10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 2, 2011

or

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

For the transition period from                      to                     

Commission file number: 1-35065

TORNIER N.V.

(Exact name of registrant as specified in its charter)

The Netherlands	98-0509600
(State or Other Jurisdiction	(IRS Employer
of Incorporation or Organization)	Identification Number)

Fred Roeskestraat 123
1076 EE Amsterdam, The Netherlands	None
(Address of Principal Executive Offices)	(Zip Code)

(+ 31) 20 675 4002

(Registrant’s Telephone Number, Including Area Code)

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.  x Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)  x Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of November 10, 2011, there were 39,263,154 ordinary shares outstanding.

TORNIER N.V.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2011

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	4
Consolidated Balance Sheets as of October 2, 2011 and January 2, 2011	4
Consolidated Statements of Operations for the Three and Nine Months ended October 2, 2011 and October 3, 2010	5
Consolidated Statements of Cash Flows for the Nine Months ended October 2, 2011 and October 3, 2010	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures about Market Risk	24
Item 4. Controls and Procedures	25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	26
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3. Defaults Upon Senior Securities	27
Item 4. [Removed and Reserved]	27
Item 5. Other Information	27
Item 6. Exhibits	27
SIGNATURES	28
EXHIBIT INDEX	29

On January 28, 2011, Tornier B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) changed its legal form by converting to Tornier N.V., a public company with limited liability (naamloze vennootschap).  This is referred to as the “conversion” in this report.

References to “Tornier,” “Company,” “we,” “our” or “us” in this report refer to Tornier B.V. and its subsidiaries prior to the conversion and to Tornier N.V. and its subsidiaries upon and after the conversion, unless the context otherwise requires.

This report contains references to among others, our trademarks Aequalis®, Ascend™, Piton®, Stabilis™, Wave®, and Tornier™. All other trademarks or trade names referred to in this report are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements.” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements other than statements of historical fact included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “could,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” other words and terms of similar meaning and the use of future dates. These forward-looking statements may be contained throughout this report, including but not limited to statements under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control and could cause our actual results to differ materially from those matters expressed or implied by our forward-looking statements. Forward-looking statements (including oral representations) are only predictions or statements of current plans and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including, among other things, risks associated with:

·a history of operating losses and negative cash flow;

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

·not successfully competing against our existing or potential competitors;

·continuing weakness in the global economy, which may be exacerbated by austerity measures anticipated to be taken by several countries and which could reduce the availability or affordability of private insurance or may affect patient decision to undergo elective procedures, and could otherwise adversely affect our business and results of operations;

·deriving a significant portion of our revenues from operations in certain geographic markets that are subject to political, economic and social instability and risks and uncertainties involved in launching our products in certain new geographic markets;

·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 trasition;

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

·our patents and other intellectual property rights not adequately protecting our products, which may result in our loss of market share to our competitors;

·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;

·turmoil in the worldwide credit and financial markets, which may be exacerbated by the European sovereign debt crisis and which may negatively affect our business, financial condition or results of operations;

·the inability to raise capital when needed, which could force us to delay, reduce, eliminate or abandon our commercialization efforts or product development programs;

·restrictive covenants in our outstanding debt agreements that may limit our operating flexibility;

·consolidation in the healthcare industry that could lead to demands for price concessions or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition or results of operations;

·regulatory clearances or approvals and the extensive regulatory requirements to which we are subject;

·the compliance of our products with the laws and regulations of the foreign 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 lead to product liability suits, which could be costly to our business or result in U.S. Food and Drug Administration (FDA) sanctions; and

2

·healthcare reform legislation and its future implementation, possible additional legislation, regulation and other governmental pressure in the United States and globally, which may affect utilization, pricing, reimbursement, taxation and rebate policies of governmental agencies and private payors, which could have an adverse effect on our business, financial condition or results of operations.

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 our annual report on Form 10-K for the fiscal year ended January 2, 2011 under the heading “Part I — Item 1A. Risk Factors” on pages 24 through 53 of such report and “Part II — Item 1A Risk Factors” of this report. The risks and uncertainties described above and under the heading “Part I — Item 1A Risk Factors” in our annual report on Form 10-K for the fiscal year ended January 2, 2011 and “Part II — 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 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 Securities and Exchange Commission.

3

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TORNIER N.V. AND SUBSIDIARIES

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)

	October 2, 2011			January 2, 2011
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	55,848		$	24,838
Accounts receivable (net of allowance of $2,349 and $2,519, respectively)	42,703			42,758
Inventories	85,726			77,525
Income taxes receivable	—			2,835
Deferred income taxes	1,245			2,587
Prepaid taxes	12,589			11,179
Prepaid expenses	2,299			7,444
Other current assets	3,650			4,048
Total current assets	204,060			173,214
Instruments, net	48,802			42,378
Property, plant and equipment, net	33,454			33,680
Goodwill	133,724			131,830
Intangible assets, net	102,024			109,024
Deferred income taxes	443			440
Other assets	1,312			612
Total assets	$	523,819		$	491,178
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	20,956		$	28,392
Accounts payable	12,010			12,890
Accrued liabilities	30,637			34,620
Income taxes payable	763			327
Deferred income taxes	7			20
Total current liabilities	64,373			76,249
Notes payable	—			84,261
Other long-term debt	24,356			25,467
Deferred income taxes	19,937			28,706
Contingent liabilities	—			1,860
Other non-current liabilities	3,981			4,396
Total liabilities	112,647			220,939
Shareholders’ equity:
Ordinary shares, €0.03 par value; authorized 175,000,000 and 100,000,000 at October 2, 2011 and January 2, 2011, respectively; issued and outstanding 39,244,166 and 29,568,731 at October 2, 2011 and January 2, 2011, respectively	1,559			1,156
Additional paid-in capital	606,590			437,307
Accumulated deficit	(212,007		)	(183,532		)
Accumulated other comprehensive income	15,030			15,308
Total shareholders’ equity	411,172			270,239
Total liabilities and shareholders’ equity	$	523,819		$	491,178

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

4

TORNIER N.V. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

	Three months ended						Nine months ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(unaudited)						(unaudited)
Revenue	$	57,556		$	49,707		$	192,149		$	166,113
Cost of goods sold	16,650			13,553			54,708			45,554
Gross profit	40,906			36,154			137,441			120,559
Operating expenses:
Sales and marketing	31,764			29,474			101,335			93,665
General and administrative	6,173			5,449			18,560			16,643
Research and development	4,309			3,898			14,608			12,714
Amortization of intangible assets	2,741			2,842			8,448			8,720
Special charges	56			54			188			306
Total operating expenses	45,043			41,717			143,139			132,048
Operating loss	(4,137		)	(5,563		)	(5,698		)	(11,489		)
Other income (expense):
Interest expense	(379		)	(5,282		)	(3,346		)	(16,047		)
Foreign currency transaction gain (loss)	(228		)	(3,728		)	(81		)	(9,467		)
Loss on extinguishment of debt	—			—			(29,475		)	—
Other non-operating income (expense)	993			283			1,009			344
Loss before income taxes	(3,751		)	(14,290		)	(37,591		)	(36,659		)
Income tax (expense) benefit	2,114			1,531			9,116			5,246
Consolidated net loss	(1,637		)	(12,759		)	(28,475		)	(31,413		)
Net loss attributable to non-controlling interest	—			—			—			(695		)
Net loss attributable to Tornier	(1,637		)	(12,759		)	(28,475		)	(30,718		)
Accretion of non-controlling interest	—			—			—			(679		)
Net loss attributable to ordinary shareholders	$	(1,637	)	$	(12,759	)	$	(28,475	)	$	(31,397	)
Net loss per share:
Basic and diluted	$	(0.04	)	$	(0.43	)	$	(0.75	)	$	(1.15	)
Weighted average shares outstanding:
Basic and diluted	39,150			29,569			37,882			27,192

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

5

TORNIER N.V. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

	Nine months ended
	October 2,2011			October 3, 2010
	(unaudited)
Cash flows from operating activities:
Consolidated net loss	$	(28,475	)	$	(31,413	)
Adjustments to reconcile consolidated net loss to cash provided by operating activities:
Depreciation and amortization	21,038			19,842
Non-cash foreign currency loss	387			8,787
Deferred income taxes	(8,993		)	(5,570		)
Share-based compensation	4,741			4,187
Non-cash interest expense and discount amortization	2,040			14,599
Inventory obsolescence	3,814			4,031
Loss on extinguishment of debt	29,475			—
Other non-cash items affecting earnings	(347		)	745
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(534		)	660
Inventories	(11,015		)	(17,235		)
Accounts payable and accruals	(3,449		)	4,590
Other current assets and liabilities	3,556			(3,855		)
Other non-current assets and liabilities	(1,277		)	127
Net cash provided by (used in) operating activities	10,961			(505		)
Cash flows from investing activities:
Acquisition-related cash payments	(2,053		)	(1,992		)
Additions of instruments	(15,042		)	(10,508		)
Purchases of property, plant and equipment	(3,772		)	(5,540		)
Net cash used in investing activities	(20,867		)	(18,040		)
Cash flows from financing activities:
Change in short-term debt	(8,185		)	7,129
Repayments of long-term debt	(6,458		)	(5,003		)
Proceeds from issuance of long-term debt	4,751			5,351
Deferred financing costs	(2,731		)	(1,676		)
Repayment of notes payable	(116,108		)	—
Issuance of ordinary shares	171,215			806
Net cash provided by financing activities	42,484			6,607
Effect of exchange rate changes on cash and cash equivalents	(1,568		)	(529		)
Increase (decrease) in cash and cash equivalents	31,010			(12,467		)
Cash and cash equivalents:
Beginning of period	24,838			37,969
End of period	$	55,848		$	25,502
Non-cash investing and finance activities:
Fixed assets acquired pursuant to capital lease	$	646		$	—

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

6

TORNIER N.V. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(unaudited)

1. Business Description

Tornier N.V. (Tornier or the Company) is a global medical device company focused on surgeons that treat musculoskeletal injuries and disorders of the shoulder, elbow, wrist, hand, ankle and foot. The Company refers to these surgeons as extremity specialists. The Company sells to this extremity specialist customer base a broad line of joint replacement, trauma, sports medicine and biologic products to treat extremity joints. The Company’s motto of “specialists serving specialists” encompasses this focus. In certain international markets, Tornier also offers joint replacement products for the hip and knee. The Company currently sells approximately 90 product lines in approximately 35 countries.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Tornier N.V. and all of its wholly and majority owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and the instructions to quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended January 2, 2011, as filed with the U.S. Securities and Exchange Commission (SEC).

In the opinion of the Company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring accruals, necessary for the fair presentation of the Company’s interim results. The results of operations for any interim period are not indicative of results for the full fiscal year.

The condensed consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (GAAP) and include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.  All amounts are presented in U.S. Dollars (“$”), except where expressly stated as being in other currencies, e.g., Euros (“€”).

Certain amounts reported in previous periods have been reclassified to conform to the current period presentation.

On January 28, 2011, the Company executed a 3-to-1 reverse stock split of the Company’s ordinary shares. All share and per share amounts for all periods presented in these condensed consolidated financial statements reflect this split.

On January 28, 2011, the Company made a change to its legal form by converting from Tornier B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) to Tornier N.V., a public company with limited liability (naamloze vennootschap).

The Company’s fiscal quarters are generally determined on a 13-week basis and always end on a Sunday. As a result, the Company’s fiscal year is generally 364 days. Fiscal year-end periods end on the Sunday nearest to December 31. Every few years, it is necessary to add an extra week to a quarter to make it a 14-week period in order to have the year end fall on the Sunday nearest to December 31. For example, the first three quarters of 2010 include an extra week of operations compared to the first three quarters of 2011.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-6, Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including (i) significant transfers into and out of Level 1 and Level 2 fair value measurements and (ii) information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 was effective for interim and annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which were effective for interim and annual periods beginning after December 15, 2010. The Company adopted the additional disclosures required for Level 1 and Level 2 fair value measurements in the first quarter of 2010 and Level 3 disclosures during the first quarter of 2011.

7

In May 2011, the FASB issued ASU 2011-4, Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which was intended by the FASB and the International Accounting Standards Board (IASB) to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards (IFRSs).  Additional disclosures required by this amendment include information about transfers between Level 1 and Level 2 instruments, information regarding the sensitivity of Level 3 instruments, and categorization by level of items that are not measured at fair value in the statement of financial position (but for which disclosure of fair value is still required). The guidance is effective prospectively for fiscal years beginning after December 15, 2011 and interim periods within those years. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or operating results.

In September 2011, the FASB issued ASU 2011-08, Intangibles, Goodwill and Other (ASC Topic 350), Testing Goodwill for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary.  The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  An entity can choose to early adopt if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements.  Entities considering early adoption should begin assessing relevant factors for the qualitative assessment.  An entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required.  The Company is currently evaluating the early adoption option.  The Company does not expect the adoption or early adoption of this update to have any impact on the Company’s financial position or operating results.

3. Fair Value of Financial Instruments

The Company applies ASC Topic 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC Topic 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC Topic 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that that market participants would use in pricing the asset or liability, and are to be developed based on the best information available in the circumstances.

When an active market for certain financial instruments does not exist, it may be appropriate to use unobservable inputs to determine fair value. The carrying value of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximates the fair value of these financial instruments at October 2, 2011 and January 2, 2011.  Assets and liabilities measured at fair value are done so on a recurring basis. U.S. GAAP requires fair value measurements to be classified and disclosed in one of the following three categories:

Level 1—Assets and liabilities with unadjusted, quoted prices listed on active market exchanges.

Level 2—Assets and liabilities determined using prices for recently traded assets and liabilities with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3—Assets and liabilities that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the asset or liability. The prices are determined using significant unobservable inputs or valuation techniques.

Cash and cash equivalents are classified as Level 1 fair value measurements. As of October 2, 2011, the Company had no material assets or liabilities with recurring Level 2 or Level 3 fair value measurements.

4. Inventories

Inventory balances consist of the following (in thousands):

	October 2,2011		January 2, 2011
Raw materials	$	6,694	$	7,913
Work-in-process	8,370		5,356
Finished goods	70,662		64,256
Total	$	85,726	$	77,525

8

5. Property, Plant and Equipment

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

	October 2,2011			January 2, 2011
Land	$	2,215		$	2,195
Building and improvements	12,094			10,087
Machinery and equipment	21,297			20,420
Furniture, fixtures and office equipment	24,010			22,066
Software	4,300			4,134
Construction in progress	131			129
	64,047			59,031
Accumulated depreciation	(30,593		)	(25,351		)
Property, plant and equipment, net	$	33,454		$	33,680

6. Instruments

Instruments included in long-term assets on the consolidated balance sheets consist of the following (in thousands):

	October 2, 2011			January 2, 2011
Instruments	$	70,402		$	58,356
Instruments in process	17,971			15,007
Accumulated depreciation	(39,571		)	(30,985		)
Instruments, net	$	48,802		$	42,378

7. Goodwill and Other Intangible Assets

The following table summarizes the changes in the carrying amount of goodwill (in thousands):

Balance at January 2, 2011	$	131,830
Contingent payment on acquisition	1,099
Foreign currency translation	795
Balance at October 2, 2011	$	133,724

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

	Gross value		Accumulated amortization			Net value
Balances at October 2, 2011
Intangible assets subject to amortization:
Developed technology	$	76,943	$	(28,561	)	$	48,382
Customer relationships	62,317		(21,493		)	40,824
Licenses	4,058		(1,928		)	2,130
Other	1,701		(1,031		)	670
Intangible assets not subject to amortization:
Trade name	10,018		—			10,018
Total	$	155,037	$	(53,013	)	$	102,024

9

	Gross value		Accumulated amortization			Net value
Balances at January 2, 2011
Intangible assets subject to amortization:
Developed technology	$	76,561	$	(24,164	)	$	52,397
Customer relationships	61,838		(18,275		)	43,563
Licenses	3,965		(1,492		)	2,473
Other	1,645		(967		)	678
Intangible assets not subject to amortization:
Trade name	9,913		—			9,913
Total	$	153,922	$	(44,898	)	$	109,024

Estimated annual amortization expense for fiscal years ending 2011 through 2015 is as follows (in thousands):

	Amortization expense
2011	$	10,698
2012	10,443
2013	10,407
2014	10,364
2015	10,356

8. Other Long-Term Debt

A summary of debt is as follows (in thousands):

	October 2, 2011			January 2, 2011
Lines of credit	$	12,752		$	20,639
Mortgages	5,875			6,342
Other term debt	24,304			24,522
Shareholder debt	2,381			2,356
Total debt	45,312			53,859
Less current portion	(20,956		)	(28,392		)
Long-term debt	$	24,356		$	25,467

The Company’s European subsidiaries have established unsecured lines of credit totaling $24.8 million and $21.9 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under these lines were $11.4 million and $15.4 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under these lines have variable interest rates based on the Euro Overnight Index Average plus 1.3% or a three-month Euro plus 0.5%-3.0%.

