Business segment information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Business segment information

14. Business segment information

The Company manages the business by four strategic business units (“SBUs”), which are comprised of BioStim, Biologics, Extremity Fixation, and Spine Fixation supported by Corporate activities. These SBUs represent the segments for which the Chief Executive Officer, who is also our Chief Operating Design Maker (“CODM”) reviews financial information and makes resource allocation decisions among business units. The primary metric used by the CODM in managing the Company is net margin, which is defined as gross profit less sales and marketing expense. The Company neither discretely allocates assets, other than goodwill, to its operating segments nor evaluates the operating segments using discrete asset information. Accordingly, segment information has been prepared based on four SBUs reporting segments. These four segments are discussed below.

BioStim

The BioStim SBU manufactures, distributes, and provides support services for market leading devices that enhance bone fusion. These Class Ill medical devices are indicated as an adjunctive, noninvasive treatment to improve fusion success rates in the cervical and lumbar spine as well as a therapeutic treatment for non-spine fractures that have not healed (non-unions). The devices utilize Orthofix’s patented pulsed electromagnetic field (“PEMF”) technology which is supported by strong basic mechanism of action data in the scientific literature as well as strong level one randomized controlled clinical trials in the medical literature. Current research and clinical studies are also underway to identify potential new clinical indications.

Biologics

Biologics provides a portfolio of regenerative products that allow physicians to successfully treat a variety of spinal and orthopedic conditions. This SBU specializes in the marketing of regeneration tissue forms. Biologics markets its tissues through a network of distributors, sales representatives and affiliates to supply to hospitals, doctors, and other healthcare providers, primarily in the U.S. The Company’s partnership with Musculoskeletal Transplant Foundation (“MTF”) allows the Company to exclusively market Trinity Evolution^® and Trinity ELITE^® tissue forms for musculoskeletal defects to enhance bony fusion as well as VersaShield^™ for which we have non-exclusive marketing rights.

Extremity Fixation

The Extremity Fixation SBU offers products that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine. This SBU specializes in the design, development, and marketing of the Company’s orthopedic products used in fracture repair, deformity correction and bone reconstruction. Extremity Fixation distributes its products through a network of distributors, sales representatives, and affiliates. This SBU uses both direct and distributor sales representatives to sell orthopedics products to hospitals, doctors, and other health providers, globally.

Spine Fixation

The Spine Fixation SBU specializes in the design, development and marketing of a broad portfolio of implant products used in surgical procedures of the spine. Spine Fixation distributes its products through a network of distributors and affiliates. This SBU uses distributor sales representatives to sell spine products to hospitals, doctors and other healthcare providers, globally.

Corporate

Corporate activities are comprised of the operating expenses of Orthofix International N.V. and its holding company subsidiaries, along with activities not necessarily identifiable within the four SBUs.

The accounting policies of the segments are the same as those described in the business segment information found in Note 13, “Business segment information” to the Consolidated Financial Statements included in the 2013 Form 10-K/A.

The table below presents external net sales by SBU reporting segment (amounts reported for prior periods have been reclassified to conform to the new segment reporting structure). Net sales include product sales and marketing service fees. Marketing service fees, which are recorded on a net basis, are comprised of fees earned for the marketing of Trinity Evolution^®, Trinity ELITE^® and Versashield™ in the Biologics segment.

	External Net Sales by SBU
	Three Months Ended June 30,
(U.S. Dollars, in thousands)	2014		2013		Reported Growth			Constant Currency Growth
			(Restated)		(Restated)			(Restated)
BioStim	$	39,513	$	37,948		4	%		4	%
Biologics		13,853		13,240		5	%		5	%
Extremity Fixation		27,303		23,210		18	%		14	%
Spine Fixation		20,316		23,242		(13	)%		(13	)%
Total Net Sales	$	100,985	$	97,640		3	%		3	%

	External Net Sales by SBU
	Six Months Ended June 30,
(U.S. Dollars, in thousands)	2014		2013		Reported Growth			Constant Currency Growth
			(Restated)		(Restated)			(Restated)
BioStim	$	76,650	$	75,174		2	%		2	%
Biologics		26,863		26,600		1	%		1	%
Extremity Fixation		54,369		49,407		10	%		9	%
Spine Fixation		43,117		48,738		(12	)%		(12	)%
Total Net Sales	$	200,999	$	199,919		1	%		—	%

The table below presents net margin, defined as gross profit less sales and marketing expenses, from continuing operations by SBU reporting segment:

Net margin by SBU	Three Months Ended June 30,						Six Months Ended June 30,
(U.S. Dollars, in thousands)	2014			2013			2014			2013
				(Restated)						(Restated)
Net margin:
BioStim	$	17,706		$	18,035		$	32,726		$	35,218
Biologics		6,496			5,706			12,997			11,725
Extremity Fixation		6,656			5,250			13,590			10,891
Spine Fixation		3,130			2,708			7,189			4,883
Corporate		(430	)		(482	)		(874	)		(906	)
Total net margin		33,558			31,217			65,628			61,811
General and administrative		17,553			15,181			34,829			33,422
Research and development		6,313			8,551			12,246			14,292
Amortization of intangible assets		661			565			1,245			1,109
Costs related to the accounting review and restatement		2,327			—			10,633			—
Operating income	$	6,704		$	6,920		$	6,675		$	12,988