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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)



☑		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2019



☐		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	98-0509600
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Prins Bernhardplein 200				None
1097 JB	Amsterdam,	The	Netherlands	(Zip Code)
(Address of principal executive offices)

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	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, par value €0.03 per share	WMGI	Nasdaq Global Select Market

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. ☑ Yes ☐ 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. ☐ Yes ☑ 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. ☑ Yes ☐ 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). ☑ Yes ☐ No

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No

The aggregate market value of the ordinary shares held by non-affiliates of the registrant on June 30, 2019 was $3.7 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 20, 2020, there were 128,733,780 ordinary shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain portions of the registrant’s definitive proxy statement for its Extraordinary General Meeting of Shareholders (“Proxy Statement”) anticipated to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report. Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be deemed to be part of this report.

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WRIGHT MEDICAL GROUP N.V.

ANNUAL REPORT ON FORM 10-K

Table of Contents



	Page
Part I

Item 1. Business.	5
Item 1A. Risk Factors.	18
Item 1B. Unresolved Staff Comments.	44
Item 2. Properties.	44
Item 3. Legal Proceedings.	45
Item 4. Mine Safety Disclosures.	47

Part II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	48
Item 6. Selected Financial Data.	50
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.	73
Item 8. Financial Statements and Supplementary Data.	78
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	131
Item 9A. Controls and Procedures.	131
Item 9B. Other Information.	132

Part III

Item 10. Directors, Executive Officers and Corporate Governance.	133
Item 11. Executive Compensation.	133
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	133
Item 13. Certain Relationships and Related Transactions, and Director Independence.	133
Item 14. Principal Accounting Fees and Services.	133

Part IV

Item 15. Exhibits, Financial Statement Schedules.	134
Item 16. Form 10-K Summary.	142
Signatures	143

Schedule II-Valuation and Qualifying Accounts	144

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document may contain certain “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:


•	the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive agreement that we entered into with Stryker Corporation (Stryker) and its wholly-owned acquisition subsidiary on November 4, 2019, pursuant to which we expect to become a wholly-owned subsidiary of Stryker;

•

the failure to satisfy required closing conditions under the agreement with Stryker, including, but not limited to, the tender of a minimum number of our outstanding ordinary shares in the related tender offer, the adoption of certain resolutions relating to the transaction at an extraordinary general meeting of Wright’s shareholders and the receipt of required regulatory approvals, or the failure to complete the acquisition in a timely manner;


•	risks related to disruption of management’s attention from our ongoing business operations due to the pendency of the transaction with Stryker;


•	the effect of the announcement of the transaction with Stryker on our operating results and business generally, including, but not limited to, our ability to retain and hire key personnel and maintain our relationships with customers, strategic partners and suppliers;


•	the impact of the pending transaction with Stryker on our strategic plans and operations and our ability to respond effectively to competitive pressures, industry developments and future opportunities;


•	the outcome of any legal proceedings that have been, or in the future may be, instituted against us and others relating to the proposed transaction with Stryker;


•	inability to achieve or sustain profitability;


•	failure to realize the anticipated benefits from previous acquisitions and dispositions, including our October 2018 acquisition of Cartiva, Inc. (Cartiva);


•	failure to obtain anticipated commercial sales of our AUGMENT^® Bone Graft and AUGMENT^® Injectable products;


•	liability for product liability claims on hip/knee (OrthoRecon) products sold by Wright Medical Technology, Inc. (WMT) prior to the divestiture of the OrthoRecon business;


•	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 effect of the broad release of certain insurance coverage for present and future claims;


•	adverse outcomes in existing product liability litigation;


•	copycat claims against modular hip systems resulting from a competitor’s recall of its modular hip product;


•	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-fence liabilities;


•	new product liability claims;


•	pending and future other litigation, which could have an adverse effect on our business, financial condition, or operating results;


•	challenges to our intellectual property rights or inability to defend our products against the intellectual property rights of others;


•	the possibility of private securities litigation or shareholder derivative suits;


•	inadequate insurance coverage;


•	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 matures;


•	risks associated with our credit, security and guaranty agreement for our senior secured asset-based line of credit and term loan facility;


•	inability to raise additional financing when needed and on favorable terms;


•	the loss of key suppliers, which may result in our inability to meet customer orders for our products in a timely manner or within our budget;

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•	the incurrence of significant expenditures of resources to maintain relatively high levels of inventory, which could reduce our cash flows and increase the risk of inventory obsolescence, which could harm our operating results;


•	our inability to timely manufacture products or instrument sets to meet demand;


•	our private label manufacturers failing to provide us with sufficient supply of their products, or failing to meet appropriate quality requirements;


•	our plans to bring the manufacturing of certain of our products in-house and possible disruptions we may experience in connection with such transition;


•	our plans to increase our gross margins by taking certain actions designed to do so;


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


•	not successfully competing against our existing or potential competitors and the effect of significant recent consolidations amongst our competitors;


•	not successfully developing and marketing new products and technologies and implementing our business strategy;


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


•	the reliance of our business plan on certain market assumptions;

•

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, monetary sanctions, or criminal or civil liabilities;


•	failure or delay in obtaining FDA or other regulatory clearance for our products;


•	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-consuming;


•	the use, misuse or off-label use of our products that may harm our image in the marketplace or result in injuries that may lead to product liability suits, which could be costly to our business or result in governmental sanctions;


•	changes in healthcare laws, which could generate downward pressure on our product pricing;


•	ability of healthcare providers to obtain reimbursement for our products or a reduction in the current levels of reimbursement, which could result in reduced use of our products and a decline in sales;


•	the potentially negative effect of our ongoing compliance efforts on our relationships with customers and on our ability to deliver timely and effective medical education, clinical studies, and new products;


•	failures of, interruptions to, or unauthorized tampering with, our information technology systems;


•	our inability to maintain effective internal controls;


•	product quality or patient safety issues;


•	geographic and product mix impact on our sales;


•	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 launching our products in certain new geographic markets;


•	the negative impact of the commercial and credit environment on us, our customers, and our suppliers;


•	inability to retain key sales representatives, independent distributors, and other personnel or to attract new talent;


•	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 operating results;


•	our clinical trials and their results and our reliance on third parties to conduct them;


•	potentially burdensome tax measures; and


•	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.

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PART I

Item 1. Business.

Overview

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 with principal markets in the United States, Europe, Asia, Canada, Australia, and Latin America. 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:


•	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); Plouzané, 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. 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 November 4, 2019, we entered into a definitive agreement with Stryker Corporation (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 (the Offer). The Offer is currently scheduled to expire at 9:00 a.m., Eastern Time, on February 27, 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, completion of the tender offer, and other customary closing conditions.

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.

Orthopaedic Industry

The total worldwide orthopaedic industry is estimated at approximately $53 billion in 2019. 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.

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 6-10% annually. We currently estimate the market for all surgical products used by extremities-focused surgeons to be approximately $3.56 billion in the United States. We believe

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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 $3.7 billion, and with annual growth rates of 3-4%. Three multinational companies currently dominate the orthobiologics industry.

An important product within our biologics product portfolio is AUGMENT^®, 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^® 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. We estimate the U.S. market opportunity for AUGMENT^® Bone Graft and AUGMENT^® Injectable for ankle and/or hindfoot fusion indications to be approximately $300 million. The main competitors for AUGMENT^®Bone Graft and AUGMENT^® Injectable are autologous bone grafts, various forms of 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:


•	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.

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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 $448.2 million, or 48.7% of total net sales, for the fiscal year ended December 29, 2019, as compared to $395.8 million, or 47.3% of total net sales, for the fiscal year ended December 30, 2018.

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:

•

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 United States.

•

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 and has been submitted for FDA approval.

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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.

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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™ revision shoulder system in the third quarter of 2018. The AEQUALIS^® FLEX REVIVE™ revision 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 was fully launched at the end of the second quarter of 2019.

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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 are designed to 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.

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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 which is designed to enable optimal screw placement and stability.

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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 intended to reduce 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.


•	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.

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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.

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 29, 2019 was $340.5 million, or 37.0% of total net sales, as compared to $311.5 million, or 37.3% of total net sales, for the fiscal year ended December 30, 2018.

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 are designed to 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, INVISION™ Total

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Ankle Revision System is the first and only system developed specifically for total ankle revision arthroplasty. The INVISION™ 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 INVISION™ Total Ankle Revision System is an important addition to the continuum of care from total ankle replacement through any necessary revisions. The INVISION™ 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 Extreme™Plate and Screws System.

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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 ORTHOLOC™2 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.

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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 Extreme™ Plate and Screws System.

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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. 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, specifically for the treatment of Charcot. 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.


•	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 acquisition of Cartiva, our lower extremities product portfolio includes Cartiva’s Synthetic Cartilage Implant (SCI), the only PMA approved product for treatment of first Metatarsophalangeal (MTP) joint osteoarthritis. We also sell our Swanson line of toe joint replacement products.

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Minimally-Invasive Foot and Ankle Surgery. The PROstep™ Minimally-Invasive Foot and Ankle system and MICA™ 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, PROstep™ Power Box, PROstep™ Burrs, and instruments to perform minimally invasive procedures such as Chevron, Akin, Calcaneal Osteotomies, Hammer toe/Claw toe, Cheilectomy, Bunionectomy, Bunionette and DMMO.

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 29, 2019 was $113.5 million, or 12.3% of total net sales, compared to $108.8 million, or 13.0% of total net sales, for the fiscal year ended December 30, 2018.

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Our biologics products include the following:

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AUGMENT^®. An important product within 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, 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.

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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.

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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. In January 2019, we commenced commercialization of GRAFTJACKET NOW™, a ready to use human acellular dermal scaffold, procured through a separate distribution agreement, and are actively transitioning customers to GRAFTJACKET NOW™. Other soft tissue repair products include our ACTISHIELD™ and ACTISHIELD™ CF Amniotic Barrier Membranes, and VIAFLOW™ and VIAFLOW™ C Flowable Placental Tissue Matrices. Additionally, we introduced BIOSKIN™ Amniotic Wound Matrix in the third quarter of 2019, which is designed to address chronic wounds treated by surgical podiatrists.

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 29, 2019 was $18.8 million, or 2.0% of total net sales, compared to $20.1 million, or 2.4% of total net sales, for the fiscal year ended December 30, 2018.

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 29, 2019, our sales and distribution system in the United States consisted of approximately 80 geographic sales territories that are staffed by over 500 direct sales representatives and 29 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

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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 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-sourced products in five locations: Arlington, Tennessee; Franklin, Tennessee; Alpharetta, Georgia; Montbonnot, France; and Macroom, Ireland. We lease the manufacturing facility in 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 certain 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.

