UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                   For the fiscal year ended December 31, 2003
                                       or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
           For the transition period from____________ to ____________.

                         Commission File Number: 0-19961

                           ORTHOFIX INTERNATIONAL N.V.
             (Exact name of registrant as specified in its charter)

        Netherlands Antilles                               N/A
- ----------------------------------------    -----------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)
      7 Abraham de Veerstraat
             Curacao
        Netherlands Antilles                               N/A
- ----------------------------------------    -----------------------------------
(Address of principal executive offices)                (Zip Code)

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

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

                                      None

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

                          Common Stock, $0.10 par value

                                (Title of Class)
                                _______________

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 at least the past 90 days.
Yes [ X ]   No [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]

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
registrant's most recently completed second fiscal quarter, June 30, 2003, as
reported by the Nasdaq National Market, was approximately $178.5 million. Shares
of common stock held by executive officers and directors and persons who own 5%
or more of the outstanding common stock have been excluded since such persons
may be deemed affiliates. This determination of affiliate status is not a
determination for any other purpose.

As of March 5, 2004, 15,050,342 shares of common stock were issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the registrant's Proxy Statement to be filed with the
Commission in connection with the 2004 Annual General Meeting of Shareholders
are incorporated by reference in Part III of this Form 10-K.





Orthofix International N.V.


                                Table of Contents

                                                                           Page

PART I........................................................................4

     Item 1.  Business........................................................4
     Item 2.  Properties.....................................................28
     Item 3.  Legal Proceedings..............................................29
     Item 4.  Submission of Matters to a Vote of Security Holders............30
PART II......................................................................31
     Item 5.  Market for Registrant's Common Equity and Related
                Stockholder Matters..........................................31
     Item 6.  Selected Financial Data........................................33
     Item 7.  Management's Discussion and Analysis of Financial Condition
                and Results of Operations....................................34
     Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....44
     Item 8.  Financial Statements and Supplementary Data....................44
     Item 9.  Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure.....................................44
     Item 9A. Controls and Procedures........................................44
PART III.....................................................................45
     Item 10. Directors and Executive Officers of the Registrant.............45
     Item 11. Executive Compensation.........................................48
     Item 12. Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholders..........................48
     Item 13. Certain Relationships and Related Transactions.................48
     Item 14. Principal Accountant Fees and Services.........................48
PART IV......................................................................49
     Item 15. Exhibits, Financial Statement Schedules and Reports on
                 Form 8-K....................................................49


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Orthofix International N.V.


                           Forward-Looking Statements

         This Form 10-K contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934 relating to our business
and financial outlook, which are based on our current 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," "predicts," "potential" or "continue" or
other comparable terminology. These forward-looking statements are not
guarantees of future performance and involve risks, uncertainties, estimates and
assumptions that are difficult to predict. Therefore, 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 on
which it is made, and we undertake no obligation to update any such statement to
reflect new information, the occurrence of future events or circumstances or
otherwise.

         The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation. We
would like to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act in connection with the forward-looking
statements included in this document.

         Factors that could cause actual results to differ materially from those
indicated by the forward-looking statements or that could contribute to such
differences include, but are not limited to, risks relating to the integration
of the businesses of Orthofix and Breg, unanticipated expenditures, changing
relationships with customers, suppliers and strategic partners, risks relating
to the protection of intellectual property, changes to the reimbursement
policies of third parties, changes to governmental regulation of medical
devices, the impact of competitive products, changes to the competitive
environment, the acceptance of new products in the market, conditions of the
orthopedic industry and the economy and the other risks described under Item 1 -
"Business - Risk Factors" in this Form 10-K.


                                       3




Orthofix International N.V.


                                     PART I

Item 1.  Business
- -----------------

         In this Form 10-K, the terms "we", "us", "our", "Orthofix" and "our
company" refer to the combined operations of all of Orthofix International N.V.
and its respective consolidated subsidiaries and affiliates, unless the context
requires otherwise. For purposes of this Form 10-K, the subsidiaries of a person
include all entities that such person controls.

                                    Overview

         We are a diversified orthopedic products company offering a broad line
of minimally invasive surgical, as well as non-surgical, products for the spine,
reconstruction and trauma market sectors. Our products are designed to address
the lifelong bone-and-joint health needs of patients of all ages, helping them
achieve a more active and mobile lifestyle. We design, develop, manufacture,
market and distribute medical equipment used principally by musculoskeletal
medical specialists for orthopedic applications. Our main products are external
and internal fixation devices used in fracture treatment, limb lengthening and
bone reconstruction, non-invasive stimulation products used to enhance the
success rate of spinal fusions and to treat non-union fractures, and bracing
products used for ligament injury prevention, pain management and protection of
surgical repair to promote faster healing. Our products also include a device
for enhancing venous circulation, cold therapy, other pain management products,
bone cement and devices for removal of the bone cement used to fix artificial
implants, a bone substitute compound and airway management products.

         We have administrative and training facilities in the United States,
the United Kingdom and Italy and manufacturing facilities in the United States,
the United Kingdom, Italy, Mexico and the Seychelles. We directly distribute our
products in the United States, the United Kingdom, Ireland, Italy, Germany,
Switzerland, Austria, France, Belgium, Mexico and Brazil. In several of these
and other markets, we also distribute our products through independent
distributors.

         Orthofix International N.V. is a limited liability company, organized
under the laws of the Netherlands Antilles on October 19, 1987. Our principal
executive offices are located at 7 Abraham de Veerstraat, Curacao, Netherlands
Antilles, telephone number: 599-9-465-8525. Our filings with the Securities and
Exchange Commission, including our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K 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 Securities and Exchange Commission.
Our internet website is located at http://www.orthofix.com.

Important Events in 2003 and 2004

         On February 16, 2004, the Company acquired 100% of the common stock of
a Puerto Rican distribution company, Implantes Y Sistemas Medicos, Inc. (ISMI),
for approximately $1.4 million in cash. ISMI distributes Orthofix and other
third party products.

