Note 16 for additional discussion).
We will incur continuing cash outflows associated with legal defense costs and the ultimate resolution of these contingent liabilities,
net of insurance proceeds, until these liabilities are resolved. Cash used in operating activities by the OrthoRecon business totaled
$91.4 million for the fiscal year ended December 30, 2018 and $221.6 million for the fiscal year ended December 31, 2017. Cash
provided by operating activities from the OrthoRecon business totaled $16.7 million for the fiscal year ended December 25, 2016,
primarily due to the receipt of a $60 million insurance settlement, offset by legal defense costs and settlement of product liabilities.
5.
Inventories
Inventories consist of the following (in thousands):
Raw materials
Work-in-process
Finished goods
December 30,
2018
$
$
9,612
26,839
144,239
180,690
$
December 31,
2017
10,816
28,581
128,747
168,144
$
Finished goods inventories held as of December 30, 2018 includes an inventory fair value step-up of $1.0 million related to the
acquisition of Cartiva, which will be fully amortized in 2019. Total step-up related to the Cartiva acquisition was $1.4 million, of
which $0.4 million was amortized in the fourth quarter of 2018.
6.
Fair Value of Financial Instruments and Derivatives
We account for derivatives in accordance with FASB ASC 815, which establishes accounting and reporting standards requiring that
derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in
the derivatives’ fair value shall be recognized currently in earnings unless specific hedge accounting criteria are met.
FASB ASC Section 820, Fair Value Measurements and Disclosures 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:
Level 3:
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.
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.
2023 Notes Conversion Derivative and Notes Hedges
On June 28, 2018, we issued $675 million aggregate principal amount of 1.625% cash exchangeable senior notes due 2023 (2023
Notes). See Note 9 of the condensed consolidated financial statements for additional information regarding the 2023 Notes. The
2023 Notes have a conversion derivative feature (2023 Notes Conversion Derivative) that requires bifurcation from the 2023 Notes
in accordance with ASC Topic 815 and is accounted for as a derivative liability. The fair value of the 2023 Notes Conversion
Derivative at the time of issuance of the 2023 Notes was $124.6 million.
102
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In connection with the issuance of the 2023 Notes, we entered into hedges (2023 Notes Hedges) with two option counterparties. The
2023 Notes Hedges, which are cash-settled, are generally intended to reduce our exposure to potential cash payments that we are
required to make upon conversion of the 2023 Notes in excess of the principal amount of converted notes if our ordinary share price
exceeds the conversion price. The aggregate cost of the 2023 Notes Hedges was $141.3 million and is accounted for as a derivative
asset in accordance with ASC Topic 815. However, in connection with certain events, these option counterparties have the
discretion to make certain adjustments to the 2023 Note Hedges, which may reduce the effectiveness of the 2023 Note Hedges.
The following table summarizes the fair value and the presentation in our consolidated balance sheets (in thousands) of the 2023
Notes Hedges and 2023 Notes Conversion Derivative:
2023 Notes Hedges
2023 Notes Conversion Derivative
Location on consolidated balance sheet
Other assets
Other liabilities
$
$
December 30, 2018
115,923
116,833
The 2023 Notes Hedges and the 2023 Notes Conversion Derivative are measured at fair value using Level 3 inputs. These
instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data
for inputs.
Neither the 2023 Notes Conversion Derivative nor the 2023 Notes Hedges qualify for h(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:87)(cid:75)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
fair value of the derivatives are recognized immediately in our consolidated statements of operations. The following table
summarizes the net (loss) gain on changes in fair value (in thousands) related to the 2023 Notes Hedges and 2023 Notes Conversion
Derivative:
2023 Notes Hedges
2023 Notes Conversion Derivative
Net loss on changes in fair value
Fiscal year ended
December 30, 2018
(25,355)
7,792
(17,563)
$
$
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 for additional
information about this transaction.
2021 Notes Conversion Derivative and Notes Hedges
On May 20, 2016, we issued $395 million aggregate principal amount of 2.25% 2021 Notes. See Note 9 of the consolidated
financial statements for additional information regarding the 2021 Notes. The 2021 Notes have a conversion derivative feature
(2021 Notes Conversion Derivative) that requires bifurcation from the 2021 Notes in accordance with ASC Topic 815, and is
accounted for as a derivative liability. The fair value of the 2021 Notes Conversion Derivative at the time of issuance of the 2021
Notes was $117.2 million.
In connection with the issuance of the 2021 Notes, we entered into hedges (2021 Notes Hedges) with two option counterparties. The
2021 Notes Hedges, which are cash-settled, are generally intended to reduce our exposure to potential cash payments that we are
required to make upon conversion of the 2021 Notes in excess of the principal amount of converted notes if our ordinary share price
exceeds the conversion price. The aggregate cost of the 2021 Notes Hedges was $99.8 million and is accounted for as a derivative
asset in accordance with ASC Topic 815. However, in connection with certain events, these option counterparties have the
discretion to make certain adjustments to the 2021 Note Hedges, which may reduce the effectiveness of the 2021 Note Hedges.
The following table summarizes the fair value and the presentation in our consolidated balance sheets (in thousands) of the 2021
Notes Hedges and 2021 Notes Conversion Derivative:
2021 Notes Hedges
2021 Notes Conversion Derivative
Location on consolidated
balance sheet
Other assets
Other liabilities
December 30,
2018
December 31,
2017
$
$
188,301
187,539
$
$
127,063
126,148
In the third fiscal quarter of 2018, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price
for 20 or more of the 30 consecutive trading days preceding the quarter-(cid:72)(cid:81)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)s had the
103
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
ability to convert the notes during the succeeding quarterly period. Due to the ability of the holders of the 2021 Notes to convert the
notes during this period, the carrying value of the 2021 Notes and the fair value of the 2021 Notes Conversion Derivative were
classified as current liabilities, and the fair value of the 2021 Notes Hedges were classified as current assets as of September 30,
2018. There were no conversions during the fourth quarter of 2018. The closing price of our ordinary shares was less than 130% of
the 2021 Notes conversion price for more than 20 of the 30 consecutive trading days preceding the calendar fiscal quarter ended
December 30, 2018, which resulted in the 2021 Notes no longer being convertible. As such, the 2021 Notes, 2021 Notes Conversion
Derivative and 2021 Notes Hedges were classified as long-term as of December 30, 2018.
The 2021 Notes Hedges and the 2021 Notes Conversion Derivative are measured at fair value using Level 3 inputs. These
instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data
for inputs.
(cid:49)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:81)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:87)(cid:75)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)
fair value of the derivatives is recognized immediately in the consolidated statements of operations.
The following table summarizes the net gain (loss) on changes in fair value (in thousands) related to the 2021 Notes Hedges and
2021 Notes Conversion Derivative:
2021 Notes Hedges
2021 Notes Conversion Derivative
Net (loss)/gain on changes in fair value
2020 Notes Conversion Derivative and Notes Hedges
Fiscal year ended
December 30,
2018
December 31,
2017
$
$
61,238
(61,391)
(153)
$
$
(32,032)
35,453
3,421
On February 13, 2015, WMG issued $632.5 million aggregate principal amount of 2.00% cash convertible senior notes due 2020
(2020 Notes). See Note 9 of the consolidated financial statements for additional information regarding the 2020 Notes. The 2020
Notes have a conversion derivative feature (2020 Notes Conversion Derivative) that requires bifurcation from the 2020 Notes in
accordance with ASC Topic 815, and is accounted for as a derivative liability. The fair value of the 2020 Notes Conversion
Derivative at the time of issuance of the 2020 Notes was $149.8 million.
In connection with the issuance of the 2020 Notes, WMG entered into hedges (2020 Notes Hedges) with three option counterparties.
The 2020 Notes Hedges, which are cash-settled, are generally intended to reduce WMG's exposure to potential cash payments that
WMG is required to make upon conversion of the 2020 Notes in excess of the principal amount of converted notes if our ordinary
share price exceeds the conversion price. The aggregate cost of the 2020 Notes Hedges was $144.8 million and is accounted for as a
derivative asset in accordance with ASC Topic 815. However, in connection with certain events, these option counterparties have
the discretion to make certain adjustments to the 2020 Note Hedges, which may reduce the effectiveness of the 2020 Note Hedges.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2020 Notes exchanged approximately $45 million
aggregate principal amount of 2020 Notes (including the 2020 Notes Conversion Derivative) for the 2021 Notes. For each $1,000
principal amount of 2020 Notes validly submitted for exchange, we delivered $990.00 principal amount of the 2021 Notes (subject,
in each case, to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being referred as the
rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2020 Notes and the rounded amount at an
aggregate cost of approximately $44.6 million. We settled the associated portion of the 2020 Notes Conversion Derivative at a
benefit of approximately $0.4 million and satisfied the accrued interest, which was not material.
In addition, during the second quarter of 2016, we settled a portion of the 2020 Notes Hedges (receiving $3.9 million) and
repurchased a portion of the warrants associated with the 2020 Notes (paying $3.3 million), generating net proceeds of
approximately $0.6 million.
Concurrently with the issuance and sale of the 2023 Notes, certain holders of the 2020 Notes exchanged approximately
$400.9 million aggregate principal amount of their 2020 Notes for the 2023 Notes. For each $1,000 principal amount of 2020 Notes
validly submitted for exchange, we delivered $1,138.70 principal amount of the 2023 Notes (subject to rounding down to the nearest
$1,000 principal amount of the 2023 Notes for each exchanging investor, the difference being referred as the rounded amount) to the
investor. As part of this exchange we settled a pro rata portion of the 2020 Notes Conversion Derivative for $55.6 million.
During the second quarter of 2018, we agreed to settle a pro rata portion of the 2020 Notes Hedges. We also agreed to repurchase a
pro rata portion of the warrants associated with the 2020 Notes (2020 Warrants Derivative) and recorded a derivative liability which
104
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
had a fair value of $27.3 million as of June 28, 2018. Prior to this agreement, the warrants were recorded within shareholders’
equity as, at that time, the warrants were expected to be net-share settled. The pricing of the settled portion of the 2020 Notes
Hedges and 2020 Warrants Derivative was based on the volume-weighted average price of our stock price during July 9, 2018 and
July 27, 2018, the unwind period. On July 30, 2018, we received proceeds of approximately $34.6 million related to the 2020 Notes
Hedges and paid $24.0 million related to the 2020 Warrants Derivative, generating net proceeds of $10.6 million.
The following table summarizes the fair value and the presentation in our consolidated balance sheets (in thousands) of the 2020
Notes Hedges and 2020 Notes Conversion Derivative:
2020 Notes Hedges
2020 Notes Conversion Derivative
Location on
consolidated balance
sheet
Other current assets
Accrued expenses
and other current
liabilities
December 30, 2018
17,822
$
17,386
$
Location on
consolidated balance
sheet
Other assets
Other liabilities
December 31, 2017
45,033
$
44,132
$
The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash upon satisfaction of
certain circumstances as described in Note 9. On or after August 15, 2019, holders may convert their 2020 Notes solely into cash,
regardless of the foregoing circumstances. Due to the ability of the holders of the 2020 Notes to convert within the next year, the
carrying value of the 2020 Notes and the fair value of the 2020 Notes Conversion Derivatives were classified as current liabilities
and the fair value of the 2020 Notes Hedges was classified as current assets as of December 30, 2018. The respective balances were
all classified as long-term as of December 31, 2017.
The 2020 Notes Hedges and the 2020 Notes Conversion Derivative are measured at fair value using Level 3 inputs. These
instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data
for inputs.
(cid:49)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:81)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:87)(cid:75)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)fair
value of the derivatives is recognized immediately in the consolidated statements of operations.
The following table summarizes the net gain (loss) on changes in fair value (in thousands) related to the 2020 Notes Hedges, 2020
Warrants Derivative and 2020 Notes Conversion Derivative:
Fiscal year ended
2020 Notes Hedges
2020 Warrants Derivative
2020 Notes Conversion Derivative
Net (loss)/gain on changes in fair value
December 30,
2018
$
$
7,342
3,336
(28,897)
(18,219)
$
December 31,
2017
(32,199)
—
33,626
1,427
$
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 for additional
information about this transaction.
2017 Notes Conversion Derivative and Notes Hedges
On August 31, 2012, WMG issued $300 million aggregate principal amount of 2.00% cash convertible senior notes due 2017 (the
2017 Notes). The 2017 Notes matured, and the remaining $2.0 million principal amount was repaid on August 15, 2017. See Note
9 of the consolidated financial statements for additional information regarding the 2017 Notes. The 2017 Notes had a conversion
derivative feature (2017 Notes Conversion Derivative) that required bifurcation from the 2017 Notes in accordance with ASC Topic
815, and was accounted for as a derivative liability. The fair value of the 2017 Notes Conversion Derivative at the time of issuance
of the 2017 Notes was $48.1 million.
In connection with the issuance of the 2017 Notes, WMG entered into hedges (2017 Notes Hedges) with three option counterparties.
The aggregate cost of the 2017 Notes Hedges was $56.2 million and was accounted for as a derivative asset in accordance with ASC
Topic 815.
105
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In connection with the issuance of the 2020 Notes, WMG used approximately $292 million of the 2020 Notes’ net proceeds to
repurchase and extinguish approximately $240 million aggregate principal amount of the 2017 Notes, settle the associated portion of
the 2017 Notes Conversion Derivative at a cost of approximately $49 million, and satisfy the accrued interest of $2.4 million. WMG
also settled all of the 2017 Notes Hedges in February 2015 when the 2020 Notes were issued (receiving $70 million) and
repurchased all of the warrants associated with the 2017 Notes (paying $60 million), generating net proceeds of approximately
$10 million.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes exchanged approximately
$54.4 million aggregate principal amount of 2017 Notes (including the 2017 Notes Conversion Derivative) for the 2021 Notes. For
each $1,000 principal amount of 2017 Notes validly submitted for exchange, we delivered $1,035.40 principal amount of the 2021
Notes (subject, in each case, to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being
referred as the rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2017 Notes and the
rounded amount at a cost of approximately $56.3 million. We settled the associated portion of the 2017 Notes Conversion
Derivative at a cost of approximately $1.9 million and satisfied the accrued interest, which was not material.
In addition, during the second quarter of 2016, we repurchased and extinguished an additional $3.6 million aggregate principal
amount of the 2017 Notes in privately negotiated transactions and settled the associated portion of the 2017 Notes Conversion
Derivative at a cost of approximately $0.1 million, and satisfied the accrued interest, which was not material. The remainder of the
2017 Notes Conversion Derivative was settled at a cost of approximately $0.2 million in conjunction with the maturity of the 2017
Notes on August 15, 2017.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:87)(cid:75)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)ve was
recognized immediately in our consolidated statements of operations. The changes in fair value related to the 2017 Notes
Conversion Derivative was immaterial in 2017.
To determine the fair value of the embedded conversion option in the 2020, 2021, and 2023 Notes Conversion Derivatives, a
trinomial lattice model was used. A trinomial stock price lattice model generates three possible outcomes of stock price - one up, one
down, and one stable. This lattice generates a distribution of stock prices at the maturity date and throughout the life of the 2020,
2021, and 2023 Notes. Using this stock price lattice, a convertible note lattice was created where the value of the embedded
conversion option was estimated by comparing the value produced in a convertible note lattice with the option to convert against the
value without the ability to convert. In each case, the convertible note lattice first calculates the possible convertible note values at
the maturity date, using the distribution of stock prices, which equals to the maximum of (x) the remaining bond cash flows and
(y) stock price times the conversion price. The values of the 2020, 2021, and 2023 Notes Conversion Derivatives at the valuation
date were estimated using the values at the maturity date and moving back in time on the lattices (both for the lattice with the
conversion option and without the conversion option). Specifically, at each node, if the 2020, 2021, or 2023 Notes are eligible for
early conversion, the value at this node is the maximum of (i) converting to stock, which is the stock price times the conversion
price, and (ii) holding onto the 2020, 2021, and 2023 Notes, which is the discounted and probability-weighted value from the three
possible outcomes at the future nodes plus any accrued but unpaid coupons that are not considered at the future nodes. If the 2020,
2021, or 2023 Notes are not eligible for early conversion, the value of the conversion option at this node equals to (ii). In the lattice,
a credit adjustment was applied to the discount for each cash flow in the model as the embedded conversion option, as well as the
coupon and notional payments, is settled with cash instead of shares.
To estimate the fair value of the 2020, 2021, and 2023 Notes Hedges, we used the Black-Scholes formula combined with credit
adjustments, as the option counterparties have credit risk and the call options are cash settled. We assumed that the call options will
be exercised at the maturity since our ordinary shares do not pay any dividends and management does not expect to declare
dividends in the near term.
The following assumptions were used in the fair market valuations as of December 30, 2018:
Black Stock Volatility 1
Credit Spread for Wright 2
Credit Spread for Deutsche Bank AG 3
Credit Spread for Wells Fargo Securities, LLC 3
Credit Spread for JPMorgan Chase Bank 3
Credit Spread for Bank of America 3
________________________________
2020 Notes
Conversion
Derivative
34.48%
4.67%
N/A
N/A
N/A
N/A
2020 Notes
Hedge
34.48%
N/A
1.38%
0.25%
0.3%
N/A
2021 Notes
Conversion
Derivative
42.2%
4.50%
N/A
N/A
N/A
N/A
2021 Notes
Hedge
42.2%
N/A
N/A
N/A
0.45%
0.46%
2023 Notes
Conversion
Derivative
31.9%
3.72%
N/A
N/A
N/A
N/A
2023 Notes
Hedge
31.9%
N/A
N/A
N/A
0.56%
0.59%
1
Volatility selected based on historical and implied volatility of ordinary shares of Wright Medical Group N.V.
106
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2
3
Credit spread implied from traded price.
Credit spread of each bank is estimated using CDS curves. Source: Bloomberg.
The fair value of our notes conversion derivatives is determined using a trinomial lattice model and is classified in Level 3. The fair
value of our notes hedges is determined using the Black-Scholes formula combined with credit adjustments and is classified in Level
3. We used a black stock volatility, which is one of the most significant assumptions, of 34.48%, 42.2%, and 31.9% in calculating
the fair value of our 2020, 2021, and 2023 Notes Conversion Derivatives and Notes Hedges, respectively, as of December 30, 2018.
The change in the fair value of Notes Conversion Derivatives resulting from a change in the black stock volatility would have a
direct impact on net profit, with an increase in volatility resulting in an increase in the net loss and a decrease in volatility resulting
in a decrease in the net loss for the period. The change in the fair value of Notes Hedges resulting from a change in the black stock
volatility would have an indirect impact on net profit, with an increase in volatility resulting in a decrease in the net loss and a
decrease in volatility resulting in an increase in the net loss for the period. The impact on profit due to volatility of Notes Hedges
would be offset by a similar change in volatility of the Notes Conversion Derivatives.
Derivatives not Designated as Hedging Instruments
During 2017 and 2016, we employed a derivative program using 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 were expected to offset the transactional gains and losses on the related intercompany balances. These forward contracts
were not designated as hedging instruments under FASB ASC Topic 815. Accordingly, the changes in the fair value and the
settlement of the contracts were recognized in the period incurred in the accompanying condensed consolidated statements of
operations. During the quarter ended April 1, 2018, we discontinued our foreign currency forward contracts derivative program. At
December 30, 2018 and December 31, 2017, we had no foreign currency contracts outstanding.
As part of our acquisition of WG Healthcare on January 7, 2013, we were obligated to pay contingent consideration upon the
achievement of certain revenue milestones. As of December 25, 2016, we recorded an estimated fair value of future consideration of
$17.8 million which was paid during 2017.
As a result of the acquired sales and distribution business of Surgical Specialties Australia Pty. Ltd in 2015, we recorded the
estimated fair value of future contingent consideration of approximately $0.9 million as of December 31, 2017 which was paid
during the quarter ended April 1, 2018.
As a result of the acquired business of IMASCAP in 2017, we recorded the estimated fair value of future contingent consideration of
approximately €16.7 million and €15.1 million, or approximately $19.2 million and $17.8 million, related to the achievement of
certain technical milestones and sales earnouts as of December 30, 2018 and December 31, 2017, respectively. The estimated fair
value of contingent consideration related to technical milestones totaled $12.7 million and $11.9 million as of December 30, 2018
and December 31, 2017, respectively, and is contingent upon the development and approval of a next generation reverse shoulder
implant system and new software modules. The estimated fair value of contingent consideration related to sales earnouts totaled
$6.5 million and $5.9 million as of December 30, 2018 and December 31, 2017, respectively, and is contingent upon the sale of
certain guides and the next generation reverse shoulder implant system.
The fair values of the sales earn out contingent consideration as of December 30, 2018 and December 31, 2017 were determined
using a discounted cash flow model and probability adjusted estimates of the future earnings and is classified in Level 3. The
discount rate is 12% for IMASCAP.
The contingent consideration from the IMASCAP acquisition related to technical milestones is based on meeting certain
developmental milestones for new software modules and for the FDA and CE clearance for the next generation reverse shoulder
implant system. The fair value of this contingent consideration as of December 30, 2018 and December 31, 2017 was determined
using probability adjusted estimates of the future payments and is classified in Level 3. The discount rate is approximately 6% for
IMASCAP.
A change in the discount rate would have limited impact on our profits or the fair value of this contingent consideration. Changes in
the fair value of contingent consideration are recorded in “Other expense (income), net” in our consolidated statements of
operations.
On March 1, 2013, as part of our acquisition of BioMimetic Therapeutics, Inc. (BioMimetic), we issued Contingent Value Rights
(CVRs) as part of the merger consideration. Each CVR entitles its holder to receive additional cash payments of up to $6.50 per
share, which are payable upon receipt of FDA approval of AUGMENT® Bone Graft and upon achieving certain revenue milestones.
On September 1, 2015, AUGMENT® Bone Graft received FDA approval and the first of the milestone payments associated with the
CVRs was paid out at $3.50 per share, which totaled $98.1 million. The fair value of the CVRs outstanding at December 30, 2018
107
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
and December 31, 2017 was $0.4 million and $42.3 million, respectively, and was determined using the closing price of the security
in the active market (Level 1). The change in the fair value of the CVRs resulted in an insignificant amount of expense in the fiscal
year ended December 30, 2018 and $5.3 million of expense in the fiscal year ended December 31, 2017. The income or expense
related to the change in the fair value of the CVRs is recorded in “Other expense (income), net” in our consolidated statements of
operations. If, prior to March 1, 2019, sales of AUGMENT® Bone Graft reach $40 million over 12 consecutive months, cash
payment would be required at $1.50 per share, or $42 million. This milestone was met and paid out during 2018. Further, if, prior
to March 1, 2019, sales of AUGMENT® Bone Graft reach $70 million over 12 consecutive months, an additional cash payment
would be required at $1.50 per share, or $42 million. As of December 30, 2018, we have reflected the $0.4 million balance related
to CVR liability within “Accrued expenses and other current liabilities.”
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates the fair value of these
financial instruments at December 30, 2018 and December 31, 2017 due to their short maturities and variable rates.
The following tables summarize the valuation of our financial instruments (in thousands):
At December 30, 2018
Assets
Cash and cash equivalents
2020 Notes Hedges
2021 Notes Hedges
2023 Notes Hedges
Total
Liabilities
2020 Notes Conversion Derivative
2021 Notes Conversion Derivative
2023 Notes Conversion Derivative
Contingent consideration
Contingent consideration (CVRs)
Total
At December 31, 2017
Assets
Cash and cash equivalents
2020 Notes Hedges
2021 Notes Hedges
Total
Liabilities
2020 Notes Conversion Derivative
2021 Notes Conversion Derivative
Contingent consideration
Contingent consideration (CVRs)
Total
Quoted
prices in
active
markets
(Level 1)
Prices with
other
observable
inputs
(Level 2)
Prices with
unobservable
inputs
(Level 3)
Total
$ 191,351
17,822
188,301
115,923
$ 513,397
$ 191,351
—
—
—
$ 191,351
$
$
—
— $
17,822
—
188,301
—
—
115,923
— $ 322,046
$
17,386
187,539
116,833
19,248
420
$ 341,426
$
$
— $
—
—
—
420
420
$
17,386
— $
187,539
—
116,833
—
19,248
—
—
—
— $ 341,006
Quoted
prices in
active
markets
(Level 1)
Prices with
other
observable
inputs
(Level 2)
Prices with
unobservable
inputs
(Level 3)
Total
$ 167,740
45,033
127,063
$ 339,836
$ 167,740
—
—
$ 167,740
$
$
—
— $
45,033
—
—
127,063
— $ 172,096
$
44,132
126,148
19,188
42,325
$ 231,793
$
$
— $
—
—
42,325
42,325
$
44,132
— $
126,148
—
19,188
—
—
—
— $ 189,468
108
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following is a roll forward of our assets and liabilities measured at fair value (in thousands) on a recurring basis using
unobservable inputs (Level 3) (in thousands):
2020 Notes Hedges
2020 Notes Conversion
Derivative
2020 Warrants Derivative
2021 Notes Hedges
2021 Notes Conversion
Derivative
2023 Notes Hedges
2023 Notes Conversion
Derivative
Contingent consideration
Balance at
December
31, 2017
45,033
(44,132)
—
127,063
(126,148)
—
Additions
—
—
(27,308)
—
—
141,278
—
(19,188)
(124,625)
—
Transfers
into Level 3
—
—
—
—
—
—
—
—
Gain/(loss)
included in
earnings
7,342
(28,897)
3,336
61,238
(61,391)
(25,355)
7,792
(1,789)
7.
Property, Plant and Equipment
Property, plant and equipment, net 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
Settlements
(34,553)
Currency
—
Balance at
December
30, 2018
17,822
(17,386)
—
188,301
(187,539)
115,923
—
—
—
—
—
—
810
(116,833)
(19,248)
55,643
23,972
—
—
—
—
919
December 30,
2018
December 31,
2017
$
$
2,127
43,087
82,445
161,614
14,113
230,980
534,366
(309,437)
224,929
$
$
2,163
41,537
60,859
142,299
14,403
187,660
448,921
(236,542)
212,379
The components of property, plant and equipment recorded under capital leases consist of the following (in thousands):
Buildings
Machinery and equipment
Furniture, fixtures and office equipment
Less: Accumulated depreciation
$
December 30,
2018
12,017
24,331
559
36,907
(11,906)
25,001
$
December 31,
2017
$
$
15,530
12,478
960
28,968
(7,749)
21,219
Depreciation expense recognized within results of continuing operations approximated $59.5 million, $56.8 million, and
$55.8 million for the fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, respectively, and included
depreciation of assets under capital leases.
109
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8.
Goodwill and Intangibles
Changes in the carrying amount of goodwill occurring during the fiscal years ended December 31, 2017 and December 30, 2018, are
as follows (in thousands):
Goodwill at December 25, 2016
Goodwill associated with IMASCAP acquisition
Foreign currency translation
Goodwill at December 31, 2017
Goodwill associated with Cartiva acquisition
Goodwill adjustment associated with IMASCAP acquisition
Foreign currency translation
Goodwill at December 30, 2018
U.S. Lower
Extremities
& Biologics
$ 218,525
—
—
$ 218,525
351,445
—
—
$ 569,970
U.S. Upper
Extremities
558,669
$
71,981
—
630,650
—
(917)
(1,883)
627,850
$
$
International
Extremities
& Biologics
73,848
$
—
10,639
84,487
—
—
(13,353)
71,134
$
$
Total
$ 851,042
71,981
10,639
$ 933,662
351,445
(917)
(15,236)
$1,268,954
On October 10, 2018, we completed the acquisition of Cartiva. As part of the preliminary purchase price allocation, we acquired
$81.0 million of intangible assets related to completed technology, in-process research and development, and customer relationships
and $351.4 million of goodwill. Of the $81.0 million of acquired intangible assets, $52.0 million was assigned to customer
relationships (15 year life), $28.0 million was assigned to developed technology (7 year life), and $1.0 million was assigned to in-
process research and development.
On December 14, 2017, we completed the acquisition of IMASCAP. As part of the preliminary purchase price allocation, we
acquired $10.9 million of intangible assets related to completed technology and in-process research and development and
$72.0 million of goodwill. Of the $10.9 million of acquired intangible assets, $5.6 million was assigned to developed technology
(6 year life) and $5.3 million was assigned to in-process research and development. During the nine months ended September 30,
(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:48)(cid:36)(cid:54)(cid:38)(cid:36)(cid:51)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:30)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)urrent
(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:7)(cid:19)(cid:17)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)decrease in the
preliminary value of goodwill determined as of December 14, 2017. See Note 3 for additional discussion of these adjustments.
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. As of October 1, 2018, we performed a qualitative analysis to test
goodwill for impairment and determined that it is not more likely than not that the carrying value of our U.S. Lower Extremities &
Biologics, U.S. Upper Extremities, and International Extremities & Biologics reporting units exceeded their respective fair values,
indicating that goodwill was not impaired.
The components of our identifiable intangible assets, net are as follows (in thousands):
Indefinite life intangibles:
IPRD technology
Finite life intangibles:
Distribution channels
Completed technology
Licenses
Customer relationships
Trademarks
Non-compete agreements
Other
Total finite life intangibles
Total intangibles
Less: Accumulated amortization
Intangible assets, net
December 30, 2018
December 31, 2017
Cost
Accumulated
amortization
Cost
Accumulated
amortization
$
6,262
$
6,422
250
174,596
6,547
179,605
14,048
3,252
514
378,812
$
250
55,114
1,851
30,935
11,564
2,514
514
$ 102,742
900
149,645
5,268
129,693
14,368
3,964
569
304,407
$
$
640
40,810
1,530
23,268
10,487
2,603
490
79,828
385,074
(102,742)
282,332
$
310,829
(79,828)
231,001
$
110
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Based on the total finite life intangible assets held at December 30, 2018, we expect to amortize approximately $30.2 million in
2019, $29.5 million in 2020, $29.3 million in 2021, $29.3 million in 2022, and $29.2 million in 2023.
9.
Debt and Capital Lease Obligations
Debt and capital lease obligations consist of the following (in thousands):
Capital lease obligations
2023 Notes
2021 Notes
2020 Notes1
Term Loan Facility
Asset-based line of credit
Other debt
Less: current portion1
December 30, 2018
25,539
$
$
548,076
321,286
173,533
18,979
17,761
9,953
1,115,127
(201,686)
913,441
$
$
December 31, 2017
20,401
—
300,051
513,014
—
53,645
8,003
895,114
(58,906)
836,208
________________________________
1
The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash upon satisfaction of certain
circumstances as described below. On or after August 15, 2019, holders may convert their 2020 Notes solely into cash, regardless of the
foregoing circumstances. Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020
Notes were classified as current liabilities as of December 30, 2018. The respective balances were classified as long-term as of December 31,
2017.
2023 Notes
On June 28, 2018, WMG issued $675 million aggregate principal amount of the 2023 Notes pursuant to an indenture (2023 Notes
Indenture), dated as of June 28, 2018, with The Bank of New York Mellon Trust Company, N.A., as trustee. The 2023 Notes are
fully and unconditionally guaranteed by us on a senior unsecured basis. The 2023 Notes require interest to be paid at an annual rate
of 1.625% semi-annually in arrears on each June 15 and December 15 and will mature on June 15, 2023 unless earlier converted or
repurchased. The 2023 Notes are convertible, subject to certain conditions, solely into cash. The initial conversion rate for the 2023
Notes is 29.9679 ordinary shares (subject to adjustment as provided in the 2023 Notes Indenture) per $1,000 principal amount of the
2023 Notes (subject to, and in accordance with, the settlement provisions of the 2023 Notes Indenture), which is equal to an initial
conversion price of approximately $33.37 per ordinary share. WMG may not redeem the 2023 Notes prior to the maturity date, and
no “sinking fund” is available for the 2023 Notes, which means that WMG is not required to redeem or retire the 2023 Notes
periodically.
The holders of the 2023 Notes may convert their 2023 Notes at any time prior to the close of business on the business day
immediately preceding December 15, 2022 solely into cash, in multiples of $1,000 principal amount, upon satisfaction of one or
more of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September
30, 2018 (and only during such calendar quarter), if the last reported sale price of our ordinary shares for at least 20 trading days
(whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of
2023 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our
ordinary shares and the conversion rate on each such trading (cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:50)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)
after December 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date,
holders may convert their 2023 Notes solely into cash, regardless of the foregoing circumstances. Upon conversion, a holder will
receive an amount in cash, per $1,000 principal amount of the 2023 Notes, equal to the settlement amount as calculated under the
2023 Notes Indenture. If a fundamental change, as defined in the 2023 Notes Indenture, occurs, subject to certain conditions,
holders of the 2023 Notes will have the option to require WMG to repurchase for cash all or a portion of their 2023 Notes at a
repurchase price equal to 100% of the principal amount of the 2023 Notes to be repurchased, plus any accrued and unpaid interest to,
but excluding, the fundamental change repurchase date, as defined in the 2023 Notes Indenture. In addition, following a make-whole
fundamental change, as defined in the 2023 Notes Indenture, that occurs prior to the maturity date, WMG, under certain
circumstances, will increase the applicable conversion rate for a holder that elects to convert its 2023 Notes in connection with such
make-whole fundamental change. Our guarantee of the 2023 Notes is our senior unsecured obligation that ranks: (i) senior in right
(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:79)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:88)(cid:68)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:72)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)t of
payment to any of our unsecured indebtedness (cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:82)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:11)(cid:76)(cid:89)(cid:12)(cid:3) (cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:79)(cid:79)
111
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
indebtedness and other liabilities (including trade payables) of our subsidiaries. As a result of the issuance of the 2023 Notes, we
recorded deferred financing charges of approximately $13.5 million, which are being amortized over the term of the 2023 Notes
using the effective interest method. During the fiscal year ended December 30, 2018, we recorded $1.1 million of interest expense
related to the amortization of the deferred financing costs.
The 2023 Notes Conversion Derivative requires bifurcation from the 2023 Notes in accordance with ASC Topic 815, Derivatives
and Hedging, and is accounted for as a derivative liability. See Note 6 for additional information regarding the 2023 Notes
Conversion Derivative. The fair value of the 2023 Notes Conversion Derivative at the time of issuance of the 2023 Notes
was $124.6 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2023 Notes.
This discount is amortized as interest expense using the effective interest method over the term of the 2023 Notes using an effective
interest rate of 6.06%. During the fiscal year ended December 30, 2018, we recorded $10.1 million of interest expense related to the
amortization of the debt discount.
The components of the 2023 Notes were as follows (in thousands):
Principal amount of 2023 Notes
Unamortized debt discount
Unamortized debt issuance costs
Net carrying amount of 2023 Notes
December 30, 2018
675,000
(114,554)
(12,370)
548,076
$
$
The estimated fair value of the 2023 Notes was approximately $680.3 million at December 30, 2018, based on a quoted price in an
active market (Level 1).
We and WMG entered into 2023 Notes Hedges in connection with the issuance of the 2023 Notes with two counterparties. The
2023 Notes Hedges, which are cash-settled, are generally intended to reduce WMG’s exposure to potential cash payments that
WMG would be required to make if holders elect to convert the 2023 Notes at a time when our ordinary share price exceeds the
conversion price. However, in connection with certain events, including, among others, (i) a merger or other make-whole
(cid:73)(cid:88)(cid:81)(cid:71)(cid:68)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12) certain hedging disruption events, which may include changes in tax laws, an increase in the cost of
borrowing our ordinary shares in the market or other material increases in the cost to the option counterparties of hedging the 2023
(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:58)(cid:48)(cid:42)(cid:10)(cid:86)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)
(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:71)(cid:72)(cid:73)(cid:68)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:15)(cid:3)(cid:58)(cid:48)(cid:42)(cid:10)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:10)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:21)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:76)(cid:73)(cid:3)(cid:90)(cid:72)(cid:15)(cid:3)(cid:58)(cid:48)(cid:42)(cid:3)
or any of our significant subsidiaries become insolvent or otherwise becomes subject to bankruptcy proceedings, the option
counterparties have the discretion to terminate the 2023 Notes Hedges, which may reduce the effectiveness of the 2023 Notes
Hedges. In addition, the option counterparties have broad discretion to make certain adjustments to the 2023 Notes Hedges and
warrant transactions upon the occurrence of certain other events, including, among others, (i) any adjustment to the conversion rate
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:74)(cid:76)(cid:89)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:72) to a
termination event as described above, such as the announcement of a third-party tender offer. Any such adjustment may also reduce
the effectiveness of the 2023 Note Hedges. The aggregate cost of the 2023 Notes Hedges was $141.3 million and is accounted for as
a derivative asset in accordance with ASC Topic 815. See Note 6 of the condensed consolidated financial statements for additional
information regarding the 2023 Notes Hedges and the 2023 Notes Conversion Derivative.
We also entered into warrant transactions in which we sold warrants that are initially exercisable into 20.2 million ordinary shares to
the two option counterparties, subject to adjustment upon the occurrence of certain events, for an aggregate of $102.1 million. The
strike price of the warrants is $40.86 per share, which was 50% above the last reported sale price of our ordinary shares on June 20,
2018. The warrants are expected to be net-share settled and exercisable over the 120 trading day period beginning on September 15,
2023. The warrant transactions will have a dilutive effect on our ordinary shares to the extent that the market value per ordinary
share during such period exceeds the applicable strike price of the warrants. However, in connection with certain events, these
option counterparties have the discretion to make certain adjustments to warrant transactions, which may increase our obligations
under the warrant transactions.
Aside from the initial payment of the $141.3 million premium in the aggregate to the two option counterparties and subject to the
right of the option counterparties to terminate the 2023 Notes Hedges in certain circumstances, we do not expect to be required to
make any cash payments to the option counterparties under the 2023 Notes Hedges and expect to be entitled to receive from the
option counterparties cash, generally equal to the amount by which the market price per ordinary share exceeds the strike price of the
convertible note hedging transactions during the relevant valuation period. The strike price under the 2023 Notes Hedges is initially
equal to the conversion price of the 2023 Notes. However, in connection with certain events, these option counterparties have the
discretion to make certain adjustments to the 2023 Note Hedges, which may reduce the effectiveness of the 2023 Note Hedges.
Additionally, if the market value per ordinary share exceeds the strike price on any settlement date under the warrant transaction, we
will generally be obligated to issue to the option counterparties in the aggregate a number of shares equal in value to one percent of
the amount by which the then-current market value of one ordinary share exceeds the then-effective strike price of each warrant,
112
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
multiplied by the number of ordinary shares into which the 2023 Notes are initially convertible. We will not receive any additional
proceeds if warrants are exercised.
As described in more detail below, concurrently with the issuance and sale of the 2023 Notes, certain holders of the 2020 Notes
exchanged their 2020 Notes for the 2023 Notes.
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 for additional
information about this transaction.
2021 Notes
On May 20, 2016, we issued $395 million aggregate principal amount of the 2021 Notes pursuant to an indenture (2021 Notes
Indenture), dated as of May 20, 2016 between us and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2021
Notes require interest to be paid at an annual rate of 2.25% semi-annually in arrears on each May 15 and November 15, and will
mature on November 15, 2021 unless earlier converted or repurchased. The 2021 Notes are convertible, subject to certain
conditions, solely into cash. The initial conversion rate for the 2021 Notes will be 46.8165 ordinary shares (subject to adjustment as
provided in the 2021 Notes Indenture) per $1,000 principal amount of the 2021 Notes (subject to, and in accordance with, the
settlement provisions of the 2021 Notes Indenture), which is equal to an initial conversion price of approximately $21.36 per
ordinary share. We may not redeem the 2021 Notes prior to the maturity date, and no “sinking fund” is available for the 2021 Notes,
which means that we are not required to redeem or retire the 2021 Notes periodically.
The holders of the 2021 Notes may convert their 2021 Notes at any time prior to May 15, 2021 solely into cash, in multiples of
$1,000 principal amount, upon satisfaction of one or more of the following circumstances: (1) during any calendar quarter
commencing after the calendar quarter ending on June 30, 2016 (and only during such calendar quarter), if the last reported sale
price of our ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price
on each (cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
trading price per $1,000 principal amount of 2021 Notes for each trading day of the measurement period was less than 98% of the
prod(cid:88)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
occurrence of specified corporate events. On or after May 15, 2021 until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert their 2021 Notes solely into cash, regardless of the foregoing
circumstances. Upon conversion, a holder will receive an amount in cash, per $1,000 principal amount of the 2021 Notes, equal to
the settlement amount as calculated under the 2021 Notes Indenture. If we undergo a fundamental change, as defined in the 2021
Notes Indenture, subject to certain conditions, holders of the 2021 Notes will have the option to require us to repurchase for cash all
or a portion of their 2021 Notes at a repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased,
plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the 2021 Notes
Indenture. In addition, following certain corporate transactions, we, under certain circumstances, will increase the applicable
conversion rate for a holder that elects to convert its 2021 Notes in connection with such corporate transaction. The 2021 Notes are
senior unsecured obligations that rank: (i) senior in right of payment to any of our indebtedness that is expressly subordinated in
(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:88)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:82)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)
(iii) effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such
(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)e payables) of our subsidiaries. As a
result of the issuance of the 2021 Notes, we recorded deferred financing charges of approximately $7.3 million, which are being
amortized over the term of the 2021 Notes using the effective interest method. For the fiscal years ended December 30, 2018,
December 31, 2017, and December 25, 2016, we recorded $1.3 million, $1.1 million, and $0.6 million, respectively, of interest
expense related to the amortization of deferred financing costs.
In the third fiscal quarter of 2018, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price
for 20 or more of the 30 consecutive trading days preceding the quarter-(cid:72)(cid:81)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
ability to convert the notes during the succeeding quarterly period. Due to the ability of the holders of the 2021 Notes to convert the
notes during this period, the carrying value of the 2021 Notes and the fair value of the 2021 Notes Conversion Derivative were
classified as current liabilities, and the fair value of the 2021 Notes Hedges were classified as current assets as of September 30,
2018. There were no conversions during the fourth quarter of 2018. The closing price of our ordinary shares was less than 130% of
the 2021 Notes conversion price for more than 20 of the 30 consecutive trading days preceding the calendar fiscal quarter ended
December 30, 2018, which resulted in the 2021 Notes no longer being convertible. As such, the 2021 Notes, 2021 Notes Conversion
Derivative and 2021 Notes Hedges were classified as long-term as of December 30, 2018.
113
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The 2021 Notes Conversion Derivative requires bifurcation from the 2021 Notes in accordance with ASC Topic 815, Derivatives
and Hedging, and is accounted for as a derivative liability. See Note 6 for additional information regarding the 2021 Notes
Conversion Derivative. The fair value of the 2021 Notes Conversion Derivative at the time of issuance of the 2021 Notes was
$117.2 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2021 Notes.
This discount is amortized as interest expense using the effective interest method over the term of the 2021 Notes. For the fiscal
years ended December 30, 2018, December 31, 2017, and December 25, 2016, we recorded $20.0 million, $18.1 million, and
$9.8 million respectively, of interest expense related to the amortization of the debt discount based upon an effective rate of 9.72%.
The components of the 2021 Notes were as follows (in thousands):
Principal amount of 2021 Notes
Unamortized debt discount
Unamortized debt issuance costs
Net carrying amount of 2021 Notes
December 30, 2018
December 31, 2017
$
$
395,000
(69,382)
(4,332)
321,286
$
$
395,000
(89,332)
(5,617)
300,051
The estimated fair value of the 2021 Notes was approximately $533.4 million at December 30, 2018, based on a quoted price in an
active market (Level 1).
We entered into 2021 Notes Hedges in connection with the issuance of the 2021 Notes with two counterparties. The 2021 Notes
Hedges, which are cash-settled, are generally intended to reduce our exposure to potential cash payments that we would be required
to make if holders elect to convert the 2021 Notes at a time when our ordinary share price exceeds the conversion price. However,
in connection with certain events, including, among others, (i) a merger or other make-whole fundamental change (as defined in the
(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:12)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:70)(cid:72)(cid:85)tain hedging disruption events, which may include changes in tax laws, an increase in the cost of
borrowing our ordinary shares in the market or other material increases in the cost to the option counterparties of hedging the 2021
(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)
(iv) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:73)(cid:68)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:21)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:76)(cid:73)(cid:3)(cid:90)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)iaries
become insolvent or otherwise becomes subject to bankruptcy proceedings, the option counterparties have the discretion to terminate
the 2021 Notes Hedges, which may reduce the effectiveness of the 2021 Notes Hedges. In addition, the option counterparties have
broad discretion to make certain adjustments to the 2021 Notes Hedges and warrant transactions upon the occurrence of certain other
(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12) upon the announcement of
certain significant corporate events, including events that may give rise to a termination event as described above, such as the
announcement of a third-party tender offer. Any such adjustment may also reduce the effectiveness of the 2021 Note Hedges. The
aggregate cost of the 2021 Notes Hedges was $99.8 million and is accounted for as a derivative asset in accordance with ASC Topic
815. See Note 6 of the consolidated financial statements for additional information regarding the 2021 Notes Hedges and the 2021
Notes Conversion Derivative.
We also entered into warrant transactions in which we sold warrants for an aggregate of 18.5 million ordinary shares to the two
option counterparties, subject to adjustment, for an aggregate of $54.6 million. The strike price of the warrants is $30.00 per share,
which was 69% above the last reported sale price of our ordinary shares on May 12, 2016. The warrants are expected to be net-share
settled and exercisable over the 100 trading day period beginning on February 15, 2022. The warrant transactions will have a
dilutive effect on our ordinary shares to the extent that the market value per ordinary share during such period exceeds the applicable
strike price of the warrants. However, in connection with certain events, these option counterparties have the discretion to make
certain adjustments to warrant transactions, which may increase our obligations under the warrant transactions.
Aside from the initial payment of the $99.8 million premium in the aggregate to the two option counterparties and subject to the
right of the option counterparties to terminate the 2021 Notes Hedges in certain circumstances, we do not expect to be required to
make any cash payments to the option counterparties under the 2021 Notes Hedges and expect to be entitled to receive from the
option counterparties cash, generally equal to the amount by which the market price per ordinary share exceeds the strike price of the
convertible note hedging transactions during the relevant valuation period. The strike price under the 2021 Notes Hedges is initially
equal to the conversion price of the 2021 Notes. However, in connection with certain events, these option counterparties have the
discretion to make certain adjustments to the 2021 Note Hedges, which may reduce the effectiveness of the 2021 Note Hedges.