The Company’s U.S. subsidiary has established a $10.0 million secured line of credit at October 2, 2011 and January 2, 2011. This line of credit expires in July 2012 and is callable by the bank at any time. Also, the line is secured by working capital and equipment. Borrowings under the line were $1.3 million and $5.2 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under the line of credit bear interest at a 30-day LIBOR plus 2.25%, with a floor interest rate of 5%. This line contains customary affirmative and negative covenants and events of default. As of October 2, 2011, the Company’s U.S. subsidiary was subject to a covenant to maintain no less than $39.0 million of tangible net worth. Also as of October 2, 2011, the Company was subject to a covenant to maintain a maximum debt to tangible net worth ratio of 1.50. The covenants relate to the U.S. subsidiary’s ratios only. The Company was in compliance with all covenants as of October 2, 2011.

The Company has a mortgage secured by the Company’s U.S. subsidiary’s office building in Stafford, Texas. This mortgage had an outstanding amount of $1.3 million at October 2, 2011 and January 2, 2011.  This mortgage bears a fixed annual interest rate of 6.7%.

The Company also has a mortgage secured by an office building in Grenoble, France. This mortgage had an outstanding balance of $4.6 million and $5.0 million at October 2, 2011 and January 2, 2011, respectively. This mortgage bears a fixed annual interest rate of 4.9%.

10

The Company’s U.S. subsidiary had long-term debt secured by its working capital and equipment that was repaid during the second quarter of 2011. This debt had an outstanding amount of $0.3 million at January 2, 2011. This debt accrued interest based on a variable rate of LIBOR plus 2.25%.

The Company’s international subsidiaries have other long-term secured and unsecured notes totaling $24.3 million and $24.2 million at October 2, 2011 and January 2, 2011, respectively, with initial maturities ranging from 3 to 10 years. A portion of these notes have fixed annual interest rates that range from 2.9% to 7.5%. The remaining notes carry a variable annual interest rate based on LIBOR, plus 1.2%, or a three-month Euro, plus 0.3% to 1.5%.

One of the Company’s 51%-owned and consolidated subsidiaries borrowed $2.4 million from a member of the Company’s Board of Directors who is also a 49% owner of the consolidated subsidiary. This loan was used to partially fund the purchase of real estate in Grenoble, France, to be used as a manufacturing facility. Interest on the debt is variable based on three-month Euro plus 0.5%. The non-controlling interest in this subsidiary is deemed immaterial to the consolidated financial statements.

9. Notes Payable and Warrants to Issue Ordinary Shares

In April 2009, the Company issued notes payable in the amount of €37 million (approximately $49.3 million) to a group of investors that included then existing shareholders, new investors and management of the Company. The notes carried a fixed annual interest rate of 8.0% with interest payments accrued in kind semi-annually. The notes were scheduled to mature in March 2014.

In connection with the note agreement, the Company also issued warrants to purchase an aggregate of 2.9 million ordinary shares at an exercise price of $16.98 per share. The Company recorded the warrants as liabilities with an offsetting debt discount recorded as a reduction of the carrying value of the notes. The debt discount was being amortized as additional interest expense over the life of the notes.

In February 2008, the Company issued notes payable in the amount of €34.5 million (approximately $52.4 million) to a group of investors that included then existing shareholders and management of the Company. The notes carried a fixed annual interest rate of 8.0% with interest payments accrued in-kind. The notes were scheduled to mature on February 28, 2013. Also, in connection with the 2008 note agreement, the Company issued warrants to purchase an aggregate of 3.1 million ordinary shares at an exercise price of $16.98 per share.  The Company had recorded the warrants as liabilities with an offsetting debt discount recorded as a reduction of the carrying value of the notes. The debt discount was being amortized as additional interest expense over the life of the notes.

In February 2011, the Company used approximately $116.1 million (€86.4 million) of the net proceeds from its initial public offering to repay all of the outstanding indebtedness under the notes payable, including accrued interest thereon.  At the time of repayment, the Company recognized a loss on debt extinguishment of $29.5 million and related deferred tax benefit of $7.5 million to recognize the remaining balance of unamortized discount on the notes and to reverse the related deferred tax liability.

Notes payable balances were as follows:

	February 14, 2011(Time of Repayment)			January 2, 2011
Gross notes payable	$	116,109		$	114,357
Discount to notes payable	(29,352		)	(30,096		)
Net notes payable	$	86,757		$	84,261

In May 2010, the Company executed agreements with 100% of the warrant holders that acquired warrants under the February 2008 and April 2009 notes payable and warrant issuances to exchange their outstanding warrants for the Company’s ordinary shares. Each warrant holder agreed to exchange their warrants under the February 2008 and April 2009 agreements for ordinary shares of the Company at an exchange ratio of 0.6133 and 0.6410, respectively. In order to settle the warrant liabilities related to the February 2008 and April 2009 warrant issuances, the Company issued 1,894,076 and 1,885,624 ordinary shares, respectively. The Company determined the fair value of its ordinary shares to be $22.50 per share at the date of the exchange which resulted in the issuance of ordinary shares with a total value of $85.0 million. This amount, net of $21.7 million of tax was recognized as an increase to equity at the time of the exchange. The Company recognized a gain on the change in fair value of the warrant liability of $0.2 million in non-operating expense, net during the year ended January 2, 2011 to adjust the carrying value of the warrant liability to the final settlement amount. The Company also recognized $11.6 million of foreign currency transaction loss on the warrant liability for the year ended January 2, 2011. This transaction settled the warrant liability of $85.2 million included in the consolidated balance sheet at December 27, 2009.

11

Changes in the carrying value of warrants are as follows:

Warrant value at December 28, 2008	$	29,277
Impact of adoption of ASC Topic 815—fair value adjustment	(1,159		)
Issuance of 2009 warrants at fair value	29,070
Change in fair value during the year	28,027
Warrant value at December 27, 2009	$	85,215
Change in fair value during the period	(147		)
Warrant value at April 4, 2010	$	85,068
Change in fair value during the period	(25		)
Fair value of shares issued to settle liability and recognized in equity on May 27, 2010	85,043
Warrant value at July 4, 2010	$	—

10. Share-Based Compensation

Below is a summary of the allocation of share-based compensation recognized within the consolidated financial statements (in thousands):

	Three months ended				Nine months ended
	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
	(unaudited)				(unaudited)
Cost of goods sold	$	199	$	46	$	586	$	369
Sales and marketing	608		490		1,587		1,263
General and administrative	884		685		2,197		2,223
Research and development	140		131		371		332
Total	$	1,831	$	1,352	$	4,741	$	4,187

During the nine months ended October 2, 2011, the Company granted options to purchase an aggregate of 0.7 million ordinary shares and 0.2 million restricted stock units at a weighted average fair value of $11.90 and $25.16 per share, respectively, to be recognized on a straight line basis over their service period of four years.  The weighted average per share exercise price for options granted during the nine months ended October 2, 2011 is $24.35.  As of October 2, 2011, the Company had options to purchase an aggregate of approximately 4.2 million ordinary shares (of which options to purchase an aggregate of approximately 2.6 million ordinary shares were exercisable) and 0.2 million restricted stock units outstanding. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Nine months ended
	October 2, 2011
Risk-free interest rate	2.2	%
Expected life in years	6.1
Expected volatility	48.6	%
Expected dividend yield	0.0	%

The Company had $19.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted to employees as of October 2, 2011.  That cost is expected to be recognized over a weighted-average period of 2.8 years.

11. Income Taxes

The Company operates in multiple income tax jurisdictions both inside and outside the United States. Income tax authorities in these jurisdictions regularly perform audits of the Company’s income tax filings. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.

12

During the first quarter of 2011, the Company 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 the Company’s notes payable at the time of repayment. The additional income tax benefit recorded during the period primarily related to the Company’s French subsidiaries. Given the Company’s history of operating losses, the Company does not generally recognize a provision for income taxes in the United States and certain of the Company’s European sales offices.

The income tax benefit in the first nine months of 2010 primarily relates to tax benefit recorded related to the Company’s French subsidiaries as well as deferred tax benefit on the amortization of the debt discount recognized on the Company’s notes payable.

12. Capital Stock and Earnings Per Share

The Company had 39.2 million and 29.6 million ordinary shares issued and outstanding as of October 2, 2011 and October 3, 2010, respectively.

The Company completed an initial public offering of its ordinary shares pursuant to a registration statement that was declared effective by the SEC on February 2, 2011. The Company sold 8,750,000 shares, at an initial price to the public of $19.00 per share (before underwriters’ discounts and commissions) on February 8, 2011 and received net proceeds of approximately $149.5 million, after underwriters’ discounts and commissions of approximately $10.8 million and offering related expenses of $5.9 million. Subsequently, on March 7, 2011, the Company sold an additional 721,274 ordinary shares at an offering price of $19.00 per share (before underwriters’ discounts and commissions) due to the exercise of the underwriters’ overallotment option, and received additional net proceeds of approximately $12.8 million, after underwriters’ discounts and commissions of approximately $0.9 million. Aggregate gross proceeds from the offering, including the exercise of the over-allotment option, were $179.9 million and net proceeds received after underwriters’ discounts and commissions and offering related expenses were approximately $162.3 million.

The Company had options to purchase ordinary shares and restricted stock units outstanding of an aggregate of 4.4 million and 3.5 million ordinary shares at October 2, 2011 and October 3, 2010, respectively. None of the options or restricted stock units were included in diluted earnings per share for the nine months ended October 2, 2011 and October 3, 2010, respectively, because the Company recorded a net loss in all periods and, therefore, including these instruments would be anti-dilutive.

13. Other Comprehensive Income (Loss)

Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net earnings, as these amounts are recorded directly as an adjustment to shareholders’ equity. Other comprehensive income (loss) is comprised mainly of foreign currency translation adjustments.

The reconciliation of net loss to comprehensive loss is as follows (in thousands):

	Three months ended						Nine months ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(unaudited)						(unaudited)
Net loss	$	(1,637	)	$	(12,759	)	$	(28,475	)	$	(30,718	)
Foreign currency translation adjustments	(16,751		)	15,946			(278		)	1,847
Total comprehensive income (loss)	$	(18,388	)	$	3,187		$	(28,753	)	$	(28,871	)

14. Non-Controlling Interests

The Company currently markets the Piton Knotless Anchor (Piton), an arthroscopic technology for rotator cuff repair. The Piton was based on technology developed by Sapphire Medical, Inc. (Sapphire). In April 2007, C2M Medical, Inc. (C2M) acquired all the assets related to the Piton technology from Sapphire. C2M was a company founded and owned by certain then current shareholders of the Company. The Company had no equity ownership interest in C2M.

Under the terms of the purchase agreement between C2M and Sapphire, C2M paid Sapphire $7.5 million upon execution of the transaction. C2M also agreed to pay Sapphire a $5.0 million milestone payment upon completion of 75 surgeries using the Piton and a separate $7.5 million milestone payment once the Piton was commercially launched to the sales force. These milestones were paid by C2M during 2008. Additionally, C2M agreed to pay Sapphire an earnout equal to 25% of Piton sales for the first three years after launch.

13

In January 2008, the Company began negotiating a licensing agreement with C2M for use of its Piton technology to launch as an anchor product in the Company’s newly developed sports medicine product portfolio. In June 2008, the Company executed an exclusive worldwide license agreement with C2M for use of the Piton technology. The terms of the agreement called for the Company to assume the remaining obligation of C2M under its purchase agreement with Sapphire related to future earnout payments equal to 25% of Piton sales for the three-year period after product launch. C2M had the right to terminate the license agreement at any time after 18 months from the execution of the license. The terms of the license also included an option purchase agreement (the Option Agreement) that allowed the Company to purchase 100% of the common stock of C2M once cumulative Piton sales reach $5.0 million or C2M terminated the license (the Call Option). Additionally, the license included a clause, whereby C2M could require the Company to purchase 100% of C2M’s common stock if sales of the Piton anchor products exceeded $5.0 million (the Put Option). Under both the Call Option and the Put Option, the purchase price of C2M would be equal to the paid-in capital of C2M and was required to be paid in the Company’s ordinary shares. The paid-in capital of C2M as of December 2008 and 2009 was approximately $23.2 million, which consisted of the purchase price paid to Sapphire for the Piton technology, including milestones paid, and an additional amount of capital to fund development activities.

The Company determined that C2M was a variable interest entity as of June 2008. The Option Agreement allowed for the Company to purchase C2M at a fixed price regardless of the actual performance of the Piton products. As a result, C2M did not have the right to receive expected residual returns that would instead be enjoyed by the Company. The Company was considered the primary beneficiary of C2M because it had the obligation to absorb the majority of the expected losses and the right to absorb the majority of the expected returns. As a result, the Company was required to consolidate C2M. This conclusion was reached due to the existence of the Put Option and Call Option to acquire C2M at a price that was fixed upon entry into the license agreement. Accordingly, the financial position and results of operations of C2M have been included in the consolidated financial statements from the date of execution of the license agreement. The liabilities recognized as a result of consolidating C2M consist primarily of the fair value of the obligations C2M had under its purchase agreement with Sapphire. As of October 2, 2011 and January 2, 2011, the only material liability recognized relates to the estimated remaining earnout payments due under the original Sapphire purchase agreement. The Company is required to make these earnout payments on behalf of C2M in accordance with the license agreement. The assets of C2M consist of only cash used to fund ongoing operations and the Piton technology intangible asset.

Pursuant to authoritative guidance, the equity interests in C2M not owned by the Company were reported as non-controlling interests on the consolidated balance sheet of the Company. Losses incurred by C2M are charged to the Company and to the non-controlling interest holders based on their ownership percentage. Prior to the acquisition of the noncontrolling interest by the Company, the non-controlling interest holders held 100% of the equity interests in C2M, and therefore, none of the results of operations are allocated to the Company. Therefore, the noncontrolling interest was accounted for in the consolidated financial statements as a contingently redeemable non-controlling interest that is initially recorded at fair value and classified as mezzanine equity.

However, pursuant to authoritative guidance, if the fair value of the contingently redeemable non-controlling interest is less than the current redemption value, and it is probable that the contingency related to the Put Option will be met, then the carrying value of the contingently redeemable non-controlling interest must be adjusted to its redemption value through a charge directly to equity. The Company recognized $0.7 million in accretion charges during the fiscal nine month period ended October 3, 2010, to reflect the contingently redeemable non-controlling interest at its current redemption value as it is probable the $5 million sales contingency included in the Put Option would be met.  No such accretion charges were recorded during the nine month period ended October 2, 2011.  The Company recognized $0.7 million in net losses during the nine month period ended October 3, 2010 as a result of the consolidation of C2M. These net losses consist primarily of intangible asset amortization and, as such, the results of consolidation of C2M did not have a significant impact on the consolidated cash flows of the Company.

During the first quarter of 2010, the Company exercised its Call Option to acquire the outstanding shares of C2M in exchange for the Company’s ordinary shares. The transaction represents the acquisition of a non-controlling interest and as a result was accounted for as an equity transaction in accordance with Accounting Standards Codification (ASC) 810-10. Upon exercise of the Call Option, a non-controlling interest in C2M no longer existed. The balance of the non-controlling interest was eliminated and the fair value of the ordinary shares issued in the acquisition, $23.2 million, was recorded as a component of shareholders’ equity.

The earnout period related to the obligation to pay to Sapphire 25% of all Piton sales ended September 30, 2011. The Company had originally recorded a contingent liability at the time of the consolidation of C2M based on the estimated fair value of the liability at that time. Upon completion of the earnout period, the Company reversed the remaining liability balance and recognized a $1.0 million gain on extinguishment of this contingency. The gain is recorded in other non-operating income (expense) within the statement of operations.

14

15. Litigation

On October 25, 2007, two of the Company’s former sales agents filed a complaint in the U.S. District Court for the Southern District of Illinois, alleging that the Company had breached their agency agreements and committed fraudulent and negligent misrepresentations. The jury rendered a verdict on July 31, 2009, awarding the plaintiffs a total of $2.6 million in actual damages and $4.0 million in punitive damages. While the court struck the award of punitive damages on March 31, 2010, it denied the Company’s motion to set aside the verdict or order a new trial. The Company timely filed a notice of appeal with the U.S. Court of Appeals for the Seventh Circuit in respect of the remaining actual damages.  On August 24, 2011, the U.S. Court of Appeals for the Seventh Circuit issued its decision affirming the order of the lower court setting aside the award of punitive damages.  In addition, the appellate court affirmed the lower court’s finding of liability against the Company, but vacated the lower court’s damages award of $2.6 million in compensatory damages as being not supported by the record and being too speculative.  The case has been remanded to the lower court for a recalculation of damages that is consistent with the appellate court’s decision.  The parties are currently awaiting an order from the lower court setting forth the procedure for the remand proceedings.

The Company has considered the facts of the case, the related case law and the decision of the U.S . Court of Appeals for the Seventh Circuit and, based on this information, believes that the verdict rendered on July 31, 2009 was inappropriate given the related facts and supporting legal arguments. The Company has considered the progress of the case, the views of legal counsel the facts and arguments presented at the original jury trial, and the decision of the U.S. Court of Appeals for the Seventh Circuit and the fact that the Company intends to continue to vigorously defend its position through the remand proceedings in assessing the probability of a loss occurring for this matter. The Company believes it must assess the probability of the incurrence of a loss, and the ability to reasonably estimate such loss, based on the possible outcomes of the entire legal process including the remand and appeals process. The Company believes its legal position is strong and that the range of possible outcomes is between zero and $2.6 million. After assessing all relevant information, the Company does not believe there to be a reasonably estimable loss within the range of possible outcomes that is probable of occurring. As a result, the Company has not recorded an accrual for any loss related to this issue. The Company has determined that a loss is reasonably possible, and management estimates the range of loss to be between zero and $2.6 million, the amount of the initial jury verdict, minus the punitive damage award. The Company believes it continues to have a strong defense against these claims and is vigorously contesting these allegations. As of October 2, 2011, no accrual was recorded relating to this case.