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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.

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:


•	Develop new products and innovative technologies;


•	Obtain and maintain regulatory clearances or approvals and reimbursement for our products;


•	Manufacture and sell our products cost-effectively;


•	Meet all relevant quality standards for our products and their markets;


•	Respond to competitive pressures specific to each of our geographic markets, including our ability to enforce non-compete agreements;


•	Protect the proprietary technology of our products and manufacturing processes;


•	Market and promote our products;


•	Continue to maintain a high level of medical education for our surgeons on our products;


•	Attract and retain qualified scientific, management and sales employees and focused sales representatives; and


•	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

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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 $74.1 million, $59.1 million and $50.1 million in 2019, 2018, and 2017, respectively. Our research and development activities are principally located in Memphis, Tennessee; Montbonnot, France; Plouzané, France; and Columbia City, Indiana, with additional staff in Grenoble, France; 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 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 and AUGMENT^® Injectable.

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

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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 medical devices; the observance of certain standards with respect to the design, manufacture, testing, labeling, promotion, and sales of the devices; the maintenance of certain records; the ability to track devices; the reporting of potential product defects; the import and export of devices; as well as other matters. In addition, as a participant in the healthcare industry, we are also subject to various other U.S. federal, state, and foreign laws.

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

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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.

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:


•	Quality System regulations, which govern, among other things, how manufacturers design, test, manufacture, modify, label, exercise quality control over and document manufacturing of their products;


•	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” uses and impose other restrictions on labeling;


•	FDA guidance of off-label dissemination of information and responding to unsolicited requests for information;


•	Medical Device Reporting (MDR) regulation, which requires reporting to the FDA certain adverse experiences associated with use of our products;


•	complaint handling regulations designed to track, monitor, and resolve complaints related to our products;


•	Part 806 reporting of certain corrections, removals, enhancements, and recalls of products;


•	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 (GUDID); and


•	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

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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 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.

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Our operations in countries outside the United States are subject to various other laws such as those regarding recordkeeping and privacy; laws regarding sanctioned countries, entities and persons; customs and import-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-party payors; instead, 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 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. CMS is responsible for establishing level II Healthcare Common Procedure Coding System (HCPCS) codes used to identify certain medical products, biologics, and implants. 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, site-of-care limitations, 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

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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.

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 29, 2019, we had 3,030 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 the Proposed Acquisition of Wright by Stryker

The proposed acquisition of Wright by Stryker is subject to a number of conditions beyond our control. Failure to complete the proposed acquisition within the expected time frame, or at all, could have a material adverse effect on our business, operating results, financial condition and our share price.

On November 4, 2019, we entered into a Purchase Agreement (the Purchase Agreement) with Stryker and Stryker’s subsidiary, Stryker B.V., related to the proposed acquisition of Wright by Stryker (the Acquisition). Pursuant to the Purchase Agreement, and upon the terms and subject to the conditions thereof, Stryker B.V. has commenced a tender offer (the Offer) to purchase all of our outstanding ordinary shares. If certain conditions are satisfied or waived to the extent they can be waived and the Offer closes,

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Stryker may acquire any Wright shares that were not tendered in the Offer through a reorganization of the company. The obligation of Stryker and Stryker B.V. to consummate the Offer is subject to the condition that there be validly tendered and not withdrawn prior to the expiration of the Offer a number of ordinary shares representing at least 95% of the ordinary shares outstanding as of the scheduled expiration of the Offer (such condition, the Minimum Condition); provided, that Stryker may elect to reduce the Minimum Condition to a percentage of not less than 80%; and provided further that if Wright’s shareholders have adopted certain resolutions related to the reorganization of the company at an extraordinary general meeting of shareholders, the Minimum Condition will be reduced to 80%. The Minimum Condition may not be waived by Stryker without the prior written consent of Wright. The obligation of Stryker B.V. to consummate the Offer is also subject to the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), and the receipt of other required approvals and clearances under applicable antitrust laws, the adoption of certain resolutions by Wright’s shareholders at the extraordinary general meeting of shareholders and other customary conditions. We currently expect the Acquisition to close during the second half of 2020, but no assurance can be provided that it will close within this time frame, or at all.

We cannot predict whether and when the conditions to the Offer will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the proposed Acquisition, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the proposed Acquisition. Certain costs associated with the proposed Acquisition have already been incurred or may be payable even if the proposed Acquisition is not consummated. Finally, any disruptions to our business resulting from the announcement and pendency of the proposed Acquisition, including any adverse changes in our relationships with our customers, partners, suppliers and employees, could continue or accelerate in the event that we fail to consummate the proposed Acquisition.

Our share price may also fluctuate significantly based on announcements by Stryker and other third parties or us regarding the Acquisition or based on market perceptions of the likelihood of the satisfaction of the Minimum Condition or other conditions to the consummation of the Acquisition. Such announcements may lead to perceptions in the market that the Acquisition may not be completed, which could cause our share price to fluctuate or decline. If we do not consummate the Acquisition, the price of our ordinary shares may decline significantly from the current market price, which may reflect a market assumption that the proposed Acquisition will be consummated. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our ordinary shares.

The Offer consideration payable to holders of our ordinary shares will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or changes in the market price of, analyst estimates of, or projections relating to, our ordinary shares. For example, if we experienced an improvement in our business, assets, liabilities, prospects, outlook, financial condition or results of operations prior to the consummation of the proposed Acquisition, there would be no adjustment to the amount of the proposed Offer consideration.

The Purchase Agreement contains provisions that could discourage a potential competing acquirer.

Under the terms of the Purchase Agreement, we have agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire Wright and are subject to restrictions on our ability to respond to any such proposal, except as permitted under the terms of the Purchase Agreement. In the event that we receive an acquisition proposal from a third party, we must notify Stryker of such proposal and negotiate in good faith with Stryker prior to terminating the Purchase Agreement or effecting a change in the recommendation of our Board of Directors to our shareholders with respect to the proposed Acquisition. The Purchase Agreement also contains certain termination rights for both Stryker and us and further provides that, upon termination of the Purchase Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Purchase Agreement, we will be required to pay Stryker a termination fee of $150 million.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Acquisition. These provisions also might result in a potential third-party acquirer proposing to pay a lower price to our shareholders than it might otherwise have proposed to pay due to the added expense of the $150 million termination fee that may become payable in certain circumstances.

If the Purchase Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the proposed Acquisition.

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Shareholder litigation could prevent or delay the closing of the proposed Acquisition or otherwise negatively impact our business, operating results and financial condition.

We may incur additional costs in connection with the defense or settlement of existing and any future shareholder litigation in connection with the proposed Acquisition, including the two shareholder lawsuits to date that have been brought against us in connection with the Acquisition. See Legal Proceedings for additional information regarding these lawsuits. These lawsuits or other future litigation may adversely affect our ability to complete the proposed Acquisition. We could incur significant costs in connection with any such litigation lawsuits, including costs associated with the indemnification of obligations to our directors. Furthermore, one of the conditions to the closing of the proposed Acquisition is the absence of any governmental order or law preventing the Acquisition or making the consummation of the proposed Acquisition illegal. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the proposed Acquisition, then such injunctive or other relief may prevent the proposed Acquisition from becoming effective within the expected time frame or at all.

We may be unable to obtain the regulatory approvals required to complete the proposed Acquisition.

One of the conditions to consummation of the proposed Acquisition is receipt of certain regulatory approvals, including the expiration or termination of the applicable waiting periods (and any extension thereof) under the HSR Act and antitrust notification and approvals in certain European and other jurisdictions. On December 31, 2019, Wright and Stryker each received a request for additional information and documentary materials with respect to the Offer (a Second Request) from the U.S. Federal Trade Commission. As a result of the Second Requests, the waiting period under the HSR Act applicable to the Offer has been extended until 11:59 p.m., Eastern Time, on the 10th calendar day following the date on which Stryker substantially complies with the Second Request it received, unless such waiting period is earlier terminated. Thereafter, the waiting period may be extended only by court order or with Stryker’s consent. There can be no assurance that such regulatory approvals, or any other regulatory approvals that might be required to consummate the proposed Acquisition, will be obtained. If such regulatory approvals are obtained, there can be no assurance as to the timing of such approvals, our ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals.

At any time before or after the consummation of the proposed Acquisition (and notwithstanding the termination of the waiting period under the HSR Act), the U.S. Department of Justice, Federal Trade Commission or any state or non-U.S. governmental entity could take such action, under antitrust laws or otherwise, as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the proposed Acquisition or seeking the divestiture of substantial assets. Private parties may also seek to take legal action under antitrust laws under certain circumstances. If the proposed Acquisition does not receive, or timely receive, the required regulatory approvals and clearances, or if another event occurs delaying or preventing the proposed Acquisition, such delay or failure to complete the proposed Acquisition may create uncertainty or otherwise have negative consequences that may materially and adversely affect our financial condition and results of operations, as well as the price per share for our ordinary shares.

While the proposed Acquisition is pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business, and the proposed Acquisition may impair our ability to attract and retain qualified employees or retain and maintain relationships with our customers, suppliers and other business partners.

Whether or not the proposed Acquisition is consummated, the proposed Acquisition may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The pendency of the Acquisition may also divert management’s attention and our resources from ongoing business and operations and our employees and other key personnel may have uncertainties about the effect of the proposed Acquisition, and the uncertainties may impact our ability to retain, recruit and hire key personnel while the proposed Acquisition is pending or if it fails to close. Furthermore, if key personnel depart because of such uncertainties, or because they do not wish to remain with the combined company after closing, our business and results of operations may be adversely affected. In addition, we cannot predict how our suppliers, customers and other business partners will view or react to the proposed Acquisition upon consummation. If we are unable to reassure our customers, suppliers and other business partners to continue transacting business with us, our sales, financial condition and results of operations may be adversely affected.

In addition, the Purchase Agreement generally requires us to operate in the ordinary course of business consistent with past practice, pending consummation of the Acquisition, and restricts us from taking certain actions with respect to our business and financial affairs without Stryker’s consent. Such restrictions will be in place until either the Acquisition is consummated or the Purchase Agreement is terminated. These restrictions could restrict our ability to, or prevent us from, pursuing attractive business opportunities (if any) that arise prior to the consummation of the Acquisition. For these and other reasons, the pendency of the Acquisition could adversely affect our business, operating results and financial condition.