Additionally, if the market value per ordinary share exceeds the strike price on any settlement date under the warrant transaction, we
will generally be obligated to issue to the option counterparties in the aggregate a number of shares equal in value to one percent of
the amount by which the then-current market value of one ordinary share exceeds the then-effective strike price of each warrant,
multiplied by the number of ordinary shares into which the 2021 Notes are initially convertible. We will not receive any additional
proceeds if warrants are exercised.
114
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As described in more detail below, concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes and
the 2020 Notes exchanged their 2017 Notes or 2020 Notes for the 2021 Notes.
2020 Notes
On February 13, 2015, WMG issued $632.5 million aggregate principal amount of the 2020 Notes pursuant to an indenture (2020
Notes Indenture), dated as of February 13, 2015 between WMG and The Bank of New York Mellon Trust Company, N.A., as trustee.
The 2020 Notes require interest to be paid semi-annually on each February 15 and August 15 at an annual rate of 2.00%, and mature
on February 15, 2020 unless earlier converted or repurchased. The 2020 Notes were initially issued whereby they were convertible
at the option of the holder, during certain periods and subject to certain conditions described below, solely into cash at an initial
conversion rate of 32.3939 shares of WMG common stock per $1,000 principal amount of the 2020 Notes, subject to adjustment
upon the occurrence of certain events, which represented an initial conversion price of approximately $30.87 per share of WMG
common stock. On November 24, 2015, Wright Medical Group N.V. executed a supplemental indenture, fully and unconditionally
guaranteeing, on a senior unsecured basis, WMG’s obligations relating to the 2020 Notes, changing the underlying reference
securities from WMG common stock to Wright Medical Group N.V. ordinary shares and making a corresponding adjustment to the
conversion price. From and after the effective time of the Wright/Tornier merger, (i) all calculations and other determinations with
respect to the 2020 Notes previously based on references to WMG common stock are calculated or determined by reference to our
ordinary shares, and (ii) the conversion rate (as defined in the 2020 Notes Indenture) for the 2020 Notes was adjusted to a
conversion rate of 33.39487 ordinary shares (subject to adjustment as provided in the 2020 Notes Indenture) per $1,000 principal
amount of the 2020 Notes, which represents a conversion price of approximately $29.94 per ordinary share (subject to, and in
accordance with, the settlement provisions of the 2020 Notes Indenture). The 2020 Notes may not be redeemed by WMG prior to
the maturity date, and no “sinking fund” is available for the 2020 Notes, which means that WMG is not required to redeem or retire
the 2020 Notes periodically.
The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash, in multiples of $1,000
principal amount, upon satisfaction of one or more of the following circumstances: (1) during any calendar quarter commencing
after the calendar quarter ending on March 31, 2015 (and only during such calendar quarter), if the last reported sale price of our
ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on
the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each
(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)riod in which the trading
price per $1,000 principal amount of 2020 Notes for each trading day of the measurement period was less than 98% of the product
of the last reported sale price of our ordinary shares and the conversion rate on each such trading da(cid:92)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
specified corporate events. The Wright/Tornier merger did not result in a conversion right for holders of the 2020 Notes. On or after
August 15, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders
may convert their 2020 Notes solely into cash, regardless of the foregoing circumstances. Upon conversion, a holder will receive an
amount in cash, per $1,000 principal amount of the 2020 Notes, equal to the settlement amount as calculated under the 2020 Notes
Indenture. If WMG undergoes a fundamental change, as defined in the 2020 Notes Indenture, subject to certain conditions, holders
of the 2020 Notes will have the option to require WMG to repurchase for cash all or a portion of their notes at a purchase price equal
to 100% of the principal amount of the 2020 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the
fundamental change repurchase date, as defined in the 2020 Notes Indenture. In addition, following certain corporate transactions,
WMG, under certain circumstances, will increase the applicable conversion rate for a holder that elects to convert its 2020 Notes in
connection with such corporate transaction. The 2020 Notes are senior unsecured obligations that rank: (i) senior in right of
payment to any of WMG’(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:79)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)
payment to any of WMG’s unsecured indebtedness that is not s(cid:82)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)
(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:11)(cid:76)(cid:89)(cid:12)(cid:3) (cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:79)(cid:79)
indebtedness and other liabilities (including trade payables) of WMG's subsidiaries. In conjunction with the issuance of the 2020
Notes, we recorded deferred financing charges of approximately $18.1 million.
Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020 Notes and the fair
value of the 2020 Notes Conversion Derivatives were classified as current liabilities and the fair value of the 2020 Notes Hedges
was classified as current assets as of December 30, 2018. The respective balances were all classified as long-term as of December
31, 2017.
The 2020 Notes Conversion Derivative requires bifurcation from the 2020 Notes in accordance with ASC Topic 815, Derivatives
and Hedging, and is accounted for as a derivative liability. See Note 6 of the consolidated financial statements for additional
information regarding the 2020 Notes Conversion Derivative. The fair value of the 2020 Notes Conversion Derivative at the time of
issuance of the 2020 Notes was $149.8 million and was recorded as original debt discount for purposes of accounting for the debt
component of the 2020 Notes.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2020 Notes exchanged approximately
$45.0 million aggregate principal amount of their 2020 Notes for the 2021 Notes. For each $1,000 principal amount of 2020 Notes
validly submitted for exchange, we delivered $990.00 principal amount of the 2021 Notes (subject to rounding down to the nearest
115
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
$1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of
cash equal to the unpaid interest on the 2020 Notes and the rounded amount. As a result of this note exchange and retirement of
$45.0 million aggregate principal amount of the 2020 Notes, we recognized approximately $9.3 million for the write-off of related
pro rata unamortized deferred financing fees and debt discount within “Other expense (income), net” in our consolidated statements
of operations during the fiscal year ended December 31, 2017.
Concurrently with the issuance and sale of the 2023 Notes, certain holders of the 2020 Notes exchanged approximately
$400.9 million aggregate principal amount of their 2020 Notes for the 2023 Notes. For each $1,000 principal amount of 2020 Notes
validly submitted for exchange, we delivered $1,138.70 principal amount of the 2023 Notes (subject to rounding down to the nearest
$1,000 principal amount of the 2023 Notes for each exchanging investor, the difference being referred as the rounded amount) to the
investor. As a result of this note exchange and retirement of $400.9 million aggregate principal amount of the 2020 Notes, we
recognized approximately $39.9 million for the write-off of related unamortized deferred financing fees and debt discount within
“Other (income) expense, net” in our consolidated statements of operations during the fiscal year ended December 30, 2018.
The remaining deferred financing charges and discount on the 2020 Notes are being amortized over the remaining term of the 2020
Notes using the effective interest method. For the fiscal years ended December 30, 2018, December 31, 2017 and December 25,
2016, we recorded $19.1 million, $27.3 million and $25.9 million, respectively, of interest expense related to the amortization of the
debt discount based upon an effective rate of 8.54%. For the fiscal years ended December 30, 2018, December 31, 2017, and
December 25, 2016, we recorded $2.3 million, $3.3 million and $3.1 million, respectively, of interest expense related to the
amortization of deferred financing costs.
The components of the 2020 Notes were as follows (in thousands):
Principal amount of 2020 Notes
Unamortized debt discount
Unamortized debt issuance costs
Net carrying amount of 2020 Notes
December 30, 2018
December 31, 2017
$
$
186,589
(11,642)
(1,414)
173,533
$
$
587,500
(66,418)
(8,068)
513,014
The estimated fair value of the 2020 Notes was approximately $196.9 million at December 30, 2018, based on a quoted price in an
active market (Level 1).
WMG entered into the 2020 Notes Hedges in connection with the issuance of the 2020 Notes with three option counterparties. See
Note 6 of the consolidated financial statements for additional information on the 2020 Notes Hedges. The 2020 Notes Hedges,
which are cash-settled, are generally intended to reduce WMG's exposure to potential cash payments that WMG would be required
to make if holders elect to convert the 2020 Notes at a time when our ordinary share price exceeds the conversion price. However,
in connection with certain events, including, among others, (i) a merger or other make-whole fundamental change (as defined in the
2020 Notes indentu(cid:85)(cid:72)(cid:12)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)
borrowing our ordinary shares in the market or other material increases in the cost to the option counterparties of hedging the 2020
(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30) (iii) WMG’(cid:86)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)
(iv) certain payment defaults on WMG’(cid:86)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:21)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:76)(cid:73)(cid:3)(cid:58)(cid:48)(cid:42)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
subsidiaries become insolvent or otherwise becomes subject to bankruptcy proceedings, the option counterparties have the discretion
to terminate the 2020 Note Hedges at a value determined by them in a commercially reasonable manner and/or adjust the terms of
the 2020 Note Hedges, which may reduce the effectiveness of the 2020 Note Hedges. In addition, the option counterparties have
broad discretion to make certain adjustments to the 2020 Notes Hedges upon the occurrence of certain other events, including,
among others, (cid:11)(cid:76)(cid:12)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
corporate events, including events that may give rise to a termination event as described above, such as the announcement of a third-
party tender offer. Any such adjustment may also reduce the effectiveness of the 2020 Note Hedges. The aggregate cost of the 2020
Notes Hedges was $144.8 million and is accounted for as a derivative asset in accordance with ASC Topic 815. See Note 6 of the
consolidated financial statements for additional information regarding the 2020 Notes Hedges and the 2020 Notes Conversion
Derivative.
WMG also entered into warrant transactions in which it sold warrants for an aggregate of 20.5 million shares of WMG common
stock to the three option counterparties, subject to adjustment. The strike price of the warrants was initially $40 per share of WMG
common stock, which was 59% above the last reported sale price of WMG common stock on February 9, 2015. On November 24,
2015, Wright Medical Group N.V. assumed WMG’s obligations pursuant to the warrants. Following the assumption, the warrants
became exercisable for 21.1 million Wright Medical Group N.V. ordinary shares and the strike price of the warrants was adjusted to
$38.8010 per ordinary share.
During the second quarter of 2016, we settled a portion of the 2020 Notes Hedges (receiving $3.9 million) and repurchased a portion
of the warrants associated with the 2020 Notes (paying $3.3 million), generating net proceeds of approximately $0.6 million.
116
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Subsequent to this partial settlement, we had warrants which were exercisable for 19.6 million ordinary shares and the strike price of
the warrants remained $38.8010 per ordinary share. During the second quarter of 2018, we agreed to settle a pro rata portion of the
2020 Notes Hedges and agreed to repurchase a pro rata portion of the warrants associated with the 2020 Notes. The pricing of these
2020 Notes Hedges and warrants associated with the 2020 Notes were based on pricing between July 9, 2018 and July 27, 2018 and
were settled on July 30, 2018. As a result of these settlements, we received net proceeds of approximately $10.6 million on July 30,
2018. The warrants which we had agreed to settle as of July 1, 2018 were recorded as a current derivative liability as of July 1, 2018
as described within Note 6. We had warrants which were exercisable for 6.2 million ordinary shares with a strike price of $38.8010
per ordinary share as of December 30, 2018.
Aside from the initial payment of the $144.8 million premium in the aggregate to the option counterparties, we do not expect to be
required to make any cash payments to the option counterparties under the 2020 Notes Hedges and expect to be entitled to receive
from the option counterparties cash, generally equal to the amount by which the market price per ordinary share exceeds the strike
price of the convertible note hedging transactions during the relevant valuation period. The strike price under the 2020 Notes
Hedges is initially equal to the conversion price of the 2020 Notes. However, in connection with certain events, these option
counterparties have the discretion to make certain adjustments to the 2020 Note Hedges, which may reduce the effectiveness of the
2020 Note Hedges. Additionally, if the market value per ordinary share exceeds the strike price on any settlement date under the
warrant transaction, we will generally be obligated to issue to the option counterparties in the aggregate a number of ordinary shares
equal in value to one half of one percent of the amount by which the then-current market value of one ordinary share exceeds the
then-effective strike price of each warrant, multiplied by the number of reference ordinary shares into which the 2020 Notes are
initially convertible.
In February 2019, we issued $139.6 million additional aggregate principal amount of the 2023 Notes in exchange for $130.1 million
aggregate principal amount of the 2020 Notes and settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes
Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We also entered into
additional agreements for 2023 Notes Conversion Derivatives, 2023 Notes Hedges, and warrants. See Note 19 for additional
information about this transaction.
Subsequent to the 2019 partial settlement, we had warrants which were exercisable for 1.9 million ordinary shares and the strike
price of the warrants remained $38.8010 per ordinary share. We will not receive any additional proceeds if warrants are exercised.
The remaining warrants are expected to be net-share settled and exercisable over the 200 trading day period beginning on May 15,
2020. The warrant transactions will have a dilutive effect on our ordinary shares to the extent that the market value per ordinary
share during such period exceeds the applicable strike price of the warrants. However, in connection with certain events, these
option counterparties have the discretion to make certain adjustments to warrant transactions, which may increase our obligations
under the warrant transactions.
2017 Notes
On August 31, 2012, WMG issued $300 million aggregate principal amount of the 2017 Notes pursuant to an indenture (2017 Notes
Indenture), dated as of August 31, 2012 between WMG and The Bank of New York Mellon Trust Company, N.A., as trustee. The
2017 Notes matured on August 15, 2017. Prior to maturity, we paid interest on the 2017 Notes semi-annually on each February 15
and August 15 at an annual rate of 2.00%. WMG could not redeem the 2017 Notes prior to the maturity date, and no “sinking fund”
was available for the 2017 Notes, which means that WMG was not required to redeem or retire the 2017 Notes periodically. The
2017 Notes were convertible at the option of the holder, during certain periods and subject to certain conditions as described below,
solely into cash at an initial conversion rate of 39.3140 shares per $1,000 principal amount of the 2017 Notes, subject to adjustment
upon the occurrence of specified events, which represented an initial conversion price of $25.44 per share. Holders could have
converted their 2017 Notes at any time prior to February 15, 2017 only under the following circumstances: (1) during any calendar
quarter commencing after the calendar quarter ending December 31, 2012 (and only during such calendar quarter), if the last
reported sale price of our ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on the last trading day of the immediately preceding calendar quarter was greater than or equal to 130% of the
conve(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)riod
in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:88)pon the
occurrence of specified corporate events. On or after February 15, 2017 until the close of business on the second scheduled trading
day immediately preceding the maturity date, holders could convert their 2017 Notes solely into cash, regardless of the foregoing
circumstances. As a result of the issuance of the 2017 Notes, we recognized deferred financing charges of approximately
$8.8 million.
The 2017 Notes Conversion Derivative required bifurcation from the 2017 Notes in accordance with ASC Topic 815, Derivatives
and Hedging, and was accounted for as a derivative liability. See Note 6 of the consolidated financial statements for additional
information regarding the 2017 Notes Conversion Derivative. The fair value of the 2017 Notes Conversion Derivative at the time of
issuance of the 2017 Notes was $48.1 million and was recorded as original debt discount for purposes of accounting for the debt
component of the 2017 Notes.
117
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In connection with the issuance of the 2020 Notes, on February 13, 2015, WMG repurchased and extinguished
$240 million aggregate principal amount of the 2017 Notes and settled all of the 2017 Notes Hedges (receiving $70 million) and
repurchased all of the warrants (paying $60 million) associated with the 2017 Notes. As a result of the repurchase, we recognized
approximately $25.1 million for the write-off of related pro rata unamortized deferred financing fees and debt discount within
“Other expense (income), net” in our consolidated statements of operations during the fiscal year ended December 27, 2015.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes exchanged approximately
$54.4 million aggregate principal amount their 2017 Notes for the 2021 Notes. For each $1,000 principal amount of 2017 Notes
validly submitted for exchange, we delivered $1,035.40 principal amount of 2021 Notes (subject to rounding down to the nearest
$1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of
cash equal to the unpaid interest on the 2017 Notes and the rounded amount. In addition, during the fiscal quarter ended June 26,
2016, we repurchased and extinguished an additional $3.6 million aggregate principal amount of the 2017 Notes in privately
negotiated transactions. As a result of this exchange and these repurchases, we recognized approximately $3.0 million for the write-
off of related pro rata unamortized deferred financing fees and debt discount within “Other expense (income), net” in our
consolidated statements of operations during the fiscal year ended December 25, 2016.
For the fiscal year ended December 25, 2016, interest expense related to the amortization of the debt discount and deferred financing
costs was based upon an effective rate of 6.47% and totaled $0.9 million and $0.2 million, respectively. For the fiscal year ended
December 31, 2017, interest expense on the 2017 Notes was not significant.
ABL Facility
On December 23, 2016, we, together with WMG and certain of our other wholly-owned U.S. subsidiaries (collectively, Borrowers),
entered into an ABL Credit, Security and Guaranty Agreement (ABL Credit Agreement) with Midcap Financial Trust, as
administrative agent (Agent) and a lender and the additional lenders from time to time party thereto. The ABL Credit Agreement
provides for a $150 million senior secured asset based line of credit, subject to the satisfaction of a borrowing base requirement
(ABL Facility). The ABL Facility may be increased by up to $100 million upon the Borrowers’ request, subject to the consent of the
Agent and each of the other lenders providing such increase. All borrowings under the ABL Facility are subject to the satisfaction of
customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and
the delivery of an updated borrowing base certificate.
In February 2019, we amended the ABL Credit Agreement to, among other things, increase the amount of commitments under the
line of credit from $150 million to $175 million. As a result of the increase under the line of credit, the amount of additional
commitments we are able to activate under the line of credit was reduced from $100 million to $75 million. See Note 19 to our
consolidated financial statements.
As of December 30, 2018 and December 31, 2017, we had $17.8 million and $53.6 million, respectively, in borrowings outstanding
under the ABL Facility. We have reflected this debt as a current liability on our consolidated balance sheets as of December 30,
2018 and December 31, 2017, as required by US GAAP due to the weekly lockbox repayment/re-borrowing arrangement underlying
the agreement, as well as the ability for the lenders to accelerate the repayment of the debt under certain circumstances as described
below. As of December 30, 2018 and December 31, 2017, we had $1.7 million and $2.2 million, respectively, of unamortized debt
issuance costs related to the ABL Facility. These amounts are included within “Other assets” on our consolidated balance sheets as
of December 30, 2018 and December 31, 2017 and will be amortized over the five-year term of the ABL Facility as described below.
The interest rate margin applicable to borrowings under the ABL Facility is, at the option of the Borrowers, equal to either (a) 3.25%
for base rate loans or (b) 4.25% for LIBOR rate loans, subject to a 0.75% LIBOR floor. In addition to paying interest on the
outstanding loans under the ABL Facility, the Borrowers also are required to pay a customary unused line fee equal to 0.50% per
annum in respect of unutilized commitments and certain other customary fees related to Agent’s administration of the ABL Facility.
Beginning January 1, 2017, the Borrowers are required to maintain a minimum drawn balance on the ABL Facility equal to 20% of
the average borrowing base for each month. To the extent the actual drawn balance is less than 20%, the Borrowers must pay a fee
equal to the amount the lenders under the ABL Facility would have earned had the Borrowers maintained a minimum drawn balance
equal to 20% of the average borrowing base for such month.
The ABL Credit Agreement requires that the Borrowers calculate the borrowing base for the ABL Facility on at least a monthly basis
and each time the Borrowers make a draw on the ABL Facility in accordance with the formula set forth in the ABL Credit
Agreement. The borrowing base is subject to adjustment and the implementation of reserves by the Agent in its permitted discretion,
as further described in the ABL Credit Agreement. If at any time the outstanding drawn balance under the ABL Facility exceeds the
borrowing base as in effect at such time, Borrowers will be required to prepay loans under the ABL Facility in an amount equal to
such excess. Certain accounts receivables and proceeds of collateral of the Borrowers will be applied to reduce the outstanding
principal amount of the ABL Facility on a periodic basis.
118
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
There is no scheduled amortization under the ABL Facility and (subject to borrowing base requirements and applicable conditions to
borrowing) the available revolving commitment may be borrowed, repaid and reborrowed without restriction. All outstanding loans
under the ABL Facility will be due and payable in full on the date that is the earliest to occur of (x) December (cid:21)(cid:22)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:30)(cid:3)(cid:11)(cid:92)(cid:12) the date
that is 91 days prior to the matu(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:93)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:28)(cid:20)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:30)(cid:3)
provided if we refinance, extend, renew or replace at least 85% of the 2020 Notes and/or the 2021 Notes, as applicable, outstanding
as of the closing date of the ABL Facility pursuant to the terms of the ABL Credit Agreement, the maturity date will be deemed
extended with respect to clause (y) and (z) above. Due to the additional exchange of 2020 Notes for additional 2023 Notes in
February 2019 as described in Note 19, the maturity date will be deemed extended for purposes of clause (y) as long as we maintain
unrestricted cash in an amount equal to the aggregate outstanding principal amount of the 2020 Notes.
Any voluntary or mandatory permanent reduction or termination of the revolving commitments under the ABL Facility is currently
subject to a prepayment premium equal to 0.75% of such reduced or terminated amount.
The ABL Credit Agreement contains certain negative covenants that restrict our ability to take certain actions as specified in the
ABL Credit Agreement and an affirmative covenant that we maintain net revenue at or above minimum levels and maintain liquidity
in the United States at a level specified in the ABL Credit Agreement, subject to certain exceptions.
On May 7, 2018, we amended and restated the ABL Credit Agreement to add a $40 million term loan facility (Term Loan Facility).
The initial $20 million term loan tranche was funded at closing. The Borrowers may at any time borrow the second $20 million term
(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:72)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:82)(cid:3)(cid:86)(cid:82)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:26)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)(cid:30)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)h case,
the Borrowers will be permitted to extend the borrowing requirement for up to an additional two years. All borrowings under the
Term Loan Facility are subject to the satisfaction of customary conditions, including the absence of default and the accuracy of
representations and warranties in all material respects. As of December 30, 2018, we had $20 million outstanding under the Term
Loan Facility.
In February 2019, we amended the ABL Credit Agreement to, among other things, increase the second tranche of the Term Loan
Facility from $20 million to $35 million. See Note 19 to our consolidated financial statements.
The interest rate applicable to borrowings under the Term Loan Facility will be equal to one-month LIBOR plus 7.85%, subject to a
1.00% LIBOR floor. Amortization payments under the Term Loan Facility are due in equal monthly installments beginning on May
(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:30)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:48)(cid:68)(cid:92)
1, 2021. To date, we have met these targets. In addition to paying interest on the outstanding loans under the Term Loan Facility,
the Borrowers will also be required to pay certain other customary fees related to Agent’s administration of the Term Loan Facility.
The Term Loan Facility requires mandatory prepayments, subject to the right of reinvestment and certain other exceptions, in
amounts equal to 100% of the net cash proceeds from certain asset sales and casualty and condemnation events in excess of
$10 million in any fiscal year. Any voluntary or mandatory prepayment under the Term Loan Facility, subject to certain exceptions,
is subject to a 1.00% prepayment premium. The advances under the Term Loan Facility will be due and payable in full at the same
time as the outstanding loans under the ABL Facility.
As of December 30, 2018, we have unamortized deferred financing charges of approximately $1.0 million related to the Term Loan
Facility, which will be amortized over the three-year term using the effective interest method.
All of the obligations under the Term Loan Facility and the ABL Facility are guaranteed jointly and severally by us and each of the
Borrowers and are secured by a senior first priority security interest in substantially all of our and each Borrower's existing and after-
acquired assets on the terms set forth in the ABL Credit Agreement.
In addition to financial and liquidity covenants consistent with those in the ABL Credit Agreement, while the Term Loan Facility is
outstanding, we are required to maintain a minimum adjusted EBITDA, as described in the ABL Credit Agreement. The ABL Credit
Agreement will not affect our ability to meet our existing contractual obligations, including payments under the Borrower
Representative’s contingent value rights agreement, except in circumstances where an event of default (subject to certain exceptions)
has occurred and is continuing.
The ABL Credit Agreement also contains negative covenants, representations and warranties, affirmative covenants and events of
default, in each case subject to grace periods, thresholds, and materiality qualifiers consistent with the ABL Credit Agreement.
Other Debt
Other debt primarily includes government loans, mortgages, loans acquired as a result of the IMASCAP acquisition and
miscellaneous international bank loans.
119
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Maturities
Aggregate annual maturities of our current and long-term obligations at December 30, 2018, excluding capital lease obligations and
the ABL Facility, are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
$
$
190,597
2,125
416,463
935
675,042
1,380
1,286,542
The table set forth above excludes the $17.8 million in borrowings outstanding under the ABL Facility. As described previously, all
outstanding loans under the ABL Facility will be due and payable in full on December 23, 2021 or earlier under certain specified
circumstances as previously described.
As discussed in Note 7, we have acquired certain property and equipment pursuant to capital leases. At December 30, 2018, future
minimum lease payments under capital lease obligations, together with the present value of the net minimum lease payments, are as
follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum payments
Less amount representing interest
Present value of minimum lease payments
Current portion
Long-term portion
$
$
7,369
6,106
4,545
3,553
2,430
4,682
28,685
(3,146)
25,539
(6,384)
19,155
10.
Accumulated Other Comprehensive Income (AOCI)
Other comprehensive income (OCI) includes certain gains and losses that under US GAAP are included in comprehensive income
but are excluded from net loss as these amounts are initially recorded as an adjustment to shareholders’ equity. Amounts in OCI may
be reclassified to net loss upon the occurrence of certain events.
Our 2016, 2017, and 2018 OCI is comprised of foreign currency translation adjustments.
Changes in AOCI for the fiscal years ended December 25, 2016, December 31, 2017, and December 30, 2018 were as follows (in
thousands):
Balance December 27, 2015
Other comprehensive loss
Balance December 25, 2016
Other comprehensive income
Balance December 31, 2017
Other comprehensive loss
Balance December 30, 2018
120
Currency
translation
adjustment
(10,484)
(8,977)
(19,461)
41,751
22,290
(30,373)
(8,083)
$
$
$
$
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11.
Income Taxes
The components of our loss from continuing operations before income taxes are as follows (in thousands):
U.S.
Foreign
Loss from continuing operations before income taxes
The components of our benefit for income taxes are as follows (in thousands):
December 30,
2018
(144,987)
(24,853)
(169,840)
$
$
Fiscal year ended
December 31,
2017
(56,808)
(43,097)
(99,905)
$
$
December 25,
2016
(140,190)
(38,150)
(178,340)
$
$
Current (benefit) provision:
U.S.:
Federal
State
Foreign
Total current (benefit) provision
Deferred (benefit) provision:
U.S.:
Federal
State
Foreign
Total deferred benefit
Total benefit for income taxes
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
$
$
449
251
3,307
4,007
(2,841)
(663)
(1,039)
(4,543)
(536)
$
$
(23,781)
390
2,214
(21,177)
(5,098)
(93)
(8,600)
(13,791)
(34,968)
$
$
(1,971)
(281)
3,860
1,608
1,244
142
(16,400)
(15,014)
(13,406)
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for continuing operations is as follows:
Income tax benefit at statutory rate
State income taxes
Change in valuation allowance
CVR fair market value adjustment
Foreign income tax rate differential
Changes in tax reserves
Effects of U.S. tax reform
Foreign rate changes
Other, net
Total
December 30,
2018
21.0%
3.8%
(22.9)%
—%
(0.6)%
0.4%
—%
—%
(1.4)%
0.3%
Fiscal year ended
December 31,
2017
35.0%
1.5%
(3.5)%
(1.9)%
(6.1)%
2.9%
6.5%
1.7%
(1.1)%
35.0%
December 25,
2016
35.0%
2.9%
(32.6) %
(1.7) %
3.3%
0.8%
—%
—%
(0.2) %
7.5%
121
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The significant components of our deferred income taxes as of December 30, 2018 and December 31, 2017 are as follows (in
thousands):
Deferred tax assets:
Net operating loss carryforwards
General business credit carryforwards
Reserves and allowances
Deferred interest
Share-based compensation expense
Convertible debt notes and conversion options
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Intangible assets
Convertible notes bond hedges
Other
Total deferred tax liabilities
Net deferred tax liabilities
Fiscal year ended
December 30,
2018
December 31,
2017
$
330,589
14,598
56,675
27,322
14,934
38,368
3,616
(400,171)
$
283,708
12,993
90,246
—
13,679
10,747
1,642
(366,825)
85,931
46,190
5,095
58,221
34,653
166
98,135
6,383
42,862
11,668
120
61,033
$
(12,204)
$
(14,843)
The 2017 Tax Act was enacted on December 22, 2017. We recognized the income tax effects of the 2017 Tax Act in our 2017
financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of
ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. As such, our 2017 financial
results included an approximate $6.6 million benefit resulting from the revaluation of our net deferred tax liabilities and reduction of
our valuation allowance due to the change in the net operating loss carryforward period. Based on updated notices and regulations
issued by the IRS, U.S. Treasury, and other standard-setting bodies in 2018, we have finalized our income tax effects for the
provisions of the 2017 Tax Act in the fourth-quarter 2018 with no significant impact. In addition, the 2017 Tax Act imposed a tax on
global intangible low-taxed income (GILTI) earned by U.S. controlled foreign subsidiaries. In accordance with FASB Staff Q&A,
Topic 740, No. 5, we have elected to account for GILTI as a period expense in the year it is incurred. While we have included a
provisional amount relating to GILTI in our financial statements, there is no net income tax impact due to the valuation allowance
provided on our U.S. deferred tax assets.
At December 30, 2018, we had net operating loss carryforwards for U.S. federal income tax purposes of approximately $1.1 billion,
$150.0 million of which do not expire and $965.0 million which are subject to expiration. Of the U.S. net operating loss
carryforwards subject to expiration, approximately $15.0 million will expire over the next 5 years and the remaining between 2024
and 2037, with the majority expiring after 2033. State net operating loss carryforwards at December 30, 2018 totaled approximately
$1.2 billion, $25.0 million of which do not expire and $1.16 billion which begin to expire in 2019 and extend through 2038.
Additionally, we had general business credit carryforwards of approximately $15.0 million, which begin to expire in 2019 and
extend through 2038. At December 30, 2018, we had foreign net operating loss carryforwards of approximately $163.0 million,
$77.0 million of which do not expire and $86.0 million which begin to expire in 2019 and extend through 2027.
At December 30, 2018 and December 31, 2017, we had a valuation allowance of $400.2 million and $366.8 million, respectively,
related to certain U.S. and foreign deferred tax assets. We realized a net increase in the valuation allowance of $33.0 million during
the fiscal year ended December 30, 2018. The net increase was primarily due to the valuation allowance on projected U.S. current
year taxable losses and a change in judgment regarding our ability to recognize certain foreign deferred tax assets, partially offset by
a change in the realizability of certain U.S. deferred tax assets as a result of the Cartiva acquisition, for which approximately
$3.6 million was recognized as an income tax benefit. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods),
projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable
income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences,
net of the existing valuation allowance.
122
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
It is our current practice and intention to reinvest the earnings of our subsidiaries in those operations. Therefore, we do not provide
for deferred taxes on the excess of the financial reporting over the tax basis in our investments in subsidiaries that are essentially
permanent in duration. We would recognize a deferred income tax liability if we were to determine that such earnings are no longer
indefinitely reinvested. Due to the number of tax jurisdictions involved, the complexity of our legal entity structure, and the
complexity of the tax laws in the relevant jurisdictions, we believe it is not practicable to estimate the amount of additional taxes
which may be payable upon distribution of these earnings, however it is not expected to be significant. Further, the 2017 Tax Act
imposed a mandatory transition tax on accumulated foreign earnings of our U.S. controlled foreign subsidiaries and eliminated U.S.
income taxes on distributions from U.S. controlled foreign subsidiaries.
As of December 30, 2018, our unrecognized tax benefits totaled approximately $4.6 million. The total amount of net unrecognized
tax benefits that, if recognized, would affect the tax rate was approximately $1.0 million at December 30, 2018. While we are
currently not under audit in significant tax jurisdictions, it is reasonably possible that our unrecognized tax benefits could change in
the next twelve months as a result of tax periods still open for examination and expirations of the statutes of limitations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at beginning of fiscal year
Additions from acquisitions
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 end of fiscal year
Fiscal year ended
December 30,
2018
December 31,
2017
$
$
6,025
109
385
718
(490)
(1,983)
(154)
4,610
$
$
8,095
—
215
20
(3,174)
—
869
6,025
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 and penalties, that if incurred, would be recognized as penalty expense within
“Other expense (income)” on our consolidated statements of operations. As of December 30, 2018, accrued interest and penalties
related to our unrecognized tax benefits totaled approximately $0.2 million.
We file numerous consolidated and separate company income tax returns in the United States and in many foreign jurisdictions.
With few exceptions, we are subject to U.S. federal, state, and local income tax examinations for years 2015 through 2017. We are
no longer subject to foreign income tax examinations by tax authorities in significant jurisdictions for years before 2014. However,
U.S. and foreign tax authorities have the ability to review years prior to these to the extent that we utilize tax attributes carried
forward from those prior years.
12.
Other Balance Sheet Information
Other long-term liabilities consist of the following (in thousands):
Product liability reserves (Note 16)
Notes Conversion Derivatives (Note 6)
Contingent consideration (Note 6)
Other
123
December 30,
2018
30,755
304,372
15,821
17,281
368,229
$
$
December 31,
2017
$
$
60,711
170,280
18,301
23,453
272,745
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accrued expenses and other current liabilities consist of the following (in thousands):
Employee bonuses
Other employee benefits
Royalties
Taxes other than income
Notes Conversion Derivatives (Note 6)
Commissions
Professional and legal fees
Contingent consideration (Note 6)
Product liability and other legal accruals (Note 16)
CVRs (Note 6)
Employee bonuses
13. Capital Stock and Earnings Per Share
$
December 30,
2018
28,953
22,841
12,330
7,897
17,386
19,356
10,848
3,427
66,918
420
26,705
217,081
$
December 31,
2017
$
$
12,803
22,401
12,563
8,933
—
19,330
12,388
1,168
151,027
42,044
31,901
314,558
We are authorized to issue up to 320 million ordinary shares, each share with a par value of three Euro cents (€0.03). We had
125.6 million and 105.8 million ordinary shares issued and outstanding as of December 30, 2018 and December 31, 2017,
respectively.
On August 27, 2018, we entered into an underwriting agreement with J.P. Morgan, relating to the registered public offering of
18.2 million ordinary shares, at an initial price to the public of $24.60 per share, for a total price of $448.9 million. The net proceeds
to us were $423.0 million, after deducting underwriting discounts and commissions of $25.4 million and offering costs of
$0.5 million. The offering closed on August 30, 2018. The proceeds were used to fund the purchase price of the Cartiva acquisition
which closed on October 10, 2018, as well as costs and expenses related thereto. See Note 3 for additional details related to the
Cartiva acquisition.
FASB ASC Topic 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 ordinary shares outstanding during the period. Diluted earnings per
share is calculated to include any dilutive effect of our ordinary share equivalents. For the fiscal years ended December 30, 2018
and December 31, 2017, our ordinary share equivalents consisted of stock options, restricted stock units, performance share units,
and warrants. For the fiscal year ended December 25, 2016, our ordinary share equivalents consisted of stock options, restricted
stock units, and warrants. The dilutive effect of the stock options, restricted stock units, performance share units, and warrants is
calculated using the treasury-stock method.
We had outstanding options to purchase 9.9 million ordinary shares, 1.3 million restricted stock units, and 0.2 million performance
share units, assuming target performance, at December (cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:30)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:20)(cid:19)(cid:17)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)
1.3 million restricted stock units, and $0.1 million performance share units, assuming target performance, at December (cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
outstanding options to purchase 10.4 million ordinary shares and 1.3 million restricted stock units at December 25, 2016.
We had outstanding net-share settled warrants on the 2020 Notes of 6.2 million ordinary shares at December 30, 2018 and
19.6 million ordinary shares at December 31, 2017 and December 25, 2016. We also had net-share settled warrants on the 2021
Notes of 18.5 million ordinary shares at December 30, 2018 and December 31, 2017. Finally, we had net-share settled warrants on
the 2023 Notes of 20.2 million ordinary shares at December 30, 2018.
None of the options, restricted stock units, performance share units, or warrants were included in the calculation of diluted net loss
from continuing operations per share, diluted net loss from discontinued operations per shares, and diluted net loss per share for the
fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, because we recorded a net loss from continuing
operations for all periods. Including these instruments would be anti-dilutive as the net loss from continuing operations is the
control number in determining whether those potential common shares are dilutive or anti-dilutive.
124
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The weighted-average number of ordinary shares outstanding for basic and diluted loss per share purposes is as follows (in
thousands):
Weighted-average number of ordinary shares outstanding — basic and diluted
14.
Share-Based Compensation
December 30,
2018
112,592
Fiscal year ended
December 31,
2017
104,531
December 25,
2016
102,968
We currently have two share-based compensation plans under which share-based awards may be granted - the Wright Medical
Group N.V. 2017 Equity and Incentive Plan and the Wright Medical Group N.V. Amended and Restated Employee Stock Purchase
Plan, which are described below. In addition, we have the Wright Medical Group N.V. Amended and Restated 2010 Incentive Plan
and several legacy Wright and legacy Tornier share-based compensation plans and non-plan agreements under which stock options
and restricted stock units are outstanding, but no future share-based awards may be granted.
Amounts recognized in the consolidated financial statements with respect to share-based compensation are as follows:
Total cost of share-based arrangements
Amounts capitalized into inventory
Amortization of capitalized amounts
Impact to net loss
Impact to basic and diluted loss per share
Weighted-average number of shares outstanding - basic and diluted
The compensation costs related to share-based awards were as follows:
$
December 30,
2018
26,039
(507)
588
26,120
0.23
112,592
$
$
$
Fiscal year ended
December 31,
2017
19,485
(669)
577
19,393
0.19
104,531
$
$
$
December 25,
2016
14,406
(416)
426
14,416
0.14
102,968
$
$
Stock options
Restricted stock units
Performance share units
Employee stock purchase plan
Total compensation cost for share-based awards
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
$
$
11,177
11,514
2,538
810
26,039
$
$
8,988
9,373
441
683
19,485
$
$
5,844
8,416
—
146
14,406
As of December 30, 2018, we had $48.0 million of total unrecognized share-based compensation cost related to unvested share-
based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.57 years.
Equity Incentive Plans and Non-Plan Inducement Agreements
The Wright Medical Group N.V. 2017 Equity and Incentive Plan (the 2017 Plan) was approved by our shareholders on June 23,
2017. The 2017 Plan authorizes us to grant a wide variety of share-based and cash-based awards, including incentive and non-
qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, cash-based
awards, and other share-based awards. To date, only stock options, restricted stock units (RSUs), and performance share units
(PSUs) have been granted.
The options and RSUs granted to our employees generally have graded vesting periods of 4 years. The options granted to our non-
executive directors have graded vesting period of 2 years and the RSUs granted to our non-executive directors cliff vest on the one-
year anniversary of the date of grant. All options are granted with exercise prices equal to the closing price of our ordinary shares on
the date of grant, as reported by the Nasdaq Global Select Market, and expire 10 years after the grant date. The PSUs granted to our
executive officers cliff vest after a three-year performance period only if certain minimum pre-established performance criteria are
achieved and the number shares issued upon vesting depends upon the level of achievement of the performance criteria, with a cap
of 200% of target levels. The PSUs granted during the fiscal year ended December 30, 2018 were granted in the third quarter of
2018 and have a performance period from July 2, 2018 to June 25, 2021. The PSUs granted during the fiscal year ended
December 31, 2017 were granted in the third quarter of 2017 and have a performance period from June 26, 2017 to June 28, 2020.
125
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The 2017 Plan reserves for issuance a number of ordinary shares equal to the sum (cid:82)(cid:73)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:20)(cid:15)(cid:22)(cid:21)(cid:28)(cid:15)(cid:25)(cid:23)(cid:27)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)
which was the number of shares available for grant under the Wright Medical Group N.V. Amended and Restated 2010 Incentive
Plan (the 2010 Plan) as of June 23, 2017, the date of shareholder approval of the 20(cid:20)(cid:26)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:30)(cid:3)
and (iii) up to 6,405,992 shares subject to awards outstanding under the 2010 Plan as of June 23, 2017 that are subsequently forfeited
or cancelled or expire or otherwise terminate without the issuance of such shares. As of December 30, 2018, 2,297,162 ordinary
shares remained available for future grant of equity awards under the 2017 Plan, assuming maximum PSU payouts.
As of December 30, 2018, there were 11,451,090 ordinary shares covering awards outstanding under all of our equity incentive
plans, including the 2017 Plan, the 2010 Plan and legacy Wright and legacy Tornier plans and non-plan agreements, assuming target
PSU payouts. The legacy Wright and legacy Tornier plans and non-plan agreements include the Wright Medical Group, Inc. 2009
Equity Incentive Plan, as amended and restated (the Legacy Wright 2009 Plan), the Wright Medical Group, Inc. 1999 Equity
Incentive Plan, as amended and restated, the Tornier N.V. Stock Option Plan, as amended and restated, and three legacy Wright non-
plan inducement option agreements. All of these plans and non-plan agreements were terminated with respect to future awards, and
thus, no future share-based awards may be granted under any of these legacy plans and agreements.
All of the options issued under the legacy Wright plans and non-plan agreements expire after 10 years from the date of grant. All
outstanding awards under the legacy Wright plans and non-plan agreements automatically vested on October 1, 2015 as a result of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:18)(cid:55)(cid:82)(cid:85)(cid:81)(cid:76)(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:53)(cid:54)(cid:56)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) 30, 2018 under these
plans. However, there were 2,547,656 stock options outstanding as of December 30, 2018 under the legacy Wright plans and non-
plan agreements.
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 was estimated based on historical option exercise and employee
termination data. The expected stock price volatility assumption was estimated based upon historical volatility of our ordinary
shares for both legacy Wright and legacy Tornier prior to October 1, 2015 and for the combined company after the Wright/Tornier
merger. 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 share-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 2018, 2017, and 2016 was $9.32 per share,
$9.80 per share, and $7.36 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
December 30,
2018
2.6% - 2.9%
7 years
32%
Fiscal year ended
December 31,
2017
1.9% - 2.0%
6 years
33%
December 25,
2016
1.1% - 1.4%
6 years
34%
During 2018, 2017, and 2016, we did not grant any stock options to non-employees (other than our non-executive directors who
received such grants in consideration of their director service).
126
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of our stock option activity during 2018 is as follows:
Outstanding at December 31, 2017
Granted
Exercised
Forfeited or expired
Outstanding at December 30, 2018
Exercisable at December 30, 2018
________________________________
Shares
(000’s)
9,114
1,464
(750)
(625)
9,203
6,086
Weighted-
average
exercise price
22.73
$
24.14
21.18
25.51
22.89
22.30
$
$
Weighted-
average
remaining
contractual life
Aggregate
intrinsic
value*
($000’s)
6.52
5.46
$
$
36,809
28,127
* The aggregate intrinsic value is calculated as the difference between the market value of our ordinary shares as of December 30,
2018 and the respective exercise prices of the options. The market value as of December 30, 2018 was $26.51 per share, which
is the closing sale price of our ordinary shares on December 28, 2018, the last trading day prior to December 30, 2018, as
reported by the Nasdaq Global Select Market.
The total intrinsic value of options exercised during 2018, 2017, and 2016 was $4.9 million, $9.1 million, and $2.1 million,
respectively.
A summary of our stock options outstanding and exercisable at December 30, 2018 is as follows (shares in thousands):
Options outstanding
Weighted-
average
remaining
contractual
life
4.02
6.32
7.16
6.87
6.52
Number
outstanding
1,078
2,276
3,753
2,096
9,203
Options exercisable
Weighted-
average
exercise price
17.66
$
20.64
22.85
28.10
22.89
$
Number
exercisable
976
1,835
1,945
1,330
6,086
Weighted-
average
exercise price
17.48
$
20.64
22.21
28.27
22.30
$
Range of exercise prices
$2.00 — $20.00
$20.01 — $21.00
$21.01 — $25.00
$25.01 — $32.00
Restricted stock units
We calculate the grant date fair value of RSUs using the closing sale price of our ordinary shares on the grant date, as reported by the
Nasdaq Global Select Market. 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 share-
based compensation expense only for those awards that are expected to vest. The fair value of the unvested restricted stock units is
recognized on a straight-line basis over the respective requisite service period, which is generally the vesting period.
During 2018, 2017, and 2016, we granted 0.6 million, 0.5 million, 0.7 million RSUs to employees with weighted-average grant-date
fair values of $24.05, $27.83, and $21.17 per share, respectively.
During 2018, 2017, and 2016, we did not grant any RSUs to non-employees (other than our non-executive directors who received
such grants in consideration of their director service).
127
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of our RSU activity during 2018 is as follows:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 30, 2018
________________________________
Shares
(000’s)
1,280
607
(460)
(105)
1,322
Weighted-
average grant-
date fair value
$
23.45
24.05
22.89
23.63
23.90
$
Aggregate
intrinsic
value*
($000’s)
$
35,052
* The aggregate intrinsic value is calculated as the market value of our ordinary shares as of December 30, 2018. The market
value as of December 30, 2018 was $26.51 per share, which is the closing sale price of our ordinary shares on December 28,
2018, the last trading day prior to December 30, 2018, as reported by the Nasdaq Global Select Market.
The total fair value of shares underlying RSUs vested during 2018, 2017, and 2016 was $12.2 million, $9.0 million, and $7.0
million, respectively.
Performance share units
We calculate the grant date fair value of PSUs as the closing sale price of our ordinary shares on the grant date, as reported by the
Nasdaq Global Select Market. Share-based compensation expense associated with outstanding PSUs is measured using the grant
date fair value and is based on the estimated achievement of the established performance criteria at the end of each reporting period
until the performance period ends, recognized on a straight-line basis over the performance period. Share-based compensation
expense is only recognized for PSUs that we expect to vest, which we estimate based upon an assessment of the probability that the
performance criteria will be achieved. The PSUs granted during the fiscal years ended December 30, 2018 and December 31, 2017
have a three-year performance-based metric measured over a performance period from July 2, 2018 to June 25, 2021 and June 26,
2017 to June 28, 2020, respectively. Share-based compensation expense associated with outstanding PSUs is updated for actual
forfeitures.