In addition to the item noted above, the Company is subject to various other legal proceedings, product liability claims and other matters which arise in the ordinary course of business. In the opinion of management, the amount of liability, if any, with respect to these matters will not materially affect the Company’s consolidated financial statements.

16. Special Charges

During the year ended December 27, 2009, the Company consolidated its U.S. operations and closed quality and regulatory sales and marketing functions in San Diego, California and manufacturing operations in Beverly, Massachusetts. Additionally, the Company opened sales offices in Scandinavia and the United Kingdom in 2009. The Company incurred $1.9 million in costs related to the consolidation and launching of the sales sites. The operating costs for Scandinavia and the United Kingdom are included in sales and marketing expense. Included in the $1.9 million of special charges are expenses incurred related to severance, lease termination, and moving costs related to consolidation of the Company’s U.S. operations, as well as expenses for travel, consulting, and legal costs incurred to launch the sales sites. All expenses were paid in 2009.

During the third quarter of 2011, the Company recorded $0.1 million in special charges for severance related expenses related to the Company’s consolidation of the remaining quality, manufacturing and product development functions at its Beverly, Massachusetts facility.

17. Subsequent Events

The Company has evaluated subsequent events after October 2, 2011 and concluded that no material transactions occurred subsequent to that date that provided additional evidence about conditions that existed at or after October 2, 2011 that require adjustment to the consolidated financial statements.

15

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 report. These risks could cause our actual results to differ materially from any future performance suggested below.

Our fiscal quarters are generally determined on a 13-week basis and always end on a Sunday. As a result, our fiscal year is generally 364 days. Our year-end periods end on the Sunday nearest to December 31. Every few years, it is necessary to add an extra week to a quarter to make it a 14-week period in order to have our year end fall on the Sunday nearest to December 31. For example, the first three quarters of 2010 include an extra week of operations compared to the first three quarters of 2011. For purposes of this management’s discussion and analysis of financial condition and results of operations, references to:

·the third quarter of 2011 or three months ended October 2, 2011 refers to the 13-week period ended October 2, 2011;

·the first three quarters of 2011 or nine months ended October 2, 2011 refers to the 39-week period ended October 2, 2011;

·the third quarter of 2010 or the three months ended October 3, 2010 refers to the 13-week period ended October 3, 2010; and

·the first three quarters of 2010 or nine months ended October 3, 2010 refers to the 40-week period ended October 3, 2010.

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 approximately 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 have also expanded our technology base and product offering to include: new joint replacement products based on new 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 market large joints in the United States nor do we currently have plans to do so. 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 independent distributors for most other international markets.

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 future growth.

16

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 the first three quarters of 2011 and 2010, 46% and 43%, of our revenues, respectively, were 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 revenues in the future. Selling, marketing and administrative costs and research and development costs related to these revenues are largely denominated in the same foreign currencies, thereby limiting our foreign currency transaction risk exposure. 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 the cost of the inventory produced and a related impact on our gross profit in the 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 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

Comparison of three months ended October 2, 2011 to three months ended October 3, 2010

The following table sets forth, for the periods indicated, our results of operations as a percentage of revenue:

	Three months ended
	October 2, 2011		October 3, 2010
Revenue	100	%	100	%
Cost of goods sold	29	%	27	%
Gross profit	71	%	73	%
Operating expenses:
Selling and marketing	55	%	59	%
General and administrative	11	%	11	%
Research and development	7	%	8	%
Amortization of intangible assets	5	%	6	%
Special charges	0	%*	0	%*
Operating loss	(7	)%	(11	)%

*Not meaningful

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:

17

	Three months ended
Revenue by Product Category	October 2, 2011		October 3, 2010		Percent change		Percent change
	($ in thousands)				(as		(constant
					reported)		currency)
Upper extremity joints and trauma	$	37,690	$	31,990	17.8	%	14.2	%
Lower extremity joints and trauma	5,943		5,558		6.9	%	4.3	%
Sports medicine and biologics	3,329		3,170		5.0	%	1.6	%
Total extremities	46,962		40,718		15.3	%	11.9	%
Large joints and other	10,594		8,989		17.9	%	6.7	%
Total	$	57,556	$	49,707	15.8	%	10.9	%

	Three months ended
Revenue by Geography	October 2, 2011		October 3, 2010		Percent change		Percent change
	($ in thousands)				(as		(constant
					reported)		currency)
United States	$	32,781	$	30,132	8.8	%	8.8	%
International	24,775		19,575		26.6	%	14.3	%
Total	$	57,556	$	49,707	15.8	%	10.9	%

Revenue.  Revenue increased by 15.8% to $57.6 million during the three months ended October 2, 2011 from $49.7 million during the three months ended October 3, 2010, as a result of increased sales in each of our product categories, with the most significant increase occurring in our upper extremity joints and trauma and large joints and other categories.  The growth across all product categories was due primarily to increased demand and product expansion and was impacted favorably by fluctuations in foreign currency exchange rates.  Our overall revenue growth of 15.8% consisted of 8.8% growth in the United States and 26.6% growth in our international geographies. Excluding the impact of foreign currency exchange rate fluctuations, overall revenue growth was 10.9%.

Revenue by product category.  Revenue in upper extremity joints and trauma increased by 17.8% to $37.7 million during the three months ended October 2, 2011 from $32.0 million during the three months ended October 3, 2010, primarily as a result of the continued increase in sales of our Aequalis Reverse and Aequalis Ascend shoulder products.  We believe that increased sales of our Aequalis shoulder products resulted from continued market growth in shoulder replacement procedures and continued market adoption of reversed shoulder replacement procedures. We also saw an increase in sales of our Ascend shoulder product which continued to gain share in the shoulder replacement market.  Revenue in lower extremity joints and trauma increased by 6.9% to $5.9 million during the three months ended October 2, 2011 from $5.6 million during the three months ended October 3, 2010, due to increased sales in our ankle replacement products in both the United States and internationally and increased sales of our foot and ankle fixation products due to expanded instrument set availability for key new products such as the Stabilis Ankle Fusion System.  Revenue in sports medicine and biologics increased by 5.0% to $3.3 million during the three months ended October 2, 2011 from $3.2 million during the three months ended October 3, 2010, as a result of increased sales of our anchor products internationally.  Revenue in large joints and other increased by 17.9% to $10.6 million during the three months ended October 2, 2011 from $9.0 million during the three months ended October 3, 2010, primarily due to increased sales of hip and knee products in France and certain export markets. The growth in all our product categories was also significantly impacted favorably by fluctuations in foreign currency exchange rates due to the weakening of the U.S. Dollar versus the Euro.  The product category that was most significantly impacted by fluctuations in foreign currency exchange rates was the large joints and other category.  Excluding the impact of foreign currency exchange rate fluctuations, our large joints and other category experienced a 6.7% growth rate. The majority of our large joints and other revenue is denominated in foreign currency; and is, therefore, the product category most significantly impacted by foreign currency fluctuations.

Revenue by geography.  Revenue in the United States increased by 8.8% to $32.8 million during the three months ended October 2, 2011 from $30.1 million during the three months ended October 3, 2010, primarily driven by continued increase in sales in upper extremity joints and trauma products including, in particular, our Aequalis and Ascend shoulder replacement products. The United States revenue increase was also impacted by increases in sales of our ankle fixation products driven by expanded instrument set availability of key new products such as the Stabilis Ankle Fusion System.  International revenue increased by 26.6% to $24.8 million during the three months ended October 2, 2011 from $19.6 million during the three months ended October 3, 2010, primarily due to increased sales in upper extremities joints and trauma products in France, Australia, Germany, Switzerland and The Netherlands, increased sales of large joints and other products in France, and sales to certain stocking distributors across various countries in which we have no current direct sales force. International revenue was also impacted favorably by fluctuations in foreign currency exchange rates. Excluding the impact of foreign currency exchange rate fluctuations, international revenue growth was 14.3%.

Cost of goods sold.  Our cost of goods sold increased by 23% to $16.7 million during the three months ended October 2, 2011 from $13.6 million during the three months ended October 3, 2010.  As a percentage of revenue, cost of goods sold increased to 29% during the three months ended October 2, 2011 from 27% during the three months ended October 3, 2010, primarily due to a change in geographical revenue mix and product mix within geographies. Our international revenue generally results in a higher level of cost of goods sold as a percentage of revenue than our United States revenue due to the differences in selling prices in various countries.

18

Our international revenue represented 43% of total revenue during the third quarter of 2011 compared to 39% during the third quarter of 2010.  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 manufacturing, inventory reserves required, levels of production volume and fluctuating inventory costs due to changes in currency exchange rates since the period they were manufactured.

Selling and marketing.  Our selling and marketing expenses increased by 8% to $31.8 million during the three months ended October 2, 2011 from $29.5 million during the three months ended October 3, 2010.  As a percentage of revenue, selling and marketing expenses decreased to 55% during the three months ended October 2, 2011 compared to 59% during the three months ended October 3, 2010.  As a percentage of revenue, selling and marketing expenses decreased due to our ability to leverage our existing sales and marketing operations with controlled expense increases.  The increase in total expense is primarily a result of $1.4 million related to foreign currency exchange rate fluctuations and $1.2 million of additional variable selling related expenses such as commissions, royalties and freight on our higher revenue base. Excluding the impact of foreign currency exchange rate fluctuations, the remaining selling and marketing related expenses remained relatively consistent with prior year levels.

General and administrative.  Our general and administrative expenses increased by 13% to $6.2 million during the three months ended October 2, 2011 from $5.4 million during the three months ended October 3, 2010.  As a percentage of revenue, general and administrative expenses were 11% during the three months ended October 2, 2011 and the three months ended October 3, 2010.  Total general and administrative expenses increased at a rate close to the rate of revenue growth causing general and administrative expenses as a percent of revenue to remain consistent with the prior year. The increase in total expense was due to additional legal, audit and administrative fees incurred as a result of being a U.S. public reporting company as well as increased stock compensation expense. The increase also included $0.2 million related to foreign currency exchange rate fluctuations.

Research and development.  Our research and development expenses increased by 11% to $4.3 million during the three months ended October 2, 2011 from $3.9 million during the three months ended October 3, 2010.  As a percentage of revenue, research and development expenses decreased to 7% during the three months ended October 2, 2011 compared to 8% during the three months ended October 3, 2010.  Research and development expense, as a percentage of revenue, decreased compared to the prior year due primarily to the timing of various project related expenses. The increase in total expense compared to the prior year was the result of increased clinical study related expenses as well as $0.2 million related to foreign currency exchange rate fluctuations.  We anticipate that in the near future, our research and development expenses as a percentage of revenue will remain consistent with past levels.

Amortization of intangible assets.  Amortization of intangible assets decreased by 4% to $2.7 million during the three months ended October 2, 2011 from $2.8 million during the three months ended October 3, 2010 as a result of the complete amortization of certain license related intangibles.

Special charges.  We recorded special charges of $0.1 million during the third quarter of 2011, which were primarily related to the closure of our Beverly, Massachusetts facility. Special charges during the third quarter of 2010 were also $0.1 million related to the relocation of our U.S. headquarters and the establishment of our sales office in the United Kingdom.

Interest expense.  Our interest expense decreased by 93% to $0.4 million during the three months ended October 2, 2011 from $5.3 million during the three months ended October 3, 2010 as a result of 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 previously also 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.

Foreign currency transaction loss.  Our foreign currency transaction loss was $0.2 million during the three months ended October 2, 2011 compared to a loss of $3.7 million during the three months ended October 3, 2010.  Our foreign currency transaction gains and losses recognized during the quarter relate to various foreign currency denominated intercompany balances between our various global operating entities. We currently attempt to mitigate our foreign currency transaction gains and losses by holding similar levels of foreign currency related assets and liabilities. The primary driver of our foreign currency transaction loss in the third quarter of 2010 was related to the revaluation of a foreign currency denominated intercompany note agreement between our U.S. operating entity and one of our European entities. We settled this intercompany arrangement during the first quarter of 2011 thereby eliminating the previously existing foreign currency related exposure.

Other non-operating income.  Our other non-operating income was $1.0 million during the third quarter of 2011, compared to $0.3 million during the third quarter of 2010. Our non-operating income for the third quarter of 2011 is primarily related to recognition of a gain on the resolution of our contingent liability recorded from the prior consolidation and acquisition of C2M. The contingent liability related to remaining earnout payments on sales of our Piton products. This earnout period ended during the third quarter of 2011 and the remaining liability was reversed as a gain recognized in the same quarter.

19

Income tax benefit.  Our effective tax rate was 56% for the third quarter of 2011 and 11% for the third quarter of 2010.  The change in our effective tax rate from the third quarter of 2010 to the third quarter of 2011 primarily relates to the relative percentage of our pre-tax loss made up by our U.S. and international operations.  During the third quarters of 2011 and 2010 we recognized income tax benefit related to pre-tax losses recognized in certain of our international jurisdictions.  In both periods, given our history of operating losses, we did not record a provision for income taxes in the U.S. and certain of our European sales offices.

Comparison of nine months ended October 2, 2011 to nine months ended October 3, 2010

The following table sets forth, for the periods indicated, our results of operations as a percentage of revenue:

	Nine months ended
	October 2, 2011		October 3, 2010
Revenue	100	%	100	%
Cost of goods sold	28	%	27	%
Gross profit	72	%	73	%
Operating expenses:
Selling and marketing	53	%	56	%
General and administrative	10	%	10	%
Research and development	8	%	8	%
Amortization of intangible assets	4	%	5	%
Special charges	0	%*	0	%*
Operating loss	(3	)%	(7	)%

*Not meaningful

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:

	Nine months ended
Revenue by Product Category	October 2, 2011		October 3, 2010		Percent change		Percent change
	($ in thousands)				(as		(constant
					reported)		currency)
Upper extremity joints and trauma	$	120,640	$	102,577	17.6	%	14.7	%
Lower extremity joints and trauma	19,023		17,406		9.3	%	6.9	%
Sports medicine and biologics	10,769		9,687		11.2	%	8.4	%
Total extremities	150,432		129,670		16.0	%	13.2	%
Large joints and other	41,717		36,443		14.5	%	6.9	%
Total	$	192,149	$	166,113	15.7	%	11.8	%

	Nine months ended
Revenue by Geography	October 2, 2011		October 3, 2010		Percent change		Percent change
	($ in thousands)				(as		(constant
					reported)		currency)
United States	$	104,197	$	94,597	10.1	%	10.1	%
International	87,952		71,516		23.0	%	14.0	%
Total	$	192,149	$	166,113	15.7	%	11.8	%

Revenue.  Revenue increased by 15.7% to $192.1 million during the nine months ended October 2, 2011 from $166.1 million during the nine months ended October 3, 2010, as a result of increased sales in each of our product categories, with the most significant increase occurring in our upper extremity joints and trauma category. Growth across all product categories was due primarily to increased demand and favorable fluctuations in foreign currency exchange rates and was partially offset by the existence of an extra week of sales in the first nine months of 2010.  Our overall revenue growth of 15.7% consisted of 10.1% growth in the United States and 23.0% growth in our international geographies. Excluding the impact of foreign currency exchange rate fluctuations, overall revenue growth was 11.8%.

20

Revenue by product category.  Revenue in upper extremity joints and trauma increased by 17.6% to $120.6 million during the nine months ended October 2, 2011 from $102.6 million during the nine months ended October 3, 2010, primarily as a result of the continued increase in sales of our Aequalis Reverse and Aequalis Ascend shoulder products. We believe that increased sales of our Aequalis 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 Ascend shoulder products which continued to gain share in the shoulder replacement market.  Revenue in lower extremity joints and trauma increased by 9.3% to $19.0 million during the nine months ended October 2, 2011 from $17.4 million during the nine months ended October 3, 2010, primarily due to increased sales in our ankle replacement products in both the United States and internationally increased sales of our foot and ankle fixation products due to expanded instrument set availability for key new products such as the Stabilis Ankle Fusion System.  Revenue in sports medicine and biologics increased by 11.2% to $10.8 million during the nine months ended October 2, 2011 from $9.7 million during the nine months ended October 3, 2010, as a result of increased sales of our suture and anchor products internationally.  Revenue in large joints and other increased by 14.5% to $41.7 million during the nine months ended October 2, 2011 from $36.4 million during the nine months ended October 3, 2010, primarily due to increased sales of hip and knee products in France and certain export markets. The growth in all of our product categories was favorably impacted by fluctuations in foreign currency exchange rates primarily due to the weakening of the U.S. dollar versus the Euro.

