You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and the notes thereto included elsewhere in this report, and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Special Note Regarding Forward-Looking Statements" and elsewhere in this annual report. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a global medical device company focused on surgeons that treat musculoskeletal injuries and disorders of the shoulder, elbow, wrist, hand, ankle and foot. We refer to these surgeons as extremity specialists. We sell to this extremity specialist customer base a broad line of joint replacement, trauma, sports medicine and biologic products to treat extremity joints. Our motto of "specialists serving specialists" encompasses this focus. In certain international markets, we also offer joint replacement products for the hip and knee. We currently sell over 90 product lines in approximately 35 countries.

We believe we are differentiated by our full portfolio of upper and lower extremity products, our dedicated extremity-focused sales organization and our strategic focus on extremities. We further believe that we are well positioned to benefit from the opportunities in the extremity products marketplace as we are among the global leaders in the shoulder and ankle joint replacement markets. We also have expanded our technology base and product offering to include: new joint replacement products based on new designs and materials; improved trauma products based on innovative designs; and proprietary biologic materials for soft tissue repair. In the United States, which is the largest orthopaedic market, we believe that our single, "specialists serving specialists" distribution channel is strategically aligned with what we believe is an ongoing trend in orthopaedics for surgeons to specialize in certain parts of the anatomy or certain types of procedures.

Our principal products are organized in four major categories: upper extremity joints and trauma, lower extremity joints and trauma, sports medicine and biologics, and large joints and other. Our upper extremity joints and trauma products include joint replacement and bone fixation devices for the shoulder, hand, wrist and elbow. Our lower extremity joints and trauma products include joint replacement and bone fixation devices for the foot and ankle. Our sports medicine and biologics product category includes products used across several anatomic sites to repair or regenerate soft tissue. Our large joints and other products include hip and knee joint replacement implants and ancillary products.

In the United States, we sell products from our upper extremity joints and trauma, lower extremity joints and trauma, and sports medicine and biologics product categories; we do not actively market large joints in the United States. While we market our products to extremity specialists, our revenue is generated from sales to healthcare institutions and distributors. We sell through a single sales channel consisting of a network of independent commission-based sales agencies, with occasional variations based upon individual territories. Internationally, in select markets, we sell our full product portfolio, including upper extremity joints and trauma, lower extremity joints and trauma, sports medicine and biologics and large joints. We utilize several distribution approaches depending on the individual market requirements, including direct sales organizations in the largest European markets and Australia, and independent distributors for most other international markets. In the first quarter of 2012, we generated revenue of $74.5 million, 53% of which was in the United States and 47% of which was international.

We have significantly grown our business during the past several years and have built an extremities focused business that offers a broad range of products to a focused group of specialty surgeons. We believe this strategy has been the primary factor in enabling our revenue growth during such time. During the past several years, we also have increased our operating expenses significantly. We have strategically invested with particular emphasis on product development, acquisition of strategic products and technologies, manufacturing capacity, sales commissions and infrastructure to support both current and anticipated growth.

In April 2012, we announced a facility consolidations plan pursuant to which we intend to consolidate a number of our facilities in France, Ireland and the United States. Under the plan, we intend to consolidate our St. Ismier, France manufacturing facility into our existing Montbonnot, France manufacturing facility; consolidate our Dunmanway, Ireland manufacturing facility into our Macroom, Ireland manufacturing facility; and lease a facility near Minneapolis, Minnesota in which we will consolidate our Minneapolis-based marketing, training, regulatory, clinical, supply chain and corporate functions with our Stafford, Texas-based distribution operations. The facility consolidations plan is driven by our strategy to drive operational productivity and to reduce annual operating expenses beginning in 2013. We anticipate that we will close our St. Ismier, France and Dunmanway, Ireland facilities during the second quarter of 2012 and our Stafford, Texas location by the end of 2012. We anticipate that, in connection with implementing the facility consolidations plan, we will record pre-tax charges of approximately $6.0 to $7.0 million, comprised of one-time employee termination costs; facility closure, moving and related expenses; fixed asset write-offs net of anticipated proceeds from the sale of facilities in Stafford, Texas and Dunmanway, Ireland; and other miscellaneous related charges. We expect to record

substantially all of the charges during 2012. We expect approximately $5.0 to $5.7 million of the charges will result in future cash expenditures. We expect to achieve annual pre-tax cost savings in the range of approximately $2.3 to $2.8 million related primarily to manufacturing and distribution efficiencies and reduced related operating expenses beginning in 2013.

