1.	Significant accounting policies

The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates, including those related to contractual allowances, doubtful accounts, inventories, goodwill, income taxes, fair value measurements, litigation and contingent liabilities, and share-based compensation. We base our estimates on historical experience, future expectations and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Information on our accounting policies and methods used in the preparation of our consolidated financial statements are included, where applicable, in their respective footnotes that follow.

Significant Accounting Policy		Footnote Reference
Inventories		2
Property, plant and equipment		3
Patents and other intangible assets		4
Goodwill		5
Long-term debt		8
Fair value measurements		9
Contingencies		11
Revenue recognition and accounts receivable		13
Share-based compensation		15
Defined contribution plans and deferred compensation		16
Income taxes		17

The following is a discussion of accounting policies and methods used in our consolidated financial statements that are not presented within other footnotes.

Market risk

In the ordinary course of business, the Company is exposed to the impact of changes in interest rates and foreign currency fluctuations. The Company’s objective is to limit the impact of such movements on earnings and cash flows. In order to achieve this objective, the Company seeks to balance its non-U.S. dollar denominated income and expenditures. During 2016 and 2015, the Company made use of a cross-currency swap agreement to manage cash flow exposure generated from foreign currency fluctuations. This cross-currency swap matured and was settled on December 30, 2016.

The financial statements for operations outside the United States are generally maintained in their local currency. All foreign currency denominated balance sheet accounts, except shareholders’ equity, are translated to U.S. dollars at year end exchange rates and revenue and expense items are translated at weighted average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income (loss) component of shareholders’ equity. Transactional foreign currency gains and losses, including those generated from intercompany operations, are included in other expense, net and were a gain of $1.9 million, and losses of less than $0.1 million and $3.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Financial instruments and concentration of credit risk

Financial instruments that could subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Generally, the cash is held at large financial institutions and cash equivalents consist of highly liquid money market funds. The Company performs ongoing credit evaluations of customers, generally does not require collateral, and maintains a reserve for potential credit losses. The Company believes that a concentration of credit risk related to the accounts receivable is limited because customers are geographically dispersed and end users are diversified across several industries.

Net sales to our customers based in Europe were approximately $57 million in 2017, which results in a substantial portion of our trade accounts receivable balance as of December 31, 2017. It is at least reasonably possible that changes in global economic conditions and/or local operating and economic conditions in the regions these distributors operate, or other factors, could affect the future realization of these accounts receivable balances.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

In 2016, restricted cash consisted of amounts held in escrow as of December 31, 2016, to fund the payment of settlement amounts for charges related to U.S. Government resolutions, as further discussed in Note 11.

Derivative Instruments

The Company manages its exposure to fluctuating cash flows resulting from changes in interest rates and foreign exchange rates within the consolidated financial statements according to its hedging policy. The policy requires the Company to formally document the relationship between the hedging instrument and hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. For instruments designated as a cash flow hedge, the Company formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivative used in the hedging transaction has been effective in offsetting changes in the cash flows of the hedged item and whether such derivative may be expected to remain effective in future periods. If it is determined that a derivative is not (or has ceased to be) effective as a hedge, the Company discontinues the related hedge accounting prospectively.

The Company records all derivatives as either assets or liabilities on the balance sheet at their respective fair values. For a cash flow hedge, the effective portion of the derivative’s change in fair value (i.e., gains or losses) is initially reported as a component of other comprehensive income, net of related taxes, and subsequently reclassified into net earnings in the period the hedged transaction affects earnings.

On September 30, 2010, the Company entered into a cross-currency swap agreement to manage its cash flows related to foreign currency exposure for a portion of an intercompany note receivable of a U.S. dollar functional currency subsidiary that was denominated in Euro. Both the cross-currency swap and the related Euro denominated intercompany note matured and were settled on December 30, 2016.

Research and development costs

Expenditures related to the collaborative arrangement with MTF Biologics (“MTF”) are expensed based on the terms of the related agreement. Expenditures incurred under the collaborative arrangement with MTF totaled $0.9 million in 2017 and $1.3 million in 2016. No expenditures were incurred in 2015. Expenditures for research and development are expensed as incurred.

Recently issued income tax accounting guidance

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). See Note 17 for further discussion.