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We have incurred, and will continue to incur, direct and indirect costs as a result of the proposed Acquisition.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the Acquisition, including costs that we may not currently expect. We must pay substantially all of these costs and expenses whether or not the transaction is completed. If the Purchase Agreement is terminated under specified circumstances, we would be required to pay to Stryker a termination fee equal to $150 million. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

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 29, 2019, we had an accumulated deficit of $1.7 billion. Our ability to achieve profitability will be influenced by many factors, including, among others, the success of prior acquisitions; the level and timing of future net sales and expenditures; development, commercialization and market acceptance of new products; the results and scope of ongoing research and development projects; competing technologies and market developments; regulatory requirements and delays; and pending litigation. As a result, we may continue to incur 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.

Our digital strategy to develop new platforms, accelerate surgical solutions and drive software technology innovation across our business may not be successful and, even if successful, may increase or accentuate certain existing risks or add new risks and complications to our business.

In May 2019, we announced the creation of a new digital organization intended to execute on our strategy to develop new platforms, accelerate surgical solutions and drive software technology innovation across our business organization headed by a new Chief Digital Officer. Our digital strategy is to build upon our highly differentiated, market-leading BLUEPRINT™ software by leveraging emerging technologies, such as artificial intelligence and augmented reality, to provide innovative and transformative software-enabled surgery platforms and solutions for the extremities markets. While we believe the opportunities for Wright in further developing and deploying our digital technology, including our BLUEPRINT platform into other areas, are significant, we can provide no assurance that our digital strategy, and the investments we intend to make in furtherance thereof, will be successful due to factors, including, among others, competition, lack of acceptance, failure to gain regulatory approvals, or other risks as described in this section or other sections of this report, or due to other events. Even if we are successful in implementing our digital strategy, this strategy may increase or accentuate certain existing risks or add new risks and complications to our business, including, among others, risks involving intellectual property; data acquisition, maintenance, privacy and security; regulatory requirements; clinical effectiveness; physician training; product and software errors and defects; product recall and safety; changing industry standards and customer preferences; competition; technology obsolescence; need to hire and retain qualified personnel; and market acceptance. If these or any other risks materialize with respect to our digital strategy, our business, operating results and reputation could be harmed.

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 in January 2014, and OrthoPro, L.L.C. 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, financial or otherwise, of the transaction. This failure could be a result of clinical issues with acquired products, introduction of competitive products with superior attributes than the acquired products, the failure to achieve wide market acceptance of the acquired products due to regulatory, cost, reimbursement or other issues, or a delay or failure to drive sales of the acquired products to anticipated levels.

We may fail to realize the expected benefits of our business combinations or acquisitions 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

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issues that negatively affect the value or cost structure of the acquired enterprise. Additionally, if integration of the businesses proves to be more complicated than planned, we may fail to realize operational synergies and/or fail to mitigate operational dis-synergies resulting in diversion of management attention and/or loss of key personnel. 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, including decreasing or delaying an anticipated accretive effect of a transaction, or result in a decrease in our share price or new litigation.

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. Finally, 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.

Prior to the public announcement of the proposed Acquisition, we typically provided projected financial information, such as our anticipated annual net sales, adjusted earnings and adjusted earnings before interest, taxes, depreciation, and amortization. These financial projections were based on management’s then current expectations and typically did 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 any future financial projections we may provide 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 the anticipated timing of the proposed Acquisition, 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:


•	demand for products, which historically has been lowest in the third quarter;


•	our ability to meet the demand for our products;


•	the level of competition;


•	the number, timing, and significance of new products and product introductions and enhancements by us and our competitors;


•	our ability to develop, introduce, and market new and enhanced versions of our products on a timely basis;


•	the timing of or failure to obtain regulatory clearances or approvals for products;


•	changes in pricing policies by us and our competitors;


•	changes in the treatment practices of orthopaedic surgeons;


•	changes in distributor relationships and sales force size and composition;


•	the timing of material expense- or income-generating events and the related recognition of their associated financial impact;


•	the number and mix of products sold in the quarter and the geographies in which they are sold;


•	the number of selling days;

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•	the availability and cost of components and materials;


•	prevailing interest rates on our excess cash investments;


•	fluctuations in foreign currency exchange rates;


•	the timing of significant orders and shipments;


•	ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical insurance deductibles;


•	work stoppages or strikes in the healthcare industry;


•	changes in FDA and foreign governmental regulatory policies, requirements, and enforcement practices;


•	changes in accounting standards, policies, estimates, and treatments;


•	restructuring, impairment, and other special charges, costs associated with our pending litigation and U.S. governmental inquiries, and other charges;


•	variations in cost of sales due to the amount and timing of excess and obsolete inventory charges, commodity prices, and manufacturing variances;


•	income tax fluctuations and changes in tax rules;


•	general economic factors; and


•	increases of interest rates, which can increase the cost of borrowings under our Credit Agreement, and generally affect the level of economic activity.

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 29, 2019, there were approximately 205 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 29, 2019, we estimate there also were pending approximately 27 non-U.S. metal-on metal cases, 9 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, 22 unresolved U.S. titanium modular neck fracture cases, 50 unresolved non-U.S. titanium modular neck fracture cases, seven U.S. cobalt chrome modular neck fracture cases, and seven non-U.S. cobalt chrome modular neck fracture cases. We also estimate that as of December 29, 2019 there were approximately 514 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 29, 2019, no 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.

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Our material product liability litigation is discussed in Note 17 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 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.

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.

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.

On October 7, 2019, we entered into a settlement agreement with Lexington Insurance Company (Lexington) to settle all presently remaining disputes between us, pursuant to which, among other things, Lexington bought back the subject insurance policies for an aggregate of $15.5 million (in addition to $5 million previously paid by Lexington). This settlement is in full satisfaction of all potential liability of Lexington relating to metal-on-metal hip claims, including but not limited to all claims asserted by our subsidiary, WMT, against Lexington.

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, Lloyd’s Syndicate 2003 or Lexington 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.

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

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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 14 lawsuits alleging personal injury related to cobalt chrome neck fractures (seven in the United States and seven outside the United States) as of December 29, 2019. 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 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 nine 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

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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 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 29, 2019, $814.6 million in aggregate principal with additional accrued interest under WMG’s 1.625% cash convertible senior notes due 2023 (2023 Notes), $395.0 million in aggregate principal with additional accrued interest under our 2.25% cash convertible senior notes due 2021 (2021 Notes) and $56.5 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). 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 (as amended, Credit Agreement) with Midcap Funding IV Trust and the additional lenders from time to time party thereto (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 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 and the remaining $35 million of which is available to be borrowed until May 7, 2021. As of December 29, 2019, $20.7 million in aggregate principal plus additional accrued interest was outstanding under the ABL Facility and $20.0 million in aggregate principal plus additional accrued interest was outstanding under the Term Loan Facility. As of December 29, 2019, our total indebtedness under the Notes and Credit Agreement was $1.3 billion, excluding accrued interest, unamortized debt discount, and unamortized deferred financing fees.

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, on their respective maturity dates, on the maturity date of the Credit Agreement or in connection with a transaction involving us that constitutes a fundamental change under the respective indenture governing the Notes or under the Credit Agreement, 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 Credit Agreement, the holders and/or the trustee under the indentures governing the Notes or the Lenders may accelerate payment obligations under the Notes and/or the amounts borrowed under the Credit Agreement, respectfully, which could have a material adverse effect on our business, financial condition, and operating results. In addition, the Notes and 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.

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In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:


•	make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;


•	limit our flexibility in planning for, or reacting to, changes in our business and our industry;


•	restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities;


•	place us at a competitive disadvantage compared to our competitors who have less debt; and


•	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 would include consummation of the Offer. We also expect that the Offer will trigger certain conversion rights under each of the indentures governing the Notes prior to the closing of the proposed Acquisition.

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 Credit Agreement could result in events of default under such indentures or 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 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 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 Credit Agreement includes a number of significant financial and operating restrictions. For example, the 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:


•	make loans and investments, including acquisitions and transactions with affiliates;


•	create liens or other encumbrances on our assets;


•	dispose of assets;


•	enter into contingent obligations;


•	engage in mergers or consolidations; and


•	pay dividends.

A breach of any of these covenants could result in a default under the Credit Agreement, which could trigger acceleration of indebtedness under the ABL Facility and the Term Loan 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. Certain transactions that we may view as important opportunities, such as significant acquisitions, may be subject to the consent of the 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 Lenders may accelerate payment of the amounts borrowed under the Credit Agreement upon the occurrence of a fundamental change, which would include consummation of the Offer. Under the terms of the Purchase Agreement with Stryker, we must obtain a waiver from the Lenders of any default under

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the Credit Agreement in connection with the proposed Acquisition or repay all amounts owed under the Credit Agreement and terminate the Credit Agreement.

The Credit Agreement involves additional risks that may adversely affect our liquidity, results of operations, and financial condition.

Availability under the ABL Facility is based on the amount of certain eligible receivables, eligible equipment, eligible inventory and eligible surgical instrumentation less specified reserves as described in Note 10 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 Credit Agreement to be directed to deposit accounts under the control of the ABL Facility agent 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 and Term Loan 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 other material debt instruments, the lenders under the ABL Facility and Term Loan 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 Credit Agreement could result in a cross-default under the Notes. While an event of default is continuing under the Credit Agreement, the lenders thereunder may elect to increase the rates at which interest accrues. Subject to certain exceptions, amounts outstanding under the Credit Agreement are secured by a senior first priority security interest in substantially all existing and after-acquired assets of our company and borrower. Accordingly, under certain circumstances, the Lenders under the Credit Agreement could seek to enforce security interests in our assets securing our indebtedness under the Credit Agreement, including restricting our access to collections on our accounts receivable. Any acceleration of amounts due under our 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 Lenders, which could have an adverse effect on our business if we are not able to replace such ABL Facility and Term Loan 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. The strike prices of the Notes hedges and exercise prices of the warrants are subject to adjustment upon the occurrence of certain events, including in connection with the Offer. 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 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 Credit Agreement from any rating agency, and we do not anticipate that the Notes or the Credit Agreement will be rated. However, if one or more rating agencies independently elects to rate the Notes or the Credit Agreement and assigns the Notes or the 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 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.

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We may 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 $166.9 million, the $154.3 million in availability under the ABL Facility and the $35 million available under the Term Loan Facility, as of December 29, 2019, will be sufficient for the next 12 months to fund our working capital requirements and operations, permit anticipated capital expenditures in 2020 of approximately $80.0 million, 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 2020.