Foreign Currency Exchange Rates

A substantial portion of our business is located outside the United States and as a result we generate revenue and incur expenses denominated in currencies other than the U.S. dollar. The majority of our operations denominated in currencies other than the U.S. dollar are denominated in Euros. In both the fiscal three month periods ended April 1, 2012 and April 3, 2011, approximately 47%, of our revenue was denominated in foreign currencies. As a result, our revenue can be significantly impacted by fluctuations in foreign currency exchange rates. We expect that foreign currencies will continue to represent a similarly significant percentage of our revenue in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same foreign currencies, thereby limiting our foreign currency transaction risk exposure. In addition, we also have significant levels of other selling, general and administrative and research and development expenses denominated in foreign currencies. We, therefore, believe that the risk of a significant impact on our earnings from foreign currency fluctuations is mitigated to some extent.

A substantial portion of the products we sell in the United States are manufactured in countries where costs are incurred in Euros. Fluctuations in the Euro to U.S. dollar exchange rate will have an impact on the cost of the products we manufacture in those countries, but we would not likely be able to change our U.S. dollar selling prices of those same products in the United States in response to those cost fluctuations. As a result, fluctuations in the Euro to U.S. dollar exchange rates could have a significant impact on our gross profit in future periods in which that inventory is sold. Fluctuations in the value of foreign currencies relative to the U.S. dollar impact our operating results. Impacts associated with fluctuations in foreign currency exchange rates are discussed in more detail under "Item 3 -Quantitative and Qualitative Disclosures about Market Risk." In countries with functional currencies other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates; and revenues, expenses and cash flows are translated using average rates of exchange. Constant currency growth rates used in the following discussion of results of operations eliminate the impact of period-over-period foreign currency fluctuations.

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our prior-period reported results. This calculation may differ from similarly-titled measures used by others; and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP nor should such amounts be considered in isolation.

Results of Operations



The three months ended April 1, 2012 and April 3, 2011 each consisted of 13
weeks.  The following table sets forth, for the periods indicated, our results
of operations as a percentage of revenue:



                                                  Three months ended
                                              April 1,          April 3,
                                                2012              2011

Statements of Operations Data:
Revenue                                    $ 74,458   100 %  $ 69,435   100 %
Cost of goods sold                           21,116    28 %    20,041    29 %
Gross profit                                 53,342    72 %    49,394    71 %
Selling, general and administrative          43,838    59 %    40,724    59 %
Research and development                      5,623     8 %     5,110     7 %
Amortization of intangible assets             2,647     4 %     2,810     4 %
Operating loss                                1,234     2 %       750     1 %
Interest income                                 113     0 %       128     0 %
Interest expense                               (487 )  (1 )%   (2,606 )  (4 )%
Foreign currency transaction gain (loss)         25     0 %       (79 )  (0 )%
Loss on extinguishment of debt                    -     *     (29,475 ) (42 )%
Other non-operating income (expense)              1     0 %       (19 )   0 %
Income (loss) before income taxes               886     1 %   (31,301 ) (45 )%
Income tax (provision) benefit               (1,062 )  (1 )%    7,332    11 %
Consolidated net loss                          (176 )  (0 )%  (23,969 ) (35 )%

The following tables set forth, for the periods indicated, our revenue by product category and geography expressed as dollar amounts and the changes in revenue between the specified periods expressed as percentages:

                                      Three months ended
                                     April 1,     April 3,     Percent     Percent
Revenue by Product Category            2012         2011       change      change
                                       ($ in thousands)          (as      (constant
                                                              reported)   currency)
Upper extremity joints and trauma   $    47,018   $  42,155          12 %        13 %
Lower extremity joints and trauma         7,029       6,632           6           7
Sports medicine and biologics             4,131       3,857           7           8
Total extremities                        58,178      52,644          11          11

Large joints and other                   16,280      16,791          (3 )         1
Total                               $    74,458   $  69,435           7 %         9 %




                         Three months ended
                        April 1,     April 3,     Percent     Percent
Revenue by Geography      2012         2011       change      change
                          ($ in thousands)          (as      (constant
                                                 reported)   currency)
United States          $    39,702   $  37,021           7 %         7 %
International               34,756      32,414           7          11
Total                  $    74,458   $  69,435           7 %         9 %

Revenue. Revenue increased by 7% to $74.5 million for the first quarter of 2012 from $69.4 million for the first quarter of 2011, as a result of increased sales in each of our extremity categories, partially offset by a slight decrease in large joints and other. The most significant increase occurred in our upper extremity joints and trauma category. The growth experienced in the extremity categories was due primarily to increased demand and product expansion. Our overall revenue growth of $5.0 million consisted of 7%

growth in both the United States and in our international geographies. Our revenue was negatively impacted by foreign currency exchange rate fluctuations of approximately $1.1 million, principally due to the performance of the U.S. dollar against the Euro.