         On December 30, 2003, we completed the acquisition of privately held
Breg, Inc. (Breg), a designer, manufacturer and distributor of post-operative
reconstruction and rehabilitative products to hospitals and orthopedic offices.
The purchase price for the acquisition was $150.0 million plus closing
adjustments and transaction costs totaling approximately $6.3 million. Financing
costs were approximately $3.8 million. The acquisition and related costs were
financed with $110.0 million of senior secured bank debt, cash on hand and the
issuance of 731,715 shares of Orthofix common stock.

         Breg, based in Vista, California, designs, manufactures and distributes
orthopedic products for post-operative reconstruction and rehabilitative patient
use, including bracing products, cold therapy products and pain therapy
products. Breg generated $61.9 million in net revenues in 2003, approximately
53% of which were attributable to the sale of bracing products, including: (1)
functional braces for prevention of ligament injuries, (2) load-shifting braces
for osteoarthritic pain management, (3) post-operative braces for protecting
surgical repair and

                                       4



Orthofix International N.V.

(4)  foot  and  ankle   supports  that  provide  an   alternative   to  casting.
Approximately 30% of Breg's 2003 net revenues came from the sale of cold therapy
products used to minimize the pain and swelling following knee, shoulder,  elbow
and back injuries or surgery.  Approximately 9% of Breg's 2003 net revenues came
from  the  sale  of  pain  therapy   products  used  for  patient  control  over
post-operative  pain management after common sports medicine  procedures such as
arthroscopy of the knee and shoulder.  Breg sells its products through a network
of domestic and international independent distributors.

         Concurrently with the closing of the Breg acquisition, Colgate Medical
Limited (Colgate), a wholly owned subsidiary of Orthofix, entered into a new
senior secured bank facility with a syndicate of financial institutions arranged
by Wachovia Securities. The new senior secured bank facility provides for (1) a
five-year amortizing term loan facility of $110.0 million, the proceeds of which
were used for partial payment of the purchase price of Breg, and (2) a five-year
revolving credit facility of $15.0 million. As of March 12, 2004, we had no
amounts outstanding under the revolving credit facility. Loans under the new
senior secured bank facility bear interest at a rate per annum equal to LIBOR or
prime rate, plus a margin that is adjusted quarterly based on Colgate's leverage
ratio. As of March 12, 2004, the interest rate on the term loan was set at LIBOR
plus 2.75%, or 3.91% per annum.

         Orthofix and each of Colgate's direct and indirect subsidiaries,
including Orthofix Inc. and Breg, have guaranteed the obligations of Colgate
under the senior secured bank facility. The obligations of Colgate under the
senior secured bank facility and Colgate's subsidiaries under their guarantees
are secured by the pledge of their respective assets. Certain of Orthofix's
other subsidiaries have also guaranteed the obligations of Colgate under the
senior secured bank facility on a limited recourse basis. The credit agreement
relating to the senior secured bank facility contains certain negative covenants
applicable to Colgate and its subsidiaries, including restrictions on
indebtedness, liens, dividends and mergers or sales of assets. The credit
agreement also contains certain financial covenants, including a fixed charge
coverage ratio, an interest coverage ratio and a leverage ratio applicable to
Colgate, and a leverage ratio applicable to Orthofix. See Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

         On September 2, 2003, we announced that we had submitted to the FDA, as
part of our Pre-Market Approval (PMA) application, the final results of a
clinical trial for the Cervical-Stim(R) bone growth stimulator. The prospective,
randomized, multi-center clinical investigation, led by Kevin Foley, M.D., of
the University of Tennessee, enrolled a total of 323 patients and concluded in
January 2003. The objective of this clinical study was to demonstrate safety and
efficacy of the Cervical-Stim(R) device in high-risk subjects who had undergone
cervical fusion for degenerative conditions. We believe that the results of the
study show that there is a "statistically significant positive effect" in the
patients who receive cervical stimulation via our pulsed electromagnetic field
(PEMF)-based bone growth stimulator, Cervical-Stim(R).

         On August 18, 2003, we announced the settlement of a two-year-long
federal investigation by the Office of Inspector General of our billings to
federal and state healthcare programs for the off-label use of our FDA-approved
pulsed electronic magnetic field device. Without admitting any wrongdoing, we
agreed to pay approximately $1.7 million to Tri Care (formerly CHAMPUS) to
settle allegations involving payments to us for bone growth stimulators
prescribed by physicians for patients undergoing surgery on the cervical spine.
We recorded the settlement charge with an after-tax effect of approximately $1.1
million or $.07 per share, in the third quarter of 2003. The Department of
Justice also closed a related concurrent investigation of our billings to other
federal healthcare programs, including Medicare and Medicaid, without taking
further action.

         On June 30, 2003, we announced that Ferrer, Freeman and Company, a
Greenwich, Connecticut based venture capital firm, had purchased 100% of
HealthSouth's shares in the OrthoRx joint venture. As a result, Ferrer, Freeman
and Company is now our partner in the OrthoRx joint venture, which was
established in 2001 to serve the fragmented and underserved orthopedic DME
(Durable Medical Equipment) market.

         Effective April 2, 2003, our two Italian subsidiaries, DMO S.r.l. and
Orthofix S.r.l, merged into one entity, with Orthofix S.r.l being the surviving
entity.

         In January 2003, we announced that we had purchased an equity
interest in Innovative Spinal Technologies (IST), a start-up company focused on
commercializing spinal products. The investment of $1.5 million provides
Orthofix with the ability to participate in spine product research and
development efforts with IST.

                                       5



Orthofix International N.V.

This  collaboration  has already  assisted us to create the next  generation  of
dynamic bracing:  Dynamic  Adjustable  Spine  Stabilization  (DASS),  which will
address  the  need  for  controlled  bracing  of  post-surgical   rehabilitation
patients.