In the event that we would require additional working capital to fund future operations, we could seek to acquire that through increasing the revolving line of credit under the ABL Facility by up to an additional $75.0 million, borrowing the remaining $35.0 million under the Term Loan 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 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 one current supplier for our GRAFTJACKET^® family of soft tissue repair and graft containment products. We had previously contracted with two suppliers for this product, but ended our relationship with one of the suppliers at the end of 2019. We can continue selling the remaining inventory from this supplier until the inventory is depleted. In addition, certain biologic products depend upon a single supplier as our source for demineralized bone matrix (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 and a single supplier for the calcium sulfate used in our PRO-DENSE™ Injectable Regenerative Graft (PRO-DENSE™). We cannot be sure that our supply of these single source materials will continue to be available at current levels or will be sufficient to meet our needs, or that future suppliers of such materials will be free from FDA regulatory action impacting their sale of such materials. As there are a small number of suppliers, if we cannot continue to obtain such materials from our current sources in volumes sufficient to meet our needs, we may not be able to locate replacement sources of such materials 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

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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 sizes 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.

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 greater financial and human resources for product development and sales and marketing; greater name recognition; established relationships with surgeons, hospitals and third-party payors; broader product lines and the ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive advantage; and established sales and marketing and distribution 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 our existing products or render them obsolete and thus adversely affect sales of our existing products and lead to increased expense for excess and obsolete inventory.

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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.

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:


•	imposing fines and penalties on us;


•	preventing us from manufacturing or selling our products;


•	bringing civil or criminal charges against us and our officers and employees;


•	delaying the introduction of our new products into the market;


•	recalling or seizing our products; or


•	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 beginning in May 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-

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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 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 that 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 (CIA), 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

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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.

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 beginning in May 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 a 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:


•	lack of clinical acceptance of allograft products and related technologies;


•	the introduction of competitive tissue repair treatment options that render allograft products and technologies too expensive and obsolete;


•	lack of available third-party reimbursement;


•	the inability to train surgeons in the use of allograft products and technologies;


•	the risk of disease transmission; and


•	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.

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Recommendations and endorsements by influential surgeons are important to the commercial success of allograft products and 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 with 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 insurance; however, this insurance may not be sufficient to cover 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.

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 or on a

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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 23% of our net sales for our fiscal year ended December 29, 2019. 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:


•	the imposition of additional U.S. and foreign governmental controls or regulations on orthopaedic implants and biologic products;


•	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-tariff barriers to trade;


•	unexpected changes in tariffs, trade barriers and regulatory requirements;


•	the imposition of U.S. or international sanctions against a country, company, person, or entity with whom we do business that would restrict or prohibit continued business with that country, company, person, or entity;


•	economic instability, including currency risk between the U.S. dollar and foreign currencies, in our target markets;


•	economic weakness, including inflation, or political instability in particular foreign economies and markets;


•	the imposition of restrictions on the activities of foreign agents, representatives, and distributors;


•	scrutiny of foreign tax authorities, which could result in significant fines, penalties, and additional taxes being imposed upon us;


•	difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax, accounting, and information technology;


•	a shortage of high-quality international salespeople and distributors;


•	loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets;


•	changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate our reducing selling prices for our products;


•	unexpected changes in foreign regulatory requirements;


•	differing local product preferences and product requirements;


•	changes in tariffs and other trade restrictions, particularly related to the exportation of our biologic products, and including the current U.S. trade dispute with China;


•	work stoppages or strikes in the healthcare industry, such as those that have affected our operations in France, Canada, South Korea, and Finland in the past;


•	difficulties in protecting, enforcing and defending intellectual property rights;


•	foreign currency exchange controls that might prevent us from repatriating cash earned in countries outside the Netherlands;


•	longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;


•	transportation delays and interruptions;


•	national and international conflicts, including foreign policy changes, acts of war or terrorist acts;


•	complex data privacy requirements and labor relations laws; and


•	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 more than two-year period during which the United Kingdom and the European Union negotiated the terms of the United Kingdom’s 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. Unable to reach an agreement or further extend the deadline for withdrawal, on January 31, 2020, the United Kingdom withdrew from the European Union without an agreement in place. It is possible that, following this withdrawal, 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. The withdrawal could also 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, especially considering we have a sales office in the United Kingdom and in 2019, approximately 90% of our net sales denominated in foreign currencies were derived from European Union countries. Any of these

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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.

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 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 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

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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 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

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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.

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 tax was repealed effective as of December 31, 2019 following the end of the moratorium that had been imposed. On December 14, 2018, the United States District Court for the Northern District of Texas issued a ruling declaring that, because the individual mandate is an essential and inseverable feature of the ACA and was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017, the ACA is unconstitutional 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 HIPAA as well as for data breaches involving protected health information (PHI). In the ordinary course of

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our business, we may receive PHI. If we are unable to comply with HIPAA or experience 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 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 of which is 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 unfavorably impacted our net sales by $9.0 million during 2019. 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 primarily denominated in U.S. dollars; therefore, as the U.S. dollar strengthens, the gross margin associated with our sales denominated in foreign currencies 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. Additionally, the tax laws of the Netherlands, the United States, France 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 continued availability of benefits under tax treaties, the rates of taxes payable in respect of that income, and withholding taxes on payments 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

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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 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. 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

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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 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 29, 2019, we had $1.3 billion in goodwill and $257.4 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

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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.

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 2019, the sale price of our ordinary shares ranged from $19.04 to $32.86. 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:


•	the proposed Acquisition and developments in connection therewith affecting the likelihood of completion of the transaction and timing thereof;


•	variations in our net sales, earnings, and cash flow, and in particular variations that deviate from projected financial information;


•	announcements of new investments, acquisitions, strategic partnerships, or joint ventures;


•	announcements of new products by us or our competitors;


•	announcements of divestitures or discontinuance of products or assets;


•	changes in financial estimates by securities analysts;


•	additions or departures of key personnel;


•	sales of our equity securities by our significant shareholders or management or sales of additional equity securities by our company;


•	pending and potential litigation or regulatory investigations; and


•	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.

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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 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 until June 28, 2021 up to 20% of our issued and outstanding shares at the time of issue, which is further divided into 10% for general corporate purposes (including potential mergers and acquisitions) and an additional 10% only for potential mergers and acquisitions and to limit or exclude pre-emptive rights in respect of such issue of shares, without further shareholder approval. We cannot provide any assurance that these authorizations will always be approved on a timely basis. 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

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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.

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 140,000 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 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 a 16,000 square foot leased facility in Columbia City, Indiana.

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	State/Country	Owned or Leased	Occupancy
Memphis	Tennessee, United States	Leased	Offices/R&D
Arlington	Tennessee, United States	Leased	U.S. Lower Extremities & Biologics Manufacturing/Warehouse/Distribution
Bloomington	Minnesota, United States	Leased	U.S. Upper Extremities Offices/Warehouse/Distribution
Columbia City	Indiana, United States	Leased	Offices/R&D
Alpharetta	Georgia	Leased	U.S. Lower Extremities Offices/Manufacturing/Warehouse
Franklin	Tennessee, United States	Leased	U.S. Lower Extremities & Biologics Offices/Manufacturing/Warehouse
Montbonnot	France	Leased	International Extremities & Biologics; U.S. Upper Extremities Warehouse/Distribution/Offices/R&D
Montbonnot	France	Owned 51%	International Extremities & Biologics; U.S. Upper Extremities Manufacturing/Offices
Plouzané	France	Leased	Upper Extremities R&D
Macroom	Ireland	Leased	International Extremities & Biologics Manufacturing/Offices

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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.

Patent Litigation

On March 23, 2018, WMT filed suit against Paragon 28, Inc. (Paragon 28) in the United States District Court for the District of Colorado, alleging infringement of ten patents concerning orthopaedic plates, plating systems and instruments, and related methods of use. Our complaint seeks damages, injunctive relief and attorneys’ fees. On June 4, 2018, Paragon 28 filed an amended answer and counterclaim seeking declaratory judgment of non-infringement and invalidity of the patent-in-suit, and attorneys’ fees. On September 28, 2018, WMT filed an amended complaint adding claims against Paragon 28 for misappropriation of trade secrets and related wrongdoing. Paragon 28 filed a motion to dismiss those trade secret-related claims, which WMT opposed. On September 30, 2019, the Court issued an order granting in part and denying in part the motion to dismiss, leaving intact the majority of the trade secret-related claims. A motion for clarification of the order remains pending. In March 2019, Paragon 28 filed four petitions with the Patent Trial and Appeal Board seeking Inter Partes Reviews of the patents in question, which WMT opposed. On September 25, 2019 and October 4, 2019, the Patent Trial and Appeal Board granted Paragon 28’s petitions. Oral arguments are expected to be held in June 2020; after which time, the Patent Trial and Appeal Board will render a substantive decision on the merits of the petitions.

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 MoM Settlement Agreements), 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

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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 MoM Settlement Agreements, as of December 29, 2019, there were approximately 205 unresolved metal-on-metal hip cases pending in the U.S. This number includes cases ineligible for settlement under the MoM Settlement Agreements, cases which opted out of such settlements, post-settlement cases, tolled cases, and existing state court cases that were not part of the MDL or JCCP. As of December 29, 2019, we estimate there also were pending approximately 27 unresolved non-U.S. metal-on metal hip cases, 9 unresolved U.S. modular neck cases alleging claims related to the release of metal ions, and zero non-U.S. modular neck cases with metal ion allegations. We also estimate that as of December 29, 2019, there were approximately 514 non-revision claims either dismissed or awaiting dismissal from the MDL and JCCP, which dismissal is a condition of the MoM 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 29, 2019, no dismissed non-revision cases have been refiled.

As previously disclosed, between November 2016 and October 2017, WMT entered into three MoM Settlement Agreements with Court-appointed attorneys representing plaintiffs in the MDL and JCCP to settle a total of 1,974 cases that met the eligibility requirements of the MoM Settlement Agreements and were either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for an aggregate sum of $339.2 million. See Note 17 to our consolidated financial statements for additional information regarding the MoM Settlement Agreements.

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 29, 2019, there were approximately 22 unresolved pending U.S. lawsuits and approximately 50 unresolved pending non-U.S. lawsuits alleging such claims (44 of which are part of a single consolidated class action lawsuit in Canada). 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 29, 2019, there were seven pending U.S. lawsuits and seven 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

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 Federal, our then primary product liability insurance carrier, asserting that certain present and future claims which allege certain types of injury related to the 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 have been 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. We notified Federal that we disputed its characterization of the CONSERVE^® Claims as a single occurrence, which resulted in multi-year insurance coverage litigation (the Tennessee Coverage Litigation) that has recently been resolved as discussed below.

As previously disclosed, we entered into confidential settlement agreements with all seven insurance carriers with whom metal on metal hip coverage was in dispute - Columbia Casualty Company, Travelers, AXIS Surplus Lines Insurance Company, Federal, Catlin Specialty Insurance Company, Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London and Lexington Insurance Company (Lexington), thus resolving in full the Tennessee Coverage Litigation and the separate litigation and arbitration proceedings with Lexington.