During 2018 and 2017, we granted 0.1 million and 0.1 million PSUs (based on an assumed target level of performance) to
employees with a weighted-average grant-date fair value of $24.49 and $27.86 per share, respectively.
During 2018 and 2017, we did not grant any PSUs to non-employees.
A summary of our PSU activity during 2018 is as follows:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 30, 2018
________________________________
Shares
(000’s)
108
129
—
(4)
23
Weighted-
average grant-
date fair value
$
27.86
24.49
—
27.86
26.00
$
Aggregate
intrinsic
value*
($000’s)
$
6,176
* The aggregate intrinsic value is calculated as the market value of our ordinary shares as of December 30, 2018. The market
value as of December 30, 2018 was $26.51 per share, which is the closing sale price of our ordinary shares on December 28,
2018, the last trading day prior to December 30, 2018, as reported by the Nasdaq Global Select Market.
Non-plan inducement stock options
On occasion, legacy Wright granted stock options under a non-plan inducement stock option agreement, in order to induce a
candidate to commence employment with legacy Wright as a member of the executive management team. These options, which are
fully vested, vested over a service period ranging from 3 to 4 years. All of the options granted under these non-plan agreements will
expire 10 years from the date of grant.
128
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of our non-plan inducement stock option activity during 2018 is as follows:
Outstanding at December 31, 2017
Granted
Exercised
Forfeited or expired
Outstanding at December 30, 2018
Exercisable at December 30, 2018
________________________________
Shares
(000’s)
875
—
(182)
—
693
693
Weighted-
average
exercise price
16.50
$
—
19.71
—
15.66
15.66
$
$
Weighted-
average
remaining
contractual life
Aggregate
intrinsic
value*
($000’s)
2.74
2.74
$
$
7,522
7,522
* The aggregate intrinsic value is calculated as the difference between the market value of our ordinary shares as of December 30,
2018 and the respective exercise prices of the options. The market value as of December 30, 2018 was $26.51 per share, which
is the closing sale price of our ordinary shares on December 28, 2018, the last trading day prior to December 30, 2018, as
reported by the Nasdaq Global Select Market.
The total intrinsic value of options exercised during 2018 and 2017 was $1.6 million and $0.3 million, respectively. No options
were exercised during 2016.
A summary of our non-plan inducement stock options outstanding and exercisable at December 30, 2018 is as follows (shares in
thousands):
Options outstanding
Weighted-
average
remaining
contractual
life
2.74
Number
outstanding
693
Options exercisable
Weighted-
average
exercise price
15.66
$
Number
exercisable
693
Weighted-
average
exercise price
15.66
$
Range of exercise prices
$15.00 — $18.00
Employee Stock Purchase Plan
The Wright Medical Group N.V. Amended and Restated Employee Stock Purchase Plan (the ESPP), which is an amended and
restated version of the Tornier N.V. 2010 Employee Stock Purchase Plan, was approved by our shareholders on June 28, 2016.
Under the ESPP, we are authorized to issue and sell up to the sum of (i) 333,333 ordinary shares registered previously under the
Tornier N.V. 2010 Employee Stock Purchase Plan and (ii) 216,227 additional ordinary shares approved under the ESPP. The total of
550,000 ordinary shares are authorized to be issued to employees of our company and certain designated subsidiaries who work at
least 20 hours per week. Under the ESPP, there are two six-month offering 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. However the compensation
committee of the board of directors determined that the first offering period would be the three months beginning October 1, 2016
and ending December 31, 2016. Under the terms of the ESPP, each eligible employee can choose each offering period to have up to
20% of his or her eligible earnings withheld to purchase up to 1,000 ordinary shares. The purchase price of the shares is 85% of the
market price on the first or last trading day of the offering period, whichever is lower. As of December 30, 2018, there were 322,810
ordinary shares available for future issuance under the ESPP.
Under the ESPP, the first offering period purchase occurred on December 31, 2016, which was during the 2017 fiscal year.
In applying the Black-Scholes methodology to purchase rights granted under the ESPP, we used the following assumptions:
Risk-free interest rate
Expected life
Expected price volatility
December 30,
2018
2.3% - 2.8%
6 months
31%
Fiscal year ended
December 31,
2017
1.3% - 1.9%
6 months
24%
December 25,
2016
1.2% - 1.3%
3 months
33%
129
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
15.
Retirement Benefit Plans
During the fiscal years ended December 30, 2018, December 31, 2017, and December 25, 2016, we offered a defined contribution
retirement benefit plan for our U.S. based employees. Our defined contribution plan under Section 401(k) of the Internal Revenue
Code of 1986, as amended (Code), covers U.S. employees who are 18 years of age and over. Under this plan, we have elected to
make matching contributions to all eligible participants in an amount equal to 100% of the first three percent of eligible
compensation, and 50% of the next two percent of eligible compensation, contributed to the Plan as deferral contributions.
Employees are 100% vested in their rollover contributions, employer non-elective contributions, employer matching contributions,
qualified non-elective contributions, deferral contributions, safe harbor matching employer contributions and any earnings thereon.
The expense related to this plan recognized within our results from continuing operations was $6.2 million in 2018, $5.5 million in
2017, and $4.9 million in 2016.
16.
Commitments and Contingencies
Operating Leases
We lease certain equipment and office space under non-cancelable operating leases. Rental expense under operating leases
approximated $11.1 million, $8.9 million, and $10.5 million for the fiscal years ended December 30, 2018, December 31, 2017, and
December 25, 2016, 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 30, 2018 (in thousands):
2019
2020
2021
2022
2023
Thereafter
$
$
9,606
7,498
6,019
4,433
2,678
10,998
41,232
Portions of our payments for operating leases are denominated in foreign currencies and were translated in the table above based on
their respective U.S. dollar exchange rates at December 30, 2018. These future payments are subject to foreign currency exchange
rate risk.
Purchase Obligations
We have entered into certain supply agreements for our products which include minimum purchase obligations. As of December 30,
2018, we have minimum purchase obligations of $1.9 million, $1.3 million, $1.3 million for 2019, 2020, and 2021, respectively.
In November 2018, we entered into a lease and other documents for the construction and lease of a 40,000 square foot state of the art
facility in Arlington, Tennessee which will be used for manufacturing and distribution. The lease documents included an option to
purchase this facility for approximately $12.0 million upon completion of construction. In December 2018, we exercised our option
to purchase the facility once construction is complete.
Legal Contingencies
The legal contingencies described in this footnote relate primarily to WMT, an indirect subsidiary of Wright Medical Group N.V.,
and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities. Maintaining separate legal entities
within our corporate structure is intended to ring-fence liabilities. We believe our ring-fenced structure should preclude corporate
veil-piercing efforts against entities whose assets are not associated with particular claims.
As described below, our business is subject to various contingencies, including patent and other litigation, product liability claims,
and a government inquiry. These contingencies could result in losses, including damages, fines, or penalties, any of which could be
substantial, as well as criminal charges. Although such matters are inherently unpredictable, and negative outcomes or verdicts can
occur, we believe we have significant defenses in all of them, and are vigorously defending all of them. However, we could incur
judgments, pay settlements, or revise our expectations regarding the outcome of any matter. Such developments, if any, could have
a material adverse effect on our results of operations in the period in which applicable amounts are accrued, or on our cash flows in
the period in which amounts are paid, however, unless otherwise indicated, we do not believe any of them will have a material
adverse effect on our financial position.
130
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss or the
measurement of a loss can be complex. We have accrued for losses that are both probable and reasonably estimable. Unless
otherwise indicated, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessment
process relies on estimates and assumptions that may prove to be incomplete or inaccurate. Unanticipated events and circumstances
may occur that could cause us to change our estimates and assumptions.
Governmental Inquiries
On August 3, 2012, we received a subpoena from the United States Attorney’s Office for the Western District of Tennessee
requesting records and documentation relating to the PROFEMUR® series of hip replacement devices. The subpoena covers the
period from January 1, 2000 to August 2, 2012. We will continue to cooperate as required.
Patent Litigation
On September 23, 2014, Spineology filed a patent infringement lawsuit, Case No. 0:14-cv-03767, in the U.S. District Court in
Minnesota, alleging that our X-REAM® bone reamer infringes U.S. Patent No. RE42,757 entitled “EXPANDABLE REAMER.” In
January 2015, on the deadline for service of its complaint, Spineology dismissed its complaint without prejudice and filed a new,
identical complaint. We filed an answer to the new complaint with the Court on April 27, 2015. The Court conducted a Markman
hearing on March 23, 2016. Mediation was held on August 11, 2016, but no agreement could be reached. The Court issued a
Markman decision on August 30, 2016, in which it found all asserted product claims invalid as indefinite under applicable patent
laws and construed several additional claim terms. The parties completed fact and expert discovery with respect to the remaining
asserted method claims. We filed a motion for summary judgment of non-infringement of the remaining asserted patent claims and
motions to exclude testimony from Spineology’s technical and damages experts. Spineology filed a motion for summary judgment
of infringement. On July 25, 2017, the Court granted our motion for summary judgment of non-(cid:76)(cid:81)(cid:73)(cid:85)(cid:76)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:71)(cid:72)(cid:81)(cid:76)(cid:72)(cid:71)(cid:3)(cid:54)(cid:83)(cid:76)(cid:81)(cid:72)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)’s
(cid:80)(cid:82)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:76)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:81)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:82)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:80)(cid:82)(cid:82)(cid:87)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:88)(cid:85)(cid:87)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)r
favor and against Spineology on all issues. Spineology appealed the judgment to the U.S. Court of Appeals for the Federal Circuit
and on July 6, 2018, the Court of Appeals affirmed the judgment of non-infringement in our favor and directed the District Court to
enter judgment of non-infringement as to all of Spineology’s asserted patent claims. On September 6, 2018, the Court of Appeals
denied Spineology’s petition for rehearing and, on September 18, 2018, the District Court entered final judgment of non-
infringement.
On September 13, 2016, we filed a civil action, Case No. 2:16-cv-02737-JPM, against Spineology in the U.S. District Court for the
Western District of Tennessee alleging breach of contract, breach of implied warranty against infringement, and seeking a judicial
declaration of indemnification from Spineology for patent infringement claims brought against us stemming from our sale and/or use
of certain expandable reamers purchased from Spineology. Spineology filed a motion to dismiss on October 17, 2016, but withdrew
the motion on November 28, 2016. On December 7, 2016, Spineology filed an answer to our complaint and counterclaims,
including counterclaims relating to a 2004 non-disclosure agreement between Spineology and WMT. On December 28, 2016, we
filed a motion to dismiss the counterclaims relating to that 2004 agreement. On January 4, 2017, Spineology filed a motion for
summary judgment on certain claims set forth in our complaint. We opposed that motion. On January 27, 2017, we filed a motion
for summary judgment on certain issues pertaining to our indemnification claims. Spineology opposed that motion. On July 7, 2017,
the Court extended the deadlines for completing discovery until after it ruled on those pending motions. On August 29, 2017, the
Court ruled on the motions to dismiss and for summary judgment. In view of that decision, on September 22, 2017, the parties
stipulated to, and the Court entered, a judgment that effectively ended the case in a draw. We have appealed the judgment as to our
claims against Spineology to the U.S. Court of Appeals for the Sixth Circuit and oral argument occurred on August 2, 2018. On
August 24, 2018, the Court of Appeals ruled in our favor on our breach of contract claim and remanded the case to the District Court
for further proceedings. Spineology did not appeal the District Court’s dismissal of its contract counterclaim. We have reached an
agreement in principle with Spineology to settle our breach of contract claim pursuant to which Spineology will pay us an
immaterial amount.
Product Liability
We have received claims for personal injury against us associated with fractures of the PROFEMUR® titanium modular neck
product (PROFEMUR® Claims). As of December 30, 2018, there were approximately 19 unresolved pending U.S. lawsuits and
approximately 57 unresolved pending non-U.S. lawsuits alleging such claims. The overall fracture rate for the product is low and
the fractures appear, at least in part, to relate to patient demographics. Beginning in 2009, we began offering a cobalt-chrome
version of the PROFEMUR® modular neck, which has greater strength characteristics than the alternative titanium version.
Historically, we have reflected our liability for these claims as part of our standard product liability accruals on a case-by-case basis.
However, during the fiscal quarter ended September 30, 2011, as a result of an increase in the number and monetary amount of these
claims, management estimated our liability to patients in the United States and Canada who have previously required a revision
following a fracture of a PROFEMUR® titanium modular neck, or who may require a revision in the future. Management has
estimated that the aggregate liability is $17.5 million. We have classified $12.3 million of this liability as current in “Accrued
expenses and other current liabilities,” as we expect to pay such claims within the next twelve months, and $5.2 million as non-
131
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
current in “Other liabilities” on our consolidated balance sheet. We expect to pay the majority of these claims within the next three
years. Any claims associated with this product outside of the United States and Canada, or for any other products, will be managed
as part of our standard product liability accrual methodology on a case-by-case basis.
We have maintained product liability insurance coverage on a claims-made basis. During the fiscal quarter ended March 31, 2013,
we received a customary reservation of rights from our primary product liability insurance carrier asserting that present and future
claims related to fractures of the PROFEMUR® titanium modular neck hip products and which allege certain types of injury
(Titanium Modular Neck Claims) would be covered as a single occurrence under the policy year the first such claim was asserted.
The effect of this coverage position would be to place Titanium Modular Neck Claims into a single prior policy year in which
applicable claims-made coverage was available, subject to the overall policy limits then in effect. Management agreed with the
assertion that the Titanium Modular Neck Claims should be treated as a single occurrence, but notified the carrier that it disputed the
carrier's selection of available policy years. During the second quarter of 2013, we received confirmation from the primary carrier
confirming their agreement with our policy year determination. Based on our insurer's treatment of Titanium Modular Neck Claims
as a single occurrence, we increased our estimate of the total probable insurance recovery related to Titanium Modular Neck Claims
by $19.4 million, and recognized such additional recovery as a reduction to our selling, general and administrative expenses for the
fiscal quarter ended March 31, 2013, within results of discontinued operations. In the fiscal quarter ended June 30, 2013, we
received payment from the primary insurance carrier of $5 million. In the fiscal quarter ended September 30, 2013, we received
payment of $10 million from the next insurance carrier in the tower. We requested, but did not receive, payment of the remaining
$25 million from the third insurance carrier in the tower for that policy period. The policies with the second and third carrier in this
tower are “follow form” policies and management believed the third carrier should follow the coverage position taken by the
primary and secondary carriers. On September 29, 2015, that third carrier asserted that the terms and conditions identified in its
reservation of rights would preclude coverage for the Titanium Modular Neck Claims. Pursuant to applicable accounting standards,
we reduced our insurance receivable balance for this claim to $0, and recorded a $25 million charge within “Net loss from
discontinued operations” during the fiscal year ended December 27, 2015. We strongly disputed the carrier's position and, in
accordance with the dispute resolution provisions of the policy, initiated an arbitration proceeding in London, England seeking
payment of these funds. The arbitration proceeding was completed on February 15, 2018 and on April 11, 2018, the arbitration
tribunal issued its ruling. Thereafter, we and the insurance carrier agreed to resolve the entire matter in exchange for a single lump
sum payment by the carrier to us in the amount of $30.75 million, representing the full policy limits of $25 million plus an additional
$5.75 million for legal costs and interest. We received payment of this sum from the carrier on May 8, 2018. This insurance
recovery is reflected within our results of discontinued operations for 2018.
We are aware that MicroPort has recalled a certain size of its cobalt chrome modular neck product as a result of alleged fractures. As
of December 30, 2018, there were eleven pending U.S. lawsuits and six pending non-U.S. lawsuits against us alleging personal
injury resulting from the fracture of a cobalt chrome modular neck. These claims will be managed as part of our standard product
liability accrual methodology on a case-by-case basis.
Claims for personal injury have also been made against us associated with metal-on-metal hip products (primarily the
CONSERVE® product line). The pre-trial management of certain of these claims was consolidated in the federal court system, in the
United States District Court for the Northern District of Georgia under multi-district litigation (MDL) and certain other claims by the
Judicial Counsel Coordinated Proceedings in state court in Los Angeles County, California (JCCP) in state court in Los Angeles
County, California (collectively the Consolidated Metal-on-Metal Claims). Pursuant to previously disclosed settlement agreements
with the Court-appointed attorneys representing plaintiffs in the MDL and JCCP described below, the MDL and JCCP were closed to
new cases effective October 18, 2017 and October 31, 2017, respectively.
Excluding claims resolved in the settlement agreements described below, as of December 30, 2018, there were approximately
151 unresolved metal-on-metal hip cases pending in the U.S. This number includes cases ineligible for settlement, cases which
opted out of settlement, post-settlement cases, tolled cases, and existing state court cases that were not part of the MDL or JCCP. As
of December 30, 2018, we estimate there also were pending approximately 33 unresolved non-U.S. metal-on metal cases,
35 unresolved U.S. modular neck cases alleging claims related to the release of metal ions, and zero non-U.S. modular neck cases
with such metal ion allegations. We also estimate that as of December 30, 2018 there were approximately 534 non-revision claims
either dismissed or awaiting dismissal from the MDL and JCCP pursuant to the terms of the settlement agreements. Although there
is a limited time period during which dismissed non-revision claims may be refiled, it is presently unclear how many non-revision
claimants will elect to do so. As of December 30, 2018, one dismissed non-revision case has been refiled.
We believe we have data that supports the efficacy and safety of these hip products. Every hip implant case, including metal-on-
metal hip cases, involves fundamental issues of law, science, and medicine that often are uncertain, that continue to evolve, and
which present contested facts and issues that can differ significantly from case to case. Such contested facts and issues include
medical causation, individual patient characteristics, surgery specific factors, statutes of limitation, and the existence of actual,
provable injury.
On November 1, 2016, WMT entered into the MSA with Court-appointed attorneys representing plaintiffs in the MDL and JCCP.
Under the terms of the MSA, the parties agreed to settle 1,292 specifically identified claims associated with CONSERVE®,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
DYNASTY® and LINEAGE® products that meet the eligibility requirements of the MSA and are either pending in the MDL or
JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for a settlement amount of $240 million.
The $240 million settlement amount is a maximum settlement based on the pool of 1,292 specific, existing claims comprised of an
identified mix of CONSERVE®, DYNASTY® and LINEAGE® products (Initial Settlement Pool), with a value assigned to each
product type, resulting in a total settlement of $240 million for the 1,292 claims in the Initial Settlement Pool.
Actual settlements paid to individual claimants are determined under the claims administration procedures contained in the MSA and
may be more or less than the amounts used to calculate the $240 million settlement for the 1,292 claims in the Initial Settlement
Pool. However in no event will variations in actual settlement amounts payable to individual claimants affect WMT’s maximum
settlement obligation of $240 million or the manner in which it may be reduced due to opt outs, final product mix, or elimination of
ineligible claims.
Claims in the Initial Settlement Pool that were ineligible due to failure to meet the eligibility criteria of the MSA were replaced with
new eligible claims involving the same product, so that the number and mix of claims in the final settlement pool (before opt-outs)
(Final Settlement Pool) equaled the number and mix of claims in the Initial Settlement Pool. Additionally, where DYNASTY® or
LINEAGE® claims in the Final Settlement Pool were determined to have been misidentified as CONSERVE® claims, or vice versa,
the total settlement amount was adjusted based on the value for each product type (not to exceed $240 million).
The MSA contains specific eligibility requirements and establishes procedures for proof and administration of claims, negotiation
and execution of individual settlement agreements, determination of the final total settlement amount, and funding of individual
settlement amounts by WMT. Eligibility requirements include, without limitation, that the claimant has a claim pending or tolled in
the MDL or JCCP, that the claimant has undergone a revision surgery within eight years of the original implantation surgery, and that
the claim has not been identified by WMT as having possible statute of limitation issues. Claimants who have had bilateral revision
surgeries will be counted as two claims but only to the extent both claims separately satisfy all eligibility criteria.
The MSA includes a 95% opt-in requirement, meaning the MSA could have been terminated by WMT prior to any settlement
disbursement if claimants holding greater than 5% of eligible claims in the Final Settlement Pool elected to “opt-out” of the
settlement. WMT has confirmed that of the 1,292 eligible claims, 1,279 opted to participate in the settlement and 13 opted out,
resulting in a final opt-in percentage of approximately 99%, well in excess of the required 95% threshold. On March 2, 2017, WMT
agreed to replace the 13 opt-out claims with 13 additional claims that would have been eligible to participate in the MSA but for the
1,292 claim limit, bringing the total MSA settlement to the maximum limit of $240 million to settle 1,292 claims. Due to apparent
demand from additional claimants excluded from settlement because of the 1,292 claims ceiling, but otherwise eligible for
participation, on May 5, 2017, WMT agreed to settle an additional 53 such claims, on terms substantially identical to the MSA
settlement terms, for a maximum additional settlement amount of $9.4 million.
During 2016, WMT escrowed $150 million to secure its obligations under the MSA, all of which had been disbursed as of December
31, 2017. As additional security, Wright Medical Group N.V., the indirect parent company of WMT, agreed to guarantee WMT’s
obligations under the MSA.
On October 3, 2017, WMT entered into the Second Settlement Agreements with the Court-appointed attorneys representing
plaintiffs in the MDL and JCCP. Under the terms of the Second Settlement Agreements, the parties agreed to settle 629 specifically
identified CONSERVE®, DYNASTY® and LINEAGE® claims that meet the eligibility requirements of the Second Settlement
Agreements and are either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for a
maximum settlement amount of $89.75 million. The comprehensive settlement amount was contingent on WMT’s recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers by December 31, 2017. On December 29, 2017,
WMT entered into a First Amendment to the Third Settlement Agreement pursuant to which the deadline for the recovery of new
insurance proceeds totaling at least $35 million from applicable insurance carriers was extended through February 28, 2018 and, on
February 23, 2018, WMT entered into a Second Amendment to the Third Settlement Agreement pursuant to which the deadline was
extended through March 30, 2018. On March 29, 2018, WMT entered into a Third Amendment to the Third Settlement Agreement
which eliminated the contingency and gave WMT the option, by September 30, 2018, to either pay or make available for payment
the then outstanding deficit on the insurance contingency or transfer to eligible claimants WMT’s claims against the insurance
carriers with whom WMT has not settled, and pay or make available for payment such insurance deficit in March 2019, subject to
the right to recover these funds from any plaintiff recoveries from carriers plus ten percent interest, plus an additional $5 million in
costs, in each case after recovery by plaintiffs’ counsel of costs and fees. In connection with such transfer agreement, WMT would
also enter into a stipulated judgment in the amount of $541 million, which judgment would not be recoverable against WMT or its
affiliates. On September 27, 2018, WMT elected not to transfer WMT’s claims against the insurance carriers with whom WMT has
not settled.
The $89.75 million settlement amount is a maximum settlement based on the pool of 629 specific, existing claims comprised of an
identified mix of CONSERVE®, DYNASTY® and LINEAGE® products (Second Settlement Initial Settlement Pool), with a value
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WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
assigned to each product type. Actual settlements paid to individual claimants will be determined under the claims administration
procedures contained in the Second Settlement Agreements and may be more or less than the amounts used to calculate the
$89.75 million settlement for the 629 claims in the Second Settlement Initial Settlement Pool. However in no event will variations
in actual settlement amounts payable to individual claimants affect WMT’s maximum settlement obligation of $89.75 million or the
manner in which it may be reduced due to opt outs, final product mix, or elimination of ineligible claims.
The total maximum settlement amount of $89.75 million is allocated among the following three tranches: (1) Tranche 1:
$7.9 million to settle 49 additional claims that would have been eligible to participate in the MSA but for the claim limit contained
(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:71)(cid:30)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:72)(cid:3)(cid:21)(cid:29)(cid:3)(cid:7)(cid:24)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:22)(cid:28)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)the oldest
(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:11)(cid:69)(cid:92)(cid:3)(cid:68)(cid:74)(cid:72)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:72)(cid:3)(cid:22)(cid:29)(cid:3)(cid:7)(cid:26)(cid:25)(cid:17)(cid:26)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:24)(cid:20)(cid:20) eligible
claims pending or tolled in the MDL and JCCP existing as of June 30, 2017, and 30 new eligible claims which were presented
between July 1, 2017 and October 1, 2017, Settlement funds for Tranche 3 were or will be made available for payment as follows:
$45 million (less the remaining insurance deficit, which was $13.1 million) on June 30, 2018, the remaining insurance deficit
($13.1 million) by September 30, 2018, and the balance by September 30, 2019. Funding of the Second Settlement Agreements has
begun and $41.9 million was funded as of December 30, 2018.
The Second Settlement Agreements contain specific eligibility requirements and establish procedures for proof and administration of
claims, negotiation and execution of individual settlement agreements, determination of the final total settlement amount, and
funding of individual settlement amounts by WMT. Eligibility requirements include, without limitation, that the claimant has a claim
pending or tolled in the MDL or JCCP and that, with limited exceptions, the claimant has undergone a revision surgery. Claimants
who have had bilateral revision surgeries will be counted as two claims but only to the extent both claims separately satisfy all
eligibility criteria.
Each of the Second Settlement Agreements includes a 95% opt-in requirement, meaning WMT could have terminated either
Settlement Agreement prior to any settlement disbursement if claimants holding greater than 5% of eligible claims in Tranches 1 and
2, collectively, or claimants holding greater than 5% of eligible claims in Tranche 3, elected to “opt-out” of the settlement. On
January 2, 2018, WMT received notification that 100% of the claimants in Tranches 1 and 2 opted-in. WMT reviewed proof of
claim documentation for these claimants and confirmed a final opt-in percentage of 100%. On or about May 1, 2018, WMT
received notice from plaintiffs that the 95% opt-in threshold had also been met for Tranche 3. WMT reviewed proof of claim
documentation for Tranche 3 claimants and confirmed that the 95% opt-in threshold had been met. On July 31, 2018, WMT
confirmed a final opt-in percentage of 100% for Tranche 3.
While the Second Settlement Agreements did not require WMT to escrow any amount to secure its obligations thereunder, as
additional security, Wright Medical Group N.V., the indirect parent company of WMT, agreed to guarantee WMT’s obligations
under the Second Settlement Agreements.
The MSA (which reference includes the supplemental settlements described above) and the Second Settlement Agreements were
entered into solely as a compromise of the disputed claims being settled and are not evidence that any claim has merit nor are they
an admission of wrongdoing or liability by WMT. WMT will continue to vigorously defend metal-on-metal hip claims not settled
pursuant to the above agreements. The Second Settlement Agreements are contingent upon the dismissal without prejudice of
pending and tolled claims in the MDL and JCCP that do not meet the inclusion criteria of the MDL or JCCP. Additionally, the
Second Settlement Agreements are contingent upon the dismissal without prejudice of all remaining non-revision claims in the MDL
and JCCP (presently estimated to number approximately 534 claims either dismissed or awaiting dismissal), pursuant to a tolling
agreement that tolls applicable statutes of limitation and repose for three months from a revision of the products or determination
that a revision of the products is necessary. The MDL and JCCP courts have both entered orders closing these proceedings to new
claims.
As a result of entering into the Second Settlement Agreements during the third quarter of 2017, we recorded an additional accrual of
$82.7 million for the 629 matters included within the settlement and for matters that have the same eligibility criteria.
As of December 30, 2018, our accrual for metal-on-metal claims totaled $74.5 million, of which $51.9 million is included in our
consolidated balance sheet within “Accrued expenses and other current liabilities” and $22.6 million is included within “Other
liabilities.” Our accrual is based on (i) case by case accruals for specific cases where facts and circumstances warrant, and (ii) the
implied settlement values for eligible claims under the MSA or Second Settlement Agreements. We are unable to reasonably
estimate the high-end of a possible range of loss for claims which elected to opt-out of the MSA or Second Settlement Agreements.
Claims we can confirm would meet MSA or Second Settlement Agreements eligibility criteria but are excluded from the settlements
due to the maximum settlement cap, or because they are cases not part of the MDL or JCCP, have been accrued as of the respective
settlement rates. Due to the general uncertainties surrounding all metal-on metal claims as noted above, as well as insufficient
information about individual claims, we are presently unable to reasonably estimate a range of loss (cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:30)(cid:3)(cid:75)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)
not accrued for these claims at the present time.
134
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
We continue to believe the high-end of a possible range of loss for existing revision claims that do not meet eligibility criteria of the
MSA or Second Settlement Agreements will not, on an average per case basis, exceed the average per case accrual we take for
revision claims we can confirm do meet eligibility criteria of the MSA or Second Settlement Agreements, as applicable. Future
claims will be evaluated for accrual on a case by case basis using the accrual methodologies described above (which could change if
future facts and circumstances warrant).
The first state court metal-on-metal hip trial not part of the MDL or JCCP commenced on October 24, 2016, in St. Louis, Missouri.
On November 3, 2016, the jury returned a verdict in our favor. The plaintiff appealed, and the appellate court heard oral argument
on November 8, 2017. On February 20, 2018, the Missouri Court of Appeals, Eastern District, denied the plaintiff’s appeal and
upheld the verdict of the trial court. The plaintiff’s time for seeking any further relief from the verdict has lapsed and this matter is
closed.
We have maintained product liability insurance coverage on a claims-made basis. During the fiscal quarter ended September 30,
2012, we received a customary reservation of rights from our primary product liability insurance carrier asserting that certain present
and future claims which allege certain types of injury related to the CONSERVE® metal-on-metal hip products
(CONSERVE® Claims) would be covered as a single occurrence under the policy year the first such claim was asserted. The effect
of this coverage position would be to place CONSERVE® Claims into a single prior policy year in which applicable claims-made
coverage was available, subject to the overall policy limits then in effect. Management agrees that there is insurance coverage for the
CONSERVE® Claims, but has notified the carrier that it disputes the carrier's characterization of the CONSERVE® Claims as a
single occurrence.
In June 2014, Travelers, which was an excess carrier in our coverage towers across multiple policy years, filed a declaratory
judgment action in Tennessee state court naming us and certain of our other insurance carriers as defendants and asking the court to
rule on the rights and responsibilities of the parties with regard to the CONSERVE® Claims. Among other things, Travelers
appeared to dispute our contention that the CONSERVE® Claims arise out of more than a single occurrence thereby triggering
multiple policy periods of coverage. Travelers further sought a determination as to the applicable policy period triggered by the
alleged single occurrence. We filed a separate lawsuit in state court in California for declaratory judgment against certain carriers
and breach of contract against the primary carrier and moved to dismiss or stay the Tennessee action on a number of grounds,
including that California is the most appropriate jurisdiction. During the third quarter of 2014, the California Court granted
Travelers’ motion to stay our California action.
On October 28, 2016, WMT and Wright Medical Group, Inc. (Wright Entities) entered into a Settlement Agreement, Indemnity and
Hold Harmless Agreement and Policy Buyback Agreement (Insurance Settlement Agreement) with a subgroup of three insurance
carriers, namely Columbia Casualty Company, Travelers and AXIS Surplus Lines Insurance Company (collectively, the Three
Settling Insurers), pursuant to which the Three Settling Insurers paid WMT an aggregate of $60 million (in addition to $10 million
previously paid by Columbia) in a lump sum. This amount is in full satisfaction of all potential liability of the Three Settling
Insurers relating to metal-on-metal hip and similar metal ion release claims, including but not limited to all claims in the MDL and
the JCCP, and all claims asserted by WMT against the Three Settling Insurers in the Tennessee action described above.
As part of the settlement with the Three Settling Insurers, the Three Settling Insurers bought back from WMT their policies in the
five policy years beginning with the August 1, 2007- August 1, 2008 policy year (Repurchased Policy Years). Consequently, the
Wright Entities have no further coverage from the Three Settling Insurers for any present or future claims falling in the Repurchased
Policy Years, or any other period in which a released claim is asserted. Additionally, the Insurance Settlement Agreement contains a
so-called most favored nation provision which could require us to refund a pro rata portion of the settlement amount if we
voluntarily enter into a settlement with the remaining carriers in the Repurchased Policy Years on certain terms more favorable than
analogous terms in the Insurance Settlement Agreement. The amount due to the Wright Entities under the Insurance Settlement
Agreement was paid in the fourth quarter of 2016 and the Three Settling Insurers have been dismissed from the Tennessee action.
On December 13, 2016, we filed a motion in the Tennessee action described above to include allegations of bad faith against the
primary insurance carrier. The motion was subsequently amended on February 8, 2017 to add similar bad faith claims against the
remaining excess carriers. On April 13, 2017, the Court denied our motion, without prejudice to our right to re-assert the motion at a
later time. On August 29, 2017, we refiled the motion to add a bad faith claim against the primary and excess insurance carriers.
The Court granted our motion on October 19, 2017 and, on October 23, 2017, we filed amended cross-claims alleging bad faith
against all of the insurance carriers. On November 9, 2017, our primary insurance carrier brought a motion to dismiss and strike our
bad faith claim. The remaining excess carriers either joined the primary insurer’s motion or brought their own separate motions. On
December 22, 2017 and December 29, 2017, we opposed the insurers’ motions to dismiss and strike our claim for bad faith. The
motions remain pending.
On February 22, 2018, we and certain of our subsidiaries entered into the Second Insurance Settlement Agreement with the primary
insurance carrier, Federal, pursuant to which Federal has paid us a single lump sum payment of $15 million (in addition to $5
million previously paid by Federal). This amount is in full satisfaction of all potential liability of Federal relating to designated
metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary WMT against Federal in the previously
135
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
disclosed insurance coverage litigation. We recorded a $15 million receivable as a result of this agreement within “Other current
assets” as of December 31, 2017. On March 20, 2018, Federal was dismissed from the Tennessee and California actions described
above.
On April 19, 2018, we and certain of our subsidiaries entered into a Settlement and Release Agreement (Third Insurance Settlement
Agreement) with Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London (Lloyd’s
Syndicate 2003) pursuant to which Lloyd’s Syndicate 2003 has paid us a single lump sum payment of $1.9 million (in addition to $5
million previously paid by Lloyd’s Syndicate 2003). This amount is in full satisfaction of all potential liability of Lloyd’s Syndicate
2003 relating to designated metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary WMT
against Lloyd’s Syndicate 2003 in the previously disclosed insurance coverage litigation. On May 1, 2018, Lloyd’s Syndicate 2003
was dismissed from the Tennessee action described above. The Lloyd’s Syndicate 2003 was dismissed from the California action on
May 3, 2018.
Following the settlements with the Three Settling Insurers, Federal, and Lloyd’s Syndicate 2003, the only remaining insurer in the
Tennessee and California coverage litigation is Catlin Specialty Insurance Company, a high-level excess insurer that provided
“follow-form” coverage during the 2011/2012 policy period. Litigation with this carrier is continuing. Trial is set for July 2019.
In March 2017, Lexington, which had been dismissed from the Tennessee action, requested arbitration under five Lexington
insurance policies in connection with the CONSERVE® Claims. We subsequently engaged in discussions and correspondence with
Lexington about the scope of the requested arbitration(s). On or about October 27, 2017, Lexington filed an Application for Order to
Compel Arbitration in the Commonwealth of Massachusetts, Suffolk County Superior Court, naming WMT, Wright Medical Group,
Inc., and Wright Medical Group N.V. We opposed the Application. On February 28, 2018, the Massachusetts Court ordered the
parties to arbitrate the two Lexington insurance policies containing Massachusetts arbitration clauses but did not order arbitration
under the remaining three Lexington policies at issue. We have appealed that ruling. While the appeal is pending, we are
proceeding with the arbitration, but the selection of the arbitrators is still in dispute by the parties. In the arbitration, Lexington has
asserted a claim for declaratory relief, and we have asserted counter-claims for breach of contract, declaratory relief, and bad faith.
On September 26, 2018, Lexington sought to add a claim alleging Wright’s filing of the Tennessee lawsuit referred to below was not
in good faith. Wright objected to Lexington’s additional claim and argued that such claim could only be added upon agreement of
the arbitrators (who are yet to be selected). The American Arbitration Association agreed with Wright’s position.
On May 22, 2018, Wright initiated a lawsuit against Lexington under the three policies that the court did not order into arbitration in
Massachusetts. The lawsuit, filed in the Chancery Court of Tennessee, alleges breach of contract, declaratory relief, and bad faith in
connection with Lexington’s failure and refusal to provide coverage for the underlying metal-on-metal claims under policies issued
for 2009-2012. On July 12, 2018, Lexington brought a motion to stay the litigation and compel arbitration under the 2009-2011
Lexington policies. On February 21, 2019, we filed a motion to strike Lexington’s motion to stay. These motions remain pending.
As of December 30, 2018, our insurance carriers have paid an aggregate of $101.9 million of insurance proceeds related to the
metal-on-metal claims, including amounts received under the three above referenced settlement agreements, of which $95.2 million
has been paid directly to us and $6.7 million has been paid directly to claimants. Except as provided in the Insurance Settlement
Agreement, the Second Insurance Settlement Agreement and the Third Insurance Settlement Agreement, our acceptance of the
insurance proceeds was not a waiver of any other claim we may have against the insurance carriers unrelated to metal-on-metal
coverage and our disputes with carriers relating thereto. However, the amount we ultimately receive will depend on the outcome of
our dispute with the remaining carriers (Lexington and Catlin, with remaining policy limits totaling $30 million and $5 million,
respectively) concerning the number of policy years available. We believe our contracts with the insurance carriers are enforceable
(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)ive additional recoveries from the remaining carriers.
Given the substantial or indeterminate amounts sought in these matters, and the inherent unpredictability of such matters, an adverse
outcome in these matters in excess of the amounts included in our accrual for contingencies could have a material adverse effect on
our financial condition, results of operations and cash flow. Future revisions to our estimates of these provisions could materially
impact our results of operations and financial position. We use the best information available to determine the level of accrued
product liabilities, and believe our accruals are adequate.
Other
In addition to those noted above, we are subject to various other legal proceedings, product liability claims, corporate governance,
and other matters which arise in the ordinary course of business.
136
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
17.
Quarterly Results of Operations (unaudited):
The following tables present a summary of our unaudited quarterly operating results for each of the four quarters in 2018 and 2017,
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 report 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
Total operating expenses
Operating (loss) income
Net loss from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net loss
Net loss, continuing operations per share, basic and diluted
Net loss income per share, basic and diluted
Weighted-average number of shares outstanding-basic and
diluted
Our 2018 operating (loss) income included the following:
First
quarter
$ 198,537
41,139
157,398
137,248
13,899
7,141
158,288
(890)
(19,907)
(5,607)
$ (25,514)
(0.19)
$
(0.24)
$
2018
Second
quarter
$ 205,400
45,558
159,842
140,826
14,665
6,009
161,500
(1,658)
(90,621)
22,923
$ (67,698)
(0.85)
$
(0.64)
$
Third
quarter
$ 194,106
44,307
149,799
139,223
13,829
5,881
158,933
(9,134)
(35,829)
(6,696)
$ (42,525)
(0.32)
$
(0.38)
$
Fourth
quarter
$ 238,147
49,149
188,998
160,664
16,749
7,699
185,112
3,886
(22,947)
(10,821)
(33,768)
(0.18)
(0.27)
$
$
$
105,904
106,095
113,043
125,323
(cid:129)
(cid:129)
transaction and transition costs totaling $0.9 million, $1.3 million, $2.0 million, and $7.8 million during the first,
second, third, (cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
amortization of inventory step-up of $0.4 million in the fourth quarter of 2018 associated with inventory acquired from
the Cartiva acquisition.
Our 2018 net loss from continuing operations included the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the after-(cid:87)(cid:68)(cid:91)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:30)
the after-tax effects of non-cash interest expense related to the amortization of the debt discount on our 2020 Notes,
2021 Notes and 2023 Notes totaling $12.0 million, $12.3 million, $12.3 million, and $12.6 million during the first,
(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of a $39.9 million non-cash loss on extinguishment of debt to write-off unamortized debt discount
and deferred financi(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:30)
the after-tax effects of our mark-to-market adjustments on derivative assets and liabilities totaling a $1.7 million loss,
$32.9 million loss, $0.2 million gain, and $1.6 million loss recognized in the first, second, third, and fourth quarters of
(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of non-cash foreign currency translation charges of $0.8 million, $1.9 million, $0.2 million, and
$0.3 million during the f(cid:76)(cid:85)(cid:86)(cid:87)(cid:15)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of our fair value adjustments to contingent consideration totaling a $0.4 million loss, $0.4 million
loss, $0.3 million loss, and $0.7 million loss in the first, second, (cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of our CVR mark-to-market adjustments of $3.9 million gain, $2.5 million gain, $3.4 million loss,
and $3.2 million loss recognized in the first, second, third, and fourth quarters of 2(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
a tax benefit related to the realizability of deferred tax assets as result of the Cartiva acquisition of $3.6 million in the
(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:30)
a tax provision of $2.7 million due to a change in judgment regarding our ability to realize certain deferred tax assets
(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
a U.S. tax (benefit) provision within continuing operations recorded as a result of the pre-tax gain recognized within
discontinued operations due to the $30.75 million insurance settlement totaling $(6.2) million, $2.2 million, and
$3.8 million in the second, third, and fourth quarters of 2018, respectively.
137
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Amortization of intangible assets
Total operating expenses
Operating (loss) income
Net (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net (loss)
Net (loss), continuing operations per share, basic
Net (loss), continuing operations per share, diluted
Net (loss) income per share, basic
Net (loss) income per share, diluted
Weighted-average number of shares outstanding-basic
Weighted-average number of shares outstanding-diluted
Our 2017 operating (loss) income included the following:
First
quarter
$ 177,191
37,126
140,065
129,834
12,432
7,397
149,663
(9,598)
(36,707)
(21,992)
$ (58,699)
(0.35)
$
(0.35)
$
(0.57)
$
(0.57)
$
103,663
103,663
2017
Second
quarter
$ 179,693
38,122
141,571
130,818
12,547
6,999
150,364
(8,793)
(20,960)
(20,202)
$ (41,162)
(0.20)
$
(0.20)
$
(0.39)
$
(0.39)
$
104,377
104,377
Third
quarter
$ 170,503
38,421
132,082
131,421
11,992
7,178
150,591
(18,509)
(34,122)
(97,748)
$ (131,870)
(0.33)
$
(0.33)
$
(1.26)
$
(1.26)
$
104,836
104,836
Fourth
quarter
$ 217,602
47,278
170,324
133,149
13,144
6,822
153,115
17,209
26,852
2,281
29,133
0.26
0.25
0.28
0.27
105,195
106,578
$
$
$
$
$
(cid:129)
(cid:129)
transaction and transition costs totaling $3.0 million, $3.2 million, $3.3 million, and $2.9 million during the first,
(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
a benefit from incentive and indirect tax projects of $9.0 million in the fourth quarter of 2017.
Our 2017 net (loss) income from continuing operations included the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the after-(cid:87)(cid:68)(cid:91)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:30)
the after-tax effects of our CVR mark-to-market adjustments of $6.2 million loss, $3.9 million gain, $4.5 million loss,
and $1.4 million gain recognized in the first, second, (cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of non-cash interest expense related to the amortization of the debt discount on our 2017 Notes,
2020 Notes and 2021 Notes totaling $11.0 million, $11.2 million, $11.5 million, and $11.7 million during the first,
(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of our mark-to-market adjustments on derivative assets and liabilities totaling a $0.4 million loss,
$4.3 million gain, $0.2 million gain, and $0.6 million gain recognized in the first, second, third, and fourth quarters of
(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the after-tax effects of our fair value adjustments to contingent consideration totaling a $0.2 million loss, $0.1 million
loss, and $0.2 million gain in the (cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
a tax benefit related to the realizability of net operating losses of $8.9 million and $16.0 million in the third and fourth
(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:30)
the tax effects of tax law reform in the (cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:27)(cid:17)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
the tax effects of a benefit from incentive and indirect tax projects of $0.8 million in the fourth quarter of 2017.
18.
Segment and Geographic Data
During the first quarter of 2016, our management, including our Chief Executive Officer, who is our chief operating decision maker,
began managing our operations as four operating business segments: U.S. Lower Extremities & Biologics, U.S. Upper Extremities,
International Extremities & Biologics, and Large Joints. We determined that each of these operating segments represented a
reportable segment. Our Chief Executive Officer reviews financial information at the operating segment level to allocate resources
and to assess the operating results and performance of each segment. As a result of the classification of the Large Joints business as
a discontinued operation during the second quarter of 2016, the Large Joints reportable segment is presented in our consolidated
statements of operations as discontinued operations and is excluded from segment results for all periods presented. See Note 4 of
the consolidated financial statements for additional information regarding this divestiture. U.S. Lower Extremities & Biologics,
U.S. Upper Extremities, and International Extremities & Biologics are our remaining three reportable segments as of December 30,
2018.
138
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Our U.S. Lower Extremities & Biologics segment consists of our operations focused on the sale in the United States of our lower
extremities products, such as joint implants and bone fixation devices for the foot and ankle, and our biologics products used to
support treatment of damaged or diseased bone, tendons, and soft tissues or to stimulate bone growth. Our U.S. Upper Extremities
segment consists of our operations focused on the sale in the United States of our upper extremities products, such as joint implants
and bone fixation devices for the shoulder, elbow, wrist, and hand and products used across several anatomic sites to mechanically
repair tissue-to-tissue or tissue-to-bone injuries and other ancillary products. As the IMASCAP operations are managed by the U.S.
Upper Extremities management team, results of operations and assets related to IMASCAP are included within the U.S. Upper
Extremities segment. Our International Extremities and Biologics segment consists of our operations focused on the sale outside the
United States of all lower and upper extremities products, including associated biologics products.
Management measures segment profitability using an internal operating performance measure that excludes the impact of inventory
step-up amortization and transaction and transition costs associated with acquisitions, as such items are not considered representative
of segment results. We have determined that each reportable segment represents a reporting unit and, in accordance with ASC 350,
requires an allocation of goodwill to each reporting unit. As of December 30, 2018, we have allocated $570.0 million,
$627.9 million, and $71.1 million of goodwill to the U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International
Extremities & Biologics reportable segments, respectively.