         Effective on January 14, 2003, we completed a Share Purchase Agreement
to acquire the remaining 48% minority interest in our United Kingdom
distribution company, Intavent Orthofix Limited (IOL). We purchased the 48%
interest from Intavent Limited (Intavent) for a cash purchase price of $20.6
million, including transaction costs. IOL distributes Orthofix products, airway
management products and other orthopedic products. Concurrent with the
completion of the Share Purchase Agreement, we completed a Distribution
Agreement with Intavent and a Guarantee Agreement with LMA International S.A.
(LMA) to assure the supply of Laryngeal Mask products in the United Kingdom,
Ireland and Channel Islands for an initial period of seven years. Mr. Robert
Gaines-Cooper, Chairman of Orthofix, is a settlor of a trust, which owns a 30%
interest in Intavent and a 40% interest in LMA. IOL has been, and will continue
to be, a consolidated subsidiary of Orthofix.

         On January 7, 2003, we announced that we had entered into an exclusive
distribution agreement with Efratgo Limited to market the Gotfried Percutaneous
Compression Plating (PC.C.P) System, a minimally invasive method of fracture
stabilization and fixation for hip-fracture surgery developed by Y. Gotfried,
M.D. Under this agreement, we paid $1.0 million for the worldwide rights to
market this product for four years. In addition, we will pay a royalty of up to
$5.0 million based on future sales. We have the right to acquire all patents
pertaining to this system for $5.0 million. The royalty fee paid by us during
the four-year licensing period will be applied against the purchase price of the
patents. The major benefits of this new approach to hip-fracture surgery include
(1) a significant reduction of complications due to a less traumatic operative
procedure; (2) reduced blood loss and less pain (important benefits for the
typically fragile and usually elderly patient population who often have other
medical problems); and (3) faster recovery, with patients often being able to
bear weight a few days after the operation, and improved post-operative results.

Business Strategy

         Our business strategy is to offer innovative, cost-effective orthopedic
products to the spine, reconstruction and trauma market sectors that are
minimally invasive and that reduce patient suffering and healthcare costs. We
intend to continue to expand applications for our products by utilizing
synergies among our core technologies, including those acquired from the Breg
acquisition. We expect to expand our product offerings through business or
product acquisition and licensing agreements, as well as through our own product
development efforts. We will leverage our sales and distribution network by
selling our products in all markets that are available to them. We will continue
to enhance physician relationships through extensive education efforts and
strengthen contracting and reimbursement relationships through our dedicated
sales and administration staff.

Products

         We have two reportable geographic markets (1) the Americas, which
includes our Orthofix Inc. and Breg operations in the United States, as well as
Mexico and Brazil, and (2) International, which includes our direct and
distributor operations in the rest of the world. Our revenues are generally
derived from two primary sources: sales of orthopedic and non-orthopedic
products. Sales of orthopedic products are made into three market sectors, Spine
(39%), Reconstruction (25%) and Trauma (26%), which together accounted for 90%
of our total net sales in 2003. Sales of non-orthopedic products, including
airway management, woman's care and other products, accounted for 10% of our
total net sales in 2003.

                                       6



Orthofix International N.V.


     The following  table  identifies  our principal  products by trade name and
describes their primary applications:

    Product                  Primary Application
    -------                  -------------------

    Orthopedic Products

    Spine

    Spinal-Stim              PEMF non-invasive spinal bone growth stimulation

    Orthotrac                Pneumatic vest used to reduce pressure on the spine

    EZ Brace                 Rigid external brace for spine stabilization

    Reconstruction

    ExFix                    External fixation, including the Sheffield Ring,
                             OASIS and limb-lengthening systems

    A-V Impulse System       Enhancement of venous circulation, principally used
                             after orthopedic procedures

    Cemex                    Bone cement

    ISKD                     Internal limb-lengthening device

    OSCAR                    Ultrasonic bone cement removal

    BoneSource               Bone substitute material

    Breg Bracing (1)         Bracing products which provide support and
                             protection of limbs and extremities

    Polar Care (1)           Cold therapy products to reduce swelling and
                             accelerate the rehabilitation process

    Pain Care (1)            Pain therapy products that provide continuous
                             infusion of local anesthetic into surgical site
                             post-surgery

    Trauma

    ExFix                    External and internal fixation, including DAF,
                             ProCallus, Xcaliber and nailing systems

    Physio-Stim              PEMF non-invasive bone growth stimulation

    PC.C.P                   Percutaneous compression plating system for hip
                             fracture

    Non-Orthopedic Products
    -----------------------

    Laryngeal Mask           Maintenance of airway during anesthesia

    Other                    Several non-orthopedic products for which various
                             Orthofix subsidiaries hold distribution rights

(1) Acquired through the acquisition of Breg on December 30, 2003.

         We have proprietary rights over all of the above products with the
exception of the Laryngeal Mask, Cemex, ISKD and PC.C.P. We have the exclusive
distribution rights for the Laryngeal Mask and Cemex in Italy, for the Laryngeal
Mask in the United Kingdom and Ireland and for the ISKD and PC.C.P systems
worldwide.

         We have trademarked the following products and services: Orthofix(R),
ProCallus(R), Orthotrac(TM), XCaliber(TM), OASIS(TM), EZBrace(TM),
Spinal-Stim(R), Physio-Stim(R), Breg(R), Polar Care(R), and Pain Care(R).

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Orthofix International N.V.


Net Sales

         The following tables display the net sales by geographic destination
and net sales by geographic origination, net of intercompany eliminations, for
each of our geographic markets and by each of our Market Sectors for the three
most recent fiscal years ended December 31, 2003. We provide net sales by
geographic destination and by market sector for information purposes only. We
maintain our books and records by geographic origination.