Stryker Acquisition Related Litigation

On January 15, 2020, John Thompson, a purported shareholder of our company, filed a putative class action lawsuit against us, members of our board of directors, Stryker B.V. and Stryker Corporation in the United States District Court for the District of Delaware, captioned Thompson v. Wright Medical Group N.V., et al., Case No. 1:20-cv-00061 (Thompson Complaint). The Thompson Complaint alleges that we and the members of our board of directors violated federal securities laws and regulations by failing to disclose material information in the Schedule 14D-9 filed in connection with the transactions contemplated by the Stryker purchase agreement, which they allege rendered the Schedule 14D-9 false and misleading. In addition, the Thompson Complaint alleges that members of our board of directors and Stryker acted as controlling persons of the company within the meaning and in violation of Section 20(a) of the Exchange Act to influence and control the dissemination of the allegedly defective Solicitation/Recommendation Statement. The Thompson Complaint seeks, among other things, an order enjoining consummation of the transactions contemplated by the Stryker purchase agreement; rescission of such transactions if they have already been consummated and rescissory damages; an order directing our board of directors to file a Solicitation/Recommendation Statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading; a declaration that the defendants violated certain federal securities laws and regulations; and an award of plaintiff’s costs, including reasonable allowance for attorneys’ fees and experts’ fees.

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On January 31, 2020, William Grubb, a purported shareholder of our company, filed a putative class action lawsuit against us and members of our board of directors in the United States District Court for the Eastern District of New York, captioned Grubb v. Wright Medical Group N.V., et al., Case No. 1:20-cv-00553 (Grubb Complaint). The Grubb Complaint alleges that we and the members of our board of directors violated federal securities laws and regulations by failing to disclose material information in the Schedule 14D-9 filed in connection with the transactions contemplated by the Stryker purchase agreement, which the Grubb Complaint alleges rendered the Schedule 14D-9 false and misleading. In addition, the Grubb Complaint alleges that members of our board of directors acted as controlling persons of the company within the meaning and in violation of Section 20(a) of the Exchange Act to influence and control the dissemination of the allegedly defective Schedule 14D-9. The Grubb Complaint seeks, among other things, an order enjoining consummation of the transactions contemplated by the Stryker purchase agreement; rescission of such transactions if they have already been consummated and rescissory damages; a declaration that the defendants violated certain federal securities laws and regulations; and an award of plaintiff’s costs, including counsel fees and expenses and expert fees.

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.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our ordinary shares are traded on the Nasdaq Global Select Market under the symbol “WMGI.”

Holders

As of February 20, 2020, there were 299 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 Credit, Security and Guaranty Agreement dated December 23, 2016 with Midcap Financial Trust, as administrative agent and a lender and the additional lenders from time to time party thereto, as subsequently amended, 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 29, 2019.

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 29, 2019.

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, 2014 to October 1, 2015, the date of the Wright/Tornier merger, and our combined company ordinary shares from October 1, 2015 to December 29, 2019 (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, 2014 to October 1, 2015, the date of the Wright/Tornier merger.

The graph assumes that $100.00 was invested on December 31, 2014, 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.

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.



	2014		2015		2016		2017		2018		2019
Legacy Tornier / Wright Medical Group N.V.	$	100.00	$	92.54	$	91.56	$	87.20	$	104.12	$	120.09
Legacy Wright	100.00		79.11		—		—		—		—
Nasdaq Stock Market (US Companies)	100.00		106.96		118.23		150.66		147.04		202.43
Nasdaq Medical Equipment Index	100.00		117.38		129.66		184.44		209.14		266.78
SIC Code 384 - Surgical, Medical, and Dental Instruments and Supplies	100.00		106.12		116.63		148.17		148.45		188.11

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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 on October 1, 2015. 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.



	Fiscal year ended
	December 29, 2019			December 30, 2018			December 31, 2017			December 25, 2016			December 27, 2015 ¹
Consolidated Statement of Operations:
Net sales	$	920,900		$	836,190		$	744,989		$	690,362		$	405,326
Cost of sales ²	188,641			180,153			160,947			192,407			113,622
Gross profit	732,259			656,037			584,042			497,955			291,704
Operating expenses:
Selling, general and administrative ²	614,666			577,961			525,222			541,558			424,377
Research and development ²	74,085			59,142			50,115			50,514			39,339
Amortization of intangible assets	31,921			26,730			28,396			28,841			16,754
Total operating expenses	720,672			663,833			603,733			620,913			480,470
Operating income (loss) ³	11,587			(7,796		)	(19,691		)	(122,958		)	(188,766		)
Interest expense, net ⁴	80,849			80,247			74,644			58,530			41,358
Other expense (income), net ⁵	9,904			81,797			5,570			(3,148		)	10,884
Loss before income taxes	(79,166		)	(169,840		)	(99,905		)	(178,340		)	(241,008		)
Provision (benefit) for income taxes ⁶	12,968			(536		)	(34,968		)	(13,406		)	(3,652		)
Net loss from continuing operations	(92,134		)	(169,304		)	(64,937		)	(164,934		)	(237,356		)
Loss from discontinued operations, net of tax	(22,091		)	(201		)	(137,661		)	(267,439		)	(61,345		)
Net loss	$	(114,225	)	$	(169,505	)	$	(202,598	)	$	(432,373	)	$	(298,701	)
Net loss from continuing operations per share — basic and diluted:	$	(0.73	)	$	(1.50	)	$	(0.62	)	$	(1.60	)	$	(3.66	)
Weighted-average number of ordinary shares outstanding — basic and diluted	126,601			112,592			104,531			102,968			64,808



	December 29, 2019			December 30, 2018		December 31, 2017		December 25, 2016		December 27, 2015
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	166,856		$	191,351	$	167,740	$	262,265	$	139,804
Restricted cash	—			—		—		150,000		—
Working capital (deficit)	(106,350		)	136,106		151,599		285,107		352,946
Total assets	2,585,640			2,694,401		2,128,724		2,290,586		2,073,494
Long-term liabilities	843,839			1,294,816		1,124,733		1,129,204		811,530
Shareholders’ equity	891,793			932,459		588,696		686,864		1,055,026

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	Fiscal year ended
	December 29, 2019			December 30, 2018			December 31, 2017			December 25, 2016			December 27, 2015
Other Data:
Cash flow provided by (used in) operating activities	$	41,607		$	(63,729	)	$	(184,810	)	$	37,824		$	(195,870	)
Cash flow used in investing activities	(103,246		)	(510,239		)	(109,421		)	(34,241		)	(15,970		)
Cash flow provided by financing activities	37,406			598,140			46,816			270,417			126,862
Depreciation¹	64,149			59,497			56,832			55,830			28,390
Share-based compensation expense	32,567			26,120			19,393			14,416			24,964
Capital expenditures	99,286			71,467			63,474			50,099			43,666

______________________________________


¹	The 2015 results were restated for the divestiture of our Large Joints business.


²	These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:



	Fiscal year ended
	December 29, 2019		December 30, 2018		December 31, 2017		December 25, 2016		December 27, 2015
Cost of sales	$	600	$	585	$	565	$	414	$	287
Selling, general and administrative	29,185		23,608		17,705		13,216		22,777
Research and development	2,782		1,927		1,123		786		1,900

During the fiscal year ended December 29, 2019, we recognized: (a) $6.3 million of transaction and transition costs related to both the Cartiva acquisition and the pending Stryker acquisition, (b) $1.0 million of inventory step-up amortization and (c) a non-cash asset impairment associated with the technology transfer of $5.6 million. 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 amortization; (b) $36.4 million of transaction and transition costs related to the Wright/Tornier merger; (c) $1.8 million of costs related to a legal settlement; (d) $1.3 million of costs associated with executive management changes; and (e) $0.2 million of costs associated with debt refinancing. During the fiscal year ended December 27, 2015, we recognized: (a) $82.2 million of due diligence, transaction, and transition costs related to the Wright/Tornier merger; (b) $14.2 million of share-based compensation acceleration; and (c) $10.3 million of inventory step-up amortization.

⁴

During the fiscal year ended December 29, 2019, we recognized: (a) $49.3 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 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.

⁵

During the fiscal year ended December 29, 2019, we recognized: (a) $14.3 million loss on a debt modification; (b) $11.0 million gain for the mark-to-market adjustment of our derivative instruments; (c) $0.1 million gain from foreign currency translation; (d) $9.5 million of charges due to the fair value adjustment to contingent consideration; (e) $3.3 million net gain on investments and (f) a $0.4 million gain from mark-to-market adjustments on the Contingent Value Rights (CVRs) issued in connection with the BioMimetic acquisition. 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 unamortized debt discount and deferred financing fees associated with the extinguishment of $400.0 million of the 2020 Notes; (b) a $35.9 million loss for the mark-to-market adjustment of our derivative instruments; (c) a $3.2 million loss from foreign currency translation; (d) $1.8 million of charges due to the fair value adjustment to contingent consideration; and (e) a $0.1 million loss from mark-to-market adjustments on the former 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-market adjustments on the CVRs issued in connection with the BioMimetic acquisition; (b) $4.8 million gain for the mark-to-market adjustment of our derivative instruments; (c) a benefit of $0.6 million from incentive and indirect tax projects; and (d) $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-market adjustment of our derivative instruments; (b) a $12.3 million non-cash loss on extinguishment of debt to write-off unamortized debt

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discount and deferred financing fees associated with the partial settlement of 2017 and 2020 convertible notes; (c) a $8.7 million loss from mark-to-market adjustments on the CVRs issued in connection with the BioMimetic acquisition; and (d) $0.5 million of charges due to the fair value adjustment 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.

⁶

During the fiscal year ended December 29, 2019, we recognized a $10.0 million income tax provision due to a change in tax rates on income from deferred intercompany transactions. 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 as result of the Cartiva acquisition; (b) a tax provision of $2.7 million due to a change in judgment regarding our ability to realize certain deferred tax assets; and (c) a $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 a $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 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. The offer is currently scheduled to expire at 9:00 a.m., Eastern Time, on February 27, 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, completion of the tender offer, and other customary closing conditions.

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 $435.0 million in cash, subject to certain adjustments as set forth in the agreement. On October 10, 2018, we completed the acquisition, which added a differentiated PMA approved technology for a high-volume foot and ankle procedure and further accelerated growth opportunities in our global extremities business. See Note 3 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for additional details related to the Cartiva acquisition. We funded the Cartiva acquisition with the proceeds from a registered underwritten public offering of 18.2 million ordinary shares which resulted in net proceeds of $423.0 million. See Note 14 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for additional details related to the public offering.