Our principal geographic regions consist of the United States, EMEAC (which includes Europe, the Middle East, Africa, and
Canada), and Other (which principally represents Asia, Australia, and Latin America). Net sales attributed to each geographic region
are based on the location in which the products were sold.
Net sales by geographic region by product line are as follows (in thousands):
United States
Lower extremities
Upper extremities
Biologics
Sports med & other
Total United States
EMEAC
Lower extremities
Upper extremities
Biologics
Sports med & other
Total EMEAC
Other
Lower extremities
Upper extremities
Biologics
Sports med & other
Total other
Total net sales
December 30,
2018
Fiscal year ended
December 31,
2017
December 25,
2016
$
$
$
$
$
$
$
250,735
281,314
83,077
8,412
623,538
46,342
87,647
8,312
11,074
153,375
14,407
26,813
17,445
612
59,277
836,190
$
$
$
$
$
$
$
228,044
239,965
78,361
8,141
554,511
42,333
73,243
8,445
13,751
137,772
16,140
21,456
13,831
1,279
52,706
744,989
$
$
$
$
$
$
$
222,936
201,579
74,603
8,429
507,547
43,805
66,819
8,149
13,405
132,178
18,896
19,683
10,734
1,324
50,637
690,362
No single foreign country accounted for more than 10% of our total net sales during 2018, 2017, or 2016.
139
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Assets in the U.S. Upper Extremities, U.S. Lower Extremities & Biologics, and International Extremities & Biologics segments are
those assets used exclusively in the operations of each business segment or allocated when used jointly. Assets in the Corporate
category are principally cash and cash equivalents, derivative assets, property, plant and equipment associated with our corporate
headquarters, assets associated with discontinued operations, product liability insurance receivables, and assets associated with
income taxes. Total assets by business segment as of December 30, 2018 and December 31, 2017 are as follows (in thousands):
Total assets
Total assets
U.S. Lower
Extremities
& Biologics
940,075
$
U.S. Upper
Extremities
923,036
$
December 30, 2018
International
Extremities
& Biologics
272,127
$
$
Corporate
559,163
Total
$ 2,694,401
U.S. Lower
Extremities
& Biologics
490,528
$
U.S. Upper
Extremities
929,930
$
December 30, 2017
International
Extremities
& Biologics
301,985
$
$
Corporate
406,281
Total
$ 2,128,724
Selected financial information related to our segments is presented below for the fiscal years ended December 30, 2018, December
31, 2017, and December 25, 2016 (in thousands):
Net sales from external customers
Depreciation expense
Amortization expense
Segment operating income (loss)
Other:
Transaction and transition expenses
Inventory step-up amortization
Operating loss
Interest expense, net
Other expense, net
Loss before income taxes
Capital expenditures
Net sales from external customers
Depreciation expense
Amortization expense
Segment operating income (loss)
Other:
Transaction and transition expenses
Incentive and indirect tax projects
Operating loss
Interest expense, net
Other expense, net
Loss before income taxes
Capital expenditures
U.S. Lower
Extremities
& Biologics
337,433
$
11,131
—
96,153
$
Fiscal year ended December 30, 2018
International
Extremities
& Biologics
212,652
$
13,004
—
1,492
U.S. Upper
Extremities
$ 286,105
12,439
—
97,644
22,923
26,730
$ (190,720)
Corporate 1
$
$
$
Total
— $ 836,190
59,497
26,730
4,569
$
12,013
352
(7,796)
80,247
81,797
$ (169,840)
71,467
$
Total
$
21,153
$
26,346
$
17,566
$
6,402
U.S. Lower
Extremities
& Biologics
$ 309,713
12,532
—
79,889
$
Fiscal year ended December 31, 2017
International
Extremities
& Biologics
$ 190,478
12,366
—
3,631
U.S. Upper
Extremities
$ 244,798
10,211
—
78,866
21,723
28,396
$ (178,642)
Corporate 1
$
$
$
— $ 744,989
56,832
28,396
$ (16,256)
$
19,355
$
22,897
$
19,555
$
1,667
12,400
(8,965)
(19,691)
74,644
5,570
$ (99,905)
63,474
$
140
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Net sales from external customers
Depreciation expense
Amortization expense
Segment operating income (loss)
Other:
Inventory step-up amortization
Transaction and transition expenses
Legal settlement
Management changes
Costs associated with new convertible debt
Operating loss
Interest expense, net
Other income, net
Loss before income taxes
Capital expenditures
U.S. Lower
Extremities
& Biologics
$ 300,847
13,000
—
85,645
$
Fiscal year ended December 25, 2016
International
Extremities
& Biologics
$ 182,815
11,427
—
5,872
U.S. Upper
Extremities
$ 206,700
11,190
—
65,231
20,213
28,841
$ (202,261)
Corporate 1
$
$
$
Total
— $ 690,362
55,830
28,841
(45,513)
$
37,689
36,374
1,800
1,348
234
(122,958)
58,530
(3,148)
$ (178,340)
50,099
$
$
13,145
$
10,101
$
13,517
$
13,336
1
The Corporate category primarily reflects general and administrative expenses not specifically associated with the U.S. Lower Extremities &
Biologics, U.S. Upper Extremities, and International Extremities & Biologics segments. These non-allocated corporate expenses relate to
global administrative expenses that support all segments, including salaries and benefits of certain executive officers and expenses such as:
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:30)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:30)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
all share-based compensation.
19.
Subsequent Events
2020 Notes Exchange
On February 7, 2019, WMG issued $139.6 million aggregate principal amount of the 2023 Notes pursuant to the 2023 Notes
Indenture (Additional 2023 Notes). The Additional 2023 Notes were delivered to certain accredited investors (within the meaning of
Rule 501 promulgated under the Securities Act) and/or qualified institutional buyers (as defined in Rule 144A under the Securities
Act) in exchange for $130.1 million aggregate principal amount of 2020 Notes. We fully and unconditionally guarantee the
Additional 2023 Notes on a senior unsecured basis. For each $1,000 principal amount of 2020 Notes validly submitted for
exchange, WMG delivered $1,072.40 principal amount of Additional 2023 Notes to the exchanging investor (subject, in each case,
to rounding to the nearest $1,000 aggregate principal amount for each such exchanging investor). There was no separate cash
payment in respect of rounded amounts or interest, if any, accrued and unpaid to the closing date of the exchange. The Additional
2023 Notes are referred to as “exchangeable” in the exchange documents because were issued by WMG, not us. Neither we nor
WMG received any cash proceeds from the exchange of 2020 Notes for the Additional 2023 Notes.
After giving effect to the issuance of the Additional 2023 Notes and the exchange of the 2020 Notes and the issuance of 2023 Notes
pursuant to the exchange that occurred in June 2018, $814.6 million aggregate principal amount of the 2023 Notes is currently
issued and outstanding under the Indenture and $56.5 million aggregate principal amount of the 2020 Notes remains issued and
outstanding.
In connection with the above-described exchange, on January 30, 2019 and January 31, 2019, we, along with WMG, entered into
cash-settled convertible note hedge transactions with two counterparties, Deutsche Bank AG, London Branch and JPMorgan Chase
Bank, National Association (Option Counterparties), which are expected generally to reduce the net cash payments that WMG may
be required to make upon conversion of the Additional 2023 Notes to the extent that such cash payments exceed the principal
amount of the Additional 2023 Notes and the per share market price of our ordinary shares, as measured under the terms of the cash
convertible note hedge transactions, is greater than the strike price of the cash convertible note hedge transactions, which is initially
$33.37, corresponding to the initial conversion price of the Additional 2023 Notes, and is subject to anti-dilution adjustments
generally similar to those applicable to the conversion rate of the 2023 Notes.
141
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
On the same day, we also entered into warrant transactions with the Option Counterparties in which we agreed to sell the Option
Counterparties warrants that are initially exercisable into 4.2 million ordinary shares and subject to adjustment upon the occurrence
of certain events. The strike price of the warrants will initially be $40.86 per ordinary share, which is approximately 36.3% above
the last reported sale price of the ordinary shares on January 30, 2019, as reported on the NASDAQ Global Select Market. The
warrant transactions will have a dilutive effect on the ordinary shares to the extent that the market price per ordinary share, as
measured under the terms of the warrant transactions, exceeds the strike price of the warrants.
WMG paid approximately $30.1 million in the aggregate to the Option Counterparties for the note hedge transactions, and received
approximately $21.2 million in the aggregate from the Option Counterparties for the warrants, resulting in a net cost to us of
approximately $8.9 million.
In connection with the above described exchange, WMG also settled a pro rata share of the 2020 Notes Conversion Derivatives,
2020 Notes Hedges, and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange.
Increase of ABL Facility
In February 2019, we amended the ABL Credit Agreement to, among other things, increase the amount of commitments under the
line of credit from $150 million to $175 million and under the second tranche of the Term Loan Facility from $20 million to
$35 million. As a result of the increase under the line of credit, the amount of additional commitments we are able to activate under
the line of credit was reduced from $100 million to $75 million.
142
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and
Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management,
including our principal executive officer and principal financial officer, to allow timely decisions regarding disclosure. The CEO
and the CFO, with assistance from other members of management, have reviewed the design and effectiveness of our disclosure
controls and procedures as of December 30, 2018 and, based on their evaluation, have concluded that the disclosure controls and
procedures were effective as of December 30, 2018.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) under the Exchange Act.
Management assessed the effectiveness of our internal control over financial reporting as of December 30, 2018, based on the
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the
Treadway Commission (COSO). Based on this assessment, management concluded that our internal control over financial reporting
was effective as of December 30, 2018. Our internal control over financial reporting as of December 30, 2018 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
In the fourth quarter of our fiscal year ended December 30, 2018, we completed the Cartiva acquisition. In light of the timing of the
acquisition and the relatively low percentage that Cartiva’s financial information represents on our consolidated financial
information included in this report, we determined that it was impracticable to provide a report on our internal control over financial
reporting of all of our consolidated entities as of the end of our fiscal year ended December 30, 2018. Therefore, we have limited
the scope of our management’s assessment of the effectiveness of our internal control over financial reporting in this report to legacy
Wright and have excluded Cartiva.
Cartiva's total assets, excluding goodwill and intangibles which were subject to legacy Wright’s consolidation and business
combination controls and thus would be included in management’s report on internal control over financial reporting, totaled less
than 1% of total consolidated assets as of December 30, 2018. Cartiva's net sales represented less than 2% of our consolidated net
sales as reflected in our consolidated financial statements for the fiscal year ended December 30, 2018.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) during the fiscal quarter ended December 30, 2018, that materially affected, or that
are reasonably likely to materially affect, our internal control over financial reporting, except for changes that we made to begin to
incorporate the internal control over financial reporting of Cartiva with and into our internal control over financial reporting.
Item 9B. Other Information.
On February 25, 2019, we entered into Amendment No. 3 to Amended and Restated Credit, Security and Guaranty Agreement by
and among us, as guarantor, Wright Medical Group, Inc. and certain of our other wholly-owned U.S. subsidiaries, as borrowers,
MidCap Funding IV Trust, as administrative agent and a lender, and the additional lenders named therein, pursuant to which we
amended the ABL Credit Agreement to, among other things, increase the amount of commitments under the line of credit from
$150 million to $175 million and under the second tranche of the term loan facility from $20 million to $35 million. As a result of
the increase under the line of credit, the amount of additional commitments we are able to activate under the line of credit was
reduced from $100 million to $75 million.
The foregoing represents only a summary of the material terms of the foregoing described amendment, does not purport to be
complete and is qualified in its entirety by reference to the complete text of the amendment, which is filed as Exhibit 10.59 to this
Annual Report on Form 10-K, and is incorporated by reference herein.
143
Item 10.
Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
PART III
The table below sets forth, as of February 22, 2019, certain information concerning our current directors and executive officers. No
family relationships exist among any of our directors or executive officers.
Name
Robert J. Palmisano
Lance A. Berry
Kevin D. Cordell
Jason D. Asper
Julie D. Dewey
James A. Lightman
Andrew C. Morton
J. Wesley Porter
Barry J. Regan
Kevin C. Smith
Jennifer S. Walker
Peter S. Cooke
Patrick Fisher
Timothy L. Lanier
Steven P. Wallace
Julie B. Andrews
David D. Stevens
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
Richard F. Wallman
Elizabeth H. Weatherman
Age
74
46
53
44
57
61
53
49
46
58
51
53
45
57
39
47
65
61
52
59
62
67
67
58
Position
President and Chief Executive Officer and Executive Director
Executive Vice President, Chief Financial and Operations Officer
Executive Vice President, Chief Global Commercial Officer
Senior Vice President, Strategy, Corporate Development and Technology
Senior Vice President, Chief Communications Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President and Chief Human Resources Officer
Senior Vice President, Chief Compliance Officer
Senior Vice President, Operations
Senior Vice President, Quality and Regulatory
Senior Vice President, Process Improvement
President, Emerging Markets, Australia and Japan
President, Lower Extremities
President, Upper Extremities
President, International
Vice President of Finance, Chief Accounting Officer
Chairman and Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
The following is a biographical summary of the experience of our directors and executive officers:
Robert J. Palmisano was appointed our President and Chief Executive Officer and an executive director and member of our board
of directors in October 2015 in connection with the Wright/Tornier merger. Mr. Palmisano has served as President and Chief
Executive Officer of Wright Medical Group, Inc. since September 2011. Prior to joining legacy Wright, Mr. Palmisano served as
President and Chief Executive Officer of ev3 Inc., a global endovascular device company, from April 2008 to July 2010, when it was
acquired by Covidien plc. From 2003 to 2007, Mr. Palmisano was President and Chief Executive Officer of IntraLase Corp. Before
joining IntraLase, Mr. Palmisano was President and Chief Executive Officer of MacroChem Corporation from 2001 to 2003.
Mr. Palmisano currently serves on the Providence College Board of Trustees and serves on the board of directors of Avedro, Inc., a
publicly held ophthalmic medical device and pharmaceutical company. Mr. Palmisano previously served on the board of directors of
ev3 Inc., Osteotech, Inc. and Abbott Medical Optics, Inc., all publicly held companies, and Bausch & Lomb, a privately held
company. Under the terms of his employment agreement, we have agreed that Mr. Palmisano will be nominated by our board of
directors for election as an executive director and a member of our board of directors at each annual general meeting of shareholders
during the term of his employment as President and Chief Executive Officer of our company. Mr. Palmisano’s qualifications to
serve on our board of directors include his day-to-day knowledge of our company and business due to his position as President and
Chief Executive Officer, his experience serving on other public companies’ boards of directors, and his extensive business
knowledge working with other public companies in the medical device industry.
Lance A. Berry was appointed our Executive Vice President, Chief Financial and Operations Officer in January 2019. Prior to such
position, he served as our Senior Vice President and Chief Financial Officer from October 2015 to December 2018. He was
appointed to that position in connection with the Wright/Tornier merger. Mr. Berry also serves as Senior Vice President and Chief
Financial Officer of Wright Medical Group, Inc., a position he has held since 2009. He joined legacy Wright in 2002, and, until his
appointment as Chief Financial Officer, served as Vice President and Corporate Controller. Prior to joining Wright, Mr. Berry
served as audit manager with the Memphis, Tennessee office of Arthur Andersen LLP from 1995 to 2002.
Kevin D. Cordell was appointed our Executive Vice President, Chief Global Commercial Officer in January 2019. Prior to such
position, he served as President, U.S. June 2016 to December 2018. From October 2015 to June 2016, he served as our President,
Lower Extremities and Biologics. Mr. Cordell served as President, U.S. Extremities of Wright Medical Group, Inc. from September
144
2014 to October 2015. Prior to joining legacy Wright, Mr. Cordell served as Vice President of Sales for the GI Solutions business at
Covidien plc, a global healthcare products company, from May 2012 to September 2014. While at Covidien, he served as Vice
President of Sales and Global Marketing for its Peripheral Vascular business from July 2010 to May 2012. He joined Covidien in
July 2010 through the acquisition of ev3 Inc., a global endovascular device company, where he served as Vice President of U.S.
Sales from January 2009 to July 2010. Prior to ev3, Mr. Cordell served as Vice President, Global Sales of FoxHollow Technologies,
Inc. from March 2007 until it was acquired by ev3 in October 2007. Earlier in his career, Mr. Cordell held various positions of
increasing responsibility for Johnson & Johnson’s Cordis Cardiology and Centocor companies. Mr. Cordell previously served on
the board of directors of TissueGen, Inc., a privately-held developer of biodegradable polymer technology for implantable drug
delivery.
Jason D. Asper was appointed our Senior Vice President, Strategy, Corporate Development and Technology in February 2019. Prior
to such position, he served as our Senior Vice President, Strategy and Corporate Development from August 2017 to February 2019.
Prior to joining Wright, Mr. Asper served as a principal for Deloitte Consulting, LLP, a global consulting company, from September
2012 to July 2017.
Julie D. Dewey was appointed our Senior Vice President, Chief Communications Officer in October 2015 in connection with the
Wright/Tornier merger. Ms. Dewey served as Senior Vice President, Chief Communications Officer of Wright Medical Group, Inc.
from October 2011 to October 2015. Prior to joining legacy Wright, Ms. Dewey served as Chief Communications Officer of
Epocrates, Inc., a publicly held company that sold physician platforms for clinical content, practice tools and health industry
engagement, from March 2011 to October 2011. From January 2008 to July 2010, Ms. Dewey was Senior Vice President and Chief
Communications Officer of ev3 Inc. Prior to ev3, Ms. Dewey held marketing and investor relations positions at Kyphon Inc. from
January 2003 to November 2007 and Thoratec Corporation from January 1998 to January 2003. Ms. Dewey currently serves as a
member of the board of directors for the National Investor Relations Institute, the professional association of corporate officers and
investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and
other financial community constituents.
James A. Lightman was appointed our Senior Vice President, General Counsel and Secretary in October 2015 in connection with
the Wright/Tornier merger. Mr. Lightman joined Wright Medical Group, Inc. in December 2011 as Senior Vice President, General
Counsel and Secretary. Prior to joining legacy Wright, Mr. Lightman served in various legal and executive positions with Bausch &
Lomb Incorporated, a privately held supplier of eye health products. From February 2008 to November 2009, Mr. Lightman served
as Vice President and Assistant General Counsel of Bausch & Lomb, and most recently held the position of Vice President, Global
Sales Operations until August 2011. From June 2007 to February 2008, he served as Vice President and General Counsel of
Eyeonics, Inc. Prior to joining Eyeonics, Mr. Lightman served as Senior Vice President and General Counsel of IntraLase Corp.
from February 2005 to April 2007.
Andrew C. Morton was appointed our Senior Vice President and Chief Human Resources Officer in March 2018. From November
2015 to March 2018, Mr. Morton served as Senior Vice President and Chief Human Resources Officer for Hanger, Inc., a provider of
orthotic and prosthetic patient care services and solutions, and served as Vice President and Chief Human Resources Officer of
Hanger from June 2010 to November 2015. Prior to joining Hanger, Mr. Morton served in tw(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
Talent and Corporate Services, and then Vice President Human Resources Supply Chain for Freescale Semiconductor, Inc., a
designer and manufacturer of embedded processors, from May 2006 to June 2010. From June 1992 to April 2006, Mr. Morton
worked at International Business Machines Corporation and held various global field and corporate human resource executive roles
of increasing responsibility across its software, hardware and sales businesses.
J. Wesley Porter was appointed our Senior Vice President and Chief Compliance Officer in October 2015 in connection with the
Wright/Tornier merger. Mr. Porter joined Wright Medical Group, Inc. in July 2014 as Vice President, Compliance and became
Senior Vice President and Chief Compliance Officer in October 2014. Prior to joining legacy Wright, Mr. Porter served as Vice
President, Deputy Compliance Officer of Allergan, Inc. from September 2012 to February 2014, Vice President, Ethics and
Compliance of CareFusion Corp. from June 2009 to September 2012, and Senior Corporate Counsel, Compliance, HIPAA and
Reimbursement of Smith & Nephew, Inc. from April 2006 to May 2009.
Barry J. Regan was appointed our Senior Vice President, Operations in July 2018. From January 2018 to June 2018, Mr. Regan
served as Senior Vice President, Global Supply Chain and Direct Procurement of Smith & Nephew, Inc., a global medical
technology company, and served as Senior Vice President, Global Supply Chain of Smith & Nephew, Inc. from March 2015 to
December 2017. Prior to joining Smith & Nephew, Inc., Mr. Regan served in two capacities at AbbVie Inc., a biopharmaceutical
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President & General Manager, US & Puerto Rico Manufacturing from September 2012 to February 2015. Prior to joining AbbVie
Inc., Mr. Regan served in various positions at Abbott Laboratories, a health care product company, with increasing responsibilities
from 1994 to 2011, including most recently Director of Manufacturing Operations. Mr. Regan previously served on the board of
directors of the Pharmaceutical Industry Association of Puerto Rico.
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Kevin C. Smith was appointed our Senior Vice President, Quality and Regulatory in March 2018. From May 2012 to February
2018, Mr. Smith served as our Vice President, Global Quality and Regulatory Affairs. Prior to joining Wright, Mr. Smith served as
Corporate Director, Quality Systems for Boston Scientific Corporation, a global medical technology company, from December 2001
to May 2012.
Jennifer S. Walker was appointed our Senior Vice President, Process Improvement in October 2015 in connection with the
Wright/Tornier merger. Ms. Walker served as Senior Vice President, Process Improvement of Wright Medical Group, Inc. from
December 2011 to October 2015 and Vice President and Corporate Controller from December 2009 to December 2011. Since
joining legacy Wright’s financial organization in 1993, she served as Assistant Controller, Director, Financial Reporting & Risk
Management, Director, Corporate Tax & Risk Management, and Tax Manager of legacy Wright. Prior to joining legacy Wright,
Ms. Walker was a senior tax accountant with Arthur Andersen LLP. Ms. Walker is a certified public accountant.
Peter S. Cooke was appointed our President, Emerging Markets, Australia and Japan in January 2019. Prior to such position, he
served as President, International from October 2015 to December 2018. He was appointed to that position in connection with the
Wright/Tornier merger. Mr. Cooke served as President, International of Wright Medical Group, Inc. from January 2014 to October
2015 and served as Senior Vice President, International from January 2013 to January 2014. Prior to joining legacy Wright,
Mr. Cooke served as Vice President and General Manager, Vascular Therapies Emerging Markets of Covidien plc, a global
healthcare products company, from July 2010 to January 2013. Prior to Covidien, Mr. Cooke served in various general management
roles for ev3 Inc., a global endovascular device company acquired by Covidien in July 2010, including Vice President and General
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from February 2003 until January 2005. Prior to ev3, Mr. Cooke spent eleven years at Guidant Corporation, three years at Baxter
Healthcare Corporation and two years at St. Jude Medical, Inc.
Patrick Fisher was appointed our President, Lower Extremities in June 2016. From October 2015 to June 2016, Mr. Fisher served as
our Vice President, U.S. Sales. From October 2012 to October 2015, Mr. Fisher served as Vice President, U.S. Sales of Wright
Medical Group, Inc., and from October 2010 to October 2012, Mr. Fisher served as Regional Vice President of Sales - West Region.
From July 2002 to October 2010, Mr. Fisher served in various commercial and marketing roles within Wright. Prior to joining
Wright in July 2002, Mr. Fisher held various positions within Smith & Nephew, Inc., a global medical technology company.
Timothy L. Lanier was appointed our President, Upper Extremities in June 2016. Mr. Lanier has over 25 years of experience in
medical device and commercial operations in both small and large companies that include various medical specialties such as
orthopedics, vascular, oncology and ophthalmology. Prior to joining Wright, from September 2013 to June 2016, Mr. Lanier served
as Vice President of Sales of DFINE Inc., a company committed to the treatment of metastatic tumors and other diseases of the
spine. From July 2010 to September 2013, Mr. Lanier served as Vice President of US Sales for the Endovascular Division of
Covidien plc, a global healthcare products company, where he built a world-class sales organization dedicated to treating both
arterial and venous disease. He joined Covidien in July 2010 through the acquisition of ev3 Inc., where he served as Area Vice
President from January 2008 to July 2010. Prior to ev3, Mr. Lanier served as Vice President of Commercial Operations at Anulex
Technologies, Inc. from January 2007 to January 2008. He also had increasing executive responsibility at Zimmer Orthopedics,
Spine Division and Spine-Tech, Inc. from 1997 to 2007, including Vice President of Commercial Operations.
Steven P. Wallace was appointed our President, International in January 2019. From November 2016 to December 2018,
Mr. Wallace served as Vice President, Extremities Marketing of Wright. Prior to joining Wright, Mr. Wallace served as Vice
President of Global Marketing and Medical Education of the CMF & Thoracic Division of Zimmer Biomet, Inc., an orthopedic
company, from June 2015 to November 2016. Prior to that position, Mr. Wallace served as Senior Director of Global Marketing and
Business Development from June 2012 to May 2015 and various other positions for the Microfixation Division of Biomet, Inc., an
orthopedic company acquired by Zimmer. Prior to joining Biomet, Mr. Wallace served in a number of positions for Cardinal Health,
Inc., a global, integrated healthcare services and products company.
Julie B. Andrews was appointed our Vice President of Finance, Chief Accounting Officer in October 2015 in connection with the
Wright/Tornier merger. Ms. Andrews served as Vice President and Chief Accounting Officer of Wright Medical Group, Inc. from
May 2012 to October 2015. From February 1998 to May 2012, Ms. Andrews held numerous key financial positions with Medtronic,
Inc., a global medical device company. Most recently, Ms. Andrews served as Medtronic’s Vice President, Finance for its spinal and
biologics business units. Ms. Andrews has significant accounting, finance, and business skills as well as global experience, having
held positions in worldwide planning and analysis in Medtronic Sofamor Danek and in Medtronic’s spinal and biologics business.
Prior to joining Medtronic, Ms. Andrews worked with Thomas & Betts Corporation in Memphis, Tennessee and Thomas Havey,
LLP in Chicago, Illinois.
David D. Stevens joined our board of directors as a non-executive director in October 2015 in connection with the Wright/Tornier
merger. Mr. Stevens serves as our Chairman. Mr. Stevens was a member of the board of directors of Wright Medical Group, Inc.
from 2004 to 2015 and served as Chairman of the Board from 2009 to October 2015 and interim Chief Executive Officer of Wright
from April 2011 to September 2011. He has been a private investor since 2006. Mr. Stevens served as Chief Executive Officer of
Accredo Health Group, Inc., a subsidiary of Medco Health Solutions, Inc., from 2005 to 2006. He was Chief Executive Officer of
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Accredo Health, Inc. from 1996 to 2005, served as Chairman of the Board from 1999 to 2005, and was President and Chief
Operating Officer of the predecessor companies of Accredo Health from their inception in 1983 until 1996. He serves on the board
of directors of Allscripts Healthcare Solutions, Inc., a publicly held company. He previously served on the board of directors of
Viasystems Group, Inc., a publicly held company, from 2012 until May 2015 when it was acquired by TTM Technologies, Inc.,
Medco Health Solutions, Inc., a publicly held company, from 2006 until 2012 when it was acquired by Express Scripts Holding
Company, and Thomas & Betts Corporation, a publicly held company, from 2004 to 2012 when it was acquired by ABB Ltd.
Mr. Stevens’ qualifications to serve on our board of directors include his extensive experience serving as a chief executive officer,
including as interim chief executive officer of legacy Wright, his close familiarity with our business, and his prior experience as a
director of legacy Wright.
Gary D. Blackford joined our board of directors as a non-executive director in October 2015 in connection with the Wright/Tornier
merger. Mr. Blackford was a member of the board of directors of Wright Medical Group, Inc. from 2008 to 2015. From 2002 to
February 2015, Mr. Blackford served as President and Chief Executive Officer and a member of the board of directors of Universal
Hospital Services, Inc., a provider of medical technology outsourcing and services to the healthcare industry, and from 2007 to
February 2015, served as Chairman of the Board. From 2001 to 2002, Mr. Blackford served as Chief Executive Officer of Curative
Health Services Inc. From 1999 to 2001, Mr. Blackford served as Chief Executive Officer of ShopforSchool, Inc. He served as
Chief Operating Officer for Value Rx from 1995 to 1998 and Chief Operating Officer and Chief Financial Officer of MedIntel
Systems Corporation from 1993 to 1994. Mr. Blackford currently serves on the board of directors of Avanos Medical, Inc. (formerly
Halyard Health, Inc.) and ReShape Lifesciences Inc. (formerly EnteroMedics Inc.), both publicly held companies. He also serves on
the board of directors of Pipeline Rx, Inc., a privately held telepharmacy company and is the Vice Chairman of the Minnesota
Children’s Hospitals and Clinics. Mr. Blackford previously served on the board of directors of Compex Technologies, Inc., a
publicly held medical device company, from 2005 until its acquisition by Encore Medical Corporation in 2006. Mr. Blackford’s
qualifications to serve as a member of our board of directors include his experience as a chief executive officer and director of a
healthcare services company and other companies and as a director of other public companies in the healthcare industry, his
extensive experience leading healthcare companies, and his prior experience as a director of legacy Wright.
J. Patrick Mackin joined our board of directors as a non-executive director in June 2018. Mr. Mackin currently serves as President
and Chief Executive Officer of CryoLife, Inc., a manufacturer, processor, and distributor of medical devices and implantable human
tissues used in cardiac and vascular surgical procedures focused on aortic repair. He has held this position since September 2014.
He was appointed to the CryoLife board of directors in October 2014, and was appointed Chairman of the CryoLife board of
directors in April 2015. Mr. Mackin has more than 25 years of experience in the medical device industry. Prior to joining CryoLife,
Mr. Mackin served as President of Cardiac Rhythm Disease Management, the then largest operating division of Medtronic, Inc., a
global medical device company, from August 2007 to August 2014. At Medtronic, he previously held the positions of Vice
President, Vascular, Western Europe and Vice President and General Manager, Endovascular Business Unit. Prior to joining
Medtronic in 2002, Mr. Mackin worked for six years at Genzyme, Inc. serving as Senior Vice President and General Manager for the
Cardiovascular Surgery Business Unit and as Director of Sales, Surgical Products division. Before joining Genzyme, Mr. Mackin
spent four years at Deknatel/Snowden-Pencer, Inc. in various roles and three years as a First Lieutenant in the U.S. Army.
Mr. Mackin has served as a director of Opsens, Inc., a fiber optic sensors manufacturer, since 2016. Mr. Mackin received an MBA
from the Kellogg Graduate School of Management at Northwestern University and is a graduate of the U.S. Military Academy at
West Point. Mr. Mackin’s qualifications to serve on our board of directors include his experience as a chief executive officer of a
medical device company and various other officer positions with medical device companies and his deep knowledge of the medical
device industry.
John L. Miclot joined our board of directors as a non-executive director in October 2015 in connection with the Wright/Tornier
merger. Mr. Miclot was a member of the board of directors of Wright Medical Group, Inc. from 2007 to 2015. Mr. Miclot has
served as President and Chief Executive Officer and a member of the board of directors of LinguaFlex, Inc., a medical device
company focused on treatment of sleep disordered breathing, since August 2015. From December 2011 to December 2014, he
served as Chief Executive Officer and a member of the board of directors of Tengion Inc., a publicly held company that focused on
organ and cell regeneration. Prior to joining Tengion, Mr. Miclot was an Executive-in Residence at Warburg Pincus, LLC. From
2008 to 2010, he was President and Chief Executive Officer of CCS Medical, Inc., a provider of products and services for patients
with chronic diseases. From 2003 until 2008, he served as President and Chief Executive Officer of Respironics, Inc., a provider of
sleep and respiratory products, and prior to such time, served in various positions at Respironics, Inc. from 1998 to 2003, including
Chief Strategic Officer and President of the Homecare Division. From 1995 to 1998, he served as Senior Vice President, Sales and
Marketing of Healthdyne Technologies, Inc., a medical device company that was acquired by Respironics, Inc. in 1998. Mr. Miclot
spent the early part of his medical career at DeRoyal Industries, Inc., Baxter International Inc., Ohmeda Medical, Inc. and Medix
Inc. Mr. Miclot serves as Chairman and a member of the board of directors of Breathe Technologies, Inc., a privately held company.
Mr. Miclot also serves as a director of the Pittsburgh Zoo and PPG Aquarium, charitable and educational institutions, serves on the
University of Iowa Tippie College of Business board of advisors and serves as an industrial advisor to EQT Partners, an investment
company. Mr. Miclot previously served on the board of directors of DENTSPLY International Inc., a dental products company, prior
to its merger with Sirona Dental Systems, Inc. in February 2016, and ev3 Inc., a global endovascular device company, prior to the
sale of the company in 2010. Mr. Miclot’s qualifications to serve on our board of directors include his substantial experience as a
chief executive officer of several medical device companies, his deep knowledge of the medical device industry, and his prior
experience as a director of legacy Wright.
147
Kevin C. O’Boyle has served as a non-executive director and member of our board of directors since June 2010. In November 2012,
Mr. O’Boyle was appointed as Interim Vice Chairman of Tornier, a position he held for about a year. From December 2010 to July
2011, Mr. O’Boyle served as Senior Vice President and Chief Financial Officer of Advanced BioHealing Inc., a medical device
company that was acquired by Shire plc in July 2011. From January 2003 until December 2009, Mr. O’Boyle served as Chief
Financial Officer of NuVasive, Inc., a medical device orthopedics company specializing in spinal disorders. Prior to that time,
Mr. O’Boyle served in various positions during his six years with ChromaVision Medical Systems, Inc., a publicly held medical
device company specializing in the oncology market, including as its Chief Financial Officer and Chief Operating Officer.
Mr. O’Boyle also held various positions during his seven years with Albert Fisher North America, Inc., a publicly held international
food company, including Chief Financial Officer and Senior Vice President of Operations. Mr. O’Boyle serves on the board of
directors of GenMark Diagnostics, Inc. and Sientra, Inc., both publicly held companies. Mr. O’Boyle previously served on the board
of directors of ZELTIQ Aesthetics, Inc., a public company acquired by Allergan plc in April 2017, and Durata Therapeutics, Inc.
until its acquisition by Actavis plc in November 2014. Mr. O’Boyle’s qualifications to serve on our board of directors includes his
executive experience in the healthcare industry, his experience with companies during their transition from being privately held to
publicly held, and his financial and accounting expertise.
Amy S. Paul joined our board of directors as a non-executive director in October 2015 in connection with the Wright/Tornier
merger. Ms. Paul was a member of the board of directors of Wright Medical Group, Inc. from 2008 to 2015. Ms. Paul retired in
2008 following a 26-year career with C.R. Bard, Inc., a medical device company, most recently serving as the Group Vice President-
International since 2003. She served in various positions at C.R. Bard, Inc. from 1982 to 2003, including President of Bard Access
Systems, Inc., President of Bard Endoscopic Technologies, Vice President and Business Manager of Bard Ventures, Vice President
of Marketing of Bard Cardiopulmonary Division, Marketing Manager for Davol Inc., and Senior Product Manager for Davol Inc.
Ms. Paul previously served on the board of directors of Derma Sciences, Inc., a publicly held company acquired by Integra
LifeSciences Holdings Corporation, Viking Systems, Inc., a publicly held company acquired by Conmed Corporation, and was a
commissioner of the Northwest Commission on Colleges and Universities from 2010 to 2013. Ms. Paul serves on the President’s
Innovation Network at Westminster College. Ms. Paul’s qualifications to serve on our board of directors include her over three
decades of experience in the medical device industry, including having served in various executive roles with responsibilities that
include international and divisional operations as well as marketing and sales functions, her experience as a director of other public
companies in the healthcare industry, and her prior experience as a director of legacy Wright.
Richard F. Wallman has served as a non-executive director and member of our board of directors since December 2008. From 1995
through his retirement in 2003, Mr. Wallman served as Senior Vice President and Chief Financial Officer of Honeywell
International, Inc., a diversified technology company, and AlliedSignal, Inc., a diversified technology company (prior to its merger
with Honeywell International, Inc.). Prior to joining AlliedSignal, Inc., Mr. Wallman served as Controller of International Business
Machines Corporation. Mr. Wallman serves on the board of directors of Charles River Laboratories International, Inc., Extended
Stay America, Inc. and Roper Technologies, Inc., all publicly held companies. Mr. Wallman previously served on the board of
directors of Convergys Corporation and ESH Hospitality, Inc., all publicly held companies. Mr. Wallman’s qualifications to serve
on our board of directors include his prior public company experience, including as Chief Financial Officer of Honeywell, his
significant public company director experience, and his financial experience and expertise.
Elizabeth H. Weatherman has served as a non-executive director and member of our board of directors since July 2006.
Ms. Weatherman was initially appointed as a director of Tornier in connection with a securityholders’ agreement that Tornier entered
into with certain shareholders. The securityholders’ agreement terminated by its terms in May 2016. Ms. Weatherman has been a
Special Limited Partner of Warburg Pincus LLC, a private equity firm, since January 2016. Ms. Weatherman previously was a
Partner of Warburg Pincus & Co., a Member and Managing Director of Warburg Pincus LLC and a member of the firm’s Executive
Management Group. Ms. Weatherman joined Warburg Pincus in 1988 and primarily focused on the firm’s healthcare investment
activities. Ms. Weatherman currently serves on the board of directors of Vapotherm, Inc., a publicly held company, and Silk Road
Medical, Inc., a privately held company. Ms. Weatherman previously served on the boards of directors of several publicly held
companies, primarily in the medical device industry, including ev3 Inc., Wright Medical Group, Inc., and Kyphon Inc.
Ms. Weatherman’s qualifications to serve on our board of directors include her extensive experience as a director of several public
and private companies in the medical device industry.
Board Structure and Composition
We have a one-tier board structure. Our articles of association provide that the number of members of our board of directors will be
determined by our board of directors, provided that our board of directors will be comprised of at least one executive director and
two non-executive directors. Our board of directors currently consists of nine directors, one of whom is an executive director and
eight of whom are non-executive directors. With respect to the composition of our board of directors, under the terms of his
employment agreement, we have agreed that Mr. Palmisano will be nominated by our board of directors for election as an executive
director and a member of our board of directors at each annual general meeting of shareholders.
All eight of our non-executive directors are “independent directors” under the Listing Rules of the Nasdaq Stock Market.
Independence requirements for service on our audit committee are discussed below under “Audit Committee” and independence
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requirements for service on our compensation committee are discussed below under “Compensation Committee.” All of our non-
executive directors are independent under the independence definition in the Dutch Corporate Governance Code.
The general meeting of shareholders appoints the members of our board of directors, subject to a binding nomination to be drawn up
by our board of directors in accordance with the relevant provisions of the Dutch Civil Code. Our board of directors makes the
binding nomination based on a recommendation of our nominating, corporate governance and compliance committee. If the list of
candidates contains one candidate for each open position to be filled, such candidate will be appointed by the general meeting of
shareholders unless the binding nature of the nominations by our board of directors is set aside by the general meeting of
shareholders. The binding nature of nomination(s) by our board of directors can only be set aside by a vote of at least two-thirds of
the votes cast at an annual or extraordinary general meeting of shareholders, provided such two-thirds vote constitutes more than
one-half of our issued share capital. In such case, a new meeting is called at which the resolution for appointment of a member of
our board of directors will require a majority of at least two-thirds of the votes cast representing more than one-half of our issued
share capital.
A resolution of the general meeting of shareholders to suspend a member of our board of directors requires the affirmative vote of an
absolute majority of the votes cast. A resolution of the general meeting of shareholders to suspend or dismiss members of our board
of directors, other than pursuant to a proposal by our board of directors, requires a majority of at least two-thirds of the votes cast,
representing more than one-half of our issued share capital.
Under our articles of association, our internal rules for the board of directors, and Dutch law, the members of our board of directors
are collectively responsible for our management, general and financial affairs, and policy and strategy. Our executive director is
primarily responsible for managing our day-to-day affairs as well as other responsibilities that have been delegated to him in
accordance with our articles of association and internal rules for the board of directors. Our non-executive directors supervise our
executive director and our general affairs and provide general advice to him. In performing their duties, our directors are guided by
the interests of our company and, within the boundaries set by relevant Dutch law, must take into account the relevant interests of
our stakeholders. The internal affairs of our board of directors are governed by our internal rules for the board of directors, a copy of
which is available on the Investor Relations-Corporate Governance-Governance Documents & Charters section of our corporate
website at www.wright.com.
Mr. Stevens serves as our Chairman. The duties and responsibilities of the Chairman include, among others: determining the
agenda and chairing the meetings of our board of directors, managing our board of directors to ensure that it operates effectively,
ensuring that the members of our board of directors receive accurate, timely and clear information, encouraging active engagement
by all the members of our board of directors, promoting effective relationships and open communication between the non-executive
directors and the executive director, and monitoring effective implementation of our board of directors decisions.
Under our internal rules for the board of directors, meetings of our board of directors may be held in such locations as the board of
directors determines appropriate. At each meeting, each director has the right to cast one vote and may be represented at a meeting
of our board of directors by a fellow director. Our board of directors may pass resolutions only if a majority of the directors is
present at the meeting and all resolutions must be passed by a majority of the directors that have no conflict of interest present or
represented. As required by Dutch law, our articles of association provide that when one or more members of our board of directors
is absent or prevented from acting, the remaining members of our board of directors will be entrusted with the management of our
company. The intent of this provision is to satisfy certain requirements under Dutch law and provide that, in rare circumstances,
when a director is incapacitated, severely ill, or similarly absent or prevented from acting, the remaining members of our board of
directors (or, in the event there are no such remaining members, a person appointed by our shareholders at a general meeting) will be
entitled to manage our company, notwithstanding the general requirement that otherwise requires a majority of our board of directors
in office to be present. In these limited circumstances, our articles of association permit our board of directors to pass resolutions
even if a majority of the directors in office is not present at the meeting.
Subject to Dutch law and any director’s objection, resolutions may be passed in writing by all of the directors in office. Under
Dutch law, members of the board of directors may not participate in the deliberation and the decision-making process on a subject or
transaction in relation to which he or she has a direct or indirect personal interest that conflicts with the interest of our company and
business enterprise. If all directors are conflicted and in the absence of a supervisory board, the resolution will be adopted by the
general meeting of shareholders, except if the articles of association prescribe otherwise. Our articles of association provide that a
director will not take part in any vote on a subject or transaction in relation to which he or she has a direct or indirect personal
interest that conflicts with the interest of our company and business enterprise. In such event, the other directors will be authorized
to adopt the resolution. If all directors have a conflict of interest as mentioned above, the resolution will be adopted by the non-
executive directors.
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Board Committees
Our board of directors has four standing board committees: audit committee, compensation committee, nominating, corporate
governance and compliance committee, and strategic transactions committee. Each of these committees has the composition
described in the table below and the responsibilities described in the sections below. Our board of directors has adopted a written
charter for each committee of our board of directors. These charters are available on the Investor Relations-Corporate Governance-
Governance Documents & Charters section of our corporate website at www.wright.com. Our board of directors from time to time
may establish other committees.
The following table summarizes the current membership of each of our four board committees.
Director
Robert J. Palmisano
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
David D. Stevens
Richard F. Wallman
Elizabeth H. Weatherman
Audit
—
(cid:165)
—
—
(cid:165)
—
—
Chair
—
Compensation
—
—
(cid:165)
Chair
(cid:165)
—
—
—
(cid:165)
Nominating, corporate
governance and
compliance
—
(cid:165)
—
—
—
Chair
(cid:165)
—
(cid:165)
Strategic transactions
—
—
—
—
—
—
(cid:165)
(cid:165)
Chair
On February 20, 2019, our board of directors approved certain changes to the chairs and membership of our board committees to be
effective April 1, 2019, which are reflected in the following table:
Director
Robert J. Palmisano
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
David D. Stevens
Richard F. Wallman
Elizabeth H. Weatherman
Audit Committee
Audit
—
—
—
—
Chair
—
—
(cid:165)
(cid:165)
Compensation
—
(cid:165)
Chair
—
(cid:165)
—
—
—
Nominating, corporate
governance and
compliance
—
Chair
—
—
—
(cid:165)
(cid:165)
—
—
Strategic transactions
—
—
—
(cid:165)
(cid:165)
—
(cid:165)
—
Chair
The audit committee oversees a broad range of issues surrounding our accounting and financial reporting processes and audits of our
consolidated financial statements. The primary responsibilities of the audit committee include:
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(cid:129)
(cid:129)
(cid:129)
(cid:129)
assisting our board of directors in monitoring the integrity of our consolidated financial statements, our compliance
with legal and regulatory requirements insofar as they relate to our consolidated financial statements and financial
reporting obligations and any accounting, internal accounting controls or auditing matters, our independent registered
public accounting firm's qualifications and independence, and the performance of our internal audit function and
independent regi(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:30)(cid:3)
appointing, compensating, retaining, and overseeing the work of any independent registered public accounting firm
engaged for the purpose of performing any audit, review, or attest services and dealing directly with any such auditing
(cid:73)(cid:76)(cid:85)(cid:80)(cid:30)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:83)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:3)
(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:39)(cid:88)(cid:87)(cid:70)(cid:75)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:88)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:30)(cid:3)
establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting,
internal accounting controls, or auditing matters, and for the confidential, anonymous submission by our employees of
concerns regarding questi(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
reviewing and approving all related party transactions required to be disclosed under the U.S. federal securities laws.
The audit committee reviews and evaluates, at least annually, the performance of the audit committee and its members, including
compliance of the committee with its charter.
150
The audit committee has the sole authority to select, retain, oversee, and terminate its own counsel, consultants, and advisors and
approve the fees and other retention terms of such counsel, consultants, and advisors, as it deems appropriate.
The audit committee currently consists of Mr. Wallman (Chair), Mr. Blackford and Mr. O’Boyle. We believe that the composition of
the audit committee complies with the applicable rules of the SEC and the Nasdaq Stock Market. Our board of directors has
determined that each of Messrs. Wallman, Blackford and O’Boyle is an “independent director” under the rules of the Nasdaq Stock
Market and an “audit committee financial expert,” as defined in SEC rules, and satisfies the financial sophistication requirements of
the Nasdaq Stock Market. Our board of directors also has determined that each of Messrs. Wallman, Blackford and O’Boyle meets
the more stringent independence requirements for audit committee members of Rule 10A-3(b)(1) under the Exchange Act and the
Listing Rules of the Nasdaq Stock Market and is independent under the Dutch Corporate Governance Code.
