Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 29, 2014 |
Accounting Policies [Abstract] | ' |
Consolidation | ' |
Consolidation |
The consolidated financial statements include the accounts of the Company and all of its wholly and majority owned subsidiaries. In consolidation, all material intercompany accounts and transactions are eliminated. |
Use of Estimates | ' |
Use of Estimates |
The consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (U.S. GAAP) and include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates. |
Basis of Presentation | ' |
Basis of Presentation |
The Company’s fiscal year-end is generally determined on a 52-week basis consisting of four 13-week quarters and always falls on the Sunday nearest to December 31. |
In the opinion of the Company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring accruals, necessary for the fair presentation of the Company’s interim results. The results of operations for any interim period are not indicative of results for the full fiscal year. |
All amounts are presented in U.S. Dollar (“$”), except where expressly stated as being in other currencies, e.g. Euros (“€”). |
Seasonality | ' |
Seasonality |
The Company’s business is somewhat seasonal in nature, as many of its products are used in elective procedures, which typically decline during the summer months and can increase at the end of the year once annual deductibles have been met on health insurance plans. |
Recently Issued Accounting Pronouncements | ' |
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Recently Issued Accounting Pronouncements |
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In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-11, Income Taxes (ASC Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The ASU requires entities to present unrecognized tax benefits as a decrease in a net operating loss, similar to tax loss or tax credit carryforward if certain criteria are met. The standard clarifies presentation requirements for unrecognized tax benefits but will not alter the way in which entities assess deferred tax assets for realizability. The guidance is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2013. The Company adopted this guidance beginning in the first quarter of 2014. The impact of adoption was not material. |
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In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (ASC Topic 830), Parent’s Accounting for the Cumulative Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The ASU requires entities to release cumulative translation adjustments to earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. The ASU is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2013 and is to be applied prospectively. The Company adopted this guidance in the first quarter of 2014. The impact of adoption was not material. |
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In February 2013, the FASB issued ASU 2013-04, Liabilities (ASC Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The ASU requires an entity that is jointly and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of one or more co-obligors. The amendment is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2013 and should be applied retrospectively. The Company adopted this guidance beginning in the first quarter of 2014. The impact of adoption was not material. |
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In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (ASC Topic 205) and Property, Plant, and Equipment (ASC Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 provides new guidance related to the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This new guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within those years. Beginning in 2015, the Company will adopt the new guidance, as applicable, to future disposals of components or classifications as held for sale. |
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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers issued as a new topic, ASC 606. ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-08 specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. The Company is currently determining its implementation approach and assessing the impact on its consolidated financial statements and related disclosures. |
Fair Value of Financial Instruments | ' |
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Fair Value of Financial Instruments |
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The Company applies ASC Topic 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. The Company measures certain assets and liabilities at fair value on a recurring or non-recurring basis. U.S. GAAP requires fair value measurements to be classified and disclosed in one of the following three categories: |
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Level 1—Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. |
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Level 2—Assets and liabilities determined using prices for recently traded assets and liabilities with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. |
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Level 3—Assets and liabilities that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the asset or liability. The prices are determined using significant unobservable inputs or valuation techniques. |
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A summary of the financial assets and liabilities that are measured at fair value on a recurring basis at June 29, 2014 and December 29, 2013 are as follows: |
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| | June 29, 2014 | | | Quoted Prices in | | | Significant | | | Significant | |
Active Markets | Other | Unobservable |
(Level 1) | Observable | Inputs (Level 3) |
| Inputs (Level 2) | |
Cash and cash equivalents | | $ | 31,771 | | | $ | 31,771 | | | $ | — | | | $ | — | |
Contingent consideration | | | (8,815 | ) | | | — | | | | — | | | | (8,815 | ) |
Derivative assets | | | 89 | | | | — | | | | 89 | | | | — | |
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Total, net | | $ | 23,045 | | | $ | 31,771 | | | $ | 89 | | | $ | (8,815 | ) |