         Geographic Destination:



                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Americas                $137,861          68%          $122,911              69%        $113,034           70%
International             65,846          32%            54,684              31%          49,326           30%
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Total                   $203,707         100%          $177,595             100%        $162,360          100%
                       =========   ===============     =========    ================    =========   ================




         Geographic Origination:




                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Americas               $116,848            57%         $102,850            58%           $93,995           58%
International            86,859            43%           74,745            42%            68,365           42%
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Total                  $203,707           100%         $177,595           100%          $162,360          100%
                       ========    ===============     =========    ================    ========    ================



         Market Sector:



                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Orthopedic
  Spine                $ 79,552          39%           $ 69,613            39%           $ 63,575         39%
  Reconstruction         51,183          25%             43,838            25%             39,752         24%
  Trauma                 53,706          26%             46,551            26%             42,608         26%
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Total Orthopedic        184,441          90%            160,002            90%            145,935         89%

Non-Orthopedic           19,266          10%             17,593            10%             16,425         11%
                       ---------   ---------------     ---------    ----------------    ---------   ----------------
Total                  $203,707         100%           $177,595           100%           $162,360        100%
                       ========    ===============     =========    ================    =========   ================



         Prior to completion of the Breg acquisition on December 30, 2003, we
provided for information purposes our net sales by Product Groups. We believe
that it is more meaningful to investors to classify net sales from our products
based on the Market Sector that those products are sold into. We have therefore
classified 2003 net sales by Market Sector and restated corresponding net sales
from earlier periods by Market Sector. The "Product" table on page 7 identifies
the Market Sector into which each of our products has been classified.

                                       8



Orthofix International N.V.

         Additional financial information regarding our geographic markets can
be found in Note 12 to the Consolidated Financial Statements.

Orthopedic Products

         Orthopedic product sales represented 90% of our total net sales in
2003.

         Our orthopedic product sales cover three Market Sectors: Spine,
Reconstruction and Trauma.

Spine

         Spine product sales represented 39% of our total net sales in 2003.

         We believe that back pain is a common health problem for many patients
throughout the world, which often requires surgical or non-surgical intervention
for improvement. Back problems are usually of a degenerative nature and are more
prevalent among the older population. As the population ages, we believe
physicians will see an increasing number of patients with degenerative changes
who wish to have a better quality of life in their senior years than that
experienced by previous generations. Treatment options for spine disorders are
expected to expand dramatically to fill the existing gap between conservative
pain management and invasive surgery, such as spine fusion.

         Our spine products are positioned to address the needs of spine
patients at any point within the care cycle, offering non-operative,
pre-operative and post-operative treatments. According to Frost & Sullivan, a
market research firm, the market size for spine products is currently estimated
at $2.4 billion, with a compounded annual growth rate expected to exceed 23%
through the year 2010.

Spinal-Stim

         The Spinal-Stim Bone Growth Stimulator (Spinal-Stim) is designed to
enhance the success rate of spinal fusions by stimulating the body's own natural
healing mechanism. This portable device is intended to be used as part of a
post-surgery home treatment program prescribed by a physician.

         Spinal-Stim was the first non-invasive spinal fusion stimulator system
commercially available in the United States. Spinal-Stim is designed for
treatment of the lower thoracic and lumbar regions of the spine. Some spine
fusion patients are at greater risk than most patients with non-healing
fractures due to risk factors such as smoking, obesity or multiple levels of
spine fusion. For these patients, bone growth stimulation using Spinal-Stim
Lite, the second generation of the Spinal-Stim product line, has been shown to
increase the probability of fusion, without the need for additional surgery.
More than 120,000 patients have been treated using Spinal-Stim since the product
was introduced in 1990. The device uses proprietary technology to generate a
pulsed electromagnetic field (PEMF) signal from a 9-volt battery. Our FDA
approval to market Spinal-Stim commercially is for both failed fusions and
healing enhancement as an adjunct to spinal fusion surgery. The recommended
minimum daily treatment time for Spinal-Stim is two hours. The attending medical
staff can instruct the patient regarding operation of the product and the
appropriate duration of daily treatments. The overall length of treatment is
determined by the prescribing physician, but we would expect it to be between
three and nine months in duration.

         Our stimulation products use a pulsating electric current to enhance
the growth of bone tissue following surgery and are placed externally over the
site to be healed. These products generate a low level of PEMF signals that
induce low pulsating current flow into the living tissues and cells exposed to
the energy field of the products. This pulsating current flow is believed to
change enzyme activities, induce mineralization, enhance vascular penetration
and result in a process resembling normal bone growth at the spinal fusion site.
In addition to the direct sales of this product by our sales force, the
Spinal-Stim Lite is also distributed in the United States by Medtronic Sofamor
Danek Group.

         We operate limited guarantee programs for Spinal-Stim to heighten
awareness of the healing enhancement properties of PEMF technology. These
programs provide, in general, for reimbursement of the full price of the device
if radiographic evidence indicates that healing is not occurring at the fusion
site when the device is used in

                                       9



Orthofix International N.V.

accordance with the prescribed  treatment protocol.  Over the multi-year history
of these programs,  we have received few claims for  reimbursement  for which we
carry a nominal financial reserve.

         We have submitted to the FDA, as part of our PMA application, the final
results of a clinical trial for a new product, the Cervical-Stim(R) bone growth
stimulator. The objective of this clinical study was to demonstrate the safety
and efficacy of the Cervical-Stim(R) device in high-risk patients who had
undergone cervical spine fusion for degenerative conditions. Without a bone
growth stimulator, the failure rate of cervical fusions can be significant.
Pulsed electromagnetic field stimulation enhances bone healing in the cervical
spine. Application of PEMF stimulation is believed to activate the body's
natural repair mechanism, which is absent or not fully functional in certain
patients, and enhances bony fusion for successful outcomes.