Compensation Committee
The primary responsibilities of our compensation committee, which are within the scope of the board of directors compensation
policy adopted by the general meeting of our shareholders, include:
(cid:129)
(cid:129)
(cid:129)
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer
and other executive officers, evaluating the performance of these officers in light of those goals and objectives, and
(cid:86)(cid:72)(cid:87)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)
(cid:129) making recommendations to our board of directors with respect to incentive compensation and equity-based plans that
are subject to board and shareholder approval, administering or overseeing all of our incentive compensation and
equity-(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:30)
reviewing and recommending to our board of directors any severance or similar termination payments proposed to be
made to our Chief Executive Officer and reviewing and approving any severance or similar termination payments
proposed to be made to any other (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:30)
reviewing and discussing with our Chief Executive Officer and reporting periodically to our board of directors plans
for development and corporate succession plans for our executive officers and other key employees, which include
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:81)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:81)(cid:70)(cid:92)(cid:30)
reviewing and discussing with management the “Compensation Discussion and Analysis” section of this report and
based on such discussions, recommending to our board of directors whether the “Compensation Discussion and
Analysis” (cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
approving, or recommending to our board of directors for approval, the compensation programs, and the payouts for
all programs, applying to our non-executive directors, including reviewing the competitiveness of our non-executive
director compensation programs and reviewing the terms to make sure they are consistent with our board of directors
compensation policy adopted by the general meeting of our shareholders.
(cid:129)
(cid:129)
The compensation committee reviews and evaluates, at least annually, the performance of the compensation committee and its
members, including compliance of the committee with its charter.
The compensation committee has the sole authority to select, retain, oversee, and terminate its own counsel, consultants, and
advisors and approve the fees and other retention terms of such counsel, consultants, and advisors, as it deems appropriate. Before
selecting any such counsel, consultant or advisor, the compensation committee reviews and considers the independence of such
counsel, consultant or advisor, including any other services the counsel, consultant or other advisor is providing to our company and
management.
The compensation committee currently consists of Mr. Miclot (Chair), Mr. Mackin, Mr. O’Boyle and Ms. Weatherman. We believe
that the composition of our compensation committee complies with the applicable rules of the SEC and the Nasdaq Stock Market.
Our board of directors has determined that each of Mr. Miclot, Mr. Mackin, Mr. O’Boyle and Ms. Weatherman is an “independent
director” under the rules of the Nasdaq Stock Market, meets the more stringent independence requirements for compensation
committee members of Rule 10C-1 under the Exchange Act and the Listing Rules of the Nasdaq Stock Market and is independent
under the Dutch Corporate Governance Code. None of our executive officers has served as a member of the board of directors or
compensation committee of any entity that has an executive officer serving as a member of our board of directors.
Nominating, Corporate Governance and Compliance Committee
The primary responsibilities of our nominating, corporate governance and compliance committee include:
(cid:129)
reviewing and making recommendations to our board of directors regarding the size and composition of our board of
(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:72)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
(cid:129)
(cid:129) making recommendations to our board of directors regarding corporate governance matters and practices, including
(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
151
(cid:129)
overseeing our compliance efforts with respect to our legal, regulatory, and quality systems requirements and ethical
programs, including our code of business conduct, other than with respect to matters relating to our financial
statements and financial reporting obligations and any accounting, internal accounting controls or auditing matters,
which are within the purview of the audit committee.
The nominating, corporate governance and compliance committee reviews and evaluates, at least annually, the performance of the
nominating, corporate governance and compliance committee and its members, including compliance of the committee with its
charter.
The nominating, corporate governance and compliance committee has the sole authority to select, retain, oversee, and terminate its
own counsel, consultants, and advisors and approve the fees and other retention terms of such counsel, consultants, and advisors, as
it deems appropriate.
The nominating, corporate governance and compliance committee currently consists of Ms. Paul (Chair), Mr. Blackford,
Mr. Stevens and Ms. Weatherman. We believe that the composition of our nominating, corporate governance and compliance
committee complies under the applicable rules of the Nasdaq Stock Market. Our board of directors has determined that each of
Ms. Paul, Mr. Blackford, Mr. Stevens and Ms. Weatherman is an “independent director” under the rules of the Nasdaq Stock Market.
The nominating, corporate governance and compliance committee considers all candidates recommended by our shareholders
pursuant to specific minimum qualifications that the nominating, corporate governance and compliance committee believes must be
met by a recommended nominee for a position on our board of directors, which qualifications are described in the nominating,
corporate governance and compliance committee’s charter, a copy of which is available on the Investor Relations-Corporate
Governance-Governance Documents & Charters section of our corporate website www.wright.com. We have made no material
changes to the procedures by which shareholders may recommend nominees to our board of directors as described in our most
recent proxy statement.
Strategic Transactions Committee
The primary responsibilities of our strategic transactions committee include:
(cid:129)
(cid:129)
reviewing and evaluating potential opportunities for strategic business combinations, acquisitions, mergers,
dispositions, divestitures, investments, and similar strategic transactions involving our company or any one or more of
(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:30)
approving on behalf of our board of directors any strategic transaction that may arise from time to time and is deemed
appropriate by the strategic transactions committee and involves total cash consideration of less than $5.0 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
provided, however, that the strategic transactions committee is not authorized to approve any strategic transaction
involving the issuance of capital stock or in which any director, officer, or affiliate of our company has a material
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:30)
(cid:129)
(cid:129)
(cid:129) making recommendations to our board of directors concerning approval of any strategic transactions that may arise
from time to time and are deemed appropriate by the strategic transactions committee and are beyond the authority of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:30)
reviewing integration efforts with respect to completed strategic transactions from time to time and making
recommendations to m(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:30)
assisting management in developing, implementing, and adhering to a strategic plan and direction for its activities with
respect to strategic transactions and making recommendations to management and our board of directors, as
(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:30)(cid:3)
(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:82)(cid:80)(cid:76)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:88)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
reviewing and evaluating potential opportunities for restructuring our business in response to completed strategic
transactions or otherwise in an effort to realize anticipated cost and expense savings for, and other benefits, to our
company and making recommendations to management and our board of directors, as appropriate.
(cid:129)
(cid:129)
The strategic transactions committee reviews and evaluates periodically the performance of the committee and its members,
including compliance of the committee with its charter.
The strategic transactions committee has the sole authority to select, retain, oversee, and terminate its own counsel, consultants, and
advisors and approve the fees and other retention terms of such counsel, consultants, and advisors, as it deems appropriate.
The strategic transactions committee currently consists of Ms. Weatherman (Chair), Mr. Stevens and Mr. Wallman.
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Code of Business Conduct
We have adopted a code of business conduct, which applies to all of our directors, officers, and employees. The code of business
conduct is available on the Investor Relations-Corporate Governance-Governance Documents & Charters section of our corporate
website at www.wright.com. Any person may request a copy free of charge by writing to James A. Lightman, Senior Vice President,
General Counsel and Secretary, Wright Medical Group N.V., Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands. We
intend to disclose on our corporate website any amendment to, or waiver from, a provision of our code of business conduct that
applies to directors and executive officers and that is required to be disclosed pursuant to the rules of the SEC and the Nasdaq Stock
Market.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and all persons who beneficially own more than 10% of
our outstanding ordinary shares to file with the SEC initial reports of ownership and reports of changes in ownership of our ordinary
shares. Directors, executive officers, and greater than 10% beneficial owners also are required to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, based on review of the copies of such reports and amendments to such reports
furnished to us with respect to the fiscal year ended December 30, 2018, and based on written representations by our directors and
executive officers, all required Section 16 reports under the Exchange Act for our directors, executive officers, and beneficial owners
of greater than 10% of our ordinary shares were filed on a timely basis during the fiscal year ended December 30, 2018.
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Item 11.
Executive Compensation.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (CD&A) addresses the principles underlying our policies and decisions with respect to
the compensation of our executive officers who are named in the “Summary Compensation Table” found under “-Executive
Compensation Tables and Narratives-Summary Compensation Information” and material factors relevant to these policies and
decisions.
These executive officers and their current officer positions are:
Named executive officer
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
Current officer position
President and Chief Executive Officer
Executive Vice President, Chief Financial and Operations Officer
President, Emerging Markets, Australia and Japan
Senior Vice President and Chief Human Resources Officer
Executive Vice President, Chief Global Commercial Officer
The officer positions for each of Messrs. Berry, Cooke and Cordell changed effective January 2019. During 2018, Mr. Berry served
as Senior Vice President and Chief Financial Officer, Mr. Cooke served as President, International and Mr. Cordell served as
President, U.S.
We refer to these executive officers as our “named executive officers” or “NEOs” and our President and Chief Executive Officer as
our “CEO” in this CD&A. This CD&A should be read in conjunction with the accompanying compensation tables, corresponding
notes and narrative discussion, as they provide additional information and context to our compensation disclosures.
Executive Summary
Fiscal 2018 Business Highlights
Below are operational and financial highlights for 2018.
Increased Revenue Growth. We accelerated our top line growth from 8% to 12%.
(cid:129)
(cid:129) Continued Growth of Total Ankle Business. We continued to expand our market leading position in total ankle with
growth of 15%.
(cid:129) Continued Growth of Shoulder Business. We continued to grow our shoulder business at more than double the market
rate of growth, growing 19% in 2018.
(cid:129) Gained Approval for AUGMENT® Injectable Bone Graft. In June 2018, we received premarket approval from the
FDA for AUGMENT® Injectable Bone Graft, which provides a clinically proven and safe and effective alternative to
autograft for use in hindfoot and ankle fusion in an easy to use flowable formulation.
(cid:129) Completed Cartiva Acquisition. In October 2018, we acquired Cartiva, Inc., an orthopaedic medical device company
focused on treatment of osteoarthritis of the great toe. With this acquisition, we added Cartiva’s Synthetic Cartilage
Implant, the first and only PMA product for the treatment of great toe osteoarthritis. Supported by compelling clinical
performance and backed by Level I clinical evidence, this acquisition adds differentiated technology to our core
portfolio.
154
Fiscal 2018 Compensation Actions and Outcomes
One of our key executive compensation objectives is to link pay to performance by aligning the financial interests of our executives
with those of our shareholders and by emphasizing pay for performance in our compensation programs. We strive to accomplish this
objective primarily through our annual performance incentive plan (PIP), which compensates executives for achieving annual
corporate and divisional financial and other goals, and our long-term incentive equity grants, which align the interests of our
executives with the long-term interests of our shareholders, promote stock ownership, and create significant incentives for executive
retention.
Our compensation actions and incentive plan outcomes based on performance for fiscal 2018 are summarized below:
2018 actions
Base salary
Short-term annual incentive
Long-term incentive
Other
2018 actions
(cid:129) Our CEO received no base salary increase.
(cid:129) Other NEOs received base salary increases between zero and 4.0%.
(cid:129) Target bonus percentage for our CEO remained the same at 100% and remained the same for our
other NEOs, ranging from 50% to 65% of base salary.
(cid:129) Our CEO’s and CFO’s short-term incentive is based 100% on corporate performance goals.
(cid:129) Other NEOs’ short-term incentives are based on corporate performance goals, and in some cases,
divisional and individual performance goals.
(cid:129) Corporate performance payouts were 111.1% of target, based on fiscal 2018 performance.
Measure
Global net sales
Adjusted EBITDA
Free cash flow
Weighting
40%
30%
30%
Target performance
$823.5 million
143.1 million
(3.0) million
2018 actual
performance
$822.6 million
145.6 million
5.6 million
(cid:129) U.S. and international divisional performance payouts were 117.2% and 98.0% of target,
respectively, based on fiscal 2018 performance.
(cid:129) The long-term incentive (LTI) grant guideline for our CEO increased from 400% to 450% of base
salary to align closer with targeted competitive levels and remained the same for other NEOs,
ranging from 100% to 175%, except in the case of one NEO whose LTI increased to 225%.
(cid:129) LTI is delivered 1/3 in stock options, 1/3 in time-vested restricted stock unit (RSU) awards and
1/3 in performance share unit (PSU) awards.
(cid:129) Stock options and RSU awards vest over four years.
(cid:129) PSU awards vest and are paid out in Wright ordinary shares upon the achievement of a threshold
net sales growth goal over a three-year period.
(cid:129) Since PSU awards were first granted in 2017, there were no payouts of prior PSU awards during
2018.
(cid:129) We paid Mr. Morton a $200,000 signing bonus upon his hiring, 100% of which must be repaid if
he voluntarily leaves Wright within one year of his start date and 50% of which must be repaid if
he voluntarily leaves within two years of his start date.
(cid:129) In June 2016, we agreed to pay Mr. Cooke a $1.2 million retention payment to relocate his family
to the United Kingdom. This payment, made in June 2018, is in lieu of any future change in
control or severance payment under his separation pay agreement.
(cid:129) In December 2018, we approved new compensation packages for Messrs. Berry and Cordell in
connection with their promotions effective January 2019.
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Compensation Highlights and Best Practices
Our compensation practices include many best pay practices that support our executive compensation objectives and principles, and
benefit our shareholders.
What we do
(cid:57)(cid:57) Structure our executive officer compensation so that a
significant portion of pay is at risk
(cid:57)(cid:57) Emphasize long-term performance in our equity-based
incentive awards
(cid:57)(cid:57) Use a mix of performance measures and caps on
payouts
(cid:57)(cid:57) Require minimum vesting periods on equity awards
(cid:57)(cid:57) Require double-trigger for equity acceleration upon a
change of control
(cid:57)(cid:57) Maintain a competitive compensation package
(cid:57)(cid:57) Have robust stock ownership guidelines and stock
retention requirements for executive officers
(cid:57)(cid:57) Maintain a clawback policy
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No automatic salary increases
What we don’t do
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No repricing of stock options unless approved by
shareholders
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No excessive perquisites
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No new single-trigger change of control arrangements
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No tax gross-ups, other than limited CEO and relocation
tax gross-ups
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No change in control excise tax gross-ups
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No pledging or hedging of Wright securities
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No short sales or derivative transactions in Wright
shares, including hedges
(cid:57)(cid:57) Hold an annual say-on-pay vote
(cid:3)(cid:3) (cid:91)(cid:91)(cid:3)(cid:3) No current payment of dividends on unvested awards
Shareholder Outreach Efforts and Changes to Our Executive Compensation
During 2018, we continued to review our executive compensation program to ensure that it not only motivates our executives, but
also aligns with shareholder interests and prevailing market practice. As part of this review, we reached out and listened to
shareholders. In 2018, we contacted our top 50 institutional shareholders, representing approximately 83% of our outstanding
ordinary shares and attended over 300 meetings for investors and interested investors. For the individual investor meetings, our
CEO, Chief Financial Officer and/or Chief Communications Officer attended. The agenda for these meetings requested feedback
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(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:22)(cid:12)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:75)(cid:76)(cid:79)(cid:82)sophy and its alignment with our strategic direction.
After our similar shareholder outreach efforts in 2017, we made several changes to our executive compensation program to respond
to shareholder concerns and align with best practices. These changes include the use of performance-based awards, eliminating a
single trigger change in control provision in our equity plan, requiring minimum vesting periods on equity awards under our equity
plan, adopting a clawback policy and moving to an annual say-on-pay vote.
Say-on-Pay Vote
At our 2018 annual general meeting, our shareholders had the opportunity to vote on an advisory say-on-pay proposal. At this
meeting, over 98% of the votes cast by our shareholders were in favor of our say-on-pay vote. The Compensation Committee
believes that such results affirmed shareholder support of our approach to executive compensation, especially the several changes we
made to the program during 2017, and did not believe it was necessary to, and, therefore, did not, make any significant changes to
our executive compensation program in 2018.
Compensation Objectives and Philosophies
Our executive compensation policies, plans and programs seek to enhance our financial performance, and thus shareholder value, by
aligning the financial interests of our executives with those of our shareholders and by emphasizing pay for performance.
Specifically, our executive compensation programs are designed to:
(cid:129) (cid:53)(cid:72)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:30)
(cid:129) Attract and retain executives impo(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)
(cid:129) (cid:36)(cid:79)(cid:76)(cid:74)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:129) Reward executives for the achievement of Company performance objectives, the creation of shareholder value in the
short- and long-term, and their contributions to the success of our Company.
156
To achieve these objectives, although the compensation committee has not adopted any formal or informal policies or guidelines for
allocating compensation, the committee makes executive compensation decisions based on the following philosophies:
(cid:129) Base salary and total compensation levels are generally targeted to be within a reasonable range of the 67th percentile
of a group of similarly-sized peer companies. However, the specific competitiveness of any individual executive’s
salary and compensation will be determined considering factors like the executive’s experience, skills and capabilities,
contributions as a member of the executive management team, contributions to our overall performance, and the
sufficiency of total compensation potential to ensure the retention of an executive when considering the compensation
potential that may be available elsewhere.
(cid:129) At least two-thirds of the CEO’s compensation and half of other executives’ compensation opportunity should be in
(cid:129)
(cid:129)
the form of variable compensation that is tied to financial results and/or creation of shareholder value.
The portion of total compensation that is performance-based or at-risk should increase with an executive’s overall
responsibilities, job level, and compensation. However, compensation programs should not encourage excessive risk-
taking behavior among executives and should support our commitment to corporate compliance.
Primary emphasis should be placed on company performance as measured against goals approved by the
compensation committee rather than on individual performance.
(cid:129) At least half of the CEO’s compensation and one-third of other executives’ compensation opportunity should be in the
form of stock-based incentive awards.
Use of Peer Group and Other Market Data and Market Positioning
Peer Group. To help determine appropriate levels of compensation for certain elements of our executive compensation program, the
compensation committee reviews annually the compensation levels of our NEOs and other executives against the compensation
levels of comparable positions with companies similar to us in terms of industry, revenues, products and operations. The elements
of our executive compensation program to which the compensation committee “benchmarks” or uses to base or justify a
compensation decision or to structure a framework for compensating executives include base salary, short-term cash incentive
opportunity, and long-term equity incentives. With respect to other elements of our executive compensation program, such as
perquisites, severance, and change in control arrangements, the compensation committee benchmarks these elements on a periodic
or as needed basis and in some cases uses peer group or market data more as a “market check” after determining the compensation
on some other basis. The compensation committee believes that compensation paid by peer group companies is more representative
of the compensation required to attract, retain, and motivate our executive talent than broader survey data and that compensation
paid by peer companies that are in the same industry, with similar products and operations, and with revenues in a range similar to
ours, generally provides more relevant comparisons.
In 2017, Mercer worked with the compensation committee to identify a peer group of 13 companies, which the compensation
committee re-confirmed in 2018. Companies in the peer group are public companies in the health care equipment and supplies
business with products and operations similar to ours and that had annual revenues generally within a range of our annual revenues.
The peer group included the following companies:
The Cooper Companies, Inc.
Globus Medical, Inc.
Greatbatch, Inc.
Haemonetics Corporation
Integra LifeSciences Holdings Corporation
Masimo Corporation
Merit Medical Systems, Inc.
Natus Medical Incorporated
NxStage Medical, Inc.
NuVasive, Inc.
ResMed Inc.
Insulet Corporation
Abiomed, Inc.
The table below sets forth certain revenue and other financial information Mercer used to compile the proposed peer group and
market capitalization information as of May 31, 2017 regarding the peer group that the compensation committee used in connection
with its recommendations and decisions regarding executive compensation for 2018.
25th percentile
50th percentile
75th percentile
Wright’s percentile rank
Trailing 12-month
revenue
(in millions)
$432
710
1,207
49%
One-year revenue
growth
6%
10%
16%
65%
Three-year revenue
growth
20%
30%
44%
36%
Market
capitalization
(in millions)
$1,597
2,954
5,557
47%
In reviewing benchmarking data, the compensation committee recognizes that benchmarking may not always be appropriate as a
stand-alone tool for setting compensation due to aspects of our business and objectives that may be unique to us. Nevertheless, the
compensation committee believes that gathering this information is an important part of its compensation-related decision-making
process. However, where a sufficient basis for comparison does not exist between the peer group data and an executive, the
compensation committee gives less weight to the peer group data. For example, relative compensation benchmarking analysis does
157
not consider individual specific performance or experience or other case-by-case factors that may be relevant in hiring or retaining a
particular executive.
Market Positioning. In general, we target base salary and total compensation levels to be within a reasonable range of the 67th
percentile of our peer group. However, the specific competitiveness of any individual executive’s pay will be determined
considering factors like the executive’s experience, skills and capabilities, contributions as a member of the executive management
team, and contributions to our overall performance. The compensation committee will also consider the sufficiency of total
compensation potential and the structure of pay plans to ensure the hiring or retention of an executive when considering the
compensation potential that may be available elsewhere. We believe this market positioning is important to attract and retain the
best executive talent to achieve our business strategies and objectives.
Executive Compensation Pay Mix
The overall mix of annual base salaries, target annual cash incentive awards and the grant date fair value of long-term incentive
awards as a percent of target total direct compensation for our CEO and other NEOs (excluding new hires) as a group for 2018 is
provided below. The value of the long-term incentives represented is based on the grant date fair value of stock options, RSU
awards and PSU awards granted during 2018. Actual long-term incentive value will be based on long-term stock price performance
and whether the PSU performance goals are achieved. All other compensation is excluded from the graphics below.
158
Executive Compensation Components
During 2018, our executive compensation program consisted of the following key elements: base salary, short-term cash incentive,
long-term incentives in the form of stock option, RSU and PSU awards, limited perquisites and personal benefits, retirement
benefits, and severance and change in control arrangements. The following table provides some of the key characteristics of, and
purpose for, each element.
Element
Base salary
(Fixed, cash)
Short-term incentive (STI)
(Variable, cash)
Long-term incentives (LTI)
(Variable, stock option,
restricted stock unit and
performance share unit
awards)
Perquisites and personal
benefits
Key characteristics
A fixed amount, paid in cash
periodically throughout the
year and reviewed annually
and, if appropriate, adjusted,
effective typically April 1 of
each year.
A variable, short-term
element of compensation that
is payable in cash based on
achievement of key pre-
established annual corporate,
and in some cases, divisional
financial goals and/or
individual goals.
A variable, long-term
element of compensation that
is provided one-third in stock
options, one-third in time-
vested RSUs and one-third in
PSU awards.
Stock options and RSUs vest
over four years.
PSU awards vest and are paid
out in our ordinary shares
upon the achievement of a
threshold three-year net sales
growth goal.
Includes personal insurance
premiums, up to $5,000
reimbursement for financial
and tax planning and tax
preparation for all NEOs and
supplemental long-term
disability insurance.
Additional benefits for our
CEO under his employment
agreement.
Customary relocation
benefits and assignment and
expat benefits that are
consistent with local policies
and practices.
Key 2018 changes
No base salary increase for
the CEO.
Base salary increases
between zero and 4.0% for
the other NEOs.
No changes in target bonus
percentages for NEOs.
Corporate and divisional
performance measures were
the same as 2017, except
eliminated AUGMENT net
sales measure for US
divisional goals.
No significant changes made
to long-term equity
incentives, other than an
increase in the LTI grant
guideline for our CEO from
400% to 450% of base salary
and for our CFO from 200%
to 225% of base salary.
Purpose
Provides a source of fixed
income that is market
competitive and reflects the
scope and responsibility of
the position held.
Motivates and rewards our
executives for achievement
of annual financial and other
goals intended to achieve our
annual operating plan
objectives.
Aligns the interests of our
executives with our
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:30)(cid:3)(cid:72)(cid:81)(cid:70)(cid:82)(cid:88)(cid:85)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)
focus on long-term company
financial performance
measures that are deemed
strategically and
operationally important to
(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3)(cid:83)(cid:85)(cid:82)(cid:80)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)
(cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)
and encourages significant
ownership of our ordinary
shares.
Assists in attracting new and
retaining existing talent,
allowing our executives to
more efficiently use their
time and supports them in
effectively contributing to
our Company success.
No significant changes were
made to perquisites and
personal benefits, except the
adoption of a supplemental
long-term disability
insurance policy effective
January 1, 2019.
CEO benefits were critical to
our ability to hire him.
$200,000 sign-on bonus and
$30,000 allowance for
temporary housing and travel
was paid to Mr. Morton upon
his hiring.
$1.2 million retention
payment paid to Mr. Cooke
after completion of two-year
ex pat service in the United
Kingdom
159
Element
Retirement benefits
Key characteristics
Includes a defined
contribution retirement plan
with a discretionary
Company match.
Purpose
Provides an opportunity for
employees to save and
prepare financially for
retirement.
Key 2018 changes
No significant changes made
to retirement benefits.
No pension arrangements,
post-retirement health
coverage or nonqualified
defined contribution or other
deferred compensation plans.
Customary “double-trigger”
change in control and
severance benefits for our
CEO under his employment
agreement and for other
NEOs under separation pay
agreements.
Change in control and
severance benefits
Base Salary
Attracts key executive talent
and encourages continuity,
stability and retention when
considering the potential
disruptive impact of an actual
or potential corporate
transaction.
No significant changes made
to change in control and
severance benefits.
Setting Initial Salaries for New Executives. We initially fix base salaries for executives at a level we believe enables us to hire and
retain them in a competitive environment, and to reward satisfactory individual performance and a satisfactory level of contribution
to our overall business objectives. During 2018, we hired Andrew C. Morton as Senior Vice President and Chief Human Resources
Officer. In setting his initial base salary at $400,000, we considered his base salary at his prior employer and target market
positioning of companies in our peer group.
Annual Salary Increases. We review the base salaries of our NEOs each year following the completion of our prior year individual
performance reviews. If appropriate, we increase base salaries to recognize annual increases in the cost of living and superior
individual performance and to ensure that our base salaries remain market competitive. In addition, we review our CEO’s base
salary at least annually, and consider whether an increase is appropriate, as required under his employment agreement. We refer to
annual base salary increases as a result of cost of living adjustments and individual performance as “merit increases.” In addition,
we may make additional upward adjustments to an executive’s base salary to compensate the executive for assuming increased roles
and responsibilities, to retain an executive at risk of recruitment by other companies, and/or to bring an executive’s base salary
closer to our target market positioning of companies in our peer group. We refer to these base salary increases as “market
adjustments.”
The 2018 base salary merit increases for our NEOs ranged from 0.0% to 4.0% over their respective 2017 base salaries. Our CEO
received no base salary increase, but received an increase in his LTI grant guideline as described below. No upward market
adjustments were made during 2018. We believe the base salaries of all of our NEOs are within a reasonable range of our targeted
positioning among our peer group.
2018 Base Salaries. The table below sets forth the 2017 base salaries (effective April 1, 2017) of our NEOs, their 2018 base salaries
(effective April 1, 2018), and the percentage increase compared to their 2017 base salaries:
Name
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
2017
base salary
($)
$958,514
450,000
397,440
N/A
470,656
2018
base salary
($)
$958,514
468,000
407,376
400,000
480,069
2018 base salary %
increase compared to
2017 base salary
0.0%
4.0%
2.5%
N/A
2.0%
2019 Base Salaries. In December 2018, we set the following base salaries for 2019 for our NEOs who changed officer positions
effective January 2019: Mr. Berry ($515,000), Mr. Cooke ($407,376), and Mr. Cordell ($515,000). In February 2019, we set the
following base salaries for 2019 for the remainder of our NEOs effective March 23, 2019: Mr. Palmisano ($958,514) and
Mr. Morton ($416,000). The 2019 base salaries represent merit increases of 0.0% to 4.0% over their respective 2018 base salaries.
Upward market adjustments were made in the case of Messrs. Berry and Cordell to compensate them for assuming increased roles
and responsibilities and bring them closer to target market positioning within our peer group in their new positions.
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Short-Term Cash Incentive Compensation
Our short-term cash incentive compensation is paid as an annual cash bonus under our PIP and is intended to compensate executives
for achieving annual corporate financial performance goals and, in some cases, divisional financial and individual performance
goals. The PIP provides broad discretion to the compensation committee in interpreting and administering the plan. All 2018 short-
term cash incentive bonuses to our NEOs are expected to be paid out in early March 2019 and were dependent upon executives’
continued service through the end of 2018.
Target Bonus Percentages. Target short-term cash incentive bonuses for 2018 for each executive were based on a percentage of base
salary and were as follows for each NEO:
Name
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
Percentage of base salary
100%
65%
55%
50%
60%
The 2018 target bonus percentages for our CEO and other NEOs did not change from their 2017 levels for those executives who
were executives in 2017. Based on an executive compensation analysis by our compensation consultant, we believe the target bonus
percentages for our NEOs were generally aligned with our target market positioning within our peer group.
Performance Goal Mix. 2018 bonuses to our NEOs were based on achievement of corporate performance goals for all executives,
as well as divisional performance goals for Messrs. Cooke and Cordell, and individual performance goals for Mr. Morton.
Named executive officer
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
Percentage based
upon corporate
performance goals
100%
100%
40%
80%
40%
Percentage based
upon divisional
performance goals
0%
0%
60%
0%
60%
Percentage based
upon individual
performance goals
0%
0%
0%
20%
0%
Corporate Performance Goals. For 2018, we had three corporate performance measures as set forth in the table below. These three
measures were the same corporate performance measures from 2017, and were selected again because they were determined to
continue to be the three most important indicators of our financial performance for 2018 as evaluated by management and analysts.
2018 corporate performance metric
Global net sales (1)
Adjusted EBITDA (2)
Free cash flow (3)
Weighting
40%
30%
30%
(1) This performance measure was calculated using a non-GAAP financial measure, which we believe provides meaningful supplemental
information regarding our core operational performance. The net sales goal and actual results were calculated based on a foreign currency
exchange planning rate to adjust for any impact of foreign currency on underlying performance.
(2) This performance measure was calculated using a non-GAAP financial measure, which we believe provides meaningful supplemental
information regarding our core operational performance. Adjusted EBITDA from continuing operations means net loss from continuing
operations plus charges for interest, income taxes, depreciation and amortization expenses, non-cash share-based compensation expense and
non-operating income and expense. Additionally, adjusted EBITDA from continuing operations excluded transaction and transition costs
(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)
(3) This performance measure was calculated using a non-GAAP financial measure, which we believe provides meaningful supplemental
information regarding our core operational performance. Adjusted free cash flow means net cash flow provided by operating activities
(excluding net cash flow from certain discontinued operations, AUGMENT payment milestone and foreign currency gains and losses) less
capital expenditures.
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The percentage of the target bonus earned by bonus objective was based on the following performance levels and an overall
weighted average corporate payout:
Performance level
Minimum
Threshold (50% payout)
Target (100% payout)
Above target (150% payout)
High (200% payout)
Percent of target bonus earned
0%
50.1% to 99.9%
100%
100.1% to 150%
150.1% to 200%
In setting the threshold, target, above target, and maximum performance achievement levels, we considered past performance,
market conditions, and the financial, strategic, and operational plans presented by management. When setting the target
performance levels, we sought to ensure that at- or above-market performance was the goal. For above-target performance levels,
the achievement levels required “stretch” performance by the management team to achieve this level of performance. At the
threshold level, targets would be set on a steeper slope than at the above target/maximum categories, so that missed target
performance would result in more rapidly declining bonus opportunity.
The performance level of each corporate performance measure is set forth in the table below. The free cash flow performance goals
were revised in July 2018 to reflect the impact of an incremental investment in upper extremities shoulder kits during the second
quarter of 2018 which otherwise would have adversely affected the achievement of the free cash flow performance measure.
Performance level
Minimum
Threshold (50% payout)
Target (100% payout)
Above target (150% payout)
High (200% payout)
Global net sales
$769.2 million
$782.1 million
$823.5 million
$842.5 million
$864.8 million
Adjusted EBITDA
$107.2 million
$117.6 million
$143.1 million
$157.6 million
$182.2 million
Free cash flow
$(42.1) million
$(17.5) million
$(3.0) million
$11.5 million
$36.1 million
The table below sets forth our actual performance for each corporate performance measure and the overall weighted corporate
performance achievement rating, which was between target and above target, resulting in a 111.1% payout for our corporate
performance measures. In calculating the free cash flow payout, the Compensation Committee approved an adjustment to exclude
an interest payment paid in December 2018 as a result of the refinancing of the Company’s 2020 senior convertible notes in June
2018.
2018 corporate performance measures and weighting
Global net sales (40%)
Adjusted EBITDA (30%)
Free cash flow (30%)
Overall weighted achievement rating
Actual
$822.6 million
$145.6 million
$5.6 million
111.1%
Payout
Between threshold and target
Between target and above target
Between target and above target
Between target and above target
Divisional Performance Goals. As Presidents of our International and U.S. businesses during 2018, the 2018 PIP bonuses for
Messrs. Cooke and Cordell were based 40% on corporate performance goals and 60% on divisional performance goals. The portion
of their bonuses that was tied to divisional performance was based on four divisional performance measures. The table below sets
forth the international and U.S. divisional performance measures and reflects how those business units performed in 2018, and the
overall weighted average divisional performance achievement rating. Mr. Cooke’s 2018 PIP bonus reflected an overall weighted
average achievement rating for the international business performance goals of 98.0% of target and Mr. Cordell’s 2018 PIP bonus
reflected an overall weighted average achievement rating for the U.S. business performance goals of 117.2% of target.
2018 divisional performance measures and weighting
Net sales (40%)
Adjusted EBITDA (30%)
Days-on-hand (15%)
Days sales outstanding (15%)
Overall weighted achievement rating
International 2018 performance
Between threshold and target
Between threshold and target
Between above target and maximum
Between target and above target
Slightly below target
U.S. 2018 performance
Between target and above target
Between target and above target
Between threshold and target
Between target and above target
Between target and above target
The specific performance levels for our international and U.S. divisional performance measures are maintained as proprietary and
confidential. We believe that disclosure of these specific performance levels would represent competitive harm to us as these
divisional goals and results are not publicly disclosed and are competitively sensitive. For each divisional performance measure, the
target goal reflects the annual financial business plan goal set for the division. Based on historical performance, the compensation
committee believes the attainment of the target performance level, while uncertain, could be reasonably anticipated. Threshold goals
represent the minimum level of performance necessary for that performance measure and the compensation committee believes the
threshold goals are likely to be achieved. Maximum goals represent levels of performance at which the compensation committee
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determines a payout of 200% of target would be appropriate. The compensation committee believes that the maximum goals
established for each division performance measure are more aggressive goals.
Individual Performance Goals. To foster cooperation and communication among executives, the compensation committee places
primary emphasis on overall corporate and divisional performance goals rather than on individual performance goals. For NEOs, at
least 80% of their 2018 annual PIP bonuses were determined based on the achievement of corporate or divisional performance goals
and only 20% or less were based on achievement of individual performance goals. The individual performance goals used to
determine annual PIP bonuses were management by objectives, known internally as MBOs. MBOs are generally two to three
written, specific and measurable objectives agreed to and approved by the executive, CEO and compensation committee in the
beginning of the year. The only NEO with MBOs for 2018 was Mr. Morton. His MBOs for 2018 related to enhancement of our
compensation processes and improvements in processes for global equity planning, global bonus calculation and global talent
onboarding. His MBO achievement rating, as determined by the compensation committee, was 150%.
2018 Actual PIP Bonuses. The table below sets for the 2018 PIP bonuses for all NEOs:
Named executive officer
2018 PIP bonus
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
$
1,064,909
337,966
231,316
237,760
330,556
2019 Changes and PIP Performance Goals. In February 2019, the compensation committee approved PIP performance goals for
2019. The corporate and divisional performance measures for 2019 are based on net sales, adjusted EBITDA, and free cash flow.
The 2019 target bonus percentages for our NEOs did not change from their 2018 levels, other than in the case of Mr. Palmisano
whose target bonus percentage increased by 20% to bring him closer to our target market positioning within our peer group and
Messrs. Berry and Cordell whose target bonus percentages increased by 10% to compensate them for assuming increased roles and
responsibilities and bring them closer to target market positioning within our peer group in their new positions. Consistent with the
design for the 2018 plan, the 2019 bonus for our CEO is based 100% on achievement of corporate performance goals, with no
individual performance components. Bonuses for our other NEOs are based on corporate, divisional and individual performance
goals as follows:
Named executive officer
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
Percentage based upon
corporate
performance goals
100%
100%
30%
80%
30%
Percentage based upon
divisional
performance goals
0%
0%
50%
0%
50%
Percentage based upon
individual
performance goals
0%
0%
20%
20%
20%
Long-Term Equity-Based Incentive Compensation
Long-term equity-based incentives typically comprise a significant portion of each NEO’s compensation package, consistent with
our executive compensation philosophy. Our board of directors, on recommendation of the compensation committee, generally
grants long-term incentives in the form of equity awards on an annual basis and to new hires. On limited occasion, we may make
special recognition grants or discretionary grants to executive officers for retention or other purposes. Such grants may vest based
on the passage of time and/or the achievement of certain performance goals. All equity awards are granted under the shareholder-
approved Wright Medical Group N.V. 2017 Equity and Incentive Plan.
Annual Performance Recognition Grants. Annual performance recognition grants are discretionary annual grants that are made
during mid-year to give the compensation committee another formal opportunity during the year to review executive compensation
and recognize executive and other key employee performance. The recipients and size of the annual performance recognition grants
are determined based on our long-term incentive grant guidelines, which we review annually to ensure continued alignment with our
target positioning. Consistent with the principle that the interests of our executives should be aligned with those of our shareholders
and that the portion of an executive’s total compensation that varies with performance and is at risk should increase with the
executive’s level of responsibility, incentive grants, expressed as a percentage of base salary and dollar values, increase as an
executive’s level of responsibility increases.
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The table below describes our LTI grant guidelines for annual performance recognition grants that applied to our NEOs for 2018.
Mr. Morton did not receive an annual performance recognition grant since he joined Wright in March 2018.
Named executive officer
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Kevin D. Cordell
Incentive grant guideline
expressed as % of base salary
450%
225%
100%
175%
$
Dollar value of
incentive grant guideline as of
July 24, 2018 grant date ($)
4,313,313
1,053,000
407,376
840,121
The LTI grant guideline for our CEO increased from 400% to 450% to bring his LTI closer to our target positioning in our peer
group and provide him greater performance-based compensation in lieu of an annual base salary increase. The LTI grant guidelines
for our other NEOs remained the same, other than for Mr. Berry whose guideline increased from 200% to 225% to bring his LTI
closer to our target positioning.
Talent Acquisition Grants. Talent acquisition grants are new hire grants that are considered and approved as part of an executive’s
compensation package at the time of hire (with the grant date and exercise price delayed until the hire date). As with our annual
performance recognition grants, the size of our talent acquisition grants is determined by dollar amount (as opposed to number of
underlying shares), and under our LTI grant guidelines, is generally 2 to 2.5 times the LTI grant guidelines for annual performance
recognition grants, as recommended by our compensation consultant. We recognize that higher initial grants often are necessary to
attract a new executive, especially one who may have accumulated a substantial amount of equity-based long-term incentive awards
or other equity at a previous employer that would typically be forfeited upon acceptance of employment with us. In some cases, we
may need to further increase a talent acquisition grant to attract an executive. Mr. Morton was the only NEO to receive a talent
acquisition grant during 2018. His LTI grant guideline expressed as a percentage of base salary is 125%, resulting in a new hire
talent acquisition grant value equal to $1,000,000, or two times his LTI grant guideline.
Equity Award Mix. Once an executive’s target total LTI value is determined, one-third of the value is provided in stock options, one-
third is provided in RSU awards and one-third is provided in PSU awards, except in the case of new hires, where the value is
provided one-half in stock options and one-half in RSU awards. The number of stock options, RSU awards and target PSU awards
is based on the Black-Scholes value of our ordinary shares as determined on the third business day prior to the corporate approval of
the award and using an average closing price of our ordinary shares over the most recent 10-trading days.
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The following table describes each of these three types of awards and why we provide them to our executives:
Stock options
Provides executives with the opportunity
once vested to purchase our ordinary
shares at a price fixed on the grant date
regardless of future market price.
Exercise price is equal to fair market
value of an ordinary share on the grant
date.
RSU awards
Provides executives a commitment by us
to issue ordinary shares at the time the
RSU award vests.
Vesting is time-based, in four annual
installments.
PSU awards
Gives executives a commitment from us
to issue a certain number of ordinary
shares dependent upon achievement of
one or more performance measures.
At time of grant, the compensation
committee
performance
establishes
measures, weightings, goals, performance
the
adjustment events,
performance period, as well as thresholds,
targets, and maximums.
if any, and
Vesting is time-based, with 25% of the
shares underlying the stock option vesting
on the one-year anniversary of the grant
date and the remaining 75% of the
underlying shares vesting over a three-
year period thereafter in 36 nearly equal
monthly installments.
Annual awards vest on each August 15th. Performance periods typically begin on
the first day of our third fiscal quarter and
end on the last day of our second fiscal
quarter of the third year thereafter.
New hire awards vest beginning on either
August 15, November 15, March 1st or
May 15th, depending on the grant date.
In all cases, the first vesting date is at
least one year after the grant date.
Provides the opportunity for capital
accumulation and more predictable LTI
value than stock options.
committee
At the end of the performance period, the
compensation
certifies
performance against the performance
goals, including the applicability of any
performance adjustment events, and a
corresponding payout, which is expressed
as a percent of target.
Actual payouts for PSU awards can range
from 0% (if the threshold levels of
performance are not met) to 200% of the
target award (if maximum levels of
performance are met).
Benefits of all equity award types
Incentivizes employees to maximize company performance, as the value of awards is directly tied to an appreciation in the value of
our ordinary shares.
Provides an effective retention mechanism because of vesting provisions.
Strengthens the relationship between the long-term value of our ordinary shares and the potential financial gain for executives.
Links a portion of an executive’s compensation to the interests of our shareholders by providing an incentive to achieve corporate
goals and increase the market price of our ordinary shares over the vesting period.
2018 Equity Awards. The table below sets forth the number of stock options, RSU awards and target PSU awards granted to each of
our NEOs in 2018. As mentioned earlier, Mr. Morton received new hire talent acquisition grants, which did not include PSU
awards.
Named executive officer
Stock options (#)
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
149,008
36,377
14,073
65,062
29,023
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RSU awards (#)
55,536
13,558
5,245
22,707
10,817
PSU awards
(assuming target
performance) (#)
55,536
13,558
5,245
N/A
10,817
Since 2017 was the first year we granted PSU awards and the performance period of those awards is three years, no payouts for PSU
awards were determined during 2018. The performance measure for the PSU awards granted in 2018 and 2017 is net sales growth
over a three-year period. The specific performance goals are maintained by us as proprietary and confidential. We believe that
disclosure of this specific performance goal would represent competitive harm to us. Based on historical performance, we believe
the attainment of the target performance level, while uncertain, could be reasonably anticipated. The threshold goal represents the
minimum level of performance necessary for there to be a payout and we believe is likely to be achieved. The maximum goal
represents the performance at which a payout is 200% of the target award and represents the level of performance of which we
believe a payout of 200% would be appropriate. We believe that the maximum goal established for the performance measure is
much more aggressive than the target goal. We consider the following factors when establishing the performance goals: our prior
year and year-to-date financial business results, long-term strategic plan outlook, our competitive situation, anticipated state of our
business, and any anticipated business opportunities.
Additional information concerning the long-term incentive compensation information for our NEOs for 2018 is included in the
Summary Compensation Table and Grants of Plan-Based Awards Table under the heading “Executive Compensation Tables and
Narratives.”
2019 Changes. For 2019, the long-term incentive grant guideline for certain of our named executive officers was increased, which
will apply to their annual equity grants anticipated to be made in July 2019. Mr. Palmisano’s incentive grant guideline was
increased by 50% to bring him closer to our target market positioning within our peer group, and in connection with their respective
promotions effective January 2019, the incentive grant guideline for each of Messrs. Berry and Cordell was increased by 50%.
All Other Compensation
Retirement benefits
Our executives have the opportunity to participate in retirement plans maintained by our operating
subsidiaries, including a 401(k) plan, on the same basis as our other employees. We believe these plans
provide an opportunity for our executives to plan for and meet their retirement savings needs.
We do not provide pension arrangements or post-retirement health coverage for our employees, including
NEOs, or nonqualified defined contribution or other deferred compensation plans.
Relocation,
assignment and expat
benefits
We provide our executives with customary relocation assistance benefits if they relocate at our request.
Tax protection may be provided in these situations to avoid an executive being penalized from a tax
perspective for a relocation on behalf of our company. During 2018, Mr. Morton received relocation
benefits, together with a tax gross-up, in connection with his hiring.
For international assignments, we also provide customary assignment and expat benefits that are
consistent with local policies and practices. Tax protection may be provided in these situations to avoid an
executive being penalized from a tax perspective for a relocation or expat service on behalf of our
company. During 2016, we asked Mr. Cooke, President, International, to relocate his family to the United
Kingdom. To compensate and incentivize Mr. Cooke to relocate, we agreed to provide him standard and
customary relocation, temporary assignment and expat benefits. These are described in more detail under
“Executive Compensation Tables and Narratives-Summary Compensation Information-All Other
Compensation for 2018-Supplemental” and include cost-of-living adjustments, medical coverage, housing
allowance, educational tuition fees and related transportation costs, car lease, reimbursement of certain
relocation expenses and tax and tax equalization benefits.
Perquisites and other
benefits
We provide our executives with modest perquisites to attract and retain them. The perquisites provided to
our NEOs during 2018 included $1,000 for certain personal insurance premiums and up to $5,000
reimbursement for financial and tax planning and tax preparation.
In addition, we are required to provide our CEO additional perquisites under the terms of his employment
agreement, which we agreed upon at the time of his initial hiring by legacy Wright to attract him to our
company. These additional perquisites include additional reimbursement for financial and tax planning
and tax preparation, a monthly allowance of $7,500 for housing and automobile expenses, reimbursement
for reasonable travel expenses between Memphis, Tennessee and his residences, and an annual physical
examination. To the extent that the reimbursements for his housing and automobile expenses and travel
expenses are not deductible by Mr. Palmisano for income tax purposes, such amounts are “grossed-up” for
income tax purposes so that the reimbursed items will be received net of any deduction for income and
payroll taxes. We agreed to this gross-up provision at the time of his initial hiring by legacy Wright to
attract him to our company and ease the financial burden on him to travel to and from our U.S. corporate
headquarters in Memphis, Tennessee.