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 OrthoRecon business is 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.

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 29, 2019 and December 30, 2018 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 “2019” or “the year ended December 29, 2019” mean the fiscal year ended December 29, 2019.

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

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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.


•	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 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 29 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 States in Europe, Asia, Canada, Australia, and Latin America. Our U.S. sales accounted for 76.7% and 74.6% of total net sales for 2019 and 2018, 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™ Reversed 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

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RAYHACK^® osteotomy system. FDA 510(k) clearance of the AEQUALIS^®FLEX REVIVE™ revision 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 was fully launched at the end of the second quarter of 2019.

Our principal lower extremities products include the INBONE^®, INFINITY^®, and INVISION™ 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 October 2018 acquisition of Cartiva, our lower extremities product portfolio includes Cartiva’s Synthetic Cartilage Implant (SCI), the only PMA approved product for treatment of first Metatarsophalangeal (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 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.

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. Our principal biologic products include AUGMENT^® Bone Graft and AUGMENT^® Injectable. AUGMENT^® is based on recombinant human platelet-derived growth factor (rhPDGF-BB), a synthetic copy of one of the body’s principal healing agents. Other principal biologics products include the GRAFTJACKET^®and GRAFTJACKET NOW™lines 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. Additionally, we introduced BIOSKIN^® Amniotic Wound Matrix in the third quarter of 2019 to address chronic wounds treated by surgical podiatrists.

Significant Business Developments. 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. The offer is currently scheduled to expire at 9:00 a.m., Eastern Time, on February 27, 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, completion of the tender offer, and other customary closing conditions.

On February 25, 2019, we amended the Credit, Security and Guaranty Agreement dated December 23, 2016 with Midcap Financial Trust, as administrative agent and a lender and the additional lenders from time to time party thereto, 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.

During February 2019, we issued $139.6 million of additional 2023 Notes and settled $130.1 million of 2020 Notes. We paid approximately $30.1 million for additional 2023 Notes Hedges, and received approximately $21.2 million for additional 2023 warrants, resulting in a net cost to us of approximately $8.9 million. In connection with the above described exchange, we 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. We received proceeds of approximately $16.8 million related to the 2020 Notes Hedges and paid $11.0 million related to the 2020 Warrants, generating net proceeds of $5.8 million.

Supplemental Non-GAAP Pro Forma Information. Due to the significance of the Cartiva business that is not included in our results of operations for the year ended December 30, 2018 and to supplement our consolidated financial statements prepared in accordance with US GAAP, we use certain non-GAAP financial measures, including organic and combined pro forma net sales.

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Our 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, our 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. See tables below for a reconciliation of our non-GAAP organic and combined pro forma net sales for the years ended December 29, 2019 and December 30, 2018 to our net sales for such periods as calculated in accordance with US GAAP.

The “Results of Operations” discussion that appears below has been presented utilizing a combination of historical unaudited and, where relevant, non-GAAP organic and combined pro forma unaudited information to include the effects on our consolidated financial statements of our acquisition of Cartiva, as if the Cartiva acquisition had been completed as of December 26, 2016, the beginning of Wright’s fiscal year 2017. The organic net sales reflect net sales by the legacy Wright business, which do not include net sales of products obtained through the Cartiva acquisition. The pro forma net sales have been adjusted to reflect the effect on our combined net sales of incremental revenues that would have been recognized had Cartiva been acquired on December 26, 2016. The Cartiva acquisition only affected the U.S. and international lower extremities product lines net sales. The non-GAAP organic and combined pro forma net sales have been developed based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Cartiva acquisition.

The non-GAAP organic and pro forma financial data is not necessarily indicative of results of operations that would have occurred had the Cartiva acquisition been consummated on December 26, 2016, the first day of the 2017 fiscal year, or which might be attained in the future.

Financial Highlights. Net sales increased 10.1% totaling $920.9 million in 2019, compared to $836.2 million in 2018, driven primarily by 13.3% growth in our U.S. net sales.

Our U.S. net sales increased $82.8 million, or 13.3%, in 2019 as compared to 2018. The ongoing launch of our AEQUALIS™ FLEX REVIVE™ revision shoulder system and continued success of the combination of our BLUEPRINT™ enabling technology, AEQUALIS™ PERFORM™ Reversed Glenoid System and SIMPLICITI^® shoulder system contributed to non-GAAP, legacy Wright U.S. organic growth of 10.8%. The impact to our U.S. net sales from the Cartiva SCI was approximately $25.7 million. Our combined non-GAAP pro forma growth was 9.1% due to a reduction in Cartiva sales as the U.S. Cartiva business was transitioned to our direct U.S. lower extremities sales force during the third quarter of 2019.

Our international net sales increased $2.0 million, or 0.9%, in 2019 as compared to 2018, driven by Cartiva net sales of $4.1 million and an increase in our direct markets in our international upper extremities business. This increase was offset by a $9.0 million unfavorable impact from foreign currency exchange rates.

In 2019, our net loss from continuing operations totaled $92.1 million, compared to a net loss from continuing operations of $169.3 million for 2018. This decrease in net loss from continuing operations was primarily driven by a decrease in other expense, net as 2018 included a $39.9 million charge for the write-off of unamortized deferred financing fees and debt discount associated with the extinguishment of $400.0 million of the 2020 Notes and a $35.9 million loss for the net mark-to-market adjustments on our derivative assets and liabilities.

Opportunities and Challenges. On November 4, 2019, we entered into a definitive agreement with Stryker and its subsidiary, Stryker B.V. pursuant to which, and upon the terms and subject to the conditions thereof, Stryker B.V. 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.

We intend to continue to focus on leveraging 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 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 in October 2018. Supported by compelling clinical performance and backed by Level I clinical evidence, we believe Cartiva is well positioned for future growth as it addresses large markets with significant unmet needs and strong patient demand. As of August 1, 2019, the U.S. Cartiva business was transitioned to our direct U.S. lower extremities sales force.

Further, 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 29, 2019, approximately 40% of our U.S. shoulder customers are using BLUEPRINT™.

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We believe we have significant opportunity to increase sales with the recent and anticipated launch of new products, including our AEQUALIS™ PERFORM™ Reversed Glenoid System, AEQUALIS™ FLEX REVIVE™ revision shoulder system, our PROstep™ Minimally Invasive Surgery system, AUGMENT^® Injectable, 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 and on a timely basis to meet demand, 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. 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.

Results of Operations

The discussion below is on a continuing operations basis, unless otherwise noted.

Comparison of the fiscal year ended December 29, 2019 to the fiscal year ended December 30, 2018

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:



	Fiscal year ended
	December 29, 2019					December 30, 2018
	Amount			% of net sales		Amount			% of net sales
Net sales	$	920,900		100.0	%	$	836,190		100.0	%
Cost of sales ¹	188,641			20.5	%	180,153			21.5	%
Gross profit	732,259			79.5	%	656,037			78.5	%
Operating expenses:
Selling, general and administrative ¹	614,666			66.7	%	577,961			69.1	%
Research and development ¹	74,085			8.0	%	59,142			7.1	%
Amortization of intangible assets	31,921			3.5	%	26,730			3.2	%
Total operating expenses	720,672			78.3	%	663,833			79.4	%
Operating income (loss)	11,587			1.3	%	(7,796		)	(0.9	)%
Interest expense, net	80,849			8.8	%	80,247			9.6	%
Other expense, net	9,904			1.1	%	81,797			9.8	%
Loss from continuing operations before income taxes	(79,166		)	(8.6	)%	(169,840		)	(20.3	)%
Provision (benefit) for income taxes	12,968			1.4	%	(536		)	(0.1	)%
Net loss from continuing operations	$	(92,134	)	(10.0	)%	$	(169,304	)	(20.2	)%
Loss from discontinued operations, net of tax	(22,091		)			(201		)
Net loss	$	(114,225	)			$	(169,505	)

___________________________


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



	Fiscal year ended
	December 29, 2019		% of net sales		December 30, 2018		% of net sales
Cost of sales	$	600	0.1	%	$	585	0.1	%
Selling, general and administrative	29,185		3.2	%	23,608		2.8	%
Research and development	2,782		0.3	%	1,927		0.2	%

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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:



	Fiscal year ended
	December 29, 2019		December 30, 2018		% change
U.S.
Lower extremities	$	276,821	$	250,735	10.4	%
Upper extremities	329,787		281,314		17.2	%
Biologics	91,450		83,077		10.1	%
Sports med & other	8,231		8,412		(2.2	)%
Total U.S.	$	706,289	$	623,538	13.3	%

International
Lower extremities	$	63,636	$	60,749	4.8	%
Upper extremities	118,404		114,460		3.4	%
Biologics	22,021		25,757		(14.5	)%
Sports med & other	10,550		11,686		(9.7	)%
Total International	$	214,611	$	212,652	0.9	%

Total net sales	$	920,900	$	836,190	10.1	%

The following table reconciles our non-GAAP organic and combined pro forma net sales by product line for the fiscal year ended December 29, 2019 and December 30, 2018 (in thousands):



	Fiscal year ended December 29, 2019
	Legacy Wright (organic)		Standalone Cartiva		Wright Medical Group N.V.
U.S.
Lower extremities	$	251,101	$	25,720	$	276,821
Upper extremities	329,787		—		329,787
Biologics	91,450		—		91,450
Sports med & other	8,231		—		8,231
Total U.S.	$	680,569	$	25,720	$	706,289

International
Lower extremities	$	59,519	$	4,117	$	63,636
Upper extremities	118,404		—		118,404
Biologics	22,021		—		22,021
Sports med & other	10,550		—		10,550
Total International	$	210,494	$	4,117	$	214,611

Global
Lower extremities	$	310,620	$	29,837	$	340,457
Upper extremities	448,191		—		448,191
Biologics	113,471		—		113,471
Sports med & other	18,781		—		18,781
Total net sales	$	891,063	$	29,837	$	920,900

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	Fiscal year ended December 30, 2018
	Legacy Wright (organic)		Standalone Cartiva, post-acquisition		Standalone Cartiva, pre-acquisition		Non-GAAP combined pro forma
U.S.
Lower extremities	$	241,568	$	9,167	$	24,030	$	274,765
Upper extremities	281,314		—		—		281,314
Biologics	83,077		—		—		83,077
Sports med & other	8,412		—		—		8,412
Total U.S.	$	614,371	$	9,167	$	24,030	$	647,568