Revenue by geography.  Revenue in the United States increased by 10.1% to $104.2 million during the nine months ended October 2, 2011 from $94.6 million during the nine months ended October 3, 2010, primarily driven by continued increase in sales in upper extremity joints and trauma products including in particular our Aequalis and Ascend shoulder replacement products. The U.S. revenue increase was also impacted by increases in sales of our ankle fixation products.  International revenue increased by 23.0% to $88.0 million during the nine months ended October 2, 2011 from $71.5 million during the nine months ended October 3, 2010, primarily due to increased revenue in France, Australia, Germany and sales to certain stocking distributors.  In each geography, the factors driving the increased sales were partially offset by the existence of an extra week of sales in the first nine months of 2010.  Foreign currency exchange rate fluctuations also had a favorable impact on international revenue growth during the first three quarters of 2011. Excluding the impact of foreign currency exchange rate fluctuations, international revenue growth was 14.0%.

Cost of goods sold.  Our cost of goods sold increased by 20% to $54.7 million during the nine months ended October 2, 2011 from $45.6 million during the nine months ended October 3, 2010.  As a percentage of revenue, cost of goods sold increased to 28% during the nine months ended October 2, 2011 from 27% during the nine months ended October 3, 2010, primarily due to a change in geographical revenue mix. Our international revenue generally results in a higher level of cost of goods sold as a percentage of revenue than our United States revenue due to the differences in selling prices in various countries. Our international revenue represented 46% of total revenue during the nine months ended October 2, 2011 compared to 43% during the nine months ended October 3, 2010.  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, 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 and marketing.  Our selling and marketing expenses increased by 8% to $101.3 million during the nine months ended October 2, 2011 from $93.7 million during the nine months ended October 3, 2010.  As a percentage of revenue, selling and marketing expense decreased to 53% during the nine months ended October 2, 2011 from 56% during the nine months ended October 3, 2010.  As a percentage of revenue, selling and marketing expenses decreased due to our ability to leverage our existing sales and marketing operations with controlled expense increases.  The increase in total expense is primarily a result of $3.4 million related to foreign currency exchange rate fluctuations, $3.7 million of increased variable selling expenses such as commissions, royalties and freight, and an increased level of instrument related depreciation and maintenance expenses.  Excluding the impact of foreign currency exchange rate fluctuations, the remaining selling and marketing related expenses remained relatively consistent with prior year levels.

General and administrative.  Our general and administrative expenses increased by 12% to $18.6 million during the nine months ended October 2, 2011 from $16.6 million during the nine months ended October 3, 2010.  As a percentage of revenue, general and administrative expenses remained at 10% during the nine month periods ended October 2, 2011 and October 3, 2010.  The increase was due primarily to additional legal, audit and administrative fees incurred as a result of being a U.S. public reporting company.  Total general and administrative expenses increased at a rate close to the rate of revenue growth causing general and administrative expenses as a percent of revenue to remain consistent with the prior year. The increase in total expense was due to additional legal, audit and administrative fees incurred as a result of being a U.S. public reporting company as well as increased stock compensation expense. The increase also included $0.5 million related to foreign currency exchange rate fluctuations.

Research and development.  Our research and development expenses increased by 15% to $14.6 million during the nine months ended October 2, 2011 from $12.7 million during the nine months ended October 3, 2010.  As a percentage of revenue, research and development expenses remained at 8% during the nine months ended October 2, 2011 and the nine months ended October 3, 2010.  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 expenses was the result of increased clinical study related

21

expenses and certain biologic related development projects as well as $0.4 million related to foreign currency exchange rate fluctuations.

Amortization of intangible assets.  Amortization of intangible assets decreased by 3% to $8.4 million during the nine months ended October 2, 2011 from $8.7 million during the nine months ended October 3, 2010 as a result of the complete amortization of certain license related intangibles.

Special charges.  We recorded special charges of $0.2 million during the nine months ended October 2, 2011 compared to $0.3 million for the nine months ended October 3, 2010.  The special charges in the first three quarters of 2011 were primarily related to the closure of our Beverly, Massachusetts facility.  The special charges in the first three quarters of 2010 were primarily related to the relocation of our U.S. headquarters and the establishment of our sales office in the United Kingdom.

Interest expense.  Our interest expense decreased by 79% to $3.3 million during the nine months ended October 2, 2011 from $16.0 million during the nine months ended October 3, 2010 as a result of 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 previously also 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.

Foreign currency transaction loss.  Our foreign currency transaction loss was $0.1 million during the nine months ended October 2, 2011 compared to a loss of $9.5 million during the nine months ended October 3, 2010.  Our foreign currency transaction gains and losses recognized during the quarter relate to various foreign currency denominated intercompany balances between our various global operating entities. We currently attempt to mitigate our foreign currency transaction gains and losses by holding similar levels of foreign currency related assets and liabilities. The primary driver of our foreign currency transaction loss in the first three quarters of 2010 was related to the revaluation of our warrant liability which was denominated in a currency other than our functional currency. We settled our warrant liability in May 2010 by exchanging all the outstanding warrants for our ordinary shares.

Loss on extinguishment of debt.  We recognized a $29.5 million loss on extinguishment of debt during the nine months ended October 2, 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 wrote-off 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 2010. See Note 9 of our consolidated financial statements for further discussion of the accounting treatment of the notes payable and related warrants.

Other non-operating income.  Our other non-operating income was $1.0 million during the nine months ended October 2, 2011 compared to $0.3 million during the nine months ended October 3, 2010. Our non-operating income for the nine months ended 2011  is primarily related to recognition of a gain on the resolution of our contingent liability recorded from the prior consolidation and acquisition of C2M. The contingent liability related to remaining earnout payments on sales of our Piton products. This earnout period ended during the third quarter of 2011 and the remaining liability was reversed as a gain recognized in the same quarter.

Income tax benefit.  Our effective tax rate for the first three quarters of 2011 and 2010 was 24% and 14%, respectively.  The change in our effective tax rate from the first three quarters of 2010 to the first three quarters of 2011 primarily relates to the relative percentage of our pre-tax loss made up by our French operations.  Our income tax benefit increased to $9.1 million during the first three quarters of 2011 compared to $5.2 million for the first three quarters of 2010. During the first three quarters 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. The remaining income tax benefit recognized during the first three quarters of 2011 relate primarily to pre-tax losses of certain of our international jurisdictions.  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 sales offices. Our income tax benefit in the first three quarters of 2010 primarily related to a tax benefit recorded related to our French subsidiaries as well as deferred tax benefit on the amortization of the debt discount recognized on our notes payable.

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 others, 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

22

selling prices; the availability and cost of components and materials; number of selling days; fluctuations in foreign currency exchange rates; 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, amortization of acquired intangible assets, and fair value adjustments to our warrant liability, have resulted in an accumulated deficit of $212.0 million as of October 2, 2011. 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 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 $149.5 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.

As of October 2, 2011, we had $45.3 million in short-term and long-term debt.  Certain of these debt agreements include financial covenants that (i) require us to maintain a minimum level of tangible net worth in our U.S. operating subsidiary, (ii) have various levels of performance tests of debt to equity and debt to modified income specifically related to our French operating subsidiary and (iii) restrict our ability to borrow in our U.S. operating subsidiary if there is a default under the agreement, all of which may have an impact on our liquidity.  As of October 2, 2011, we were in compliance with all of our financial covenants and expect to remain in compliance during the remainder of 2011.

The following table sets forth, for the periods indicated, certain liquidity measures:

	As of
	October 2, 2011		January 2, 2011
	($ in thousands)
Cash and cash equivalents	$	55,848	$	24,838
Working capital	139,687		96,965
Line of credit availability	22,070		11,252

Operating activities.  Net cash provided by operating activities was $11.0 million during the nine months ended October 2, 2011 compared to net cash used by operating activities of $0.5 million during the nine months ended October 3, 2010, primarily driven by improvement in our consolidated net loss adjusted for non-cash items and a reduced use of cash for working capital during the first nine months of 2011 as compared to the first nine months of 2010. During the first nine months of 2011 we also received a $2.8 million income tax refund in the United States related to a one-time ability to carry income tax losses back to a previous period in which our United States subsidiary had previously paid income taxes.

Investing activities.  Net cash used in investing activities was $20.9 million during the nine months ended October 2, 2011 compared to net cash used in investing activities of $18.0 million during the nine months ended October 3, 2010.  The increase in net cash used in investing activities is primarily due to the use of cash from our initial public offering to purchase instruments.  This was partially offset by reduced purchases of property, plant and equipment.  During the first nine months of 2010 purchases of property, plant and equipment included those to finish preparing our French manufacturing facility.  The first nine months of both 2011 and 2010 include acquisition-related payments made in accordance with the contingent purchase price of the acquisition of our Piton technology.  This purchase agreement required that we make payments equal to 25% of the sales of Piton for a three-year period which ended in the third quarter of 2011.  The first nine months of 2010 also included an additional contingent consideration payment made related to a 2007 acquisition upon achievement of a specific revenue milestone related to our Ascend shoulder products.  Our industry is capital intensive, particularly as it relates to surgical instrumentation. Historically, our capital expenditures have consisted principally of surgical instruments, purchased manufacturing equipment, research and testing equipment, computer systems and office furniture and equipment.

Financing activities.  Net cash provided by financing activities was $42.5 million during the nine months ended October 2, 2011 compared to $6.6 million during the nine months ended October 3, 2010.  The increase in net cash provided by financing activities was due to the receipt of approximately $168.3 million from the completion of our initial public offering and subsequent exercise of the underwriters’ overallotment option, after underwriters’ discounts and commissions and offering expenses.  This was offset in part by the repayment of notes payable of $116.1 million with a portion of the net proceeds from our initial public offering.  We also used cash to reduce our short-term borrowings under various lines of credit by $8.2 million.

Other liquidity information.  We have funded our cash needs since 2006 through the issuance of equity, notes payable and warrants to a group of investors and through our initial public offering. Although it is difficult for us to predict our future liquidity requirements, we believe that our cash balance of approximately $55.8 million and our existing available credit lines of $22.1 million as of October 2, 2011 will be sufficient to fund our working capital requirements and operations and permit anticipated capital expenditures during the remainder of 2011. In the event that we would require additional working capital to fund future operations, we

23

could seek to acquire that through additional equity or debt financing arrangements which may or may not be available on favorable terms at such time.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Contractual Obligations and Commitments

We refer you to the description of our contractual obligations and commitments as of January 2, 2011 as set forth in our annual report on Form 10-K for the fiscal year ended January 2, 2011.  There were no material changes to such information since that date through October 2, 2011, other than the repayment of our notes payable in February 2011, as previously described.

Critical Accounting Policies

Information on judgments related to our most critical accounting policies and estimates is discussed in Item 7 of our annual report on Form 10-K for the year ended January 2, 2011. Certain of our more critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Different, reasonable estimates could have been used for the current period. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. All of our significant accounting policies are more fully described in Note 2 to our consolidated financial statements set forth in our annual report on Form 10-K for the year ended January 2, 2011. There have been no significant changes to the policies related to our critical accounting estimates since January 2, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rate fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We believe we are not exposed to a material market risk with respect to our invested cash and cash equivalents.

Interest Rate Risk

Borrowings under our various revolving lines of credit in the United States and in Europe generally bear interest at variable annual rates. Borrowings under our various term loans in the United States and Europe are mixed between variable and fixed interest rates. As of October 2, 2011, we had $12.8 million in borrowings under our revolving lines of credit and $32.6 million in borrowings under various term loans. Based upon this debt level, a 10% increase in the annual interest rate on such borrowings would not have a material impact on our interest expense.

At October 2, 2011, our cash and cash equivalents were $55.8 million. Based on our annualized average interest rate, a 10% decrease in the annual interest rate on such balances would result in an immaterial impact on an annual basis.

Foreign Currency Exchange Rate Risk

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results. In the first three quarters of 2011 and 2010, approximately 46% and 43% of our revenues, respectively, were denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarly significant percentage of our revenues in the future. Operating expenses related to these revenues are largely denominated in the same respective currency, thereby limiting our transaction risk exposure. However, for revenues not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices not being competitive in a market where business is transacted in the local currency.

During the three and nine months ended October 2, 2011, approximately 78% and 81%, respectively, of our revenues denominated in foreign currencies were derived from EU countries and was denominated in Euros. Additionally, we have significant

24

intercompany payables and debt with certain European subsidiaries, which are denominated in foreign currencies, principally the Euro. Our principal exchange rate risk therefore exists between the U.S. dollar and the Euro. Fluctuations from the beginning to the end of any given reporting period result in the remeasurement of our foreign currency-denominated cash, receivables, payables and debt, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in foreign currency transaction gain (loss) in our consolidated financial statements. We recorded a foreign currency transaction loss of approximately $0.2 million and $0.1 million during the three and nine months ended October 2, 2011, respectively, related to the translation of our foreign-denominated receivables, payables and debt into U.S. dollars. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rates in the future.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our President and Chief Executive Officer and Global Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 240.15d-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on that review and evaluation, which included inquiries made to certain of our other employees, the Certifying Officers have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to our company required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the third quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

25

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

A description of our legal proceedings in Note 15 of our consolidated financial statements included in this report is incorporated herein by reference.

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 in our annual report on Form 10-K for the fiscal year ended January 2, 2011 under the heading “Part I — Item 1A. Risk Factors,” which could materially adversely affect our business, financial condition or operating results. There has been no material change in those risk factors, except for the risk factor below:

Disruption and turmoil in global credit and financial markets, which may be exacerbated by the inability of certain countries to continue to service their sovereign debt obligations, and the possible negative implications of such events to the global economy, may negatively impact our business, operating results and financial condition.

The recent downgrade of the U.S. credit rating and the possibility that certain European Union member states will default on their debt obligations have contributed to significant uncertainty about the stability of global credit and financial markets.  The credit and economic conditions within certain European Union countries in particular, including Greece, Ireland, Italy, Portugal and Spain, have continued to deteriorate and have contributed to the instability in global credit and financial markets.  The possibility that such EU member states will default on their debt obligations, the continued uncertainty regarding international and the European Union’s financial support programs and the possibility that other EU member states may experience similar financial troubles could further disrupt global credit and financial markets.  While the ultimate outcome of these events cannot be predicted, it is possible that such events could have a negative effect on the global economy as a whole, and our business, operating results and financial condition, in particular.  For example, if the European sovereign debt crisis continues or worsens, the negative implications to the global economy and us could be significant.  Since a significant amount of our trade receivables are with hospitals that are dependent upon governmental health care systems in many countries, repayment of such receivables is dependent upon the financial stability of the economies of those countries.  A deterioration of economic conditions in such countries may increase the average length of time it takes for us to collect on our outstanding accounts receivable in these countries.  In addition, if the European sovereign debt crisis continues or worsens, the value of the Euro could deteriorate, which could negatively impact our business, operating results and financial condition in light of our substantial operations in and revenues derived from customers in the European Union.  Tightening of the credit and financial markets could negatively impact the ability of companies to borrow money from their existing lenders, obtain credit from other sources or raise financing to fund their operations.  This could negatively impact our customers’ ability to purchase our products, our suppliers’ ability to provide us with materials and components and our ability, if needed, to finance our operations on commercially reasonable terms, or at all.  Any or all of these events as well as austerity measures anticipated to be taken in several countries could negatively impact our business, operating results and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

During the third quarter of 2011, 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.

Use of Proceeds from Registered Securities

Our initial public offering was effected through a registration statement on Form S-1 (File No. 333-167370) that was declared effective by the SEC on February 2, 2011. An aggregate of 10,062,500 ordinary shares were registered (including the underwriters’ over-allotment of 1,312,500 ordinary shares), of which we sold 8,750,000 shares, at an initial price to the public of $19.00 per share (before underwriters’ discounts and commissions). The offering closed on February 8, 2011, and, as a result, we received net proceeds of approximately $149.5 million, after underwriters’ discounts and commissions of approximately $10.8 million and offering related expenses of $5.9 million. Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC were the managing underwriters of the offering. Subsequently, on March 7, 2011, we issued an additional 721,274 ordinary shares at an offering price of $19.00 per share (before underwriters’ discounts and commissions) due to the exercise of the underwriters’ overallotment option, and received additional net proceeds of approximately $12.8 million, after underwriters’ discounts and commissions of approximately $0.9 million. Aggregate gross proceeds from the offering, including the exercise of the over-allotment option, were $179.9 million and net proceeds received after underwriters’ discounts and commissions and offering related expenses were approximately $162.3 million.

26

Through October 2, 2011, we used approximately $116.1 million (€86.4 million) of the net proceeds from the offering to repay all of the outstanding indebtedness under our notes payable, including accrued interest thereon.  Additionally, through October 2, 2011, we used $4.3 million of the net proceeds from the offering to purchase instruments and implants and $16.8 million to reduce our short-term borrowings under our lines of credit.  The majority of the $116.1 million used to repay the outstanding indebtedness under our notes payable, including accrued interest thereon, and none of the $4.3 million used to purchase instruments and implants or $16.8 million used to reduce our short-term borrowings under various lines of credit were paid to certain of our directors and officers, or their associates, to persons owning ten percent or more of our outstanding ordinary shares and other affiliates of ours.

We expect to use the remaining net proceeds for general corporate purposes. Pending the uses described above, we have invested the remaining net proceeds in a variety of short-term, interest-bearing, investment grade securities. There has been no material change in the planned use of proceeds from the offering from that described in the final prospectus dated February 2, 2011 filed by us with the SEC pursuant to Rule 424(b)(1).

Issuer Purchases of Equity Securities

We did not purchase any ordinary shares or other equity securities of ours during the third quarter of 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6.  EXHIBITS.