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In addition, in 2018, we provided certain additional benefits to Mr. Morton to encourage him to accept an
offer of employment with us, including a $200,000 sign-on bonus, a full annual incentive bonus for 2018
and $30,000 allowance for temporary housing and travel. One-half of the sign-on bonus must be paid
back by Mr. Morton if he voluntarily terminates his employment with Wright prior to the two-year
anniversary of his hire date and the entire sign-on bonus must be paid back if he voluntarily terminates his
employment prior to the one-year anniversary.
In June 2018, we paid Mr. Cooke a $1.2 million retention payment that was agreed upon in June 2016
when we agreed to relocate his family to the United Kingdom. This payment is in lieu of any future
change in control or severance payment under his separation pay agreement.
We believe perquisites and certain other benefits are an important part of our overall compensation
package and help us accomplish our goal of attracting, retaining, and rewarding top executive talent. The
value of all of the perquisites and other compensation provided to our NEOs for 2018 can be found under
“Executive Compensation Tables and Narratives- Summary Compensation Information-All Other
Compensation for 2018-Supplemental.”
Change in Control and Post-Termination Severance Arrangements
Change in Control Arrangements. To encourage continuity, stability and retention when considering the potential disruptive impact
of an actual or potential corporate transaction, we have established change in control arrangements, including provisions in our
equity-based compensation plans, separation pay agreements with our executives, and our employment agreement with our CEO,
which are described in more detail below and under “Executive Compensation Tables and Narratives-Potential Payments Upon a
Termination or Change in Control.” These arrangements are designed to incentivize our executives to remain with our company in
the event of a change in control or potential change in control.
We believe our change in control arrangements are an important part of our executive compensation program in part because they
mitigate some of the risk for executives working in a smaller company where there is a meaningful likelihood that the company may
be acquired. Change in control benefits are intended to attract and retain qualified executives who, absent these arrangements and in
anticipation of a possible change in control of our company, might consider seeking employment alternatives to be less risky than
remaining with our company through the transaction. We believe that relative to our company’s overall value, our potential change
in control benefits are relatively small and are aligned with current peer company practices.
Our 2017 equity plan contains a “double trigger” change in control provision under which equity awards will not vest in connection
with a change in control unless there is a termination event or the equity awards are not continued, assumed or substituted with like
awards by the successor. Under the terms of our prior equity plan and the individual award documents provided to recipients of
awards under that plan, all stock options and RSU awards become immediately vested (and, in the case of options, exercisable) upon
the completion of a change in control of our company. Thus, the immediate vesting of stock options and RSU awards is triggered by
the change in control, itself, and thus is known as a “single trigger” change in control arrangement. The intent of our prior “single
trigger” equity acceleration change in control arrangements was to provide retention incentives during what can often be an
uncertain time for employees. They also provided executives with additional monetary motivation to focus on and complete a
transaction that our board of directors believes is in the best interests of our company and shareholders rather than to seek new
employment opportunities. The immediate acceleration of equity-based awards also aligned the interests of our executives and other
employees with those of our shareholders by allowing our executives to participate fully in the benefits of a change in control as to
all of their equity. If an executive were to leave before the completion of the change in control, unvested awards held by the
executive would terminate. However, we recognized that our single trigger change in control arrangements did not align with current
market practice and the desires of many of our shareholders so we changed this practice with the adoption of our 2017 equity plan.
In addition to the change in control provisions in our 2017 equity plan, we have entered into an employment agreement with our
CEO and separation pay agreements with our other NEOs and other officers which provide certain payments and benefits in the
event of a termination of employment in connection with a change in control. These “double trigger” change in control protections
are intended to induce executives to accept or continue employment with our company, provide consideration to executives for
certain restrictive covenants that apply following termination of employment, and provide continuity of management in connection
with a threatened or actual change in control transaction. If an executive’s employment is terminated without “cause” or by the
executive for “good reason” (as such terms are defined in the agreements) within 12 months (24 months for our CEO) following a
change in control, the executive will be entitled to receive a severance payment and certain benefits. These arrangements and a
quantification of the payment and benefits provided under these arrangements are described in more detail under “Executive
Compensation Tables and Narratives-Potential Payments Upon a Termination or Change in Control.”
Other Severance Arrangements. Each of our NEOs is entitled to receive severance benefits upon certain other qualifying
terminations of employment, other than a change in control, pursuant to the provisions of an employment agreement for our CEO
and separation pay agreements for our other NEOs. These severance arrangements are intended to induce the executives to accept or
167
continue employment with our company and are primarily intended to retain our executives and provide consideration to those
executives for certain restrictive covenants that apply following a termination of employment. Additionally, we entered into these
agreements because they provide us valuable protection by subjecting the executives to restrictive covenants that prohibit the
disclosure of confidential information during and following their employment and limit their ability to engage in competition with us
or otherwise interfere with our business relationships following their termination of employment.
For more information on our severance arrangements with our NEOs, see the discussions below under “-Executive Compensation
Tables and Narratives-Potential Payments Upon a Termination or Change in Control.”
Stock Ownership Guidelines
We have established stock ownership guidelines that are intended to further align the interests of our executives with those of our
shareholders. Stock ownership targets for each of our executive officers have been set at that number of our ordinary shares with a
value equal to a multiple of the executive’s annual base salary. Each of the executive officers has five years from the date of hire or,
if the ownership multiple has increased during his or her tenure, five years from the date established in connection with such
increase to reach his or her stock ownership targets. Until his or her stock ownership target is achieved, each executive is required to
retain an amount equal to 75% of the net shares received as a result of the exercise of stock options or the vesting of RSU awards. If
there is a significant decline in the price of our ordinary shares that causes executives to be out of compliance, such executives will
be subject to the 75% retention ratio, but will not be required to purchase additional shares to meet the applicable targets. Our
compensation committee reports on compliance with the guidelines at least annually to our board of directors. Each of our NEOs is
in compliance with our stock ownership guidelines, taking to account the five-year compliance deadline for new hires.
Named executive officer
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
Anti-Hedging and Pledging
Stock ownership target as a
multiple of base salary
4x
2x
2x
2x
2x
In compliance (yes/no)
Yes
Yes
Yes
Yes
Yes
Our code of conduct on insider trading and confidentiality prohibits our executive officers from engaging in hedging transactions,
such as short sales, transactions in publicly traded options, such as puts, calls and other derivatives, and pledging our ordinary
shares.
Clawback Policy
During 2017, we adopted a clawback policy that authorizes recovery of gains from incentive compensation, including equity awards,
in the event of certain financial restatements. In addition, under our equity plans, if an executive is determined by the compensation
committee to have taken action that would constitute “cause” or an “adverse action,” as those terms are defined in the plan, during or
within one year after the termination of the executive’s employment, all rights of the executive under the plan and any agreements
evidencing an equity award then held by the executive will terminate and be forfeited. In addition, the compensation committee may
require the executive to surrender and return to us any shares received, and/or to disgorge any profits or any other economic value
made or realized by the executive in connection with any awards or any shares issued upon the exercise or vesting of any awards
during or within one year after the termination of the executive’s employment or other service. Mr. Palmisano’s employment
agreement also contains a clawback provision in the event of certain financial restatements.
Risk Assessment
As a result of our annual assessment on risk in our compensation programs, we concluded that our compensation policies, practices,
and programs and related compensation governance structure, work together in a manner so as to encourage our executives (and
other employees) to pursue growth strategies that emphasize shareholder value creation, but not to take unnecessary or excessive
risks that could threaten the value of our company. For more information on this assessment, see the discussions below under
“-Executive Compensation Tables and Narratives-Risk Assessment of Compensation Policies, Practices and Programs.”
168
How We Make Compensation Decisions
Roles and Responsibilities. There are several elements to our executive compensation decision-making, which we believe allow us
to most effectively implement our compensation philosophy and objectives. The compensation committee, the board of directors,
our independent external compensation consultant and management all have a role in decision-making for executive compensation.
The following table summarizes their roles and responsibilities:
Responsible party
Compensation committee
(Comprised solely of independent
directors and reports to the board of
directors)
Board of directors
Independent external compensation
consultant
(Mercer (US) Inc.)
(Independent under Nasdaq listing
rules and reports to the compensation
committee)
President and Chief Executive
Officer
Other members of senior
management team
(Senior Vice President, Chief Human
Resources Officer, Senior Vice
President, General Counsel and
Secretary, and Executive Vice
President, Chief Financial and
Operations Officer)
(cid:129) Oversees all aspects of our executive compensation program.
(cid:129) Annually reviews and approves our corporate goals and objectives relevant to CEO
Roles and responsibilities
compensation.
(cid:129) Evaluates CEO’s performance in light of such goals and objectives, and determines
and recommends his compensation based on this evaluation.
(cid:129) Determines and approves all executive officer compensation, including salary, bonus
and equity and non-equity incentive compensation.
(cid:129) Administers our equity compensation plans and reviews and recommends all equity
awards.
(cid:129) Reviews our incentive compensation arrangements to confirm that incentive pay
does not encourage unnecessary risk-taking.
(cid:129) Evaluates market competitiveness of each executive’s compensation.
(cid:129) Evaluates proposed changes to our executive compensation program.
(cid:129) Assists the Board in developing and evaluating potential candidates for executive
positions and overseeing the development of succession plans.
(cid:129) Has sole authority to hire consultants, approve their fees and determine the nature
and scope of their work.
(cid:129) Approves, upon recommendation of the compensation committee, all CEO
compensation consistent with our shareholder-approved board of directors
compensation policy.
(cid:129) Approves, upon recommendation of the compensation committee, all equity grants.
(cid:129) Advises on all significant aspects of executive compensation, as well as non-
executive director compensation.
(cid:129) Provides advice and guidance on the appropriateness and competitiveness of our
executive compensation program relative to our performance and market practice.
(cid:129) Reviews total compensation strategy and pay levels for executives.
(cid:129) Examines our executive compensation program to ensure that each element supports
our business strategy.
(cid:129) Assists in selection of peer companies and gathering competitive market data.
(cid:129) Provides advice with respect to our equity-based compensation plans.
(cid:129) Attends on a regular basis compensation committee meetings.
(cid:129) Reviews performance of other executive officers and makes recommendations with
respect to their compensation.
(cid:129) Confers with the compensation committee and compensation consultant concerning
design and development of compensation and benefit plans.
(cid:129) Provides no input or recommendations with respect to his own compensation.
(cid:129) Gathers compensation data regarding executives and coordinates the exchange of
information among management, the compensation committee and compensation
consultant.
(cid:129) Assists the compensation committee by ensuring compliance with legal and
regulatory requirements and educating the committee on executive compensation
trends and best practices from a corporate governance perspective.
(cid:129) Provides no input or recommendations with respect to their own compensation.
169
Factors Considered. In setting or recommending executive compensation for our NEOs, the compensation committee considers the
following primary factors:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
each executive’(cid:86)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)
the executive’s individual experien(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:30)
company performance, as compared to specific pre-(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)
individual performance, generally and as compared to specific pre-establis(cid:75)(cid:72)(cid:71)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)
the executive’(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:30)(cid:3)
(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
an assessment of the risk that the executive would leave us and the harm to our business initiatives if the executive
(cid:79)(cid:72)(cid:73)(cid:87)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:53)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:30)(cid:3)
the dilutive effect on the interests of our shareholders of long-term equity-(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
anticipated share-based compensation expense as determined under applicable accounting rules.
The compensation committee also considers the recommendations of our CEO with respect to executive compensation to be paid to
other executives. In making these recommendations, the CEO considers many of the same factors listed above that the
compensation committee considers in setting executive compensation, including in particular the results of each executive’s annual
performance review and the executive’s achievement of his or her individual MBOs established in connection with our PIP,
described above. In making its final decision regarding the form and amount of compensation to be paid to our NEOs (other than
the CEO), the compensation committee considers and gives great weight to the recommendations of the CEO recognizing that due to
his reporting and otherwise close relationship with each executive, the CEO often is in a better position than the compensation
committee to evaluate the performance of each executive (other than himself). In making its final decision regarding the form and
amount of compensation to be paid to the CEO, the compensation committee considers the results of the CEO’s self-review and his
individual annual performance review by the compensation committee, benchmarking data gathered by our compensation
consultant, and the recommendations of our non-executive directors. In making its final decision regarding the form and amount of
compensation to be paid to executives, the compensation committee considers the information gathered by and recommendations of
Mercer. The compensation committee values Mercer’s benchmarking information and input regarding best practices and trends in
executive compensation matters.
Tax Deductibility of Compensation
Prior to the enactment of the Tax Cuts and Jobs Act signed into law on December 22, 2017 (referred to as the Tax Act), in designing
our executive compensation program, we considered the deductibility of executive compensation under Code Section 162(m). At
the time the compensation committee made compensation decisions for our executive officers for 2018, Code Section 162(m)
provided that we may not deduct each year more than $1 million paid to certain executive officers, other than “performance-based”
compensation meeting certain requirements. The Tax Act, among other things, repealed the exemption from Code Section 162(m)’s
deduction limit for “performance-based” compensation for taxable years beginning after December 31, 2017. Our compensation
plans were designed with the intention of satisfying the requirements for “performance-based” compensation as defined in Code
Section 162(m) prior to the effective date of the Tax Act so that such awards would be exempt from the Code Section 162(m)
deduction limitation. While we designed these plans to operate in this manner, the compensation committee may administer the
plans in a manner that does not satisfy such requirements in order to achieve a result that the compensation committee determines to
be appropriate, including by revising performance goals and/or adjustment events as needed to ensure our pay practices continue to
align with performance. Despite the compensation committee’s efforts to structure performance-based compensation in a manner
intended to be exempt from the Code Section 162(m) deduction limit, no assurance can be given that compensation intended to
satisfy the requirements for exemption from Code Section 162(m) in fact will.
Despite the changes to Section 162(m) as a result of the Tax Act, consistent with our executive compensation philosophy of linking
pay to performance and aligning executive interests with those of our shareholders, we currently expect that we will continue to
structure our executive compensation program so that a significant portion of total executive compensation is linked to the
performance of our company.
170
Compensation Committee Report
The compensation committee has reviewed and discussed the foregoing “-Compensation Discussion and Analysis” with our
management. Based on this review and these discussions, the compensation committee has recommended to our board of directors
that the foregoing “-Compensation Discussion and Analysis” be included in our Annual Report on Form 10-K for the fiscal year
ended December 30, 2018 and proxy statement in connection with our 2019 annual general meeting of shareholders.
Compensation Committee
John L. Miclot, Chair
J. Patrick Mackin
Kevin C. O’Boyle
Elizabeth H. Weatherman
171
Executive Compensation Tables and Narratives
Summary Compensation Information
The table below provides summary information concerning all compensation awarded to, earned by, or paid to the individuals that
served as our principal executive officer or principal financial officer during the fiscal year ended December 30, 2018 and other
named executive officers for each of the last three fiscal years of which they served as an executive officer.
SUMMARY COMPENSATION TABLE – 2018
Year
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
Salary(1)
($)
957,008
945,792
905,095
463,154
440,146
409,119
407,376
395,200
384,000
292,308
Bonus(2)
($)
Stock
awards(3)
($)
— 2,720,153
— 2,592,818
— 2,003,654
664,071
—
608,630
—
449,375
—
256,900
—
268,793
—
214,970
—
445,965
200,000
Option
awards(4)
($)
1,413,445
1,346,571
2,004,824
345,061
316,095
449,628
133,492
139,585
215,092
470,431
Non-equity
incentive plan
compensation(5)
($)
1,064,909
—
1,435,928
337,966
—
418,650
231,316
—
289,893
237,760
All other
compen-
sation(6)
($)
220,932
261,593
264,272
16,606
16,800
17,430
1,543,129
284,536
275,834
243,412
Total
($)
6,376,447
5,146,774
6,613,773
1,826,858
1,381,671
1,744,202
2,572,213
1,088,114
1,379,789
1,889,876
2018
2017
2016
477,535
466,371
429,789
—
—
—
529,817
556,978
432,510
275,303
289,276
432,765
330,556
84,718
376,693
17,000
16,800
16,600
1,630,211
1,414,143
1,688,357
Name and principal position
Robert J. Palmisano
President and Chief Executive
Officer and Executive Director
Lance A. Berry
Executive Vice President, Chief
Financial and Operations Officer
Peter S. Cooke(7)
President, Emerging Markets,
Australia and Japan
Andrew C. Morton(8)
Senior Vice President and Chief
Human Resources Officer
Kevin D. Cordell
Executive Vice President, Chief
Global Commercial Officer
(1) Five percent of Mr. Palmisano’s annual base salary was allocated to his service as an executive director and member of our board of directors.
(2) We generally do not pay any discretionary bonuses or bonuses that are subjectively determined and did not pay any such bonuses to any
named executive officers in 2018, other than a sign-on bonus paid to Mr. Morton as part of his offer package. Annual cash incentive bonus
payouts based on performance against pre-established performance goals under our performance incentive plan are reported in the “Non-
equity incentive plan compensation” column.
(3) Amounts reported represent the aggregate grant date fair value for RSU and PSU awards for 2018 and 2017 and RSU awards for 2016, in
each case computed in accordance with FASB ASC Topic 718. However, Mr. Morton only received RSU awards in 2018. The grant date fair
value is determined based on the per share closing sale price of our ordinary shares on the grant date. Amounts reported for each named
executive officer and each award for 2018 are set forth in the “Grants of Plan-Based Awards - 2018” table in the “Grant Date Fair Value of
Stock and Option Awards” column. Set forth below is the 2018 grant date fair value of PSU awards assuming maximum levels of
performance. The maximum value is calculated using the number of shares reflected in the “Maximum” column of the “Estimated Future
Payouts Under Equity Incentive Plan Awards” section of the “Grants of Plan-Based Awards - 2018” table and the closing price of our ordinary
shares on July 24, 2018, the grant date, of $24.49, as reported by Nasdaq Global Select Market.
Mr. Palmisano
Mr. Berry
Mr. Cooke
Mr. Morton
Mr. Cordell
Name
Grant Date Fair Value at
Maximum Levels of
Performance
($)
2,720,153
664,071
256,900
—
529,817
(4) Amounts reported represent the aggregate grant date fair value for option awards granted to each named executive officer computed in
accordance with FASB ASC Topic 718. The grant date fair value is determined based on our Black-Scholes option pricing model. The table
below sets forth the specific assumptions used in the valuation of each such option award:
Grant date
07/24/2018
03/26/2018
07/25/2017
07/19/2016
Grant date fair
value per share ($)
9.49
7.23
9.80
7.40
Risk free
interest rate
2.750%
2.625%
1.875%
1.125%
Expected life
6.66 years
6.10 years
6.10 years
6.08 years
Expected volatility
32.40%
32.50%
32.50%
34.00%
Expected
dividend yield
—
—
—
—
172
(5) Amounts reported represent payouts under our performance incentive plan and for each year reflect the amounts earned for that year but paid
during the following year.
(6) Amounts reported in this column for 2018 are described under “-All Other Compensation for 2018 - Supplemental.”
(7) A portion of Mr. Cooke’s other compensation was paid in British Pounds (GBP). The foreign currency exchange rate of 1.3362 U.S. dollars
for 1 GBP, which reflects an average conversion rate for 2018, was used to calculate this portion of his other compensation for 2018.
(8) Mr. Morton was appointed our Senior Vice President and Chief Human Resources Officer effective March 26, 2018 and was not a named
(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)
Agreements with Robert J. Palmisano. Effective October 1, 2015, we entered into a service agreement and one of our subsidiaries
entered into an employment agreement with Robert J. Palmisano, our President and Chief Executive Officer.
The service agreement deals with certain Dutch law matters relating to Mr. Palmisano’s role as an executive director. Under the
terms of the service agreement, we have allocated a portion of Mr. Palmisano’s annual base salary to his service as an executive
director, which amounts are paid after deduction of applicable withholdings for taxes and social security contributions. In addition,
under the terms of the service agreement, we have agreed to provide Mr. Palmisano with indemnification and director and officer
liability insurance, on terms and conditions that are at least as favorable to Mr. Palmisano as those then provided to any other current
or former director or executive officer of our company or any of our affiliates.
The employment agreement provides that during the term of the agreement, Mr. Palmisano will serve as President and Chief
Executive Officer of our company and each principal operating subsidiary and will report to our Chairman and board of directors.
During the term, we agreed to nominate Mr. Palmisano for election as an executive director and member of our board of directors at
each annual general meeting of shareholders. The employment agreement expires on December 31, 2019, subject to earlier
termination under certain circumstances. On October 1, 2018 and on each anniversary thereafter, the term will automatically extend
for an additional one-year period, unless at least 30 days prior to such date, either party gives notice of non-extension to the other.
With respect to compensation, the employment agreement established an annual base salary for Mr. Palmisano and provides that our
board of directors will review his compensation at least annually for any increase. The employment agreement acknowledges that a
certain percentage of Mr. Palmisano’s base salary will be paid by Wright Medical Group N.V. in consideration for his services as an
executive director under the service agreement described above. The employment agreement provides that Mr. Palmisano is eligible
to receive an annual performance incentive bonus depending on whether, and to what extent, certain performance goals established
by the compensation committee for such year have been achieved. The amount of the performance incentive bonus payable to
Mr. Palmisano will be targeted at 100% of his annual base salary and will not exceed 200% of his annual base salary. The
employment agreement provides that Mr. Palmisano will receive an annual equity grant equal to 300% of his annual base salary. In
addition, the employment agreement provides that Mr. Palmisano is eligible to participate in the fringe benefit programs, including
those for medical and disability insurance and retirement benefits that we generally make available to our executive officers from
time to time. During the term, Mr. Palmisano will be reimbursed for up to $1,000 for personal insurance premiums, other than for
insurance coverage that pays for medical, prescription drug, dental, vision, or other medical care expenses. In addition, he may
elect, in accordance with our cafeteria plan rules, not to participate in the medical and disability insurance programs provided by us,
in which case, we will pay him up to $900 per month (or such greater amount that we would otherwise pay for medical and
disability coverage for him and his spouse under our benefits programs). Mr. Palmisano is also entitled to receive reimbursement for
up to $15,000 for financial and tax planning and tax preparation, and an annual physical examination at our expense. The
employment agreement also provides for a monthly allowance of $7,500 for housing and automobile expenses, and Mr. Palmisano
will be reimbursed for reasonable travel expenses between Memphis, Tennessee and his residences. To the extent that these
reimbursements are not deductible by Mr. Palmisano for income tax purposes, such amounts will be “grossed-up” for income tax
purposes so that the reimbursed items will be received net of any deduction for income and payroll taxes. The employment
agreement contains severance provisions as described in more detail under “-Potential Payments Upon a Termination or Change in
Control.” We have guaranteed the obligations of our subsidiary under Mr. Palmisano’s employment agreement.
Mr. Palmisano and one of our subsidiaries also entered into a confidentiality, non-competition, non-solicitation and intellectual
property rights agreement, pursuant to which Mr. Palmisano agreed to certain covenants that impose obligations on him regarding
confidentiality of information, transfer of inventions, non-solicitation of employees, customers and suppliers, and non-competition
with our business.
Agreements with Other Named Executive Officers. Each of the other named executive officers also is a party to a confidentiality,
non-competition, non-solicitation and intellectual property rights agreement with us, the material terms of which are substantially
similar to Mr. Palmisano’s agreement, as described above. In addition, through one of our subsidiaries, we have entered into
separation pay agreements with our named executive officers who are currently executive officers, other than Mr. Palmisano, which
agreements are described in more detail under “-Potential Payments Upon a Termination or Change in Control.”
173
Promotion Offer Letters with Lance A. Berry and Kevin D. Cordell. Effective January 2019, Lance A. Berry was promoted to
Executive Vice President, Chief Financial and Operations Officer, and Kevin D. Cordell was promoted to Executive Vice President,
Chief Global Commercial Officer. In connection with these promotions, in December 2018, we entered into offer letters with each of
these officers pursuant to which we agreed to pay him an annual base salary of $515,000, provide a target annual incentive
opportunity equal to 75%, in the case of Mr. Berry, and 70%, in the case of Mr. Cordell, of his annual base salary, and a target long-
term incentive opportunity equal to 275%, in the case of Mr. Berry, and 225%, in the case of Mr. Cordell, of his annual base salary.
Agreements with Peter S. Cooke. In the beginning of 2016, as part of our legacy Tornier merger integration efforts, we asked Peter S.
Cooke, our then President, International to relocate his family to the United Kingdom. Despite his initial hesitation to do so,
Mr. Cooke agreed. To incentivize him to relocate, we entered into a retention letter agreement with him under which we agreed to
provide him certain expat relocation and temporary assignment benefits customarily provided to executives in such situations. We
also agreed to pay him a $1.2 million retention payment on the second anniversary of his relocation, subject to his continuing
employment through such date and other specified terms and conditions. This retention payment was made in June 2018 and was
paid in lieu of any future change in control or severance payment Mr. Cooke otherwise would be entitled to receive under his
separation pay agreement. In May 2018, we entered into a letter agreement with Mr. Cooke extending his expat relocation and
temporary assignment benefits through December 31, 2018, which are described in more detail under “-All Other Compensation for
2018-Supplemental.” Effective January 2019, Mr. Cooke assumed the position of President, Emerging Markets, Australia and
Japan, and in connection therewith, we entered into an offer letter with him pursuant to which we agreed to keep his base salary the
same for two years and his target annual incentive opportunity and target long-term incentive opportunity the same for 2019. We
also agreed to provide him standard benefits for executives of our Australian subsidiary, including an AUD $20,000 car allowance.
Offer Letter with Andrew C. Morton. In January 2018, we entered into an offer letter with Mr. Morton pursuant to which we agreed
to provide him certain benefits to encourage him to accept an offer of employment with us, including a $200,000 sign-on bonus, full-
year (as opposed to prorated) annual incentive bonus for 2018, if earned, a $30,000 housing and travel allowance, and relocation
benefits. The sign-on bonus and relocation benefits must be paid back by Mr. Morton if he voluntarily terminates his employment
with Wright prior to the one-year anniversary of his hire date and 50% of the sign-on bonus must be paid if he voluntarily terminates
his employment within years one and two of his hire date.
Indemnification Agreements. We have entered into indemnification agreements with all of our named executive officers. The
indemnification agreements are governed by the laws of the State of Delaware (USA) and provide, among other things, for
indemnification to the fullest extent permitted by law and our articles of association against any and all expenses (including
attorneys’ fees) and liabilities, judgments, fines and amounts paid in settlement that are paid or incurred by the executive or on his or
her behalf in connection with such action, suit or proceeding. We will be obligated to pay these amounts only if the executive acted
in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company. The
indemnification agreements provide that the executive will not be indemnified and expenses advanced with respect to an action, suit
or proceeding initiated by the executive unless (i) so authorized or consented to by our board of directors or the company has joined
in such action, suit or proceeding or (ii) the action, suit or proceeding is one to enforce the executive’s rights under the
indemnification agreement. The company’s indemnification and expense advance obligations are subject to the condition that an
appropriate person or body not party to the particular action, suit or proceeding shall not have determined that the executive is not
permitted to be indemnified under applicable law. The indemnification agreements also set forth procedures that apply in the event
an executive requests indemnification or an expense advance.
All Other Compensation for 2018 - Supplemental. The table below provides information concerning amounts reported in the “All
other compensation” column of the Summary Compensation Table for 2018 with respect to each named executive officer.
Additional detail on these amounts are provided below the table.
Retire-
ment
benefits
$
11,000
10,606
Retention
Payment
$
—
—
— 1,226,112
—
—
10,462
11,000
Housing/
car
allowance
$
90,000
—
259,759
—
—
Commu-
ting
expenses
$
34,908
—
—
—
—
Relocation
benefits
$
—
—
—
153,205
—
Financial
and tax
planning
$
5,000
6,000
—
—
6,000
Insurance
premium
$
10,800
—
—
—
—
Gross-up
payments
$
69,224
—
—
79,745
—
Office
allowance
$
—
—
36,000
—
—
COLA
$
—
—
21,258
—
—
Total
other
compen-
sation
$
220,932
16,606
1,543,129
243,412
17,000
Name
Mr. Palmisano
Mr. Berry
Mr. Cooke
Mr. Morton
Mr. Cordell
Retirement Benefits. Under our 401(k) plan, participants, including our named executive officers, may voluntarily request that we
reduce his or her pre-tax compensation and contribute such amounts to the 401(k) plan’s trust up to certain statutory maximums. We
contribute matching contributions in an amount equal to 3% of the participant’s eligible earnings for a pay period, or if less, 50% of
the participant’s pre-tax 401(k) contributions (other than catch-up contributions) for that pay period. We do not provide any
nonqualified defined contribution or other deferred compensation plans for our executives.
174
Relocation, Assignment and Expat Benefits. We provide our executive officers with customary relocation assistance benefits if they
relocate at our request. For international assignments, we also provide customary assignment and expat benefits that are consistent
with local policies and practices. Tax protection may be provided in these situations to avoid an executive being penalized from a
tax perspective for a relocation or expat service on behalf of our company. During 2018, Mr. Morton received relocation benefits,
including gross-up payments. In addition, as described above, during 2016, we asked Mr. Cooke, President, International, to
relocate his family to the United Kingdom. To compensate and incentivize Mr. Cooke to relocate, we agreed to provide him
standard and customary relocation, temporary assignment and expat benefits. These include cost-of-living adjustments, medical
coverage, housing allowance, educational tuition fees and related transportation costs, car lease, reimbursement of certain relocation
expenses and tax and tax equalization benefits. Also as previously mentioned, in 2018, we paid Mr. Cooke a $1.2 million retention
payment pursuant to the terms of his June 2016 letter agreement, which amount is reflected in the “All other compensation” column
of the Summary Compensation Table for 2018.
Perquisites and Other Benefits. We provide our executive officers with modest perquisites to attract and retain them. The
perquisites provided to our named executive officers during 2018 included $1,000 for certain personal insurance premiums and up to
$5,000 reimbursement for financial and tax planning and tax preparation. In addition, we are required to provide our CEO
additional perquisites under the terms of his employment agreement, which we agreed upon at the time of his initial hiring by legacy
Wright to attract him to our company. These additional perquisites include additional reimbursement for financial and tax planning
and tax preparation, a monthly allowance of $7,500 for housing and automobile expenses, reimbursement for reasonable travel
expenses between Memphis, Tennessee and his residences, and an annual physical examination. To the extent that the
reimbursements for his housing and automobile expenses and travel expenses between Memphis, Tennessee and his residences are
not deductible by Mr. Palmisano for income tax purposes, such amounts are “grossed-up” for income tax purposes so that the
reimbursed items will be received net of any deduction for income and payroll taxes. We agreed to this gross-up provision at the
time of his initial hiring by legacy Wright to attract him to our company and ease the financial burden on him to travel between
Memphis, Tennessee and his residences.
To encourage Mr. Morton to accept an offer of employment with us, we agreed in his offer letter to provide him a $200,000 sign-on
bonus, full-year (as opposed to prorated) annual incentive bonus for 2018, if earned, a $30,000 housing and travel allowance, and
relocation benefits. The sign-on bonus and relocation benefits must be paid back by Mr. Morton if he voluntarily terminates his
employment with Wright prior to the one-year anniversary of his hire date and 50% of the sign-on bonus must be paid if he
voluntarily terminates his employment within years one and two of his hire date.
175
Grants of Plan-Based Awards
The table below provides information concerning grants of plan-based awards to each of our named executive officers during the
fiscal year ended December 30, 2018. Non-equity incentive plan awards were granted to our named executive officers under our
performance incentive plan, the material terms of which are described under “-Compensation Discussion and Analysis.” Stock
awards (in the form of RSU awards and PSU awards) and option awards were granted under the Wright Medical Group N.V. 2017
Equity and Incentive Plan (2017 plan). The material terms of these awards and the material plan provisions relevant to these awards
are described under “-Compensation Discussion and Analysis,” or in the notes to the table below or the narrative following the table
below.
GRANTS OF PLAN-BASED AWARDS – 2018
Estimated future payouts
under non-equity incentive
plan awards(1)
Estimated future payouts under
non-equity incentive plan
awards(4)
Grant
date
N/A
7/24/18
7/24/18
7/24/18
N/A
7/24/18
7/24/18
7/24/18
N/A
7/24/18
7/24/18
7/24/18
N/A
3/26/18
3/26/18
N/A
7/24/18
7/24/18
7/24/18
Board
approval
date
2/14/18
7/24/18
7/24/18
7/24/18
2/14/18
7/24/18
7/24/18
7/24/18
2/14/18
7/24/18
7/24/18
7/24/18
2/14/18
2/14/18
2/14/18
2/14/18
7/24/18
7/24/18
7/24/18
Thresh-
old(2)($)
Target
($)
Maxi-
mum(3)($)
Thres-
hold (#)
Target
(#)
Maxi-
mum (#)
479,257
—
—
—
152,100
—
—
—
112,029
—
—
—
100,000
—
—
144,020
—
—
—
958,514
—
—
—
304,200
—
—
—
224,057
—
—
—
200,000
—
—
288,041
—
—
—
—
1,917,028
—
—
— 27,768
—
—
608,400
—
—
—
448,114
—
—
—
400,000
—
—
576,082
—
—
—
—
—
6,779
—
—
—
2,623
—
—
—
—
—
—
5,409
—
—
—
55,536
—
—
—
13,558
—
—
—
5,245
—
—
—
—
—
—
111,072
—
—
—
27,116
—
—
—
10,490
—
—
—
—
—
—
10,817
—
—
—
21,634
—
All other
stock
awards:
number of
shares of
stock or
units(5) (#)
—
55,536
—
—
—
13,558
—
—
—
5,245
—
—
—
22,707
—
—
10,817
—
—
All other
option
awards:
number of
securities
underlying
options(6)
(#)
—
—
—
149,008
Exercise
or base
price of
option
awards
($/Sh)
Grant
date fair
value
stock and
option
awards(7)(8)
($)
—
—
— 1,360,077
— 1,360,077
1,413,445
24.49
—
—
—
36,377
—
—
—
14,073
—
—
65,062
—
—
—
29,023
—
—
—
24.49
—
—
—
24.49
—
—
19.64
—
—
—
24.49
—
332,035
332,035
345,061
—
128,450
128,450
133,492
—
445,965
470,431
—
264,908
264,908
275,303
Name
Robert J. Palmisano
Cash incentive award
RSU award
PSU award
Stock option
Lance A. Berry
Cash incentive award
RSU award
PSU award
Stock option
Peter S. Cooke
Cash incentive award
RSU award
PSU award
Stock option
Andrew C. Morton
Cash incentive award
RSU award
Stock option
Kevin D. Cordell
Cash incentive award
RSU award
PSU award
Stock option
(1) Amounts reported represent estimated future payouts under our performance incentive plan. Actual payouts under these performance
incentive plans are reflected in the “Non-equity incentive compensation” column of the Summary Compensation Table.
(2) Threshold amounts for awards payable under the performance incentive plan assume the satisfaction of the threshold level of the lowest
weighted corporate performance goal.
(3) Maximum amounts reflect payouts at a maximum rate of 200% of target for our performance incentive plan.
(4) Amounts reported represent PSU awards granted under our 2017 plan. The PSU awards have a three-year performance period from July 2,
2018 to June 25, 2021. Information regarding the PSU awards is set forth within the “Compensation Discussion and Analysis” under “Long-
Term Incentives-PSU Awards”.
(5) Amounts reported represent RSU awards granted under our 2017 plan. The RSU awards vest and become issuable over time, with the last
tranche becoming issuable on August 15, 2022, in each case, so long as the individual remains an employee or consultant of our company.
(6) Amounts reported represent option awards granted under our 2017 plan. All options have a ten-year term and vest over a four-year period,
with 25% of the underlying shares vesting on the one-year anniversary of the grant date and the remaining 75% of the underlying shares
vesting over a three-year period thereafter in 36 as nearly equal as possible monthly installments, in each case, so long as the individual
remains an employee or consultant of our company.
(7) See notes (3) and (4) to the Summary Compensation Table for a discussion of the assumptions made in calculating the grant date fair value of
stock and option awards.
(8) Amounts reported represent the grant date fair value of PSU awards, assuming target performance, based on the closing price of our ordinary
shares, as reported by the Nasdaq Global Select Market, on July 24, 2018, the date of grant, of $24.49. These amounts are reflected in the
“Stock Awards” column of the Summary Compensation Table.
176
Wright Medical Group N.V. Performance Incentive Plan. Under the terms of the Wright Medical Group N.V. Performance Incentive
Plan, our named executive officers, as well as other employees, may earn cash incentive bonuses based on our financial performance
for 2018. The material terms of the plan are described in detail under “-Compensation Discussion and Analysis-Short-Term Cash
Incentive Compensation.”
Wright Medical Group N.V. 2017 Equity and Incentive Plan. At an annual general meeting of shareholders held on June 23, 2017,
our shareholders approved the Wright Medical Group N.V. 2017 Equity and Incentive Plan, which permits the grant of a wide
variety of stock-based and cash-based awards, including non-statutory and incentive stock options, stock appreciation rights,
restricted stock awards, restricted stock units, deferred stock units, performance awards, annual performance cash awards, non-
employee director awards, other cash-based awards and other stock-based awards. Our 2017 plan is designed to assist us in
attracting and retaining employees, directors and consultants, provide an additional incentive to such individuals to work to increase
the value of our ordinary shares, and provide such individuals with a stake in our future which corresponds to the stake of our
shareholders.
The 2017 plan reserves for issuance a number of ordinary shares equal to the sum of (i) 5,000,000 shares, (ii) the number of ordinary
shares available for grant under the Wright Medical Group N.V. Amended and Restated 2010 Incentive Plan as of June 23, 2017 (not
including issued or outstanding shares granted pursuant to options under such plan as of such date) which was 1,329,648, and
(iii) the number of ordinary shares forfeited upon the expiration, cancellation, forfeiture, cash settlement, or other termination
following June 23, 2017 under our 2010 plan which was 6,405,992. As of December 30, 2018, 2,297,162 ordinary shares remained
available for future grant of equity awards under the 2017 plan, assuming maximum PSU payouts.
Ordinary shares that are issued under the 2017 plan or that are subject to outstanding awards will be applied to reduce the maximum
(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:30)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:75)(cid:82)wever,
that the full number of ordinary shares subject to a stock-settled SAR or other stock-based award will be counted against the
ordinary shares authorized for issuance under the 2017 plan, regardless of the number of ordinary shares actually issued upon
settlement of such SAR or other stock-based award. Furthermore, any ordinary shares withheld to satisfy tax withholding
obligations on awards issued under the 2017 plan, any ordinary shares withheld to pay the exercise price or grant price of awards
under the 2017 plan and any ordinary shares not issued or delivered as a result of the “net exercise” of an outstanding option or
settlement of a SAR in shares will be counted against the ordinary shares authorized for issuance under the 2017 plan and will not be
available again for grant under the 2017 plan. Any ordinary shares subject to awards settled in cash will again be available for
issuance under the 2017 plan. Any ordinary shares repurchased by us on the open market using the proceeds from the exercise of an
award will not increase the number of ordinary shares available for future grant of awards. Any ordinary shares related to awards
granted under the 2017 plan, and ordinary shares related to awards granted under the 2010 plan, that terminate by expiration,
forfeiture, cancellation or otherwise without the issuance of the ordinary shares, will be available again for grant under the 2017 plan
and correspondingly increase the total number of ordinary shares available for issuance under the 2017 plan. To the extent permitted
by applicable law, ordinary shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in
any form of combination by us will not be counted against ordinary shares available for issuance pursuant to the 2017 plan. The
ordinary shares available for issuance under the 2017 plan may be authorized and unissued ordinary shares or ordinary shares which
have been reacquired by us.
Under the terms of the 2017 plan, stock options must be granted with a per share exercise price equal to at least 100% of the fair
market value of an ordinary share on the grant date. For purposes of the plan, the fair market value of an ordinary share is the
closing sale price of our ordinary shares, as reported by the Nasdaq Global Select Market. We set the per share exercise price of all
stock options granted under the plan at an amount at least equal to 100% of the fair market value of our ordinary shares on the grant
date. Options become exercisable at such times and in such installments as may be determined by our board of directors, provided
that most options may not be exercisable after 10 years from their grant date. The vesting of our stock options is generally time-
based and is as follows: 25% of the shares underlying the stock option vest on the one-year anniversary of the grant date and the
remaining 75% of the underlying shares vest over a three-year period thereafter in 36 as nearly equal as possible monthly
installments, in each case so long as the individual remains an employee or consultant of our company.
Currently, optionees must pay the exercise price of stock options in cash, except that the compensation committee may allow
payment to be made (in whole or in part) by a “cashless exercise” effected through an unrelated broker through a sale on the open
market, by a “net exercise” of the option, or by a combination of such methods. In the case of a “net exercise” of an option, we will
not require a payment of the exercise price of the option from the grantee but will reduce the number of our ordinary shares issued
upon the exercise by the largest number of whole shares that has a fair market value that does not exceed the aggregate exercise
price for the shares exercised under this method.
177
The 2017 plan provides for certain default rules in the event of a termination of a participant’s employment or other service. These
default rules may be modified in an award agreement, any individual agreement between a participant and us or any plan or policy
of our company applicable to the participant. If a participant’s employment or other service with us is terminated for cause, then all
outstanding awards held by such participant will be immediately terminated and forfeited. In the event a participant’s employment
or other service with us is terminated by reason of death or disability, then:
(cid:129) All outstanding stock options and SARs held by the participant will, to the extent exercisable, remain exercisable for a
period of one year after such termination, but not later than the date the stock options or SARs expire and all
(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:36)(cid:53)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
if the exercise of a stock option that is exercisable is prevented by securities laws or other restrictions, the stock option
will remain exercisable until 30 days after the date such exercise first would no longer be prevented by such
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:86)(cid:30)
(cid:129) All outstanding unvested restr(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:129) All outstanding but unvested RSUs, performance awards, annual performance cash awards, other cash-based awards
and other stock-based awards held by the participant will terminate and be forfeited. However, with respect to any
awards that vest based on the achievement of performance goals, if a participant’s employment or other service with
us is terminated prior to the end of the performance period of such award, but after the conclusion of a portion of the
performance period (but in no event less than one year), the committee may cause shares to be delivered or payment
made with respect to the participant’s award, but only if otherwise earned for the entire performance period and only
with respect to the portion of the applicable performance period completed at the date of such event, with proration
based on the number of months or years that the participant was employed or performed services during the
performance period.
In the event a participant’s employment or other service with us is terminated by reason other than for cause, death or disability,
then:
(cid:129) All outstanding stock options and SARs held by the participant that then are exercisable will remain exercisable for
three months after the date of such termination, but will not be exercisable later than the date the stock options or
(cid:54)(cid:36)(cid:53)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:36)(cid:53)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)
provided, however, that if the exercise of a stock option that is exercisable is prevented by securities laws or other
restrictions, the stock option will remain exercisable until 30 days after the date such exercise first would no longer be
prevented by such provisions, but in any event no later than the d(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:86)(cid:30)(cid:3)
(cid:129) (cid:36)(cid:79)(cid:79)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:129) All outstanding unvested RSUs, performance awards, annual performance cash awards, other cash-based awards and
other stock-based awards will be terminated and forfeited. However, with respect to any awards that vest based on the
achievement of performance goals, if a participant’s employment or other service with us is terminated prior to the end
of the performance period of such award, but after the conclusion of a portion of the performance period (but in no
event less than one year), the committee may, in its sole discretion, cause shares to be delivered or payment made with
respect to the participant’s award, but only if otherwise earned for the entire performance period and only with respect
to the portion of the applicable performance period completed at the date of such event, with proration based on the
number of months or years that the participant was employed or performed services during the performance period.
Upon a participant’s termination of employment or other service with us, the committee may, in its discretion (which may be
exercised at any time on or after the grant date, including following such termination) cause stock options or SARs (or any part
thereof) held by such participant as of the effective date of such termination to become or continue to become exercisable or remain
exercisable following such termination of employment or service, and restricted stock, RSUs, performance awards, annual
performance cash awards, other cash-based awards and other stock-based awards held by such participant as of the effective date of
such termination to vest or become free of restrictions and conditions to payment, as the case may be, following such termination of
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:30)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:11)(cid:68)(cid:12)(cid:3)(cid:81)(cid:82)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85) SAR
(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)nt payable pursuant to an award under
the 2017 plan that is intended to qualify as “performance-based compensation” under Code Section 162(m) upwards (unless the
applicable tax or securities laws change to permit committee discretion to alter the governing performance measures without
obtaining shareholder approval, in which case the committee will have sole discretion to make such changes without obtaining
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)ward will not be effective
without the consent of the affected participant, except to the extent the committee is authorized by the 2017 plan to take such action.
178
If a participant is determined by the committee to have taken any action while providing services to us or within one year after
termination of such services, that would constitute “cause” or an “adverse action,” as such terms are defined in the 2017 plan, all
rights of the participant under the 2017 plan and any agreements evidencing an award then held by the participant will terminate and
be forfeited. The committee has the authority to rescind the exercise, vesting, issuance or payment in respect of any awards of the
participant that were exercised, vested, issued or paid, and require the participant to pay to us, within 10 days of receipt of notice,
any amount received or the amount gained as a result of any such rescinded exercise, vesting, issuance or payment. We may defer
the exercise of any stock option or SAR for up to six months after receipt of notice of exercise in order for the committee to
determine whether “cause” or “adverse action” exists. We are entitled to withhold and deduct future wages to collect any amount
due.
All awards also are subject to any required automatic clawback, forfeiture or other penalties pursuant to any applicable law,
including without limitation under Section 304 of the Sarbanes-Oxley Act of 2002. In addition, all awards are subject to clawback,
forfeiture or other penalties pursuant to any policy adopted by us and such clawback, forfeiture and/or penalty conditions or
provisions as determined by the committee. In 2017, we adopted a clawback policy that provides for the clawback of certain
incentive compensation in the event of certain financial accounting restatements.
