Orthofix Medical Inc. Annual Report 2016

FY2016 Annual Report · Orthofix Medical Inc.

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Inspired by the Patients we help

Jennnifer,
i
Spine Fixation patient

QQ’Shaun,
Extremity Fixation patient

Jennifer is happiest playing music. But for years, she couldn’t sit for
very long and play her guitar or her flute due to excruciating pain
from scoliosis.

As a child Q’Shaun was slow to develop his mobility and it became
apparent to his mother Carol, that something wasn’t quite right
when he finally did start walking.

“Jennifer was 14 years old when she was first diagnosed with
scoliosis, and I was afraid for her future, that she would be in a
wheelchair for the rest of her life,” said her mom Patti.

“I was living with 10-out-of-10 pain every single day and it felt like
my back was literally deteriorating,” said Jennifer. “It hurt so much,
that even just the simplest twist or move was enough to almost
bring me to my knees.”

Over the next decade, Jennifer’s spine deformity worsened… so did
the pain and depression.

“I had so much depression and I just hated myself because I was not
normal,” said Jennifer. “I went through many, many doctors before I
could finally find that one who was truly willing to help me.”

Jennifer’s search led her to orthopedic surgeon Dr. Bobby Bhatti.
After careful examination of Jennifer’s medical history, Dr. Bhatti
recommended a minimally invasive procedure using the Phoenix®
CDX™ system.

Unlike traditional open back surgery, the minimally invasive
technique used with the Phoenix CDX system is designed to shorten
procedure times and protect many of the muscles on the spine.

After surgery, Jennifer began physical therapy and soon she was
able to stand up straight for the first time in years.

Jennifer is back in school, earning a degree in graphic design
and she’s excited about what the future holds.

“I can actually look in the mirror and be, oh hey, how are you doing
this morning? And just continue throughout my day with that same
chipper, happy attitude that is me because now I am the beautiful
person that I always wanted to be,” said Jennifer.

“I knew something was wrong with Q’Shaun’s legs as a toddler
because he didn’t try to start walking till he was 2 years-old, and
when he did finally walk, he was clumsy and couldn’t keep his
balance,” said his mom Carol. “The older he got, the more twisted
and bowed his legs became.”

Q’Shaun was diagnosed with Blount’s disease, a growth disorder
of the lower leg bone that is characterized by a bowing appearance
of the leg below the knee joint.

“He had a substantial bowing of both legs causing pain, deformity
and this limited his activities,” said Dr. Christopher Iobst, Director,
Center for Limb Lengthening and Reconstruction, and Clinical
Associate Professor, Orthopedic Surgery at The Ohio State
University College of Medicine, Nationwide Children’s Hospital.

As a result of the condition, Q’Shaun’s participation in the sports
that he loved was limited and presented considerable risks, while
the emotional effects of the disease were also significant as he
suffered from bullying due to his deformed legs.

After many years of struggling and waiting, it was finally time for
Q’Shaun to have surgery to correct his legs.

“The doctors told us that if he didn’t have the surgery before he
was 16 then he would be in a wheelchair for the rest of his life,”
said Carol.

Q’Shaun was fitted with the TL-HEX™ corrective frame that was
gradually adjusted over time to heal the bone and soft tissue.

Now, one year after his last surgery, Q’Shaun is playing baseball
and football and he’s a member of his high school’s ROTC unit
where he plays the drum and marches in local parades.

“When I play baseball, I can run straighter and faster now,” said
Q’Shaun. “My favorite part is hitting grand slams because I’m
proud of myself and my team.”

elen,
Helen,
BioStim patient

J,TJ,
Biologics recipient

Fishing is one of life’s simple pleasures for Helen and her husband
Neal. But not too long ago, this favorite pastime turned into
excruciating pain for Helen.

“When I was 20 years old I was in the United States Army,” said TJ. “I
was living my dream, following my father’s footsteps, and then it all
came crashing down around me.”

“I was casting off and I was walking off the boulders and I slipped
and fell and I crushed my leg,” said Helen.

As a former model, Helen’s legs were, at one time, world famous.

“I actually was the first Asian American to get a national campaign
with a major American company for panty hose, so my legs were
very famous,” said Helen.

The accident caused multiple breaks in her leg, which required
surgery that left her with two rods and a dozen screws in her
bone. After six months in a wheelchair followed by months of
physical therapy and exercise, she was still in pain and had trouble
walking. The doctor, seeing that the fractured bone was not healing,
suggested a second surgery.

But both Helen and Neal felt that another operation and recovery
was something that she would have a difficult time going through.
Her doctor then suggested the Physio-Stim® Bone Growth
Stimulator.

“I was very skeptical,” said Helen. “How can this work? You turn it on
and you sit there, but I said, oh gosh I have to do this because I’m
not going to get another operation.”

After using the Physio-Stim device daily for six months, Helen’s
surgeon ordered a new X-ray, which found that her fracture had
finally healed.

Now Helen and Neal are back doing the things they love, fishing,
enjoying the beach and spending time with their family.

“It’s the simple things you appreciate,” said Helen. “I can play with
the grandchildren, I can go fishing again, I can run up and down
barefoot, it’s wonderful.”

A hard landing during a parachute training jump injured TJ’s ankle.
Thinking it was just a sprain, he pushed through the pain until he
collapsed during a ruck march. Over the next few years, TJ’s dream
turned into a nightmare.

“I was injured and I had multiple surgeries. Two doctors told me I
should have a leg amputation,” said TJ.

The pain was excruciating, but for TJ the worst part was being forced
to medically retire from the army. Using his training as an army
medic, TJ was able to get a job as a surgical tech at a local hospital,
but standing on his feet all day took its toll. Desperate to find relief
for his pain, TJ met with orthopedic surgeon, Dr. Michael Campbell.

“When I met TJ, his foot was a mess,” said Dr. Michael Campbell,
Orthopedic Surgeon with Atlantic Orthopedic Specialists. “He had
loose screws, he had a nonunion, the bones that they attempted to
fuse hadn’t healed, and every step he took on was essentially like
someone trying to walk on a broken bone.”

Dr. Campbell made a plan to rebuild TJ’s ankle using Trinity ELITE®
bone growth material to help facilitate the bone fusion process.

“Certainly TJ went into this with his eyes wide open knowing that
this was our last ditch attempt at saving his foot and he was well
aware that if this didn’t work, he was going to end up with a below
the knee amputation,” said Dr. Campbell.

Fortunately, the surgery was a success.

“It’s amazing to have my whole husband back and my whole family
back,” said TJ’s wife Amanda.

TJ is grateful to be active with his family again.

“To be able to go fishing with my daughter and not have to worry is
a wonderful feeling,” said TJ.

For more information, please visit www.Orthofix.com.

Lett

ter from the CEO

Brad Mason
President and Chief Executive Officer

To Our Shareholders

We are now in our 37th year of helping patients like those featured on
our cover. More than 900 Orthofix employees around the globe dedicate
themselves to delivering upon our mission of improving patients’ lives by
providing superior reconstructive and regenerative orthopedic and spine
solutions to physicians worldwide. We are very proud of the fact that in
2016 we helped improve the lives of an estimated 165,000 patients in
more than 70 countries.

We are pleased to look back on 2016 as a year in which we delivered
solid results and made measurable progress in many areas of
the company that we believe will create significant value for our
shareholders. We exited an era of heavy investment with a rebuilt
infrastructure, a robust compliance program, rigorous financial controls,
a strong balance sheet, excellent free cash flow as well as good
momentum not only in our BioStim and Extremity Fixation strategic
business units (SBUs), but also in initiating a return to meaningful
growth in our Biologics and Spine Fixation SBUs.

Delivering on our 2016 key objectives

When we started the year, we laid out three key business objectives:
accelerate the rate of our top line growth; expand our margins; and
continue to invest in clinical research to drive future growth. So how
did we do?

Top line growth

Our top line for the full year grew 4.0 percent overall in constant currency,
with BioStim, our largest and most profitable SBU, and the Extremity
Fixation SBU both growing well above their respective market growth
rates. While our Biologics and Spine Fixation SBUs had decreases in
year-over-year net sales in 2016, we have made the necessary
investments in people and strategies to return these two businesses
to growth in 2017 and beyond. As I write this letter, we have already
seen significant momentum toward achieving this return to growth in
both SBUs.

Organically, we have two primary drivers of top line growth: new product
introductions and increasing the size and engagement of our sales force.
We excelled in both of these areas, with 2016 being the most prolific year
in the company’s history for new product launches and the number of
distributor partners that we added.

• Our BioStim SBU gained FDA and European CE Mark approvals for
the next generation SpinalStim™ and CervicalStim™ spinal fusion
therapy devices at the end of 2016. This is the first significant
upgrade to these products in 12 years. In addition to having many
new patient comfort and convenience features, these devices also
feature Bluetooth connectivity to mobile devices and an app

designed to facilitate patient compliance and improve spinal
fusion outcomes. We’re very excited about the competitive
advantages this gives us.

• In our Extremity Fixation SBU, we launched nine new products or
product extensions. The importance of new product introductions
to our top line growth was well demonstrated in 2016 by 13.7
percent year-over-year net sales growth in the U.S. Extremity
Fixation business primarily driven by the 2015 Truelok Hexapod™
system launch.

• Our Spine Fixation SBU launched 12 new products or significant line
extensions during the year with a focus on filling gaps in our product
portfolio, further enhancing our Firebird® NXG pedicle screw system
and leveraging our proprietary and novel PTC™ interbody technology.

• Collectively for our SBUs in 2016, we added 66 distributor partners

in the U.S., an increase of 28 percent. Equally important, we
executed on specific initiatives to enhance the engagement and
productivity of our sales force, particularly with our distributors who
do not exclusively represent Orthofix. As a part of our engagement
strategy, we significantly increased the number of training and
education events during the year, hosting over 100 sales force
forums and close to 200 surgeon medical education events in
which we trained over 2,000 surgeons on the use of our products.

Expanded margins

Due primarily to a reduction in G&A spending, adjusted EBITDA increased
410 basis points to 19.4 percent in 2016 from 15.3 percent in 2015. Our
Bluecore infrastructure improvement project, which was completed in
2016 ahead of schedule and under budget, contributed to this reduction
in G&A spending through the efficiencies we gained from our new
systems, processes and controls. Additionally, our adjusted return on
invested capital (ROIC) year-over-year improvement of 210 basis points
to 10.6 percent highlights our discipline in capital deployment and our
commitment to improving this important value driver.

Investment in clinical research to drive future growth

In addition to publishing a number of clinical studies supporting our
Biologics and Spine Fixation products and therapies in 2016, we made
significant progress in our efforts to find new indications for the use
of pulsed electro-magnetic field (PEMF) technologies through both
pre-clinical and clinical studies. We have two Investigational Device
Exemption (IDE) studies currently underway to evaluate the safety
and efficacy of our PEMF devices for odontoid fractures and
osteoarthritis of the knee. Additionally, we expect to receive a third
IDE approval later this year for a study to determine the safety and
efficacy of PEMF used as an adjunct treatment to rotator cuff surgery.
Our investments in these studies demonstrate our belief in the

enormous potential for the utilization of PEMF technology in treating
many unmet needs related to musculoskeletal disorders. As the market
leader and the company driving this clinical research, we also believe
we are best positioned to identify and address these and other related
clinical needs.

The next chapter

Looking ahead, with the challenges of the past several years now
behind us, we are well positioned and committed to execute on both
organic and inorganic strategic opportunities focused on accelerating
shareholder value creation. So, what does the next chapter for
Orthofix look like?

Organically, we will continue to leverage our expanded sales force, new
product pipeline and clinical research to accelerate our growth in each
of our SBUs, while simultaneously executing initiatives that focus on
growing adjusted EBITDA, free cash flow, and ROIC.

While we have strategies and opportunities in each of our SBUs to
grow faster than their respective markets, BioStim is an example
worth noting. In addition to positioning ourselves for the future by
developing new indications for our PEMF technologies, we are driving
increased patient access to our existing products. In October of 2016,
the North American Spine Society issued first-of-its-kind coverage
recommendations for electrical bone growth stimulators. These
evidence-based coverage policy recommendations support the use of
PEMF stimulation devices as an adjunct to spinal fusion surgery. We
expect this positive coverage recommendation, along with our next
generation SpinalStim and CervicalStim spinal fusion therapy devices,
will help drive increased access to this therapy. Currently, we estimate
that only one-third of the patients who are on-label and could benefit
from the use of our devices to augment spinal fusions, are receiving this
proven therapy.

In terms of our inorganic opportunities, we are focusing in three broad
areas. First, we are in the process of evaluating our current portfolio of
businesses in order to identify opportunities to maximize shareholder
value. Second, we are looking to acquire tuck-in products to leverage
our distribution channels and drive sales in our existing businesses.
Third, we are opportunistically pursuing more substantial value accretive
acquisitions to leverage our market leading positions. To us, “value
accretive” means that a deal should:

• Be a strong strategic fit that strengthens our business

• Have a ROIC at least equal to our weighted average cost of

capital in the planning period

• Be accretive to earnings per share in the relative near-term

• Have risk commensurate with the strategic and

financial opportunity

Our commitment to investors

We have made tremendous progress in the last few years. The heavy
lifting on our infrastructure improvements is done and our clinical
research and new product development programs are in full swing. We
are positioning ourselves to achieve the commercial potential inherent
in our vision to be a highly respected global orthopedic and spine
company that delivers exceptional value to our patients, customers,
team members, partners and shareholders. Our goal is to create a more
valuable company for our shareholders while never losing sight of the
needs of our surgeons, distributor partners, team members and most
importantly, the patients we are inspired to serve. As we look ahead,
we see tremendous potential for achieving this vision.

I would like to take this opportunity to thank our team members and
sales partners around the globe for their tremendous efforts and the
trust they’ve placed in our strategy and leadership. Clearly, without
their extraordinary commitment we would not have been able to
deliver the performance of the last few years or realize our full
potential going forward.

I would also like to thank our exceptional Board of Directors. Each board
member has extensive experience and specific expertise that when
combined with management, creates an extraordinary leadership
team capable of not only the transformation you’ve seen, but more
importantly, creating significant value for our shareholders in the future.
I am very grateful for their ongoing insight and support.

And of course, we are indebted to you, our investors. Thank you for your
ownership and trust in Orthofix as we continue our mission to make a
difference in the lives of patients who depend upon our technologies
and our vision to deliver exceptional value to all of our stakeholders.

It is an honor to lead this company and the people who make this such
a great place to work. We are proud of our team’s accomplishments
in 2016 and look forward to continued progress in 2017.

Sincerely,

Brad Mason
President and Chief Executive Officer
Orthofix International, N.V.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016
or

For the transition period from

Commission File Number: 0-19961

ORTHOFIX INTERNATIONAL N.V.

(Exact name of registrant as specified in its charter)

Curaçao
(State or other jurisdiction of
incorporation or organization)

7 Abraham de Veerstraat
Curaçao
(Address of principal executive offices)

98-1340767
(I.R.S. Employer
Identification No.)

N/A
(Zip Code)

599-9-4658525
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value
(Title of Class)

Nasdaq Global Select Market
(Name of Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ⌧ No (cid:3)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to

be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ⌧ No (cid:3)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ⌧

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

⌧

Accelerated filer

Non-accelerated filer

(cid:3) (Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No ⌧

(cid:3)

The aggregate market value of registrant’s common stock held by non-affiliates, based upon the closing price of the common stock on the last business day of

the fiscal quarter ended June 30, 2016, as reported by the Nasdaq Global Select Market, was approximately $767.8 million.

As of February 24, 2017, 17,946,539 shares of common stock were issued and outstanding.

Certain sections of the registrant’s Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the 2016 Annual

General Meeting of Shareholders are incorporated by reference in Part III of this Annual Report.

DOCUMENTS INCORPORATED BY REFERENCE

Orthofix International N.V.

Form 10-K for the Year Ended December 31, 2016
Table of Contents

Page

PART I

Business ....................................................................................................................................................................

Item 1.
4
Item 1A. Risk Factors............................................................................................................................................................... 18
Item 1B. Unresolved Staff Comments..................................................................................................................................... 29
Properties ................................................................................................................................................................. 29
Item 2.
Legal Proceedings ..................................................................................................................................................... 29
Item 3.
Mine Safety Disclosure ............................................................................................................................................. 29
Item 4.

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30
Item 5.
Selected Financial Data............................................................................................................................................. 32
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations..................................... 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................................................................. 45
Financial Statements and Supplementary Data ....................................................................................................... 46
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 46
Item 9A. Controls and Procedures .......................................................................................................................................... 46
Item 9B. Other Information .................................................................................................................................................... 49

PART III

Item 10. Directors, Executive Officers and Corporate Governance........................................................................................ 49
Item 11. Executive Compensation .......................................................................................................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................ 49
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................................ 49
Item 14. Principal Accountant Fees and Services ................................................................................................................... 49

PART IV

Item 15. Exhibits, Financial Statement Schedules .................................................................................................................. 50
54
Item 16. Form 10-K Summary .................................................................................................................................................

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial
outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you
can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking
statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are
difficult to predict, including the risks described in Part I, Item 1A, “Risk Factors”. Therefore, our actual outcomes and results may
differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these
forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically
otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement, to reflect new
information, the occurrence of future events or circumstances or otherwise.

Solely for convenience, our trademarks and trade names in this report are referred to without the ® and ™ symbols, but such
references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights
thereto.

Trademarks

Item 1.

Business

In this report, the terms “we,” “us,” “our,” “Orthofix,” “the Company” and “our Company” refer to the combined operations of
Orthofix International N.V. and its consolidated subsidiaries and affiliates, unless the context requires otherwise.

PART I

Company Overview

We are a diversified, global medical device company focused on improving patients’ lives by providing superior reconstructive and
regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville, Texas, we have four strategic
business units (“SBUs”): BioStim, Biologics, Extremity Fixation and Spine Fixation. Our products are widely distributed by our sales
representatives, distributors and subsidiaries. In addition, we are collaborating on research and development activities with leading
clinical organizations such as Brown University, Sinai Hospital of Baltimore, Cleveland Clinic, Texas Scottish Rite Hospital for Children,
and the Musculoskeletal Transplant Foundation (“MTF”).

We have administrative and training facilities in the United States (“U.S.”), Italy, Brazil, the United Kingdom (“U.K.”), France,
Germany, and Puerto Rico and manufacturing facilities in the U.S. and Italy. We directly distribute products in the U.S., Italy, the
U.K., Germany, France, Brazil, and Puerto Rico. In several of these and other markets, we also distribute our products through
independent distributors.

Orthofix International N.V. was formed in 1987 and is a limited liability company operating under the laws of Curaçao. Our executive
offices in Curaçao are located at 7 Abraham de Veerstraat, Curaçao.

Available Information and Orthofix Website

Our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, and Annual Proxy Statement on Schedule 14A and amendments to those reports, are
available free of charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the SEC.
Information on our website or connected to our website is not incorporated by reference into this report. Our Internet website is
located at www.orthofix.com. Our SEC filings are also available on the SEC website at www.sec.gov.

Business Segments

We manage our business by our four SBUs: BioStim, Biologics, Extremity Fixation, and Spine Fixation, which accounted for 43%, 14%,
25%, and 18%, respectively, of our total net sales in 2016. The chart below presents net sales, which includes product sales and
marketing service fees, by SBU for each of the years ended December 31, 2016, 2015, and 2014.

$200,000

$180,000

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000
$60 000

$40,000

$20,000

BioStim

Biologics

Extremity Fixation

Spine Fixation
Spine Fixation

2016

2015

2014

Financial information regarding our reportable business segments and certain geographic information is included in Part II, Item 7 of
this report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note
15 to the Consolidated Financial Statements in Item 8 of this report.

BioStim

The BioStim SBU manufactures, distributes, and provides support services for market-leading bone growth stimulation 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). These devices utilize Orthofix’s patented pulsed electromagnetic field (“PEMF”) technology, the safety and efficacy of which
is supported by basic mechanism of action data in the scientific literature as well as published data from level one randomized
controlled clinical trials. We currently have research and clinical studies underway to identify potential clinical indications for
treating odontoid fractures and osteoarthritis of the knee. This SBU uses distributors and direct sales representatives to sell its
devices to hospitals, healthcare providers, and patients.

BioStim Strategy

Our strategy for the BioStim SBU is to expand patient access to bone growth therapy devices that deliver noninvasive treatment for
promoting healing in fractured bones and spinal fusions. Our key initiatives are:

(cid:2)

Invest in basic science, clinical and evidence-based research to support broader indications for our stimulation products;

Invest in product development for next generation bone growth therapy technology; and

Expand patient access to our stimulation products through improved insurance coverage policies.

BioStim Products

The following table and discussion identify our principal BioStim products by trade name and describe their primary applications:

Product

CervicalStim

SpinalStim

PhysioStim

Spinal Therapy

Primary Application

Pulsed electromagnetic field (“PEMF”) non-invasive cervical spinal fusion
therapy used to enhance bone growth

PEMF non-invasive lumbar spinal fusion therapy used to enhance bone growth

PEMF non-invasive long bone healing therapy used to enhance bone growth in
non-union factures

Our bone growth therapy devices used in spinal applications are designed to enhance bone growth and the success rate of certain
spinal fusions by stimulating the body’s own natural healing mechanism post-surgically. These non-invasive portable devices are
intended to be used as part of a home treatment program prescribed by a physician.

We offer two spinal fusion therapy devices: the SpinalStim and CervicalStim devices. Our stimulation products use a PEMF
technology designed to enhance the growth of bone tissue following surgery and are placed externally over the site to be healed.
Research data shows that our PEMF signal induces mineralization and results in a process that stimulates new regeneration at the
spinal fusion site. We have sponsored independent research at Cleveland Clinic, New York University and University of Medicine and
Dentistry of New Jersey, where scientists conducted animal and cellular studies to identify the mechanisms of action of our PEMF
signals on bone and efficacy of healing. From this effort, a total of six studies have been published in peer-reviewed journals. Among
other insights, the studies illustrate positive effects of PEMF on callus formation and bone strength as well as proliferation and
differentiation of cells involved in regeneration and healing. Furthermore, we believe that the research work with Cleveland Clinic,
allowing for characterization and visualization of the Orthofix PEMF waveform, is paving the way for signal optimization for a variety
of new applications and indications. This collection of pre-clinical data, along with additional clinical data, could represent new
clinical indication opportunities for our regenerative stimulation solutions.

Some spine fusion patients are at greater risk of not achieving a solid fusion of new bone around the fusion site. These patients
typically have one or more risk factors such as smoking, obesity or diabetes, or their surgery involves the revision of a failed fusion or
the fusion of multiple levels of vertebrae in one procedure. For these patients, post-surgical spinal fusion therapy has been shown to
significantly increase the probability of fusion success. The SpinalStim device is a non-invasive spinal fusion stimulator system that
has been commercially available in the U.S. since 1990. It is designed for the treatment of the lower thoracic and lumbar regions of
the spine. The device uses proprietary technology and a wavelength to generate a PEMF signal. The U.S. Food and Drug
Administration (the “FDA”) has approved the SpinalStim system as a spinal fusion adjunct to increase the probability of fusion
success and as a non-operative treatment for salvage of failed spinal fusion at least nine months post-operatively.

Our CervicalStim product remains the only FDA-approved bone growth stimulator on the market indicated for use as an adjunct to
cervical (upper) spine fusion surgery in patients at high-risk for non-fusion. The FDA approved this device in 2004, and it has been
commercially available in the U.S. since 2005.

In January 2017, we announced the FDA and European Commission CE mark approval for our next-generation SpinalStim and
CervicalStim bone growth stimulators. The CervicalStim and SpinalStim systems available in the U.S. will be accompanied by a new
application for mobile devices called Stim onTrack. Designed for use with smartphones and other mobile devices, the Stim onTrack
tool helps patients follow their prescription, including daily treatment reminders and a device usage calendar. The mobile app also
includes a first-to-market feature that enables physicians to receive real-time data on how their patients are adhering to prescribed
treatment protocols. The Stim onTrack app is free and available through the iTunes App Store. In addition to the app, the next-
generation bone growth stimulators include patient enhancements aimed at improving fit, comfort and ease of use.

In late 2016, the North American Spine Society (“NASS”) issued first-of-its-kind coverage recommendations for electrical bone
growth stimulators. These evidence-based coverage policy recommendations support the use of PEMF devices as an adjunct to
spinal fusion surgery. The issued NASS coverage policy recommends the use of electrical stimulation for spinal fusion healing in all
regions of the spine, including cervical and lumbar regions. Currently, Orthofix is the only company with a bone growth stimulator
approved by the FDA as a noninvasive, adjunctive treatment option for cervical fusion. We expect the validation of PEMF electrical
stimulation from this leading surgical society will further support our efforts to expand the availability and use of the therapy to the
many patients who can benefit from it.

Orthopedic Therapy

Our PhysioStim bone healing therapy products use PEMF technology similar to that used in our spine stimulators. The primary
difference is that the PhysioStim physical configuration is designed for use on long bones.

A bone’s regenerative power results in most fractures healing naturally within a few months. In certain situations, however,
fractures do not heal or heal slowly, resulting in “non-unions.” Traditionally, orthopedists have treated such fracture conditions
surgically, often by means of a bone graft with fracture fixation devices, such as bone plates, screws or intramedullary rods. These
are examples of “invasive” treatments. Our patented bone healing therapy products are designed to use a low level of PEMF signals
to activate the body’s natural healing process.

Our systems offer portability, rechargeable battery operation, integrated component design, patient monitoring capabilities and the
ability to cover a large treatment area without factory calibration for specific patient application.

Biologics

The Biologics SBU provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety
of spinal and orthopedic conditions. This SBU specializes in the marketing of the Company’s regeneration tissue forms. Biologics
markets its tissues primarily in the U.S. through a network of independent sales representatives to supply to hospitals and
healthcare providers. Our partnership with MTF allows us to exclusively market the Trinity Evolution and Trinity ELITE tissue forms
for musculoskeletal defects to enhance bony fusion.

Biologics Strategy

In order to drive further adoption and use of our products, our strategy for the Biologics SBU is to educate physicians, both directly
and through our sales force, of the surgical and patient benefits of using our portfolio of regenerative tissues and products to
augment their surgical procedures and results. Our key initiatives are:

(cid:2)

Continue to focus our sales and marketing efforts on the Trinity ELITE tissue form and leverage its market acceptance;

Enhance and expand our distribution network through an increase in distributor partners in underpenetrated U.S. markets;

Expand the accepted utilization of the Trinity ELITE tissue form in additional surgical applications; and

Invest in and accelerate new tissue development projects with MTF.

Biologics Products

The following table and discussion identify our principal Biologics products by trade name and describe their primary applications:

Product

AlloQuent Structural Allografts

Trinity ELITE

Trinity Evolution

VersaShield

Primary Application

Interbody devices made of cortical bone (or cortical-cancellous grafts) that are
designed to restore the space that has been lost between two or more
vertebrae due to a degenerated disc during a spinal fusion procedure

A fully moldable allograft with viable cells used during surgery that is designed
to enhance the success of a spinal fusion or bone fusion procedure

An allograft with viable cells used during surgery that is designed to enhance
the success of a spinal fusion or bone fusion procedure

A thin hydrophilic amniotic membrane designed to serve as a wound or tissue
covering for a variety of surgical demands

Collage Synthetic Osteoconductive Scaffold

A synthetic bone void filler

The regenerative solutions offered as part of the Biologics SBU’s portfolio include solutions for a variety of musculoskeletal defects
used in spinal and extremity orthopedic procedures.

Regenerative Solutions

The premier biologics tissues we market include the Trinity ELITE and Trinity Evolution tissue forms, which are cortical cancellous
allografts that contain viable cells and are used during surgery in the treatment of musculoskeletal defects for bone reconstruction
and repair. These allografts are intended to offer a viable alternative to an autograft procedure as harvesting autograft has been
shown to add risk of an additional surgical procedure and related patient discomfort in conjunction with a repair surgery.

To provide structural support and facilitate bone growth in spine fusion procedures, we offer a full line of AlloQuent allograft
structural spacers derived from human cadaveric bone. These spacers are used to restore the height lost between vertebral bodies
when discs are removed in fusion procedures and to facilitate spine fusion.

We offer the Collage product as an osteoconductive scaffold and a bone graft substitute product. The product is a combination
synthetic bone graft substitute comprised of beta tri-calcium phosphate and type 1 bovine collagen.

We also market the VersaShield tissue form, a thin hydrophilic amniotic membrane designed to serve as a wound or tissue covering
for a variety of surgical demands. Amniotic tissue forms derived from donated human placenta are used in a wide variety of
applications and are valued for their healing properties, scar reduction and anti-adhesion characteristics. The VersaShield tissue is
derived from the human placental layers amnion and chorion; these thin elastic membranes allow the tissue to conform to the
surface of the surgical site.

We receive marketing fees through our collaboration with MTF for the Trinity Evolution, Trinity ELITE, and VersaShield tissues. MTF
processes the tissues, maintains inventory, and invoices hospitals and surgery centers and other points of care for service fees,
which are submitted by customers via purchase orders. We have exclusive worldwide rights to market the Trinity Evolution and
Trinity ELITE tissue forms. We market the VersaShield tissue under a private label brand via a non-exclusive marketing agreement for
the tissue form.

To date, our Biologics products are offered primarily in the U.S. market due in part to restrictions on providing U.S. human donor
tissue in other countries.

Extremity Fixation

The Extremity Fixation SBU offers products and solutions 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 procedures. Extremity Fixation distributes its
products globally through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare
providers.

Extremity Fixation Strategy

Our strategy for the Extremity Fixation SBU is to continue to provide highly valued external and internal temporary to definitive
fixation devices used in fracture repair, deformity correction and bone reconstruction. Our key initiatives are:

(cid:2)

Continue to focus our sales efforts on driving adoption of TL-HEX TrueLok Hexapod System and Galaxy Fixation System
product lines;

Develop and acquire premium products for temporary fixation, deformity correction, pediatric applications and foot and
ankle procedures; and

Increase global acceptance and use of our products through education and sales force expansion.

