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Sale of Breg and Disposition of Sports Medicine GBU
 6 Months Ended
Jun. 30, 2012
Sale of Breg and Disposition of Sports Medicine GBU  
Sale of Breg and Disposition of Sports Medicine GBU

 

 

15.                        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 16.) 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 Accounting Standards Codification “ASC 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 $2 million as of June 30, 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 condensed consolidated statement of operations for the six months ended June 30, 2012.

 

(US$ in thousands)

 

Total

 

Cash proceeds

 

$

157.500

 

Less:

 

 

 

Working Capital

 

(7,532

)

Transaction related expenses

 

(4,057

)

Fair Value of Indemnification

 

(2,000

)

Tangible assets

 

(8,292

)

Intangible assets

 

(28,164

)

Goodwill

 

(106,200

)

 

 

 

 

Gain on sale of Breg

 

1,255

 

Income tax expense

 

(215

)

 

 

 

 

Gain on sale of Breg, net of taxes

 

$

1,040

 

 

The Sports Medicine GBU contributed $43.4 million and $53 million of net sales in the six months ended June 30, 2012 and 2011, respectively. The Sports Medicine global business unit contributed $16.3 million and $26.9 million of net sales in the three months ended June 30, 2012 and 2011, respectively. The Sports Medicine global business unit had $2.9 million of operating loss and $0.6 million of operating income in the six months ended June 30, 2012 and 2011, respectively. The Sports Medicine global business unit had $2.5 million and $0.8 million of operating loss in the three months ended June 30, 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 global business unit as discontinued operations.  Income (loss) associated with the Sports Medicine global business unit, net of applicable income taxes is shown as income (loss) from discontinued operations for all periods presented in accordance with ASC 205-20 Discontinued Operations.  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:

 

(US$ in thousands)

 

December 31,
2011

 

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