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| | December 29, 2013 | | | Quoted Prices in | | | Significant | | | Significant | |
Active Markets | Other | Unobservable |
(Level 1) | Observable | Inputs (Level 3) |
| Inputs (Level 2) | |
Cash and cash equivalents | | $ | 56,784 | | | $ | 56,784 | | | $ | — | | | $ | — | |
Contingent consideration | | | (12,956 | ) | | | — | | | | — | | | | (12,956 | ) |
Derivative assets | | | 238 | | | | — | | | | 238 | | | | — | |
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Total, net | | $ | 44,066 | | | $ | 56,784 | | | $ | 238 | | | $ | (12,956 | ) |
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As of June 29, 2014 and December 29, 2013, the Company had derivative assets with fair values of $0.1 million and $0.2 million, respectively, with recurring Level 2 fair value measurements. The derivatives are foreign exchange forward contracts and their fair values are based on pricing for similar recently executed transactions. The amount of gain recognized in foreign currency transaction loss for the six months ended June 29, 2014 and June 30, 2013 related to these derivatives is $0.2 million and $0.1 million, respectively. |
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Included in Level 3 fair value measurements as of June 29, 2014 is a $5.9 million contingent consideration liability related to potential earn-out payments for the acquisition of OrthoHelix Surgical Designs, Inc. (OrthoHelix) that was completed in October 2012, a $2.3 million contingent consideration liability related to potential earn-out payments for distributor acquisitions in the United States that occurred throughout 2013 and the first six months of 2014, a $0.4 million contingent consideration liability related to potential earn-out payments for the acquisition of the Company’s exclusive distributor in Belgium and Luxembourg that was completed in May 2012, and a $0.2 million contingent consideration liability related to potential earn-out payments related to the acquisition of a distributor in Australia that was completed in 2013. Contingent consideration liabilities are carried at fair value and are included in contingent consideration (short-term and long-term) on the consolidated balance sheets. The contingent consideration liabilities were determined based on discounted cash flow analyses that included revenue estimates and a discount rate, which are considered significant unobservable inputs as of June 29, 2014. The revenue estimates were based on current management expectations for these businesses and the discount rate used was between 8-11% and was based on the Company’s estimated weighted average cost of capital as adjusted for each transaction. To the extent that these assumptions were to change, the fair value of the contingent consideration liabilities could change significantly. Included in interest expense on the consolidated statements of operations for the six months ended June 29, 2014 and June 30, 2013 is $0.3 million and $0.6 million, respectively, related to the accretion of the contingent consideration. There were no transfers between levels during the periods presented. |
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Included in Level 3 fair value measurements as of December 29, 2013 is a $10.4 million contingent consideration liability related to potential earnout payments for the acquisition of OrthoHelix that was completed in October 2012, a $1.9 million contingent consideration liability related to potential earn-out payments for distributor acquisitions in the United States that occurred throughout 2013, a $0.5 million contingent consideration liability related to potential earnout payments for the acquisition of the Company’s exclusive distributor in Belgium and Luxembourg that was completed in May 2012 and a $0.2 million contingent consideration liability related to potential earnout payments related to the acquisition of a distributor in Australia that was completed in 2013. |
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A rollforward of the Level 3 contingent consideration liabilities, both short and long-term, for the six months ended June 29, 2014 is as follows (in thousands): |
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Contingent consideration liability at December 29, 2013 | | $ | 12,956 | | | | | | | | | | | | | |
Additions | | | 1,670 | | | | | | | | | | | | | |
Fair value adjustments | | | (312 | ) | | | | | | | | | | | | |
Settlements | | | (5,802 | ) | | | | | | | | | | | | |
Interest accretion | | | 299 | | | | | | | | | | | | | |
Foreign currency translation | | | 4 | | | | | | | | | | | | | |
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Contingent consideration liability at June 29, 2014 | | $ | 8,815 | | | | | | | | | | | | | |
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The Company also has certain assets and liabilities that are measured at fair value on a non-recurring basis. The Company reviews the carrying amount of its long-lived assets other than goodwill for potential impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. During the six months ended June 29, 2014 and June 30, 2013, the Company recognized no impairments. During 2013, the Company initiated and completed a facilities consolidation initiative that included the termination of certain facility leases. The termination liability for these leases was determined using a discounted cash flow analysis that included a discount rate assumption, which is based on the credit adjusted risk free interest rate input, and an assumption related to the timing and amount of sublease income. The timing of the sublease income is a significant unobservable input and thus is considered a Level 3 fair value measurement. As of June 29, 2014, the value of this liability was $0.3 million. |
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As of June 29, 2014 and December 29, 2013, the Company had short-term and long-term debt of $69.3 million and $69.1 million, respectively, the vast majority of which was variable rate debt. The fair value of the Company’s debt obligations approximates carrying value as a result of its variable rate term and is considered a Level 2 fair value measurement. |