Extremity Fixation Products

The following table and discussion identify our principal Extremity Fixation products by trade name and describe their primary
applications:

Product

Fixator

Primary Application

External fixation and internal fixation, including the Sheffield Ring, limb-
lengthening systems, DAF, ProCallus, XCaliber and Gotfried P.C.C.P

Eight-Plate Guided Growth System

Treatment for bowed legs or knock knees of children

LRS Advanced Limb Reconstruction System

External fixation for limb lengthening and corrections of deformity

TrueLok

Ring fixation system for limb lengthening and deformity correction

TL-HEX TrueLok Hexapod System(“TL-HEX”)

Hexapod external fixation system for trauma and deformity correction with
associated software

Galaxy Fixation System

External fixation system for temporary and definitive fracture fixation,
including anatomical specific clamps

PREFIX and PREFIX 2

External fixation range for temporary fixation of fractures in trauma

VeroNail Trochanteric Nailing System

Trochanteric titanium nailing system for hip fractures

Centronail Titanium Nailing System

Complete range of intramedullary nails including the Humeral Nail

Cemex

Bone cement

Product

OSCAR

Ultrasonic bone cement removal

Primary Application

Centronail Ankle Compression Nailing System

(“ACN”)

An extension of the Centronail range of intermedullary nails

Ankle Hindfoot Nail (“AHN”)

A differentiated solution for hindfoot fusions

Contours Lapidus Plating System (“LPS”)

A plate design contoured specifically for a tarsometatarsal (“TMT”) fusion

Contours PHP Proximal Humeral Plate (“PHP”)

An innovative plating solution for fraction fixation of the proximal humerus

Contours VPS Volar Plating System III

The 3rd generation of plates to treat distal radius fractures

We provide internal and external fixation solutions for extremity repair and deformity correction, both for adults and children. Our
fracture repair products consist of fixation devices designed to stabilize a broken bone until it can heal. With these devices, we can
treat simple and complex fracture patterns along with achieving deformity corrections.

External Fixation

External fixation devices are used to stabilize fractures from outside the skin with minimal invasion into the body. These fixation
devices use screws that are inserted into the bone on either side of the fracture site, to which the fixator body is attached externally.
The bone segments are aligned by manipulating the external device using patented ball joints and, when aligned, are locked in place
for stabilization. External fixation may also be used as temporary devices in complex trauma cases to stabilize the fracture prior to
treating it definitively. We believe external fixation is among the most minimally invasive surgical options for fracture management.
Also, we believe external fixation is the ideal treatment option for highly complex fractures, patients who have fractures close to
joints, or patients with known risk factors or co-morbidities.

The LRS Advanced Limb Reconstruction System uses callus distraction to lengthen bone in a variety of procedures, including
monofocal lengthening and corrections of deformity. Its multifocal procedures include bone transport, simultaneous compression
and distraction at different sites, bifocal lengthening and correction of deformities with shortening. In 2009, improvements on size,
flexibility and ease of use were implemented for the release of the LRS Advanced Limb Reconstruction System.

The Galaxy Fixation System, which was released in 2012, incorporates a streamlined combination of clamps with both pin-to-bar and
bar-to-bar coupling capabilities that provide a complete range of applications and reduce inventory. It also includes specific units for
the elbow, shoulder and wrist. While the rigidity and stability allows for use in definitive fixation, the design also addresses the need
for rapid stabilization for temporary fixation in large trauma centers.

The TrueLok Ring Fixation System is a surgeon-designed, lightweight external fixation system for limb lengthening and deformity
correction. In essence, a ring fixation construct consists of circular rings and semi-circular external supports centered on the
patient’s limb and secured to the bone by crossed, tensioned wires and half pins. The rings are connected externally to provide
stable bone fixation. The main external connecting elements are threaded rods, linear distractors, or hinges and angular distractors,
which allow the surgeon to adjust the relative position of rings to each other. The ring positions are manipulated either acutely or
gradually in precise increments to perform the correction of the deformity, limb lengthening, or bone segment transportation as
required by the surgeon. Created with pre-assembled function blocks, the TrueLok is a simple, stable, versatile ring fixation system.

Building on the TrueLok brand, the TL-HEX TrueLok Hexapod System was released in 2012 in international markets and in 2015 in the
U.S. TL-HEX is a hexapod-based system designed at Texas Scottish Rite Hospital for Children as a three-dimensional bone segment
reposition module to augment the previously developed TrueLok frame. The system consists of circular and semi-circular external
supports secured to the bones by wires and half pins and interconnected by six struts. This allows multi-planar adjustment of the
external supports. The rings’ position is adjusted either rapidly or gradually in precise increments to perform bone segment
repositioning in three-dimensional space. All the basic components from the TrueLok Ring Fixation System (wire and half pin fixation
bolts, posts, threaded rods, plates as well as other assembly components and instrumentation) can be utilized with TL-HEX;
therefore, external supports from both systems can be connected to each other when building fixation blocks.

Another one of our external fixation devices is the XCaliber fixator, which is made from a lightweight radiolucent material and
provided in three configurations to cover long bone fractures, fractures near joints and ankle fractures. The radiolucency of XCaliber
fixators allows X-rays to pass through the device and provides the surgeon with improved X-ray visualization of the fracture and
alignment. These three configurations cover a broad range of fractures. The XCaliber fixators are provided pre-assembled in sterile
kits to decrease time in the operating room.

Our proprietary XCaliber bone screws are designed to be compatible with our external fixators and reduce inventory for our
customers. Some of these screws are covered with hydroxyapatite, a mineral component of bone that reduces superficial
inflammation of soft tissue and improves bone grip. Other screws in this proprietary line do not include the hydroxyapatite coating,
but offer different advantages such as patented thread designs for better adherence in hard or poor quality bone. We believe we
have a full line of bone screws to meet the demands of the market. Adding to the XCaliber bone screw product line are also
cylindrical screws first released for the US market and which we expect will be following in international markets. The type of screw
is geared towards the trauma applications of the Galaxy Fixation System.

Internal Fixation

Internal fixation devices come in various sizes, depending on the bone that requires treatment, and consist of either long rods,
commonly referred to as nails, or plates that are attached with the use of screws. A nail is inserted into the medullary canal of a
fractured long bone of the human arm or leg (e.g., humerus, femur or tibia). Alternatively, a plate is attached by screws to an area
such as a broken wrist, hip or foot. Examples of our internal fixation devices include:

(cid:2)

The Centronail Titanium Nailing System, which is designed to stabilize fractures in the femur, tibia, supracondylar and
humerus. Its main advantages are it is made of titanium, offers improved mechanical distal targeting and instrumentation
and has a design that requires significantly less inventory.

The Ankle Hindfoot Nail from Orthofix, which is an arthrodesis nailing system designed to improve upon the stability,
simplicity, and flexibility of current hindfoot nails.

The VeroNail product, which marks Orthofix’s entry into the intramedullary hip nailing market. Designed for use in hip
fractures, the product provides a minimally-invasive screw and nail design intended to reduce surgical trauma and allow
patients to begin walking again shortly after the operation. It uses a dual screw configuration that we believe provides more
stability than previous single screw designs.

The Contours LPS (Lapidus Plating System), which is sold in the U.S. and is intended for the correction of moderate to severe
forefoot hallus valgus (HV), accompanying bunions and associated instability. The Lapidus Plating System consists of plates,
screws and instrumentation. The anatomical plates are low-profile, titanium, (left and right) designed specifically for 1st
metatarsocuneiform joint arthrodesis allowing compression across the joint achieved through a delta-shaped hole and
compression screws. Lapidus Plating System screws are titanium, low-profile and self-tapping, and include locking, non-
locking, and bone compression screws in a variety of lengths.

In addition to treating bone fractures, we also design, manufacture and distribute devices intended to treat congenital bone
conditions, such as angular deformities (e.g., bowed legs in children), or degenerative diseases, as well as conditions resulting from a
previous trauma. An example of a product offered in this area is the Eight-Plate Guided Growth System.

Spine Fixation

The Spine Fixation SBU specializes in the design, development and marketing of a portfolio of implant products used in surgical
procedures of the spine. Spine Fixation distributes its products globally through a network of distributors and sales representatives
to sell spine products to hospitals and healthcare providers.

Spine Fixation Strategy

Our strategy for the Spine Fixation SBU is to accelerate the sales pace of our portfolio of surgical products that allow physicians to
successfully treat a variety of spinal conditions. Our key initiatives are:

(cid:2)

Continue to expand U.S. sales force coverage, engagement and exclusivity; and

Increase our new product introduction pace through product acquisitions, licensing agreements, and a more streamlined
and productive new product development process.

Spine Fixation Products

The following table and discussion identify our key Spine Fixation products by trade name and describe their primary applications:

Product

Hallmark Anterior Cervical Plate System

Primary Application

A cervical plating system implanted during anterior cervical spine fusion
procedures

Ascent LE Posterior Occipital Cervico-Thoracic

(“POCT”) System

A system of pedicle screws and rods implanted during a posterior spinal fusion
procedure involving the stabilization of several degenerated or deformed
cervical vertebrae

CONSTRUX Mini PEEK / Titanium Composite

(“PTC”) Spacer System

A cervical interbody with 3D printed porous titanium end plates that may
promote bone ingrowth and a Polyetheretherketones (“PEEK”) core to
maintain imaging characteristics

PILLAR PL & TL PEEK Vertebral Body Replacement

(“VBR”) System

FORZA Spacer System

FORZA PTC Spacer System

PILLAR SA PTC PEEK Spacer System

Interbody devices for Posterior Lumbar Interbody Fusion (“PLIF”) and
Transforaminal Lumbar Interbody Fusion (“TLIF”) procedures

Interbody devices for PLIF and TLIF procedures

A posterior lumbar interbody with 3D printed porous titanium end plates that
may promote bone ingrowth and a Polyetheretherketones (“PEEK”) core to
maintain imaging characteristics

A standalone ALIF lumbar interbody with 3D printed porous titanium end
plates that may promote bone ingrowth and a PEEK core to maintain imaging
characteristics

Firebird / Firebird NXG Spinal Fixation System

A system of rods, crossbars and modular pedicle screws designed to be
implanted during a posterior lumbar spine fusion procedure

Firebird Deformity Correction System

An extension to the Firebird Spinal Fixation System that provides additional
instrument and implant options for complex thoracolumbar spine procedures

Phoenix Minimally Invasive Spinal Fixation System

JANUS Midline Fixation Screw

Samba-Screw System

LONESTAR Cervical Stand Alone (“CSA”)

SKYHAWK Lateral Interbody Fusion System &

Lateral Plate System

A multi-axial extended reduction screw body used with the Firebird Spinal
Fixation System designed to be implanted during a posterior thoracolumbar
spine fusion procedure

An addition to the Firebird Spinal Fixation System designed to achieve more
cortical bone purchase in the medial to lateral trajectory when compared to
traditional pedicle screws and provides surgeons with the option of a midline
approach

A minimally invasive screw system that is intended for fixation of sacroiliac
joint disruptions in skeletally mature patients

A stand-alone spacer system designed to provide the biomechanical strength
to a tradition or minimal invasive Anterior Cervical Discectomy and Fusion
(“ACDF”) procedure with less disruption of patient anatomy and preserve the
anatomical profile

Provides a complete solution for the surgeon to perform a Lateral Lumbar
Interbody Fusion, an approach to spinal fusion in which the surgeon access the
intervertebral disc space using a surgical approach from the patient’s side that
disturbs fewer structures and tissues

CENTURION Posterior Occipital Cervico-Thoracic

(“POCT”) System

A multiple component system comprised of a variety of non-sterile, single use
components made of titanium alloy or cobalt chrome that allow the surgeon to
build a spinal implant construct

Spinal Repair Solutions

We provide a wide array of implants designed for use primarily in cervical, thoracic and lumbar fusion surgeries. These implants are
made of either metal or a thermoplastic compound called Polyetheretherketones (“PEEK”). The majority of the implants that we
offer are made of titanium metal. This includes the 3°, Reliant and Hallmark cervical plates. Additionally, the Spinal Fixation System
(“SFS”), the Firebird Spinal Fixation System, the Phoenix Minimally Invasive Spinal Fixation System, the Ascent, Ascent LE, and the
Centurion POCT Systems are sets of rods, cross connectors and screws which are implanted during posterior fusion procedures. The
Firebird Modular and pre-assembled Spinal Fixation System is designed to be used in either open or minimally-invasive posterior
lumbar fusion procedures with our product ProView MAP System. To complement our plate and screw based fixation options we
offer an entire portfolio of cervical and thoracolumbar PEEK interbody devices within our Pillar and Forza product lines. This
interbody portfolio includes two stand-alone devices, Lonestar and Pillar SA, as well as the Construx Mini PTC system, a novel
titanium composite spacer which offers a superior alternative to other plasma spray coated options currently available on the
market. We also offer specialty plates and screws that are used in less common procedures, and as such, are not manufactured by
many device makers. These specialty implants include the New Bridge Laminoplasty Fixation System that is designed to expand the
cervical vertebrae and relieve pressure on the spinal canal, the Samba-Screw System used in sacroiliac joint fixation, as well as the
Unity plate which is used in anterior lumbar fusion procedures.

Product Development

Our research and development departments are responsible for new product development. Our primary research and development
facilities are located in Verona, Italy and Lewisville, Texas. We work with leading hospital research institutions as well as with
physicians and other consultants on the long-term scientific planning and evolution of our products and therapies.

We maintain interactive relationships with spine and orthopedic centers in the U.S. and Europe, including research and clinical
organizations such as Brown University, Sinai Hospital of Baltimore, Cleveland Clinic, Texas Scottish Rite Hospital for Children, and
MTF. Several of the products that we market have been developed through these collaborations. In addition, we periodically receive
suggestions for new products and product enhancements from the scientific and medical community, some of which result in
Orthofix entering into assignment or license agreements with physicians and third parties. We also receive occasional requests for
the production of customized items, some of which have resulted in new products. We believe our policy of accommodating such
requests enhances our reputation in the medical community.

In 2016, 2015 and 2014 we incurred $28.8 million, $26.4 million and $25.0 million, respectively, of research and development
expense.

Patents, Trade Secrets, Assignments and Licenses

We rely on a combination of patents, trade secrets, assignment and license agreements, and non-disclosure agreements to protect
our proprietary intellectual property. We own numerous U.S. and foreign patents, have numerous pending patent applications and
have license rights under patents held by third parties. Our primary products are patented in the major markets in which they are
sold. No assurance can be giving that pending patent applications will result in issued patents, that patents issued or assigned to or
licensed by us will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently
broad to protect our technology or to provide us with any competitive advantage or protection. Third parties might also obtain
patents that would require assignments to or licensing by us to conduct our business. We rely on confidentiality and non-disclosure
agreements with key employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology.

We obtain assignments or licenses of varying durations for certain of our products from third parties. We typically acquire rights
under such assignments or licenses in exchange for lump-sum payments or arrangements under which we pay a percentage of sales
to the licensor. However, while assignments or licenses to us generally are irrevocable, no assurance can be given that these
arrangements will continue to be made available to us on terms that are acceptable to us, or at all. The terms of our license and
assignment agreements vary in length from a specified number of years to the life of product patents or the economic life of the
product. These agreements generally provide for royalty payments and termination rights in the event of a material breach.

Corporate Compliance and Ethics Program

It is a fundamental policy of our Company to conduct business in accordance with the highest ethical and legal standards. We have a
comprehensive compliance and ethics program, which is overseen by our Chief Ethics and Compliance Officer who reports directly to
our Chief Executive Officer. The program is intended to promote legal compliance and ethical business practices throughout our
domestic and international businesses. It is designed to meet U.S. Sentencing Commission Guidelines for effective organizational
compliance and ethics programs and to prevent and detect violations of applicable federal, state and local laws. Key elements of the
program include:

(cid:2) Organizational oversight by senior-level personnel responsible for the compliance function within our Company;

(cid:2) Written standards and procedures, including a Corporate Code of Conduct;

(cid:2) Methods for communicating compliance concerns, including anonymous reporting mechanisms;

(cid:2)

Investigation and remediation measures to ensure prompt response to reported matters and timely corrective action;

Compliance education and training for employees and contracted business associates;

Auditing and monitoring controls to promote compliance with applicable laws and assess program effectiveness;

Disciplinary guidelines to enforce compliance and address violations;

Exclusion lists screening of employees and contracted business associates; and

Risk assessments to identify areas of compliance risk.

Government Regulation

Classification and Approval of Products by the FDA and other Regulatory Authorities

Our research, development and clinical programs, and our manufacturing and marketing operations, are subject to extensive
regulation in the U.S. and other countries. Most notably, all of our products sold in the U.S. are subject to the Federal Food, Drug,
and Cosmetic Act and the Public Health Services Act as implemented and enforced by the FDA. The regulations that cover our
products and facilities vary widely from country to country. The amount of time required to obtain approvals or clearances from
regulatory authorities also differs from country to country.

Unless an exemption applies, each medical device we commercially distribute in the U.S. is covered by either premarket notification
(“510(k)”) clearance, letter to file, approval of a premarket approval application (“PMA”), or some other approval from the FDA. The
FDA classifies medical devices into one of three classes, which generally determine the type of FDA approval required. Devices
deemed to pose low risk are placed in class I, while devices that are considered to pose moderate risk are placed in class II devices
deemed to pose the greatest risks, such as life-sustaining, life-supporting or implantable devices, or devices deemed not
substantially equivalent to a device that previously received 510(k) clearance (as described below), are placed in class III. Our Spine
Fixation and Extremity Fixation products are, for the most part, class II devices and our BioStim bone growth therapy products are
classified as class III by the FDA, and have been approved for commercial distribution in the U.S. through the PMA process.

Our Biologics SBU markets tissue for bone repair and reconstruction under the brand names Trinity Evolution and Trinity ELITE, our
allogeneic bone matrices comprised of cancellous bone containing viable stem cells and a demineralized cortical bone component.
These allografts are regulated under FDA’s Human Cell, Tissues and Cellular and Tissue-Based Products, or HCT/P, regulatory
paradigm and not as a medical device or as a biologic or as a drug. The Biologics SBU also distributes certain surgical implant
products known as “allograft” products that are derived from human tissues and which are used for bone reconstruction or repair
and are surgically implanted into the human body. These tissues are regulated by the FDA as minimally-manipulated tissue and
covered by FDA’s “Good Tissues Practices” regulations, which cover all stages of allograft processing. There can be no assurance our
suppliers of the Trinity Evolution, Trinity ELITE and allograft products will continue to meet applicable regulatory requirements or
that those requirements will not be changed in ways that could adversely affect our business. Further, there can be no assurance
these products will continue to be made available to us or that applicable regulatory standards will be met or remain unchanged.
Moreover, products derived from human tissue or bones are from time to time subject to recall for certain administrative or safety
reasons and we may be affected by one or more such recalls. For a description of these risks, see Item 1A Risk Factors.

The medical devices we develop, manufacture, distribute and market are subject to rigorous regulation by the FDA and numerous
other federal, state and foreign governmental authorities. The process of obtaining FDA clearance and other regulatory approvals to
develop and market a medical device, particularly from the FDA, can be costly and time-consuming, and there can be no assurance
such approvals will be granted on a timely basis, if at all. While we believe we have obtained all necessary clearances and approvals
for the manufacture and sale of our products and that they are in material compliance with applicable FDA and other material
regulatory requirements, there can be no assurance that we will be able to continue such compliance.

Accreditation Requirements

The European Commission (“EC”) has harmonized national regulations for the control of medical devices through European Medical
Device Directives with which manufacturers must comply. Under these new regulations, manufacturing plants must have received a
full Quality Assurance Certification from a “Notified Body” in order to be able to sell products within the member states of the
European Union. This Certification allows manufacturers to stamp the products of certified plants with a “CE” mark. Products
covered by the EC regulations that do not bear the CE mark cannot be sold or distributed within the European Union. We have
received certification for all currently existing manufacturing facilities.

In addition, our subsidiary Orthofix Inc. has been accredited by the Accreditation Commission for Health Care, Inc. (“ACHC”) for
medical supply provider services with respect to durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”). ACHC,
a private, not-for-profit corporation, which is certified to ISO 9001:2000 standards, was developed by home care and community-
based providers to help companies improve business operations and quality of patient care. Although accreditation is generally a
voluntary activity where healthcare organizations submit to peer review their internal policies, processes and patient care delivery
against national standards, the Centers for Medicare and Medicaid Services (“CMS”) required DMEPOS suppliers to become
accredited. By attaining accreditation, Orthofix Inc. has demonstrated its commitment to maintain a higher level of competency and
strive for excellence in its products, services, and customer satisfaction.

Certain Other Product and Manufacturing Regulations

After a device is placed on the market, numerous regulatory requirements continue to apply. Those regulatory requirements
include: product listing and establishment registration; Quality System Regulation (“QSR”), which require manufacturers, including
third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures
during all aspects of the manufacturing process; labeling regulations and governmental prohibitions against the promotion of
products for uncleared, unapproved or off-label uses or indications; clearance of product modifications that could significantly affect
safety or efficacy or that would constitute a major change in intended use of one of our cleared devices; approval of product
modifications that affect the safety or effectiveness of one of our PMA approved devices; Medical Device Adverse Event Reporting
regulations, which require that manufacturers report to the FDA and other foreign governmental agencies if their device may have
caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or
serious injury if the malfunction of the device or a similar device were to recur; post-approval restrictions or conditions, including
post-approval study commitments; post-market surveillance regulations, which apply when necessary to protect the public health or
to provide additional safety and effectiveness data for the device; the FDA’s recall authority, whereby it can ask, or under certain
conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations;
regulations pertaining to voluntary recalls; and notices of corrections or removals.

We and certain of our suppliers also are subject to announced and unannounced inspections by the FDA and European Notified
Bodies to determine our compliance with FDA’s QSR and other international regulations. If the FDA were to find that we or certain of
our suppliers have failed to comply with applicable regulations, the agency could institute a wide variety of enforcement actions,
ranging from a public warning letter to more severe sanctions such as: fines and civil penalties against us, our officers, our
employees or our suppliers; unanticipated expenditures to address or defend such actions; delays in clearing or approving, or refusal
to clear or approve, our products; withdrawal or suspension of approval of our products or those of our third-party suppliers by the
FDA or other regulatory bodies; product recall or seizure; interruption of production; operating restrictions; injunctions; and criminal
prosecution. In addition to the domestic FDA inspections, all manufacturing facilities of the Company are subject to annual Notified
Body inspections.

Moreover, governmental authorities outside the U.S. have become increasingly stringent in their regulation of medical devices. Our
products may become subject to more rigorous regulation by non-U.S. governmental authorities in the future. U.S. or non-U.S.
government regulations may be imposed in the future that may have a material adverse effect on our business and operations.

Third-Party Payor Requirements

Our products may be reimbursed by third-party payors, such as government programs, including Medicare, Medicaid, and Tricare or
private insurance plans and healthcare networks. Third-party payors may deny reimbursement if they determine that a device
provided to a patient or used in a procedure does not meet applicable payment criteria or if the policyholder’s healthcare insurance
benefits are limited. Also, non-government third-party payors are increasingly challenging the medical necessity and prices paid for
our products and services. The Medicare program is expected to continue to implement a new payment mechanism for certain
DMEPOS items via the implementation of its competitive bidding program. Bone growth stimulation products are currently exempt
from this competitive bidding process.

Laws Regulating Healthcare Fraud and Abuse; State Healthcare Laws

Our sales and marketing practices are also subject to a number of U.S. laws regulating healthcare fraud and abuse such as the
federal Anti-Kickback Statute and the federal Physician Self-Referral Law (known as the “Stark Law”), the Civil False Claims Act and
the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as well as numerous state laws regulating healthcare and
insurance. These laws are enforced by the Office of Inspector General within the U.S. Department of Health and Human Services, the
U.S. Department of Justice, and other federal, state and local agencies. Among other things, these laws and others generally:
(1) prohibit the provision of anything of value in exchange for the referral of patients for, or the purchase, order, or
recommendation of, any item or service reimbursed by a federal healthcare program, (including Medicare and Medicaid); (2) require
that claims for payment submitted to federal healthcare programs be truthful; (3) prohibit the transmission of protected healthcare
information to persons not authorized to receive that information; and (4) require the maintenance of certain government licenses
and permits.

Laws Protecting the Confidentiality of Health Information

In addition, U.S. federal and state laws protect the confidentiality of certain health information, in particular individually identifiable
information such as medical records, and restrict the use and disclosure of that protected information. At the federal level, the
Department of Health and Human Services promulgates health information privacy and security rules under HIPAA. These
rules protect health information by regulating its use and disclosure, including for research and other purposes. Failure of a HIPAA
“covered entity” to comply with HIPAA regarding such “protected health information” could constitute a violation of federal law,
subject to civil and criminal penalties. Covered entities include healthcare providers (including certain of those that sell devices or
equipment) that engage in particular electronic transactions, including, as we do, the transmission of claims to health plans.
Consequently, health information that we access, collect, analyze, and otherwise use and/or disclose includes protected health
information that is subject to HIPAA. As noted above, many state laws also pertain to the confidentiality of health information. Such
laws are not necessarily preempted by HIPAA in particular those state laws that afford greater privacy protection to the individual
than HIPAA. These state laws typically have their own penalty provisions, which could be applied in the event of an unlawful action
affecting health information.

Physician Payments Sunshine Provision of the Affordable Care Act

The Physician Payments Sunshine Provision of the Affordable Care Act (Section 6002), which was enacted in 2010 and became
subject to final CMS rules in 2013, requires public disclosure to the United States government of payments to physicians and
teaching hospitals, including in-kind transfers of value such as gifts or meals. The Act also provides penalties for non-compliance. The
Act requires that we file an annual report on March 31st of a calendar year for the transfers of value incurred for the prior calendar
year. Non-compliance is subject to civil monetary penalties.

Sales, Marketing and Distribution

General Trends

We believe that demographic trends, principally in the form of a better informed, more active and aging population in the major
healthcare markets of the U.S., Western Europe and Japan, together with opportunities in emerging markets such as the Asia-Pacific
Region and Latin America, as well as our focus on innovative products, will continue to have a positive effect on the demand for our
products.

Strategic Business Units

Our revenues are generated from the sales of products in our four SBUs: BioStim, Biologics, Extremity Fixation, and Spine Fixation.
See the chart below for the distribution of sales between each of our SBUs for each of the years ended December 31, 2016, 2015,
and 2014.

$450,000

$400,000

$350,000

$300,000

$250,000

$200,000

,
$150,000
$

$100,000

$50,000

$409,788

$396,489

$402,277

18%

25%

14%

43%

19%

24%

15%

42%

20%

27%

14%

39%

2016

2015

2014

Spine Fixation

Extremity Fixation

Biologics

BioStim
BioStim

Sales, Marketing and Distributor Network

We have a broad distribution network comprised of direct sales representatives and distributors. This established distribution
network provides us with a platform to introduce new products and expand sales of existing products. We distribute our products
worldwide in over 70 countries.

In our largest market, the U.S., our sales, marketing and distribution network is comprised of several sales forces addressing
different business units. A hybrid distribution network of direct sales representatives and independent distributors sells products in
our BioStim SBU, while primarily independent distributors sell products in our Biologics, Extremity Fixation and Spine Fixation SBUs.

Outside the U.S., we employ direct sales representatives and contract with independent distributors. In order to provide support to
our independent distribution network, we have sales and marketing specialists who regularly visit independent distributors to
provide training and product support.

Marketing and Product Education

We market and sell our products principally to physicians, hospitals, integrated health delivery systems and other purchasing
organizations.

We support our sales force through specialized training workshops in which physicians and sales specialists participate. We also
produce marketing and training materials, including materials outlining surgical procedures, for our customers, sales force and
distributors in a variety of languages using printed, video and multimedia formats.

To provide additional advanced training for physicians, consistent with the AdvaMed Code of Ethics (“AdvaMed Code”) and the
MedTech Europe Code of Ethical Business Practice (“MedTech Code”), we organize regular multilingual teaching seminars in multiple
locations. Those places include our facility in Verona, Italy, various locations in Latin America and in Lewisville, Texas. In recent years,
thousands of surgeons from around the world attended these product education seminars, which included a variety of lectures from
specialists as well as demonstrations and hands-on workshops.

Competition

Our bone growth therapy products, which are part of our Biologics and BioStim SBUs, compete principally with similar products
marketed by Zimmer Biomet, Inc.; DJO Global; and Bioventus. The Spine Fixation and Biologics HCT/P products we market compete
with products marketed by Medtronic, Inc.; DePuy Synthes, a division of Johnson and Johnson; Stryker Corp.; Zimmer Biomet, Inc.;
NuVasive, Inc.; Globus Medical Inc.; and various smaller public and private companies. For Extremity Fixation devices, our principal
competitors include DePuy Synthes; Zimmer Biomet, Inc.; Stryker Corp.; and Smith & Nephew plc.

We believe we enhance our competitive position by focusing on product features such as ease of use, versatility, cost and patient
acceptability. We attempt to avoid competing based solely on price. Overall cost and medical effectiveness, innovation, reliability,
after-sales service and training are the most prevalent methods of competition in the markets for our products, and we believe we
compete effectively.

Manufacturing and Sources of Supply

We generally design, develop, assemble, test and package our stimulation and orthopedic products, and subcontract the
manufacture of a substantial portion of the component parts. We design and develop our spinal implant and AlloQuent Allograft
HCT/Ps and subcontract the manufacture of a significant portion of our parts and instruments. Through subcontracting a portion of
our manufacturing, we attempt to maintain operating flexibility in meeting demand while focusing our resources on product
development, education and marketing as well as quality assurance standards. Although certain of our key raw materials are
obtained from a single source, we believe alternate sources for these materials are available. Further, we believe an adequate
inventory supply is maintained to avoid product flow interruptions. We have not experienced difficulty in obtaining the materials
necessary to meet our production schedules.

The Trinity Evolution and Trinity ELITE HCT/Ps, for which we have exclusive marketing rights, are allograft tissue forms that are
supplied to customers by MTF in accordance with orders received directly from us. MTF sources, processes and packages the tissue
forms and is the sole supplier of the Trinity Evolution and Trinity ELITE HCT/Ps to our customers.