Orthotrac

         The Orthotrac pneumatic vest is the first clinically validated,
non-operative treatment device that delivers external, self-administered spinal
"unloading", or upper body weight transfer, resulting in reduced pressure on the
lumbar spine. The Orthotrac pneumatic vest uses patented, pneumatic lifts that
decompress lumbar discs and associated soft tissue structures, and can
significantly improve the quality of life for patients with lower back pain.
Since patients remain mobile and ambulatory during their use of the Orthotrac
pneumatic vest, they may participate more actively in daily activities, physical
therapy and return-to-work programs or prescribed exercise routines.

         The Orthotrac pneumatic vest is designed for a patient who is not
responding to conservative care, who is not presently an appropriate surgical
candidate and who has a consistent history of worsening back pain symptoms.

EZ Brace

         We manufacture the EZ Brace spine brace for patients, either
post-operative or non-operative, who require rigid external support for spine
stabilization. The product is designed to be a comfortable, easy on off,
external bracing system. EZ Brace is available for mid-and low-back
applications.

Reconstruction

         Reconstruction products represented 25% of our total net sales in 2003.

         We offer a comprehensive solution package to the highly specialized
limb reconstruction market for correction of deformed limbs, such as length
discrepancies or angular deformities. We believe that our products enable a much
simpler product application and superior performance over alternatives to
correct lower limb deformities. In addition, we introduced in 2002 an internal
lengthening system called the ISKD(TM) which is used when patient's limbs are
unequal in length. The ISKD(TM) is implanted using a minimally invasive
technique and lengthens internally.

         Our non-invasive vascular therapy products, primarily used on patients
following orthopedic joint replacement procedures, are designed to reduce
dangerous deep vein thrombosis and post-surgery pain and swelling by improving
venous blood return and improving arterial blood flow. For patients who cannot
walk or are immobilized, these products simulate the effect that would occur
naturally during normal walking or hand flexion with a mechanical method and
without the side effects and complications of pharmacologics.

         As a result of our recent acquisition of Breg, we now have a more
well-rounded and complete product line offering within the reconstruction
market. A leading manufacturer of orthopedic bracing and cold therapy products,
Breg possesses strong brand recognition and a high quality reputation.
Functional bracing, load shifting and post-surgery bracing are used for the
protection of surgical repair and promotion of faster healing. Additionally, we
believe that cold therapy and pain therapy products are emerging as a standard
of care with physicians and hospitals.

         According to Frost & Sullivan, the market size for reconstruction
products is currently estimated to be $6.2 billion with a compounded annual
growth rate of 9% through 2005.

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Orthofix International N.V.

ExFix

         In addition to the treatment of bone fractures, we manufacture and
distribute external fixators that are used to treat congenital bone deformities,
such as limb length discrepancies, or deformities that result from previous
trauma. To serve the highly specialized limb reconstruction market, we developed
the Sheffield fixator. A Sheffield fixator is radiolucent and uses fewer
components than other products for limb reconstruction. In addition, a Sheffield
fixator is more stable and stronger than most competing products - two critical
concerns for a long-term limb reconstruction treatment. We believe other
advantages of a Sheffield fixator over competing products include the rapid
assembly, ease of use and the numerous possibilities for customization for each
individual patient.

         The Osteoarthritis Surgical Intervention System, or the OASIS, is
designed for younger patients suffering from the degeneration of the cartilage
and bone of the knee. The OASIS is a minimally invasive system that allows
gradual post-operative adjustment of the affected limb and also helps unload the
damaged cartilage.

A-V Impulse System

         We manufacture and distribute the A-V Impulse System line of foot and
hand pumps, a non-invasive method of reducing post-operative pain and swelling
and deep vein thrombosis, or the formation or presence of a blood clot. The A-V
Impulse System consists of an electronic controller attached to a special
inflatable slipper or glove, or to an inflatable bladder within a cast, which
promotes the return of blood to the veins and the inflow of blood to arteries in
the patient's arms and legs. The device operates by intermittently impulsing
veins in the foot or hand, as would occur naturally during normal walking or
hand clenching. Conventionally, in order to reduce the incidence of deep vein
thrombosis, heparin or related pharmacological products have been administered
during and after operations. The A-V Impulse System has been demonstrated to
give prophylactic benefits that are comparable to the forms of pharmacological
treatment but without their adverse side effects, the most serious of which
typically is bleeding. We believe that approximately 85% of the net sales of the
A-V Impulse System are for orthopedic applications, most notably to prevent deep
vein thrombosis following large joint surgeries such as hip or knee
replacements. We believe the remaining net sales of the A-V Impulse System are
to address various venous or circulatory problems of patients. The A-V Impulse
System is distributed in the United States by Kendall Healthcare Products.
Outside the United States, the A-V Impulse System is sold directly by our
distribution subsidiaries in the United Kingdom, Italy and Germany and through
selected distributors in the rest of the world.

Cemex

         Cemex, a product of Tecres S.p.A., is a bone cement used by surgeons to
repair hip and knee prostheses once they have been inserted. We have the
exclusive distribution rights for Cemex in Italy.

ISKD (Intramedullary Skeletal Kinetic Distractor)

         The Intramedullary Skeletal Kinetic Distractor, or ISKD, system is a
patented, internal limb-lengthening device that uses a magnetic sensor to
monitor limb-lengthening progress on a daily basis. The ISKD system is an
expandable tubular structure that is completely implanted inside the bone to be
lengthened. Only the patient and surgeon need know the bone is being lengthened.
Once implanted, the ISKD system lengthens the patient's bone gradually, and,
after lengthening is completed, the system stabilizes the lengthened bone. This
product received 510(k) clearance from the FDA in 2001 and is being introduced
in the United States and Europe on a controlled basis. We have the exclusive
worldwide distribution rights for this product.