Further, in January 2018, the FASB released guidance on the accounting for tax on the global intangible low taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of deemed return on tangible assets of foreign corporations. The guidance indicated that either accounting for deferred taxes related to GILTI inclusion or to treat any taxes on GILTI inclusion as a period cost are both acceptable methods subject to an accounting policy election. The Company is currently evaluating this policy decision.

Recently issued accounting standards

Topic	Description of Guidance	Effective Date	Status of Company's Evaluation
Revenue Recognition (ASU 2014-09, as amended)	Requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Applied either retrospectively or as a cumulative effect adjustment as of the adoption date.	January 1, 2018	In 2015, the Company established a cross-functional implementation team to analyze the impact of the standard on the Company's contract portfolio by reviewing the Company's current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to the Company's contracts. In addition, the implementation team identified and implemented appropriate changes to the Company's business processes, systems, and controls to support recognition and disclosure under the new standard. The implementation team has reported the findings and progress of the project to management and to the Audit Committee on a frequent basis over the last two years. In the fourth quarter of 2017, the Company finalized its assessment of the new standard, including the review of contracts within each SBU and the drafting of new policies and procedures. Adoption of this ASU has a material impact related to the timing of revenue recognition, primarily for Extremity Fixation and Spine Fixation product sales to stocking distributors, which are currently accounted for using the sell-through method. Subsequent to adoption, revenue associated with these sales will be recorded at the time of the sale instead of deferring recognition until cash is received. The Company will adopt the standard using the modified retrospective transition method and will record a cumulative effect adjustment as of January 1, 2018, which will result in a significant increase in accounts receivable and a decrease in inventories, with these changes offset by an adjustment to the Company's opening retained earnings of approximately $5 million. Prior periods will not be retrospectively adjusted. Adopting this guidance will also result in material changes to the Company's disclosures for revenue recognition and contracts with customers.
Financial Instruments (ASU 2016-01)	Requires entities to measure equity investments, except in limited circumstances, at fair value and recognize any changes in fair value in net income. Applied prospectively.	January 1, 2018	The Company is currently evaluating the impact this ASU may have on its consolidated financial statements.
Leases (ASU 2016-02)	Requires a lessee to recognize lease assets and lease liabilities for leases classified as operating leases. Applied using a modified retrospective approach.	January 1, 2019	The Company is currently in process of establishing a cross-functional implementation team to analyze the impact of the standard on the Company's lease portfolio and to evaluate the impact this ASU may have on its consolidated financial statements; however, the Company expects this guidance will materially impact the Company's balance sheet, resulting in current operating lease obligations being reflected on the consolidated balance sheet.
Income Taxes (ASU 2016-16)	Reduces complexity by requiring the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Applied using a modified retrospective approach.	January 1, 2018	During the third and fourth quarters of 2017, the Company executed two intra-entity asset transfers that resulted in prepaid income taxes of $8.6 million. The Company will adopt the new standard using a modified retrospective approach as of January 1, 2018, which will result in a reduction of prepaid income taxes and an increase in deferred tax assets with these change offset by an adjustment to the Company's opening retained earnings of approximately $2.1 million. However, the Company does not expect this guidance to have a material impact relating to its consolidated statements of operations and comprehensive income (loss) or to its consolidated statements of cash flows.
Statement of Cash Flows (ASU 2016-18)	Reduces diversity in classification and presentation of restricted cash, including transfers between cash and restricted cash, on the statement of cash flows. Applied retrospectively.	January 1, 2018	The Company believes this ASU will materially impact its consolidated statement of cash flows. Adoption of this ASU is expected to result in an increase in net cash from operating activities of $14.4 million for the year ended December 31, 2016 and would have resulted in a decrease in net cash from operating activities of $14.4 million for the year ended December 31, 2017, if this ASU had been early adopted.
Goodwill (ASU 2017-04)	Eliminates Step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment loss will instead be measured at the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill.	January 1, 2020	The Company is currently evaluating the impact this ASU may have on its consolidated financial statements. However, the Company does not expect this ASU to have a significant impact on its financial statements or disclosures.
Comprehensive Income (ASU 2018-02)	Allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Tax Act.	January 1, 2019	The Company is currently evaluating the impact this ASU may have on its consolidated financial statements.