International
Lower extremities	$	60,430	$	319	$	1,254	$	62,003
Upper extremities	114,460		—		—		114,460
Biologics	25,757		—		—		25,757
Sports med & other	11,686		—		—		11,686
Total International	$	212,333	$	319	$	1,254	$	213,906

Global
Lower extremities	$	301,998	$	9,486	$	25,284	$	336,768
Upper extremities	395,774		—		—		395,774
Biologics	108,834		—		—		108,834
Sports med & other	20,098		—		—		20,098
Total net sales	$	826,704	$	9,486	$	25,284	$	861,474

			Fiscal year ended December 29, 2019
			Non-GAAP organic and combined pro forma net sales growth/(decline)
			Legacy Wright (organic)		Standalone Cartiva		Non-GAAP combined pro forma
U.S.
Lower extremities			3.9%		N/A		0.7%
Upper extremities			17.2%		N/A		17.2%
Biologics			10.1%		N/A		10.1%
Sports med & other			(2.2)%		N/A		(2.2)%
Total U.S.			10.8%		N/A		9.1%

International
Lower extremities			(1.5)%		N/A		2.6%
Upper extremities			3.4%		N/A		3.4%
Biologics			(14.5)%		N/A		(14.5)%
Sports med & other			(9.7)%		N/A		(9.7)%
Total International			(0.9)%		N/A		0.3%

Global
Lower extremities			2.9%		N/A		1.1%
Upper extremities			13.2%		N/A		13.2%
Biologics			4.3%		N/A		4.3%
Sports med & other			(6.6)%		N/A		(6.6)%
Total net sales			7.8%		N/A		6.9%

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Net sales

U.S. net sales. U.S. net sales totaled $706.3 million in 2019, a 13.3% increase from $623.5 million in 2018, primarily due to continued growth in our U.S. upper extremities business. Additionally, we had $25.7 million of net sales from Cartiva. We had non-GAAP organic growth of 10.8% along with non-GAAP combined pro forma growth of 9.1%.

U.S. sales represented approximately 76.7% of total net sales in 2019, compared to 74.6% of total net sales in 2018.

Our U.S. lower extremities net sales increased to $276.8 million in 2019 compared to $250.7 million in 2018, representing growth of 10.4%. This growth was primarily driven by Cartiva net sales of approximately $25.7 million. Our non-GAAP organic net sales of U.S. lower extremities increased 3.9%, which was in line with our expectations and primarily driven by 11% net sales growth in our total ankle replacement products, partially offset by flat performance in our core foot products. We believe our U.S. lower extremities business made good progress in bringing the U.S. lower extremities sales force back to full strength in the second half of 2019, filling our open territories with experienced foot and ankle reps, and we noted an improved growth rate in the fourth quarter for our total ankle products and our core foot and ankle products. We expect it will continue to take some time for the full benefits of these actions to be evident in our sales results.

Our U.S. upper extremities net sales increased to $329.8 million in 2019 from $281.3 million in 2018, representing growth of 17.2%. This growth was driven by the ongoing launch of our AEQUALIS™ FLEX REVIVE™ revision shoulder system and continued success of the combination of our BLUEPRINT™ enabling technology, AEQUALIS™ PERFORM™ Reversed Glenoid System and SIMPLICITI^® shoulder system.

Our U.S. biologics net sales totaled $91.5 million in 2019, up from $83.1 million in 2018, representing a 10.1% increase over 2018. This increase was driven by net sales volume growth of AUGMENT^® Injectable, which launched at the end of the second quarter of 2018 after receiving FDA approval, and in our core biologics products.

International net sales. Net sales in our international regions totaled $214.6 million in 2019, compared to $212.7 million in 2018. This 0.9% increase was primarily driven by incremental Cartiva net sales and an increase in our direct markets in our international upper extremities business. These increases were offset by a $9.0 million unfavorable impact from foreign currency exchange rates (a 4 percentage point unfavorable impact to international sales growth rate).

Our international lower extremities net sales increased 4.8% to $63.6 million in 2019 from $60.7 million in 2018. Sales increased primarily due to $4.1 million in Cartiva net sales. Non-GAAP organic international lower extremities sales decreased 1.5%, mostly due to a $2.4 million unfavorable impact from foreign currency exchange rates (a 4 percentage point unfavorable impact to international lower extremities sales growth rate). This unfavorable impact was partially offset by increased sales volumes to our distributor markets.

Our international upper extremities net sales increased 3.4% to $118.4 million in 2019 from $114.5 million in 2018. Sales increased by a combined 8.5% in our direct markets. These increases were partially offset by a $5.5 million unfavorable impact from foreign currency exchange rates (a 5 percentage point unfavorable impact to international upper extremities sales growth rate).

Our international biologics net sales decreased 14.5% to $22.0 million in 2019 from $25.8 million in 2018, due to timing of sales to stocking distributors and a $0.7 million unfavorable impact from foreign currency exchange rates (a 3 percentage point unfavorable impact to international biologics sales growth rate).

Cost of sales

Our cost of sales totaled $188.6 million, or 20.5% of net sales, in 2019, compared to $180.2 million, or 21.5% of net sales, in 2018. Our 2019 cost of sales included a $5.2 million favorable adjustment as a result of our change in accounting estimate of reserves for excess and obsolete inventory, as such inventory was sold (see Note 2 to the consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion of change in our estimate). Cost of sales as a percentage of net sales further decreased as a percentage of sales due to favorable manufacturing expenses and increased gross margins from Cartiva net sales, partially offset by inventory step-up amortization.

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 $614.7 million, or 66.7% of net sales, in 2019, compared to $578.0 million, or 69.1% of net sales, in 2018. In 2019, selling, general and administrative expenses included transaction and transition costs of $5.8 million, or 0.6% of net sales, and a non-cash asset impairment associated with the technology transfer of $5.6 million, or 0.6% of net sales. In 2018, selling, general and administrative expenses included transaction and transition cost of $7.6 million, or 0.9% of net sales. The remaining selling, general and administrative expenses as a percentage of net sales decreased 3 percentage points primarily due to leveraging certain general and administrative expenses over increased net sales.

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Our selling, general and administrative expenses are expected to decrease as a percentage of net sales in 2020 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 $74.1 million, or 8.0% of net sales, in 2019 compared to $59.1 million, or 7.1% of net sales, in 2018. Research and development costs increased 1 percentage point primarily due to investments in our new product pipeline.

Our research and development expenses are estimated to range from 7% to 8% as a percentage of net sales in 2020.

Amortization of intangible assets

Charges associated with amortization of intangible assets totaled $31.9 million in 2019 compared to $26.7 million in 2018. Based on intangible assets held at December 29, 2019, we expect amortization expense to be between $27 million and $31 million per year for the years 2020 through 2024.

Interest expense, net

Interest expense, net, totaled $80.8 million in 2019 and $80.2 million in 2018. Increased interest expense in 2019 related primarily to non-cash interest expense associated with the amortization of the discount on the 2023 Notes, 2021 Notes, and 2020 Notes of $23.5 million, $22.0 million, and $3.8 million, respectively; amortization of deferred financing charges on our borrowings totaling $5.2 million; and cash interest expense totaling $29.0 million primarily associated with the 2023 Notes, 2021 Notes, 2020 Notes, and borrowings under our ABL Facility and the Term Loan Facility, partially offset by interest income of $2.6 million.

Other expense, net

Other expense, net totaled $9.9 million in 2019, compared to $81.8 million of other expense, net in 2018. In 2019, other expense, net, consisted primarily of a loss of $14.3 million on the exchange of the cash convertible notes, primarily due to settlement of related conversion derivative liabilities; and a $9.5 million loss related to fair value adjustments to contingent consideration; partially offset by a $11.0 million gain related to mark-to-market adjustments on derivative assets and liabilities; and a net gain on investments of $3.3 million. In 2018, other expense, net, consisted primarily of a $39.9 million charge for the write-off of unamortized deferred financing fees and debt discount associated with the extinguishment of $400.0 million of the 2020 Notes; a $35.9 million loss for the net mark-to-market adjustments on our derivative assets and liabilities; a $3.2 million loss from foreign currency translation; and 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.

Provision (benefit) for income taxes

We recorded a tax provision of $13.0 million in 2019 and a tax benefit of $0.5 million in 2018. During 2019, our effective tax rate was approximately (16.4)%, as compared to 0.3% in 2018. Our 2019 net tax provision includes an approximately $10.0 million tax provision due to a change in tax rates on income from deferred intercompany transactions and tax provision on net earnings in jurisdictions where we do not have a valuation allowance offset by a tax benefit for foreign currency losses. Our 2018 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 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.

Loss from discontinued operations, net of tax

Loss from discontinued operations, net of tax, consists primarily of the 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. Our loss from discontinued operations for the fiscal years ended 2019 and 2018 was net of $18.5 million in insurance recoveries recognized in 2019 and a $30.75 million insurance recovery recognized in 2018. See Note 4 and Note 17 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.

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Reportable segments

The following tables set forth, for the periods indicated, net sales and operating income (loss) of our reportable segments expressed as dollar amounts (in thousands) and as a percentage of net sales:



	Fiscal year ended December 29, 2019
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics
Net sales	$	371,791		$	334,498		$	214,611
Operating income (loss)	$	103,883		$	123,539		$	(1,895	)
Operating income (loss) as a percent of net sales	27.9		%	36.9		%	(0.9		)%



	Fiscal year ended December 30, 2018
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics
Net sales	$	337,433		$	286,105		$	212,652
Operating income	$	96,153		$	97,644		$	1,492
Operating income as a percent of net sales	28.5		%	34.1		%	0.7		%

Net sales of our U.S. lower extremities and biologics segment increased $34.4 million in 2019 over the prior year. Operating income of our U.S. lower extremities and biologics segment increased $7.7 million in 2019 over the prior year. These increases to both net sales and operating income were driven primarily by net sales from Cartiva, as well as net sales growth from our INFINITY^® total ankle replacement products, our core lower extremities and biologics businesses, and AUGMENT^® Injectable, which received FDA approval in the second quarter of 2018. The increase in operating income was partially offset by investments in our lower extremities sales force. The Cartiva acquisition had an impact of approximately $16.6 million on net sales for our U.S. lower extremities and biologics segment in 2019 over the prior year. The Cartiva acquisition had an impact of approximately $15.5 million for the fiscal year ended December 29, 2019 on operating income for our U.S. lower extremities and biologics segment.