Our products are currently manufactured and assembled in the U.S. and Italy. We believe our plants comply in all material respects
with the requirements of the FDA and all relevant regulatory authorities outside the U.S. For a description of the laws to which we
are subject, see Item 1—Business—Corporate Compliance and Government Regulation. We actively monitor each of our
subcontractors in order to maintain manufacturing and quality standards and product specification conformity. In addition, we do
not consider the backlog of firm orders to be material.

Employees

At December 31, 2016, we had 938 employees worldwide. Of these, 632 were employed in the U.S. and 306 were employed at other
non-U.S. locations. Our relations with our Italian employees, who numbered 181 at December 31, 2016, are governed by the
provisions of a National Collective Labor Agreement setting forth mandatory minimum standards for labor relations in the metal
mechanic workers industry. We are not a party to any other collective bargaining agreement. We believe we have good relations
with our employees.

eNeura Debt Security

On March 4, 2015, we entered into an Option Agreement (the “Option Agreement”) with eNeura, Inc. (“eNeura”), a privately held
medical technology company that is developing devices for the treatment of migraines. The Option Agreement provided us with an
exclusive option to acquire eNeura (the “Option”) during the 18-month period following the grant of the Option, which expired in
September 2016 without us exercising the Option.
eNeura, and (ii) we loaned eNeura $15 million pursuant to a convertible, secured Promissory Note (the “eNeura Note”) that was
issued to us. The principal amount of the eNeura Note is $15.0 million and interest accrues at 8.0%. The eNeura Note will mature on
March 4, 2019 and interest is due when the eNeura Note matures, provided that if a change in control of eNeura (generally defined as
a third-party acquisition of fifty percent or more of eNeura’s voting equity or all or substantially all of eNeura’s assets) occurs prior to
the maturity date, the eNeura Note will automatically convert into preferred stock of eNeura. The investment is recorded in other
long-term assets as an available for sale debt security and interest is recorded in interest income. For additional discussion see Note 6 to
the Consolidated Financial Statements in Item 8 of this report.

In consideration for the option, (i) we paid a non-refundable $0.3 million fee to

Item 1A.

Risk Factors

In addition to the other information contained in this report and the exhibits hereto, you should carefully consider the risks
described below. These risks are not the only ones that we may face. Additional risks not presently known to us or that we currently
consider immaterial may also impair our business operations. This report also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including the risks faced by us described below or elsewhere in this report.

Risks Related to our Legal and Regulatory Environment

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial
reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the
trading price of our Common Stock.

Effective internal controls are necessary for us to produce reliable financial reports and are important in our effort to prevent
financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls. As
has occurred in several years prior, including in connection with our prior restatements of financial statements, these evaluations
may result in the conclusion that enhancements, modifications or changes to our internal controls are necessary or desirable. While
management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective.
There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure of
human judgment. Because of this, control procedures are designed to reduce rather than eliminate business risks. If we fail to
maintain an effective system of internal controls or if management or our independent registered public accounting firm were to
discover material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud,
which could harm our financial condition and operating results, and could result in a loss of investor confidence and a decline in our
stock price.

If we fail to comply with the terms of our Corporate Integrity Agreement (and a related term of probation) we may be subject to
criminal prosecution and/or exclusion from federal healthcare programs.

On June 6, 2012, in connection with our settlement of a U.S. government investigation and related qui tam complaint related to our
bone growth therapy business, and our settlement of a U.S. government investigation and related qui tam complaint related to
Blackstone Medical, Inc. (“Blackstone”), we entered into a five-year corporate integrity agreement (the “CIA”) with the Office of
Inspector General of the Department of Health and Human Services (“HHS-OIG”). The CIA requires that we continue to maintain,
during the term of the CIA, a compliance program designed to promote compliance with federal healthcare and FDA requirements.
The CIA requires that we conduct certain compliance-related activities during the term of the CIA, including various training and
monitoring procedures, and maintaining a disciplinary process for compliance obligations. We are also subject to periodic reporting
and certification requirements attesting that the provisions of the CIA are being implemented and followed, as well as certain
document and record retention mandates. The CIA provides that in the event of an uncured material breach of the CIA, we could be
excluded from participation in federal healthcare programs and/or subject to prosecution and subject to other monetary penalties,
each of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

In connection with this settlement and the guilty plea of our subsidiary, Orthofix Inc., to one felony count of obstruction of a federal
audit (18 U.S.C. §1516), the court imposed a five-year term of probation on Orthofix Inc., with special conditions that mandate
certain non-disparagement obligations and order Orthofix Inc. to continue complying with the terms of the CIA through the
expiration of its term. In the event that we fail to satisfy these terms of probation, we could be subject to additional criminal
penalties or prosecution, which could have a material adverse effect on our business, financial condition, results of operations and
cash flows.

We have previously settled violations of the Foreign Corrupt Practices Act and any future violations could further subject us to
adverse consequences.

In 2013, we self-reported to the U.S. Department of Justice (the “DOJ”) and the SEC an internal investigation of improper payments
by our Brazilian subsidiary, Orthofix do Brasil Ltda., regarding non-compliance by such subsidiary with the Foreign Corrupt Practices
Act (the “FCPA”). This followed a prior matter that we self-reported to the DOJ and SEC in 2011, and settled in 2012, involving FCPA-
related non-compliance by our then Mexican subsidiary, Promeca S.A. de C.V. In January 2017 we consented to a cease-and-desist
order with the SEC to settle the Brazil-related violations, pursuant to which we agreed to pay approximately $6.1 million in
disgorgement and penalties, and agreed to retain an independent compliance consultant for one year to review and test our FCPA
compliance program.

The FCPA and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making
improper payments to foreign government officials for the purpose of obtaining or retaining business. The FCPA also imposes
accounting standards and requirements on U.S. publicly traded entities and their foreign affiliates, which are intended to prevent
the diversion of corporate funds to the payment of bribes and other improper payments. Because of the predominance of
government-sponsored healthcare systems around the world, many of our customer relationships outside of the United States are
with governmental entities and are therefore subject to such anti-bribery laws.

In connection with our self-reported FCPA violations, we instituted extensive remediation measures, including terminating
employees, as well as relationships with third-party representatives and distributors, conducting a global review of our anti-
corruption and anti-bribery program, implementing regular audits of our third-party distributors and sales agents and developing
and implementing new global accounting policies to provide further structure and guidance to foreign subsidiaries, establishing an
internal audit function, expanding our Compliance department in both number and quality of personnel, and implementing
enhanced anti-corruption compliance training for employees and certain third parties. However, notwithstanding these efforts to
make FCPA-related compliance a priority, our compliance policies and procedures may not always protect us from reckless or
criminal acts committed by our employees, distributors or agents.

Any failure to comply with applicable legal and regulatory obligations in the United States or abroad could adversely affect us in a
variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of
individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities,
disgorgement and other remedial measures, disruptions of our operations, and significant management distraction. Also, the failure
to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities. Any
reduction in international sales, or our failure to further develop our international markets, could have a material adverse effect on
our business, results of operations and financial condition.

We are subject to federal and state healthcare fraud and abuse laws, and could face substantial penalties if we are determined not to
have fully complied with such laws.

Healthcare fraud and abuse regulation by federal and state governments impact our business. Healthcare fraud and abuse laws
potentially applicable to our operations include:

(cid:2)

the federal Anti-Kickback Statute, which prohibits knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in exchange for or to induce the purchase or recommendation of an item or service
reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs);

federal false claims laws, which prohibit, among other things, knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other federal government payors that are false or fraudulent; and

state laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may apply to items
or services reimbursed by non-governmental third-party payors, including commercial insurers.

Due to the breadth of some of these laws, there can be no assurance that we will not be found to be in violation of any such laws,
and as a result we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring
of our operations or the exclusion from participation in federal or state healthcare programs. Any penalties could adversely affect
our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully
defend against them, could cause us to incur significant legal expenses and divert our management’s attention from the operation of
our business.

Reimbursement policies of third parties, cost containment measures and healthcare reform could adversely affect the demand for our
products and limit our ability to sell our products.

Our products are sold either directly by us or by independent sales representatives to customers or to our independent distributors
and purchased by hospitals, healthcare providers, and patients. These products may be reimbursed by third-party payors, such as
government programs, including Medicare, Medicaid and Tricare, or private insurance plans and healthcare networks. Major third-
party payors for medical services in the U.S. and internationally continue to work to contain health care costs and are increasingly
challenging the policies and the prices charged for medical products and services. Any medical policy developments that eliminate,
reduce or materially modify coverage of our reimbursement rates for our products could have an impact on our ability to sell our
products. In addition, third-party payors may deny reimbursement if they determine that a device or product provided to a patient
or used in a procedure does not meet applicable payment criteria or if the policyholder’s healthcare insurance benefits are limited.
These policies and criteria may be revised from time-to-time.

Limits put on reimbursement could make it more difficult to buy our products and substantially reduce, or possibly eliminate,
patient access to our products. In addition, should governmental authorities continue to enact legislation or adopt regulations that
affect third-party coverage and reimbursement, access to our products and coverage by private or public insurers may be reduced
with a consequential material adverse effect on our sales and profitability.

The Centers for Medicare and Medicaid Services (“CMS”), in its ongoing implementation of the Medicare program, has obtained a
related technical assessment of the medical study literature to determine how the literature addresses spinal fusion surgery in the
Medicare population. The impact that this information will have on Medicare coverage policy for our products is currently unknown,
but we cannot provide assurances that the resulting actions will not restrict Medicare coverage for our products. There can be no
assurance that we or our distributors will not experience significant reimbursement problems in the future related to these or other
proceedings. Globally, our products are sold in many countries, such as the U.K., France, and Italy, which have publicly funded
healthcare systems. The ability of hospitals supported by such systems to purchase our products is dependent, in part, upon public
budgetary constraints. Any increase in such constraints may have a material adverse effect on our sales and collection of accounts
receivable from such sales.

As required by law, CMS has continued efforts to implement a competitive bidding program for selected durable medical
equipment, prosthetic, orthotic supplies (“DMEPOS”) items paid for by the Medicare program. In this program, Medicare rates are
based on bid amounts for certain products in designated geographic areas, rather than the Medicare fee schedule amount. Bone
growth stimulation products are currently exempt from this competitive bidding process. We cannot predict which products from
any of our businesses may ultimately be affected or whether or when the competitive bidding process may be extended to our
businesses. There can be no assurance that the implementation of the competitive bidding program will not have an adverse impact
on the sales of some of our products.

We and certain of our suppliers may be subject to extensive government regulation that increases our costs and could limit our ability
to market or sell our products.

The medical devices we manufacture and market are subject to rigorous regulation by the FDA and numerous other federal, state and
foreign governmental authorities. These authorities regulate the development, approval, classification, testing, manufacturing, labeling,
marketing and sale of medical devices. Likewise, our use and disclosure of certain categories of health information may be subject to
federal and state laws, implemented and enforced by governmental authorities that protect health information privacy and security.
For a description of these regulations, see Item 1, “Business,” under the subheading “Government Regulation.”

The approval or clearance by governmental authorities, including the FDA in the U.S., is generally required before any medical
devices may be marketed in the U.S. or other countries. We cannot predict whether, in the future, the U.S. or foreign governments
may impose regulations that have a material adverse effect on our business, financial condition, results of operations or cash flows.
The process of obtaining FDA clearance and other regulatory clearances or approvals to develop and market a medical device can be
costly and time-consuming, and is subject to the risk that such approvals will not be granted on a timely basis, if at all. The regulatory
process may delay or prohibit the marketing of new products and impose substantial additional costs if the FDA lengthens review
times for new devices. The FDA has the ability to change the regulatory classification of a cleared or approved device from a higher
to a lower regulatory classification, or to reclassify an HCT/P, either of which could materially adversely impact our ability to market
or sell our devices. For example, the FDA included Class III bone growth stimulator products in its 2015 strategic priority work plan,
as part of a list of 21 product categories it would review for possible down classification. Shortly after the issuance of the work plan,
the Company, together with other manufacturers of bone growth stimulator products, submitted a public comment letter opposing

the possible down classification. The FDA did not respond to the comment letter and has not taken any action with respect to the
bone growth stimulator product category since publication of the 2015 work plan. If a down classification were to occur and new
entrants to the market were able to create technology with comparable efficacy to our devices, our BioStim SBU could face
additional competition, which could negatively affect its future sales.

In addition, we may be subject to compliance actions, penalties or injunctions if we are determined to be promoting the use of our
products for unapproved or off-label uses, or if the FDA challenges one or more of our determinations that a product modification
did not require new approval or clearance by the FDA. Device manufacturers are permitted to promote products solely for the uses
and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers
that promote products for “off-label” uses, including actions alleging that federal health care program reimbursement of products
promoted for “off-label” uses are false and fraudulent claims to the government. The failure to comply with “off-label” promotion
restrictions can result in significant administrative obligations and costs, and potential penalties from, and/or agreements with, the
federal government.

We and certain of our suppliers also are subject to announced and unannounced inspections by the FDA to determine our
compliance with FDA’s QSR and other regulations. If the FDA were to find that we or certain of our suppliers have failed to comply
with applicable regulations, the agency could institute a wide variety of enforcement actions, ranging from a public warning letter to
more severe sanctions such as: fines and civil penalties against us, our officers, our employees or our suppliers; unanticipated
expenditures to address or defend such actions; delays in clearing or approving, or refusal to clear or approve, our products;
withdrawal or suspension of approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;
product recall or seizure; interruption of production; operating restrictions; injunctions; and criminal prosecution. The FDA also has
the authority to request repair, replacement or refund of the cost of any medical device manufactured or distributed by us. Any of
the foregoing actions could have a material adverse effect on our development of new laboratory tests, business strategy, financial
condition, results of operations or cash flows.

Moreover, governmental authorities outside the U.S. have become increasingly stringent in their regulation of medical devices, and
our products may become subject to more rigorous regulation by non-U.S. governmental authorities in the future. U.S. or non-U.S.
government regulations may be imposed in the future that may have a material adverse effect on our business and operations. The
European Commission (“EC”) has harmonized national regulations for the control of medical devices through European Medical
Device Directives with which manufacturers must comply. Under these new regulations, manufacturing plants must have received a
full Quality Assurance Certification from a “Notified Body” in order to be able to sell products within the member states of the
European Union. This Certification allows manufacturers to stamp the products of certified plants with a “CE” mark. Products
covered by the EC regulations that do not bear the CE mark cannot be sold or distributed within the European Union. We have
received certification for all currently existing manufacturing facilities.

The impact of the Affordable Care Act and other United States healthcare reform legislation on us remains uncertain.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively the ACA, was enacted, which made a number of substantial changes in the way healthcare is financed by both
governmental and private insurers. The ACA is far-reaching and is intended to expand access to health insurance coverage, improve
quality and reduce costs over time. Among other things, the ACA:

•

requires certain medical device manufacturers to pay an excise tax equal to 2.3% of the price for which such manufacturer
sells its medical devices; this excise tax is currently suspended until 2018;

establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical
effectiveness research in an effort to coordinate and develop such research;

implements payment system reforms including a national pilot program on payment bundling to encourage hospitals,
physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through
bundled payment models; and

establishes an Independent Payment Advisory Board that will submit recommendations to reduce Medicare spending if
projected Medicare spending exceeds a specified growth rate.

The 2016 federal elections are likely to result in significant changes in and uncertainty with respect to implementation of the ACA
and related regulations and policies, including possible repeal and replacement of the ACA. We cannot predict with any certainty
the content, timing or effect of any legislation, regulations or policies seeking to amend, repeal and/or replace the ACA. However,
it is possible that such legislation could adversely affect our business, cash flows, financial condition and/or results of operations.

We are subject to differing customs and import/export rules in several jurisdictions in which we operate.

We import and export our products to and from a number of different countries around the world. These product movements
involve subsidiaries and third parties operating in jurisdictions with different customs and import/export rules and regulations.
Customs authorities in such jurisdictions may challenge our treatment of customs and import/export rules relating to product
shipments under aspects of their respective customs laws and treaties. If we are unsuccessful in defending our treatment of customs
and import/export classifications, we may be subject to additional customs duties, fines or penalties that could adversely affect our
profitability.

Risks Related to our Business and Industry

Our business may be adversely affected if consolidation in the healthcare industry leads to demand for price concessions or if a group
purchasing organization or similar entity excludes us from being a supplier.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms have been launched by
legislators, regulators and third-party payors to curb these costs. As a result, there has been a consolidation trend in the healthcare
industry to create larger companies, including hospitals, with greater market power. As the healthcare industry consolidates,
competition to provide products and services to industry participants has become and may continue to become more intense. This
has resulted and may continue to result in greater pricing pressures and the exclusion of certain suppliers from important markets as
group purchasing organizations (“GPOs”), independent delivery networks and large single accounts continue to use their market
power to consolidate purchasing decisions. If a GPO were to exclude us from their supplier list, our net sales could be adversely
impacted. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will
continue to change the worldwide healthcare industry, which may exert further downward pressure on the prices of our products.

The industry in which we operate is highly competitive. New developments by others could make our products or technologies non-
competitive or obsolete.

The medical devices industry is highly competitive. We compete with a large number of companies, many of which have significantly
greater financial, manufacturing, marketing, distribution and technical resources than we do. Many of our competitors may be able
to develop products and processes competitive with, or superior to, our own. Furthermore, we may not be able to successfully
develop or introduce new products that are less costly or offer better performance than those of our competitors, or offer
purchasers of our products payment and other commercial terms as favorable as those offered by our competitors. For more
information regarding our competitors, see Item 1, “Business,” under the subheading “Competition.”

In addition, the orthopedic medical device industry in which we compete is undergoing, and is characterized by, rapid and significant
technological change. We expect competition to intensify as technological advances are made. New technologies and products
developed by other companies are regularly introduced into the market, which may render our products or technologies non-
competitive or obsolete.

Our ability to market products successfully depends, in part, upon the acceptance of the products not only by consumers, but also by
independent third parties.

Our ability to market our BioStim, Biologics, Extremity Fixation and Spine Fixation products successfully depends, in part, on the
acceptance of the products by independent third parties (including hospitals, physicians, other healthcare providers and third-party
payors) as well as patients. Unanticipated side effects or unfavorable publicity concerning any of our products could have an adverse
effect on our ability to maintain hospital approvals or achieve acceptance by prescribing physicians, managed care providers and
other retailers, customers and patients.

Our allograft and mesenchymal stem cell allografts could expose us to certain risks that could disrupt our business.

Our Biologics business markets allograft tissues that are derived from human cadaveric donors, and our ability to market the tissues
depends on our supplier continuing to have access to donated human cadaveric tissue, as well as the maintenance of high standards
by the supplier in its processing methodology. The supply of such donors is inherently unpredictable and can fluctuate over time.
The allograft tissues are regulated under the FDA’s HCT/P regulatory paradigm and not as a medical device or as a biologic or drug.
There can be no assurance that the FDA will not at some future date re-classify the allograft tissues, and the reclassification of this
product from a human tissue to a medical device could have adverse consequences for us or for the supplier of this product and
make it more difficult or expensive for us to conduct this business by requiring premarket clearance or approval as well as
compliance with additional post-market regulatory requirements.

We may not be able to successfully introduce new products to the market, and market opportunities that we expect to develop for
our products may not be as large as we expect.

During 2016, we continued to make improvements in revenues related to several new products we introduced to the market over
the past three years, including the TL-HEX TrueLok Hexapod System, Galaxy Fixation System, Firebird NXG Spinal Fixation System,
FORZA PTC Spacer System, Samba-Screw System, LONESTAR CSA, SKYHAWK Lateral Interbody Fusion System & Lateral Plate System,
and CENTURION POCT System, among others. Despite our planning, the process of developing and introducing new products
(including product enhancements) is inherently complex and uncertain and involves risks, including the ability of such new products
to satisfy customer needs, gain broad market acceptance (including by physicians) and obtain regulatory approvals, which can
depend, among other things, on the product achieving broad clinical acceptance, the level of third-party reimbursement and the
introduction of competing technologies. If the market opportunities that we expect to develop for our products, including new
products, are not as large as we expect, it could adversely affect our ability to grow our business.

Growing our business requires that we properly educate and train physicians regarding the distinctive characteristics, benefits,
safety, clinical efficacy and cost-effectiveness of our products.

Acceptance of our products depends in part on our ability to (i) educate the medical community as to the distinctive characteristics,
benefits, safety, clinical efficacy and cost-effectiveness of our products compared to alternative products, procedures and therapies,
and (ii) train physicians in the proper use and implementation of our products. We support our sales force and distributors through
specialized training workshops in which surgeons and sales specialists participate. We also produce marketing materials, including
materials outlining surgical procedures, for our sales force and distributors in a variety of languages using printed, video and
multimedia formats. To provide additional advanced training for surgeons, consistent with the AdvaMed Code and the MedTech
Code, we organize monthly multilingual teaching seminars in multiple locations. However, we may not be successful in our efforts to
educate the medical community and properly train physicians. If physicians are not properly trained, they may misuse or
ineffectively use our products, which may result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits
against us. In addition, a failure to educate the medical community regarding our products may impair our ability to achieve market
acceptance of our products.

We may be adversely affected by any disruption in our information technology systems, which could adversely affect our cash flows,
operating results and financial condition.

Our operations are dependent upon our information technology systems, which encompass all of our major business functions. We
rely upon such information technology systems to manage and replenish inventory, to fill and ship customer orders on a timely
basis, to coordinate our sales activities across all of our products and services and to coordinate our administrative activities. A
substantial disruption in our information technology systems for any prolonged time period (arising from, for example, system
capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in
receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems
might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins and similar
disruptions affecting the global Internet. There can be no assurance that such delays, problems, or costs will not have a material
adverse effect on our cash flows, operating results and financial condition.

As our operations grow in both size and scope, we will continuously need to improve and upgrade our systems and infrastructure
while maintaining the reliability and integrity of our systems and infrastructure. An expansion of our systems and infrastructure may
require us to commit substantial financial, operational and technical resources before the volume of our business increases, with no
assurance that the volume of business will increase. In particular, we recently upgraded our financial reporting system and other
information technology systems as part of our infrastructure initiative, Project Bluecore. These and any other upgrades to our
systems and information technology, or new technology, now and in the future, require that our management and resources be
diverted from our core business to assist in compliance with those requirements. There can be no assurance that the time and
resources our management will need to devote to these upgrades, service outages or delays due to the installation of any new or
upgraded technology (and customer issues therewith), or the impact on the reliability of our data from any new or upgraded
technology will not have a material adverse effect on our cash flows, operating results and financial condition.

A significant portion of our operations run on a single Enterprise Resource Planning (“ERP”) platform. To manage our international
operations efficiently and effectively, we rely heavily on our ERP system, internal electronic information and communications
systems and on systems or support services from third parties. Any of these systems are subject to electrical or telecommunications
outages, computer hacking or other general system failure. It is also possible that future acquisitions will operate on different ERP
systems and that we could face difficulties in integrating operational and accounting functions of new acquisitions. Difficulties in
upgrading or expanding our ERP system or system-wide or local failures that affect our information processing could adversely affect
our cash flows, operating results and financial condition.

We are dependent on third-party manufacturers for many of our products.

We contract with third-party manufacturers to produce many of our products, like many other companies in the medical device
industry. If we or any such manufacturer fails to meet production and delivery schedules, it can have an adverse impact on our
ability to sell such products. Further, whether we directly manufacture a product or utilize a third-party manufacturer, shortages and
spoilage of materials, labor stoppages, product recalls, manufacturing defects and other similar events can delay production and
inhibit our ability to bring a new product to market in timely fashion. For example, the supply of the Trinity Evolution and Trinity
ELITE allografts are derived from human cadaveric donors, and our ability to market the tissues depends on our single supplier
continuing to have access to donated human cadaveric tissue, as well as, the maintenance of high standards by the supplier in its
processing methodology.

Termination of our existing relationships with our independent sales representatives or distributors could have an adverse effect on
our business.

We sell our products in many countries through independent distributors. Generally, our independent sales representatives and our
distributors have the exclusive right to sell our products in their respective territories and are generally prohibited from selling any
products that compete with ours. The terms of these agreements vary in length, generally from one to ten years. Under the terms of
our distribution agreements, each party has the right to terminate in the event of a material breach by the other party and we
generally have the right to terminate if the distributor does not meet agreed sales targets or fails to make payments on time. Any
termination of our existing relationships with independent sales representatives or distributors could have an adverse effect on our
business unless and until commercially acceptable alternative distribution arrangements are put in place. In addition, we operate in
areas of the world that have been disproportionately affected by the global recession and we bear risk that existing or future
accounts receivable may be uncollected if these distributors or hospitals experience disruptions to their business that cause them to
discontinue paying ongoing accounts payable or become insolvent.

We depend on our senior management team.

Our success depends upon the skill, experience and performance of members of our senior management team, who have been
critical to the management of our operations and the implementation of our business strategy. We do not have key man insurance
on our senior management team, and the loss of one or more key executive officers could have a material adverse effect on our
operations and development.

In order to compete, we must attract, retain and motivate key employees, and our failure to do so could have an adverse effect on
our results of operations.

In order to compete, we must attract, retain and motivate executives and other key employees, including those in managerial,
technical, sales, marketing, finance and support positions. Hiring and retaining qualified executives, engineers, technical staff and

sales representatives are critical to our business, and competition for experienced employees in the medical device industry can be
intense. To attract, retain and motivate qualified employees, we utilize stock-based incentive awards such as employee stock
options. If the value of such stock awards does not appreciate as measured by the performance of the price of our common stock
and ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate our employees could be adversely
impacted, which could negatively affect our results of operations and/or require us to increase the amount we expend on cash and
other forms of compensation.

Our business is subject to economic, political, regulatory and other risks associated with international sales and operations.

Since we sell our products in many different countries, our business is subject to risks associated with conducting business
internationally. We anticipate that net sales from international operations will continue to represent a substantial portion of our
total net sales. In addition, a number of our manufacturing facilities and suppliers are located outside the U.S. Accordingly, our
future results could be harmed by a variety of factors, including:

•

changes in a specific country’s or region’s political or economic conditions;

trade protection measures and import or export licensing requirements or other restrictive actions by foreign governments;

consequences from changes in tax or customs laws;

difficulty in staffing and managing widespread operations;

differing labor regulations;

differing protection of intellectual property;

unexpected changes in regulatory requirements; and

violation by our independent agents of the FCPA or other anti-bribery or anti-corruption laws.

Risks Related to our Intellectual Property

We depend on our ability to protect our intellectual property and proprietary rights, but we may not be able to maintain the
confidentiality, or assure the protection, of these assets.

Our success depends, in large part, on our ability to protect our current and future technologies and products and to defend our
intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market
products similar to, or that compete directly with, ours. Numerous patents covering our technologies have been issued to us, and we
have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in
various countries, including the U.S. Some patent applications in the U.S. are maintained in secrecy until the patent is issued.
Because the publication of discoveries tends to follow their actual discovery by several months, we may not be the first to invent, or
file patent applications on any of our discoveries. Patents may not be issued with respect to any of our patent applications and
existing or future patents issued to, or licensed by, us and may not provide adequate protection or competitive advantages for our
products. Patents that are issued may be challenged, invalidated or circumvented by our competitors. Furthermore, our patent
rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally
equivalent to our products.

We also rely on trade secrets, unpatented proprietary expertise and continuing technological innovation that we protect, in part, by
entering into confidentiality agreements with assignors, licensees, suppliers, employees and consultants. These agreements may be
breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of
intellectual property or the applicability or enforceability of confidentiality agreements. Moreover, our trade secrets and proprietary
technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect
to our products arising from research, we may not be able to maintain the confidentiality of information relating to these products.
In addition, if a patent relating to any of our products lapses or is invalidated, we may experience greater competition arising from
new market entrants.

Third parties may claim that we infringe on their proprietary rights and may prevent us from manufacturing and selling certain of our
products.

There has been substantial litigation in the medical device industry with respect to the manufacture, use and sale of new products. These
lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. We may be required to defend against
allegations relating to the infringement of patent or proprietary rights of third parties. Any such litigation could, among other things:

•

require us to incur substantial expense, even if we are successful in the litigation;

require us to divert significant time and effort of our technical and management personnel;

result in the loss of our rights to develop or make certain products; and

require us to pay substantial monetary damages or royalties in order to license proprietary rights from third parties or to
satisfy judgments or to settle actual or threatened litigation.

Although patent and intellectual property disputes within the orthopedic medical devices industry have often been settled through
assignments, licensing or similar arrangements, costs associated with these arrangements may be substantial and could include the
long-term payment of royalties. Furthermore, the required assignments or licenses may not be made available to us on acceptable
terms. Accordingly, an adverse determination in a judicial or administrative proceeding or a failure to obtain necessary assignments
or licenses could prevent us from manufacturing and selling some products or increase our costs to market these products.

Risks Related to Litigation and Product Liability Matters

We may be subject to product and other liability claims that may not be covered by insurance and could require us to pay substantial
sums. Moreover, fluctuations in insurance expense could adversely affect our profitability.

We are subject to an inherent risk of, and adverse publicity associated with, product liability and other liability claims, whether or
not such claims are valid. We maintain product liability insurance coverage in amounts and scope that we believe are reasonable and
adequate. There can be no assurance, however, that product liability or other claims will not exceed our insurance coverage limits or
that such insurance will continue to be available on reasonable, commercially acceptable terms, or at all. A successful product
liability claim that exceeds our insurance coverage limits could require us to pay substantial sums and could have a material adverse
effect on our financial condition.

In addition to product liability insurance coverage, we hold a number of other insurance policies, including directors’ and officers’
liability insurance, property insurance and workers’ compensation insurance. If the costs of maintaining adequate insurance
coverage should increase significantly in the future, our operating results could be materially adversely impacted.

Risks Related to Our Financial Results and Need for Financing

Our quarterly operating results may fluctuate.

Our quarterly operating results have fluctuated significantly in the past. Our future quarterly operating results may fluctuate
significantly, and we may experience losses depending on a number of factors, including the extent to which our products continue
to gain or maintain market acceptance, the rate and size of expenditures incurred as we expand our domestic and establish our
international sales and distribution networks, the timing and level of reimbursement for our products by third-party payors, the
extent to which we are subject to government regulation or enforcement and other factors, many of which are outside our control.

