6.	Goodwill

The following table presents the changes in the net carrying value of goodwill by reportable segment as well as the reallocation as of July 1, 2013 in conjunction with our change in reportable segments. (See Note 1 “Summary of significant accounting policies”):


(U.S. Dollars in thousands)	Spine			Orthopedics			BioStim		Biologics		Extremity Fixation			Spine Fixation			Total
At December 31, 2011	$	41,419		$	31,675		$	—	$	—	$	—		$	—		$	73,094
Foreign currency		145			1,149			—		—		—			—			1,294

At December 31, 2012		41,564			32,824			—		—		—			—			74,388
Foreign currency		(163	)		(1,467	)		—		—		—			—			(1,630	)

At June 30, 2013		41,401			31,357			—		—		—			—			72,758

Reallocation at July 1, 2013		(41,401	)		(31,357	)		42,678		10,887		9,825			9,368			—
Impairment		—			—			—		—		(9,825	)		(9,368	)		(19,193	)

At December 31, 2013	$	—		$	—		$	42,678	$	10,887	$	—		$	—		$	53,565

Goodwill Impairment

The Company tests goodwill at least annually for impairment. The Company tests more frequently if indicators are present or changes in circumstances suggest that impairment may exist. These indicators include, among others, declines in sales, earnings or cash flows, or the development of a material adverse change in the business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit.

In order to calculate the respective carrying values, the Company initially recorded goodwill based on the purchase price allocation performed at the time of acquisition. Corporate assets and liabilities that directly relate to a reporting unit’s operations are ascribed directly to that reporting unit. Corporate assets and liabilities that are not directly related to a specific reporting unit, but from which the reporting unit benefits, are allocated based on the respective contribution measure of each reporting unit. Effective July 1, 2013, the Company re-aligned its segments, and consequently reallocated the carrying value of goodwill to its new reporting units, determined to be the Company’s segments (i.e., BioStim, Biologics, Spine Fixation, and Extremity Fixation), based on the relative fair value of each new reporting unit to total enterprise value at July 1, 2013.

In the first quarter of 2012, ASU 2011-08, “Testing of Goodwill for Impairment” became effective. ASU 2011-08 allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed.

As a result of the Company’s change in reporting structure, the Company re-allocated goodwill to each reporting unit. We estimated the fair value of each reporting unit using a weighting of fair values derived from an income approach, a cost approach, and a market approach (all Level 3 fair value measurements). Under the income approach, we calculated the fair value of each reporting unit based on the present value of its estimated future cash flows. Cash flow projections are based on our estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used was based on the weighted average cost of capital adjusted for the risks associated with the reporting unit and the projected cash flows. The cost approach involves methods of determining a Company’s value by analyzing the market value of a Company’s assets. The market approach estimates fair value based on market multiples of revenue and earnings of comparable publicly traded companies that have similar operating and investment characteristics as our reporting units.

Upon estimating the fair value of the reporting units, we determined it was less than its carrying value for two of our reporting units, Extremity Fixation and Spine Fixation. As a result, we performed step two of the impairment analysis and allocated the fair value of these reporting units to the estimated fair values of each of the assets and liabilities of the reporting units (including identifiable intangible assets) with the excess fair value being the implied goodwill. Estimating the fair value of certain assets and liabilities requires significant judgment about future cash flows. The implied fair value of the reporting unit’s goodwill was less than its carrying value, which we recorded as a full impairment loss of goodwill for our Spine Fixation and Extremity Fixation reporting units, totaling $19.2 million, during the third quarter of 2013. The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2013, did not result in any additional impairment charge.