Revenue by product category. Revenue in upper extremity joints and trauma increased by 12% to $47.0 million for the first quarter of 2012 from $42.2 million for the first quarter of 2011, primarily as a result of the continued increase in sales of our Aequalis reversed and Aequalis Ascend shoulder products, and to a lesser degree, our Simpliciti shoulder product. We believe that increased sales of our Aequalis reversed shoulder products resulted from continued market growth in shoulder replacement procedures and continued market movement towards reversed shoulder replacement procedures. We also saw an increase in sales of our Aequalis Ascend shoulder products which continued to gain share in the shoulder replacement market. Offsetting this increase was the negative impact of foreign currency exchange rate fluctuations of $0.4 million. Revenue in our lower extremity joints and trauma increased by 6% to $7.0 million for the first quarter of 2012 from $6.6 million for the first quarter of 2011, primarily due to increased sales in our ankle replacement and ankle fusion products in the United States. Revenue in sports medicine and biologics increased by 7% to $4.1 million for the first quarter of 2012 from $3.9 million for the first quarter of 2011. This increase was attributable to increased sales of our anchor products internationally, offset by a decrease in sales of our biologics products. Revenue from large joints and other decreased by 3% to $16.3 million for the first quarter of 2012 from $16.8 million for the first quarter of 2011 primarily related to negative foreign currency exchange rate fluctuations of $0.7 million. Excluding the impact of foreign currency fluctuations, our large joints and other product category increased by 1% during the first quarter of 2012 compared to the first quarter of 2011. This increase was driven by increased sales of our hip and knee products offset by a decrease in revenue from our instrument and other categories.

Revenue by geography. Revenue in the United States increased by 7% to $39.7 million for the first quarter of 2012 from $37.0 million for the first quarter of 2011, primarily driven by the continued increase in sales of upper extremities joints and trauma products. While the United States revenue was negatively affected by certain distribution channel changes made during the first quarter of 2012, overall United States revenue increased as a result of increases in sales of lower extremities joints and trauma products. International revenue increased by 7% to $34.8 million for the first quarter of 2012 from $32.4 million for the first quarter of 2011. Excluding the impact of foreign currency exchange rate fluctuations, our international revenue increased by 11%. This increase was primarily due to increased revenue in France, the Netherlands, the United Kingdom and sales to certain stocking distributors across various countries in which we have no current direct sales force. Offsetting the increase in international sales was the negative impact of foreign currency exchange rate fluctuations of $1.1 million.

Cost of goods sold. Our cost of goods sold increased by 5% to $21.1 million for the first quarter of 2012 from $20.0 million for the first quarter of 2011. As a percentage of revenue, cost of goods sold decreased from 29% for the first quarter of 2011 to 28% for the first quarter of 2012, primarily due to a lower level of excess and obsolete inventory charges in the first quarter of 2012 and a stronger U.S. dollar which drove lower expense due to our European manufacturing presence. Our cost of goods sold and corresponding gross profit as a percentage of revenue can be expected to fluctuate in future periods depending upon certain factors, including, among others, changes in our product sales mix and prices, distribution channels and geographies, manufacturing yields, plans for insourcing some previously outsourced production activities, inventory reserves required, levels of production volume and fluctuating inventory costs due to changes in foreign currency exchange rates since the period they were manufactured.

Selling, general and administrative. Our selling, general and administrative expenses increased by 8% to $43.8 million for the first quarter of 2012 from $40.7 million for the first quarter of 2011. As a percentage of revenue, selling, general and administrative expenses remained consistent with prior years at 59%. Our variable selling costs as a percentage of revenue were slightly higher during the first quarter of 2012 when compared to the same quarter of 2011, which was offset by a lower rate of non-variable selling related expenses as a percentage of revenue. The increase in total selling, general and administrative expense was primarily a result of $1.4 million of additional variable expenses including commissions, royalties and freight expenses due to increased revenue. Selling, general and administrative expenses also increased compared to the first quarter of 2011 as a result of increased other non-variable expenses, increased stock-based compensation expense, increased costs related to information technology and increased legal related expenses as a result of being a U.S. public reporting company. These items were partially offset by the favorable impact of foreign currency exchange rate fluctuations of $0.7 million.

Research and development. Research and development expenses increased by 10% to $5.6 million for the first quarter of 2012 from $5.1 million for the first quarter of 2011. As a percentage of revenue, research and development expenses increased from 7% for the first quarter of 2011 to 8% for the first quarter of 2012 due primarily to the timing of progress of certain clinical studies and product development related projects. We believe that continued investment in research and development is an important part of sustaining our growth strategy through new product development and anticipate that in the near future, research and development expenses as a percentage of revenue will remain consistent with past levels. The increase in total research and development expense was primarily due to increased clinical study related expenses, an increased level of expenses on certain shoulder related development projects and increased personnel related expenses. These items were partially offset by the favorable impact of foreign currency exchange rate fluctuations of $0.1 million.