OSCAR (Orthosonics System for Cement Arthroscopy Revision)

         We have developed the Orthosonics System for Cement Arthroscopy
Revision, or OSCAR, an ultrasonic device designed to soften and remove the bone
cement used to fix artificial implants within the patient's bone. We believe
that it offers a significant improvement, both in terms of cost and patient
outcomes, over existing bone cement removal techniques. Existing techniques
involve the use of hand chisels and manual or pneumatic hammers and drills,
which generally increase the risk of femoral shaft fracture with greatly
increased patient trauma and significant cost implications. OSCAR has been
demonstrated to greatly reduce femoral fractures and substantially reduce cement
removal times to approximately 15 to 20 minutes.

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Orthofix International N.V.

         The product was launched in the United Kingdom in 1994, and selectively
elsewhere in 1995. OSCAR is now well established in the United Kingdom, and we
believe it is gaining support in certain other European countries. We are
expanding distribution of OSCAR in the United States through a network of
independent distributors that currently covers 25 states. A new version of OSCAR
was launched in 2001, which has a built-in endoscopic function for visual
examination of the femoral canal.

BoneSource

         We hold an exclusive license from the American Dental Association
Health Foundation, or ADAHF, for technology for BoneSource, a patented
hydroxyapatite cement. The licensed technology combines calcium-phosphate salts
with water to produce a bone substitute that converts to hydroxyapatite, a
mineral component of bone, and promotes new bone growth by resorption, a process
by which hydroxyapatite is converted back into living bone.

         BoneSource received 510(k) clearance from the FDA for repair of certain
cranial defects in July 1997. It has also obtained a CE mark, required for a
product to be sold or distributed in the European Union, for certain cranial
symptoms and for use as a bone void filler in certain non-weight bearing
orthopedic symptoms. We have licensed exclusive worldwide marketing rights for
BoneSource to Stryker Corporation, which currently sells the product both in the
United States and Europe.

         On April 22, 1998, we entered into agreements with Stryker Corporation
under which Stryker has the right to develop, manufacture, market and pursue
regulatory approvals for BoneSource for additional orthopedic applications. From
the date of the agreements through February 17, 2003, we supplied BoneSource to
Stryker. Stryker currently manufactures BoneSource and pays Orthofix a royalty
on sales of the product.

Breg

         On December 30, 2003, we completed the acquisition of Breg, which
we believe is a market leader in the sale of orthopedic post-operative
reconstruction and rehabilitative products to hospitals and orthopedic offices.
We have categorized all of Breg's products as Reconstructive products. Breg's
products are grouped into three product categories: Breg Bracing, Polar Care and
Pain Care.

         Breg Bracing

         We design, manufacture and market a broad range of rigid knee bracing
products, including ligament braces, post-operative braces and osteoarthritic
braces. The rigid knee brace products are either customized braces or standard
adjustable off-the-shelf braces. Breg braces are endorsed by the Professional
Football Athletic Trainers Society.

         Ligament braces provide durable support for moderate to severe knee
ligament instabilities to help patients regain range of motion capability so
that patients may successfully complete rehabilitation and resume their daily
activities. The product line includes premium-customized braces generally
designed for strenuous athletic activity and off-the-shelf braces designed for
use in less rigorous activity. These dual-function custom-fabricated braces
address both ligamentous instability and/or unicompartmental osteoarthritis as
well as patellofemoral pain with or without instability or maltracking of the
patella. We market the ligament product line under the X2 K name.

         Post-operative braces limit a patient's range of motion after knee
surgery and protect the repaired ligaments and/or joints from stress and strain.
These braces promote a faster and healthier healing process. The products within
this line provide both immobilization and/or a protected range of motion. The
Breg post-op family of braces, featuring the Quick-Set hinge, offers complete
range of motion control for both flexion and extension, along with a
simple-to-use drop lock mechanism to lock the patient in full extension. The
release lock mechanism allows for easy conversion to full range of motion. The
straps integrated through hinge bars offer greater support and stability. This
hinge bar can be "broken down" for use during later stages of rehabilitation.

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Orthofix International N.V.

         Osteoarthritic braces are used to treat patients suffering from
osteoarthritis. Osteoarthritis (OA) is a form of damage to, or degeneration of,
the articular surface of a joint. This line of customized and off-the-shelf
braces is designed to shift the load going through the knee, providing
additional stability and reducing pain. In some cases, this type of brace may
serve as a cost-efficient alternative to total knee replacement. Breg recently
introduced the CounterForce Plus, our newest bracing technology for patients
suffering from OA. These braces address not only the pain associated with
unicompartmental osteoarthritis but also the stability needs of the patient. The
braces are based on a functional knee brace design that controls both
anterior/posterior and varus/valgus instabilities.

         Polar Care

         We manufacture, market and sell the leading cold therapy product line,
Polar Care. Breg created the market for cold therapy products in 1991 when it
introduced the Polar Care 500, a cold therapy device used to reduce swelling,
minimize the need for post-operative pain medications and generally accelerate
the rehabilitation process. Today, we believe that cold therapy is emerging as a
standard of care with physicians despite limited reimbursement.

         The Polar Care product uses a circulation system to provide constant
fluid flow rates, thereby minimizing temperature fluctuations which can reduce
device effectiveness and create the potential for tissue or nerve damage. The
products consist of a cooler filled with ice and cold water that continuously
provides cold therapy for the relief of pain. Breg's cold therapy line consists
of the Polar Care 500, Polar Care 300, Polar Cub and cold gel packs.

         Pain Care

         We manufacture, market and sell a leading line of pain therapy
products, Pain Care. This product line includes the Pain Care 3200 and 4200
lines of disposable, pain management infusion pumps. These pain management and
relief systems provide a continuous infusion of local anesthetic dispensed
directly into the surgical site following a surgical procedure. The Pain Care
family provides controlled infusions of a local anesthetic to alleviate and
moderate severe pain experienced following surgery. We believe we maintain a
leading position in this fast growing market

         Additionally, Breg offers a line of continuous passive motion (CPM) and
home therapy products to accommodate post-surgical ambulation and recovery from
shoulder, knee and ankle injuries.

