(EDGAR Online via COMTEX) -- ITEM 2. 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 for the three months ended March 29, 2020. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, our Annual Report on Form 10-K for the year ended December 29, 2019, which includes additional information about our critical accounting policies and practices and risk factors, and "Special Note Regarding Forward-Looking Statements." Proposed Acquisition by Stryker On November 4, 2019, we entered into a definitive agreement with Stryker and its subsidiary, Stryker B.V. Under the terms of the purchase agreement, and upon the terms and subject to the conditions thereof, Stryker B.V. has commenced a tender offer to purchase all of the outstanding ordinary shares of Wright for $30.75 per share, without interest and less applicable withholding taxes, in cash (Offer). The Offer is currently scheduled to expire at 5:00 p.m., Eastern Time, on June 30, 2020, but may be extended in accordance with the terms of the purchase agreement between Stryker and Wright. The closing of the transaction is subject to receipt of applicable regulatory approvals, the adoption of certain resolutions relating to the transaction at an extraordinary general meeting of Wright's shareholders (which condition has been met), completion of the Offer, and other customary closing conditions. Background On January 9, 2014, we completed the sale of our former hip and knee (OrthoRecon) business to MicroPort Scientific Corporation (MicroPort). All current and historical operating results for the OrthoRecon business are reflected within discontinued operations in the condensed consolidated financial statements for all periods presented, unless otherwise noted. Other than the discontinued operations of the OrthoRecon business, unless otherwise stated, all discussion of assets and liabilities in the notes to the condensed 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. Our fiscal year-end is generally determined on a 52-week basis and runs from the first Monday after the last Sunday of December of a year and ends on the last Sunday 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 three months ended March 29, 2020 and March 31, 2019 each consisted of thirteen weeks. 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 product portfolio consists of the following product categories: Upper extremities, which include joint implants and bone fixation devices for the shoulder, elbow, wrist, and hand;
Lower extremities, which include joint implants and bone fixation devices for the foot and ankle;
Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or to stimulate bone growth; and
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 activities); Bloomington, Minnesota (upper extremities sales and marketing and warehousing operations); Arlington, Tennessee (manufacturing and warehousing operations); Franklin, Tennessee (manufacturing and warehousing operations); Columbia City, Indiana (research and development); Alpharetta, Georgia (manufacturing and warehousing operations); Montbonnot, France (manufacturing and warehousing operations); Plouzane, France (research and development); and Macroom, Ireland (manufacturing). In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe.
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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.
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Other Significant Quarterly Business Developments.
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Results of Operations Comparison of the three months ended March 29, 2020 to the three months ended March 31, 2019 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: Three months ended March 29, 2020 March 31, 2019 Amount % of net sales Amount % of net sales Net sales $ 218,540 100.0 % $ 230,127 100.0 % Cost of sales 1 38,915 17.8 % 46,317 20.1 % Gross profit 179,625 82.2 % 183,810 79.9 % Operating expenses: Selling, general and administrative 1 154,589 70.7 % 153,306 66.6 % Research and development 1 19,600 9.0 % 16,972 7.4 % Amortization of intangible assets 8,124 3.7 % 7,587 3.3 % Total operating expenses 182,313 83.4 % 177,865 77.3 % Operating (loss) income (2,688 ) (1.2 )% 5,945 2.6 % Interest expense, net 20,470 9.4 % 19,695 8.6 % Other (income) expense, net (13,707 ) (6.3 )% 12,895 5.6 % Loss from continuing operations before income taxes (9,451 ) (4.3 )% (26,645 ) (11.6 )% Provision for income taxes 2,138 1.0 % 3,611 1.6 % Net loss from continuing operations $ (11,589 ) (5.3 )% $ (30,256 ) (13.1 )% Loss from discontinued operations, net of tax (3,317 ) (6,345 ) Net loss $ (14,906 ) $ (36,601 ) __________________________
Three months ended March 29, 2020 % of net sales March 31, 2019 % of net sales Cost of sales $ 224 0.1 % $ 120 0.1 % Selling, general and administrative 6,475 3.0 % 6,987 3.0 % Research and development 631 0.3 % 514 0.2 %
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The following tables set forth our net sales by product line for the U.S. and International for the periods indicated (in thousands) and the percentage of year-over-year change:
Three months ended March 29, 2020 March 31, 2019 % change U.S. Lower extremities $ 65,365 $ 71,308 (8.3 )% Upper extremities 86,240 81,727 5.5 % Biologics 20,422 22,640 (9.8 )% Sports med & other 1,766 2,092 (15.6 )% Total U.S. 173,793 177,767 (2.2 )% International Lower extremities $ 13,488 $ 15,551 (13.3 )% Upper extremities 24,881 29,465 (15.6 )% Biologics 3,949 4,538 (13.0 )% Sports med & other 2,429 2,806 (13.4 )% Total International 44,747 52,360 (14.5 )% Total net sales $ 218,540 $ 230,127 (5.0 )%
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Our international upper extremities net sales decreased 15.6% to $24.9 million in the first quarter of 2020 from $29.5 million in the first quarter of 2019. This decrease was due to the impact of the COVID-19 pandemic and, to a lesser extent, a $0.6 million unfavorable impact from foreign currency exchange rates (a 2 percentage point unfavorable impact to international upper extremities sales growth rate). Average daily upper extremities sales in our direct markets in Europe and Canada declined by 48% in the last two weeks of the first quarter of 2020 compared with the average daily sales experienced earlier in the first quarter of 2020.
May 08, 2020
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