The following exhibits are filed or furnished with this quarterly report on Form 10-Q:

Exhibit No.	Description
10.1	First Amendment of the Tornier N.V. 2010 Employee Stock Purchase Plan (Filed herewith)
10.2	Tornier N.V. 2010 Employee Stock Purchase Plan — Sub-Plan for France (Filed herewith)
10.3	Employment Agreement effective as of July 25, 2011 between Tornier, Inc. and David H. Mowry (Filed herewith)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
101	The following materials from Tornier N.V.’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements (Furnished herewith)*

*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under Section 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to the liability of those sections, except as shall be expressly set forth by specific reference in such filings.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TORNIER N.V.
Date: November 14, 2011	By:	/s/ Douglas W. Kohrs
		Douglas W. Kohrs
		President and Chief Executive Officer
		(principal executive officer)
Date: November 14, 2011	By:	/s/ Carmen L. Diersen
		Carmen L. Diersen
		Global Chief Financial Officer
		(principal financial and accounting officer)

28

TORNIER N.V.
QUARTERLY REPORT ON FORM 10-Q

EXHIBIT INDEX

Exhibit No.	Description
10.1	First Amendment of the Tornier N.V. 2010 Employee Stock Purchase Plan (Filed herewith)
10.2	Tornier N.V. 2010 Employee Stock Purchase Plan — Sub-Plan for France (Filed herewith)
10.3	Employment Agreement effective as of July 25, 2011 between Tornier, Inc. and David H. Mowry (Filed herewith)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
101	The following materials from Tornier N.V.’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements (Furnished herewith)*

*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under Section 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to the liability of those sections, except as shall be expressly set forth by specific reference in such filings.

29

EX-10.1

Exhibit 10.1

FIRST AMENDMENT OF THE

TORNIER N.V. 2010 EMPLOYEE STOCK PURCHASE PLAN

WHEREAS, Tornier N.V., a public limited liability company organized under the laws of The Netherlands (the “Company”) maintains and operates the Tornier N.V. 2010 Employee Stock Purchase Plan (the “Plan”); and

WHEREAS, the Company desires to amend the Plan to accommodate Plan participation by employees of the Company’s subsidiaries incorporated outside of the United States;

NOW, THEREFORE, by virtue and in exercise of the power reserved to the Company’s Board of Directors (the “Board”) by Section 20(a) of the Plan and pursuant to the authority delegated to the undersigned officer of the Company by resolution of the Board, the Plan be and it is hereby amended, effective August 1, 2011, in the following particulars:

1.             By inserting the following at the end of Section 1 of the Plan as a part thereof:

“Notwithstanding the foregoing, the Company may establish one or more sub-plans of the Plan which do not qualify as an employee stock purchase plan under Section 423 of the Code for Eligible Employees of Designated Subsidiaries in countries outside of the United States in order to achieve tax, employment, securities law or other purposes and objectives, and to conform the terms of the Plan with the laws and requirements of such countries in order to allow such Eligible Employees to purchase shares of Stock in a manner similar to the Plan.”

2.             By substituting the following for Section 14 of the Plan as a part thereof:

“14.         Administration.

(a)           The Plan will be administered by the Committee.  To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Participants who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its sole discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be final, conclusive and binding for all purposes and on all persons, including, without limitation, the Company, the stockholders of the Company, the

1

Participants and their respective successors-in-interest. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under the Plan.

(b)           Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, may establish one or more sub-plans of the Plan which do not satisfy the requirements of Section 423 of the Code for purposes of effectuating the participation of Eligible Employees of Designated Subsidiaries incorporated in countries outside of the United States.  For purposes of the foregoing, the Committee may establish one or more sub-plans to: (a) amend or vary the terms of the Plan in order to conform such terms with the laws, rules and regulations of each country outside of the United States where a Designated Subsidiary is located; (b) amend or vary the terms of the Plan in each country where a Designated Subsidiary is located as it considers necessary or desirable to take into account or to mitigate or reduce the burden of taxation and social insurance contributions for Participants and/or the Designated Subsidiary; or (c) amend or vary the terms of the Plan in each country outside of the United States where a Designated Subsidiary is located as it considers necessary or desirable to meet the goals and objectives of the Plan.  All sub-plans of the Plan shall be reflected in a written Appendix to the Plan, and shall be treated as being separate and independent from the Plan; provided, the total number of shares of Stock authorized to be issued under the Plan shall include any shares of Stock issued under any sub-plan established hereunder.  To the extent permitted under applicable law, the Committee may delegate is authority and responsibilities hereunder to an appropriate sub-committee consisting of one or more designated officers of the Company.”

IN WITNESS WHEREOF, the Board has caused this amendment to be executed on its behalf by its duly authorized officer this 4th day of August, 2011.

TORNIER N.V.
By:	/s/ Kevin M. Klemz
Its:	Vice President, Chief Legal Officer and Secretary

2

EX-10.2

Exhibit 10.2

TORNIER N.V.
2010 EMPLOYEE STOCK PURCHASE PLAN

SUB-PLAN FOR FRANCE

INTRODUCTION.  Pursuant to Section 14(a) of the Tornier N.V. 2010 Employee Stock Purchase Plan (the “Plan”), on this 4rth day of August, 2011, the Company’s Board of Directors hereby establishes a sub-plan of the Plan which is not intended to satisfy the requirements of Section 423 of the Code for Employees of Designated Subsidiaries located in the Applicable Country as of the Effective Date set forth herein (the “Sub-Plan”).

DEFINITIONS.  Any term not expressly defined in the Sub-Plan shall have the same definition as defined in the Plan. Whenever the following words and phrases are used in the Sub-Plan, they shall have the respective meanings set forth below:

“Applicable Country” means France.

“Effective Date” means October 1, 2011.

“Eligible Employee” means an individual who, on an Enrollment Date, is an Employee of a Designated Subsidiary; provided, however that an Employee who, immediately after an option is granted to him under the Sub-Plan, would own shares of Stock possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or any Subsidiary (as determined under Section 423(b)(3) of the Code) shall not be treated as an Eligible Employee.  For the sake of clarity, “Eligible Employee” shall include any individual who is classified as a part-time Employee or a temporary Employee on the payroll records of a Designated Subsidiary.

“Employee” means a person treated as an employee of a Designated Subsidiary under the local laws, rules and regulations in the Applicable Country.  A Participant shall be deemed to have ceased to be an Employee either upon an actual termination of employment or upon the Subsidiary employing the employee ceasing to be a Designated Subsidiary.  For purposes of the Sub-Plan, an individual shall not be deemed to have ceased to be an Employee while such individual is on any military leave, sick leave, or other bona fide leave of absence approved by the Designated Subsidiary of ninety (90) days or less. In the event an individual’s leave of absence exceeds ninety (90) days, the individual shall be deemed to have ceased to be an Employee on the ninety-first (91st) day of such leave unless the individual’s right to reemployment is guaranteed either by statute or by contract.  The Designated Subsidiary shall determine in good faith and in the exercise of its sole discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be.  For purposes of an individual’s participation in or other rights, if any, under the Sub-Plan as of the time of the Designated Subsidiary’s determination, all such determinations shall be final, binding and conclusive, notwithstanding any contrary determination made by any governmental agency or regulatory body in the Applicable Country.

“Designated Subsidiary” means any Subsidiary of the Company established under the laws of the Applicable Country and designated by the Board, in its sole and absolute discretion, as a corporation that may offer Plan participation to its Eligible Employees via this Sub-Plan.  For the sake of clarity, as of the Effective Date, a Designated Subsidiary shall include Tornier SAS.

1

TERMINATION INDEMNITIES.  Participation in the Sub-Plan is voluntary.  The value of all benefits acquired under the Sub-Plan is an extraordinary item of compensation outside the scope of the Participant’s employment with a Designated Subsidiary.  The value of all benefits acquired under the Sub-Plan is not part of normal or expected compensation of a Participant for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.

COMPLIANCE WITH LAWS.  As a condition of the purchase of shares of Stock under the Sub-Plan, the Participants shall be required to repatriate all payments attributable to the shares of Stock and/or cash acquired under the Sub-Plan (including, but not limited to, dividends and any proceeds derived from the sale of the shares of Stock acquired pursuant to the Sub-Plan) in accordance with local foreign exchange rules and regulations in the Applicable Country.  In addition, Participants shall be required to take any and all actions, and consent to any and all actions taken by the Company and any Designated Subsidiary, as may be required to allow the Company and any Designated Subsidiary to comply with local laws, rules and regulations in the Applicable Country.  Finally, the Participants shall be required to take any and all actions as may be required to comply with the Participant’s personal legal and tax obligations under local laws, rules and regulations in the Applicable Country).

*          *          *          *          *

2

EX-10.3

Exhibit 10.3

TORNIER, INC.

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of July 25, 2011 (the “Effective Date”), between Tornier, Inc., a Delaware corporation (the “Company”), and David H. Mowry (the “Executive”).

R E C I T A L S:

WHEREAS, the Company recognizes that the future growth, profitability and success of the Company’s business will be substantially and materially enhanced by the employment of the Executive by the Company; and

WHEREAS, the Company desires to employ the Executive and the Executive has indicated his willingness to provide his services to the Company, on the terms and conditions set forth herein.

NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

Section 1.  Employment.  The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth.  The Executive shall serve as the Chief Operating Officer, and in such capacity, shall report directly to the President and Chief Executive Officer and shall be responsible for research and development, clinical and regulatory and supply chain activities and have such other duties as assigned by the President and Chief Executive Officer which are typically performed by the Chief Operating Officer of a corporation.  The Executive shall take the office of Chief Operating Officer effective July 25, 2011. The principal location of the Executive’s employment shall be at the Company’s principal executive office located in Minnesota, although the Executive understands and agrees that he may be required to travel from time to time for Company business reasons.

Section 2.  Term.  Unless terminated pursuant to Section 6 hereof, the Executive’s employment hereunder shall commence on the date hereof and shall continue during the period ending on the third anniversary of the date hereof (the “Initial Term”).  Thereafter, the Executive’s employment term shall extend automatically for consecutive periods of one year unless either party shall provide notice of termination not less than 60 days prior to an anniversary date of this Agreement.  The Initial Term, together with any extension pursuant to this Section 2, is referred to herein as the “Employment Term.”  The Employment Term shall terminate upon any termination of the Executive’s employment pursuant to Section 6.

Section 3.  Compensation.  During the Employment Term, the Executive shall be entitled to the following compensation and benefits:

(a)  Salary.  As compensation for the performance of the Executive’s services hereunder, the Company shall pay to the Executive a base salary (the “Salary”) of U.S. $325,000 per year (which is not subject to a cap or a maximum) with increases, if any, as may be approved by the Board of Directors or the Compensation Committee of the Board.  The Salary shall be payable in accordance with the customary payroll practices of the Company as the same shall exist from time to time.  In no event shall the Salary be decreased during the Employment Term.

(b)  Bonus.  During the Employment Term, in addition to Salary, the Executive shall be eligible to participate in such bonus plans as may be adopted from time to time by the Board of Directors for other officers of the Company (the “Bonus”) for each such calendar year ending during the Employment Period; provided that, unless the Board of Directors or the Compensation Committee of the Board determines otherwise, the Executive must be employed on the last day of such calendar year in order to receive the Bonus attributable thereto.  The bonus of the Executive shall be initially targeted at 50% of his base salary at 100% achievement.  The Executive’s entitlement to the Bonus for any particular calendar year shall be based on the attainment of performance objectives established by the President and Chief Executive Officer or the Compensation Committee of the Board in any such bonus plan.  In no event shall the bonus target be decreased during the Employment Term.

(c)  Benefits.  Except as otherwise provided in this Agreement, in addition to the Salary and Bonus, if any, the Executive shall be entitled during the Employment Term to participate in health, insurance, retirement, disability, and other benefit programs provided to other officers of the Company on terms no less favorable than those available to the other officers of the Company.  The Executive shall also be entitled to the same number of vacation days, holidays, sick days and other benefits as are generally allowed to other senior executives of the Company in accordance with the Company’s policies in effect from time to time.  The Executive shall be initially entitled to five (5) weeks of accrued vacation for immediate use under this Agreement.

(d)  Equity Awards.  The Executive shall be granted under the Tornier N.V. 2010 Incentive Plan (the “2010 Plan”) an option (the “Option”) to purchase 48,490 ordinary shares, par value €0.03 per share (“Shares”), of Tornier N.V., a company organized under the laws of the Netherlands (the “Parent Corporation”), at a per Share exercise price equal to the Fair Market Value (as defined in the 2010 Plan) of a Share on the Grant Date (as defined below), and a stock grant in the form of a restricted stock unit for 18,480 Shares (the “RSU”).  Such grants shall be effective as of the later of: (i) the Effective Date; and (ii) the third trading day following the date of release to the public of the Parent Corporation’s financial results for the second fiscal quarter, which date is currently expected to be August 12, 2011 (such later date, the “Grant Date”); provided, however, that if such Grant Date is impermissible under applicable Dutch law, then such Grant Date will be the first date on which such grants can occur under applicable Dutch law.  All of the terms and conditions relating to the Option and RSU, including the vesting and, in the case of the Option, the expiration date, are set forth in grant certificates to be executed by the Parent Corporation and the Executive (the “Grant Certificates”).

(e)  Monthly Housing Stipend.  The Company shall make a payment to the Executive of U.S. $3,000 each month for up to the first 24 months of the Employment Term, for the Executive’s rental payments and utilities for housing in or near Minneapolis/St. Paul,

2

Minnesota and/or maintaining his home in California.  By way of clarification, the Executive shall be responsible for all arrangements related to renting a home or apartment in or near Minneapolis/St. Paul, Minnesota and, if the Executive so chooses, maintaining his home in California, and the Company’s obligations hereunder shall be limited to the payment to the Executive of the U.S. $3,000 monthly stipend payment for up to first 24 months of the Employment Term.

(f)  Reimbursement of Certain Moving and Travel Costs.  The Company shall reimburse the Executive’s reasonable expenses for a house hunting trip for the Executive and his family, the reasonable cost of packing and shipping the Executive’s personal belongings from California to Minneapolis/St. Paul and reasonable expenses associated with two return trips per year for the first two years of the Employment Term to check on the Executive’s California property.  In order to receive payments under this subsection (f), the expense must be reasonable and incurred during the Employment Term and the Executive must submit a request for reimbursement (with itemized documentation of expenditures in accordance with the financial policy of the Company) within 45 days after the date such expense is incurred.  The Company will make the reimbursement payment to the Executive within 20 days after the date the Executive submits the reimbursement request.

Section 4.  Exclusivity.  During the Employment Term, the Executive shall devote his full time to the business of the Company and its subsidiaries, shall faithfully serve the Company and its subsidiaries, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to his by the President and Chief Executive Officer in accordance with the terms of this Agreement, shall use his best efforts to promote and serve the interests of the Company and its subsidiaries and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may (i) participate in the activities of professional trade organizations related to the business of the Company and its subsidiaries, (iii) participate in the activities on non profit organizations (iii) engage in personal investing activities and (iv) serve on the board of directors of not more than one other company whose businesses are not in competition with the business interests of the Company or any of its subsidiaries or affiliates, provided that the activities set forth in these clauses (i), (ii), (iii) and (iv), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder.

Section 5.  Reimbursement for Expenses.  During the Employment Term, the Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, entertainment, lodging and similar items in accordance with the Company’s expense reimbursement policy, as the same may be modified by the Company from time to time.  The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of such expenditures in accordance with the financial policy of the Company, as in effect from time to time.

Section 6.  Termination and Default.

(a)  Death.  The Executive’s employment shall automatically terminate upon his death and upon such event, the Executive’s estate shall be entitled to receive the amounts specified in Section 6(e) below.

3

(b)  Disability.  If the Executive is unable to perform the duties required of him under this Agreement because of illness, incapacity, or physical or mental disability, the Employment Term shall continue and the Company shall pay all compensation required to be paid to the Executive hereunder, unless the Executive is disabled such that the Executive would be entitled to receive disability benefits under the Company’s long-term disability plan, or if no such plan exists, the Executive is unable to perform the duties required of him under this Agreement for an aggregate of 180 days (whether or not consecutive) during any 12-month period during the term of this Agreement, in which event the Executive’s employment shall terminate.

(c)  Cause.  The Company may terminate the Executive’s employment at any time, with or without Cause.  In the event of termination pursuant to this Section 6(c) for Cause (as defined below), the Company shall deliver to the Executive written notice setting forth the basis for such termination, which notice shall specifically set forth the nature of the Cause which is the reason for such termination.  Termination of the Executive’s employment hereunder shall be effective upon delivery of such notice of termination.  For purposes of this Agreement, “Cause” shall mean:  (i) the Executive’s failure (except where due to a disability contemplated by subsection (b) hereof), neglect or refusal to perform his duties hereunder which failure, neglect or refusal shall not have been corrected by the Executive within 30 days of receipt by the Executive of written notice from the Company of such failure, neglect or refusal, which notice shall specifically set forth the nature of said failure, neglect or refusal, (ii) any willful or intentional act of the Executive that has the effect of injuring the reputation or business of the Company or its affiliates in any material respect; (iii) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board of Directors or (B) is the result of the Executive’s illness, disability or incapacity (in which event the provisions of Section 6(b) hereof shall control); (iv) use of illegal drugs by the Executive or repeated drunkenness; (v) conviction of the Executive for the commission of a felony; or (vi) the commission by the Executive of an act of fraud or embezzlement against the Company.