As a condition of receiving awards, recipients, including our named executive officers, must agree to pay all applicable tax
withholding obligations in connection with the awards. In the case of our RSU and PSU award grants, recipients upon acceptance of
the award may provide a “sell-to-cover” instruction pursuant to which the executive gives instructions to, and authorizes, a
brokerage firm to sell on the executive’s behalf that number of ordinary shares issuable upon vesting of the award as determined to
be appropriate to generate cash proceeds sufficient to satisfy any applicable tax withholding obligations.
As described in more detail under “-Potential Payments Upon Termination or Change in Control,” if a change in control of our
company occurs, then under certain circumstances, the award may vest or lapse.
Outstanding Equity Awards at Fiscal Year-End
The table below provides information regarding unexercised options awards, unvested RSU awards and unvested PSU awards for
each of our named executive officers that remained outstanding at our fiscal year-end, December 30, 2018.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END – 2018
Option awards
Stock awards
Name
Robert J.
Palmisano
Stock options
Number of
securities
underlying
unexercised
options
exercisable
(#)
Number of
securities
underlying
unexercised
option
unexercisable(1)
(#)
Option
exercise
price ($)
Option
expiration
date(2)
Number of
shares or
units of
stock that
have not
vested(3)
(#)
Market
value of
shares or
units that
have not
vested(4)
($)
Equity
incentive
plan
awards:
number of
unearned
shares, units
or other
rights that
have not
vested(5)
(#)
Equity
incentive
plan
awards:
market or
payout value
of unearned
shares, units
or other
rights that
have not
vested(6)
($)
628,849
4,112
145,500
9,771
144,625
7,939
129,462
662,834
163,621
48,630
—
—
—
—
—
—
—
—
175,349
107,455
88,743
149,008
15.55
17.70
20.75
22.55
23.93
30.14
29.06
20.62
21.24
27.86
24.49
09/17/2021
04/16/2022
05/09/2022
04/17/2023
05/14/2023
04/01/2024
05/13/2024
10/13/2025
07/19/2026
07/25/2027
07/24/2028
RSU awards
PSU awards
210,020
5,567,630
148,602
3,939,439
179
Option awards
Stock awards
Number of
securities
underlying
unexercised
options
exercisable
(#)
Number of
securities
underlying
unexercised
option
unexercisable(1)
(#)
Option
exercise
price ($)
6,575
9,635
12,528
1,924
19,557
30,602
18,262
92,917
36,695
11,415
—
18,709
4,048
2,420
5,040
—
—
—
—
—
—
—
—
24,582
24,100
20,832
36,377
—
13,572
11,529
9,200
14,073
Equity
incentive
plan
awards:
number of
unearned
shares, units
or other
rights that
have not
vested(5)
(#)
Equity
incentive
plan
awards:
market or
payout value
of unearned
shares, units
or other
rights that
have not
vested(6)
($)
Number of
shares or
units of
stock that
have not
vested(3)
(#)
Market
value of
shares or
units that
have not
vested(4)
($)
Option
expiration
date(2)
05/13/2019
05/13/2020
05/11/2021
04/16/2022
05/09/2022
05/14/2023
05/13/2024
10/13/2025
07/19/2026
07/25/2027
07/24/2028
15.01
17.82
15.04
17.70
20.75
23.93
29.06
20.62
21.24
27.86
24.49
42,482
1,126,198
35,404
938,560
29.06
20.62
21.24
27.86
24.49
05/13/2024
10/13/2025
07/19/2026
07/25/2027
07/24/2028
19,529
517,714
14,893
394,813
—
65,062
19.64
03/26/2028
22,707
601,963
34,626
53,095
35,319
10,446
—
—
14,047
23,196
19,065
29,023
30.08
20.62
21.24
27.86
24.49
09/26/2024
10/13/2025
07/19/2026
07/25/2027
07/24/2028
34,298
909,240
30,809
816,747
Name
Lance A. Berry
Stock options
RSU awards
PSU awards
Peter S. Cooke
Stock options
RSU awards
PSU awards
Andrew C. Morton
Stock options
RSU awards
Kevin D. Cordell
Stock options
RSU awards
PSU awards
(1) All stock options vest over a four-year period, with 25% of the underlying shares vesting on the one-year anniversary of the grant date and the
remaining 75% of the underlying shares vesting over a three-year period thereafter in 36 as nearly equal as possible monthly installments, in
each case so long as the individual remains an employee or consultant of our company. If a change in control of our company occurs,
outstanding options may become immediately exercisable in full and remain exercisable for the remainder of their terms, depending upon the
plan under which the options were granted and, in the case of options granted under the 2017 plan, whether the option is continued, assumed
or substituted by the successor entity and whether the executive experiences a termination event in connection with or within two years
following the change in control. For more information, see the discussion under “-Potential Payments Upon a Termination or Change in
Control.”
(2) All option awards have a 10-year term, but may terminate earlier if the recipient’s employment or service relationship with our company
terminates.
(3) The release dates and release amounts for the unvested RSU awards are as follows:
Name
Mr. Palmisano
Mr. Berry
Mr. Cooke
Mr. Morton
Mr. Cordell
05/15/2019
—
—
—
5,676
—
06/01/2019
96,000
15,441
8,135
—
10,893
08/15/2019
25,517
6,120
2,517
—
5,203
05/15/2020
—
—
—
5,677
—
06/01/2020
23,584
5,290
2,531
—
5,091
08/15/2020
25,517
6,121
2,517
—
5,203
05/15/2021
—
—
—
5,677
—
08/15/2021
25,518
6,120
2,517
—
5,203
05/15/2022
—
—
—
5,677
—
08/15/2022
13,884
3,390
1,312
—
2,705
180
If a change in control of our company occurs, outstanding unvested RSU awards may become immediately vested in full, depending upon the
plan under which the stock awards were granted and, in the case of RSU awards granted under the 2017 plan, whether the award is continued,
assumed or substituted by the successor entity and whether the executive experiences a termination event in connection with or within two
years following the change in control. For more information, see the discussion under “-Potential Payments Upon a Termination or Change
in Control.”
(4) The market value of RSU awards that had not vested as of December 30, 2018 is based on the closing sale price of our ordinary shares, as
reported by the Nasdaq Global Select Market, on the last trading day of our fiscal year, December 28, 2018 ($26.51).
(5) Amounts reported represent the number of PSU awards that were in progress based on actual levels of performance. The 2017 PSU awards
will vest based on the achievement of the performance goal established for the June 26, 2017 to June 28, 2020 performance period and the
2018 PSU awards will vest based on the achievement of the performance goal established for the July 2, 2018 to June 25, 2021 performance
period. For information regarding the treatment of such awards upon a change in control of our company, see the discussion under “-Potential
Payments Upon a Termination or Change in Control.”
(6) Amounts reported represent the value of PSU awards that were in progress based on the closing sale price of our ordinary shares, as reported
by the Nasdaq Global Select Market, on the last trading day of our fiscal year, December 28, 2018 ($26.51).
Options Exercised and Stock Vested During Fiscal Year
The table below provides information regarding option awards that were exercised and stock awards that vested for each of our
named executive officers during the fiscal year ended December 30, 2018.
Name
Option awards(1)
Stock awards(2)
Number of shares
acquired on exercise
(#)
Value realized
on exercise
($)
Number of shares
acquired on vesting
(#)
Value realized on
vesting
($)
Robert J. Palmisano
Stock options
Restricted stock units
Lance A. Berry
Stock options
Restricted stock units
Peter S. Cooke
Stock options
Restricted stock units
Andrew C. Morton
Stock options
Restricted stock units
Kevin D. Cordell
Stock options
Restricted stock units
—
—
—
—
24,799
195,778
—
—
—
—
107,632
2,707,229
18,170
458,885
9,341
235,428
—
—
13,390
339,350
(1) The value realized on exercise represents the gross number of shares acquired on exercise multiplied by the market price of our ordinary
shares on the exercise date, as reported by the Nasdaq Global Select Market, less the per share exercise price.
(2) The value realized on vesting of the RSU awards held by each of the named executive represents the gross number of ordinary shares
acquired, multiplied by the closing sale price of our ordinary shares on the vesting date or the last trading day prior to the vesting date if the
vesting date was not a trading day, as reported by the Nasdaq Global Select Market.
Potential Payments Upon a Termination or Change in Control
Employment Agreement with Robert J. Palmisano. Effective October 1, 2015, Wright Medical Group, Inc., one of our subsidiaries,
entered into an employment agreement with Robert J. Palmisano, our President and Chief Executive Officer. Under the terms of our
employment agreement with Mr. Palmisano, in the event of a termination of his employment, the post-employment pay and benefits,
if any, to be received by him will vary according to the basis for his termination. We have guaranteed the obligations under the
employment agreement since our subsidiary, Wright Medical Group, Inc., is party to the agreement. The employment agreement
will continue until December 31, 2020, subject to earlier termination under certain circumstances, and on October 1, 2019, will
automatically renew for additional one-year periods unless we or Mr. Palmisano provides notice of non-extension of the agreement.
In the event that Mr. Palmisano’s employment is terminated for “cause” or he terminates his employment other than for “good
reason” (as such terms are defined in the employment agreement) or disability, we will have no obligations to him, other than
payment of accrued obligations. Accrued obligations include: (i) any accrued base salary (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)
181
(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:92)(cid:72)(cid:87)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)t for
(cid:68)(cid:81)(cid:92)(cid:3)(cid:88)(cid:81)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)ny time by reason of death or disability, his annual
target incentive payment for the year that includes the date of termination.
In the event of an involuntary termination of his employment, we will be required to provide him, in addition to his accrued
obligations: (i) a lump sum payment equal to two and one-(cid:75)(cid:68)(cid:79)(cid:73)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:29)(cid:3)(cid:11)(cid:68)(cid:12)(cid:3)(cid:75)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:68)(cid:85)(cid:92)(cid:30)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:11)(cid:69)(cid:12) his
(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:50)(cid:37)(cid:53)(cid:36)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:21) month(cid:86)(cid:30)(cid:3)
(iii) outplacement assistance for a period of 12 months, subject to termination if Mr. Palmisano accepts employment with another
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:21)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:83)(cid:75)(cid:92)(cid:86)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:68)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:20)(cid:21)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)s of
termination.
In the event of a termination of his employment due to death or disability, we will be required to provide him, in addition to his
accrued obligations, his annual target incentive bonus.
In the event of an involuntary termination of his employment in anticipation of or within a 24-month period following a “change in
control,” we will be required to provide him, in addition to his accrued obligations: (i) a lump sum payment equal to three times the
sum of: (a) his then current annual base s(cid:68)(cid:79)(cid:68)(cid:85)(cid:92)(cid:15)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:75)(cid:76)(cid:86)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:50)(cid:37)(cid:53)(cid:36)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)o
12 (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:82)(cid:88)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)ance for a period of 12 months, subject to termination if Mr. Palmisano accepts employment with
(cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:30)(cid:3) (cid:11)(cid:89)(cid:12) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:20)(cid:21)(cid:3) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:11)(cid:89)(cid:76)(cid:12) an annual physical examination within
12 months of termination.
Upon termination for any reason other than for cause, disability, or death, Mr. Palmisano must enter into a release of all claims
within 30 days after the date of termination before any payments will be made to him under the employment agreement, other than
accrued obligations. If he breaches the terms of the confidentiality, non-competition, non-solicitation, intellectual property rights
agreement, then our obligations to make payments or provide benefits will cease immediately and permanently, and he will be
required to repay an amount equal to 30% of the post-employment payments and benefits previously provided to him under the
employment agreement, with interest. The employment agreement provides for other clawback and forfeiture provisions, including
if we are required to restate our financial statements under certain circumstances. All payments under his employment agreement
will be net of applicable tax withholding obligations. The agreement also provides that if any severance payments or other payments
or benefits deemed made in connection with a future change in control are subject to the “golden parachute” excise tax under Code
Section 4999, the payments will be reduced to one dollar less than the amount that would subject him to the excise tax if the
reduction results in him receiving a greater amount on a net-after tax basis than would be received if he received the payments and
benefits and paid the excise tax.
Severance Pay Agreements with Other Named Executive Officers. Our subsidiary, Wright Medical Group, Inc., has entered into
separation pay agreements with our named executive officers, other than Mr. Palmisano. We have guaranteed the obligations under
these separation pay agreements. The separation pay agreements will continue until October 1, 2020 and, on October 1, 2019, will
automatically renew for additional one-year periods unless we or the executive provides notice of termination of the agreement.
Under the terms of the separation pay agreement, in the event that the executive is terminated for cause or the executive terminates
his employment other than for good reason or disability, we will have no obligations, other than payment of accrued obligations.
Accrued obligations include: (i) any accrued base salary through the date of termination(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:92)(cid:72)(cid:87)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:88)(cid:81)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:30)(cid:3)
and (v) only in the case of a termination at any time by reason of death or disability, an annual incentive target bonus for the year
that includes the date of termination, prorated for the portion of the year that the executive was employed.
In the event of an involuntary termination of the executive’s employment, other than for cause, we will be obligated to pay a
severance payment and accrued obligations and provide certain benefits to the executive. The severance payment will equal the sum
of (i) the executive’s then current annual base salary, plus (ii) an amount equal to his then current annual target bonus. Half of the
total severance payment amount will be payable at or within a reasonable time after the date of termination and the remaining half
will be payable in installments beginning six months after the date of termination, with a final installment to be made on or before
March 15 of the calendar year following the year of termination. In the event of an involuntary termination of the executive’s
employment in connection with a change in control, then his severance payment will equal two times the amount of his severance
payment as described above. Under the separation pay agreement, an involuntary termination of the executive’s employment will
occur if we terminate the executive’s employment other than for cause, disability, voluntary retirement, or death or if the executive
resigns for good reason, in each case as defined in the separation pay agreement.
In addition to a severance payment, the executive also will be entitled to receive the following benefits in the event of an involuntary
termination of his employment: (i) a pro rata portion of the executive’s annual cash incentive compensation award for the fiscal year
that includes the termination date, if earned pursuant to the terms thereof and at such time and in such manner as determined
pursuant to the terms thereof, less any payments thereof already made during such fiscal year (or, in the event of an involuntary
termination in connection with a change in control, a pro rata portion of the executive’s target annual cash incentive compensation
182
award for the fiscal year that includes the termination date, less any payments thereof already made during such fiscal year)(cid:30)(cid:3)
(ii) payment or reimbursement for the cost of COBRA continuation coverage for up to 12 months (18 months in the event of an
(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:88)(cid:81)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:12)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:82)(cid:88)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:11)(cid:87)(cid:90)(cid:82)(cid:3)years in
the event of an involuntary termination in connection with a change in control), subject to termination if the executive accepts
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:30)(cid:3) (cid:11)(cid:76)(cid:89)(cid:12)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:81)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:11)(cid:87)(cid:90)(cid:82)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:81)(cid:3)
(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:88)(cid:81)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:12)(cid:30)(cid:3)(cid:11)(cid:89)(cid:12) payment to continue insurance coverage equal to the executive’s
annual supplemental insurance premium benefit provided to him or her prior to the date of termination (twice the premium benefit in
(cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:81)(cid:3) (cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:88)(cid:81)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:12)(cid:30)(cid:3) (cid:11)(cid:89)(cid:76)(cid:12)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:81)(cid:81)ual physical examination within
12 (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:76)(cid:76)(cid:12)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:87)(cid:87)(cid:82)(cid:85)(cid:81)(cid:72)(cid:92)(cid:86)’ fees and expenses if any such fees or expenses are incurred to recover
benefits rightfully owed under the separation pay agreement.
In the event of a termination of an executive’s employment due to death or disability, we will be required to provide the executive, in
addition to his or her accrued obligations, a pro rata portion of his or her annual target incentive bonus.
Upon termination for any reason other than cause, disability, or death, the executive must enter into a release of all claims within
30 days after the date of termination before any payments will be made to the executive under the separation pay agreement, other
than accrued obligations. If the executive breaches the terms of the confidentiality, non-competition, non-solicitation, and
intellectual property rights agreement or the release, then our obligations to make payments or provide benefits will cease
immediately and permanently, and the executive will be required to repay an amount equal 90% of the payments and benefits
previously provided to the executive under the separation pay agreement, with interest. All payments under the separation pay
agreement will be net of applicable tax withholding obligations. The separation pay agreement provides that if any severance
payments or other payments or benefits deemed made in connection with a future change in control are subject to the “golden
parachute” excise tax under Code Section 4999, the payments will be reduced to one dollar less than the amount that would subject
the executive to the excise tax if the reduction results in the executive receiving a greater amount on a net-after tax basis than would
be received if the executive received the payments and benefits and paid the excise tax.
Retention Agreement with Mr. Cooke. As described earlier, in the beginning of 2016, as part of our merger integration efforts, we
asked Mr. Cooke, our President, International to relocate his family to the United Kingdom. Despite his initial hesitation to do so,
Mr. Cooke agreed. To incentivize him to relocate, we entered into a retention letter agreement with him under which we agreed to
provide him certain expat relocation and temporary assignment benefits customarily provided to executives in such situations. We
also agreed to pay him a $1.2 million retention payment on the second anniversary of his relocation, subject to his continuing
employment through such date and other specified terms and conditions. This retention payment was made in June 2018 and is in
lieu of any future change in control or severance payment Mr. Cooke otherwise would be entitled to receive under his separation pay
agreement.
Change in Control Provisions in Equity Plans. Our equity plans under which awards have been granted to our named executive
officers contain “change in control” provisions.
Under our current 2017 equity plan, a “change in control” means:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the acquisition (other than from us) by any person, entity or group, subject to certain exceptions, of 50% or more of
either our then-outstanding ordinary shares or the combined voting power of our then-outstanding ordinary shares or
the combined voting power of our then-outstanding capital stock entitled to vote generally in the ele(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)
the “continuity directors” (cid:70)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:30)(cid:3)
consummation of a reorganization, merger or consolidation, in each case, with respect to which persons who were our
shareholders immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in the election of directors of the then-
outstanding voting securities of the reorganized, merged, consolidated, or other surviving corporation (or its direct or
(cid:76)(cid:81)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:12)(cid:30)
(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:3)(cid:69)(cid:92)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)
the consummation of the sale of all or substantially all of our assets with respect to which persons who were our
shareholders immediately prior to such sale do not, immediately thereafter, own more than 50% of the combined
voting power entitled to vote generally in the election of directors of the then-outstanding voting securities of the
acquiring corporation (or its direct or indirect parent corporation).
183
Under the 2017 equity plan, if a change in control of our company occurs, then if an award is continued, assumed or substituted by
the successor entity, the award will not vest or lapse solely as a result of the change of control but will instead remain outstanding
under the terms pursuant to which it has been continued, assumed or substituted and will continue to vest or lapse pursuant to such
terms. If the award is continued, assumed or substituted by the successor entity and within two years following the change in control
the participant is either terminated by the successor entity without “cause” or, if the participant is an employee, resigns for “good
reason,” each as defined in the 2017 plan, then:
(cid:129) All outstanding stock options and SARs held by such participant will become immediately vested and exercisable in
(cid:73)(cid:88)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:30)
(cid:129) All restrictions imposed on restricted stock, RSUs or deferred units that are not performance-based held by such
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:79)(cid:68)(cid:83)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:30)
(cid:129) All performance-based awards held by such participant for which the performance period has been completed as of the
date of such termination or resignation but have not yet been paid will vest and be paid in cash or shares and at such
(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:76)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:129) All performance-based awards held by such participant for which the performance period has not been completed as of
the date of such termination or resignation will with respect to each performance goal vest and be paid out for the
entire performance period (and not pro rata) based on actual performance achieved through the date of such
termination or resignation with the manner of payment to be made in cash or shares as provided in the award
agreement within 30 days following the date of termination or resignation.
If a change in control of our company occurs, and if an award participant suffers a “termination of continued employment” in
connection with such change in control, or if outstanding awards are not continued, assumed or substituted with equivalent awards
by the successor entity, or in the case of a dissolution or liquidation of our company, outstanding awards will be subject to the
following rules:
(cid:129) All outstanding stock options and SARs will become fully vested and exercisable and the committee will give such
participant a reasonable opportunity to exercise any and all stock options and SARs before but conditioned upon the
resulting change in control and if a participant does not exercise all stock options and SARs, the committee will pay
such participant the difference between the exercise price for the stock option or grant price for the SAR and the per
share consideration provided to other similarly situated shareholders in the change in control, provided that if the
exercise or grant price exceeds the consideration in the change in control, provided, however, that if the exercise price
or grant price exceeds the consideration provided, then such exercised stock option or SAR will be canceled and
(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)
(cid:129) All restrictions imposed on restricted stock, RSUs or deferred units that are not performance-based will lapse and be of
no further force and effect, and RSUs and deferred units will be settled and paid in cash or shares and at such time as
provided in the award agreement, provided, however, that if any such payment is to be made in shares, the committee
(cid:80)(cid:68)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:86)(cid:76)(cid:87)(cid:88)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:30)
(cid:129) All performance-based awards held by such participant for which the performance period has been completed as of
the date of the change in control but have not yet been paid will vest and be paid in cash or shares and at such time as
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:76)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:129) All performance-based awards held by such participant for which the performance period has not been completed as of
the date of the change in control will with respect to each performance goal vest and be paid out for the entire
performance period (and not pro rata) based on actual performance achieved through the date of the change in control
with the manner of payment to be made in cash or shares as provided in the award agreement within 30 days following
the change in control.
These change in control provisions may not be terminated, amended or modified in any manner that adversely affects any then-
outstanding award or award participant without the prior written consent of such participant.
The 2017 plan defines “cause” as, unless otherwise provided in an award agreement, cause as defined in any employment,
consulting, severance or similar agreement between the participant and us (an “individual agreement”), or if there is no such
individual agreement or if it does not define cause: (i) the participant has engaged in conduct that in the judgment of the committee
constitutes gross negligence, misconduct, or gross neglect in the performance of the participant’s duties and responsibilities or
conduct resulting or intending to result directly or indirectly in gain or personal enri(cid:70)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:77)(cid:88)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)is about to
engage in conduct that is materially inconsistent with our legal and healthcare compliance policies, programs or obligations,
including but not limited to our code of business conduct and ethics and our code of conduct on insider trading and confident(cid:76)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:30)(cid:3)
(iv) the participant’s bar from participation in programs administered by the United States Department of Health and Human
(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:41)(cid:82)(cid:82)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)’s conviction of or
entering of a guilty or no contest plea to a felony charge (or equivale(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:82)(cid:73)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:89)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)
engaged in a material breach of any employment, service, confidentiality, non-compete or non-solicitation agreement entered into
with us or a breach of any company policy for which termination of employment or service is a permissible consequence of such
breach.
184
The 2017 plan defines “good reason” as, unless otherwise provided in an award agreement, the occurrence of any of the following
without the prior written consent of the participant, unless such act or failure to act is corrected by us within 30 days of the
participant providing notice of the occurrence: (a) a material reduction in the participant's then current responsibilities or assignment
to the participant of duties materially inconsi(cid:86)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:10)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:88)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
the avoidance of doubt, the following circumstances would be considered a material reduction of a participant's responsibilities:
(i) the reporting structure of a participant who reports to the chief executive officer of the entire organization is modified or the
participant is informed that it will be modified such that the participant would no longer report to such chief executive officer or
(ii) a participant who is the chief executive officer or organization-wide leader of a material function in a public company would no
longer be, or is informed that he or she will no longer be, the chief executive officer or organization-wide leader of such function, or
would no lo(cid:81)(cid:74)(cid:72)(cid:85)(cid:3) (cid:79)(cid:72)(cid:68)(cid:71)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:73)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:3) (cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3) (cid:11)(cid:69)(cid:12)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:76)(cid:17)(cid:72)(cid:17)(cid:15)(cid:3) (cid:80)(cid:82)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:68)(cid:81)(cid:3) (cid:20)(cid:19)(cid:8)(cid:12)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
participant's aggregate annualized compensation target (including bonus opportunity as a percentage of base salary) and benefits
opportunities, except for an across the board reduction or modification to any benefit plan affecting all similarly situated
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:10)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85) any plan,
program or policy of, or other contract or agreement within 30 (cid:71)(cid:68)(cid:92)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:18)(cid:82)(cid:85)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:71)(cid:88)(cid:72)(cid:30)(cid:3)
(d) (cid:70)(cid:68)(cid:81)(cid:70)(cid:72)(cid:79)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:85)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:86)(cid:70)(cid:82)(cid:83)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:80)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:18)(cid:82)(cid:85)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:30)(cid:3) (cid:11)(cid:72)(cid:12) the
relocation of the participant's then current principal place of employment, or principal location, to a location which is more than
40 (cid:80)(cid:76)(cid:79)(cid:72)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:73)(cid:12)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:69)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)icipant's
employment, severance or similar agreement.
The 2017 plan defines “termination of continued employment” as termination of an individual’s employment with our company or if
the individual is a director, his or her service as a director, without cause in connection with a change of control and includes, by
way of example and without limitation, the following circumstances: (i) such individual is notified within the 60 day period
preceding the change of control that the individual’s employment is or will be terminated without cause prior to or after the change
of control, (ii) such individual is notified within the 60 day period preceding the change of control that the individual’s continued
employment with our company after the change of control is conditioned upon acceptance of a position with the successor or an
affiliate of the successor under terms which would entitle the individual to resign for good reason and the individual in fact resigns
for good reason on this basis, and (iii) such individual is a director and will not become a director of the successor parent
immediately after the change in control.
Under the terms of our 2010 equity plan, if there is a change in control of our company, then, all outstanding options become
immediately exercisable in full and remain exercisable for the remainder of their terms and all issuance conditions on all outstanding
RSU awards will be deemed satisfied. Alternatively, the compensation committee may determine that outstanding awards will be
cancelled as of the consummation of the change in control and that holders of cancelled awards will receive a payment in respect of
such cancellation based on the amount of per share consideration being paid in connection with the change in control less, in the
case of options and other awards subject to exercise, the applicable exercise price.
Potential Payments to Named Executive Officers. The table below reflects the amount of compensation and benefits payable to each
named executive officer, in the event of (i) any voluntary r(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12) an involuntary
(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3) (cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:30)(cid:3) (cid:11)(cid:76)(cid:76)(cid:76)(cid:12) an involuntary termination without cause or a resignation for good reason within 12 months
(24 months in the case of Mr. Palmisano and two years in the case of equity awards acceleration) following a change in control, or a
(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12) termination by reason of an executive’(cid:86)(cid:3)(cid:71)(cid:72)(cid:68)(cid:87)(cid:75)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3)(cid:3)
The amounts reported in the table assume that the applicable triggering event occurred on December 30, 2018, and, therefore, are
estimates of the amounts that would be paid to the named executive officers upon the occurrence of such triggering event.
Name
Robert J. Palmisano
Type of payment(1)
Cash severance
Benefit continuation
Annual bonus(2)
Outplacement benefits
Other termination benefits(3)
Option award acceleration(4)
RSU award acceleration(5)
PSU award acceleration(6)
Total
Involuntary
termination
without cause
($)
4,792,570
19,920
958,514
30,000
6,000
—
—
—
5,807,004
Qualifying
change in
control
termination
($)
5,751,084
19,920
958,514
30,000
6,000
1,900,090
5,567,630
2,705,849
16,939,087
Death/
disability
($)
Change in
control
($)
—
—
958,514
—
—
—
—
—
958,514
—
—
—
—
—
1,900,090
5,567,630
2,705,849
10,173,569
Voluntary/
for cause
termination
($)
—
—
—
—
—
—
—
—
—
185
Name
Lance A. Berry
Peter S. Cooke
Andrew C. Morton(8)
Kevin D. Cordell
Type of payment(1)
Cash severance
Benefit continuation
Annual bonus(2)
Outplacement benefits
Other termination benefits(3)
Option award acceleration(4)
RSU award acceleration(5)
PSU award acceleration(6)
Total
Cash severance(7)
Benefit continuation
Annual bonus(2)
Outplacement benefits
Other termination benefits(3)
Option award acceleration(4)
RSU award acceleration(5)
PSU award acceleration(6)
Total
Cash severance
Benefit continuation
Annual bonus(2)
Outplacement benefits
Other termination benefits(3)
Option award acceleration(4)
RSU award acceleration(5)
Total
Cash severance
Benefit continuation
Annual bonus(2)
Outplacement benefits
Other termination benefits(3)
Option award acceleration(4)
RSU award acceleration(5)
PSU award acceleration(6)
Total
Voluntary/
for cause
termination
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Involuntary
termination
without cause
($)
772,200
19,920
304,200
30,000
6,000
—
—
—
1,132,320
Qualifying
change in
control
termination
($)
1,544,400
29,880
304,200
60,000
12,000
345,277
1,126,198
648,991
4,070,946
—
19,920
224,057
30,000
6,000
—
—
—
279,977
600,000
19,920
200,000
30,000
6,000
—
—
855,920
768,110
19,920
288,041
30,000
6,000
—
—
—
1,112,071
—
29,880
224,057
60,000
12,000
169,124
517,714
266,929
1,279,704
1,200,000
29,880
200,000
60,000
12,000
446,976
601,963
2,550,819
1,536,221
29,880
288,041
60,000
12,000
263,606
909,240
551,753
3,650,741
Death/
disability
($)
Change in
control
($)
—
—
304,200
—
—
—
—
—
304,200
—
—
224,057
—
—
—
—
—
224,057
—
—
200,000
—
—
—
—
200,000
—
—
288,041
—
—
—
—
—
288,041
—
—
—
—
—
345,277
1,126,198
648,991
2,120,466
—
—
—
—
—
169,124
517,714
266,929
953,767
—
—
—
—
—
446,976
601,963
1,048,939
—
—
—
—
—
263,606
909,240
551,753
1,724,599
(1) The benefit amounts set forth in the table do not reflect any reduction that may be necessary to prevent the payment from being subject to an
excise tax under Code Section 280G, if applicable.
(2) Assumes payment equal to full target annual bonus for the year in which the termination date occurs.
(3) Reflects the cost of financial planning services and continued executive insurance. Reimbursement of reasonable attorneys’ fees and expenses
is not included as the amount is not estimable.
(4) Based on the difference between: (i) the per share market price of the ordinary shares underlying the unvested stock options held by such
executive as of December 28, 2018, the last trading day of fiscal 2018, based upon the closing sale price of our ordinary shares, as reported by
the Nasdaq Global Select Market, on the last trading day of our fiscal year, December 28, 2018 ($26.51), and (ii) the per share exercise price
of the options held by such executive. The per share exercise price of all unvested stock options held by our named executive officers
included in the table as of December 30, 2018 range from $19.64 to $27.86. The “Change in Control” scenario assumes that options granted
under the 2017 plan are not continued, assumed or substituted with equivalent awards in connection with the change in control.
(5) Based on: (i) the number of unvested RSU awards held by such executive as of December 30, 2018, multiplied by (ii) the per share market
price of our ordinary shares as of December 28, 2018, the last trading day of fiscal 2018, based upon the closing sale price of our ordinary
shares, as reported by the Nasdaq Global Select Market, on the last trading day of our fiscal year, December 28, 2018 ($26.51). The “Change
in Control” scenario assumes that RSU awards granted under the 2017 plan are not continued, assumed or substituted with equivalent awards
in connection with the change in control.
(6) Amounts reported represent the value of the immediate payout of the target number of ordinary shares that the named executive officer would
have been entitled to receive as payout for PSU awards. The value is based on: (a) the number of outstanding PSU awards at target,
186
multiplied by (b) the closing sale price of our ordinary shares, as reported by the Nasdaq Global Select Market, on the last trading day of our
fiscal year, December 28, 2018 ($26.51). The “Change in Control” scenario assumes that PSU awards granted under the 2017 plan are not
continued, assumed or substituted with equivalent awards in connection with the change in control and are paid out, assuming target
performance.
(7)
In June 2018 as part of Mr. Cooke’s letter agreement, we paid Mr. Cooke a retention payment in lieu of any future change in control or
severance payment Mr. Cooke otherwise would be entitled to receive under his separation pay agreement.
(8) Mr. Morton’s sign-on bonus and relocation benefits must be paid back by Mr. Morton if he voluntarily terminates his employment with
Wright prior to the one-year anniversary of his hire date and 50% of the sign-on bonus must be paid if he voluntarily terminates his
employment within years one and two of his hire date
CEO Pay Ratio Disclosure
Under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of SEC Regulation S-K,
we are required to provide the ratio of the annual total compensation of Robert J. Palmisano, our CEO, to the median of the annual
total compensation of all employees of our company (other than the CEO).
For fiscal 2018:
(cid:129)
(cid:129)
(cid:129)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:40)(cid:50)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)(cid:25)(cid:15)(cid:22)(cid:26)(cid:25)(cid:15)(cid:23)(cid:23)(cid:26)(cid:30)
the annual total compensation of the employee identified at median of our company (excluding our CEO) was
(cid:7)(cid:26)(cid:21)(cid:15)(cid:28)(cid:21)(cid:25)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
based on this information, the ratio of the annual total compensation of our CEO to the annual total compensation of
our median employee (identified in accordance with SEC rules and as described in greater detail below) was estimated
to be 87:1.
This ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records
and the methodology described below. The SEC rules for identifying the “median employee” and calculating the pay ratio based on
that employee's annual total compensation allow companies to adopt a variety of methodologies, apply certain exclusions, and make
reasonable estimates and assumptions that reflect their compensation practices. Accordingly, the pay ratio reported by other
companies may not be comparable to the pay ratio reported by us, as other companies may have different employment and
compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.
To identify our median employee and to calculate the annual total compensation of our median employee and that of our CEO, we
used the following methodology, assumptions and estimates:
(cid:129)
(cid:129)
Selection of Determination Date and Employee Population. We determined that, as of October 15, 2018, our
worldwide employee population, excluding our CEO, consisted of 2,874 total employees, of which 1,779 employees
were employed in the United States and 1,095 employees were employed in non-U.S. jurisdictions. In determining
this population, we considered the employees of our subsidiaries and all of our worldwide employees other than our
CEO, whether employed on a full-time, part-time, temporary or seasonal basis. We did not include any contractors or
other non-employee workers in our employee population. As permitted under SEC rules, we selected October 15,
2018, which is within the last three months of the end of our fiscal year 2018, as the date we would use to identify our
employee population and “median employee” to allow sufficient time to identify the median employee given the
global scope of our operations.
Identification of Median Employee. To identify the “median employee” from our employee population, we selected
target annual total cash compensation, including annual base salary or hourly wages, target annual bonus, target
commissions, and comparable cash elements of compensation in non-U.S. jurisdictions, for fiscal year 2018, as the
most appropriate measure of compensation. To make them comparable, base salaries and wages for newly hired
permanent employees who had worked less than a year were annualized. As part of this analysis, we converted target
annual total cash compensation of our non-U.S. employees from local currency to U.S. dollars using average foreign
currency exchange rates from January 1, 2018 to October 15, 2018.
Calculation of Annual Total Compensation. We then calculated annual total compensation for this median employee and our CEO
using the same methodology we use for our named executive officers as set forth in our Summary Compensation Table included
under “-Executive Compensation Tables and Narratives-Summary Compensation Information.”
187
Risk Assessment of Compensation Policies, Practices, and Programs
As a result of our annual assessment on risk in our compensation programs, we concluded that our compensation policies, practices,
and programs and related compensation governance structure, work together in a manner so as to encourage our employees,
including our named executive officers, to pursue growth strategies that emphasize shareholder value creation, but not to take
unnecessary or excessive risks that could threaten the value of our company. As part of our assessment, we noted in particular the
following:
(cid:129)
(cid:129)
(cid:129)
annual base salaries for employees are not subject to performance risk and, for most non-executive employees,
(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)
performance-based, or at risk, compensation awarded to our employees, which for our higher-level employees
constitutes the largest part of their total compensation, is appropriately balanced between annual and long-term
performance and cash and equity compensation, utilizes several different performance measures and goals that are
drivers of long-(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
a significant portion of performance-based compensation is in the form of long-term equity incentives which do not
encourage unnecessary or excessive risk because they generally vest over a three to four-year period of time thereby
focusing our employees on our long-term interests.
As a matter of best practice, we will continue to monitor our compensation policies, practices, and programs to ensure that they
continue to align the interest of our employees, including in particular our executive officers, with those of our long-term
shareholders while avoiding unnecessary or excessive risk.
Compensation Committee Interlocks and Insider Participation
John L. Miclot, J. Patrick Mackin and Amy S. Paul currently serve as members of the compensation committee of our board of
directors. During 2018, John L. Miclot, J. Patrick Mackin, Kevin C. O’Boyle and Elizabeth H. Weatherman served as members of
the compensation committee. No member of the compensation committee is or was an officer or employee of ours or any of our
subsidiaries while serving on the compensation committee. In addition, no executive officer of ours currently serves or served
during 2018 as a director or a member of the compensation committee of any entity that has or had an executive officer serving as
our director or a member of the compensation committee.
Director Compensation
Overview
Under the terms of our shareholder-approved board of directors compensation policy, the compensation packages for our non-
executive directors are determined by our non-executive directors, based upon a recommendation by the compensation committee.
Such compensation is determined by our non-executive directors pursuant to the terms of our articles of association, which provide
that if all directors have a conflict of interest in the matter to be acted upon, the matter shall be approved by our non-executive
directors. In determining non-executive director compensation, we target compensation in the market median range of our peer
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:79)(cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3)(cid:76)f we determine necessary or appropriate on a case-by-case basis.
Under the terms of our non-executive director compensation program, compensation for our non-executive directors is comprised of
both cash compensation and equity-based compensation. Cash compensation is in the form of annual retainers for non-executive
directors, chairman, committee chairs, and committee members. Equity-based compensation is in the form of annual stock option
and RSU award grants. Each of these components is described in more detail below. We do not provide perquisites and other
personal benefits to our non-executive directors.
Recent Changes
In 2018, the compensation committee engaged Mercer to review our non-executive director compensation program. In so doing,
Mercer analyzed the outside director compensation levels and practices of our peer companies. Mercer used the same peer group as
was approved by the compensation committee and used to gather compensation information for our executive officers. Based on
Mercer’s recommendations, the compensation committee recommended and our board of directors approved certain changes to our
non-executive director compensation program, effective January 1, 2019. These changes include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
$2,000 increase in the premium for the chair (cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:30)
(cid:7)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:76)(cid:85)(cid:12)(cid:30)
$15,000 increase in the annual equity-(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
reduction in the vesting period of annual stock options from two years to one year.
188
Our non-executive director compensation program is consistent with our shareholder-approved board of directors compensation
policy.
Cash Compensation
The table below sets forth the annual cash retainers paid to each non-executive director and the additional annual cash retainers paid
to the chairman and each board committee chair and board committee member during 2018 and to be paid during 2019:
Description
Non-executive director
Chairman premium
Audit committee chair premium
Compensation committee chair premium
Nominating, corporate governance and compliance committee chair premium
Strategic transactions committee chair premium
Audit committee member (including chair)
Compensation committee member (including chair)
Nominating, corporate governance and compliance committee member (including chair)
Strategic transactions committee member (including chair)
Annual cash retainer
2018
($)
60,000
75,000
20,000
13,000
10,000
10,000
15,000
7,000
7,000
5,000
2019
($)
60,000
75,000
20,000
15,000
10,000
10,000
15,000
8,000
7,000
5,000
The annual cash retainers are paid on a quarterly basis in arrears within 30 days of the end of each calendar quarter. For example,
the retainers for the first calendar quarter covering the period from January 1 through March 31 are paid within 30 days of March 31.
In addition, each non-executive director receives a cash travel stipend of $2,000 for each board meeting attended in person that takes
place in the Netherlands or other location outside the United States.
Equity-Based Compensation
The equity-based component of our non-executive director compensation consists of annual stock option and RSU awards granted
under our 2017 equity plan. During 2018, each non-executive director received $195,000 in equity grants, one-half of which was
paid in stock options and the remaining one-half paid in RSU awards. The number of ordinary shares underlying the awards was
determined based on the 10-trading day average closing sale price of an ordinary share, as reported by the Nasdaq Global Select
Market, and as determined on the third trading day prior to the date of anticipated corporate approval of the award. These grants
were effective as of the same date as annual employee equity grants.
The stock options have a term of 10 years, a per share exercise price equal to 100% of the fair market value of an ordinary share on
the grant date and vest in annual installments over a two-year period so long as the director is still a director as of such date. The
RSU awards vest in full on the one-year anniversary of the grant date so long as the director is still a director as of such date. In
2019, our non-executive directors will receive $210,000 in annual equity awards and the stock options will vest in full on the one-
year anniversary of the grant date.
Election to Receive Equity-Based Compensation in Lieu of Cash Compensation
Our non-executive director compensation policy allows our non-executive directors to elect to receive an RSU award in lieu of
100% of their annual cash retainers payable for services to be rendered as a non-executive director, chairman and chair or member of
any board committee. Each non-executive director who elects to receive an RSU award in lieu of such director’s annual cash
retainers is granted an RSU award under our 2017 equity plan for that number of ordinary shares as determined by dividing the
aggregate dollar amount of all annual cash retainers anticipated to payable to such director for the period commencing on July 1 of
each year to June 30 of the following year by the 10-trading day average closing sale price of our ordinary shares as reported by the
Nasdaq Global Select Market and as determined on the third trading day prior to the date of anticipated corporate approval of the
award. These RSU awards are typically granted effective as of the same date that other director equity grants are made and vest in
four equal installments on the following September 30th, December 31st, March 31st and June 30th.
If a non-executive director who elected to receive an RSU award in lieu of such director’s annual cash retainers is no longer a
director before such director’s interest in all of the ordinary shares underlying RSU award have vested and become issuable, then,
subject to certain exceptions, the director will forfeit his or her rights to receive all of the shares underling such RSU award that have
not vested and been issued as of the date the director’s status as a director so terminates. In such case, the non-executive director
will receive in cash a pro rata portion of his or her annual cash retainers for the quarter in which the director’s status as a director
terminates.
189
If a non-executive director who elected to receive an RSU award in lieu of such director’s annual cash retainers becomes entitled to
receive an increased or additional annual cash retainer during the period from July 1 to June 30 of the next year, such director will
receive such increased or additional annual cash retainer in cash until July 1 of the next year when the director may elect (on or prior
to June 30 of the next year) to receive an RSU award in lieu of such director’s annual cash retainers.
If a non-executive director who elected to receive an RSU award in lieu of such director’s annual cash retainers experiences a
change in the director’s membership on one or more board committees or chair positions prior to June 30 of the next year such that
the director becomes entitled to receive annual cash retainers for the period from July 1 to June 30 of the next year aggregating an
amount less than the aggregate amount used to calculate the director’s most recent RSU award received, the director will forfeit as of
the effective date of such board committee or chair change his or her rights to receive a pro rata portion of the shares underlying
such RSU award reflecting the decrease in the director’s aggregate annual cash retainers and the date on which such decrease
occurred. In addition, the vesting of the RSU award will be revised appropriately to reflect any such change in the number of shares
underlying the RSU award and the date on which such change occurred.
Summary of Cash and Other Director Compensation
The table below summarizes the compensation received by each individual who served as a non-executive director of our company
during the fiscal year ended December 30, 2018. While Mr. Palmisano did not receive additional compensation for his service as
executive director, a portion of his compensation was allocated to his service as executive director. For more information regarding
the allocation of Mr. Palmisano’s compensation, please refer to note (1) to the Summary Compensation Table under “-Executive
Compensation Tables and Narratives-Summary Compensation.”
Name
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
David D. Stevens
Richard F. Wallman
Elizabeth H. Weatherman
DIRECTOR COMPENSATION-2018
Fees earned
or paid in
cash(1)
($)
82,000
33,500
80,000
82,000
77,000
147,000
100,000
89,000
Stock
awards(2)(3)
($)
93,160
93,160
93,160
93,160
128,228
93,160
138,720
133,689
Option
awards(4)(5)
($)
94,017
94,017
94,017
94,017
94,017
94,017
94,017
94,017
All other
compensation(6)(7)
($)
4,000
—
2,000
4,000
4,000
4,000
4,000
4,000
Total
($)
273,177
220,677
269,177
273,177
303,245
338,177
336,737
320,706
(1) Unless a director otherwise elects to convert all of his or her annual retainers into RSU awards, annual retainers are paid in cash on a quarterly
basis in arrears within 30 days of the end of each calendar quarter. Three of our non-executive directors elected to convert their annual
retainers covering the period of service from July 1, 2018 to June 30, 2019 into RSU awards and accordingly, were granted an RSU award on
July 24, 2018 under our 2017 equity plan for that number of ordinary shares as determined based on the following formula: (a) the aggregate
dollar amount of all annual cash retainers that otherwise would have been payable to the director for services to be rendered as a non-
executive director, chairman and chair or member of any board committee (based on such director’s board committee memberships and chair
positions as of the grant date), divided by (b) the 10-trading day average closing sale price of an ordinary share, as reported by the Nasdaq
Global Select Market, and as determined on the third trading day prior to the date of anticipated corporate approval of the award. The RSU
award vests and the underlying shares become issuable in four as nearly equal as possible quarterly installments, on September 30, December
31, March 31 and June 30, in each case so long as the director is a director of our company as of such date.
The table below sets forth: (a) (cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:23)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:30)(cid:3)(cid:11)(cid:69)(cid:12) the total amount of annual retainers
(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:53)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:30)(cid:3)(cid:11)(cid:70)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:53)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)t attributed to
the director’s service during 2018, which amount is included in the “Fees earned or paid in cash” column f(cid:82)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:30)(cid:3)(cid:11)(cid:71)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)
(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:36)(cid:54)(cid:38)(cid:3)(cid:55)(cid:82)(cid:83)(cid:76)(cid:70)(cid:3)(cid:26)(cid:20)(cid:27)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:72)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)for the stock
awards above and beyond the amount of annual retainers for 2018 service converted into RSU awards computed in accordance with FASB
ASC Topic 718.