Net sales of our U.S. upper extremities segment increased $48.4 million in 2019 over the prior year. Operating income of our U.S. upper extremities segment increased $25.9 million in 2019 over the prior year. These increases to both net sales and operating income were primarily driven by continued net sales growth within our innovative shoulder product portfolio, including the combination of our AEQUALIS™ PERFORM™ Reversed Glenoid System, SIMPLICITI^® shoulder system, and BLUEPRINT™ enabling technology, the ongoing launch of our AEQUALIS™ FLEX REVIVE™ revision shoulder system, and leveraging certain selling, general and administrative expenses over increased net sales.

Net sales of our International extremities and biologics segment increased $2.0 million in 2019 over the prior year. This increase to net sales was primarily due to incremental Cartiva net sales in our international lower extremities business and growth in direct market sales in our international upper extremities business. The Cartiva acquisition had an impact of approximately $3.8 million on net sales for our International extremities and biologics segment in 2019 over the prior year. This increase was mostly offset by unfavorable impacts from foreign currency exchange rates. International extremities and biologics segment had an operating loss of $1.9 million during the fiscal year ended December 29, 2019 compared to $1.5 million of operating income for the fiscal year ended December 30, 2018, resulting in a $3.4 million decrease in operating income (loss). This decrease was primarily due to spending associated with the new European Medical Device Regulation (MDR). These impacts were partially offset by the operating income from the Cartiva acquisition which totaled $3.5 million for the fiscal year ended December 29, 2019.

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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:



	Fiscal year ended
	December 30, 2018					December 31, 2017
	Amount			% of net sales		Amount			% of net sales
Net sales	$	836,190		100.0	%	$	744,989		100.0	%
Cost of sales¹	180,153			21.5	%	160,947			21.6	%
Gross profit	656,037			78.5	%	584,042			78.4	%
Operating expenses:
Selling, general and administrative¹	577,961			69.1	%	525,222			70.5	%
Research and development¹	59,142			7.1	%	50,115			6.7	%
Amortization of intangible assets	26,730			3.2	%	28,396			3.8	%
Total operating expenses	663,833			79.4	%	603,733			81.0	%
Operating loss	(7,796		)	(0.9	)%	(19,691		)	(2.6	)%
Interest expense, net	80,247			9.6	%	74,644			10.0	%
Other expense, net	81,797			9.8	%	5,570			0.7	%
Loss from continuing operations before income taxes	(169,840		)	(20.3	)%	(99,905		)	(13.4	)%
Benefit for income taxes	(536		)	(0.1	)%	(34,968		)	(4.7	)%
Net loss from continuing operations	(169,304		)	(20.2	)%	(64,937		)	(8.7	)%
Loss from discontinued operations, net of tax	(201		)			(137,661		)
Net loss	$	(169,505	)			$	(202,598	)

___________________________


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



	Fiscal year ended
	December 30, 2018		% of net sales		December 31, 2017		% of net sales
Cost of sales	$	585	0.1	%	$	565	0.1	%
Selling, general and administrative	23,608		2.8	%	17,705		2.4	%
Research and development	1,927		0.2	%	1,123		0.2	%

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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:



	Fiscal year ended
U.S.	December 30, 2018		December 31, 2017		% change
Lower extremities	$	250,735	$	228,044	10.0	%
Upper extremities	281,314		239,965		17.2	%
Biologics	83,077		78,361		6.0	%
Sports med & other	8,412		8,141		3.3	%
Total U.S.	$	623,538	$	554,511	12.4	%

International
Lower extremities	$	60,749	$	58,473	3.9	%
Upper extremities	114,460		94,699		20.9	%
Biologics	25,757		22,276		15.6	%
Sports med & other	11,686		15,030		(22.2	)%
Total International	$	212,652	$	190,478	11.6	%

Total net sales	$	836,190	$	744,989	12.2	%

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^®PERFORM™ 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, 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

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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.

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.

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.

Amortization of intangible assets

Charges associated with amortization of intangible assets totaled $26.7 million in 2018 compared to $28.4 million in 2017.

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 10 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 2023 Notes, 2021 Notes, and 2020 Notes of $10.1 million, $20.0 million, and $19.1 million, respectively; amortization of deferred financing charges totaling $5.4 million; and cash interest expense totaling $28.3 million primarily associated with the 2023 Notes, 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, respectively; amortization of deferred financing charges totaling $4.9 million; and cash interest expense primarily associated with the coupon on the 2021 Notes, 2020 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:


•	a $39.9 million charge for the write-off of unamortized deferred financing fees and debt discount associated with the extinguishment of $400.0 million of the 2020 Notes;


•	a $35.9 million loss for the net mark-to-market adjustments on our derivative assets and liabilities;


•	a $3.2 million loss from foreign currency translation; and


•	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:


•	a $4.5 million loss on currency translation, including hedging activities;

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•	a $5.3 million loss for the mark-to-market adjustment on CVRs; partially offset by


•	a $4.8 million gain for the net mark-to-market adjustments on our derivative assets and liabilities; and


•	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 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.

In 2018, charges associated with product liability claims from the OrthoRecon business were fully offset by insurance recoveries. 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.

See Note 4 and Note 17 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:



	Fiscal year ended December 30, 2018
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics
Net sales	$	337,433		$	286,105		$	212,652
Operating income	96,153			97,644			1,492
Operating income as a percent of net sales	28.5		%	34.1		%	0.7		%



	Fiscal year ended December 31, 2017
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics
Net sales	$	309,713		$	244,798		$	190,478
Operating income	79,889			78,866			3,631
Operating income as a percent of net sales	25.8		%	32.2		%	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, 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.

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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 AEQUALIS™ PERFORM™ 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.

Seasonality and Quarterly Fluctuations

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 and mix of products sold in the quarter and the geographies in which they are sold; the demand for, and pricing of our products and the products of our competitors; the timing of or failure to obtain regulatory clearances or approvals for products; costs, benefits, and timing of new product introductions; the level of competition; the timing and extent of promotional pricing or volume discounts; changes in average selling prices; the availability and cost of components and materials; number of selling days; fluctuations in foreign currency exchange rates; the timing of patients’ use of their calendar year medical insurance deductibles; and impairment and other special charges.

Liquidity and Capital Resources

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



	December 29, 2019			December 30, 2018
Cash and cash equivalents	$	166,856		$	191,351
Working capital (deficit) ^{1, 2}	(106,350		)	136,106

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As of December 29, 2019, the sale price condition (as defined within Note 10 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data”) for the 2021 Notes was satisfied and, therefore, the 2021 Notes are convertible at any time during the succeeding quarterly period. As a result, the carrying value of the 2021 Notes was classified as a current liability as of December 29, 2019. The respective balances were classified as long-term as of December 30, 2018.

The holders of the 2020 Notes may convert their notes at any time on or after August 15, 2019. Due to the ability of the holders of the 2020 Notes to convert their notes within the next year, the carrying value of the 2020 Notes was classified as a current liability as of December 30, 2018. The 2020 Notes were classified as a current liability as of December 29, 2019 as they matured on February 15, 2020.

Operating activities. Cash provided by (used in) operating activities totaled $41.6 million, $(63.7) million, and $(184.8) million in 2019, 2018, and 2017, respectively. The increase in cash provided by operating activities in 2019 as compared to 2018 was primarily driven by improved cash profitability of continuing operations and lower levels of cash paid on contingent consideration and product liabilities associated with discontinued operations. During 2018, we paid $42.0 million upon reaching the CVR product sales milestone payment associated with sales for AUGMENT^® Bone Graft and $88.6 million for discontinued operations as compared to $52.6 million for discontinued operations in 2019 (see Note 17 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion of product liability claims and insurance recoveries).

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 liability claims associated with discontinued operations. Cash used in discontinued operations totaled $88.6 million and $228.1 million in 2018 and 2017, respectively (see Note 17 to our consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for further discussion of product liability settlement liabilities and insurance

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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.

Investing activities. Our capital expenditures totaled $99.3 million in 2019, $71.5 million in 2018, and $63.5 million in 2017. This increase is primarily due to increased investments in surgical instrumentation to support the continued rollouts and upcoming product launches in our upper extremities business, as well as increased investments in computer systems. In 2019, we also incurred approximately $14 million for the purchase and set up of a 40,000 square foot state of the art manufacturing and distribution facility in Arlington, Tennessee.

In addition to capital expenditures, during 2018, the majority of our cash used in investing activities was associated with the acquisition of Cartiva for $434.3 million, net of cash acquired. Additionally, 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 these acquisitions.

Financing activities. Cash provided by financing activities totaled $37.4 million, $598.1 million, and $46.8 million in 2019, 2018 and 2017, respectively.

Cash provided by financing activities in 2019 was primarily attributable to $52.1 million in cash received from the issuance of ordinary shares in connection with option exercises. These proceeds were partially offset by $6.4 million of net payments related to the exchange of 2023 Notes for 2020 Notes (as further described below) and the associated issuance of additional 2023 Notes Hedges and warrants and settlement of pro rata portions of the 2020 Notes Hedges and warrants.

On February 7, 2019, WMG issued $139.6 million of additional 2023 Notes in exchange for $130.1 million aggregate principal amount of 2020 Notes. As this was a debt modification, a pro rata share of the 2020 Notes deferred financing costs and discount was transferred to the 2023 Notes deferred financing costs and discount. Additionally, the 2023 Notes discount was adjusted in order for net debt to remain the same subsequent to the exchange. While the debt modification was a non-cash transaction, we paid approximately $3.0 million of debt modification costs.

Additionally, on January 30, 2019 and January 31, 2019, we, along with WMG, entered into cash-settled convertible note hedge transactions with certain option counterparties. 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 Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this transaction. We received proceeds of approximately $16.8 million related to the 2020 Notes Hedges and paid $11.0 million related to the 2020 Warrants, generating net proceeds of $5.8 million.

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 $435.0 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.

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.

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 and $27.6 million of cash from the issuance of ordinary shares in connection with option exercises under our share-based compensation plans. This was 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.

Repatriation. As of December 29, 2019, approximately $0.5 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 used in discontinued operations totaled $52.6 million, $88.6 million, and $228.1

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million for the years ended December 29, 2019, December 30, 2018, and December 31, 2017, respectively, and primarily related to payments of retained product liability claims from the OrthoRecon business. 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.

Contractual cash obligations. At December 29, 2019, we had contractual cash obligations and commercial commitments as follows (in thousands):



	Payments due by periods
Contractual obligations	Total		Less than 1 year ^{4, 5}		1-3 years		3-5 years		More than 5 years
Amounts reflected in consolidated balance sheet:
Finance lease obligations¹	$	27,515	$	7,912	$	11,322	$	4,951	$	3,330
Operating leases obligations ¹	24,561		7,420		9,510		3,595		4,036
Notes payable²	1,313,278		474,702		22,934

Wright Medical Group N.V. 10-K