(d)  Resignation.  The Executive shall have the right to terminate his employment at any time by giving notice of his resignation.

(e)  Payments.  In the event that the Executive’s employment terminates for any reason, the Company shall pay to the Executive all amounts and benefits accrued but unpaid hereunder through the date of termination in respect of Salary or unreimbursed expenses, including accrued and unused vacation.  In addition, in the event the Executive’s employment is terminated by the Company without Cause, whether during or upon expiration of the then current term of this Agreement, in addition to the amounts specified in the foregoing sentence, (i) the Executive shall continue to receive the Salary at the rate in effect hereunder on the date of such termination, on such regular payroll dates and in accordance with the Company’s prevailing payroll practices, for a period of 12 months following the date of such termination (the “Severance Term”) and (ii) to the extent permissible under the Company’s health and welfare plans, the Executive shall continue to receive any health and welfare benefits provided to him as of the date of such termination in accordance with Section 3(c) hereof during the Severance Term, on the same basis and at the same cost as during the Employment Term.  Further, in the event the Executive’s employment is terminated without Cause by reason of the Company having notified the Executive that this Agreement will not be extended pursuant to Section 2, the

4

Executive shall be entitled to receive a pro-rated amount of the Bonus in a lump sum based on the Executive’s period of employment during the calendar year in which such termination occurs.  Following the end of the Severance Term, the Executive shall be entitled to elect health care continuation coverage permitted under Section 601 through 608 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as if his employment had then terminated.  In the event the Executive accepts other full time employment or engages in his own business prior to the last date of the Severance Term, the Executive shall forthwith notify the Company and the Company shall be entitled to set off from amounts and benefits due the Executive under this Section 6(e) (other than in respect of the Bonus) the amounts paid to and benefits received by the Executive in respect of such other employment or business activity.  Amounts owed by the Company in respect of the Salary, Bonus or reimbursement for expenses under the provisions of Section 6 hereof shall, except as otherwise set forth in this Section 6(e), be paid promptly after the Executive’s Termination of Employment (or, in the case of payroll continuation of Salary, payments will commence promptly after the Executive’s Termination of Employment).  The payments and benefits to be provided to the Executive as set forth in this Section 6(e) in the event the Executive’s employment is terminated by the Company without Cause:  (i)  shall be lieu of any and all benefits otherwise provided under any severance pay policy, plan or program maintained from time to time by the Company for its employees, and (ii)  shall not be paid to the extent that Executive’s employment is terminated following a Change in Control under circumstances entitling the Executive to the benefits described in Section 6(f).

(f)            Change in Control Benefit. In the event that the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, as defined below, during the 12-month period immediately following a Change in Control, as defined below, whether during or upon expiration of the then current term of this Agreement:  (i) the Company shall pay to the Executive all amounts and benefits accrued but unpaid hereunder through the date of termination in respect of Salary or unreimbursed expenses, including accrued and unused vacation, (ii) all unvested shares that are subject to the Option and RSU shall become immediately vested and exercisable as set forth in the 2010 Plan and Grant Certificates, (iii) the Company shall pay to Executive (within 15 days after his Termination of Employment) a lump sum payment equal to 12 months of his Salary at the rate in effect hereunder on the date of such termination, plus his full target Bonus for the year in which the Change in Control occurs, and (iv) to the extent permissible under the Company’s health and welfare plans, the Executive shall continue to receive, at the Company’s cost, any health and welfare benefits provided to him as of the date of such termination for the 12-month period following his termination of employment.  Following the end of the 12-month period described in clause (iv) of the preceding sentence, the Executive shall be entitled to elect health care continuation coverage permitted under Sections 601 through 608 of ERISA as if his employment with the Company then terminated.

For purposes of this Agreement, “Change in Control” shall mean:

(i)  The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on a fully diluted basis) of either (A) the then outstanding shares of common stock of the Parent Corporation, taking into account as outstanding for this purpose such common stock issuable upon the exercise of options or

5

warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such common stock (the “Outstanding Parent Corporation Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Parent Corporation entitled to vote generally in the election of directors (the “Outstanding Parent Corporation Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (x) any acquisition by the Parent Corporation or any “affiliate” of the Parent Corporation, within the meaning of 17 C.F.R. § 230.405 (an “Affiliate”), (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent Corporation or any Affiliate of the Parent Corporation, (z) any acquisition by any corporation or business entity pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (ii) of this Section 6(f) (persons and entities described in clauses (x), (y) and (z) being referred to herein as “Permitted Holders”); or

(ii)  The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent Corporation (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Corporation Common Stock and Outstanding Parent Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Parent Corporation or all or substantially all of the Parent Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Corporation Common Stock and Outstanding Parent Corporation Voting Securities, as the case may be, and (B) no Person (excluding any Permitted Holder) beneficially owns, directly or indirectly, 50% or more (on a fully diluted basis) of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, taking into account as outstanding for this purpose such common stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such common stock, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the incumbent Board of Directors of the Parent Corporation at the time of the execution of the initial agreement providing for such Business Combination; or

(iii)  Approval by the shareholders of the Parent Corporation of a complete liquidation or dissolution of the Parent Corporation; or

(iv)  The sale of at least 80% of the assets of the Parent Corporation to an unrelated party, or completion of a transaction having a similar effect.

6

(g)  Survival of Operative Sections.  Upon any termination of the Executive’s employment, the provisions of Sections 6(e), 6(f), and 7 through 18 of this Agreement shall survive to the extent necessary to give effect to the provisions thereof.

(h)  Six Month Suspension if the Executive is a Specified Employee. Notwithstanding the foregoing, if, at the time of his Termination of Employment, the Executive is a Specified Employee (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), then to the extent any payment under Section 6 is determined by the Company to be deferred compensation subject to the requirements of Section 409A of the Code, payment of such deferred compensation shall be suspended and not made until the first day of the month next following the end of the 6-month period following the Executive’s Termination of Employment, or, if earlier, upon the Executive’s death.

(g)  Definitions.

(i)  Good Reason.  For purposes of subsection (f), “Good Reason” shall mean, without the Executive’s prior written consent, (A) a material diminution in the Executive’s authority, duties or responsibilities as in effect prior to the Change in Control, (B) a material diminution in the Executive’s base compensation (which includes the Executive’s base Salary and Bonus and employee benefit plan coverage for the Executive and his family) in effect immediately prior to the Change in Control or as thereafter increased, or (C) the Company’s requiring the Executive to be based at any office or location that is more than fifty (50) miles further from the office or location thereof immediately preceding a Change in Control.  In order to constitute Good Reason, the Executive must give written notice to the Company of the existence of the condition constituting Good Reason within 90 days of the initial existence of the condition and his intent to terminate employment with the Company for Good Reason.  If the Company remedies any event or change described in this subsection within 30 days of such notice from the Executive, such event or change shall not constitute Good Reason.

(b)  Termination of Employment.  Solely for purposes of determining when payments may be made to the Executive under this Section 6, “Termination of Employment” means a termination of the Executive’s employment relationship with the Company and all affiliates or such other change in the Executive’s employment relationship with the Company and all affiliates that would be considered a “separation from service” under Section 409A of the Code.

Section 7.  Secrecy and Non-Competition.

(a)  No Competing Employment.  The Executive acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company’s, or any of its subsidiaries’ or affiliates’, business and assets and by his current employment with the Company and its subsidiaries, the Executive has obtained and will obtain such knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company or any of its subsidiaries or affiliates and to the Company’s, or any of its subsidiaries’ or affiliates’, substantial detriment.  Therefore, the Executive agrees that for the period commencing on the date of this Agreement and ending

7

on the first anniversary of the termination of the Executive’s employment hereunder (such period is hereinafter referred to as the “Restricted Period”) with respect to any State in which the Company is engaged in business during the Employment Term, the Executive shall not participate or engage, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, whether as an employee, agent, officer, director, partner or joint venturer, in any business activities if such activity consists of any activity undertaken or expressly contemplated to be undertaken by the Company or any of its subsidiaries or by the Executive at any time during the last three (3) years of the Employment Term.  The foregoing restrictions contained in this Section 7(a) shall not prevent the Executive from accepting employment with a large diversified organization with separate and distinct divisions that do not compete, directly or indirectly, with the Company or any of its subsidiaries or affiliates, so long as prior to accepting such employment the Company receives separate written assurances from the prospective employer and from the Executive, satisfactory to the Company, to the effect that the Executive will not render any services, directly or indirectly, to any division or business unit that competes, directly or indirectly, with the Company or any of its subsidiaries or affiliates.  During the Restricted Period, the Executive will inform any new employer, prior to accepting employment, of the existence of this Agreement and provide such employer with a copy of this Agreement.

(b)  Nondisclosure of Confidential Information.  The Executive, except in connection with his employment hereunder, shall not disclose to any person or entity or use, either during the Employment Term or at any time thereafter, any information not in the public domain or generally known in the industry that the Company any of its subsidiaries or affiliates treats as confidential or proprietary, in any form, acquired by the Executive while employed by the Company or any predecessor to the Company’s business or, if acquired following the Employment Term, such information which, to the Executive’s knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company or any of its subsidiaries or affiliates, relating to the Company, its subsidiaries or affiliates, including but not limited to information regarding customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know-how, trade names, improvements, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company’s, or any of its subsidiaries’ or affiliates’, products or services), business plans, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, plans (business, technical or otherwise), customer and industry lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, which is or was used in the business of the Company or any subsidiaries or affiliates thereof.  The Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company any of its subsidiaries or affiliates, and upon termination of his employment with the Company, the Executive shall return to the Company any of its subsidiaries or affiliates the originals and all copies of any such information provided to or acquired by the Executive in connection with the performance of his duties for the Company, and shall return to the Company any of its subsidiaries or affiliates all files, correspondence and/or other communications received, maintained and/or originated by the Executive during the course of his employment.

8

(c)  No Interference.  During the Restricted Period, the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company or any of its subsidiaries or affiliates, or otherwise directly interfere with the relationship of the Company or any of its subsidiaries or affiliates with any person who, to the knowledge of the Executive, is employed by or otherwise engaged to perform services for the Company or any of its subsidiaries or affiliates (including, but not limited to, any independent sales representatives or organizations) or who is, or was within the then most recent 12-month period, a customer or client of the Company, its predecessors or any of its subsidiaries or affiliates.  The placement of any general classified or ‘help wanted’ advertisements and/or general solicitations to the public at large shall not constitute a violation of this Section 7(c) unless the Executive’s name is contained in such advertisements or solicitations.

(d)  Inventions, etc.  The Executive hereby sells, transfers and assigns to the Company or any of its subsidiaries or affiliates or to any person or entity designated by the Company all of the entire right, title and interest of the Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, during his employment by the Company which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company or any of its subsidiaries or affiliates, or which otherwise relate to or pertain to the business, functions or operations of the Company or any of its subsidiaries or affiliates or which arise from the efforts of the Executive during the course of his employment for the Company.  The Executive shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be necessary or required of the Executive to permit the Company or any of its subsidiaries or affiliates or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof.  Any invention relating to the business of the Company or any of its subsidiaries or affiliates and disclosed by the Executive within one year following the termination of his employment with the Company shall be deemed to fall within the provisions of this paragraph unless proved to have been first conceived and made following such termination.  The foregoing requirements of this Section 7(d) shall not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Executive’s own time, and (i) which does not relate directly to the Company’s, or any of its subsidiaries’ or affiliates’, business or to the Company’s, or any of its subsidiaries’ or affiliates’, actual or demonstrably anticipated research or development, or (ii) which does not result from any work the Executive performed for the Company or any of its subsidiaries or affiliates.

Section 8.  Injunctive Relief.  Without intending to limit the remedies available to the Company or any of its subsidiaries or affiliates, the Executive acknowledges that in the event of a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company or its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the

9

event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach of Section 7 hereof, restraining the Executive from engaging in activities prohibited by Section 7 hereof or such other relief as may be required specifically to enforce any of the covenants in Section 7 hereof.

Section 9.  Representations and Warranties of the Executive.  The Executive represents and warrants to the Company as follows:

(a)  This Agreement, upon execution and delivery by the Executive, will be duly executed and delivered by the Executive and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Executive enforceable against the Executive in accordance with its terms.

(b)  Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the performance of this Agreement in accordance with its terms and conditions by the Executive (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Executive.  Without limiting the generality of the foregoing, the Executive is not a party to any non-competition, non-solicitation, no hire or similar agreement that restricts in any way the Executive’s ability to engage in any business or to solicit or hire the employees of any person.

The representations and warranties of the Executive contained in this Section 9 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

Section 10.  Representations and Warranties of the Company.  The Company represents and warrants to the Executive as follows:

(a)  This Agreement, upon execution and delivery by the Company, will be duly executed and delivered by the Company and (assuming due execution and delivery hereof by the Executive) will be the valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

(b)  Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the performance of this Agreement in accordance with its terms and conditions by the Company (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Company.

10

The representations and warranties of the Company contained in this Section 10 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

Section 11.  Tax Withholding.  All amounts payable to the Executive under this Agreement shall be reduced by all applicable U.S. federal, state, local, foreign and other withholdings and similar taxes and payments required by applicable law.

Section 12.  Code Section 409A.  The Company and the Executive intend that the benefits provided under this Agreement will comply, in form and operation, with an exception to or exclusion from the requirements of Code section 409A and this Agreement will be construed and administered in a manner that is consistent with and gives effect to such intention; provided, however, if any payment is or becomes subject to the requirements of Code section 409A, the Agreement as it relates to such payment is intended to comply with the requirements of Code section 409A.  In no event may the Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement. Certain payments to be made under Sections 3 and 6 are intended to be exempt from the requirements of Code section 409A because they are (i) non-taxable benefits, (ii) welfare benefits within the meaning of Treas. Reg. Sec. 1.409A-1(a)(5), (iii) short-term deferrals under Treas. Reg. Sec. 1.409A-1(b)(4), or (iv) payments under a separation pay plan within the meaning of Treas. Reg. Sec. 1.409A-1(b)(9).  .

Section 13.  Successors and Assigns; No Third-Party Beneficiaries.  This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the parties, including, but not limited to, the Executive’s heirs and the personal representatives of the Executive’s estate; provided, however, that neither party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other party.  Notwithstanding the foregoing, the Company shall have the unrestricted right to assign this Agreement and to delegate all or any part of its obligations hereunder to any of its subsidiaries or affiliates, but in such event such assignee shall expressly assume all obligations of the Company hereunder and the Company shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement.  Nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement.

Section 14.  Waiver and Amendments.  Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; provided, however, that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Board of Directors.  No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

Section 15.  Severability and Governing Law.  The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects.  If any of such covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of

11

competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.

Section 16.  Notices.

(a)  All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or certified mail, postage prepaid:

(i)  If to the Executive, at such other address as the Executive may have furnished the Company in writing, and

(ii)  If to the Company, at Minnesota Headquarters, marked for the attention of the President and Chief Executive Officer, or at such other address as it may have furnished in writing to the Executive.

(b)  Any notice so addressed shall be deemed to be given:  if delivered by hand, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing.

Section 17.  Section Headings.  The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or provision hereof.

Section 18.  Entire Agreement.  This Agreement, including the Exhibits hereto, constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive.  This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement, including without limitation that certain offer letter dated June 8, 2011.

Section 19.  Severability.  In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not effect the remaining provisions of this Agreement which shall remain in full force and effect.