We have loaned $15 million to an early stage company and may not be able to recoup our investment or successfully complete the
acquisition.

On March 4, 2015, we entered into an option agreement with eNeura, Inc., a privately held medical technology company that is
developing devices for the treatment of migraines. The option agreement provided us with an exclusive option until September
2016 to acquire eNeura, which we ultimately did not exercise. In consideration for the option, (i) we paid a non-refundable $0.3
million fee to eNeura, and (ii) we loaned eNeura $15 million pursuant to a convertible, secured promissory note that was issued to
us.

eNeura is using the proceeds of our loan to fund product development work related to its business and to fund its ongoing
operations and no assurance can be made that eNeura’s business will ultimately be successful. Although the promissory note is
secured by many of eNeura’s assets (including its intellectual property assets), no assurance can be made that eNeura will be able to
repay the promissory note when due in the event that the promissory note does not convert to equity. In such an event, we could
lose all or a substantial portion of our $15 million loan investment.

We face risks related to foreign currency exchange rates.

Because some of our revenue, operating expenses, assets and liabilities are denominated in foreign currencies, we are subject to
foreign exchange risks that could adversely affect our operations and reported results. To the extent that we incur expenses or earn
revenue in currencies other than the U.S. dollar, any change in the values of those foreign currencies relative to the U.S. dollar could
cause our profits to decrease or our products to be less competitive against those of our competitors. To the extent that our current
assets denominated in foreign currency are greater or less than our current liabilities denominated in foreign currencies, we have
potential foreign exchange exposure. The fluctuations of foreign exchange rates during 2016 have had an unfavorable impact of $2.6
million on net sales outside of the U.S. Although we seek to manage our foreign currency exposure by matching non-dollar revenues
and expenses, exchange rate fluctuations could have a material adverse effect on our results of operations in the future. To
minimize such exposures, we enter into currency hedges from time to time.

Our global operations may expose us to tax risks

We are subject to taxes in the United States and numerous foreign jurisdictions. Significant judgment and interpretation of tax laws
are required to estimate our tax liabilities. Tax laws and rates in various jurisdictions may be subject to significant change as a result
of political and economic conditions. Our effective income tax rate could be adversely affected by changes in those tax laws,
including potential legislation to reform the U.S. taxation of international business; increases in non-deductible expenses; changes in
the mix of earnings among tax jurisdictions; changes in the valuation of our deferred tax assets and liabilities; and the resolution of
matters arising from tax audits.

Certain of our subsidiaries sell products directly to other Orthofix subsidiaries or provide marketing and support services to other
Orthofix subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax
rates, and we must determine the appropriate allocation of income to each jurisdiction based on current interpretations of complex
income tax regulations. Tax authorities in these jurisdictions may challenge our treatment of such intercompany transactions. If we
are unsuccessful in defending our treatment of intercompany transactions, we may be subject to additional tax liability or penalty,
which could adversely affect our profitability.

Our subsidiaries, Orthofix Holdings, Inc. and Victory Medical Limited maintain a $125 million secured revolving credit facility secured
by a pledge of substantially all of our property.

On August 31, 2015, the Company, through its subsidiaries, Orthofix Holdings, Inc. and Victory Medical Limited (collectively the
“Borrowers”), entered into a credit agreement (the “2015 Credit Agreement”) providing for a five-year secured revolving credit
facility of $125 million. No amounts have been drawn on the credit facility as of the date hereof, but the Company may draw on this
facility in the future.

The Company and certain of its existing and future United States and United Kingdom domiciled subsidiaries (collectively, the
“Guarantors”) are required to guarantee the repayment of the Borrowers’ obligations under the 2015 Credit Agreement. The
obligations of the Borrowers and each of the Guarantors with respect to the 2015 Credit Agreement are secured by a pledge of
substantially all of the tangible and intangible personal property of the Borrowers and each of the Guarantors, including accounts
receivable, deposit accounts, intellectual property, investment property, inventory, equipment and equity interests in their
subsidiaries.

The credit agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional
debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay
dividends and distributions, repay subordinated indebtedness and enter into affiliate transactions. In addition, the credit agreement
contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of any fiscal quarter, a total leverage
ratio of not more than 3.0 to 1.0 and an interest coverage ratio of at least 3.0 to 1.0. The credit agreement also includes events of
default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, all
outstanding loans under the facility may be accelerated and/or the lenders’ commitments terminated.

We believe that we were in compliance with the negative covenants, and there were no events of default, at December 31, 2016 (and
in prior periods). However, there can be no assurance that the Company would be able to meeting such financial covenants in future
fiscal quarters. The failure to do so could result in an event of default under such agreement, which could have a material adverse
effect on our financial position in the event that we have significant amounts drawn under the facility at such time.

Risks Related to Potential Acquisitions and Divestitures

Our efforts to increase growth by identifying, pursuing and implementing new business opportunities (including acquisitions) may be
unsuccessful and may have an adverse effect on our business.

Our growth depends, in large part, on our ability to identify, pursue and implement new business opportunities that expand our
product offerings, capabilities and geographic presence, and we compete with other medical device companies for these
opportunities. Our efforts to identify such opportunities focus primarily on potential acquisitions of new businesses, products or
technologies, licensing arrangements, commercialization arrangements and other transactions with third parties. We may not be
able to identify business opportunities that meet our strategic criteria or are acceptable to us or our shareholders. Even if we are
able to identify acceptable business opportunities, we may not be able to pursue or implement such business opportunities (or, in
the case of acquisitions or other transactions, complete such acquisitions or other transactions) in a timely manner or on a cost-
effective basis (or at all), and we may not realize the expected benefits of such business opportunities. If we are not able to identify,
pursue and implement new business opportunities, it will adversely affect our ability to grow our business.

In addition, pursuing and implementing new business opportunities (particularly acquisitions) may involve significant costs and entail
risks, uncertainties and disruptions to our business, especially where we have limited experience as a company developing or
marketing a particular product or technology or operating in a particular geographic region. We may be unable to integrate a new
business, product or technology effectively, or we may incur significant charges related to an acquisition or other business
opportunity (for example, amortization of acquired assets or asset impairment charges), which may adversely affect our business,
financial condition and results of operations. Newly acquired technology or products may require additional development efforts
prior to commercial sale, including clinical testing and approval by the FDA and applicable foreign regulatory authorities; such
additional development efforts may involve significant expense and ultimately be unsuccessful. Any cross-border acquisitions or
transactions may involve unique risks in addition to those mentioned above, including those related to integration of operations
across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with
specific countries. To the extent we issue additional equity in connection with acquisitions, this may dilute our existing
shareholders.

We may incur significant costs or retain liabilities associated with disposition activity.

We may from time to time sell, license, assign or otherwise dispose of or divest assets, the stock of subsidiaries or individual
products, product lines or technologies, which we determine are no longer desirable for us to own, some of which may be material.
Any such activity could result in our incurring costs and expenses from these efforts, some of which could be significant, as well as
retaining liabilities related to the assets or properties disposed of even though, for instance, the income-generating assets have been
disposed of. These costs and expenses may be incurred at any time and may have a material impact on our results of operations.

Risks Related to Our Domicile

Provisions of Curaçao law may have adverse consequences for our shareholders.

We are organized under the laws of Curacao and our corporate affairs are governed by our Articles of Association and the corporate
law of Curaçao as laid down in Book 2 of the Curaçao Civil Code (“CCC”). Although certain of the provisions of the CCC resemble
certain of the provisions of the corporation laws of a number of states in the U.S., principles of law relating to such matters as the
validity of corporate procedures, the fiduciary duties of management and the rights of our shareholders may differ from those that
would apply if the Company were incorporated in a jurisdiction within the U.S. For example, there is no statutory right of appraisal
under Curaçao corporate law, nor is there a right for shareholders of a Curaçao corporation to sue a corporation derivatively. In
addition, we have been advised by Curaçao counsel that it is unlikely that (1) the courts of Curaçao would enforce judgments
entered by U.S. courts predicated upon the civil liability provisions of the U.S. federal securities laws and (2) actions can be brought
in Curaçao in relation to liabilities predicated upon the U.S. federal securities laws.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our principal facilities as of December 31, 2016 are as follows:

Location

Lewisville, TX

Facility
Manufacturing, warehousing, distribution, research and development, and
administrative facility for Corporate and all SBUs
Research and development, component manufacturing, quality control and
training facility for fixation products and sales management, distribution
and administrative facility for Italy
International distribution center for Orthofix products
Mechanical workshop for Orthofix products
Sales management, distribution and administrative facility for United Kingdom Maidenhead, England
Sales management, distribution and administrative facility for Brazil
Sales management, distribution and administrative facility for Brazil
Sales management, distribution and administrative facility for France
Sales management, distribution and administrative facility for Germany
Sales management, distribution and administrative facility for Puerto Rico

Curitiba, Brazil
São Paulo, Brazil
Arcueil, France
Ottobrunn, Germany
Guaynabo, Puerto Rico

Verona, Italy
Verona, Italy
Verona, Italy

Approx.
Square
Feet

Ownership

140,000

Leased

38,000
18,000
9,000
8,068
1,065
21,617
8,500
16,145
5,400

Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased

Item 3.

Legal Proceedings

For a description of our material pending legal proceedings, refer to Note 12 to the Consolidated Financial Statements in Item 8 of this
report.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Our Common Stock

Our common stock is traded on the Nasdaq Global Select Market under the symbol “OFIX.” As of February 24, 2017 we had 290
holders of record of our common stock. The closing price of our common stock on February 24, 2017 was $38.01. The following table
shows the high and low sales prices for our common stock for each of the two most recent fiscal years.

2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

35.89 $
37.84
40.41
41.71

41.90 $
47.25
47.52
42.01

28.31
31.84
31.83
32.51

36.35
40.77
42.13
34.56

Dividends

We have not paid dividends to holders of our common stock in the past and have no present intention to pay dividends in the
foreseeable future. We currently intend to retain all of our consolidated earnings to finance the continued growth of our business.

In the event that we decide to pay a dividend to holders of our common stock in the future with dividends received from our
subsidiaries, we may, based on prevailing rates of taxation, be required to pay additional withholding and income tax on such
amounts.

Repurchases of Common Stock

The Company’s Board of Directors authorized a share repurchase plan in the fourth quarter of 2015 for the purchase of up to $75
million of our common stock through September 2017. We completed the share repurchase plan in the fourth quarter of 2016.
Under the program, common shares repurchased consisted of open market transactions at prevailing market prices in accordance
with the guidelines specified under Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“the Exchange Act”).
Repurchases were made from cash on hand and cash generated from operations. The following table sets forth information with
respect to shares of our common stock purchased by the Company during the fourth quarter of 2016.

Period

October 2016
November 2016
December 2016

Total Number
of Shares
Purchased

Average Price
Paid Per Share

Total Number
of Shares
Purchased under
Approved Stock
Repurchase
Program

Maximum Dollar
Value of Shares
Yet to be
Purchased under
Approved Stock
Repurchase
Program

211,671 $

—
—

211,671 $

39.82
—
—
39.82

211,671 $

—
—

—
—
—
—

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fourth quarter of 2016.

Performance Graph

The following performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A
or 14C or to the liabilities of Section 18 of the Exchange Act. This information will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information
by reference.

The graph below compares the five-year total shareholder return on Orthofix common stock with the returns of two indexes: the
Nasdaq Stock Market and Nasdaq stocks for surgical, medical, and dental instruments and supplies. The graph assumes that you
invested $100 in Orthofix Common Stock and in each of the indexes on December 31, 2011. Points on the graph represent the
performance as of the last business day of each of the years indicated.

250.00

200.00

150.00

100.00

50.00

0.00

2011

2012

2013

2014

2015

2016

Orthofix International

NASDAQ Stock Market (US and Foreign Companies)

NASDAQ Stocks (SIC 3840-3849 US & Foreign) Surgical, Medical, and Dental Instruments and Supplies

Item 6.

Selected Financial Data

The following selected financial data has been derived from our audited consolidated financial statements.

(U.S. Dollars, in thousands, except margin and per share data)
Consolidated operating results
Net sales
Gross profit
Gross margin
Operating income (loss) (1)
Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss) (2)
Net income (loss) per common share – basic

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)

Net income (loss) per common share – diluted

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)

(1)

Includes the following:

2016

2015

Year ended December 31,
2014

2013

2012

$ 409,788
321,935

$ 396,489
309,964

$ 402,277
303,365

$ 397,611
290,699

79%

21,067
3,497
(441)
$
3,056

78%

9,255
(2,342)
(467)
(2,809) $

75%

17,136
(3,744)
(4,793)
(8,537) $

$ 440,189
339,463
77%
74,872
45,121
(2,269)
42,852

73%
(11,192)
(18,205)
(10,607)
(28,812) $

0.19
$
(0.02)
$
0.17

(0.12) $
(0.03)
(0.15) $

(0.20) $
(0.26)
(0.46) $

(0.97) $
(0.57)
(1.54) $

2.38
(0.12)
2.26

2.33
(0.12)
2.21

•

Charges related to U.S. Government resolutions in 2016 and 2012 of $14.4 million and $1.3 million, respectively

Legal, accounting, and other professional fees incurred in 2016, 2015, 2014, and 2013 of $2.0 million, $9.1 million and
$15.6 million, and $12.9 million, respectively, in connection with the accounting review and restatements through
March 2015 and legal fees associated with the SEC Investigation, Securities Class Action Complaint and Brazil subsidiary
compliance review

•

Goodwill impairment charge in 2013 of $19.2 million

(2)

Dividends have not been paid in any of the years presented

(U.S. Dollars, in thousands)
Consolidated financial position
Total assets
Long-term debt
Shareholders’ equity

2016

2015

As of December 31,
2014

2013

2012

$ 372,103 $ 400,222 $ 392,956 $ 411,975 $
20,000
295,863

—
299,627

—
290,311

—
263,477

464,546
20,016
356,439

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with
“Forward-Looking Statements” and our consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.

Executive Summary

Our corporate objectives include leveraging our significantly expanded distribution footprint in each of our SBUs and the new
product pipelines in our Extremity Fixation and Spine Fixation businesses to accelerate growth in each of our SBUs. Additionally, we
intend to increase the utilization of our BioStim products, which we estimate are currently only prescribed for one third of the
patients who are on label and can benefit from its use. We believe the North American Spine Society’s (“NASS”) positive coverage
recommendation, along with our recently launched next generation Spinal Stimulation and Cervical Stimulation devices, will help
these patients gain access to this proven therapy.

Notable highlights and accomplishments in 2016 include the following:

•

Net sales were $409.8 million, an increase of 3.4% on a reported basis and 4.0% on a constant currency basis; specifically,
we grew BioStim, our largest and most profitable SBU, and Extremity Fixation above the market growth rates.

Net margin, a non-GAAP financial measure, which is calculated by subtracting sales and marketing expense from gross
profit, was $140.6 million, an increase of 6.6% from the prior year; net income from continuing operations was $3.5 million,
an increase of $5.8 million from the prior year.

• We received both US FDA and European Union CE Mark approval for our next generation of spinal and cervical stimulation

devices.

• We completed our $75 million share repurchase program.

• We completed Project Bluecore, which positions us to explore and execute on strategic opportunities.

• We initiated a planned restructuring, which primarily affects our Extremity Fixation SBU, to streamline costs, improve

operational performance, and wind down a non-core business.

• We are exiting an era of heavy investment with a rebuilt infrastructure, robust compliance program, and strong financial

controls.

Results of Operations

The following table presents certain items in our consolidated statements of operations as a percent of net sales:

Net sales
Cost of sales
Gross profit

Sales and marketing
General and administrative
Research and development
Restatements and related costs
Charges related to U.S. Government resolutions

Operating income
Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)

2016
(%)

Year ended December 31,
2015
(%)

2014
(%)

100.0
21.4
78.6
44.2
18.2
7.0
0.5
3.6
5.1
0.9
(0.2)
0.7

100.0
21.8
78.2
44.9
22.0
6.7
2.3
—
2.3
(0.6)
(0.1)
(0.7)

100.0
24.6
75.4
41.4
19.6
6.2
3.9
—
4.3
(0.9)
(1.2)
(2.1)

Net Sales by Strategic Business Unit

The following table presents net sales, which includes product sales and marketing service fees, by SBU:

2014

2016

2015
$ 176,561 $ 164,955 $ 154,676
59,832
55,881
96,034 109,678
82,042
75,668
$ 409,788 $ 396,489 $ 402,277

57,912
102,683
72,632

2016/2015

Reported

Percentage Change

2016/2015
Constant
Currency

2015/2014

Reported

2015/2014
Constant
Currency

7.0%
-3.2%
6.9%
-4.0%
3.4%

7.0%
-3.2%
9.6%
-4.0%
4.0%

6.6%
7.1%
-12.4%
-7.8%
-1.4%

6.7%
7.1%
1.0%
-7.3%
2.4%

(U.S Dollars, in thousands)
BioStim
Biologics
Extremity Fixation
Spine Fixation
Net sales

BioStim

BioStim manufactures, distributes, and provides support services of market leading devices that enhance bone fusion. BioStim uses
distributors and sales representatives to sell its devices to hospitals, doctors and other healthcare providers, and patients.

2016 Compared to 2015

Net sales increased $11.6 million or 7.0%

•

Increased order counts from an expanding customer base as the number of unique physicians who prescribed our products
increased in 2016 by approximately 5%
Order to cash process improvements implemented within the past 18 months, which increased the overall percentage we
collect on orders, resulting in an increase in collections from third-party payors of approximately 9% compared to the prior
year

2015 Compared to 2014

Net sales increased $10.3 million or 6.6% due to additional market penetration through our direct and distributor sales channels in
2015.

Biologics

Biologics provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal
and orthopedic conditions. Biologics markets its tissues primarily in the U.S. through a network of distributors and independent sales
representatives to supply to hospitals, doctors, and other healthcare providers.

2016 Compared to 2015

Net sales decreased $1.9 million or 3.2%

•

•
•

A growing number of competitors in the stem cell allograft market and an associated 2.4% reduction in average selling
price for our products
Exclusion from a large national hospital group purchasing organization in the second quarter of 2016
Partially offset by an increase in the total number of independent distributors in 2016

2015 Compared to 2014

Net sales increased $4.0 million or 7.1%

•
•
•

An increase in the total number of independent distributors in 2015
Increased sales from existing distributors in 2015
Partially offset by anticipated competitive pricing pressures, resulting in a 3.6% reduction in average selling price

Extremity Fixation

Extremity Fixation offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions
unrelated to the spine. Extremity Fixation distributes its products globally through a network of distributors and sales
representatives to sell orthopedic products to hospitals, doctors, and other health providers.

2016 Compared to 2015

Net sales increased $6.6 million or 6.9%

•

•
•

Includes the negative impact from foreign currency translation of $2.6 million in 2016; on a constant currency basis, net
sales increased $9.2 million, or 9.6%
Increase in cash collections of approximately 18% in 2016 from distributors whose revenue is recognized upon cash receipt
Growth in the U.S. due to the onboarding of new distributors and the continued adoption of our TL-HEX product line, which
grew by approximately 50% in the U.S. compared to the prior year

2015 Compared to 2014

Net sales decreased $13.6 million or 12.4%

•

Includes the negative impact from foreign currency translation of $14.7 million in 2015; on a constant currency basis, net
sales increased $1.1 million, or 1.0%, due to increased demand for our products
Partially offset by the impact of macroeconomic challenges in certain of our markets

Spine Fixation

Spine Fixation 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 globally through a network of distributors and sales representatives
to sell spine products to hospitals, doctors and other healthcare providers.

2016 Compared to 2015

Net sales decreased $3.0 million or 4.0%

•
•
•
•

Exclusion from a large national hospital group purchasing organization in the second quarter of 2016
Loss of several key surgeon customers in early 2016
Decrease in cash collections of approximately 6% in 2016 from distributors whose revenue is recognized upon cash receipt
Partially offset by revenue from additional distributors added in 2016

2015 Compared to 2014

Net sales decreased $6.4 million or 7.8%

•
•
•

Short-term negative impact from our reorganization of the U.S. sales force in late 2014
Decrease in cash collections in 2015 from distributors whose revenue is recognized upon cash receipt
Partially offset by revenue from additional distributors added in 2015 as part of our sales force rebuilding and expansion
initiatives

Net Margin

(U.S Dollars, in thousands)
Gross profit
Sales and marketing
Net margin

Gross margin
Net margin

2016 Compared to 2015

Net margin increased $8.8 million

•

Gross profit increased $12.0 million

2016
321,935
181,287
140,648

2015
309,964
178,080
131,884

2014
303,365
166,547
136,818

78.6%
34.3%

78.2%
33.3%

75.4%
34.0%

Percentage Change

2016/2015

2015/2014

3.9%
1.8%
6.6%

0.4%
1.1%

2.2%
6.9%
-3.6%

2.8%
-0.7%

o
o

Increase in sales for BioStim and Extremity Fixation, partially offset by a decrease in sales for Biologics and Spine
Fixation
Improved operating efficiencies through the absorption of fixed costs
Increase in inventory reserves of $1.7 million for certain slower moving product lines and obsolete inventory, a
portion of which is a result of our planned restructuring in Brazil

•

Sales and marketing expense increased $3.2 million

o
o
o

Increase in compensation and benefits costs, including commissions, as a result of the increase in net sales
Partially offset by a reduction of certain indirect tax liabilities of $3.1 million in 2016
Also partially offset by a decrease in bad debt expense of $2.3 million related to Puerto Rico

2015 Compared to 2014

Net margin decreased $4.9 million

•

Gross profit increased $6.6 million

o
o

Increase in sales mix from our BioStim and Biologics SBUs, which have higher margins, relative to our other SBUs
Improved inventory management and operating efficiencies

Sales and marketing expense increased $11.5 million

Increase in sales and field-based training personnel as part of the rebuilding and expansion of our sales
organization
Sales commission quota overachievement in certain territories, resulting in increased compensation costs,
including commissions, of approximately $6.8 million
Increase in bad debt expense of $2.4 million, of which $2.0 million related to Puerto Rico

The following table presents net margin by reporting segment. The reasons for the changes in net margin by SBU are generally
consistent with the information provided above for gross profit and sales and marketing expense.

(U.S Dollars, in thousands)
BioStim
Biologics
Extremity Fixation
Spine Fixation
Corporate
Net margin

Percentage Change

2016

2015

2014

2016/2015

2015/2014

75,469 $
26,891
30,526
8,650
(888)
140,648 $

67,878 $
27,226
29,493
8,547
(1,260)
131,884 $

66,096
26,629
31,586
14,243
(1,736)
136,818

11.2%
-1.2%
3.5%
1.2%
-29.5%
6.6%

2.7%
2.2%
-6.6%
-40.0%
-27.4%
-3.6%

General and Administrative Expense

(U.S Dollars, in thousands)
General and administrative
As a percentage of net sales

2016 Compared to 2015

2016

2015

2014

2016/2015

2015/2014

74,404

87,157

79,074

18.2%

22.0%

19.6%

-14.6%
-3.8%

10.2%
2.4%

Percentage Change

General and administrative expense decreased $12.8 million

•

•
•
•

Decreases in professional fees of $7.9 million, largely associated with the completion in 2016 of our internal control
remediation efforts and Project Bluecore, a company-wide infrastructure initiative to improve the reliability and efficiency
of our systems, processes, and reporting
Reduced legal costs of $6.9 million, largely due to legal settlements incurred in the prior year and a commercial legal
settlement in 2016 whereby we received $3.0 million
The moratorium on the medical device tax in 2016, which decreased expense by $1.3 million
Reduction in other controllable expenses
Overall decrease was partially offset by increased share-based compensation expense of $8.1 million, including $5.7 million
associated with the determination in 2016 that achieving the performance criteria related to certain of our performance-
based vesting restricted stock awards is probable

2015 Compared to 2014

General and administrative expense increased $8.1 million

•
•
•
•
•

Legal settlements totaling $5.3 million in 2015
Increased spending of $1.6 million associated with the strengthening of our infrastructure as part of Project Bluecore
Increased share-based compensation expense of $1.5 million
Increased professional fees and personnel costs as part of our internal controls remediation efforts
Overall decrease partially offset by the impact of changes in foreign exchange rates

Research and Development Expense

(U.S Dollars, in thousands)
Research and development
As a percentage of net sales

2016 Compared to 2015

2016

2015

2014

2016/2015

2015/2014

28,803

26,389

24,994

7.0%

6.7%

6.2%

9.1%
0.3%

5.6%
0.5%

Percentage Change

Research and development expense increased $2.4 million

•

Increased costs associated with clinical trials of $1.5 million, primarily due to invested resources to identify potential new
clinical indications for our PEMF technology and to develop our next generation of bone growth stimulators, which were
recently approved by the FDA and European Commission
A $1.3 million investment made in the first quarter of 2016 to expand the processing and storage capabilities of MTF, the
supplier of our Trinity Evolution and Trinity ELITE tissue forms

2015 Compared to 2014

Research and development expense increased $1.4 million due primarily to increased consulting fees and clinical trial costs as we
invested resources to identify potential new clinical indications for our PEMF technology and for new product developments in Spine
Fixation and Extremity Fixation.

Restatements and Related Costs

(U.S Dollars, in thousands)
Restatements and related costs
As a percentage of net sales

2016

2015

2014

2016/2015

2015/2014

2,005

9,083

15,614

0.5%

2.3%

3.9%

-77.9%
-1.8%

-41.8%
-1.6%

Percentage Change

2016 Compared to 2015

Restatements and related costs decreased $7.1 million

•

Decreased legal fees incurred as part of our two prior financial restatements completed in March 2015 and the related SEC
Investigation; expected to continue declining in future periods
Costs incurred in 2015 were related to the second of these two restatements and legal costs from the resulting SEC
Investigation and class action complaint

2015 Compared to 2014

Restatements and related costs decreased $6.5 million due to decreased consulting fees relating to our two prior financial
restatements, the resulting SEC Investigation, and the Securities Class Action Complaint.

Charges Related to U.S. Government Resolutions

(U.S Dollars, in thousands)
Charges related to U.S. Government resolutions
As a percentage of net sales

2016

2015

2014

14,369

3.6%

—
0.0%

Percentage Change

—
0.0%

2016/2015
—
3.6%

2015/2014
—
0.0%

We recorded $14.4 million in 2016 for our settlements with the Division of Enforcement of the SEC related to the SEC’s investigation
of (1) our prior accounting review and restatements of financial statements and (2) allegations of improper payments in Brazil. For
additional information, see Note 12 to the Consolidated Financial Statements.

Non-operating Income (Expense)

(U.S Dollars, in thousands)
Interest income (expense), net
Other income (expense), net

2016

2015

2014

2016/2015

2015/2014

763 $

(2,806)

(489) $
(259)

(1,785)
(2,895)

-256.0%
983.4%

-72.6%
-91.1%

Percentage Change

Non-operating income and expense largely consists of interest income and expense, transaction gains and losses from changes in
foreign currency exchange rates, and other-than-temporary impairments on the eNeura debt security. Interest income is primarily
from our eNeura debt security. Foreign exchange gains and losses are a result of several of our foreign subsidiaries holding trade
payables or receivables in currencies (most notably the U.S. Dollar) other than their functional currency.

In 2016, we recorded an other-than-temporary impairment on the eNeura debt security of $2.7 million. For additional discussion see
Note 10 to the Consolidated Financial Statements in Item 8 of this report.

Income Taxes

(U.S Dollars, in thousands)
Income tax expense
Effective tax rate

2016

2015

2014

2016/2015

2015/2014

15,527

10,849

16,200

81.6%

127.5%

130.1%

43.1%
—

-33.0%
—

Percentage Change

2016 Effective Tax Rate

The decrease in the effective tax rate during the year was primarily a result of the increase in income before income taxes. The
primary factors affecting our effective tax rate for 2016 are as follows:

•

•
•
•

Expenses categorized as “Charges related to U.S. Government resolutions”, which represent settlement payments with
substantially no tax benefit
A change in estimate relating to the deductible amount of certain compensation expenses
Increases in unrecognized tax benefits
Expiration of certain foreign net operating loss carryforwards and current period losses in jurisdictions where we do not
currently receive a tax benefit

2015 Effective Tax Rate

The primary factors affecting our effective tax rate for 2015 were as follows:

•

•
•

Expiration of certain foreign net operating loss carryforwards and current period losses in jurisdictions where we do not
currently receive a tax benefit
The mix of earnings among tax jurisdictions
Recording a valuation allowance on the net deferred tax assets in Puerto Rico

Liquidity and Capital Resources

Cash and cash equivalents at December 31, 2016 were $39.6 million compared to $63.7 million at December 31, 2015.

(U.S Dollars, in thousands)
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents

Year Ended December, 31,

2016

2015

Change

44,707
(21,947)
(46,112)
(739)
(24,091)

43,610
(38,349)
24,728
(3,141)
26,848

1,097
16,402
(70,840)
2,402
(50,939)

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures
from net cash from operating activities.

(U.S Dollars, in thousands)
Net cash from operating activities
Capital expenditures
Free cash flow

Operating Activities

Year Ended December, 31,

2016

2015

Change

44,707
(18,334)
26,373

43,610
(27,899)
15,711

1,097
9,565
10,662

Cash flows from operating activities increased $1.1 million

•

Increase in net income of $5.9 million

Net increase of $21.8 million for non-cash gains and losses, primarily related to increases in deferred income taxes and
share-based compensation expense

Overall increase partially offset by a decrease of $26.6 million relating to the funding of the U.S. Government resolutions
discussed below and changes in working capital accounts, primarily attributable to changes in inventories, prepaid expenses
and other current assets, trade accounts payable, and other current liabilities

Our two primary working capital accounts are trade accounts receivable and inventory. Day’s sales in receivables were 52 days at
December 31, 2016 compared to 55 days at December 31, 2015. Inventory turns were 1.4 times as of December 31, 2016 compared
to 1.5 times at December 31, 2015.