Amortization of intangible assets. Amortization of intangible assets decreased by 6% to $2.6 million for the first quarter of 2012 from $2.8 million for the first quarter of 2011, primarily as a result of the complete amortization of certain license related intangibles.

Interest income. Our interest income remained consistent at $0.1 million during the first quarter of 2012 and the first quarter of 2011.

Interest expense. Our interest expense decreased by 81% to $0.5 million for the first quarter of 2012 from $2.6 million for the first quarter of 2011 due to the repayment of our notes payable in February 2011. Our notes payable carried an 8% stated interest rate and were recorded at a discount because they were issued together with warrants. The discount on our notes payable was also previously amortized as additional interest expense. As a result, the existence of our notes payable in prior periods caused a much higher level of interest expense. Our interest expense for the first quarter of 2012 related to the interest paid on our continuing term loans, mortgages, and existing lines of credit.

Foreign currency transaction gain (loss). We recognized minimal foreign currency transaction gain in the first quarter of 2012 compared to a foreign currency transaction loss of $(0.1) million for the first quarter of 2011. Foreign currency gains and losses are recognized when a transaction is denominated in a currency other than the subsidiary's functional currency. The increase in foreign currency transaction gain was primarily attributable to foreign currency exchange rate fluctuations on foreign currency denominated intercompany payables and receivables.

Loss on extinguishment of debt. We recognized a $29.5 million loss on extinguishment of debt during the first quarter of 2011 due to the repayment of our notes payable. Our notes payable were issued in 2008 and 2009 together with warrants to purchase ordinary shares of the company. At the time of issuance, we recognized the estimated fair value of the warrants as a warrant liability with an offsetting debt discount to reduce the carrying value of the notes payable to the estimated fair value at the time of issuance. This debt discount was then amortized as additional interest expense over the term of the notes. At the time of repayment in the first quarter of 2011, we recognized the remaining unamortized portion of the discount as a loss on the extinguishment of debt. We had no such expense related to the extinguishment of debt during the first quarter of 2012. See Note 7 of our consolidated financial statements for further discussion of the accounting treatment of the notes payable and related warrants.

Other non-operating income (expense). Our other non-operating income (expense) was immaterial during both the first quarter of 2012 and the first quarter of 2011.

Income tax expense (benefit). Our effective tax rate for the first quarter of 2012 and 2011 was 120% and 23%, respectively. The change in our effective tax rate from the first quarter of 2011 to the first quarter of 2012 primarily relates to the relative percentage of our pre-tax income from operations in countries with pretax income and related income tax expense compared to operations in countries in which we have pre-tax losses but for which we do not record a valuation allowance against deferred tax assets. In the first quarter of 2012, our income tax expense recognized relates primarily to income tax on pre-tax income in certain of our European operations. This pre-tax income was offset by pre-tax losses in our United States and Netherlands operations for which we currently do not recognize any income tax benefits. Our income tax expense increased to $1.1 million during the first quarter of 2012 compared to a benefit of $7.3 million for the first quarter of 2011. During the first quarter of 2011, we recognized $7.5 million of deferred tax benefit related to the $29.5 million loss on extinguishment of debt previously discussed. This benefit was the result of reversing the remaining deferred tax liability related to the unamortized debt discount on our notes payable at the time of repayment. Given our history of operating losses, we do not generally record a provision for income taxes in the United States and certain of our European geographies.

Seasonality and Quarterly Fluctuations

Our business is seasonal in nature. Historically, demand for our products has been the lowest in our third quarter as a result of the European holiday schedule during the summer months.

We have experienced and expect to continue to experience meaningful variability in our revenue and gross profit 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

Since inception, we have generated significant operating losses. These, combined with significant charges not related to cash from operations, which have included amortization of acquired intangible assets, fair value adjustments to our warrant liability and accretion of noncontrolling interests, have resulted in an accumulated deficit of $214.2 million as of April 1, 2012. Historically, our liquidity needs have been met through a combination of sales of our equity securities together with issuances of notes payable and warrants to both then current shareholders and new investors and other bank related debt. In February 2011, we completed an initial public offering from which we received net proceeds of approximately $149.2 million after underwriters' discounts, commissions and offering expenses. Our notes payable were repaid in full during the first quarter of 2011 using a portion of these proceeds. Additionally, in March 2011, we sold additional ordinary shares due to the exercise of the underwriters' overallotment option from which we received additional net proceeds of approximately $12.8 million after underwriters' discounts and commissions and offering expenses.

We believe that our cash and cash equivalent balance of approximately $69.1 million and our existing available credit of $21.1 million as of April 1, 2012 will be sufficient to fund our working capital requirements and operations and permit anticipated capital expenditures during the remainder of 2012. In the event that we would require additional working capital to fund future operations, we could seek to acquire that through additional issuances of equity . . .