Section 20.  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

[Remainder of Page Intentionally Left Blank]

12

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

TORNIER, INC.
By:	/s/ Douglas W. Kohrs
	Name: Douglas W. Kohrs
	Title: President and Chief Executive Officer
EXECUTIVE
/s/ David H. Mowry
David H. Mowry

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas W. Kohrs, certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended October 2, 2011 of Tornier N.V. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Intentionally omitted;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2011
/s/ Douglas W. Kohrs
By:	Douglas W. Kohrs
Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Carmen L. Diersen certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended October 2, 2011 of Tornier N.V. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Intentionally omitted;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2011
/s/ Carmen L. Diersen
By:	Carmen L. Diersen
Title:	Global Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Tornier N.V. (the “Registrant”) on Form 10-Q for the quarter ended October 2, 2011 filed with the Securities and Exchange Commission (the “Report”), I, Douglas W. Kohrs, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Douglas W. Kohrs
Name:	Douglas W. Kohrs
Title:	President and Chief Executive Officer
Date:	November 14, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Tornier N.V. (the “Registrant”) on Form 10-Q for the quarter ended October 2, 2011 filed with the Securities and Exchange Commission (the “Report”), I, Carmen L. Diersen, Global Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Carmen L. Diersen
Name:	Carmen L. Diersen
Title:	Global Chief Financial Officer
Date:	November 14, 2011

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Oct. 02, 2011	Oct. 03, 2010	Oct. 02, 2011	Oct. 03, 2010
Revenue	$ 57,556	$ 49,707	$ 192,149	$ 166,113
Cost of goods sold	16,650	13,553	54,708	45,554
Gross profit	40,906	36,154	137,441	120,559
Operating expenses:
Sales and marketing	31,764	29,474	101,335	93,665
General and administrative	6,173	5,449	18,560	16,643
Research and development	4,309	3,898	14,608	12,714
Amortization of intangible assets	2,741	2,842	8,448	8,720
Special charges	56	54	188	306
Total operating expenses	45,043	41,717	143,139	132,048
Operating loss	(4,137)	(5,563)	(5,698)	(11,489)
Other income (expense):
Interest expense	(379)	(5,282)	(3,346)	(16,047)
Foreign currency transaction gain (loss)	(228)	(3,728)	(81)	(9,467)
Loss on extinguishment of debt			(29,475)
Other non-operating income (expense)	993	283	1,009	344
Loss before income taxes	(3,751)	(14,290)	(37,591)	(36,659)
Income tax (expense) benefit	2,114	1,531	9,116	5,246
Consolidated net loss	(1,637)	(12,759)	(28,475)	(31,413)
Net loss attributable to non-controlling interest				(695)
Net loss attributable to Tornier	(1,637)	(12,759)	(28,475)	(30,718)
Accretion of non-controlling interest				(679)
Net loss attributable to ordinary shareholders	$ (1,637)	$ (12,759)	$ (28,475)	$ (31,397)
Net loss per share:
Basic and diluted (in dollars per share)	$ (0.04)	$ (0.43)	$ (0.75)	$ (1.15)
Weighted average shares outstanding:
Basic (in shares)	39,150	29,569	37,882	27,192
Diluted (in shares)	39,150	29,569	37,882	27,192

XML

Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Oct. 02, 2011	Oct. 03, 2010
Cash flows from operating activities:
Consolidated net loss	$ (28,475)	$ (31,413)
Adjustments to reconcile consolidated net loss to cash provided by operating activities:
Depreciation and amortization	21,038	19,842
Non-cash foreign currency loss	387	8,787
Deferred income taxes	(8,993)	(5,570)
Share-based compensation	4,741	4,187
Non-cash interest expense and discount amortization	2,040	14,599
Inventory obsolescence	3,814	4,031
Loss on extinguishment of debt	29,475
Other non-cash items affecting earnings	(347)	745
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(534)	660
Inventories	(11,015)	(17,235)
Accounts payable and accruals	(3,449)	4,590
Other current assets and liabilities	3,556	(3,855)
Other non-current assets and liabilities	(1,277)	127
Net cash provided by (used in) operating activities	10,961	(505)
Cash flows from investing activities:
Acquisition-related cash payments	(2,053)	(1,992)
Additions of instruments	(15,042)	(10,508)
Purchases of property, plant and equipment	(3,772)	(5,540)
Net cash used in investing activities	(20,867)	(18,040)
Cash flows from financing activities:
Change in short-term debt	(8,185)	7,129
Repayments of long-term debt	(6,458)	(5,003)
Proceeds from issuance of long-term debt	4,751	5,351
Deferred financing costs	(2,731)	(1,676)
Repayment of notes payable	(116,108)
Issuance of ordinary shares	171,215	806
Net cash provided by financing activities	42,484	6,607
Effect of exchange rate changes on cash and cash equivalents	(1,568)	(529)
Increase (decrease) in cash and cash equivalents	31,010	(12,467)
Cash and cash equivalents:
Beginning of period	24,838	37,969
End of period	55,848	25,502
Non-cash investing and finance activities:
Fixed assets acquired pursuant to capital lease	$ 646

XML

Consolidated Balance Sheets (USD $) In Thousands	Oct. 02, 2011	Jan. 02, 2011
Current assets:
Cash and cash equivalents	$ 55,848	$ 24,838
Accounts receivable (net of allowance of $2,349 and $2,519, respectively)	42,703	42,758
Inventories	85,726	77,525
Income taxes receivable		2,835
Deferred income taxes	1,245	2,587
Prepaid taxes	12,589	11,179
Prepaid expenses	2,299	7,444
Other current assets	3,650	4,048
Total current assets	204,060	173,214
Instruments, net	48,802	42,378
Property, plant and equipment, net	33,454	33,680
Goodwill	133,724	131,830
Intangible assets, net	102,024	109,024
Deferred income taxes	443	440
Other assets	1,312	612
Total assets	523,819	491,178
Current liabilities:
Short-term borrowings and current portion of long-term debt	20,956	28,392
Accounts payable	12,010	12,890
Accrued liabilities	30,637	34,620
Income taxes payable	763	327
Deferred income taxes	7	20
Total current liabilities	64,373	76,249
Notes payable		84,261
Other long-term debt	24,356	25,467
Deferred income taxes	19,937	28,706
Contingent liabilities		1,860
Other non-current liabilities	3,981	4,396
Total liabilities	112,647	220,939
Shareholders' equity:
Ordinary shares, Euro 0.03 par value; authorized 175,000,000 and 100,000,000 at October 2, 2011 and January 2, 2011 respectively; issued and outstanding 39,244,166 and 29,568,731 at October 2, 2011 and January 2, 2011, respectively	1,559	1,156
Additional paid-in capital	606,590	437,307
Accumulated deficit	(212,007)	(183,532)
Accumulated other comprehensive income	15,030	15,308
Total shareholders' equity	411,172	270,239
Total liabilities and shareholders' equity	$ 523,819	$ 491,178

XML

Other Long-Term Debt

9 Months Ended

Oct. 02, 2011

Other Long-Term Debt

Other Long-Term Debt

8. Other Long-Term Debt

A summary of debt is as follows (in thousands):

	October 2, 2011			January 2, 2011
Lines of credit	$	12,752		$	20,639
Mortgages	5,875			6,342
Other term debt	24,304			24,522
Shareholder debt	2,381			2,356
Total debt	45,312			53,859
Less current portion	(20,956		)	(28,392		)
Long-term debt	$	24,356		$	25,467

The Company’s European subsidiaries have established unsecured lines of credit totaling $24.8 million and $21.9 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under these lines were $11.4 million and $15.4 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under these lines have variable interest rates based on the Euro Overnight Index Average plus 1.3% or a three-month Euro plus 0.5%-3.0%.

The Company’s U.S. subsidiary has established a $10.0 million secured line of credit at October 2, 2011 and January 2, 2011. This line of credit expires in July 2012 and is callable by the bank at any time. Also, the line is secured by working capital and equipment. Borrowings under the line were $1.3 million and $5.2 million at October 2, 2011 and January 2, 2011, respectively. Borrowings under the line of credit bear interest at a 30-day LIBOR plus 2.25%, with a floor interest rate of 5%. This line contains customary affirmative and negative covenants and events of default. As of October 2, 2011, the Company’s U.S. subsidiary was subject to a covenant to maintain no less than $39.0 million of tangible net worth. Also as of October 2, 2011, the Company was subject to a covenant to maintain a maximum debt to tangible net worth ratio of 1.50. The covenants relate to the U.S. subsidiary’s ratios only. The Company was in compliance with all covenants as of October 2, 2011.

The Company has a mortgage secured by the Company’s U.S. subsidiary’s office building in Stafford, Texas. This mortgage had an outstanding amount of $1.3 million at October 2, 2011 and January 2, 2011.  This mortgage bears a fixed annual interest rate of 6.7%.

The Company also has a mortgage secured by an office building in Grenoble, France. This mortgage had an outstanding balance of $4.6 million and $5.0 million at October 2, 2011 and January 2, 2011, respectively. This mortgage bears a fixed annual interest rate of 4.9%.

The Company’s U.S. subsidiary had long-term debt secured by its working capital and equipment that was repaid during the second quarter of 2011. This debt had an outstanding amount of $0.3 million at January 2, 2011. This debt accrued interest based on a variable rate of LIBOR plus 2.25%.

The Company’s international subsidiaries have other long-term secured and unsecured notes totaling $24.3 million and $24.2 million at October 2, 2011 and January 2, 2011, respectively, with initial maturities ranging from 3 to 10 years. A portion of these notes have fixed annual interest rates that range from 2.9% to 7.5%. The remaining notes carry a variable annual interest rate based on LIBOR, plus 1.2%, or a three-month Euro, plus 0.3% to 1.5%.

One of the Company’s 51%-owned and consolidated subsidiaries borrowed $2.4 million from a member of the Company’s Board of Directors who is also a 49% owner of the consolidated subsidiary. This loan was used to partially fund the purchase of real estate in Grenoble, France, to be used as a manufacturing facility. Interest on the debt is variable based on three-month Euro plus 0.5%. The non-controlling interest in this subsidiary is deemed immaterial to the consolidated financial statements.

XML

Other Comprehensive Income (Loss)

9 Months Ended

Oct. 02, 2011

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

13. Other Comprehensive Income (Loss)

Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net earnings, as these amounts are recorded directly as an adjustment to shareholders’ equity. Other comprehensive income (loss) is comprised mainly of foreign currency translation adjustments.

The reconciliation of net loss to comprehensive loss is as follows (in thousands):

	Three months ended						Nine months ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
	(unaudited)						(unaudited)
Net loss	$	(1,637	)	$	(12,759	)	$	(28,475	)	$	(30,718	)
Foreign currency translation adjustments	(16,751		)	15,946			(278		)	1,847
Total comprehensive income (loss)	$	(18,388	)	$	3,187		$	(28,753	)	$	(28,871	)

XML

Inventories

9 Months Ended

Oct. 02, 2011

Inventories

Inventories

4. Inventories

Inventory balances consist of the following (in thousands):

	October 2,2011		January 2, 2011
Raw materials	$	6,694	$	7,913
Work-in-process	8,370		5,356
Finished goods	70,662		64,256
Total	$	85,726	$	77,525

XML

Share-Based Compensation

9 Months Ended

Oct. 02, 2011

Share-Based Compensation.

Share-Based Compensation

10. Share-Based Compensation

Below is a summary of the allocation of share-based compensation recognized within the consolidated financial statements (in thousands):

	Three months ended				Nine months ended
	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
	(unaudited)				(unaudited)
Cost of goods sold	$	199	$	46	$	586	$	369
Sales and marketing	608		490		1,587		1,263
General and administrative	884		685		2,197		2,223
Research and development	140		131		371		332
Total	$	1,831	$	1,352	$	4,741	$	4,187

During the nine months ended October 2, 2011, the Company granted options to purchase an aggregate of 0.7 million ordinary shares and 0.2 million restricted stock units at a weighted average fair value of $11.90 and $25.16 per share, respectively, to be recognized on a straight line basis over their service period of four years.  The weighted average per share exercise price for options granted during the nine months ended October 2, 2011 is $24.35.  As of October 2, 2011, the Company had options to purchase an aggregate of approximately 4.2 million ordinary shares (of which options to purchase an aggregate of approximately 2.6 million ordinary shares were exercisable) and 0.2 million restricted stock units outstanding. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Nine months ended
	October 2, 2011
Risk-free interest rate	2.2	%
Expected life in years	6.1
Expected volatility	48.6	%
Expected dividend yield	0.0	%

The Company had $19.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted to employees as of October 2, 2011.  That cost is expected to be recognized over a weighted-average period of 2.8 years.

XML

Litigation

9 Months Ended

Oct. 02, 2011

Litigation

Litigation

15. Litigation

On October 25, 2007, two of the Company’s former sales agents filed a complaint in the U.S. District Court for the Southern District of Illinois, alleging that the Company had breached their agency agreements and committed fraudulent and negligent misrepresentations. The jury rendered a verdict on July 31, 2009, awarding the plaintiffs a total of $2.6 million in actual damages and $4.0 million in punitive damages. While the court struck the award of punitive damages on March 31, 2010, it denied the Company’s motion to set aside the verdict or order a new trial. The Company timely filed a notice of appeal with the U.S. Court of Appeals for the Seventh Circuit in respect of the remaining actual damages.  On August 24, 2011, the U.S. Court of Appeals for the Seventh Circuit issued its decision affirming the order of the lower court setting aside the award of punitive damages.  In addition, the appellate court affirmed the lower court’s finding of liability against the Company, but vacated the lower court’s damages award of $2.6 million in compensatory damages as being not supported by the record and being too speculative.  The case has been remanded to the lower court for a recalculation of damages that is consistent with the appellate court’s decision.  The parties are currently awaiting an order from the lower court setting forth the procedure for the remand proceedings.

The Company has considered the facts of the case, the related case law and the decision of the U.S . Court of Appeals for the Seventh Circuit and, based on this information, believes that the verdict rendered on July 31, 2009 was inappropriate given the related facts and supporting legal arguments. The Company has considered the progress of the case, the views of legal counsel the facts and arguments presented at the original jury trial, and the decision of the U.S. Court of Appeals for the Seventh Circuit and the fact that the Company intends to continue to vigorously defend its position through the remand proceedings in assessing the probability of a loss occurring for this matter. The Company believes it must assess the probability of the incurrence of a loss, and the ability to reasonably estimate such loss, based on the possible outcomes of the entire legal process including the remand and appeals process. The Company believes its legal position is strong and that the range of possible outcomes is between zero and $2.6 million. After assessing all relevant information, the Company does not believe there to be a reasonably estimable loss within the range of possible outcomes that is probable of occurring. As a result, the Company has not recorded an accrual for any loss related to this issue. The Company has determined that a loss is reasonably possible, and management estimates the range of loss to be between zero and $2.6 million, the amount of the initial jury verdict, minus the punitive damage award. The Company believes it continues to have a strong defense against these claims and is vigorously contesting these allegations. As of October 2, 2011, no accrual was recorded relating to this case.

In addition to the item noted above, the Company is subject to various other legal proceedings, product liability claims and other matters which arise in the ordinary course of business. In the opinion of management, the amount of liability, if any, with respect to these matters will not materially affect the Company’s consolidated financial statements.

XML

Income Taxes

9 Months Ended

Oct. 02, 2011

Income Taxes

Income Taxes

11. Income Taxes

The Company operates in multiple income tax jurisdictions both inside and outside the United States. Income tax authorities in these jurisdictions regularly perform audits of the Company’s income tax filings. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.

During the first quarter of 2011, the Company 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 the Company’s notes payable at the time of repayment. The additional income tax benefit recorded during the period primarily related to the Company’s French subsidiaries. Given the Company’s history of operating losses, the Company does not generally recognize a provision for income taxes in the United States and certain of the Company’s European sales offices.

The income tax benefit in the first nine months of 2010 primarily relates to tax benefit recorded related to the Company’s French subsidiaries as well as deferred tax benefit on the amortization of the debt discount recognized on the Company’s notes payable.

XML

Notes Payable and Warrants to Issue Ordinary Shares

9 Months Ended

Oct. 02, 2011

Notes Payable and Warrants to Issue Ordinary Shares

Notes Payable and Warrants to Issue Ordinary Shares

9. Notes Payable and Warrants to Issue Ordinary Shares

In April 2009, the Company issued notes payable in the amount of €37 million (approximately $49.3 million) to a group of investors that included then existing shareholders, new investors and management of the Company. The notes carried a fixed annual interest rate of 8.0% with interest payments accrued in kind semi-annually. The notes were scheduled to mature in March 2014.

In connection with the note agreement, the Company also issued warrants to purchase an aggregate of 2.9 million ordinary shares at an exercise price of $16.98 per share. The Company recorded the warrants as liabilities with an offsetting debt discount recorded as a reduction of the carrying value of the notes. The debt discount was being amortized as additional interest expense over the life of the notes.

In February 2008, the Company issued notes payable in the amount of €34.5 million (approximately $52.4 million) to a group of investors that included then existing shareholders and management of the Company. The notes carried a fixed annual interest rate of 8.0% with interest payments accrued in-kind. The notes were scheduled to mature on February 28, 2013. Also, in connection with the 2008 note agreement, the Company issued warrants to purchase an aggregate of 3.1 million ordinary shares at an exercise price of $16.98 per share.  The Company had recorded the warrants as liabilities with an offsetting debt discount recorded as a reduction of the carrying value of the notes. The debt discount was being amortized as additional interest expense over the life of the notes.

In February 2011, the Company used approximately $116.1 million (€86.4 million) of the net proceeds from its initial public offering to repay all of the outstanding indebtedness under the notes payable, including accrued interest thereon.  At the time of repayment, the Company recognized a loss on debt extinguishment of $29.5 million and related deferred tax benefit of $7.5 million to recognize the remaining balance of unamortized discount on the notes and to reverse the related deferred tax liability.

Notes payable balances were as follows:

	February 14, 2011(Time of Repayment)			January 2, 2011
Gross notes payable	$	116,109		$	114,357
Discount to notes payable	(29,352		)	(30,096		)
Net notes payable	$	86,757		$	84,261

In May 2010, the Company executed agreements with 100% of the warrant holders that acquired warrants under the February 2008 and April 2009 notes payable and warrant issuances to exchange their outstanding warrants for the Company’s ordinary shares. Each warrant holder agreed to exchange their warrants under the February 2008 and April 2009 agreements for ordinary shares of the Company at an exchange ratio of 0.6133 and 0.6410, respectively. In order to settle the warrant liabilities related to the February 2008 and April 2009 warrant issuances, the Company issued 1,894,076 and 1,885,624 ordinary shares, respectively. The Company determined the fair value of its ordinary shares to be $22.50 per share at the date of the exchange which resulted in the issuance of ordinary shares with a total value of $85.0 million. This amount, net of $21.7 million of tax was recognized as an increase to equity at the time of the exchange. The Company recognized a gain on the change in fair value of the warrant liability of $0.2 million in non-operating expense, net during the year ended January 2, 2011 to adjust the carrying value of the warrant liability to the final settlement amount. The Company also recognized $11.6 million of foreign currency transaction loss on the warrant liability for the year ended January 2, 2011. This transaction settled the warrant liability of $85.2 million included in the consolidated balance sheet at December 27, 2009.