U.S. Government Resolutions

In December 2016, we submitted offers of settlement to the SEC relating to (1) our prior accounting review and restatements of
financial statements and (2) allegations of improper payments in Brazil, and placed $14.4 million into escrow for subsequent
distribution to the SEC relating to these matters. In January 2017, the SEC approved our offers of settlement and the amounts were
released to the SEC. For additional information, see Note 12 to the Notes to the Consolidated Financial Statements.

Investing Activities

Cash flows from investing activities increased $16.4 million

•

Purchase of the eNeura debt security for $15.3 million in 2015

Decrease in capital expenditures of $9.6 million, largely as a result of completing Project Bluecore; in 2017, we expect
capital expenditures to be in the range of $13 million to $16 million

Overall increase partially offset by proceeds of $4.8 million from the sale of assets in 2015

Overall increase also partially offset by the purchase of certain inventory and intellectual property assets of $2.6 million in
2016 and an increase in our investment in Bone Biologics, Inc. of $1.0 million during 2016

Infrastructure Initiative

In 2014, we initiated “Project Bluecore,” a multi-year, company-wide process and systems improvement initiative to improve the
reliability and efficiency of our systems, processes, and reporting as well as drive down overhead expenses. Project Bluecore had
numerous work streams primarily focused around re-implementing our Oracle ERP system worldwide, improving our financial
controls and reporting, streamlining our order to cash processes and collections, and optimizing our supply chain for cost reductions
and field inventory visibility, among other upgrades. This project was completed in 2016 following the re-implementation of our
Oracle ERP platform in the U.S. and Italy. Over the life of the project, we spent approximately $27.5 million. Of this amount,
approximately $18.6 million was capitalized.

Financing Activities

Cash flows from financing activities decreased $70.8 million

•

Repurchases of our common stock under the share repurchase plan authorized by the Board of Directors; in 2016, we
repurchased approximately 1.5 million shares for $63.4 million as compared to the repurchase of 0.3 million shares for
$11.6 million in 2015

The removal of the restricted cash requirement associated with our credit facility in 2015, which resulted in a decrease in
cash flows from financing activities of $34.4 million when compared to 2015

Overall decrease partially offset by an increase in net proceeds of $13.6 million from the issuance of common shares and by
payments of $1.8 million in debt issuance costs during 2015 associated with our credit facility

Credit Facilities

On August 31, 2015, we entered into a five year $125 million secured revolving credit facility. As of December 31, 2016, we have not
made any borrowings under the credit facility. For additional information regarding the credit facility, see Note 8 to the Notes to the
Consolidated Financial Statements contained herein.

We had no borrowings and an unused available line of credit of €5.8 million ($6.1 million and $6.3 million) at December 31, 2016
and 2015, respectively, on our Italian line of credit. This unsecured line of credit provides us the option to borrow amounts in Italy at
rates which are determined at the time of borrowing.

Share Repurchase Plan

In August 2015, our Board of Directors authorized a share repurchase plan, authorizing the purchase of up to $75 million of our
common stock through September 2017. We completed the share repurchase plan in the fourth quarter of 2016. Over the life of the
plan, we repurchased 1,838,672 shares of common stock for $75.0 million, at an average purchase price of $40.79.

Unremitted Foreign Earnings

During 2016, we changed our intention related to unremitted earnings in our Puerto Rico subsidiary and certain of our United
Kingdom subsidiaries. As a result of the change in intention, we recorded $1.3 million of income tax expense for the remitted and
unremitted earnings of each of these subsidiaries. Our current intention is to indefinitely reinvest substantially all of our other
unremitted foreign earnings (residing outside Curaçao). As an entity incorporated in Curaçao, “foreign earnings” refer to both U.S.
and non-U.S. earnings. Furthermore, only income sourced in the U.S. is subject to U.S. income tax. Unremitted foreign earnings
increased from $184.6 million at December 31, 2015 to $198.9 million at December 31, 2016. Determining the additional income tax
that may be payable if such earnings are repatriated is not practicable.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2016:

(U.S Dollars, in thousands)
Operating leases
Inventory purchase commitments (1)
Total (2)

Payments Due by Period

Total

2017

2018 - 2020

2021

8,377 $
1,170
9,547 $

3,009 $
1,170
4,179 $

5,260 $
—
5,260 $

108 $
—
108 $

2022 and
thereafter

—
—
—

(1) We have inventory purchase commitments with third-party manufacturers. Due to the uncertainty of our future purchasing
requirements, obligations under these agreements are included in the preceding table at the amount committed through
December 31, 2016, all of which are due in 2017.

(2) We may be required to make payments related to our uncertain tax positions. However, we are unable to reliably estimate the
timing of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits, including
interest and penalties, of $21.4 million as of December 31, 2016 have been excluded from the contractual obligations table
above. For further information, see Note 18 to the Notes to the Consolidated Financial Statements contained herein.

Off-balance Sheet Arrangements

As of December 31, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows,
liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Estimates

Our discussion of operating results is based upon the consolidated financial statements and accompanying notes. The preparation of
these statements requires us 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 amount of revenues and
expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience
and various other assumptions that management believe to be reasonable under the circumstances at that point in time. Actual
results may differ, significantly at times, from these estimates.

We believe the estimates described below are the most critical in preparing our consolidated financial statements. We have
reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Revenue Recognition

The process for recognizing revenue involves significant assumptions and judgments for certain of our revenue streams. Revenue
recognition policies are “critical accounting estimates” because changes in the assumptions used to develop the estimates could
materially affect key financial measures, including net sales, gross margin, net margin, operating income, and net income.

For revenue derived from third-party payors, including commercial insurance carriers, health maintenance organizations, preferred
provider organizations and governmental payors such as Medicare, in connection with the sale of our stimulation products, we
recognize revenue when the stimulation product is placed on and accepted by the patient and all perfunctory documents that are
required by the third-party payor have been obtained. Amounts paid by these third-party payors are generally based on fixed or
allowable reimbursement rates. These revenues are recorded at the expected or preauthorized reimbursement rates, net of any
contractual allowances or adjustments. Certain billings are subject to review by the third-party payors and may be subject to
adjustment.

For revenue derived from distributor agreements, we recognize revenue once the product is delivered to the end customer (the
“sell-through method”). Because we do not have reliable information about when our distributors sell the product through to end
customers, we use cash collection from distributors as a basis for revenue recognition under the sell-through method. When we sell
to these distributors, we consider whether to match the related cost of sales expense with revenue or to recognize expense upon
shipment. In making this assessment, we consider the financial viability of our distributors based on their creditworthiness to
determine if collectability of amounts sufficient to realize the costs of the products shipped is reasonably assured at the time of
shipment to these distributors. In instances where the distributor is determined to be financially viable, we defer the costs of sales
until the revenue is recognized.

Allowance for Doubtful Accounts and Contractual Allowances

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. Historical
collections, write-offs, and payor reimbursement experience are integral parts of the estimation process related to reserves for
doubtful accounts and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess
the adequacy of both reserves for doubtful accounts and contractual allowances. Revisions in allowances for doubtful accounts
estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual
allowances are recorded as an adjustment to net sales. Our estimates are periodically tested against actual collection experience.
We believe our allowance for doubtful accounts is sufficient to cover customer credit risks; however, a 10% change in our allowance
for doubtful accounts as of December 31, 2016 would result in an increase or decrease to sales and marketing expense of $0.8
million. Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks;
however, a 10% change in our reserve for contractual allowances as of December 31, 2016 would result in an increase or decrease
to net sales of $0.7 million. Our allowance for doubtful accounts and estimation of contractual allowances are “critical accounting
estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures,
including net sales, gross margin, net margin, operating income, net income, and trade accounts receivable.

Inventory Allowances

Reserves for excess, slow moving, and obsolete inventory are calculated as the difference between the cost of inventory and market,
and are based on assumptions and judgments about new product launch periods, overall product life cycles, forecasted demand,
and market conditions. In the event of a decrease in demand for our products, or a higher incidence of inventory obsolescence, we
could be required to increase our inventory reserves, which would increase cost of sales and decrease gross profit. Our inventory
allowance is a “critical accounting estimate” because changes in the assumptions used to develop the estimate could materially
affect key financial measures, including gross profit, net margin, operating income, net income, and inventory. We regularly evaluate
our exposure for inventory write-downs. If conditions or assumptions used in determining the market value change, additional
inventory adjustments in the future may be necessary.

Goodwill

We test goodwill at least annually for impairment, and between annual tests if indicators of potential impairment 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. Assessing goodwill impairment involves a high degree of judgment due to the estimates and assumptions used. We

believe the estimates and assumptions involved in the impairment assessment to be critical because significant changes in such
estimates and assumptions could materially affect key financial measures, including net income.

During 2016, we voluntarily changed our annual goodwill testing date from the end of the fourth quarter, December 31, to the
beginning of the fourth quarter, October 1. We believe this change in the method of applying the accounting principle is preferable,
as it more closely aligns the annual impairment testing date with the most current information from the budgeting and strategic
planning process and provides management with additional time to complete its annual assessment in advance of our year-end
reporting. The change did not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively, as it is
impracticable to do so because retrospective application would require application of significant estimates and assumptions with the
use of hindsight. Accordingly, the change has been applied prospectively.

In the fourth quarter of 2016, we performed a quantitative impairment analysis that did not result in an impairment charge. In 2015
and 2014, we performed qualitative assessments for our annual goodwill impairment analysis, which did not result in any
impairment charge. This qualitative analysis considered all relevant factors specific to the reporting units, including macroeconomic
conditions, industry and market considerations, overall financial performance and relevant entity-specific events.

Fair Value Measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The fair value of the eNeura debt security is based upon significant unobservable inputs, including the use of a discounted cash flows
model, requiring us to develop our own assumptions. One of the more significant unobservable inputs used in the fair value
measurement of the eNeura debt securities is the discount rate. Holding other inputs constant, an increase in the discount rate of 5%
would result in a decrease in fair value of the debt security of $1.9 million, whereas a decrease in the discount rate of 5% would result in
an increase in the fair value of the debt security of $1.9 million.

Further, we are required to determine whether any decline in the fair value below the cost basis of the eNeura debt security is other
than temporary. In making this determination, we consider our intentions to hold or sell the security, whether it more likely than not
that we will be required to sell the security before the recovery of its amortized cost basis, and our best estimate of the amount that
we ultimately expect to collect from the security. The estimated amount we expect to collect is based upon significant unobservable
inputs, requiring us to develop our own assumptions, including the probability of holding the security to maturity or converting the
security to equity.

Our fair value measurements are a “critical accounting estimate” because changes in the assumptions used to develop the estimate
could materially affect key financial measures.

Litigation and Contingent Liabilities

From time to time, we are parties to or targets of lawsuits, investigations and proceedings, including product liability, personal
injury, patent and intellectual property, health and safety and employment and healthcare regulatory matters, which are handled
and defended in the ordinary course of business. These lawsuits, investigations or proceedings could involve a substantial number of
claims and could also have an adverse impact on our reputation and customer base. Although we maintain various liability insurance
programs for liabilities that could result from such lawsuits, investigations or proceedings, we are self-insured for a significant
portion of such liabilities.

We accrue for such claims when it is probable that a liability has been incurred and the amount can be reasonably estimated. The
assessments of whether a loss is probable or a reasonable possibility, and whether the loss or range of loss is reasonably estimable,
often involve a series of complex judgments about future events. Among the factors that we consider in this assessment are the
nature of existing legal proceedings, investigations and claims, the asserted or possible damages or loss contingency (if reasonably
estimable), the progress of the matter, existing law and precedent, the opinions or views of legal counsel and other advisers, the
involvement of the U.S. Government and its agencies in such proceedings, our experience in similar matters and the experience of
other companies, the facts available to us at the time of assessment, and how we intend to respond, or have responded, to the
proceeding, investigation or claim. Our assessment of these factors may change over time as individual proceedings, investigations
or claims progress. For matters where we are not currently able to reasonably estimate the range of reasonably possible loss, the
factors that have contributed to this determination include the following: (i) the damages sought are indeterminate, or an
investigation has not manifested itself in a filed civil or criminal complaint, (ii) the matters are in the early stages, (iii) the matters

involve novel or unsettled legal theories or a large or uncertain number of actual or potential cases or parties, and/or (iv) discussions
with the government or other parties in matters that may be expected ultimately to be resolved through negotiation and settlement
have not reached the point where we believe a reasonable estimate of loss, or range of loss, can be made. In such instances, we
believe that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible
eventual loss, fine, penalty or business impact, if any.

Changes in the facts and circumstances associated with a claim could have a material impact on our results of operations and cash
flows in the period that reserve estimates are revised. We believe our insurance coverage and reserves are sufficient to cover
currently estimated exposures, but we cannot give any assurance that we will not incur liabilities in excess of recorded reserves or
our present insurance coverage. Litigation and contingent liabilities are “critical accounting estimates” because changes in the
assumptions used to develop the estimates could materially affect key financial measures, including operating income and net
income.

Tax Matters

We and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions. Our income tax
expense, effective tax rate, deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise.
Further, certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative, marketing and support
services to our other subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with
differing tax rates. The tax authorities in such jurisdictions may challenge our treatments under residency criteria, transfer pricing
provisions, or other aspects of their respective tax laws, which could affect our composite tax rate and provisions.

We sometimes engage in transactions in which tax consequences may be subject to uncertainty. We account for these uncertain tax
positions in accordance with applicable accounting guidance, which requires significant judgment in assessing the estimated tax
consequences of a transaction. We evaluate the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position
will be sustained on audit, including resolution of any related appeals or litigation processes. We measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon ultimate settlement. We re-evaluate our income tax positions
periodically to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled
issues under audit and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit
or an additional charge to the tax provision.

We establish a valuation allowance when measuring deferred tax assets if it is more likely than not that certain deferred tax assets
will not be realized in the foreseeable future. This process requires significant judgment as we must project the current tax liability
and estimate the deferred tax assets and liabilities into future periods, including net operating loss and tax credit carry forwards. In
assessing the need for a valuation allowance, we consider recent operating results, availability of taxable income in carryback years,
future reversals of taxable temporary differences, future taxable income projections (exclusive of reversing temporary differences)
and all prudent and feasible tax planning strategies.

Tax matters are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially
affect key financial measures, including net income.

Share-based compensation

Determining the appropriate fair value model and calculating the fair value of employee stock awards requires estimates and
judgments. Our share-based compensation is a “critical accounting estimate” because changes in the assumptions used to develop
estimates of fair value or the requisite service period could materially affect key financial measures, including gross profit, net
margin, operating income, and net income.

We use the Black-Scholes valuation model to calculate the fair value of service-based stock options. The value is recognized as
expense over the service period net of forfeitures. The expected term of options granted is estimated based on a number of factors,
including the vesting and expiration terms of the award, historical employee exercise behavior for both options that are currently
outstanding and options that have been exercised or are expired, the historical volatility of our common stock and an employee’s
average length of service. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a
contractual life that approximates the expected term of the option award. We estimate expected volatility based on the historical
volatility of our stock.

We use the Monte Carlo valuation methodology to calculate the fair value of market-based stock options and performance stock
units. The value is recognized as expense over the requisite service period and adjusted for forfeitures as they occur. The Monte
Carlo methodology that we use to estimate the fair value of market-based options incorporates the possibility that the market
condition may not be satisfied.

The fair value of performance-based restricted stock awards and stock units is calculated based upon the closing stock price at the
date of grant. The value is recognized as expense over the derived requisite service period beginning in the period in which they are
deemed probable to vest. Vesting probability is assessed based upon forecasted earnings and financial results and requires
significant judgment.

Non-GAAP Financial Measures

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to
the information used by senior management in its financial and operational decision-making. We believe it is important to provide
investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends
of our business operations in order to facilitate comparisons to historical operating results and internally evaluate the effectiveness
of the our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying
operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial
measures.

The non-GAAP financial measures used in this filing may have limitations as analytical tools, and should not be considered in
isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP
financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows. Similarly,
certain non-cash expenses, such as equity compensation expense, do not directly impact cash flows, but are part of total
compensation costs accounted for under GAAP.

Constant Currency

Constant currency is a non-GAAP measure, which is calculated by using foreign currency rates from the comparable, prior-year
period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most
commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

Net Margin

Net margin is a non-GAAP financial measure, which is calculated by subtracting sales and marketing expense from gross profit. Net
margin is the primary metric used by our Chief Operating Decision Maker in managing the business.

Free Cash Flow

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from
operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business
operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and
cash flow initiatives.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates
and foreign currency fluctuations. These exposures can vary sales, cost of sales, costs of operations and the cost of financing and yields
on cash and short-term investments. We use derivative financial instruments, where appropriate, to manage these risks. However, our
risk management policy does not allow us to hedge positions we do not hold nor do we enter into derivative or other financial
investments for trading or speculative purposes. Through December 30, 2016, we had a cross-currency swap in place to minimize
foreign currency exchange risk related to a Euro denominated intercompany note. Both the cross-currency swap and the Euro
denominated intercompany note matured on December 30, 2016.

We are exposed to interest rate risk in connection with our Revolving Credit Facility, which bears interest at floating rates based on
LIBOR plus an applicable borrowing margin or at a base rate (as defined in the Credit Agreement) plus an applicable borrowing
margin. Therefore, interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and
cash flows, assuming other factors are held constant. As we do not have any balance outstanding associated with the Credit
Agreement as of December 31, 2016, this risk is currently minimal.

We believe that a concentration of credit risk related to our trade accounts receivable is limited because our customers are
geographically dispersed and the end users are diversified across several industries. It is reasonably possible that changes in global
economic conditions and/or local operating and economic conditions in the regions these customers operate, or other factors, could
affect the future realization of these accounts receivable balances.

Our foreign currency exposure results from fluctuating currency exchange rates, primarily the U.S. Dollar against the Euro, Brazilian
Real, or Great Britain Pound. We are subject to cost of sales currency exposure when we produce products in foreign currencies such as
the Euro, Brazilian Real, or Great Britain Pound and sell those products in U.S. Dollars. We are subject to transactional currency
exposures when our subsidiaries (or the Company itself) enter into transactions denominated in a currency other than their functional
currency. For the year ended December 31, 2016, we recorded a foreign currency loss of less than $0.1 million on the statement of
operations resulting from gains and losses in foreign currency transactions.

We also are subject to currency exposure from translating the results of our global operations into the U.S. dollar at exchange rates
that fluctuate during the period. The U.S. dollar equivalent of international sales denominated in foreign currencies was unfavorably
impacted during the years ended December 31, 2016 and 2015 by monthly foreign currency exchange rate fluctuations of the U.S.
dollar against all of the foreign functional currencies for our international operations during 2016 and 2015 versus the same periods
in 2015 and 2014. As we continue to distribute and manufacture our products in selected foreign countries, we expect that future
sales and costs associated with our activities in these markets will continue to be denominated in the applicable foreign currencies,
which could cause currency fluctuations to materially impact our operating results. An analysis was performed to determine the
sensitivity of our current year net sales and operating income to changes in foreign currency exchange rates. We determined that if
the U.S. Dollar decreased in value by 10% relative to all foreign currencies of our international operations it would result in an
increase in net sales of $8.1 million and an increase in operating income of $1.0 million. If the U.S. Dollar increased in value by 10%
relative to all foreign currencies of our international operations it would result in a decrease in net sales of $8.1 million and a
decrease in operating income of $1.0 million.

Item 8.

Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” on page F-1 of this Form 10-K.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this Report, under the supervision and with the participation of our management, including our
President and Chief Executive Officer and our Chief Financial Officer, we performed an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. Based upon that evaluation, our President and Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-K, our disclosure controls and procedures
were effective.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as
such term is defined in the Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as

necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of
directors regarding the preparation of reliable financial statements for external purposes in accordance with U.S. GAAP. Because of
the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or
detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as
of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because
of changes in conditions or that the degree of compliance with the policies and procedures may decline.

In connection with the preparation and filing of this Form 10-K, the Company’s management, including our President and Chief
Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting as of December 31, 2016 based on the framework set forth in “Internal Control—Integrated Framework (2013)” issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on its evaluation, the
Company’s management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting is
effective based on the specified criteria.

Ernst & Young has issued an audit report on the effectiveness of our internal control over financial reporting, which follows this
report.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the fourth quarter of 2016 that have
materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Orthofix International N.V.

We have audited Orthofix International N.V.’s (the Company) internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). Orthofix International N.V.’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Orthofix International N.V. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Orthofix International N.V. as of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2016 of Orthofix International N.V. and our report dated February 27, 2017 expressed an
unqualified opinion thereon.

/s/ Ernst & Young LLP
Dallas, Texas

February 27, 2017

Item 9B.

Other Information

Not applicable.

PART III

Information required by Items 10, 11, 12, 13 and 14 of Form 10-K is omitted from this annual report and will be filed in a definitive
proxy statement or by an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this
annual report.

Item 10.

Directors, Executive Officers and Corporate Governance

We will provide information that is responsive to this Item 10 regarding executive compensation in our definitive proxy statement or
in an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual report, in
either case under the caption “Information About Directors,” “Section 16 (a) Beneficial Ownership Reporting Compliance” and
others possibly elsewhere therein. That information is incorporated in this Item 10 by reference.

Item 11.

Executive Compensation

We will provide information that is responsive to this Item 11 regarding executive compensation in our definitive proxy statement or
in an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual report, in
either case under the caption “Executive Compensation,” and possibly elsewhere therein. That information is incorporated in this
Item 11 by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We will provide information that is responsive to this Item 12 regarding ownership of our securities by certain beneficial owners and
our directors and executive officers, as well as information with respect to our equity compensation plans, in our definitive proxy
statement or in an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual
report, in either case under the captions “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders” and “Equity Compensation Plan Information,” and possibly elsewhere therein. That information is incorporated in this
Item 12 by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

We will provide information that is responsive to this Item 13 regarding transactions with related parties and director independence
in our definitive proxy statement or in an amendment to this annual report not later than 120 days after the end of the fiscal year
covered by this annual report, in either case under the caption “Certain Relationships and Related Transactions,” and possibly
elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14.

Principal Accountant Fees and Services

We will provide information that is responsive to this Item 14 regarding principal accountant fees and services in our definitive proxy
statement or in an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual
report, in either case under the caption “Principal Accountant Fees and Services,” and possibly elsewhere therein. That information
is incorporated in this Item 14 by reference.

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)

Documents filed as part of report on Form 10-K

The following documents are filed as part of this report on Form 10-K:

Financial Statements

See “Index to Consolidated Financial Statements” on page F-1 of this Form 10-K.

Financial Statement Schedules

No schedules are required because either the required information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information required is included in the consolidated financial
statements or the notes thereto.

Exhibits

Exhibit
Number

2.1

3.1

3.2

10.1

10.2

Description

Stock Purchase Agreement, dated as of April 23, 2012, by and among Breg, Inc., Orthofix Holdings, Inc. and Breg Acquisition
Corp. (filed as an exhibit to the Company’s current report on Form 8-K filed April 24, 2012 and incorporated herein by
reference).

Certificate of Incorporation of the Company (filed as an exhibit to the Company’s annual report on Form 20-F dated
June 29, 2001 and incorporated herein by reference).

Articles of Association of the Company as amended (filed as an exhibit to the Company’s annual report on Form 10-K for
the fiscal year ended December 31, 2011 and incorporated herein by reference).

Credit Agreement, dated as of August 31, 2015, among Orthofix Holdings, Inc. and Victory Medical Limited as borrowers,
Orthofix International N.V. and certain subsidiaries of Orthofix International N.V. party thereto as guarantors, the several
banks and other financial institutions as may from time to time become parties thereunder as lenders, and JPMorgan
Chase, N.A., as administrative agent (filed as an exhibit to the Company’s current report on Form 8-K filed September 1,
2015 and incorporated herein by reference).

First Amendment to Credit Agreement dated as of March 7, 2016 but effective as of February 29, 2016, among Orthofix
Holdings, Inc. and Victory Medical Limited as borrowers, Orthofix International N.V. and certain subsidiaries of Orthofix
International N.V. party thereto as guarantors, the several banks and other financial institutions as may from time to time
become parties thereunder as lenders, and JPMorgan Chase, N.A., as administrative agent (filed as an exhibit to the
Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference).

10.3† Matrix Commercialization Collaboration Agreement, entered into July 24, 2008, by and between Orthofix Holdings, Inc. and
Musculoskeletal Transplant Foundation (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2009 and incorporated herein by reference).

10.4

10.5†

10.6†

Amendment No. 1 to Matrix Commercialization Collaboration Agreement, dated as of December 15, 2010, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s annual report
on Form 10-K for the fiscal year ended December 31, 2010 and incorporated herein by reference).

Amendment No. 2 to Matrix Commercialization Collaboration Agreement, dated as of January 9, 2012, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to amendment no. 1 to the
Company’s annual report on Form 10-K/A for the year ended December 31, 2011 and incorporated herein by reference).

Amendment No. 3 to Matrix Commercialization Collaboration Agreement, entered into on July 1, 2013 and effective as of
June 25, 2013, by and between Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit
to the Company’s current report on Form 8-K filed July 8, 2013 and incorporated herein by reference).

Exhibit
Number

10.7

10.8†

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

Description

Amendment No. 4 to Matrix Commercialization Collaboration Agreement, entered into on April 1, 2014, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s current report
on Form 8-K filed April 7, 2014 and incorporated herein by reference).

Amendment No. 5 to Matrix Commercialization Collaboration Agreement, entered into on March 10, 2016, by and
between Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s
current report on Form 8-K filed March 14, 2016 and incorporated herein by reference).

Orthofix International N.V. Amended and Restated Stock Purchase Plan, as amended (filed as an exhibit to the Company’s
quarterly report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference).

Orthofix International N.V. 2012 Long-Term Incentive Plan (filed as an exhibit to the Company’s quarterly report on
Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference)

Amendment No. 1 to the Orthofix International N.V. 2012 Long-Term Incentive Plan (filed as an exhibit to the Company’s
Form 10-Q filed on August 4, 2015 and incorporated herein by reference).

Amended and Restated Orthofix Deferred Compensation Plan (filed as an exhibit to the Company’s current report on Form
8-K filed January 7, 2009, and incorporated herein by reference).

Form of Time-Based Vesting Employee Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-
Term Incentive Plan (filed as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated
here by reference).

Form of Time-Based Vesting Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012
Long-Term Incentive Plan (filed as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and
incorporated here by reference).

Form of Time-Based Vesting Non-Employee Director Restricted Stock Grant Agreement under the Orthofix International
N.V. 2012 Long-Term Incentive Plan (annual grant) (filed as an exhibit to the Company’s current report on Form 8-K filed
July 8, 2016 and incorporated here by reference).

Form of Time-Based Vesting Non-Employee Director Non-Qualified Stock Option Agreement under the Orthofix
International N.V. 2012 Long-Term Incentive Plan (initial grant) (filed as an exhibit to the Company’s current report on
Form 8-K filed July 8, 2016 and incorporated here by reference).

Form of 2016 Employee Performance Stock Unit Agreement under the Orthofix International N.V. 2012 Long-Term
Incentive Plan (filed as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated here by
reference).

Form of Employee Performance Vesting Restricted Stock and Performance Share Unit Grant Agreement under the Orthofix
International N.V. 2012 Long-Term Incentive Plan – June 2015 Grants (filed as an exhibit to the Company’s Form 10-Q filed
on August 4, 2015 and incorporated herein by reference).

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long-Term Incentive
Plan – July 2014-June 2016 (Time-Based Vesting) (filed as an exhibit to the Company’s quarterly report on Form 10-Q for
the quarter ended September 30, 2014 and incorporated herein by reference).

Form of Employee Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-Term Incentive Plan
– July 2014-June 2016 (Time-Based Vesting) (filed as an exhibit to the Company’s quarterly report on Form 10-Q for the
quarter ended September 30, 2014 and incorporated herein by reference).

Form of Employee Performance Vesting Restricted Stock Grant Agreement under the Orthofix International N.V. 2012
Long-Term Incentive Plan – July 2014 Grants (filed as an exhibit to the Company’s quarterly report on Form 10-Q for the
quarter ended September 30, 2014 and incorporated herein by reference).

Form of Non-Employee Director Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-Term
Incentive Plan – 2014 and 2015 (Time-Based Vesting) (filed as an exhibit to the Company’s quarterly report on Form 10-Q
for the quarter ended September 30, 2014 and incorporated herein by reference).

Exhibit
Number

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

Description

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long-Term Incentive
Plan (pre-2014 grants) (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2012 and incorporated herein by reference).

Form of Non-Employee Director Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long
Term Incentive Plan. (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December
31, 2012 and incorporated herein by reference).

Form of Employee Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long Term Incentive Plan
(pre-2014 grants) (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31,
2012 and incorporated herein by reference).

Form of Non-Employee Director Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long Term
Incentive Plan (pre-2014 grants) (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2012 and incorporated herein by reference).

Form of Restricted Stock Grant Agreement under the Orthofix International N.V. Amended and Restated 2004 Long Term
Incentive Plan (2011 and 2012 grants—vesting over 3 years) (filed as an exhibit to the Company’s annual report on Form
10-K for the fiscal year ended December 31, 2010 and incorporated herein by reference).

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. Amended and Restated
2004 Long-Term Incentive Plan (post-2008 grants made under the 2004 Long Term Incentive Plan prior to the adoption of
the 2012 Long Term Incentive Plan) (filed as an exhibit to the Company’s current report on Form 8-K filed July 7, 2009 and
incorporated herein by reference).

Form of Non-Employee Director Non-Qualified Stock Option Agreement under the Orthofix International N.V. Amended
and Restated 2004 Long-Term Incentive Plan (2009 through 2012 grants) (filed as an exhibit to the Company’s current
report on Form 8-K filed July 7, 2009 and incorporated herein by reference).

Form of Nonqualified Stock Option Agreement under the Orthofix International N.V. Amended and Restated 2004 Long
Term Incentive Plan (pre-2009 grants—vesting over 3 years) (filed as an exhibit to the Company’s current report on
Form 8-K filed June 20, 2008 and incorporated herein by reference).

