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Business segment information
 9 Months Ended
Sep. 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 Decision 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 III 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 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 September 30,  

(U.S. Dollars, in thousands)

    2014      2013      Reported
Growth		     Constant
Currency
Growth		  
            (Restated)               

BioStim

    $ 38,285       $ 30,654         25 %      25 % 

Biologics

      13,856         13,216         5 %      5 % 

Extremity Fixation

      27,636         24,705          12 %      9 % 

Spine Fixation

      21,217         23,231         (9 )%      (9 )% 
  

 

 

     

 

 

     

 

 

    

 

 

  

Total Net Sales

 $ 100,994    $   91,806      10 %       9 % 
  

 

 

     

 

 

     

 

 

    

 

 

  

 

     External Net Sales by SBU  
     Nine Months Ended September 30,  

(U.S. Dollars, in thousands)

    2014      2013      Reported
Growth		     Constant
Currency
Growth		  
            (Restated)               

BioStim

    $ 114,937       $ 105,828         9 %      9 % 

Biologics

      40,718         39,816         2 %      2 % 

Extremity Fixation

      82,005         74,112         11 %      9 % 

Spine Fixation

      64,333         71,969         (11 )%      (11 )% 
  

 

 

     

 

 

     

 

 

    

 

 

  

Total Net Sales

 $ 301,933    $ 291,725      3 %   3 % 
  

 

 

     

 

 

     

 

 

    

 

 

  

 

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

 

     Three Months Ended
September 30,		      Nine Months Ended
September 30,		  

(U.S. Dollars, in thousands)

    2014      2013      2014      2013  
            (Restated)             (Restated)  

Net margin:

            

BioStim

    $ 16,442       $ 13,397       $ 49,168       $ 48,614   

Biologics

      6,504         6,737         19,500         18,463   

Extremity Fixation

      8,361         7,089         21,952         17,980   

Spine Fixation

      3,958         913         11,147         5,796   

Corporate

      (537 )       (470 )       (1,411 )       (1,376 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total net margin

   34,728      27,666      100,356      89,477   
  

 

 

     

 

 

     

 

 

     

 

 

  

General and administrative

   18,814      12,933      53,643      46,355   

Research and development

   6,572      6,361      18,818      20,653   

Amortization of intangible assets

   508      616      1,753      1,725   

Costs related to the accounting review and restatement

   2,326      2,664      12,959      2,664   

Impairment of goodwill

   —        19,193      —        19,193   
  

 

 

     

 

 

     

 

 

     

 

 

  

Operating income

 $ 6,508    $ (14,101 )  $ 13,183    $ (1,113 )