Changes in the carrying value of warrants are as follows:

Warrant value at December 28, 2008	$	29,277
Impact of adoption of ASC Topic 815—fair value adjustment	(1,159		)
Issuance of 2009 warrants at fair value	29,070
Change in fair value during the year	28,027
Warrant value at December 27, 2009	$	85,215
Change in fair value during the period	(147		)
Warrant value at April 4, 2010	$	85,068
Change in fair value during the period	(25		)
Fair value of shares issued to settle liability and recognized in equity on May 27, 2010	85,043
Warrant value at July 4, 2010	$	—

XML

Summary of Significant Accounting Policies

9 Months Ended

Oct. 02, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Tornier N.V. and all of its wholly and majority owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and the instructions to quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended January 2, 2011, as filed with the U.S. Securities and Exchange Commission (SEC).

In the opinion of the Company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring accruals, necessary for the fair presentation of the Company’s interim results. The results of operations for any interim period are not indicative of results for the full fiscal year.

The condensed consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (GAAP) and include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.  All amounts are presented in U.S. Dollars (“$”), except where expressly stated as being in other currencies, e.g., Euros (“€”).

Certain amounts reported in previous periods have been reclassified to conform to the current period presentation.

On January 28, 2011, the Company executed a 3-to-1 reverse stock split of the Company’s ordinary shares. All share and per share amounts for all periods presented in these condensed consolidated financial statements reflect this split.

On January 28, 2011, the Company made a change to its legal form by converting from Tornier B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) to Tornier N.V., a public company with limited liability (naamloze vennootschap).

The Company’s fiscal quarters are generally determined on a 13-week basis and always end on a Sunday. As a result, the Company’s fiscal year is generally 364 days. Fiscal year-end periods end on the Sunday nearest to December 31. Every few years, it is necessary to add an extra week to a quarter to make it a 14-week period in order to have the year end fall on the Sunday nearest to December 31. For example, the first three quarters of 2010 include an extra week of operations compared to the first three quarters of 2011.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-6, Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including (i) significant transfers into and out of Level 1 and Level 2 fair value measurements and (ii) information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 was effective for interim and annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which were effective for interim and annual periods beginning after December 15, 2010. The Company adopted the additional disclosures required for Level 1 and Level 2 fair value measurements in the first quarter of 2010 and Level 3 disclosures during the first quarter of 2011.

In May 2011, the FASB issued ASU 2011-4, Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which was intended by the FASB and the International Accounting Standards Board (IASB) to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards (IFRSs).  Additional disclosures required by this amendment include information about transfers between Level 1 and Level 2 instruments, information regarding the sensitivity of Level 3 instruments, and categorization by level of items that are not measured at fair value in the statement of financial position (but for which disclosure of fair value is still required). The guidance is effective prospectively for fiscal years beginning after December 15, 2011 and interim periods within those years. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or operating results.

In September 2011, the FASB issued ASU 2011-08, Intangibles, Goodwill and Other (ASC Topic 350), Testing Goodwill for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary.  The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  An entity can choose to early adopt if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements.  Entities considering early adoption should begin assessing relevant factors for the qualitative assessment.  An entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required.  The Company is currently evaluating the early adoption option.  The Company does not expect the adoption or early adoption of this update to have any impact on the Company’s financial position or operating results.

XML

Property, Plant and Equipment

9 Months Ended

Oct. 02, 2011

Property, Plant and Equipment

Property, Plant and Equipment

5. Property, Plant and Equipment

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

	October 2,2011			January 2, 2011
Land	$	2,215		$	2,195
Building and improvements	12,094			10,087
Machinery and equipment	21,297			20,420
Furniture, fixtures and office equipment	24,010			22,066
Software	4,300			4,134
Construction in progress	131			129
	64,047			59,031
Accumulated depreciation	(30,593		)	(25,351		)
Property, plant and equipment, net	$	33,454		$	33,680

XML

Instruments

9 Months Ended

Oct. 02, 2011

Instruments

Instruments

6. Instruments

Instruments included in long-term assets on the consolidated balance sheets consist of the following (in thousands):

	October 2, 2011			January 2, 2011
Instruments	$	70,402		$	58,356
Instruments in process	17,971			15,007
Accumulated depreciation	(39,571		)	(30,985		)
Instruments, net	$	48,802		$	42,378

XML

Non-Controlling Interests

9 Months Ended

Oct. 02, 2011

Non-Controlling Interests

Non-Controlling Interests

14. Non-Controlling Interests

The Company currently markets the Piton Knotless Anchor (Piton), an arthroscopic technology for rotator cuff repair. The Piton was based on technology developed by Sapphire Medical, Inc. (Sapphire). In April 2007, C2M Medical, Inc. (C2M) acquired all the assets related to the Piton technology from Sapphire. C2M was a company founded and owned by certain then current shareholders of the Company. The Company had no equity ownership interest in C2M.

Under the terms of the purchase agreement between C2M and Sapphire, C2M paid Sapphire $7.5 million upon execution of the transaction. C2M also agreed to pay Sapphire a $5.0 million milestone payment upon completion of 75 surgeries using the Piton and a separate $7.5 million milestone payment once the Piton was commercially launched to the sales force. These milestones were paid by C2M during 2008. Additionally, C2M agreed to pay Sapphire an earnout equal to 25% of Piton sales for the first three years after launch.

In January 2008, the Company began negotiating a licensing agreement with C2M for use of its Piton technology to launch as an anchor product in the Company’s newly developed sports medicine product portfolio. In June 2008, the Company executed an exclusive worldwide license agreement with C2M for use of the Piton technology. The terms of the agreement called for the Company to assume the remaining obligation of C2M under its purchase agreement with Sapphire related to future earnout payments equal to 25% of Piton sales for the three-year period after product launch. C2M had the right to terminate the license agreement at any time after 18 months from the execution of the license. The terms of the license also included an option purchase agreement (the Option Agreement) that allowed the Company to purchase 100% of the common stock of C2M once cumulative Piton sales reach $5.0 million or C2M terminated the license (the Call Option). Additionally, the license included a clause, whereby C2M could require the Company to purchase 100% of C2M’s common stock if sales of the Piton anchor products exceeded $5.0 million (the Put Option). Under both the Call Option and the Put Option, the purchase price of C2M would be equal to the paid-in capital of C2M and was required to be paid in the Company’s ordinary shares. The paid-in capital of C2M as of December 2008 and 2009 was approximately $23.2 million, which consisted of the purchase price paid to Sapphire for the Piton technology, including milestones paid, and an additional amount of capital to fund development activities.

The Company determined that C2M was a variable interest entity as of June 2008. The Option Agreement allowed for the Company to purchase C2M at a fixed price regardless of the actual performance of the Piton products. As a result, C2M did not have the right to receive expected residual returns that would instead be enjoyed by the Company. The Company was considered the primary beneficiary of C2M because it had the obligation to absorb the majority of the expected losses and the right to absorb the majority of the expected returns. As a result, the Company was required to consolidate C2M. This conclusion was reached due to the existence of the Put Option and Call Option to acquire C2M at a price that was fixed upon entry into the license agreement. Accordingly, the financial position and results of operations of C2M have been included in the consolidated financial statements from the date of execution of the license agreement. The liabilities recognized as a result of consolidating C2M consist primarily of the fair value of the obligations C2M had under its purchase agreement with Sapphire. As of October 2, 2011 and January 2, 2011, the only material liability recognized relates to the estimated remaining earnout payments due under the original Sapphire purchase agreement. The Company is required to make these earnout payments on behalf of C2M in accordance with the license agreement. The assets of C2M consist of only cash used to fund ongoing operations and the Piton technology intangible asset.

Pursuant to authoritative guidance, the equity interests in C2M not owned by the Company were reported as non-controlling interests on the consolidated balance sheet of the Company. Losses incurred by C2M are charged to the Company and to the non-controlling interest holders based on their ownership percentage. Prior to the acquisition of the noncontrolling interest by the Company, the non-controlling interest holders held 100% of the equity interests in C2M, and therefore, none of the results of operations are allocated to the Company. Therefore, the noncontrolling interest was accounted for in the consolidated financial statements as a contingently redeemable non-controlling interest that is initially recorded at fair value and classified as mezzanine equity.

However, pursuant to authoritative guidance, if the fair value of the contingently redeemable non-controlling interest is less than the current redemption value, and it is probable that the contingency related to the Put Option will be met, then the carrying value of the contingently redeemable non-controlling interest must be adjusted to its redemption value through a charge directly to equity. The Company recognized $0.7 million in accretion charges during the fiscal nine month period ended October 3, 2010, to reflect the contingently redeemable non-controlling interest at its current redemption value as it is probable the $5 million sales contingency included in the Put Option would be met.  No such accretion charges were recorded during the nine month period ended October 2, 2011.  The Company recognized $0.7 million in net losses during the nine month period ended October 3, 2010 as a result of the consolidation of C2M. These net losses consist primarily of intangible asset amortization and, as such, the results of consolidation of C2M did not have a significant impact on the consolidated cash flows of the Company.

During the first quarter of 2010, the Company exercised its Call Option to acquire the outstanding shares of C2M in exchange for the Company’s ordinary shares. The transaction represents the acquisition of a non-controlling interest and as a result was accounted for as an equity transaction in accordance with Accounting Standards Codification (ASC) 810-10. Upon exercise of the Call Option, a non-controlling interest in C2M no longer existed. The balance of the non-controlling interest was eliminated and the fair value of the ordinary shares issued in the acquisition, $23.2 million, was recorded as a component of shareholders’ equity.

The earnout period related to the obligation to pay to Sapphire 25% of all Piton sales ended September 30, 2011. The Company had originally recorded a contingent liability at the time of the consolidation of C2M based on the estimated fair value of the liability at that time. Upon completion of the earnout period, the Company reversed the remaining liability balance and recognized a $1.0 million gain on extinguishment of this contingency. The gain is recorded in other non-operating income (expense) within the statement of operations.

XML

Goodwill and Other Intangible Assets

9 Months Ended

Oct. 02, 2011

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

7. Goodwill and Other Intangible Assets

The following table summarizes the changes in the carrying amount of goodwill (in thousands):

Balance at January 2, 2011	$	131,830
Contingent payment on acquisition	1,099
Foreign currency translation	795
Balance at October 2, 2011	$	133,724

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

	Gross value		Accumulated amortization			Net value
Balances at October 2, 2011
Intangible assets subject to amortization:
Developed technology	$	76,943	$	(28,561	)	$	48,382
Customer relationships	62,317		(21,493		)	40,824
Licenses	4,058		(1,928		)	2,130
Other	1,701		(1,031		)	670
Intangible assets not subject to amortization:
Trade name	10,018		—			10,018
Total	$	155,037	$	(53,013	)	$	102,024

	Gross value		Accumulated amortization			Net value
Balances at January 2, 2011
Intangible assets subject to amortization:
Developed technology	$	76,561	$	(24,164	)	$	52,397
Customer relationships	61,838		(18,275		)	43,563
Licenses	3,965		(1,492		)	2,473
Other	1,645		(967		)	678
Intangible assets not subject to amortization:
Trade name	9,913		—			9,913
Total	$	153,922	$	(44,898	)	$	109,024

Estimated annual amortization expense for fiscal years ending 2011 through 2015 is as follows (in thousands):

	Amortization expense
2011	$	10,698
2012	10,443
2013	10,407
2014	10,364
2015	10,356

XML

Subsequent Events

9 Months Ended

Oct. 02, 2011

Subsequent Events

Subsequent Events

17. Subsequent Events

The Company has evaluated subsequent events after October 2, 2011 and concluded that no material transactions occurred subsequent to that date that provided additional evidence about conditions that existed at or after October 2, 2011 that require adjustment to the consolidated financial statements.

XML

Business Description

9 Months Ended

Oct. 02, 2011

Business Description

Business Description

1. Business Description

Tornier N.V. (Tornier or the Company) is a global medical device company focused on surgeons that treat musculoskeletal injuries and disorders of the shoulder, elbow, wrist, hand, ankle and foot. The Company refers to these surgeons as extremity specialists. The Company sells to this extremity specialist customer base a broad line of joint replacement, trauma, sports medicine and biologic products to treat extremity joints. The Company’s motto of “specialists serving specialists” encompasses this focus. In certain international markets, Tornier also offers joint replacement products for the hip and knee. The Company currently sells approximately 90 product lines in approximately 35 countries.

XML

Document and Entity Information	9 Months Ended
	Oct. 02, 2011	Nov. 10, 2011
Document and Entity Information
Entity Registrant Name	Tornier N.V.
Entity Central Index Key	0001492658
Document Type	10-Q
Document Period End Date	Oct. 02, 2011
Amendment Flag	false
Current Fiscal Year End Date	--01-01
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		39,263,154
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML

Fair Value of Financial Instruments

9 Months Ended

Oct. 02, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The Company applies ASC Topic 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC Topic 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC Topic 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that that market participants would use in pricing the asset or liability, and are to be developed based on the best information available in the circumstances.

When an active market for certain financial instruments does not exist, it may be appropriate to use unobservable inputs to determine fair value. The carrying value of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximates the fair value of these financial instruments at October 2, 2011 and January 2, 2011.  Assets and liabilities measured at fair value are done so on a recurring basis. U.S. GAAP requires fair value measurements to be classified and disclosed in one of the following three categories:

Level 1—Assets and liabilities with unadjusted, quoted prices listed on active market exchanges.

Level 2—Assets and liabilities determined using prices for recently traded assets and liabilities with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3—Assets and liabilities that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the asset or liability. The prices are determined using significant unobservable inputs or valuation techniques.

Cash and cash equivalents are classified as Level 1 fair value measurements. As of October 2, 2011, the Company had no material assets or liabilities with recurring Level 2 or Level 3 fair value measurements.

XML

Capital Stock and Earnings Per Share

9 Months Ended

Oct. 02, 2011

Capital Stock and Earnings Per Share

Capital Stock and Earnings Per Share

12. Capital Stock and Earnings Per Share

The Company had 39.2 million and 29.6 million ordinary shares issued and outstanding as of October 2, 2011 and October 3, 2010, respectively.

The Company completed an initial public offering of its ordinary shares pursuant to a registration statement that was declared effective by the SEC on February 2, 2011. The Company sold 8,750,000 shares, at an initial price to the public of $19.00 per share (before underwriters’ discounts and commissions) on February 8, 2011 and received net proceeds of approximately $149.5 million, after underwriters’ discounts and commissions of approximately $10.8 million and offering related expenses of $5.9 million. Subsequently, on March 7, 2011, the Company sold an additional 721,274 ordinary shares at an offering price of $19.00 per share (before underwriters’ discounts and commissions) due to the exercise of the underwriters’ overallotment option, and received additional net proceeds of approximately $12.8 million, after underwriters’ discounts and commissions of approximately $0.9 million. Aggregate gross proceeds from the offering, including the exercise of the over-allotment option, were $179.9 million and net proceeds received after underwriters’ discounts and commissions and offering related expenses were approximately $162.3 million.

The Company had options to purchase ordinary shares and restricted stock units outstanding of an aggregate of 4.4 million and 3.5 million ordinary shares at October 2, 2011 and October 3, 2010, respectively. None of the options or restricted stock units were included in diluted earnings per share for the nine months ended October 2, 2011 and October 3, 2010, respectively, because the Company recorded a net loss in all periods and, therefore, including these instruments would be anti-dilutive.

XML

Special Charges

9 Months Ended

Oct. 02, 2011

Special Charges

Special Charges

16. Special Charges

During the year ended December 27, 2009, the Company consolidated its U.S. operations and closed quality and regulatory sales and marketing functions in San Diego, California and manufacturing operations in Beverly, Massachusetts. Additionally, the Company opened sales offices in Scandinavia and the United Kingdom in 2009. The Company incurred $1.9 million in costs related to the consolidation and launching of the sales sites. The operating costs for Scandinavia and the United Kingdom are included in sales and marketing expense. Included in the $1.9 million of special charges are expenses incurred related to severance, lease termination, and moving costs related to consolidation of the Company’s U.S. operations, as well as expenses for travel, consulting, and legal costs incurred to launch the sales sites. All expenses were paid in 2009.

During the third quarter of 2011, the Company recorded $0.1 million in special charges for severance related expenses related to the Company’s consolidation of the remaining quality, manufacturing and product development functions at its Beverly, Massachusetts facility.

XML

Consolidated Balance Sheets (Parenthetical) In Thousands, except Share data	Oct. 02, 2011 USD ($)	Oct. 02, 2011 EUR (€)	Jan. 02, 2011 USD ($)	Jan. 02, 2011 EUR (€)
Consolidated Balance Sheets
Accounts receivable, allowance (in dollars)	$ 2,349		$ 2,519
Ordinary shares, par value (in Euro per share)		€ 0.03		€ 0.03
Ordinary shares, authorized	175,000,000	175,000,000	100,000,000	100,000,000
Ordinary shares, issued	39,244,166	39,244,166	29,568,731	29,568,731
Ordinary shares, outstanding	39,244,166	39,244,166	29,568,731	29,568,731