Form of Nonqualified Stock Option Agreement under the Orthofix International N.V. Amended and Restated 2004 Long
Term Incentive Plan (pre-2009 grants— year cliff vesting) (filed as an exhibit to the Company’s current report on Form 8-K
filed June 20, 2008 and incorporated herein by reference).

Form of Restricted Stock Grant Agreement under the Orthofix International N.V. Amended and Restated 2004 Long Term
Incentive Plan (pre-2011 grants—vesting over 3 years) (filed as an exhibit to the Company’s current report on Form 8-K
filed June 20, 2008 and incorporated herein by reference).

Form of Restricted Stock Grant Agreement under the Orthofix International N.V. Amended and Restated 2004 Long Term
Incentive Plan (3 year cliff vesting) (filed as an exhibit to the Company’s current report on Form 8-K filed June 20, 2008 and
incorporated herein by reference).

Form of Indemnity Agreement (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2008 and incorporated herein by reference).

Change in Control and Severance Agreement, dated July 7, 2016, between Orthofix International N.V. and Bradley R.
Mason (filed as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated here by
reference).

10.36* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Bradley R. Mason.

10.37

Inducement Grant Non-Qualified Stock Option Agreement, dated March 13, 2013, between Orthofix International N.V. and
Bradley R. Mason (filed as an exhibit to the Company’s current report on Form 8-K filed March 13, 2013 and incorporated
herein by reference).

Exhibit
Number

10.38

Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-Term Incentive Plan, dated March 13,
2013, between Orthofix International N.V. and Bradley R. Mason (filed as an exhibit to the Company’s current report on
Form 8-K filed March 13, 2013 and incorporated herein by reference).

Description

10.39

Change in Control and Severance Agreement, dated July 7, 2016, between Orthofix International N.V. and Doug Rice (filed
as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated here by reference).

10.40* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Doug Rice.

10.41

10.42

Employment Agreement, effective as of April 24, 2015, by and between Orthofix Inc. and Doug Rice (filed as an exhibit to
the Company’s current report on Form 8-K filed April 29, 2015 and incorporated herein by reference).

Change in Control and Severance Agreement, dated July 7, 2016, between Orthofix International N.V. and Michael M.
Finegan (filed as an exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated here by
reference).

10.43* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Michael M. Finegan.

10.44

10.45

10.46

10.47

10.48

Form of Amendment to Stock Option Agreements (for Michael M. Finegan) (filed as an exhibit to the Company’s current
report on Form 8-K filed July 7, 2009 and incorporated herein by reference).

Change in Control and Severance Agreement, dated September 7, 2016, between Orthofix International N.V. and Davide
Bianchi (filed as an exhibit to the Company’s current report on Form 8-K filed September 9, 2016 and incorporated herein
by reference).

Amended Employment Contract, dated September 7, 2016, between Orthofix International N.V. and Davide Bianchi (filed
as an exhibit to the Company’s current report on Form 8-K filed September 9, 2016 and incorporated herein by reference).

Amended and Restated Employment Agreement, effective as of November 20, 2014, by and between Orthofix
International N.V., Davide Bianchi and, solely for purposes of certain specified provisions, Orthofix AG (filed as an exhibit to
the Company’s current report on Form 8-K filed November 28, 2014 and incorporated herein by reference).

Employment Agreement, effective as of April 15, 2015, by and between Blackstone Medical, Inc. and Robert Allen Goodwin
II (filed as an exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 and
incorporated herein by reference).

10.49* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Robert Allen Goodwin II.

10.50* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Bradley V. Niemann.

10.51* Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and

Raymond Fujikawa.

10.52* Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and Kimberley

Elting.

10.53

10.54

Letter Agreement, dated July 7, 2016, between Jeffrey M. Schumm, Orthofix International N.V. and Orthofix Inc. (filed as an
exhibit to the Company’s current report on Form 8-K filed July 8, 2016 and incorporated here by reference).

Employment Agreement, entered into on December 9, 2010, by and between Orthofix Inc. and Jeffrey M. Schumm (filed as
an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 and incorporated
herein by reference).

Exhibit
Number

10.55

10.56

10.57

Description

Settlement Agreement, entered into on June 6, 2012, among the United States of America, acting through the United
States Department of Justice and on behalf of the Office of Inspector General of the Department of Health and Human
Services, the TRICARE Management Activity, through its General Counsel, the Office of Personnel Management , in its
capacity as administrator of the Federal Employees Health Benefits Program, the United States Department of Veteran
Affairs, Orthofix International N.V. and relator Jeffrey J. Bierman (filed as an exhibit to the Company’s current report on
Form 8-K/A filed June 7, 2012 and incorporated herein by reference).

Amended Plea Agreement entered into on December 14, 2012, among the United States Attorney for the District of
Massachusetts, the Department of Justice and Orthofix Inc. (filed as an exhibit to the Company’s current report on Form 8-
K filed December 19, 2012 and incorporated herein by reference).

Corporate Integrity Agreement, entered into on June 6, 2012, between the Office of Inspector General of the Department
of Health and Human Services and Orthofix International N.V. (filed as an exhibit to the Company’s current report on
Form 8-K/A filed June 7, 2012 and incorporated herein by reference).

21.1*

List of Subsidiaries

23.1*

Consent of Independent Registered Public Accounting Firm

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1*

Section 1350 Certification of Chief Executive Officer and Certification of Chief Financial Officer

101

The following financial statements from Orthofix International N.V. on Form 10-K for the year ended December 31, 2016
filed on February 27, 2017, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations
and Comprehensive Income (Loss), (iii) Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated
Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

*
†

Filed with this Form 10-K.
Certain confidential portions of this exhibit were omitted by means of redacting a portion of the text. This exhibit has been
filed separately with the Secretary of the Commission without redactions pursuant to our Application Requesting Confidential
Treatment under the Securities Exchange Act of 1934.

Item 16.

Form 10-K Summary

None

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Dated: February 27, 2017

ORTHOFIX INTERNATIONAL N.V.

By:
Name:
Title:

/s/ BRADLEY R. MASON
Bradley R. Mason
President and Chief Executive Officer, Director

/s/ DOUG RICE
Doug Rice
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

Name

Title

Date

/s/ BRADLEY R. MASON
Bradley R. Mason

President and Chief Executive Officer, Director
(Principal Executive Officer)

February 27, 2017

/s/ DOUG RICE
Doug Rice

Chief Financial Officer
(Principal Financial and Accounting Officer)

February 27, 2017

/s/ RONALD A. MATRICARIA
Ronald A. Matricaria

/s/ LUKE FAULSTICK
Luke Faulstick

/s/ JAMES HINRICHS
James Hinrichs

/s/ GUY JORDAN
Guy Jordan

/s/ ALEXIS V. LUKIANOV
Alexis V. Lukianov

/s/ LILLY MARKS
Lilly Marks

/s/ ANTHONY MARTIN
Anthony Martin

/s/ MICHAEL E. PAOLUCCI
Michael E. Paolucci

/s/ MARIA SAINZ
Maria Sainz

Chairman of the Board of Directors

February 27, 2017

Director

February 27, 2017

ORTHOFIX INTERNATIONAL N.V.

Statement of Management’s Responsibility for Financial Statements

To the Shareholders of Orthofix International N.V.:

Management is responsible for the preparation of the consolidated financial statements and related information that are presented
in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments,
have been prepared in conformity with accounting principles generally accepted in the United States. Other financial information in
the report to shareholders is consistent with that in the consolidated financial statements.

The Company maintains accounting and internal control systems to provide reasonable assurance at a reasonable cost that assets
are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing financial
statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure
providing division of responsibilities and careful selection and training of qualified personnel.

The Company engaged Ernst & Young LLP independent registered public accountants to audit and render an opinion on the
consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United
States). These standards include an assessment of the systems of internal controls and test of transactions to the extent considered
necessary by them to support their opinion.

The Board of Directors, through its Audit Committee consisting solely of outside directors of the Company, meets periodically with
management and our independent registered public accountants to ensure that each is meeting its responsibilities and to discuss
matters concerning internal controls and financial reporting. Ernst & Young LLP has full and free access to the Audit Committee.

James F. Hinrichs
Chairman of the Audit Committee

Bradley R. Mason
President and Chief Executive Officer, Director

Doug Rice
Chief Financial Officer

ORTHOFIX INTERNATIONAL N.V.

Index to Consolidated Financial Statements

Index to Consolidated Financial Statements ..................................................................................................................................
Report of Independent Registered Public Accounting Firm ..........................................................................................................
Consolidated Balance Sheets as of December 31, 2016 and 2015 ................................................................................................
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2016, 2015

and 2014 ....................................................................................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014 ...........
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 .............................................
Notes to the Consolidated Financial Statements ...........................................................................................................................

Page

F-1
F-2
F-3

F-4
F-5
F-6
F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Orthofix International N.V.

We have audited the accompanying consolidated balance sheets of Orthofix International N.V. (“the Company”) as of December 31,
2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Orthofix International N.V. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for share-based
payments to employees as a result of the early adoption of the amendments to the FASB Accounting Standards Codification
resulting from Accounting Standards Update No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” effective
January 1, 2016.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Orthofix
International N.V.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 27, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas
February 27, 2017

F-2

ORTHOFIX INTERNATIONAL N.V.

Consolidated Balance Sheets as of December 31, 2016 and 2015

(U.S. Dollars, in thousands except share and per share data)
Assets
Current assets

Cash and cash equivalents
Restricted cash
Trade accounts receivable, less allowances of $8,396 and $8,923 at
December 31, 2016 and 2015, respectively
Inventories
Prepaid expenses and other current assets

Total current assets
Property, plant and equipment, net
Patents and other intangible assets, net
Goodwill
Deferred income taxes
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities

Trade accounts payable
Other current liabilities

Total current liabilities
Other long-term liabilities
Total liabilities
Contingencies (Note 12)
Shareholders’ equity

Common shares $0.10 par value; 50,000,000 shares authorized;
17,828,155 and 18,659,696 issued and outstanding as of December 31,
2016 and 2015, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss

Total shareholders’ equity
Total liabilities and shareholders’ equity

2016

2015

39,572 $
14,369

57,848
63,346
19,238
194,373
48,916
7,461
53,565
47,325
20,463
372,103 $

14,353 $
69,088
83,441
25,185
108,626

1,783
204,095
64,179
(6,580)
263,477
372,103 $

63,663
—

59,839
57,563
31,187
212,252
52,306
5,302
53,565
57,306
19,491
400,222

16,391
65,597
81,988
27,923
109,911

1,866
232,126
62,551
(6,232)
290,311
400,222

The accompanying notes form an integral part of these consolidated financial statements.

F-3

ORTHOFIX INTERNATIONAL N.V.

Consolidated Statements of Operations and Comprehensive Income (Loss)
For the years ended December 31, 2016, 2015 and 2014

(U.S. Dollars, in thousands, except share and per share data)
Net sales
Cost of sales
Gross profit

Sales and marketing
General and administrative
Research and development
Restatements and related costs
Charges related to U.S. Government resolutions (Note 12)

Operating income

Interest income (expense), net
Other expense, net

Income before income taxes
Income tax expense
Net income (loss) from continuing operations
Discontinued operations (Note 12)

Loss from discontinued operations
Income tax benefit

Net loss from discontinued operations
Net income (loss)
Net income (loss) per common share—basic

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss) per common share—basic
Net income (loss) per common share—diluted

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss) per common share—diluted
Weighted average number of common shares:

Basic
Diluted

Other comprehensive loss, before tax

Unrealized gain (loss) on derivative instrument
Unrealized loss on debt securities
Reclassification adjustment for loss on debt securities in net income
Currency translation adjustment
Other comprehensive loss before tax

Income tax related to items of other comprehensive loss

Other comprehensive loss, net of tax
Comprehensive income (loss)

2016

2015

2014

409,788 $
87,853
321,935
181,287
74,404
28,803
2,005
14,369
21,067
763
(2,806)
19,024
(15,527)
3,497

(638)
197
(441)
3,056 $

0.19 $
(0.02)
0.17 $

396,489 $
86,525
309,964
178,080
87,157
26,389
9,083
—
9,255
(489)
(259)
8,507
(10,849)
(2,342)

(1,827)
1,360
(467)
(2,809) $

(0.12) $
(0.03)
(0.15) $

402,277
98,912
303,365
166,547
79,074
24,994
15,614
—
17,136
(1,785)
(2,895)
12,456
(16,200)
(3,744)

(7,157)
2,364
(4,793)
(8,537)

(0.20)
(0.26)
(0.46)

18,144,019
18,463,161

18,795,194
18,795,194

18,459,054
18,459,054

(360)
(1,744)
2,727
(726)
(103)
(245)
(348)
2,708 $

202
(3,348)
–
(3,907)
(7,053)
1,203
(5,850)
(8,659) $

307
–
–
(4,133)
(3,826)
(59)
(3,885)
(12,422)

The accompanying notes form an integral part of these consolidated financial statements.

F-4

ORTHOFIX INTERNATIONAL N.V.

Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2016, 2015 and 2014

(U.S. Dollars, in thousands, except share data)
At December 31, 2013
Net loss
Other comprehensive loss, net of tax
Share-based compensation
Common shares issued
At December 31, 2014
Net loss
Other comprehensive loss, net of tax
Share-based compensation
Common shares issued
Retirement of repurchased common stock
At December 31, 2015
Cumulative effect adjustment from adoption of ASU
2016-09 (Note 1)
Net income
Other comprehensive loss, net of tax
Share-based compensation
Common shares issued
Retirement of repurchased common stock
At December 31, 2016

Number of
Common
Shares

Outstanding
18,102,335 $
—
—
—
509,160
18,611,495 $
—
—
—
342,192
(293,991)
18,659,696 $

—
—
—
—
713,140
(1,544,681)
17,828,155 $

Common
Shares

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders’
Equity

—
—
—
51

1,810 $ 216,653 $ 73,897 $
(8,537)
—
—
—
—
5,724
—
10,411
1,861 $ 232,788 $ 65,360 $
(2,809)
—
—
—
—
7,214
—
3,670
(11,546)

—
—
—
34
(29)

1,866 $ 232,126 $ 62,551 $

—
(3,885)
—
—

3,503 $ 295,863
(8,537)
(3,885)
5,724
10,462
(382) $ 299,627
(2,809)
(5,850)
7,214
3,704
(11,575)
(6,232) $ 290,311

—
(5,850)
—
—

(1,428)
—
3,056
—
—
—
—
—
—
71
(154)
—
1,783 $ 204,095 $ 64,179 $

2,032
—
—
15,966
17,242
(63,271)

—
—
(348)
—
—
—

604
3,056
(348)
15,966
17,313
(63,425)
(6,580) $ 263,477

The accompanying notes form an integral part of these consolidated financial statements.

F-5

ORTHOFIX INTERNATIONAL N.V.

Consolidated Statements of Cash Flows
For the years ended December 31, 2016, 2015 and 2014

(U.S. Dollars, in thousands)
Cash flows from operating activities

Net income (loss)
Adjustments to reconcile net income (loss) to net cash from operating
activities

2016

2015

2014

3,056 $

(2,809) $

(8,537)

Depreciation and amortization
Amortization of debt costs and other assets
Provision for doubtful accounts
Deferred income taxes
Share-based compensation
Gain on sale of assets
Other-than-temporary impairment on debt securities
Other

Changes in operating assets and liabilities

Restricted cash
Trade accounts receivable
Inventories
Prepaid expenses and other current assets
Other long-term assets
Trade accounts payable
Other current liabilities
Other long-term liabilities

Net cash from operating activities
Cash flows from investing activities

Capital expenditures for property, plant and equipment
Capital expenditures for intangible assets
Purchase of other investments
Purchase of debt securities
Proceeds from sale of assets
Net cash from investing activities
Cash flows from financing activities

Proceeds from issuance of common shares
Payments related to withholdings for share-based compensation
Repayments of long-term debt
Payment of debt issuance costs
Changes in restricted cash
Repurchase and retirement of common shares

Net cash from financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplemental disclosure of cash flow information
Cash paid during the year for:

Interest
Income taxes

20,841
1,569
1,117
10,460
15,966
—
2,727
1,061

(14,369)
392
(5,284)
701
(3,333)
(1,771)
6,537
5,037
44,707

(16,432)
(1,902)
(3,613)
—
—
(21,947)

20,923
1,752
3,431
(1,156)
7,214
(3,099)
—
2,854

—
(1,547)
3,136
8,697
(1,321)
3,011
1,515
1,009
43,610

(27,197)
(702)
—
(15,250)
4,800
(38,349)

19,720
(2,407)
—
—
—
(63,425)
(46,112)
(739)
(24,091)
63,663
39,572 $

5,254
(1,550)
—
(1,825)
34,424
(11,575)
24,728
(3,141)
26,848
36,815
63,663 $

22,878
3,621
938
(7,053)
5,724
—
—
821

—
6,138
8,109
5,100
(734)
(6,451)
5,456
15,154
51,164

(18,069)
(456)
(1,457)
—
32
(19,950)

11,074
(612)
(20,000)
—
(10,662)
—
(20,200)
(3,123)
7,891
28,924
36,815

672 $
4,423 $

852 $
3,160 $

1,315
2,222

$
$

The accompanying notes form an integral part of these consolidated financial statements

F-6

ORTHOFIX INTERNATIONAL N.V.

Notes to the Consolidated Financial Statements

Business and basis of consolidation

Orthofix International N.V. is a diversified, global medical device company focused on improving patients' lives by providing superior
reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville, Texas, the
Company has four strategic business units (“SBUs”): BioStim, Biologics, Extremity Fixation and Spine Fixation. Orthofix products are
widely distributed via the Company's sales representatives and distributors. In addition, Orthofix is collaborating on research and
development activities with clinical organizations such as Brown University, Sinai Hospital of Baltimore, Cleveland Clinic, Texas
Scottish Rite Hospital for Children, and the Musculoskeletal Transplant Foundation (“MTF”).

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions are eliminated in consolidation.

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

Inventories
Property, plant and equipment
Patents and other intangible assets
Goodwill
Long-term debt
Derivative instruments
Fair value measurements
Contingencies
Revenue recognition and accounts receivable
Share-based compensation
Pensions and deferred compensation
Income taxes

Footnote Reference
2
3
4
5
8
9
10
12
14
16
17
18

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, 2015 and 2014, the Company made
use of a cross-currency swap agreement to manage cash flow exposure generated from foreign currency fluctuations.

F-7

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 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 losses of less than $0.1 million, $3.5 million and $2.4 million for the years ended
December 31, 2016, 2015 and 2014, 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 our 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 the customers are geographically dispersed and the end users are diversified across several industries.

Net sales to our customers based in Europe were approximately $60 million in 2016, which results in a substantial portion of our
trade accounts receivable balance as of December 31, 2016. 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 consists 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 12.In 2015, restricted cash consisted of cash held at
certain subsidiaries, the distribution or transfer of which was restricted under the Company’s previous 2010 credit facility. The 2010
credit facility matured and was replaced in 2015 as described in Note 8. All credit party subsidiaries had access to this cash for
operational and debt repayment purposes.

Research and development costs

Expenditures related to the collaborative arrangement with MTF are expensed based on the terms of the related agreement.
Payments to MTF totaled $1.3 million in 2016, there were no payments made in 2015, and totaled $0.3 million in 2014.
Expenditures for research and development are expensed as incurred.

Recently adopted accounting standards update (“ASU”)

Topic
Employee
Share-based
Payments
(ASU 2016-09)

Description of Guidance

Impact to the Company's Financial Statements

Simplifies several
aspects of the
accounting for share-
based payment
transactions, including
the income tax
consequences,
accounting for
forfeitures, and
classification on the
statement of cash
flows.

During the quarter ended September 30, 2016, the Company early adopted this new

accounting standard with an effective date of January 1, 2016. Under the new standard, all
excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in
the income statement as discrete items in the reporting period in which they occur. The
Company has applied the guidance related to the classification of excess tax benefits on the
statement of cash flows on a retrospective basis. Additionally, the Company has elected to
account for forfeitures as they occur and recorded the impact on previously reported
periods through a $1.4 million cumulative-effect adjustment to retained earnings and a $0.6
million adjustment to net assets as of January 1, 2016. Further, the Company has applied
the guidance for employee taxes paid to tax authorities when shares are withheld to satisfy
the employer’s statutory income tax withholding obligation on a retrospective basis. The
adoption resulted in decreases of $0.4 million and $0.2 million in net cash provided by
financing activities and increases of $0.4 million and $0.2 million in net cash from operating
activities for the years ended December 31, 2015 and 2014, respectively. The adoption did
not have a material impact on the Company’s consolidated statement of operations and
comprehensive income (loss) for the year ended December 31, 2016.

F-8

Recently issued accounting standards

Description of Guidance
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.

Topic
Revenue
Recognition
(ASU 2014-09,
as amended)

Inventory
(ASU 2015-11)

Effective Date

Status of Company's Evaluation

January 1, 2018 The Company is continuing to evaluate the

impact this ASU will have on the consolidated
financial statements. The Company completed
an initial impact assessment and believes
adopting this ASU will materially impact the
timing of revenue recognition, primarily for
implant product sales to stocking distributors,
which are currently accounted for using the sell-
through method. Specifically, the Company
believes the revenue associated with these
sales will be recorded at the time of the sale
instead of deferring recognition until cash is
received. The Company expects to adopt this
new guidance using the modified retrospective
transition method.

Requires an entity to measure inventory at the

January 1, 2017 The Company is currently evaluating the ASU

lower of cost and net realizable value. Net
realizable value is the estimated selling price in
the ordinary course of business, less reasonably
predictable costs of completion, disposal, and
transportation.

and does not expect it to have a material impact
on its consolidated financial statements.

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.

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, 2018 The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements.

January 1, 2019 The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements; however, we expect this guidance
will result in current operating leases being
reflected as lease obligations on the
consolidated balance sheet.

Income Taxes
(ASU 2016-16)

Statement of
Cash Flows
(ASU 2016-18)

Intangibles —
Goodwill and
Other
(ASU 2017-04)

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 The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements.

Reduces diversity in classification and

January 1, 2018 The Company is currently evaluating the impact

presentation of restricted cash, including
transfers between cash and restricted cash, on
the statement of cash flows. Applied
retrospectively.

this ASU may have on its consolidated
statement of cash flows.

Simplifies the subsequent measurement of

January 1, 2020 The Company is currently evaluating the impact

goodwill by eliminating Step 2 from the goodwill
impairment test. Any potential impairment
charge will be recognized for the amount by
which the carrying amount exceeds the
reporting unit's fair value. Applied
prospectively.

F-9

this ASU may have on its consolidated
statement of cash flows.

Inventories

Inventories are valued at the lower of cost or estimated net realizable value, after provision for excess, obsolete or impaired items,
which is reviewed and updated on a periodic basis by management. For inventory procured or produced, whether internally or through
contract manufacturing arrangements, at our manufacturing facility in Italy, cost is determined on a weighted-average basis, which
approximates the first-in, first-out (“FIFO”) method. For inventory procured or produced, whether internally or through contract
manufacturing arrangements, at our manufacturing facility in Texas, standard costs, which approximates actual cost on the FIFO
method, is used to value inventory. Standard costs are reviewed annually by management, or more often in the event circumstances
indicate a change in cost has occurred.

Work-in-process, finished products, field inventory and consignment inventory include material, labor and production overhead
costs. Field inventory represents immediately saleable finished products inventory that is in the possession of the Company’s
independent sales representatives. Consignment inventory represents immediately saleable finished products located at third party
customers, such as distributors and hospitals.

Deferred cost of sales result from transactions where the Company has shipped product or performed services for which all revenue
recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the revenue and associated cost of
sales are recognized.

(U.S. Dollars, in thousands)
Raw materials
Work-in-process
Finished products
Field inventory
Consignment inventory
Deferred cost of sales

December 31,

2016

2015

7,978 $
9,505
15,985
22,021
4,428
3,429
63,346 $

4,976
5,087
23,155
17,593
2,199
4,553
57,563

The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to
obsolescence or other factors. In order to make these determinations, management uses estimates of future demand and sales
prices for each product to determine the appropriate inventory reserves and to make corresponding adjustments to the carrying
value of these inventories to reflect the lower of cost or market value.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Costs include all expenditures necessary to place the
asset in service, including freight and sales and use taxes. Property, plant and equipment includes instrumentation held by
customers, which is generally used to facilitate the implantation of the Company’s products. The useful lives of these assets are as
follows:

Buildings
Plant and equipment
Instrumentation
Computer software
Furniture and fixtures

Years

25 to 33
1 to 10
3 to 4
3 to 7
4 to 8

The Company evaluates the useful lives of these assets on an annual basis. Depreciation is computed on a straight-line basis over the
useful lives of the assets. Depreciation of leasehold improvements is computed over the shorter of the lease term or the useful life
of the asset. Total depreciation expense was $19.0 million, $19.2 million and $20.6 million for the years ended December 31, 2016,
2015 and 2014, respectively.

F-10

Expenditures for maintenance and repairs and minor renewals and improvements, which do not extend the lives of the respective
assets, are expensed as incurred. All other expenditures for renewals and improvements are capitalized. The assets and related
accumulated depreciation are adjusted for property retirements and disposals, with the resulting gain or loss included in earnings.
Fully depreciated assets remain in the accounts until retired from service.

(U.S. Dollars, in thousands)
Cost
Buildings
Plant and equipment
Instrumentation
Computer software
Furniture and fixtures
Construction in progress

Accumulated depreciation

December 31,

2016

2015

3,225 $

43,745
71,962
44,720
8,308
1,907
173,867
(124,951)

48,916 $

3,328
44,063
62,282
24,920
5,711
19,101
159,405
(107,099)
52,306

The Company capitalizes system development costs related to its internal use software during the application development stage.
Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is
amortized on a straight-line basis over its estimated useful life, generally three to seven years. The Company has capitalized
computer software, net of accumulated amortization, of $21.3 million and $7.6 million as of December 31, 2016 and 2015,
respectively. Amortization of computer software, which is included within total depreciation expense for property, plant and
equipment, was $6.4 million, $4.4 million and $3.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Long-lived assets are evaluated for impairment whenever events or changes in circumstances have occurred that would indicate
impairment. For purposes of the evaluation, the Company groups its long-lived assets with other assets and liabilities at the lowest
level of identifiable cash flows if the asset does not generate cash flows independent of other assets and liabilities. If the carrying
value of the asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the
asset (asset group), the Company will write the carrying value down to the fair value in the period identified.

The Company generally determines fair value of long-lived assets as the present value of estimated future cash flows. In determining
the estimated future cash flows associated with the assets, the Company uses estimates and assumptions about future revenue
contributions, cost structures and remaining useful lives of the asset (asset group). The use of alternative assumptions, including
estimated cash flows, discount rates, and alternative estimated remaining useful lives could result in different calculations of
impairment.

Patents and other intangible assets

Patents and other intangible assets are recorded at cost, or when acquired as a part of a business combination at estimated fair
value. These assets are amortized on a straight-line basis over the useful lives of the assets. The Company’s weighted average
amortization period for developed technologies is 11 years.

F-11

(U.S. Dollars, in thousands)
Cost

Patents
License and other
Trademarks—finite lived

Accumulated amortization

Patents
License and other
Trademarks—finite lived

December 31,

2016

2015

38,348 $
7,611
319
46,278

(34,717)
(3,962)
(138)
(38,817)

7,461 $

36,847
5,357
120
42,324

(33,297)
(3,605)
(120)
(37,022)
5,302

Amortization expense for intangible assets was $1.8 million, $1.7 million and $2.3 million for the years ended December 31, 2016,
2015 and 2014, respectively. Future amortization expense for intangible assets is estimated as follows:

(U.S. Dollars, in thousands)
2017
2018
2019
2020
2021
Thereafter

Amortization

1,524
886
736
785
743
2,787
7,461

Goodwill

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.

During 2016, the Company voluntarily changed its annual goodwill testing date from the end of the fourth quarter, December 31, to
the beginning of the fourth quarter, October 1. The Company believes this change in the method of applying the accounting
principle is preferable, as it more closely aligns the annual impairment testing date with the most current information from the
budgeting and strategic planning process and provides management with additional time to complete its annual assessment in
advance of our year-end reporting. The change did not delay, accelerate or avoid an impairment charge. This change was not applied
retrospectively, as it is impracticable to do so because retrospective application would require application of significant estimates
and assumptions with the use of hindsight. Accordingly, the change has been applied prospectively.

In the fourth quarter of 2016, the Company performed a quantitative impairment analysis that did not result in an impairment
charge for either the BioStim or Biologics reporting units, the only reporting units with goodwill. In 2015 and 2014, the Company
performed qualitative assessments for its annual goodwill impairment analysis, which did not result in any impairment charge. This
qualitative analysis considered all relevant factors specific to the reporting units, including macroeconomic conditions, industry and
market considerations, overall financial performance and relevant entity-specific events.

F-12

The following table presents the net carrying value of goodwill by reportable segment:

(U.S. Dollars, in thousands)
BioStim
Biologics
Extremity Fixation
Spine Fixation

Long-term investments

Debt securities

December 31,

2016

2015

42,678 $
10,887
—
—
53,565 $

42,678
10,887
—
—
53,565

On March 4, 2015, the Company entered into an Option Agreement (the “Option Agreement”) with eNeura, Inc. (“eNeura”), a
privately held medical technology company that is developing devices for the treatment of migraines. The Option Agreement provided
the Company with an exclusive option to acquire eNeura (the “Option”) during the 18-month period following the grant of the Option,
In consideration for the Option, (i) the Company paid a
which expired in September 2016 without the Company exercising the option.
non-refundable $0.3 million fee to eNeura, and (ii) the Company loaned eNeura $15.0 million pursuant to a Convertible Promissory
Note (the “eNeura Note”) that was issued to the Company. The principal amount of the eNeura Note is $15.0 million and interest
accrues at 8.0%. The eNeura Note will mature on March 4, 2019 and interest is due when the eNeura Note matures, provided that if a
change in control of eNeura (generally defined as a third party acquisition of fifty percent or more of eNeura’s voting equity or all or
substantially all of eNeura’s assets) occurs prior to the maturity date, the eNeura Note will automatically convert into preferred
stock of eNeura at a fixed price equal to $7.30 per share. The investment is recorded in other long-term assets as an available for sale
debt security at fair value and interest is recorded in interest income.