Total amount of
retainers converted
into RSU awards
($)
77,000
100,000
89,000
Number of RSU
awards
(#)
3,004
3,902
3,472
Amount of retainer
converted into RSU
awards attributable
to 2018 service
($)
38,500
50,000
44,500
Grant date fair
value of RSU
awards
($)
73,568
95,560
85,029
Name
Ms. Paul
Mr. Wallman
Ms. Weatherman
Incremental grant
date fair value of
RSU awards
received during
2018
($)
35,068
45,560
40,529
190
(2) On July 24, 2018, each non-executive director received an RSU award for 3,804 ordinary shares granted under the 2017 equity plan. The
RSU awards vest and the underlying shares become issuable on the one-year anniversary of the grant date, so long as the director is a director
of our company as of such date. In addition, as described above in note (1), each of Ms. Paul, Mr. Wallman and Ms. Weatherman elected to
convert his or her annual retainers covering the period of service from July 1, 2018 to June 30, 2019 into RSU awards under our 2017 equity
plan. The amount reported in the “Stock awards” column represents the aggregate grant date fair value for the July 24, 2018 RSU awards
granted to each director in 2018 and for each of Ms. Paul, Mr. Wallman and Ms. Weatherman, the incremental grant date fair value for the
additional RSU awards granted to him or her as described above in note (1), in each case as computed in accordance with FASB ASC Topic
718. The grant date fair value for RSU awards is determined based on the closing sale price of our ordinary shares on the grant date.
(3) As of December 30, 2018, each non-executive director held the following number of unvested stock awards (all of which are in the form of
(cid:53)(cid:54)(cid:56)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:12)(cid:29)(cid:3)(cid:48)(cid:85)(cid:17)(cid:3)(cid:37)(cid:79)(cid:68)(cid:70)(cid:78)(cid:73)(cid:82)(cid:85)(cid:71)(cid:3)(cid:11)(cid:22)(cid:15)(cid:27)(cid:19)(cid:23)(cid:12)(cid:30)(cid:3)(cid:48)(cid:85)(cid:17)(cid:3)(cid:48)(cid:68)(cid:70)(cid:78)(cid:76)(cid:81)(cid:3)(cid:11)(cid:22)(cid:15)(cid:27)(cid:19)(cid:23)(cid:12)(cid:30)(cid:3)(cid:48)(cid:85)(cid:17) Miclot (cid:11)(cid:22)(cid:15)(cid:27)(cid:19)(cid:23)(cid:12)(cid:30)(cid:3)(cid:48)(cid:85)(cid:17)(cid:3)(cid:50)’(cid:37)(cid:82)(cid:92)(cid:79)(cid:72)(cid:3)(cid:11)(cid:22)(cid:15)(cid:27)(cid:19)(cid:23)(cid:12)(cid:30)(cid:3)(cid:48)(cid:86)(cid:17)(cid:3)(cid:51)(cid:68)(cid:88)(cid:79)(cid:3)(cid:11)(cid:25)(cid:15)(cid:19)(cid:24)(cid:26)(cid:12)(cid:30)(cid:3)(cid:48)(cid:85)(cid:17) (cid:54)(cid:87)(cid:72)(cid:89)(cid:72)(cid:81)(cid:86)(cid:3)(cid:11)(cid:22)(cid:15)(cid:27)(cid:19)(cid:23)(cid:12)(cid:30)(cid:3)
Mr. (cid:58)(cid:68)(cid:79)(cid:79)(cid:80)(cid:68)(cid:81)(cid:3)(cid:11)(cid:25)(cid:15)(cid:26)(cid:22)(cid:20)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:86)(cid:17) Weatherman (6,408).
(4) On July 24, 2018, each non-executive director received a stock option to purchase 9,907 ordinary shares at an exercise price of $24.49 per
share granted under the 2017 equity plan. Such option expires on July 24, 2028 and vests with respect to one-half of the underlying ordinary
shares on each of July 24, 2019 and July 24, 2020, so long as the individual remains a director of our company as of such date. Amounts
reported in the “Option awards” column represent the aggregate grant date fair value for option awards granted to each director in 2018
computed in accordance with FASB ASC Topic 718. The grant date fair value is determined based on our Black-Scholes option pricing
model. The grant date fair value per share for the options granted on July 24, 2018 was $9.49 and was determined using the following
(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:29)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:29)(cid:3)(cid:3)(cid:21)(cid:17)(cid:26)(cid:24)(cid:8)(cid:30)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:29)(cid:3)(cid:25)(cid:17)(cid:25)(cid:25)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:30)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:89)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:29)(cid:3)(cid:22)(cid:21)(cid:17)(cid:23)(cid:8)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:92)(cid:76)(cid:72)(cid:79)(cid:71)(cid:29)(cid:3)(cid:19)(cid:17)
(5) The table below provides information regarding the aggregate number of options to purchase ordinary shares outstanding at December 30,
2018 and held by each of the non-executive directors named in the above table:
Name
Mr. Blackford
Mr. Mackin
Mr. Miclot
Mr. O’Boyle
Ms. Paul
Mr. Stevens
Mr. Wallman
Ms. Weatherman
Aggregate number of
shares underlying options
89,354
9,907
104,819
103,508
104,819
84,201
39,747
31,947
Exercisable/
unexercisable
74,309/15,045
0/9,907
89,774/15,045
88,463/15,045
89,774/15,045
69,156/15,045
24,702/15,045
16,902/15,045
Range of exercise price(s)
($)
15.01-29.06
24.49
15.01-29.06
18.04-27.86
15.01-29.06
15.01-29.06
21.24-27.86
21.24-27.86
Range of expiration
date(s)
05/13/2019-07/24/2028
07/24/2028
05/13/2019-07/24/2028
06/03/2020-07/24/2028
05/13/2019-07/24/2028
05/13/2019-07/24/2028
05/12/2021-07/24/2028
07/19/2026-07/24/2028
(6) Represents travel stipends.
(7) We do not provide perquisites and other personal benefits to our non-executive directors. Any perquisites or personal benefits actually
provided to any non-executive director were less than $10,000 in the aggregate.
191
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners
The table below sets forth certain information concerning the beneficial ownership of our ordinary shares as of February 22, 2019,
by each person known by us to beneficially own more than 5% of our ordinary shares. The calculations in the table below assume
that there are 125,857,608 ordinary shares outstanding. Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In computing the number of ordinary shares beneficially owned by a person and the percentage ownership
of that person, we have included ordinary shares that the person has the right to acquire within 60 days, including through the
exercise of any option, warrant or other right, the conversion of any other security, and the issuance of ordinary shares upon the
vesting of restricted stock units. The ordinary shares that a shareholder has the right to acquire within 60 days, however, are not
included in the computation of the percentage ownership of any other person.
Class of
securities
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Name and address of beneficial owner
FMR LLC (1)
The Vanguard Group, Inc. (2)
T. Rowe Price Associates, Inc. (3)
BlackRock, Inc. (4)
Ordinary shares
beneficially owned
Number
18,762,241
11,171,818
9,966,234
9,101,329
Percent
14.9%
8.9%
7.9%
7.2%
*
Represents beneficial ownership of less than 1% of our outstanding ordinary shares.
(1) Based solely on information contained in a Schedule 13G/A of FMR LLC, an investment advisor, filed with the SEC on February 13, 2019,
with sole investment discretion with respect to all such shares and sole voting authority with respect to 2,266,333 shares. Abigail P. Johnson
is a Director, the Chairman and Chief Executive Officer of FMR LLC. Members of the Johnson family, including Abigail P. Johnson, are the
predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of
FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all
Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through
their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR. Neither FMR nor Abigail P. Johnson
has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the
Investment Company Act (Fidelity Funds) advised by Fidelity Management & Research Company (FMR Co), a wholly owned subsidiary of
FMR, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Co carries out the voting of the shares under written
guidelines established by the Fidelity Funds’ Boards of Trustees. The business address of FMR LLC is 245 Summer Street, Boston,
Massachusetts 02210.
(2) Based solely on information contained in a Schedule 13G/A of The Vanguard Group, Inc., an investment adviser, filed with the SEC on
February 11, 2019, reflecting beneficial ownership as of December 31, 2018, with sole investment discretion with respect to 10,912,341
shares, sole voting authority with respect to 254,103 shares, shared investment discretion with respect to 259,477 shares and shared voting
authority with respect to 15,875 shares. The address of The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
(3) Based solely on information contained in a Schedule 13G/A of T. Rowe Price Associates, Inc., an investment advisor, filed with the SEC on
February 14, 2019, reflecting beneficial ownership as of December 31, 2018, with sole investment discretion with respect to all such shares,
and sole voting authority with respect to 1,669,110 shares. The address of T. Rowe Price Associates, Inc. is 100 East Pratt Street, Baltimore,
Maryland 21202.
(4) Based solely on information contained in a Schedule 13G/A of BlackRock, Inc., a parent holding company, filed with the SEC on February 7,
2019, reflecting beneficial ownership as of December 31, 2018, with sole investment discretion with respect to all such shares, and sole voting
authority with respect to 8,840,798 shares. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
192
Security Ownership of Management
The table below sets forth certain information concerning the beneficial ownership of our ordinary shares as of February 22, 2019,
by each of our directors and named executive officers and all of our current directors and executive officers as a group.
The calculations in the table below assume that there are 125,857,608 ordinary shares outstanding. Beneficial ownership is
determined in accordance with the rules and regulations of the SEC. In computing the number of ordinary shares beneficially owned
by a person and the percentage ownership of that person, we have included ordinary shares that the person has the right to acquire
within 60 days, including through the exercise of any option, warrant or other right, the conversion of any other security, and the
issuance of ordinary shares upon the vesting of restricted stock units. The ordinary shares that a shareholder has the right to acquire
within 60 days, however, are not included in the computation of the percentage ownership of any other person.
Class of
securities
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Name and address of beneficial owner
David D. Stevens
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
Richard F. Wallman
Elizabeth H. Weatherman
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
All directors and executive officers as a group (24 persons)
*
Represents beneficial ownership of less than 1% of our outstanding ordinary shares.
Ordinary shares
beneficially owned(1)
Number
145,459
138,957
4,000
127,185
70,743
130,902
146,500
28,041
2,473,205
339,687
38,923
16,265
174,984
4,659,997
Percent
*
*
*
*
*
*
*
*
1.9%
*
*
*
*
3.6%
(1)
Includes for the persons listed below the following ordinary shares subject to options held by that person that are currently exercisable or
become exercisable within 60 days of February 22, 2019 and ordinary shares issuable upon the vesting of RSU awards within 60 days of
February 22, 2019:
Name
Options
RSU awards
David D. Stevens
Gary D. Blackford
J. Patrick Mackin
John L. Miclot
Kevin C. O’Boyle
Amy S. Paul
Richard F. Wallman
Elizabeth H. Weatherman
Robert J. Palmisano
Lance A. Berry
Peter S. Cooke
Andrew C. Morton
Kevin D. Cordell
All directors and executive officers as a group (24 persons)
69,156
74,309
—
89,774
55,740
89,774
24,702
16,902
2,046,205
256,958
38,923
16,265
145,784
3,628,006
—
—
—
—
—
751
975
868
—
—
—
—
—
2,594
193
Securities Authorized for Issuance Under Equity Compensation Plans
The table below provides information regarding the number of ordinary shares to be issued upon the exercise of outstanding stock
options, restricted stock unit awards, and performance share unit awards granted under our equity compensation plans and the
number of ordinary shares remaining available for future issuance our equity compensation plans as of December 30, 2018.
EQUITY COMPENSATION PLAN INFORMATION
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
9,136,421 (1)(2)(3)
—
9,136,421 (1)(2)(3)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
$22.62 (4)
—
$22.62 (4)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
(c)
2,619,972 (5)
—
2,619,972 (5)
(1) Amount includes ordinary shares issuable upon the exercise of stock options granted under the Wright Medical Group N.V. 2017 Equity and
Incentive Plan, Wright Medical Group N.V. Amended and Restated 2010 Incentive Plan and Tornier N.V. Amended and Restated Stock Option
Plan, ordinary shares issuable upon the vesting of restricted stock unit awards granted under the Wright Medical Group N.V. 2017 Equity and
Incentive Plan and Wright Medical Group N.V. Amended and Restated 2010 Incentive Plan and performance share unit awards granted under
the Wright Medical Group N.V. 2017 Equity and Incentive Plan, assuming maximum performance share unit award payouts. The actual
number of shares that will be issued under the performance share unit awards is determined by the level of achievement of performance goals.
(2) Excludes employee stock purchase rights under the Wright Medical Group N.V. Amended and Restated Employee Stock Purchase Plan, which
was approved by our shareholders on June 28, 2016. Under such plan, each eligible employee may purchase ordinary shares at semi-annual
intervals on June 30th and December 31st each calendar year at a purchase price per share equal to 85% of the closing sales price per share of
our ordinary shares on the first or last trading day of the offering period, whichever is lower.
(3) Excludes an aggregate of 2,547,656 ordinary shares issuable upon the exercise of stock options granted under legacy Wright equity
compensation plans and non-plan inducement option agreements assumed by us in connection with the Wright/Tornier merger. The weighted-
average per share exercise price of these assumed stock options as of December 30, 2018 was $21.71. No further grants or awards will be
made under these assumed legacy Wright equity compensation plans and non-plan inducement option agreements.
(4) Not included in the weighted-average exercise price calculation are 1,322,214 restricted stock unit awards and 465,974 performance share unit
awards, assuming maximum performance share unit award payouts.
(5) Amount includes 2,297,162 ordinary shares remaining available for future issuance under the Wright Medical Group N.V. 2017 Equity and
Incentive Plan and 322,810 ordinary shares remaining available for future issuance under the Wright Medical Group N.V. Amended and
Restated Employee Stock Purchase Plan, assuming maximum performance share unit award payouts. No shares remain available for grant
under the Wright Medical Group N.V. Amended and Restated 2010 Incentive Plan, Tornier N.V. Amended and Restated Stock Option Plan or
any of the legacy Wright equity compensation plans and arrangements since such plans and arrangements have been terminated with respect
to future grants.
194
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Procedures Regarding Approval of Related Party Transactions
As provided in our audit committee charter, all related party transactions are to be reviewed and pre-approved by the audit
committee. Related party transactions are transactions to which we were or are a participant and in which:
(cid:129)
(cid:129)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:3)(cid:7)(cid:20)(cid:21)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
a related person (including any director, director nominee, executive officer, holder of more than 5% of our ordinary
shares or any member of their immediate family) had or will have a direct or indirect material interest.
In determining whether to approve a related party transaction, the audit committee generally will evaluate the transaction in terms of
(i) th(cid:72)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:30)(cid:3) (cid:11)(cid:76)(cid:76)(cid:12) the impact on a director’s independence in the event the related person is a director, an
(cid:76)(cid:80)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:15)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:30)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12) the
avai(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)(cid:11)(cid:76)(cid:89)(cid:12) (cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:12) the terms
available to unrelated third parties or to employees generally. The audit committee will then document its findings and conclusions
in written minutes. In the event a transaction relates to a member of the audit committee, that member will not participate in the
audit committee’s deliberations.
We are unaware of any related party transactions that have occurred since the beginning of our last fiscal year or any currently
proposed related party transactions requiring disclosure in this report.
Director Independence
The information regarding director independence is disclosed in “Part III - Item 10. Directors, Executive Officers and Corporate
Governance—Board Structure and Composition” and in “Part III - Item 10. Directors, Executive Officers and Corporate
Governance—Board Committees” of this report.
Item 14.
Principal Accounting Fees and Services.
Appointment of Independent Registered Public Accounting Firms
The audit committee of our board of directors is directly responsible for the appointment, compensation, and oversight of our
independent auditor or independent registered public accounting firm. Our general meeting of shareholders is directly responsible
for the appointment of the auditor that audits our Dutch statutory annual accounts prepared in accordance with Dutch law each year.
Audit, Audit-Related, Tax, and All Other Fees
The following table shows the fees that we paid or accrued for audit and other services provided by our independent registered
public accounting firm, KPMG LLP, for 2018 and 2017:
Fees
Audit fees
Audit-related fees
Tax fees
All other fees
Total
2018
2,398,575
50,125
65,000
15,625
2,529,325
$
$
2017
2,050,153
72,550
—
3,000
2,125,703
$
$
In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the
integrated audit of our consolidated financial statements included in this annual report on Form 10-K, and the review of our
consolidated financial statements included in quarterly reports on Form 10-Q and registration statements and for services that are
normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or
(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:30)(cid:3)“audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the
audit or review of our consolidated financial statements and are not included in “audit fees” and include fees for services performed
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:71)(cid:76)(cid:79)(cid:76)(cid:74)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)“tax fees” are fees for tax compliance and consultation
primarily related to assistance with international tax compliance and tax (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:71)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)“all
other fees” are fees for any services not included in the first three categories, which includes fees for a risk management review and
assessment.
195
Pre-Approval Policies and Procedures
In addition to retaining KPMG LLP to audit our consolidated financial statements for 2018, the audit committee retained KPMG
LLP to provide other auditing and advisory services in 2018. The audit committee understands the need for our independent
registered public accounting firm to maintain objectivity and independence in its integrated audits of our consolidated financial
statements. The audit committee has reviewed all non-audit services provided by KPMG LLP in 2018 and has concluded that the
provision of such services was compatible with maintaining KPMG LLP’s independence in the conduct of its auditing functions.
To help ensure the independence of the independent auditor, the audit committee pre-approves all audit and permissible non-audit
services to be provided to us by our independent registered public accounting firm prior to commencement of services. Our audit
committee chairman has the delegated authority to pre-approve such services up to a specified aggregate fee amount. These pre-
approval decisions are presented to the full audit committee at its next scheduled meeting.
196
Item 15.
Exhibits, Financial Statement Schedules.
Financial Statements
PART IV
See Index to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Financial Statement Schedules
See Schedule II — Valuation and Qualifying Accounts on page S-1 of this report.
Exhibits
The exhibits to this report are listed below. A copy of any of the exhibits will be furnished at a reasonable cost, upon receipt of a
written request for any such exhibit. Such request should be sent to James A. Lightman, Senior Vice President, General Counsel and
Secretary, Wright Medical Group N.V., Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands.
Exhibit No.
2.1
Exhibit
Agreement and Plan of Merger dated as of
August 24, 2018 among Wright Medical Group,
Inc., Braves WMS, Inc., Wright Medical Group
N.V., Cartiva, Inc. and Fortis Advisors LLC, as
representative*
Method of Filing
Incorporated by reference to Exhibit 2.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on August 27, 2018 (File No. 001-
35065)
2.2
2.3
2.4
2.5
2.6
2.7
Business Sale Agreement dated October 21, 2016
between Tornier SAS, Corin France SAS, Corin
Orthopaedics Holdings Limited and Certain
Related Entities Party Thereto*
Incorporated by reference to Exhibit 2.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 24, 2016 (File No. 001-
35065)
Agreement and Plan of Merger dated as of
October 27, 2014 among Tornier N.V., Trooper
Holdings Inc., Trooper Merger Sub Inc. and
Wright Medical Group, Inc.*
Agreement and Plan of Merger dated as of
January 30, 2014 among Wright Medical Group,
Inc., WMMS, LLC, OrthoPro, L.L.C. and OP
CHA, Inc., as Company Holders’ Agent*
Incorporated by reference to Exhibit 2.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 27, 2014 (File No. 001-
35065)
Incorporated by reference to Exhibit 2.1 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on January 31, 2014
(File No. 001-35823)
Agreement and Plan of Merger dated as of
January 30, 2014 among Wright Medical Group,
Inc., Winter Solstice LLC, Solana Surgical, LLC,
and Alan Taylor, as Members’ Representative*
Incorporated by reference to Exhibit 2.2 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on January 31, 2014
(File No. 001-35823)
Asset Purchase Agreement dated as of June 18,
2013 among MicroPort Medical B.V., MicroPort
Scientific Corporation and Wright Medical
Group, Inc.*
Agreement and Plan of Merger dated as of
November 19, 2012 among BioMimetic
Therapeutics, Inc., Wright Medical Group, Inc.,
Achilles Merger Subsidiary, Inc. and Achilles
Acquisition Subsidiary, LLC*
Incorporated by reference to Exhibit 2.1 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on June 21, 2013 (File
No. 001-35823)
Incorporated by reference to Exhibit 2.1 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on November 19, 2012
(File No. 001-32883)
3.1
Articles of Association of Wright Medical Group
N.V.
Incorporated by reference to Exhibit 3.2 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on July 1, 2016 (File No. 001-35065)
197
Exhibit No.
4.1
Exhibit
Indenture dated as of June 28, 2018 among
Wright Medical Group, Inc., Wright Medical
Group N.V. and The Bank of New York Mellon
Trust Company, N.A. (including the Form of the
1.625% Cash Convertible Senior Note due 2023)
4.2
4.3
4.4
Indenture dated as of May 20, 2016 between
Wright Medical Group N.V. and The Bank of
New York Mellon Trust Company, N.A.
(including
the 2.25% Cash
Convertible Senior Note due 2021)
the Form of
Contingent Value Rights Agreement dated as of
March 1, 2013 between Wright Medical Group,
Inc. and American Stock Transfer & Trust
Company, LLC
Assignment and Assumption Agreement dated as
of October 1, 2015 between Wright Medical
Group, Inc., Wright Medical Group N.V. and
American Stock Transfer & Trust Company,
LLC, as Trustee
10.1
Wright Medical Group N.V. 2017 Equity and
Incentive Plan**
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Form of Option Award Agreement under the
Wright Medical Group N.V. 2017 Equity and
Incentive Plan Representing Stock Options
Granted to Executive Officers**
Form of Restricted Stock Unit Award Agreement
under the Wright Medical Group N.V. 2017
Equity and
Incentive Plan Representing
Restricted Stock Units Granted to Executive
Officers**
Form of Restricted Stock Unit Award Agreement
under the Wright Medical Group N.V. 2017
Incentive Plan Representing
Equity and
Restricted Stock Units Granted to New Executive
Officers**
Form of Performance Award Agreement under
the Wright Medical Group N.V. 2017 Equity and
Incentive Plan Representing Performance Awards
Granted to Executive Officers**
Form of Option Award Agreement under the
Wright Medical Group N.V. 2017 Equity and
Incentive Plan Representing Stock Options
Granted to Robert J. Palmisano**
Form of Restricted Stock Unit Award Agreement
under the Wright Medical Group N.V. 2017
Equity and
Incentive Plan Representing
Restricted Stock Units Granted to Robert J.
Palmisano**
Form of Performance Award Agreement under
the Wright Medical Group N.V. 2017 Equity and
Incentive Plan Representing Performance Awards
Granted to Robert J. Palmisano**
Method of Filing
Incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on July 3, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on May 25, 2016 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.1 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on March 1, 2013 (File
No. 001-32883)
Incorporated by reference to Exhibit 4.2 to the Registrant’s
Registration Statement on Form 8-A as filed with the
Securities and Exchange Commission on October 1, 2015
(File No. 001-35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on June 27, 2017 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.6 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.7 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.8 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
198
Exhibit No.
10.9
10.10
10.11
Exhibit
Method of Filing
Form of Option Award Agreement under the
Wright Medical Group N.V. 2017 Equity and
Incentive Plan Representing Stock Options
Granted to Non-Executive Directors**
Form of Restricted Stock Unit Award Agreement
under the Wright Medical Group N.V. 2017
Equity and
Incentive Plan Representing
Restricted Stock Units Granted to Non-Executive
Directors**
Form of Restricted Stock Unit Award Agreement
under the Wright Medical Group N.V. 2017
Equity and
Incentive Plan Representing
Restricted Stock Units Granted to Non-Executive
Directors in Lieu of Cash Retainers**
Filed herewith
Incorporated by reference to Exhibit 10.10 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
Incorporated by reference to Exhibit 10.11 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2017 (File No. 001-35065)
10.12
Wright Medical Group N.V. Amended and
Restated 2010 Incentive Plan**
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Form of Option Certificate under the Wright
Medical Group N.V. Amended and Restated 2010
Incentive Plan Representing Stock Options
Granted to Executive Officers**
Form of Stock Grant Certificate (in the Form of a
Restricted Stock Unit) under the Wright Medical
Group N.V. Amended and Restated 2010
Incentive Plan Representing Restricted Stock
Units Granted to Executive Officers**
Form of Stock Grant Certificate (in the Form of a
Restricted Stock Unit) under the Wright Medical
Group N.V. Amended and Restated 2010
Incentive Plan Representing Restricted Stock
Units Granted to New Executive Officers**
Form of Option Certificate under the Wright
Medical Group N.V. Amended and Restated 2010
Incentive Plan Representing Stock Options
Granted to Robert J. Palmisano**
Form of Stock Grant Certificate (in the Form of a
Restricted Stock Unit) under the Wright Medical
Group N.V. Amended and Restated 2010
Incentive Plan Representing Restricted Stock
Units Granted to Robert J. Palmisano**
Form of Option Certificate under the Wright
Medical Group N.V. Amended and Restated 2010
Incentive Plan Representing Stock Options
Granted to Non-Executive Directors**
Form of Stock Grant Certificate (in the Form of a
Restricted Stock Unit) under the Wright Medical
Group N.V. Amended and Restated 2010
Incentive Plan Representing Restricted Stock
Units Granted to Non-Executive Directors**
Incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on June 19, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.5 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.6 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.7 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.8 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
199
Exhibit No.
10.20
Exhibit
Form of Stock Grant Certificate (in the Form of a
Restricted Stock Unit) under the Wright Medical
Group N.V. Amended and Restated 2010
Incentive Plan Representing Restricted Stock
Units Granted to Non-Executive Directors in
Lieu of Cash Retainers**
10.21
Tornier N.V. Amended and Restated 2010
Incentive Plan**
10.22
Form of Option Certificate under the Tornier
N.V. 2010 Incentive Plan**
10.23
Tornier N.V. Amended and Restated Stock
Option Plan**
10.24
Form of Option Agreement under
the
Tornier N.V. Stock Option Plan for Directors and
Officers**
10.25
Wright Medical Group, Inc. Second Amended
and Restated 2009 Equity Incentive Plan**
10.26
10.27
Form of Executive Stock Option Agreement
under the Wright Medical Group, Inc. Second
Amended and Restated 2009 Equity Incentive
Plan**
Form of Non-Employee Director Stock Option
Agreement under the Wright Medical Group, Inc.
Second Amended and Restated 2009 Equity
Incentive Plan**
10.28
Wright Medical Group, Inc. Fifth Amended and
Restated 1999 Equity Incentive Plan**
10.29
10.30
10.31
First Amendment to the Wright Medical Group,
Inc. Fifth Amended and Restated 1999 Equity
Incentive Plan**
Form of Executive Stock Option Agreement
under the Wright Medical Group, Inc. Fifth
Amended and Restated 1999 Equity Incentive
Plan**
Form of Non-Employee Director Stock Option
Agreement under the Wright Medical Group, Inc.
Fifth Amended and Restated 1999 Equity
Incentive Plan**
Method of Filing
Incorporated by reference to Exhibit 10.9 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on June 19, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.9 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 29, 2013 (File No. 001-35065)
Incorporated by reference to Exhibit 10.9 to the Registrant’s
Amendment No. 9 to Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on
January 18, 2011 (Registration No. 333-167370)
Incorporated by reference to Exhibit 10.9 to the Registrant’s
Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on June 8, 2010
(Registration No. 333-167370)
Incorporated by reference to Appendix D to Wright Medical
Group, Inc.’s Definitive Proxy Statement as filed with the
Securities and Exchange Commission on April 4, 2013 (File
No. 001-35823)
Incorporated by reference to Exhibit 10.4 to Wright Medical
Group, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2012 (File No. 001-32883)
Incorporated by reference to Exhibit 10.6 to Wright Medical
Group, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2012 (File No. 001-32883)
Incorporated by reference to Appendix A to Wright Medical
Group, Inc.’s Definitive Proxy Statement as filed with the
Securities and Exchange Commission on April 14, 2008 (File
No. 001-32883)
Incorporated by reference to Exhibit 10.2 to Wright Medical
Group, Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2008 (File No. 001-32883)
Incorporated by reference to Exhibit 10.13 to Wright Medical
Group, Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2009 (File No. 001-32883)
Incorporated by reference to Exhibit 10.15 to Wright Medical
Group, Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2009 (File No. 001-32883)
10.32
Wright Medical Group N.V. Amended and
Restated Employee Stock Purchase Plan**
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on July 1, 2016 (File No. 001-35065)
200
Exhibit No.
10.33
Exhibit
Wright Medical Group N.V. Performance
Incentive Plan**
10.34
Form of Indemnification Agreement**
Service Agreement effective as of October 1,
2015 between Wright Medical Group N.V. and
Robert J. Palmisano**
Employment Agreement effective as of October
1, 2015 between Wright Medical Group, Inc. and
Robert J. Palmisano**
Guaranty by Wright Medical Group N.V.
effective as of October 1, 2015 with respect to
Wright Medical Group, Inc. Obligations under
Employment Agreement with Robert
J.
Palmisano**
Confidentiality,
Non-Competition,
Non-
Solicitation and Intellectual Property Rights
Agreement effective as of October 1, 2015
between Wright Medical Group, Inc. and Robert
J. Palmisano**
Inducement Stock Option Grant Agreement dated
as of September 17, 2011 between Wright
Medical Group, Inc. and Robert J. Palmisano**
Confidentiality,
Non-Competition,
Non-
Solicitation and Intellectual Property Rights
Agreement effective as of October 1, 2015
between Wright Medical Group, Inc. and Lance
A. Berry**
Separation Pay Agreement effective as of
October 1, 2015 between Wright Medical Group,
Inc. and Lance A. Berry**
Offer Letter dated December 7, 2018 between
Wright Medical Group, Inc. and Lance A.
Berry**
Confidentiality,
Non-Competition,
Non-
Solicitation and Intellectual Property Rights
Agreement effective as of October 1, 2015
between Wright Medical Group, Inc. and Kevin
D. Cordell**
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
Method of Filing
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 1, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.10 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.11 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.12 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.13 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.2 to Wright Medical
Group, Inc.’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on September 22, 2011
(File No. 001-32883)
Incorporated by reference to Exhibit 10.16 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.20 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Filed herewith
Incorporated by reference to Exhibit 10.31 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Separation Pay Agreement effective as of
October 1, 2015 between Wright Medical Group,
Inc. and Kevin D. Cordell**
Offer Letter dated December 7, 2018 between
Wright Medical Group, Inc. and Kevin D.
Cordell**
Incorporated by reference to Exhibit 10.32 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Filed herewith
201
Method of Filing
Incorporated by reference to Exhibit 10.35 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.36 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.37 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.38 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Incorporated by reference to Exhibit 10.23 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 16, 2015 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2018 (File No. 001-35065)
Exhibit No.
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
Exhibit
Non-Competition,
Confidentiality,
Non-
Solicitation and Intellectual Property Rights
Agreement dated as of October 1, 2015 between
Wright Medical Group, Inc. and Peter S.
Cooke**
Separation Pay Agreement effective as of
October 1, 2015 between Wright Medical Group,
Inc. and Peter S. Cooke**
Letter Agreement dated as of June 8, 2016
regarding Assignment Offer and Assignment and
Relocation Benefit Policy between Wright
Medical Technology, Inc. and Peter S. Cooke**
Letter Agreement dated as of June 8, 2016
between Wright Medical Technology, Inc. and
Peter S. Cooke**
Letter Agreement dated as of May 9, 2018
between Wright Medical Technology, Inc. and
Peter S. Cooke**
Offer Letter dated December 7, 2018 between
Wright Medical Group, Inc. and Peter S.
Cooke**
Confidentiality,
Non-Competition,
Non-
Solicitation and Intellectual Property Rights
Agreement dated as of March 26, 2018 between
Wright Medical Group, Inc. and Andrew C.
Morton**
Separation Pay Agreement effective as of March
26, 2018 between Wright Medical Group, Inc.
and Andrew C. Morton**
Offer Letter dated January 25, 2018 between
Wright Medical Group, Inc. and Andrew C.
Morton**
Form of Guaranty by Wright Medical Group N.V.
with respect to Wright Medical Group, Inc.
Obligations under Separation Pay Agreements
with Executive Officers**
Amended and Restated Credit, Security and
Guaranty Agreement dated as of May 7, 2018
among Wright Medical Group N.V.
(as
Guarantor), Wright Medical Group, Inc. (as
Borrower), Certain Other Direct and Indirect
Subsidiaries Listed on the Signature Pages
Thereto (each as Borrower), MidCap Funding IV
Trust (as Lender and Agent) and the Financial
Institutions or Other Entities Parties Thereto
Limited Consent and Amendment No. 1 to
Amended and Restated Credit, Security and
Guaranty Agreement dated as of August 24, 2018
among Wright Medical Group N.V.
(as
Guarantor), Wright Medical Group, Inc. (as
Borrower), Certain Other Direct and Indirect
Subsidiaries Listed on the Signature Pages
Thereto (each as Borrower), MidCap Funding IV
Trust (as Lender and Agent) and the Financial
Institutions or Other Entities Parties Thereto
202
Exhibit No.
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
Exhibit
Method of Filing
Omnibus Limited Consent and Amendment No. 2
to Amended and Restated Credit, Security and
Guaranty Agreement and Amendment No. 5 to
Pledge Agreement dated as of December 10,
2018 among Wright Medical Group N.V. (as
Guarantor), Wright Medical Group, Inc. (as
Borrower), Certain Other Direct and Indirect
Subsidiaries Listed on the Signature Pages
Thereto (each as Borrower), MidCap Funding IV
Trust (as Lender and Agent) and the Financial
Institutions or Other Entities Parties Thereto
Amendment No. 3 to Amended and Restated
Credit, Security and Guaranty Agreement dated
as of February 25, 2019 among Wright Medical
Group N.V. (as Guarantor), Wright Medical
Group, Inc. (as Borrower), Certain Other Direct
and Indirect Subsidiaries Listed on the Signature
Pages Thereto (each as Borrower), Midcap
Funding IV Trust (as Lender and Agent) and the
Financial Institutions or other Entities Parties
Thereto
Form of Exchange/Subscription Agreement dated
as of June 20, 2018 among Wright Medical
Group, Inc., Wright Medical Group N.V. and
Each Investor Party Thereto
Form of Subscription Agreement dated as of June
20, 2018 among Wright Medical Group, Inc.,
Wright Medical Group N.V. and Each Investor
Party Thereto
Bond Hedge Confirmation dated as of June 20,
2018 among Wright Medical Group N.V., Wright
Medical Group, Inc. and JPMorgan Chase Bank,
National Association
Filed herewith
Filed herewith
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on June 21, 2018 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on June 21, 2018 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Bond Hedge Confirmation dated as of June 20,
2018 among Wright Medical Group N.V., Wright
Medical Group, Inc. and Bank of America, N.A.
Incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Warrant Confirmation dated as of June 20, 2018
between Wright Medical Group N.V. and
JPMorgan Chase Bank, National Association
Warrant Confirmation dated as of June 20, 2018
between Wright Medical Group N.V. and Bank of
America, N.A.
Call Spread Unwind Agreement dated as of June
21, 2018 among Wright Medical Group N.V.,
Wright Medical Group, Inc. and JPMorgan Chase
Bank, National Association
Call Spread Unwind Agreement dated as of June
21, 2018 among Wright Medical Group N.V.,
Wright Medical Group, Inc., Deutsche Bank AG,
London Branch and Deutsche Bank Securities,
Inc.
Call Spread Unwind Agreement dated as of June
21, 2018 among Wright Medical Group N.V.,
Wright Medical Group, Inc. and Wells Fargo
Bank, National Association
Incorporated by reference to Exhibit 10.6 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 10.7 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 10.8 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 10.9 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
Incorporated by reference to Exhibit 10.10 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2018 (File No. 001-35065)
203
Exhibit No.
10.69
10.70
10.71
10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
Exhibit
Call Option Transaction Confirmation dated as of
May 12, 2016 between Wright Medical Group
N.V. and JPMorgan Chase Bank, National
Association
Call Option Transaction Confirmation dated as of
May 12, 2016 between Wright Medical Group
N.V. and Bank of America, N.A.
Warrants Confirmation dated as of May 12, 2016
between Wright Medical Group N.V. and
JPMorgan Chase Bank, National Association
Warrants Confirmation dated as of May 12, 2016
between Wright Medical Group N.V. and Bank of
America, N.A.
Agreement of Lease dated as of December 31,
2013 between RBM Cherry Road Partners and
Wright Medical Technology, Inc.
First Amendment to Agreement of Lease dated as
of January 1, 2014 between RBM Cherry Road
Partners and Wright Medical Technology, Inc.
Second Amendment to Agreement of Lease dated
as of January 1, 2014 between RBM Cherry
Road Partners and Wright Medical Technology,
Inc.
Method of Filing
Incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 26, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 26, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 26, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.6 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 26, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.94 to Wright Medical
Group Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2013 (File No. 001-35823)
Incorporated by reference to Exhibit 10.67 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.68 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Third Amendment to Agreement of Lease dated
as of May 1, 2015 between RBM Cherry Road
Partners and Wright Medical Technology, Inc.
Incorporated by reference to Exhibit 10.69 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 25, 2016 (File No. 001-35065)
Lease Agreement dated as of May 14, 2012
between Liberty Property Limited Partnership, as
Landlord, and Tornier, Inc., as Tenant
Commercial Lease dated December 23, 2008
and Tornier
between Seamus Geaney
Orthopedics Ireland Limited
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on May 15, 2012 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.27 to the Registrant’s
Amendment No. 1 to Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on July
15, 2010 (Registration No. 333-167370)
Commercial Supply Agreement dated March 29,
2016 between BioMimetic Therapeutics, LLC
and FUJIFILM Diosynth Biotechnologies
U.S.A., Inc. (1)
Settlement Agreement dated as of November 1,
2016 between Wright Medical Technology, Inc.
and the Counsel Listed on the Signature Pages
Thereto
Second Settlement Agreement dated as of
October 3, 2017 between Wright Medical
Technology, Inc. and the Counsel Listed on the
Signature Pages Thereto
Third Settlement Agreement dated as of October
3, 2017 between Wright Medical Technology,
Inc. and the Counsel Listed on the Signature
Pages Thereto
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on April 7, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 25, 2016 (File No. 001-35065)
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 4, 2017 (File No. 001-
35065)
Incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on October 4, 2017 (File No. 001-
35065)
204
Exhibit No.
10.83
Exhibit
First Amendment to
the Third Settlement
Agreement dated as of December 29, 2017
between Wright Medical Technology, Inc. and the
Counsel Listed on the Signature Pages Thereto
Method of Filing
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on January 5, 2018 (File No. 001-
35065)
10.84
10.85
21.1
23.1
31.1
31.2
32.1
101
Second Amendment to the Third Settlement
Agreement dated as of February 23, 2018
between Wright Medical Technology, Inc. and the
Counsel Listed on the Signature Pages Thereto
Incorporated by reference to Exhibit 10.90 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 (File No. 001-35065)
Third Amendment to the Third Settlement
Agreement dated as of March 29, 2018 between
Wright Medical Technology, Inc. and the Counsel
Listed on the Signature Pages Thereto
Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K as filed with the Securities and
Exchange Commission on April 4, 2018 (File No. 001-35065)
Subsidiaries of Wright Medical Group N.V.
Consent of KPMG LLP, an
Independent
Filed herewith
Filed herewith
Registered Public Accounting Firm
Filed herewith
Filed herewith
Furnished herewith
Filed herewith
Certification of Chief Executive Officer pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
in XBRL
The following materials from Wright Medical
Group N.V.’s Annual Report on Form 10-K for
the fiscal year ended December 30, 2018,
formatted
(Extensible Business
Reporting Language): (i) the Consolidated
Balance Sheets as of December 30, 2018 and
December 31, 2017, (ii) the Consolidated
Statements of Operations for each of the fiscal
years in the three-year period ended December
30, 2018, (iii) the Consolidated Statements of
Comprehensive Loss for each of the fiscal years
in the three-year period ended December 30,
2018, (iv) the Consolidated Statements of Cash
Flows for each of the fiscal years in the three-
year period ended December 30, 2018, (v)
Consolidated Statements of Shareholders’ Equity
for each of the fiscal years in the three-year
period ended December 30, 2018, and (vi) Notes
to Consolidated Financial Statements
__________________________
*
All exhibits and schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The
Registrant will furnish the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the
Securities and Exchange Commission.
**
A management contract or compensatory plan or arrangement.
205
(1)
Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended (File No. 001-35065, CF #33696). The redacted material was filed
separately with the Securities and Exchange Commission.
Note: Certain instruments defining the rights of holders of long-term debt securities of the Registrant or its subsidiaries are
omitted pursuant to Item 601(b)(4)(iii) of SEC Regulation S-K. The Registrant hereby undertakes to furnish to the
Securities and Exchange Commission, upon request, copies of any such instruments.
Item 16.
Form 10-K Summary.
None.
206
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 26, 2019
WRIGHT MEDICAL GROUP N.V.
By:
/s/ Robert J. Palmisano
Robert J. Palmisano
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Robert J. Palmisano
Robert J. Palmisano
/s/ Lance A. Berry
Lance A. Berry
/s/ Julie B. Andrews
Julie B. Andrews
/s/ David D. Stevens
David D. Stevens
/s/ Gary D. Blackford
Gary D. Blackford
/s/ J. Patrick Mackin
J. Patrick Mackin
/s/ John L. Miclot
John L. Miclot
/s/ Kevin C. O'Boyle
Kevin C. O'Boyle
/s/ Amy S. Paul
Amy S. Paul
/s/ Richard F. Wallman
Richard F. Wallman
/s/ Elizabeth H. Weatherman
Elizabeth H. Weatherman
President, Chief Executive Officer and
Executive Director
(Principal Executive Officer)
Executive Vice President, Chief Financial
and Operations Officer
(Principal Financial Officer)
Vice President of Finance, Chief
Accounting Officer
(Principal Accounting Officer)
Date
February 26, 2019
February 26, 2019
February 26, 2019
Chairman
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
Non-Executive Director
February 26, 2019
207
Wright Medical Group N.V.
Schedule II-Valuation and Qualifying Accounts
(In thousands)
Allowance for doubtful accounts:
For the period ended:
December 30, 2018
December 31, 2017
December 25, 2016
Balance at
Beginning of
Period
Charged to
Cost and
Expenses
Deductions
and Other
Balance at
End of
Period
$
$
$
4,328 $
4,469 $
1,189 $
189 $
1,243 $
3,475 $
(1,472) $
(1,384) $
(195) $
3,045
4,328
4,469
S-1
Senior Management
Directors
Robert J. Palmisano
President & Chief Executive Officer
Lance A. Berry
EVP, Chief Financial and
Operations Officer
Kevin D. Cordell
EVP, Chief Global
Commercial Officer
Jason D. Asper
SVP, Chief Digital Officer
Julie D. Dewey
SVP, Chief Communications Officer
James A. Lightman
SVP, General Counsel & Secretary
Andrew C. Morton
SVP, Chief Human Resources Officer
J. Wesley Porter
SVP, Chief Compliance Officer
Barry J. Regan
SVP, Operations
Kevin C. Smith
SVP, Quality and Regulatory
Jennifer S. Walker
SVP, Process Improvement
Peter S. Cooke
President, Emerging Markets,
Australia and Japan
Patrick Fisher
President, Lower Extremities
Timothy L. Lanier
President, Upper Extremities
Steven P. Wallace
President, International
Julie B. Andrews
VP, Finance & Chief Accounting
Officer
David D. Stevens 1,2
Chairman, Non-
Executive Director
Most recently Chief
Executive Officer,
Accredo Health Group,
Inc., a subsidiary of
Medco Health Solutions,
Inc.
Gary D. Blackford 1
Non-Executive Director
Most recently President &
Chief Executive Officer,
Universal Hospital
Services, Inc.
J. Patrick Mackin 4
Non-Executive Director
President and Chief Executive
Officer, CryoLife, Inc.
John L. Miclot 2,4
Non-Executive Director
President and Chief
Executive Officer,
LinguaFlex, Inc.
Kevin C. O’Boyle 2,3
Non-Executive Director
Most Recently Interim Vice
Chairman, Tornier N.V. and
Chief Financial Officer,
NuVasive, Inc.
Amy S. Paul 1,4
Non-Executive Director
Most recently Group Vice
President, International,
C.R. Bard, Inc.
Richard F. Wallman 3
Non-Executive Director
Most recently Senior
Vice President and
Chief Financial Officer of
Honeywell International,
Inc.
Elizabeth H. Weatherman 2,3
Non-Executive Director
Special Limited Partner,
Warburg Pincus LLC
Robert J. Palmisano
Executive Director
President and Chief
Executive Officer,
Wright Medical Group N.V.
Committees of the Board of Directors
1 – member of the nominating, corporate
governance and compliance committee
2 – member of the strategic transactions
committee
3 – member of the audit committee
4 – member of the compensation committee
Shareholder Information
Independent Auditors
KPMG LLP
Memphis, TN
Transfer Agent & Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Avenue, Brooklyn, NY 11219
718.921.8124
800.937.5449
help@astfinancial.com
Share Information
Our ordinary shares are traded on the
Nasdaq Global Select Market under
the symbol “WMGI.”
Investor & Media Inquiries
Julie D. Dewey
SVP, Chief Communications Officer
901.290.5817
julie.dewey@wright.com
Annual General Meeting
The annual general meeting of
our shareholders will be held on
Friday, June 28, 2019, beginning at
12pm (Central European Time) at:
Worldwide Headquarters:
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
AP-011633A_03-May-2019_Annual Report 2018.indd 9
5/7/2019 3:15:12 PM
1023 Cherry Road
Memphis, TN 38117
800 238 7117
901 867 9971
www.wright.com
56 Kingston Road
Staines-upon-Thames
Middlesex TW18 4NL
United Kingdom
+44 (0)845 833 4435
161 Rue Lavoisier
38330 Montbonnot
Saint Martin
France
+33 (0)4 76 61 35 00
Prins Bernhardplein 200
1097 JB Amsterdam,
The Netherlands
1023 Cherry Road
Memphis, TN 38117
800 238 7117
901 867 9971
www.wright.com
56 Kingston Road
™Trademarks and ®Registered marks of Wright Medical Group N.V. or its affiliates.
©2019 Wright Medical Group N.V. or its affiliates. All Rights Reserved. AP-011633A_03-May-2019
AP-011633A_03-May-2019_Annual Report 2018.indd 1
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