Trauma

         Trauma products represented 26% of our total net sales in 2003.

         Our trauma products are designed to be minimally invasive and are based
on a philosophy of treatment that focuses not only on the broken bone but also
considers the long-term preservation of function and quality of life for the
patient. Our method for fracture reduction protects and preserves proper anatomy
and limb alignment, allowing patients to function naturally and bear weight at
the fracture site very early in the healing cycle, which we believe are
important considerations for a positive outcome.

         We believe our trauma products will assist in improving hospitals'
efficiency as the trauma market grows. Knowledge Enterprises 2003, an
independent market research firm, estimates that the size of the trauma market
will be $1.6 billion by 2005 and that the market is currently growing 7-8% per
year.

ExFix

         For a fracture to heal properly, without misalignment or rotation, the
bone must be set and fixed in the correct position. The bone must be kept
stable, but not absolutely rigid, in order to alleviate pain, maintain the
correct alignment and initiate the callus formation for proper healing.
Fractures initially should not bear any weight, but, at the appropriate time in
the healing cycle, benefit from gradually increasing micromovement,
weight-bearing and function, which further stimulate the callus.

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Orthofix International N.V.

         In most fracture cases, physicians use casting, the simplest available
non-surgical procedure. We believe, however, that approximately 15-20% of all
fractures require surgical intervention. We initially focused on the production
of external fixation devices for management of fractures that require surgery.
External fixation devices are used to stabilize fractures from outside the skin
with minimal invasion into the body. Our 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. Unlike other treatments for fractures, external
fixation allows micromovement at the fracture site, which is beneficial to the
formation of new bone. We believe that it is among the most minimally invasive
and least complex surgical options for fracture management. We market our
external fixation devices in over 70 countries.

         In 2001, we introduced XCaliber fixators, a new generation alternative
to our previous external fixators. The XCaliber fixators are made from a
lightweight radiolucent material and are 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 significantly improved X-ray visualization of the
fracture and alignment. In addition, these three configurations cover a broad
range of fractures with very little inventory. The XCaliber fixators are
provided pre-assembled in sterile kit packaging to decrease time in the
operating room.

         In situations that require rapid yet solid stabilization of complex
fractures, we have introduced the Pre-Fix(TM) temporary fixator, which offers a
simpler application technique that is sometimes required in trauma treatments.

         We have designed several other additions to our external fixation
product line to address specific types of fractures. These products include:

o        fixation devices for pelvic fractures that permit quicker application
         in the emergency room;

o        an elbow fixator that permits early mobilization of the elbow joint
         while fixing the fracture itself; and

o        a radiolucent wrist fixator developed to facilitate easy
         application, especially for use in the emergency room. This
         fixator is provided in sterile-kit packages with all of the
         instruments for surgical use.

         Internal fixation devices include pins, nails and screws designed to
temporarily stabilize traumatic bone injuries. These devices are used to set and
stabilize fractures and are removed when healing is completed. Our three
principal internal fixation devices include:

o        the Orthofix Nailing System, a nailing system for fractures of
         the tibia and femur that requires a surgical insertion of a
         metal rod into the medullary canal, the central canal of the
         bone, to maintain bone stability. The locking screws in the
         Orthofix Nailing System can be inserted mechanically and
         without the use of an image intensifier, resulting in a simpler
         operative technique. The locking screws also help reduce
         implant failure rates by providing significantly higher fatigue
         resistance than similar competing products. The tibial and
         femoral nails are available in all of our markets except the
         United States;

o        the Magic Pins Fragment Fixation System, an implant for fixing
         small fracture fragments, usually used for the treatment of
         fractures near the joints; and

o        our proprietary XCaliber bone screws, which 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. Other screws in this
         proprietary line do not include the hydroxyapatite coating but
         offer different

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Orthofix International N.V.

         advantages such as patented thread designs for better adherence in hard
         and soft bone. We believe we have a full line of bone screws to meet
         the demands of the market.

Physio-Stim

         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. In the 1950s, scientists discovered
that, when human bone is broken, it generates an electrical field. This
low-level electrical field activates the body's internal repair mechanism, which
in turn stimulates bone healing. In some patients, this healing process is
impaired or absent and the fracture fragments may not mend properly, resulting
in a non-union. Orthofix's patented bone growth stimulators use a low level of
pulsed electromagnetic field, or PEMF, signals to activate the body's natural
healing processes and have proven successful in treating fracture non-unions.
The stimulation products that we currently market apply bone growth stimulation
without implantation or other surgical procedures.

         The technology used in our stimulation products uses a pulsating
electric current to enhance the growth of bone tissue following surgery or bone
fracture. Our stimulation products are placed externally over the site to be
healed. These products generate a low level of PEMF signals that induce low
pulsating current flow into living tissue and cells exposed to the energy field
of the products. This pulsating current flow is believed to change enzyme
activities, induce mineralization, enhance vascular penetration and result in a
process resembling normal bone growth at the spinal fusion or fracture site.

         In some patients, such as patients who smoke, the fracture healing
process is impaired or absent and the fracture fragments may not mend properly,
resulting in a non-union. We manufacture our second generation of the
Physio-Stim product line, the Physio-Stim Lite, a bone growth stimulation device
which has proved to be successful in treating many fracture non-unions. Our
patient data shows that 8 out of 10 patients with fracture non-unions that use
Physio-Stim Lite are healed by our product without additional invasive surgical
treatment. The systems offer portability, long-term battery operation,
integrated component design, patient monitoring capabilities and the ability to
cover a large treatment area without factory calibration for specific patient
application. More than 88,000 patients have been treated using Physio-Stim since
the product was introduced in 1986. Physio-Stim uses a proprietary technology to
generate a PEMF signal from a 9-volt battery, thus eliminating the need for
rechargeable battery packs and chargers. The result is a self-contained, very
light and ergonomic device with a three hour per day wear time that we believe
makes the unit significantly easier and more comfortable to use than competing
products. The comprehensive Physio-Stim Lite product line treats all the small
and long bones, with a current redesign for the treatment of the pelvis.
Physio-Stim also features a compliance monitoring system that provides hard copy
printouts of patient files.

