Sale of Breg and Disposition of Sports Medicine GBU

12 Months Ended

Dec. 31, 2012

Discontinued Operations And Disposal Groups [Abstract]

Sale of Breg and Disposition of Sports Medicine GBU

16. Sale of Breg and Disposition of Sports Medicine GBU

On April 23, 2012, the Company’s subsidiary Orthofix Holdings and Breg entered into a stock purchase agreement (the “SPA”) with Breg Acquisition Corp. (“Buyer”), a newly formed affiliate of Water Street Healthcare Partners II, L.P., pursuant to which Buyer agreed to acquire from Orthofix Holdings all the outstanding shares of Breg, subject to the terms and conditions contained therein (the “Transaction”). Under the terms of the SPA, upon closing of the sale, Orthofix Holdings and the Company agreed to indemnify Buyer with respect to certain specified matters, including the government investigation and product liability matters regarding a previously owned infusion pump product line, and pre-closing sales of cold therapy units and certain post-closing sales of cold therapy units. (See “Matters Related to the Company’s former Breg Subsidiary and Possible Indemnification Obligations under Note 17.) On May 24, 2012 (the “Closing Date”), Orthofix Holdings completed the sale of all of the outstanding shares of Breg for $157.5 million in cash. After adjustments for working capital and indebtedness in accordance with the terms of the SPA, Orthofix Holdings used $145 million of the net proceeds to prepay outstanding Company indebtedness, as required by a lender consent received in connection with the Company’s existing Credit Agreement. As a result of the closing of this Transaction, Breg ceased to be a subsidiary of the Company and, therefore, Breg was released as a credit party under the Credit Agreement. The Company also agreed to enter into certain transition arrangements at the closing, including a transition services agreement pursuant to which the Company agreed to continue to provide administrative operational support for a period of up to twelve months. As a result of the sale of Breg, the Company completed its exit from the Sports Medicine GBU, of which Breg was a significant component.

The portion of indemnification related to post closing claims related to post-closing sales of cold therapy has created a guarantee under ASC Topic 460, Guarantees, and the fair value of the liability has been recorded under the initial recognition criteria in the amount of $2 million at the Closing Date of the transaction. The Company will amortize the fair value of the noncontingent liability ratably over the period of indemnification which is three years. The Company’s obligations under this guarantee were approximately $1.6 million as of December 31, 2012.

Gain on Sale of Discontinued Operations

The following table presents the value of the asset disposition, proceeds received, net of various working capital adjustments and indebtedness and net gain on sale of Breg as shown in the consolidated statement of operations for the year ended December 31, 2012:

(U.S. Dollars, in thousands)	Total
Cash proceeds	$	157,500
Less:
Working Capital		(7,093	)
Transaction related expenses		(4,276	)
Fair Value of Indemnification		(2,000	)
Tangible assets		(8,309	)
Intangible assets		(28,164	)
Goodwill		(106,200	)
Gain on sale of Breg		1,458
Income tax expense		(113	)
Gain on sale of Breg, net of taxes	$	1,345

The Sports Medicine GBU contributed $44 million and $108.9 million of net sales in the years ended December 31, 2012 and 2011, respectively. The Sports Medicine GBU had $2.9 million of operating losses and $1.2 million of operating income in the years ended December 31, 2012 and 2011, respectively. The financial information above includes the financial results of Breg operations up to the date of sale.

The Company’s consolidated financial statements and related footnote disclosures reflect the Sports Medicine GBU as discontinued operations. Income (loss) associated with the Sports Medicine GBU, net of applicable income taxes, is shown as income (loss) from discontinued operations for all periods presented. In addition, the assets and liabilities of the discontinued entity have been reclassified and presented as assets held for sale and liabilities held for sale in the Company’s balance sheet as of December 31, 2011.

The assets and liabilities of the discontinued operations are as follows:

(U.S. Dollars, in thousands)	December 31, 2011
	(Restated)
Assets Held for Sale
Restricted cash	$	1,629
Trade accounts receivable, less allowance		13,711
Inventories, net		8,277
Property, plant and equipment, net		8,756
Intangible assets, net		29,279
Goodwill		106,279
Deferred income taxes, prepaid expenses and other assets		3,254
Assets Held for Sale	$	171,185
Liabilities Held for Sale
Trade accounts payable		3,616
Deferred income taxes and other liabilities		19,060
Liabilities Held for Sale	$	22,676