As of December 31, 2016, the fair value of the debt security is $12.2 million, a decrease of $1.7 million during 2016, which the Company
recorded in other comprehensive income as an unrealized loss on debt securities. Based upon the Company’s best estimate of the
amount it expects to recover, the Company recorded an other-than-temporary impairment of $2.7 million. This other-than-temporary
impairment was reclassified from accumulated other comprehensive loss and is included within other expense. See Note 10 for further
discussion.

Equity investment and warrants

As of December 31, 2016, the Company holds common stock of Bone Biologics, Inc. (“Bone Biologics”) totaling $2.5 million and
warrants to purchase 458 thousand shares at a weighted average exercise price of $1.18 per share. These instruments are recorded
within other long-term assets. The fair value of these instruments has not been estimated, and is instead recorded at cost, as the fair
value is not readily determinable. In addition, there have been no events or changes in circumstances that would indicate a
significant adverse effect on the fair value of the instruments. Under the terms of the warrant purchase agreements, the warrants to
purchase common stock in Bone Biologics are exercisable over a seven year period, which expire between 2020 and 2021, and are
transferable by the holder to other parties.

Other current liabilities

(U.S. Dollars, in thousands)
Accrued expenses
Salaries, bonuses, commissions and related taxes payable
Accrued legal and settlement expenses
Non-income taxes payable
Other payables

F-13

December 31,

2016

2015

15,534 $
19,636
23,081
7,301
3,536

69,088 $

19,616
18,190
22,608
1,428
3,755
65,597

In December 2016, the Company approved and initiated a planned restructuring, which primarily affects the Extremity Fixation SBU,
to streamline costs, improve operational performance, and wind down a non-core business. The restructuring plan consists of
primarily severance charges and the write-down of certain assets. The Company expects to incur total pre-tax expense of
approximately $3.0 million in 2016 and 2017 in connection with this restructuring activity, of which $2.0 million was incurred in
December 2016, including $1.5 million of severance charges included in operating expenses and $0.4 million of inventory write-
down charges included in cost of sales. The Company made payments of $0.1 million in 2016 and had an accrual of $1.5 million as of
December 31, 2016 in other current liabilities related to the planned restructuring.

Long-term debt

On August 30, 2010, the Company’s wholly owned U.S. holding company, Orthofix Holdings, Inc. (“Orthofix Holdings”) entered into a
Credit Agreement (the “2010 Credit Agreement”) with certain U.S. direct and indirect subsidiaries of the Company, JPMorgan Chase
Bank, N.A. (“JPMorgan”), as Administrative Agent, RBS Citizens, N.A., as Syndication Agent, and certain lender parties thereto. The
2010 Credit Agreement initially provided a five year, $200 million secured revolving credit facility (the “2010 Revolving Credit
Facility”), and a five year, $100 million secured term loan facility. In December 2014, the Company repaid in full, along with
applicable interest, the outstanding balance of $20 million held on the 2010 Revolving Credit Facility.

On August 31, 2015, the Company, through its subsidiaries Orthofix Holdings and Victory Medical Limited (“Victory Medical”, and
collectively with Orthofix Holdings, the “Borrowers”), entered into a Credit Agreement (the “2015 Credit Agreement”) with
JPMorgan, as Administrative Agent, and certain lenders party thereto. The 2015 Credit Agreement provides for a five year $125
million secured revolving credit facility (the “Facility”) and replaced the Company’s 2010 Credit Facility, which expired and matured
pursuant to its terms on August 30, 2015 with no amounts outstanding. The 2015 Credit Agreement has a maturity date of August
31, 2020. As of December 31, 2016, the Company has no borrowings outstanding under the 2015 Credit Agreement.

Borrowings under the 2015 Credit Agreement may be used for, among other things, working capital and other general corporate
purposes (including share repurchases, permitted acquisitions and permitted payments of dividends and other distributions) of the
Company and certain of its subsidiaries. The Facility is generally available in U.S. Dollars with up to $50 million of the Facility also
available to be borrowed in Euros and Pounds Sterling (together with U.S. Dollars, the “Agreed Currencies”). The 2015 Credit
Agreement further permits up to $25 million of the Facility to be utilized for the issuance of letters of credit in the Agreed
Currencies. The Borrowers have the ability to increase the amount of the Facility by an aggregate amount of up to $50 million
(which increase may take the form of one or more increases to the revolving credit commitments and/or the issuance of one or
more new Term A loans) upon satisfaction of certain conditions precedent and receipt of additional commitments by one or more
existing or new lenders.

Borrowings under the Facility bear interest at a floating rate, which is, at the Borrowers’ option, either LIBOR plus an applicable
margin ranging from 1.75% to 2.5% or a base rate plus an applicable margin ranging from 0.75% to 1.5% (in each case subject to
adjustment based on the Company’s total leverage ratio). An unused commitment fee ranging from 0.25% to 0.4% (subject to
adjustment based on the Company’s total leverage ratio) is payable quarterly in arrears based on the daily amount of the undrawn
portion of each lender’s revolving credit commitment under the Facility. Fees are payable on outstanding letters of credit at a rate
equal to the applicable margin for LIBOR loans, plus certain customary fees payable solely to the issuer of the letter of credit.

The Company and certain of its subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of the
Borrowers’ obligations under the 2015 Credit Agreement. The obligations of the Borrowers and each of the Guarantors with respect
to the 2015 Credit Agreement are secured by a pledge of substantially all of the tangible and intangible personal property of the
Borrowers and each of the Guarantors, including accounts receivable, deposit accounts, intellectual property, investment property,
inventory, equipment and equity interests in their subsidiaries. The 2015 Credit Agreement contains customary affirmative and
negative covenants, including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit
additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and
distributions, repay subordinated indebtedness and enter into affiliate transactions.

In addition, the 2015 Credit Agreement contains financial covenants requiring the Company on a consolidated basis to maintain, as
of the last day of any fiscal quarter, a total leverage ratio of not more than 3.0 to 1.0 and an interest coverage ratio of at least 3.0 to
1.0. The Company is in compliance with all required financial covenants as of December 31, 2016. The 2015 Credit Agreement also
includes events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to
customary cure rights, all outstanding loans under the Facility may be accelerated and/or the lenders’ commitments terminated.

F-14

In conjunction with obtaining the Facility, the Company incurred debt issuance costs of $1.8 million which are being amortized over
the life of the Facility. The debt issuance costs are included in other long-term assets, net of accumulated amortization. As of
December 31, 2016 and 2015, debt issuance costs, net of accumulated amortization, were $1.3 million and $1.7 million, respectively.

The Company has an unused available line of credit of €5.8 million ($6.1 million and $6.3 million) at December 31, 2016 and 2015,
respectively, in its Italian line of credit. This unsecure line of credit provides the Company the option to borrow amounts in Italy at
rates, which are determined at the time of borrowing.

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 with JPMorgan Chase Bank and Royal Bank of
Scotland PLC to manage its cash flows related to foreign currency exposure for a portion of the Company’s intercompany note
receivable of a U.S. dollar functional currency subsidiary that is denominated in Euro. Under the terms of the swap agreement, the
Company paid Euros based on an original €40.7 million notional value and a fixed rate of 5.00% and received U.S. dollars based on
an original notional value of $55.2 million and a fixed rate of 4.635%. Both the cross-currency swap and the related Euro
denominated intercompany note matured and were settled on December 30, 2016.

The tables below disclose the types of derivative instruments the Company owns, the classifications and fair values of these
instruments within the balance sheet, and the amount of gain (loss) recognized in other comprehensive income (loss) (“OCI”) or net
income (loss).

(U.S. Dollars, in thousands)
Cross-currency swap
Warrants (Note 6)

December 31,

2016

2015

— $

321

2,485
321

Balance sheet location
Prepaid expenses and other current assets
Other long-term assets

(U.S. Dollars, in thousands)
Cross-currency swap unrealized gain (loss), net of taxes
Warrants unrealized loss, net of taxes

For the year ended
December 31,
2015

2016

$
$

(228) $
— $

128 $
— $

2014

251
(3)

F-15

10.

Fair value measurements

Level 1: quoted prices in active markets for identical assets and liabilities

Level 2: observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3: unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its

own assumptions

The Company’s financial instruments include cash equivalents, restricted cash, foreign certificates of deposit, treasury securities,
collective trust funds, trade accounts receivable, accounts payable, long-term secured debt, equity securities, available for sale debt
securities, common stock warrants, derivative securities, and deferred compensation plan liabilities. The carrying value of restricted
cash, trade accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments.
The Company’s credit facilities carry a floating rate of interest, and therefore, the carrying value is considered to approximate the
fair value. The Company’s equity securities and common stock warrants are recorded at cost, as the fair value of these instruments
is not readily available. See Note 6 for further discussion.

The Company’s collective trust funds, treasury securities, foreign certificates of deposit, derivative securities, debt securities, and
deferred compensation plan liabilities are the only financial instruments recorded at fair value on a recurring basis as follows:

(U.S. Dollars, in thousands)
Assets

Collective trust funds
Treasury securities
Certificates of deposit
Derivative securities
Debt securities

Total
Liabilities

Deferred compensation plan

Total

(U.S. Dollars, in thousands)
Assets

Collective trust funds
Treasury securities
Certificates of deposit
Derivative securities
Debt securities

Total
Liabilities

Deferred compensation plan

Total

Balance
December 31,
2016

$
$

1,584
467
468
—
12,220
14,739

(1,452) $
(1,452) $

Balance
December 31,
2015

Level 1

Level 2

Level 3

—
467
468
—
—
935

1,584
—
—
—
—
1,584

—
—

$
$

(1,452) $
(1,452) $

—
—
—
—
12,220
12,220

—
—

Level 1

Level 2

Level 3

1,622
495
337
2,485
12,658
17,597 $

(1,503) $
(1,503) $

—
495
337
—
—
832 $

1,622
—
—
2,485
—
4,107 $

$
—
— $

(1,503) $
(1,503) $

—
—
—
—
12,658
12,658

—
—

$
$

F-16

The fair value of treasury securities and certificates of deposit are determined based on quoted prices in active markets for identical
assets, therefore, the Company has categorized these instruments as Level 1 financial instruments. The certificates of deposit are held
in foreign currencies and carry a contractual maturity of two years from the date of purchase.

The cross-currency derivative instrument consisted of an over-the-counter contract, which was not traded on a public exchange. The
fair value of this derivative swap contract, the Company’s collective trust funds, and the Company’s deferred compensation plan
liabilities are determined based on inputs that are readily available in public markets or can be derived from information available in
publicly quoted markets; therefore, the Company has categorized these instruments as Level 2 financial instruments.

The fair value of the debt security, including accrued interest, is based upon significant unobservable inputs, including the use of a
discounted cash flows model, requiring the Company to develop its own assumptions; therefore, the Company has categorized this
asset as a Level 3 financial asset. One of the more significant unobservable inputs used in the fair value measurement of the debt
security is the discount rate. Holding other inputs constant, changes in the discount rate could result in a significant change in the fair
value of the debt security. As of December 31, 2016, the fair value of the debt security is $12.2 million, a decrease of $1.7 million during
2016, which the Company recorded in other comprehensive income as an unrealized loss on debt securities.

The Company evaluated the decline in fair value to determine if the impairment was other-than-temporary. Based upon the Company’s
best estimate of the amount it expects to recover, the Company recorded an other-than-temporary impairment of $2.7 million in 2016.
This other-than-temporary impairment was reclassified from accumulated other comprehensive loss and is included within other
expense. The Company continues to classify the remainder of the accumulated impairment of $2.4 million, included in accumulated
other comprehensive loss as temporary in nature as the Company does not intend to sell the debt security nor believe that
recoverability of this portion of the investment will not occur.

The following table provides a reconciliation of the beginning and ending balances for debt securities measured at fair value using
significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)
Balance at January 1

Additions to debt securities
Accrued interest income
Gains or losses recorded for the period

Recognized in net income
Recognized in other comprehensive income

Balance at December 31

2016

2015

12,658
—
1,306

(2,727)
983
12,220

—
15,000
1,006

—
(3,348)
12,658

11.

Commitments

Leases

The Company has entered into operating leases for facilities and equipment. These leases are non-cancellable and typically do not
contain renewal options. Certain leases contain rent escalation clauses for which the Company recognizes the expense on a straight-
line basis. Rent expense under the Company’s operating leases for the years ended December 31, 2016, 2015 and 2014 was
approximately $3.0 million, $3.0 million and $3.4 million, respectively.

Future minimum lease payments under operating leases as of December 31, 2016 are as follows:

(U.S. Dollars, in thousands)
2017
2018
2019
2020
2021
Thereafter
Total

3,009
2,332
1,608
1,320
108
—
8,377

F-17

Inventory purchase commitments

The Company had inventory purchase commitments with third-party manufactures for $1.2 million, $2.1 million and $2.5 million as
of December 31, 2016, 2015, and 2014, respectively.

12.

Contingencies

The Company records accruals for certain outstanding legal proceedings, investigations or claims when it is probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. The Company evaluates, on a quarterly basis,
developments in legal proceedings, investigations and claims that could affect the amount of any accrual, as well as any
developments that would make a loss contingency both probable and reasonably estimable. When a loss contingency is not both
probable and reasonably estimable, the Company does not accrue the loss. However, if the loss (or an additional loss in excess of the
accrual) is at least a reasonable possibility and material, then the Company discloses a reasonable estimate of the possible loss or
range of loss, if such reasonable estimate can be made. If the Company cannot make a reasonable estimate of the possible loss, or
range of loss, then that is disclosed. In addition, legal fees and other directly related costs are expensed as incurred.

In addition to the matters described in the paragraphs below, in the normal course of its business, the Company is involved in
various lawsuits from time to time and may be subject to certain other contingencies. The Company believes any losses related to
these matters are individually and collectively immaterial as to a possible loss and range of loss.

Commercial Litigation Settlement

During the third quarter of 2016, the Company entered into an agreement to settle an outstanding commercial litigation matter,
whereby the Company became entitled to receive a $3.0 million cash payment, which payment was made to the Company during
the fourth quarter of 2016, which was recorded as a credit to general and administrative expense.

Audit Committee Review and SEC Investigation

In July 2013, the Audit Committee of our Board of Directors began conducting an independent review, with the assistance of outside
professionals, of certain accounting matters. This review resulted in restatements of our previously filed consolidated financial
statements. In connection with the Audit Committee’s review, the Company initiated contact with the staff of the Division of
Enforcement of the SEC (the “SEC Enforcement Staff”) in July 2013. The SEC conducted a formal investigation of these matters, and
both the Company and the Audit Committee cooperated fully with the SEC.

After discussions with the SEC Enforcement Staff, the Company reached an agreement in principle with the SEC Enforcement Staff
that any negotiated resolution would include a civil money penalty of approximately $8.25 million, and the Company recorded a
charge in this amount during 2016 for this matter.

In December 2016, the Company formally submitted an offer of settlement to the SEC, and deposited $8.25 million into escrow,
which was restricted for subsequent distribution to the SEC. In January 2017, the SEC approved the Company’s offer of settlement,
pursuant to which the Company consented to the entry of an SEC administrative order instituting cease and desist proceedings
pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934. Pursuant to such order,
the Company agreed to pay the $8.25 million previously accrued. The full amount of such payment was released to the SEC in
January 2017.

Deferred Prosecution Agreement and Review of Potential Improper Payments Involving Brazil Subsidiary

In 2012, the Company entered into definitive agreements with the U.S. Department of Justice (the “DOJ”) and the SEC agreeing to
settle a self-initiated and self-reported internal investigation of our former Mexican subsidiary, Promeca S.A. de C.V. (“Promeca”),
regarding non-compliance by Promeca with the U.S. Foreign Corrupt Practices Act (the “FCPA”). As part of the settlement, the
Company entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ and a consent to final judgment (the
“Consent”) with the SEC. The Company periodically reported to the government during the terms of the DPA and Consent regarding
remediation measures and implementation of compliance measures.

F-18

In August 2013, during the terms of the DPA and Consent, the Company’s internal legal department was notified of certain
allegations involving potentially improper payments with respect to its Brazilian subsidiary, Orthofix do Brasil Ltda., and promptly
contacted both the DOJ and the SEC Enforcement Staff to voluntarily self-report the allegations. Following the self-report, the
Company cooperated fully with the DOJ’s investigation of those allegations. On June 15, 2015, the Company and the DOJ agreed to
extend the term of the DPA for two months (through September 17, 2015) to permit the DOJ additional time to evaluate the
Company’s compliance with the internal controls and compliance undertakings in the DPA and to further investigate the Brazil-
related allegations. On September 17, 2015, the DOJ extended the term of the DPA for an additional ten months (through July 17,
2016), stating that the Company’s efforts to comply with the internal controls and compliance requirements of the DPA during the
first eighteen months of the DPA were insufficient. On July 17, 2016, the DPA expired; on July 29, 2016, the DOJ filed with the court
a dismissal of the underlying Promeca-related case; and, on August 1, 2016, the court entered an order granting the DOJ’s motion to
dismiss such case without prejudice.

The Company also fully cooperated with the SEC’s investigation of the allegations in Brazil. After discussions with the SEC
Enforcement Staff, the Company reached an agreement in principle with the SEC Enforcement Staff, and the Company accrued
collective charges of approximately $6.1 million during the second and third quarters of 2016.

In December 2016, the Company formally submitted an offer of settlement to the SEC, and deposited the accrued amount into
escrow, which was restricted for subsequent distribution to the SEC. In January 2017, the SEC approved the Company’s offer of
settlement, pursuant to which the Company consented to the entry of an SEC administrative order instituting cease-and-desist
proceedings pursuant to Section 21C of the Securities Exchange Act of 1934. Pursuant to such order, the Company agreed to pay
disgorgement, interest and penalties in the amount previously accrued. The full amount of such payment was released to the SEC in
January 2017. Pursuant to the offer of settlement and related order, the Company has agreed to retain an independent compliance
consultant for one year to review and test the Company’s FCPA compliance program.

Corporate Integrity Agreement with HHS-OIG

On June 6, 2012, in connection with our settlement of a U.S. government investigation and related qui tam complaint related to our
regenerative stimulation business, and our settlement of a U.S. government investigation and related qui tam complaint related to
Blackstone Medical, Inc. (“Blackstone”), we entered into a five-year corporate integrity agreement (the “CIA”) with the Office of
Inspector General of the Department of Health and Human Services (“HHS-OIG”). The CIA requires that we continue to maintain
during the term of the CIA a compliance program designed to promote compliance with federal healthcare and FDA requirements.
The CIA requires that we conduct certain compliance-related activities during the term of the CIA, including various training and
monitoring procedures, and maintaining a disciplinary process for compliance obligations. We are also subject to periodic reporting
and certification requirements attesting that the provisions of the CIA are being implemented and followed, as well as certain
document and record retention mandates. The CIA provides that in the event of an uncured material breach of the CIA, we could be
excluded from participation in federal healthcare programs and/or subject to prosecution and subject to other monetary penalties.

In connection with this settlement and the guilty plea of our subsidiary, Orthofix Inc., to one felony count of obstruction of a federal
audit, the court imposed a five-year term of probation on Orthofix Inc., with special conditions that mandate certain non-
disparagement obligations and order Orthofix Inc. to continue complying with the terms of the CIA through the expiration of its
term. In the event that we fail to satisfy these terms of probation, we could be subject to additional criminal penalties or
prosecution, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Discontinued Operations – Matters Related to Breg and Possible Indemnification Obligations

On May 24, 2012, the Company sold Breg to an affiliate of Water Street Healthcare Partners II, L.P. (“Water Street”). Under the terms of
the agreement, the Company indemnified Water Street and Breg with respect to certain specified matters, including the following:

(cid:2)

Breg was engaged in the manufacturing and sale of local infusion pumps for pain management from 1999 to 2008. Since
2008, numerous product liability cases have been filed in the United States alleging that the local anesthetic, when
dispensed by such infusion pumps inside a joint, causes a rare arthritic condition called “chondrolysis.” The Company
incurred losses for settlements and judgments in connection with these matters during 2016, 2015 and 2014 of $0.9
million, $0.3 million and $3.8 million, respectively. In addition, several cases remain outstanding for which the Company
currently cannot reasonably estimate the possible loss, or range of loss.

At the time of its sale, Breg was engaged in the manufacturing and sales of motorized cold therapy units used to reduce
pain and swelling. Several domestic product liability cases have been filed in recent years, mostly in California state court,
alleging the use of cold therapy causes skin and/or nerve injury and seeking damages on behalf of individual plaintiffs who

F-19

were allegedly injured by such units or who would not have purchased the units had they known they could be injured. In
September 2014, the Company entered into a master settlement agreement resolving all pending pre-close claims.
Pursuant to the terms of the settlement agreement, the Company paid approximately $1.3 million, and additional
amounts owed under the settlement were paid directly by the Company’s insurance providers. Remaining cold therapy
claims include a plaintiff’s appeal to the California Supreme Court after the intermediate appellate court reduced an
adverse July 2012 jury verdict, and a post-close cold therapy claim pending in California state court. As of December 31,
2016, the Company has an accrual of $2.4 million recorded within other current liabilities for the July 2012 verdict and post-
close cold therapy liabilities; however, the actual liability could be higher or lower than the amount accrued.

Charges incurred as a result of this indemnification are reflected as discontinued operations in our Consolidated Statements of
Operations and Comprehensive Income (Loss).

13.

Shareholders’ equity

Dividends

The Company has not paid dividends to holders of its common stock in the past. Certain subsidiaries of the Company have
restrictions on their ability to pay dividends in certain circumstances pursuant to the Credit Agreement. In the event that the
Company decides to pay a dividend to holders of its common stock in the future with dividends received from its subsidiaries, the
Company may, based on prevailing rates of taxation, be required to pay additional withholding and income tax on such amounts
received from its subsidiaries.

Share Repurchase Plan

In August 2015, the Company’s Board of Directors authorized a share repurchase plan, authorizing the purchase of up to $75 million
of the Company’s common stock through and including September 2017. The Company completed the share repurchase plan in the
fourth quarter of 2016. Under the program, common shares repurchased consisted of open market transactions at prevailing market
prices in accordance with the guidelines specified under Rule 10b-18 of the Exchange Act, as amended. Repurchases were made
from cash on hand and cash generated from operations. For the year ended December 31, 2016, the Company repurchased
1,544,681 shares of common stock for $63.4 million with an average price per share of $41.06, which were all retired upon
repurchase.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is comprised of foreign currency translation adjustments; the effective portion of the gain
(loss) on the Company’s cross-currency swap, which was designated and accounted for as a cash flow hedge (see Note 9); and the
unrealized loss on the Company’s debt securities. The components of and changes in accumulated other comprehensive loss are as
follows:

(U.S. Dollars, in thousands)
Balance at December 31, 2014
Other comprehensive income (loss)
Income taxes
Balance at December 31, 2015
Other comprehensive loss
Income taxes
Reclassification adjustments to:

Other expense, net
Income taxes

Balance at December 31, 2016

Currency
Translation
Adjustments

Derivatives

Debt Securities

Accumulated Other
Comprehensive
Loss

(482) $
(3,907)
—
(4,389) $
(726)
—

—
—
(5,115) $

100 $
202
(74)
228 $
(360)
132

—
—
— $

— $
(3,348)
1,277
(2,071) $
(1,744)
659

2,727
(1,036)
(1,465) $

(382)
(7,053)
1,203
(6,232)
(2,830)
791

2,727
(1,036)
(6,580)

F-20

14.

Revenue recognition and accounts receivable

The table below presents net sales, which includes product sales and marketing service fees, for each of the years ended December
31, 2016, 2015, and 2014.

(U.S. Dollars, in thousands)
Product sales
Marketing service fees
Net sales

For the year ended December 31,
2015

2014

2016

355,652 $
54,136
409,788 $

341,084 $
55,405
396,489 $

351,525
50,752
402,277

Product sales primarily consist of stimulation devices and implant products. Marketing service fees are received from MTF based on
total sales of biologics tissues. Revenues exclude any value added or other local taxes, intercompany sales and trade discounts.
Shipping and handling costs for products shipped to customers are included in cost of sales, and were $2.0 million, $2.2 million and
$2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

BioStim

BioStim revenue is comprised of third-party payor transactions and wholesale revenue.

The largest portion of BioStim revenue is derived from third-party payors. This includes commercial insurance carriers, health
maintenance organizations, preferred provider organizations and governmental payors such as Medicare, in connection with the
sale of the Company’s stimulation products. Revenue is recognized when the stimulation product is placed on and accepted by the
patient. Amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates. These revenues
are recorded at the expected or preauthorized reimbursement rates, net of any contractual allowances or adjustments. Certain
billings are subject to review by the third-party payors and may be subject to adjustment.

Wholesale revenue is related to the sale of the Company’s bone growth stimulators directly to physicians and other healthcare
providers. Wholesale revenues are recognized upon shipment and receipt of a confirming purchase order.

Biologics

Biologics revenue is primarily related to a collaborative arrangement with MTF through which the Company markets tissue for bone
repair and reconstruction under the brand names Trinity Evolution and Trinity ELITE. The Company has exclusive global marketing
rights for Trinity Evolution as well as non-exclusive marketing rights for other products, and receives marketing fees from MTF based
on total sales. MTF is considered the primary obligor in these arrangements and therefore the Company recognizes these marketing
service fees on a net basis within net sales upon shipment of the product to the customer.

In 2008, the Company and MTF entered into an agreement to develop and commercialize the Trinity Evolution tissue, a stem cell-
based bone growth biologic matrix. With the development process completed in 2009, the Company and MTF operated under the
terms of a separate commercialization agreement. Under the terms of the 10-year agreement, MTF sourced the tissue, processed it
to create the bone growth matrix, packaged and delivered it to the customer in accordance with orders received from the Company.
On January 10, 2012, the Company announced that it had reached an agreement with MTF to both co-develop and commercialize a
new technology for use in bone grafting applications and to expand MTF’s Trinity Evolution processing capacity. The collaborative
agreement between the Company and MTF extends through July 28, 2025. In July 2013, the Company, in collaboration with MTF,
released its next generation Trinity ELITE allograft with viable cells, which, unlike its predecessor, has unique graft containment
properties and is fully moldable by the user.

Extremity Fixation and Spine Fixation

Revenue within Extremity Fixation and Spine Fixation is comprised of commercial revenue and revenue from distributor
arrangements.

Commercial revenue is related to the sale of the Company’s implant products, generally representing hospital customers. Revenues
are recognized when these products have been utilized and a confirming purchase order has been received from the hospital.
Revenue for certain government entities is recorded on a cash-basis as collectability is not reasonably assured.

F-21

For revenue from distributor arrangements, the Company recognizes revenue once the product is delivered to the end customer
(the “sell-through method”). Because the Company does not have reliable information about when its distributors sell the product
through to end customers, the Company uses cash collection from distributors as a basis for revenue recognition under the sell-
through method. Although in many cases the Company is legally entitled to the accounts receivable at the time of shipment, the
Company has not recognized accounts receivables or any corresponding deferred revenues associated with distributor transactions
for which revenue is recognized on the sell-through method.

For distributor arrangements, the Company also considers whether to match the related cost of sales with revenue or to recognize
cost of sales upon shipment. In making this assessment, the Company considers the financial viability of its distributors based on
their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped is reasonably
assured at the time of shipment to these distributors. In instances where the distributor is determined to be financially viable, the
Company defers the costs of sales until the revenue is recognized.

Trade Accounts Receivable and Allowances

Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual
allowances. Revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales
and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. The Company’s estimates
are periodically tested against actual collection experience.

The Company will generally sell receivables from certain Italian hospitals each year. During 2016, 2015, and 2014 the Company sold
€10.0 million, €10.9 million, and €9.8 million ($11.1 million, $11.9 million, and $12.8 million) of receivables, respectively. The
estimated related fee for 2016, 2015 and 2014 was $0.4 million, $0.5 million and $0.4 million, respectively, which is recorded as
interest expense. Trade accounts receivables sold without recourse are removed from the balance sheet at the time of sale.

15.

Business segment information

We manage our business by our four SBUs: BioStim, Biologics, Extremity Fixation, and Spine Fixation. These SBUs represent the
operating segments for which our Chief Executive Officer, who is also Chief Operating Decision Maker (the “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, our reporting segment information has been prepared based on our four SBUs.

BioStim

The BioStim SBU manufactures, distributes, and provides support services of market leading bone growth stimulator devices that
enhance bone fusion. These Class III medical devices are indicated as an adjunctive, noninvasive treatment to improve fusion success
rates in cervical and lumbar spine as well as a therapeutic treatment for non-spine fractures that have not healed (non-unions). This
SBU uses distributors and sales representatives to sell its devices to hospitals, healthcare providers, and patients, primarily in the
U.S.

Biologics

The Biologics SBU provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety
of spinal and orthopedic conditions. This SBU specializes in the marketing of the Company’s exclusive regeneration tissue forms.
Biologics markets its tissues through a network of distributors and independent sales representatives to supply to hospitals, doctors,
and other healthcare providers, primarily in the U.S. Our partnership with MTF allows us to exclusively market our Trinity Evolution
and Trinity ELITE tissue forms for musculoskeletal defects to enhance bony fusion.

Extremity Fixation

F-22

products through a network of distributors and sales representatives to sell orthopedic 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 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 table below presents net sales by reporting segment:

(U.S. Dollars, in thousands)
BioStim
Biologics
Extremity Fixation
Spine Fixation
Net sales

2016

Net Sales
$ 176,561
57,912
102,683
72,632
$ 409,788

Year Ended December 31,
2015

Percent of
Total Net
Sales

Net Sales

Percent of
Total Net
Sales

2014

Percent of
Total Net
Sales

Net Sales

43.1% $ 164,955
59,832
14.1%
96,034
25.1%
75,668
17.7%
100.0% $ 396,489

41.6% $ 154,676
55,881
15.1%
24.2% 109,678
82,042
19.1%
100.0% $ 402,277

38.5%
13.9%
27.3%
20.4%
100.0%

The following table presents net margin by reporting segment:

(U.S. Dollars, in thousands)

BioStim
Biologics
Extremity Fixation
Spine Fixation
Corporate

Net margin
General and administrative
Research and development
Restatements and related costs
Charges related to U.S. Government resolutions
Operating income

2016

Year Ended December 31,
2015

2014

75,469 $
26,891
30,526
8,650
(888)
140,648 $
74,404
28,803
2,005
14,369
21,067 $

67,878 $
27,226
29,493
8,547
(1,260)
131,884 $
87,157
26,389
9,083
—
9,255 $

66,096
26,629
31,586
14,243
(1,736)
136,818
79,074
24,994
15,614
—
17,136

The following table presents depreciation and amortization by reporting segment:

(U.S. Dollars, in thousands)
BioStim
Biologics
Extremity Fixation
Spine Fixation
Corporate
Total

2016

Year Ended December 31,
2015

2014

2,754 $
1,011
5,742
8,118
3,216
20,841 $

2,933 $
1,157
6,636
10,050
147
20,923 $

1,623
1,161
8,442
11,711
(59)
22,878

F-23

Geographical information

The following data includes net sales by geographic destination:

(U.S. Dollars, in thousands)
U.S.
Italy
United Kingdom
Brazil
Others
Net sales

2016

2015

2014

316,873 $
16,664
10,362
11,334
54,555
409,788 $

305,505 $
15,655
11,376
13,512
50,441
396,489 $

294,682
19,573
11,402
19,633
56,987
402,277

The following data includes property, plant and equipment by geographic area:

(U.S. Dollars, in thousands)
U.S.
Italy
United Kingdom
Brazil
Others
Total

2016

2015

38,398 $
7,013
617
769
2,119
48,916 $

42,534
6,015
998
1,036
1,723
52,306

16.

Share-based compensation

At December 31, 2016, the Company had stock option and award plans, and an employee stock purchase plan.

2012 Long Term Incentive Plan

The Board of Directors adopted the Orthofix International N.V. 2012 Long-Term Incentive Plan (the “2012 LTIP”) on April 13, 2012,
subject to shareholder approval, which was subsequently provided by shareholder ratification. The 2012 LTIP provides for the grant of
options to purchase shares of the Company’s common stock, stock awards (including restricted stock, unrestricted stock, and stock
units), stock appreciation rights, performance-based awards and other equity-based awards. All of the Company’s employees and the
employees of the Company’s subsidiaries and affiliates are eligible and may receive awards under the 2012 LTIP. In addition, the
Company’s non-employee directors and consultants and advisors who perform services for the Company and the Company’s
subsidiaries and affiliates may receive awards under the 2012 LTIP. Incentive share options, however, are only available to the
Company’s employees. Awards granted under the 2012 LTIP expire no later than ten years after the date of grant. The Company
reserves a total of 3,200,000 shares of common stock for issuance pursuant to the 2012 LTIP, subject to certain adjustments set forth in
the 2012 LTIP. At December 31, 2016, there were 787,646 options outstanding under the 2012 LTIP Plan, of which 264,673 were
exercisable. In addition, there were 551,229 shares of unvested restricted stock outstanding, some of which contain performance
conditions, and 151,575 units of performance stock units outstanding under the plan as of December 31, 2016.

2004 Long Term Incentive Plan

The 2004 Long Term Incentive Plan (the “2004 LTIP Plan”) reserved 3.1 million shares for issuance (in addition to shares (i) available
for future awards as of June 29, 2004 under prior plans or (ii) that become available for future issuance upon the expiration or
forfeiture after June 29, 2004 of awards upon prior plans). At December 31, 2016, there were 199,533 options outstanding under
the 2004 LTIP Plan, of which 199,533 were exercisable; in addition, there were no shares of unvested restricted stock outstanding.

Stock Purchase Plan

The Orthofix International N.V. Amended and Restated Stock Purchase Plan (the “Stock Purchase Plan”) provides for the issuance of
shares of the Company’s common stock to eligible employees and directors of the Company and its subsidiaries that elect to
participate in the plan and acquire shares of common stock through payroll deductions (including executive officers).

F-24

During each purchase period, eligible employees may designate between 1% and 25% of their compensation to be deducted for the
purchase of common stock under the plan (or such other percentage in order to comply with regulations applicable to Employees
domiciled in or resident of a member state of the European Union). For eligible directors, the designated percentage will be an
amount equal to his or her annual or other director compensation paid in cash for the current plan year. The purchase price of the
shares under the plan is equal to 85% of the fair market value on the first day of the plan year (which is a calendar year, running
from January 1 to December 31) or, if lower, on the last day of the plan year.

Due to the compensatory nature of such plan, the Company records the related share based compensation in the consolidated
statement of operations. The aggregate number of shares reserved for issuance under the Stock Purchase Plan is 1,850,000. As of
December 31, 2016, 1,385,169 shares had been issued.

Share-Based Compensation Expense

The following tables present the detail of share-based compensation by line item in the consolidated statements of operations as
well as by award type, for the years ended December 31, 2016, 2015 and 2014:

(U.S. Dollars, in thousands)
Cost of sales
Sales and marketing
General and administrative
Research and development

Total

(U.S. Dollars, in thousands)
Stock options
Time-based restricted stock awards
Performance-based restricted stock awards
Performance-based and market-based restricted stock units
Stock purchase plan

Total

2016

Year Ended December 31,
2015

2014

553 $

1,230
13,132
1,051
15,966 $

440 $

1,304
5,051
419
7,214 $

2016

Year Ended December 31,
2015

2014

2,021 $
6,016
5,716
948
1,265
15,966 $

1,437 $
4,606
—
—
1,171
7,214 $

137
1,701
3,578
308
5,724

1,391
3,400
—
—
933
5,724

The income tax benefit related to this expense was $4.3 million, $1.6 million, and $1.3 million for the years ended December 31,
2016, 2015, and 2014, respectively.

Stock Options

The fair value of service-based stock options is determined using the Black-Scholes valuation model, with such value recognized as
expense over the service period net of actual forfeitures. The fair value of market-based stock options is determined at the date of
the grant using the Monte Carlo valuation methodology, with such value recognized as expense over the requisite service period
adjusted for forfeitures as they occur. The Monte Carlo methodology incorporates into the valuation the possibility that the market
condition may not be satisfied.

A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the year is shown
in the following table.

Assumptions:
Expected term (in years)
Expected volatility
Risk free interest rate
Dividend yield
Weighted average grant date fair value

Year Ended December 31,

2016

2015

4.50
30.6% – 32.3%
1.07% – 1.92%
—
11.79 $

4.50
31.1% – 31.6%
1.37% – 1.54%
—
9.49 $

2014

5.00
31.7% – 34.5%
1.52% – 1.70%
—
10.45

F-25

The expected term of the options granted is estimated based on a number of factors, including the vesting and expiration terms of
the award, historical employee exercise behavior for both options that are currently outstanding and options that have been
exercised or are expired, the historical volatility of the Company’s common stock and an employee’s average length of service. The
risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the
expected term of the option award. Expected volatility is estimated based on the historical volatility of the Company’s stock.

Summaries of the status of the Company’s stock option plans as of December 31, 2016 and 2015 and changes during the year ended
December 31, 2016 are presented below:

Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Vested and expected to vest at December 31, 2016
Exercisable at December 31, 2016

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

34.26
43.04
34.50
35.04
36.05
36.05
33.76

6.69
6.69
4.57

Options
1,412,602 $
250,432 $
(469,945) $
(55,910) $
1,137,179 $
1,137,179 $
464,206 $

The table below summarizes the options outstanding and exercisable by exercise price range as of December 31, 2016:

Range of Exercise Prices
$16.62 – $25.01
$25.05 – $29.23
$30.78 – $32.28
$33.12 – $33.12
$33.24 – $36.25
$36.46 – $40.19
$41.73 – $42.89
$44.39 – $44.39
$44.87 – $50.50
$50.99 – $50.99
$16.62 – $50.99

Options Outstanding
Weighted
Average
Remaining
Contractual
Life

Number

Outstanding

Options Exercisable

Weighted
Average
Exercise
Price

Number

Exercisable

Weighted
Average
Exercise
Price

106,207
102,750
99,650
142,815
121,875
262,750
59,500
168,432
65,700
7,500
1,137,179

5.74 $
5.06 $
6.63 $
8.50 $
7.74 $
6.64 $
4.71 $
9.50 $
0.48 $
0.04 $
6.69 $

22.32
27.57
31.96
33.12
35.51
38.93
41.93
44.39
45.17
50.99
36.05

80,271 $
82,750 $
57,288 $
35,708 $
52,051 $
45,438 $
37,500 $
— $
65,700 $
7,500 $
464,206 $

22.55
27.82
31.90
33.12
35.82
39.24
41.37
—
45.17
50.99
33.76

As of December 31, 2016, the unamortized compensation expense relating to options granted and expected to be recognized was
$3.2 million. This amount is expected to be recognized through December 2020 or over a weighted average period of approximately
1.6 years. The total intrinsic value of options exercised was $4.3 million, $0.7 million and $2.1 million for the years ended
December 31, 2016, 2015 and 2014, respectively. The aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the
Company’s common stock for the shares that had exercise prices that were lower than the $36.18 closing price of the Company’s
stock on December 31, 2016. The aggregate intrinsic value of options outstanding was $3.3 million, $8.0 million and $2.4 million for
the years ended December 31, 2016, 2015, and 2014, respectively. The aggregate intrinsic value of options exercisable was $2.2
million, $4.3 million and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.

F-26

Time-based Restricted Stock Awards

During the year ended December 31, 2016, the Company granted to employees and non-employee directors 186,515 shares of
restricted stock, which vest at various dates through November 2020. During the year ended December 31, 2015, the Company
granted to employees and non-employee directors 203,618 shares of restricted stock, which vest at various dates through August
2019. The compensation expense, which represents the fair value of the stock measured at the market price at the date of grant, is
recognized on a straight-line basis over the vesting period, net of actual forfeitures. The aggregate fair value of restricted stock that
vested during the years ended December 31, 2016, 2015 and 2014 was $5.5 million, $5.6 million and $2.5 million, respectively.
Unamortized compensation expense related to restricted stock amounted to $10.6 million at December 31, 2016, and is expected to
be recognized over a weighted average period of approximately 2.4 years. The aggregate intrinsic value of restricted stock
outstanding was $13.0 million, $14.9 million and $11.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Performance-based Restricted Stock Awards

The fair value of performance-based restricted stock awards is calculated based upon the closing stock price at the date of grant.
Such value is recognized as expense over the derived requisite service period beginning in the period in which they are deemed
probable to vest, net of actual forfeitures. Vesting probability is assessed based upon forecasted earnings and financial results.

During the year ended December 31, 2016, the Company did not grant any performance-based restricted stock awards to
employees. During the year ended December 31, 2015, the Company granted to employees 110,660 shares of performance-based
restricted stock, which vest based upon the achievement of certain earnings or return on invested capital targets as of and for any of
the years ended December 31, 2016, 2017, or 2018. Approximately $5.7 million of compensation expense has been recorded for the
year ended December 31, 2016 associated with the determination in 2016 that it is probable the performance criteria related to
certain grants of the Company’s performance-based vesting restricted stock will be achieved. No expense was recorded for the years
ended December 31, 2015 and 2014, related to performance-based restricted stock. Unamortized compensation expense related to
performance-based restricted stock amounted to $0.9 million at December 31, 2016, which is contingent upon meeting certain
performance-based vesting criteria and is expected to be recognized over a weighted average period of approximately 2.0 years. The
aggregate intrinsic value of performance-based restricted stock awards outstanding was $7.0 million, $7.6 million and $2.6 million
for the years ended December 31, 2016, 2016, and 2014, respectively.

Performance-based and Market-based Restricted Stock Units

The Company’s performance-based stock units (“PSUs”) consist of awards that contain either market conditions or performance
conditions as a requirement for vesting.

The fair value of market-based PSUs is determined at the date of the grant using the Monte Carlo valuation methodology, with any
discounts for post-vesting restrictions estimated using the Chaffe Model. The Monte Carlo methodology incorporates into the
valuation the possibility that the market condition may not be satisfied. Such value is recognized on a straight-line basis over the
vesting period, net of actual forfeitures. During the year ended December 31, 2016, the Company granted 96,245 shares of market-
based PSUs to executive officers and certain employees. The awards, if the market conditions are achieved, will be settled in shares
of common stock, with one share of common stock issued per PSU if targets are achieved at the 100% level. Awards may be
achieved at a minimum level of 50% and a maximum of 200%. The market conditions are based on the Company’s stock achieving
certain total shareholder return targets relative to specified index companies during a 3-year performance period beginning on July
1, 2016. The Company recorded $0.9 million in compensation expense for the year ended December 31, 2016, and no expense for
the years ended December 31, 2015 and 2014, respectively related to market-based PSUs. Unamortized compensation expense for
market-based PSUs amounted to $3.8 million at December 31, 2016, and is expected to be recognized over a weighted average
period of approximately 2.5 years. The aggregate intrinsic value of market-based PSUs outstanding was $3.5 million, $0.0 million,
and $0.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.

The fair value of performance-based PSUs is calculated based upon the closing stock price at the date of grant. Such value is
recognized as expense over the derived requisite service period beginning in the period in which the awards are deemed probable to
vest. Vesting probability is assessed based upon forecasted earnings and financial results. During the year ended December 31,
2015, the Company granted 55,330 shares of performance-based PSUs to employees, which vest based upon the achievement of
certain earnings or return on invested capital targets for the year ended December 31, 2018. The Company has not recorded any
compensation expense for the years ended December 31, 2016, 2015, or 2014 related to performance-based PSUs as the
performance conditions are not currently considered probable to vest. Unamortized compensation expense related to performance-

F-27

based PSUs amounts to $1.8 million at December 31, 2016 and is expected to be recognized over a weighted average period of
approximately 2.0 years, if all performance conditions are met. The aggregate intrinsic value of performance-based PSUs
outstanding was $2.0 million, $2.2 million, and $0.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.

A summary of the status of our restricted stock and stock units as of December 31, 2016 and 2015 and changes during the year
ended December 31, 2016 are presented below:

Time-based
Awards

Performance-based
Awards

Performance-based or
Market-based
Stock Units

Weighted
Average
Grant
Date Fair
Value

32.15 192,310 $
— $
43.73
— $
31.86
32.54
— $
38.27 192,310 $

379,138 $
186,515 $
(171,451) $
(35,283) $
358,919 $

Non-vested as of December 31, 2015
Granted
Vested
Cancelled
Non-vested as of December 31, 2016

17.

Pensions and deferred compensation

Defined Contribution Plans

Weighted
Average
Grant
Date Fair
Value

34.45
—
—
—

Shares
55,330 $
96,245 $
— $
— $
34.45 151,575 $

Weighted
Average
Grant
Date Fair
Value

33.12
49.53
—
—
43.54

Orthofix Inc. sponsors a defined contribution plan (the “401(k) Plan”) covering substantially all full time US employees. The
401(k) Plan allows participants to contribute up to 15% of their pre-tax compensation, subject to certain limitations, with the
Company matching 100% of the first 2% of the employee’s base compensation and 50% of the next 4% of the employee’s base
compensation if contributed to the 401(k) Plan. During the years ended December 31, 2016, 2015 and 2014, expenses incurred
relating to the 401(k) Plan, including matching contributions, were approximately $1.9 million, $2.0 million and $1.7 million,
respectively.

The Company also operates defined contribution pension plans for its international employees meeting minimum service
requirements. The Company’s expenses for such pension contributions during each of the years ended December 31, 2016, 2015
and 2014 were $1.0 million, $1.1 million and $0.8 million, respectively.

Deferred Compensation Plans

Under Italian Law, our Italian subsidiary accrues, on behalf of its employees, deferred compensation, which is paid on termination of
employment. The accrual for deferred compensation is based on a percentage of the employee’s current annual remuneration plus
an annual charge. Deferred compensation is also accrued for the leaving indemnity payable to agents in case of dismissal, which is
regulated by a national contract and is equal to approximately 3.8% of total commissions earned from the Company. The Company’s
relations with its Italian employees, who represent 19.3% of total employees at December 31, 2016, are governed by the provisions
of a National Collective Labor Agreement setting forth mandatory minimum standards for labor relations in the metal mechanic
workers industry. The Company is not a party to any other collective bargaining agreement.

The Orthofix Deferred Compensation Plan, administered by the Board of Directors of the Company, effective January 1, 2007, and as
amended and restated effective January 1, 2009, is a plan intended to allow a select group of key management and highly
compensated employees of the Company to defer the receipt of compensation that would otherwise be payable to them. As of
January 1, 2011 the Company disallowed further contributions into the plan and any new plan participants. Distributions are made in
accordance with the requirements of Code Section 409A.

The Company’s expense for both deferred compensation plans described above was approximately $0.1 million for each of the years
ended December 31, 2016, 2015, and 2014. There were $0.1 million in deferred compensation payments made in 2016, none in 2015,
and $0.3 million in 2014. The balance in other long-term liabilities as of December 31, 2016 and 2015 was $1.5 and $1.5 million,
respectively, and represents the amount which would be payable if all the employees and agents had terminated employment at that
date.

F-28

18.

Income taxes

Income (loss) from continuing operations before provision for income taxes consisted of the following:

(U.S. Dollars, in thousands)

U.S.
Non-U.S.

Income before income taxes

2016

Year Ended December 31,
2015

2014

23,006 $
(3,982)
19,024 $

15,480 $
(6,973)
8,507 $

17,532
(5,076)
12,456

The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and income tax basis
of assets and liabilities, and for operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which those items are expected to be realized. Tax law and rate changes are recorded in
the period such changes are enacted. The Company establishes a valuation allowance when it is more likely than not that certain
deferred tax assets will not be realized in the foreseeable future.

The provision for income taxes on continuing operations consists of the following:

(U.S. Dollars, in thousands)
U.S.

Current
Deferred

Non-U.S.

Current
Deferred

2016

Year Ended December 31,
2015

2014

558 $

9,296
9,854

4,509
1,164
5,673
15,527 $

6,792 $
(1,146)
5,646

3,661
1,542
5,203
10,849 $

5,067
2,825
7,892

18,186
(9,878)
8,308
16,200

Income tax expense

The rate reconciliation for continuing operations presented below is based on the U.S. federal income tax rate, rather than the
Company’s country of domicile tax rate. The Company believes, given the large proportion of taxable income earned in the United
States, such disclosure is more meaningful.

2016

2015

2014

Amount

Percent

Amount

Percent

Amount

Percent

(U.S. Dollars, in thousands, except percentages)
Statutory U.S. federal income tax rate
State taxes, net of U.S. federal benefit
Foreign rate differential, including withholding taxes
Charges related to U.S. Government resolutions
Valuation allowances, net
Change in estimate on compensation expenses
Italian subsidiary intangible asset
Change of intention for foreign earnings
Domestic manufacturing deduction
Unrecognized tax benefits, net of settlements
Other, net
Income tax expense/effective rate

6,658
395
(805)
2,050
6,149
(2,151)
(1,477)
1,300
—
3,049
359
$ 15,527

35.0% $

2.1
(4.2)
10.8
32.3
(11.3)
(7.8)
6.8
—
16.0
1.9

2,978
521
(1,934)
—
10,952
—
(2,076)
—
(469)
406
471
81.6% $ 10,849

35.0% $

6.1
(22.7)
—
128.7
—
(24.4)
—
(5.5)
4.8
5.5

4,360
1,439
2,386
—
8,672
—
(2,546)
—
(377)
1,370
896
127.5% $ 16,200

35.0%
11.6
19.1
—
69.6
—
(20.4)
—
(3.0)
11.0
7.2
130.1%

During 2016, the Company revised its estimate relating to the deductibility of certain compensation expenses. This change in
estimate reduced income tax expense and increased net income from continuing operations by $2.4 million and increased earnings
per share by $0.13 for the year ended December 31, 2016.

F-29

The Company’s deferred tax assets and liabilities are as follows:

(U.S. Dollars, in thousands)
Intangible assets and goodwill
Inventories and related reserves
Deferred revenue and cost of goods sold
Other accruals and reserves
Accrued compensation
Allowance for doubtful accounts
Accrued interest
Net operating loss carryforwards
Other, net

Valuation allowance
Deferred tax asset
Withholding taxes
Property, plant and equipment
Deferred tax liability
Net deferred tax assets

December 31,

2016

2015

2,628 $

17,665
11,263
4,066
6,747
2,898
4,621
37,930
3,032
90,850
(41,701)
49,149 $
(648)
(1,176)
(1,824)
47,325 $

2,931
17,640
14,358
5,622
2,964
2,863
17,300
38,010
3,379
105,067
(43,340)
61,727
(253)
(4,168)
(4,421)
57,306

The valuation allowance is primarily attributable to net operating loss carryforwards and temporary differences in certain foreign
jurisdictions. The net decrease in the valuation allowance of $1.6 million during the year principally relates to the reduction of
valuation allowances on expiring net operating loss carryforwards, offset by current year losses for which no benefit is recognized.

The Company has U.S. federal net operating loss carryforwards of approximately $4.1 million that will expire in 2036 and state net
operating loss carryforwards of approximately $15.1 million that will begin to expire in 2018. Additionally, the Company has net
operating loss carryforwards in various foreign jurisdictions of approximately $155.5 million that begin to expire in 2017, the
majority of which relate to the Company’s Netherlands operations.

During 2016, the Company changed its intention related to unremitted foreign earnings in its Puerto Rico subsidiary and certain
United Kingdom subsidiaries. As a result of the change in intention, the Company recorded $ 1.3 million of income tax expense for
the remitted and unremitted earnings in each of these subsidiaries. The Company’s current intention is to indefinitely reinvest
substantially all of its other unremitted foreign earnings (residing outside Curaçao). As an entity incorporated in Curaçao, “foreign
earnings” refer to both U.S. and non-U.S. earnings. Furthermore, only income sourced in the U.S. is subject to U.S. income tax.
Unremitted foreign earnings increased from $184.6 million at December 31, 2015 to $198.9 million at December 31, 2016.
Determining the additional income tax that may be payable if such earnings are repatriated is not practicable.

The Company records a benefit for uncertain tax positions when the weight of available evidence indicates that it is more likely than
not, based on an evaluation of the technical merits, that the tax position will be sustained on audit. The tax benefit is measured as
the largest amount that is more than 50% likely to be realized upon settlement. The Company re-evaluates income tax positions
periodically to consider changes in facts or circumstances such as changes in or interpretations of tax law, effectively settled issues
under audit, and new audit activity. The Company includes interest and any applicable penalties related to income tax issues as part
of income tax expense in its consolidated financial statements.

The Company’s unrecognized tax benefit was $18.4 million and $15.8 million for the years ended December 31, 2016 and 2015,
respectively. The Company recorded interest and penalties on unrecognized tax benefits of $2.1 million, $0.2 million, and less than
$0.1 million for the years ended December 31, 2016, 2015, and 2014, respectively, and had approximately $3.0 million and $0.8
million accrued for payment of interest and penalties as of December 31, 2016 and 2015, respectively. The entire amount of
unrecognized tax benefits, including interest, would favorably impact the Company’s effective tax rate if recognized. As of
December 31, 2016, the Company does not expect the amount of unrecognized tax benefits to change significantly over the next
twelve months.

F-30

A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2016,
2015, and 2014 follows:

(U.S. Dollars, in thousands)
Balance as of January 1,
Additions for current year tax positions
Increases (decreases) for prior year tax positions
Settlements of prior year tax positions
Expiration of statutes
Balance as of December 31,

2016

2015

2014

15,763 $
77
2,551
—
(7)
18,384 $

15,597 $
332
(86)
—
(80)
15,763 $

723
14,794
145
—
(65)
15,597

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in certain state and foreign jurisdictions,
including Italy and the United Kingdom. The statute of limitations with respect to federal and state tax filings is closed for years prior
to 2012. The statute of limitations with respect to the major foreign tax filing jurisdictions is closed for years prior to 2012.

During the third quarter of 2015, the Internal Revenue Service commenced an examination of the Company’s federal income tax
return for 2012. Further, in October 2016, the Company was notified of an examination of its federal income tax return for 2013. The
Company cannot reasonably determine if this examination, or any state and local tax examinations, will have a material impact on its
financial statements and cannot predict the timing regarding resolution of these tax examinations.

19.

Earnings per share (EPS)

Basic EPS is computed using the weighted average number of common shares outstanding during each of the respective years.
Diluted EPS is computed using the weighted average number of common and common equivalent shares outstanding during each of
the respective years using the treasury stock method. The difference between basic and diluted shares, if any, largely results from
common equivalent shares, which represents the dilutive effect of the assumed exercise of certain outstanding share options, the
assumed vesting of restricted stock granted to employees and directors, or the satisfaction of certain necessary conditions for
contingently issuable shares (see Note 16).

For each of the three years ended December 31, 2016, no adjustments were made to net income (loss) for purposes of calculating
basic and diluted EPS. The following is a reconciliation of the weighted average shares used in the diluted EPS computations.

Weighted average common shares-basic
Effect of diluted securities:

Unexercised stock options and employee stock purchase plan
Unvested time-based restricted stock awards
Unvested performance-based restricted stock awards

Weighted average common shares-diluted

2016

Year Ended December 31,
2015

2014

18,144,019

18,795,194

18,459,054

161,092
138,291
19,759
18,463,161

—
—
—
18,795,194

—
—
—
18,459,054

No adjustments have been made for any common stock equivalents for the years ended December 31, 2015 or 2014, because the
effect would be anti-dilutive. There were 542,555; 1,033,731 and 1,229,781 outstanding options, restricted stock, and performance-
based or market-based equity awards not included in the diluted earnings per share computation for the years ended December 31,
2016, 2015 and 2014, respectively, because inclusion of these awards was anti-dilutive or, for performance-based and market-based
awards, all necessary conditions have not been satisfied by the end of the respective period.

F-31

20. Quarterly financial data (unaudited)

(U.S. Dollars, in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expense
Operating income (loss)
Net income (loss) from continuing operations
Net income (loss)
Net income (loss) per common share — basic:

Net income (loss) from continuing operations
Net income (loss)

Net income (loss) per common share — diluted:

Net income (loss) from continuing operations
Net income (loss)

Net income (loss) per common share — diluted:

Net income (loss) from continuing operations
Net income (loss)

Year
409,788
87,853
321,935
300,868
21,067
3,497
3,056

0.19
0.17

Year
396,489
86,525
309,964
300,709
9,255
(2,342)
(2,809)

(0.12)
(0.15)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2016

$
$

98,679 $ 104,075 $
22,516
22,137
81,559
76,542
84,254
69,467
(2,695)
7,075
(6,346)
4,576
(7,444) $
3,840 $

98,497 $ 108,537 $
23,320
19,880
85,217
78,617
77,801
69,346
7,416
9,271
(5,117)
10,384
(3,236) $
9,896 $

0.25 $
0.21 $

(0.35) $
(0.41) $

0.57 $
0.55 $

(0.29) $
(0.18) $

0.24 $
0.20 $

(0.35) $
(0.41) $

0.56 $
0.54 $

(0.29) $
(0.18) $

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2015

$
$

89,762 $ 100,954 $ 101,151 $ 104,622 $
21,411
19,339
83,211
70,423
75,831
77,615
7,380
(7,192)
2,106
(7,737)
3,369 $
(8,379) $

23,865
77,286
73,147
4,139
(788)
(1,371) $

21,910
79,044
74,116
4,928
4,077
3,572 $

(0.41) $
(0.45) $

0.22 $
0.19 $

(0.04) $
(0.07) $

(0.41) $
(0.45) $

0.21 $
0.19 $

(0.04) $
(0.07) $

0.11 $
0.18 $

F-32

CORPORATE HEADQUARTERS - U.S. SALES,
MANUFACTURING & DISTRIBUTION

Orthofix International N.V.
3451 Plano Parkway
Lewisville, TX 75056
USA

Tel: 214.937.2000
Fax: 214.937.2736

INTERNATIONAL
EXECUTIVE OFFICE

Orthofix International N.V.
7 Abraham de Veerstraat
Curaçao

INTERNATIONAL SALES, MANUFACTURING
& DISTRIBUTION SUBSIDIARIES

Orthofix S.r.l.
Via delle Nazioni 9
37012 Bussolengo
Verona, Italy

Tel: +39.045.6719000
Fax: +39.045.6719380

Orthofix S.r.l. (International
Distribution Center)
Via della Filanda 7/9
37060 Lugagnano di Sona
Verona, Italy

Tel: +39.045.6719000
Fax: +39.045.6719380

Orthofix do Brasil Ltda.
Rua Alves Guimarães, 1212/1216
Pinheiros 05410-002
São Paulo – SP
Brazil

Tel: +55.11.30872260
Fax: +55.11.30872266

Orthofix GmbH / Orthofix Spine GmbH
Siemensstraße 5
85521 Ottobrunn
Munich/Germany

Tel: +49.89.35499990
Fax: +49.89.354999977

Orthofix S.A.
21-37 Rue de Stalingrad, 24/28 Villa Baudran
94110 Arcueil
France

Tel: +33.1.41983333
Fax: +33.1.41983344

Orthofix Australia Pty. Ltd.
c/o Baker & McKenzie LLP
AMP Centre, Level 27
50 Bridge Street
Sydney NSW 2000
Australia

Tel: +61.2.9493.4448
Fax: +61.2.9493.444 1

Orthofix Ltd.
Burney Court Unit 5
Cordwallis Park
Maidenhead, Berkshire
SL6 7BZ
United Kingdom

Tel: +44.1628.594500
Fax: +44.1628.789400

Implantes Y Sistemas Medicos, Inc.
Calle Diana #22 Esquina Calle Emma
Amelia Industrial Park
Guaynabo, 00968
Puerto Rico

Tel: +1.787.273.8115
Fax: +1.787.273.8105

COMMON STOCK

Approximately 290 shareholders of record.
Traded on the NASDAQ
Symbol: OFIX

TRANSFER AGENT

Computershare Investor Services
P.O. BOX 30170
College Station, TX 77842-3170
1.877.205.0957
www.computershare.com/investor
or

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Ernst & Young LLP
Dallas, TX

1.800.535.4492
orthofix.com