         We operate limited guarantee programs for Physio-Stim to heighten
awareness of the healing enhancement properties of PEMF technology. This program
provides, in general, for reimbursement for the full price of the device if
radiographic evidence indicates that healing is not occurring at the fracture
site when the device is used in accordance with the prescribed treatment
protocol. Over the multi-year history of this program, we have received few
claims for reimbursement, for which we carry a nominal financial reserve.

PC.C.P (Gotfried Percutaneous Compression Plating System)

         The Gotfried Percutaneous Compression Plating, or PC.C.P, System is a
minimally invasive method of fracture stabilization and fixation for
hip-fracture surgery developed by Y. Gotfried, M.D. Under our exclusive
distribution agreement with Efratgo Limited to market the PC.C.P System, we have
the right to license the product worldwide, and the option to purchase the
technology.

         There is growing concern about the mortality and complications
associated with hip fractures and their cost to society. Recently published
papers detailing clinical results using currently available systems indicate
that only 40% of patients regain their pre-operative mobility. In contrast, the
PC.C.P System has been shown to increase this percentage to 83% in a clinical
study of 118 patients ranging in age from 58-98 years whose hip-fracture surgery
utilized the PC.C.P System.

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Orthofix International N.V.

         Traditional hip-fracture surgery can require a 5-inch-long incision
down the thigh, but the new PC.C.P System involves two smaller incisions, each
less than one inch long. The PC.C.P System then allows a surgeon to work around
most muscles and tendons rather than cutting through them. Major benefits of
this new approach to hip-fracture surgery include (1) a significant reduction of
complications due to a less traumatic operative procedure; (2) reduced blood
loss and less pain (important benefits for the typically fragile and usually
elderly patient population, who often have other medical problems); and (3)
faster recovery, with patients often being able to bear weight a few days after
the operation, and improved post-operative results.

Non-Orthopedic Products

         Non-orthopedic product sales represented 10% of our total net sales in
2003.

Laryngeal Mask

         The Laryngeal Mask, a product of The Laryngeal Mask Company, is an
anesthesia medical device used for establishing and maintaining the patient's
airway during an operation. We have exclusive distribution rights for the
Laryngeal Mask in the United Kingdom, Ireland and Italy.

Other

         We hold distribution rights for several other non-orthopedic products
including Mentor breast implants in Brazil and women's care products in the
United Kingdom.

Joint Venture

OrthoRx

         In 2000, we commenced operation of OrthoRx, a full service durable
medical equipment distribution and billing business. OrthoRx provides to
patients orthopedic durable medical equipment products built around physician
protocols that specify the treatment and product required for each patient. The
business is vendor-neutral, which means that the product requested by the
physician is the exact product given to the patient. OrthoRx arranges supply
agreements for the products specified by the referring physicians.

         On January 10, 2002, we established a joint venture, OrthoRx, Inc.
(OrthoRx). The OrthoRx joint venture is headquartered in Plano, Texas, where the
business processes insurance authorizations, maintains inventory levels, and
processes product billing and collections, which is intended to allow individual
OrthoRx service centers to focus on patient interaction and physician follow-up.
The prototype for the joint venture has been operating in St. Louis, Missouri
since November 2000. Initial plans identified 40 potential markets for OrthoRx
service centers. Prior to the formation of the joint venture, the operations of
OrthoRx were included in our financial statements. Sales from the OrthoRx
business were approximately $2.0 million in 2001, $3.1 million in 2002 and $6.8
million in 2003. We initially invested $3.0 million for a 45% share of the joint
venture through a combination of $2.0 million in cash and $1.0 million in
contributed assets. In November 2002 and in 2003, we invested an additional $1.0
million and $1.5 million, respectively, in cash, raising our total investment in
the joint venture to $5.5 million and our ownership stake to 47%. Our current
partner in the joint venture is Ferrer, Freedman, & Co., a Greenwich,
Connecticut based venture capital firm, which purchased 100% of HealthSouth's
shares in the OrthoRx joint venture in June 2003.

Product Development, Patents and Licenses

         We maintain a continuous interactive relationship with the main
orthopedic centers in the United States, Europe, Japan and South and Central
America, including research and development centers such as Wake Forest
University in the United States and the University of Verona in Italy. Several
of the products that we market have been developed through these collaborations.
In addition, we regularly receive suggestions for new products from the
scientific and medical community. We also receive a substantial number of
requests for the production of customized items, some of which have resulted in
new products. We believe that our policy of accommodating such requests enhances
our reputation in the medical community.

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Orthofix International N.V.

         Our research and development departments are responsible for new
product development and regularly consult with a group of internal and
designated external experts. The expert group advises these departments on the
long-term scientific planning of research and development and also evaluates our
research programs. Our primary research and development facilities are located
in Verona, Italy; McKinney, Texas; Winston-Salem, North Carolina; Vista,
California; and Andover, United Kingdom.

         In 2003, 2002 and 2001, we spent $8.1 million, $7.5 million and $7.0
million, respectively, on research and development.

         In January 2002, we agreed to provide approximately $2.0 million to
Orthopedic Research and Education Foundation to fund a four-year study to define
the molecular and cellular mechanism underlying bone-healing in response to
pulsed electromagnetic field (PEMF) technology. This study is being conducted at
the Lerner Research Institute of the Cleveland Clinic Foundation and is entitled
"Optimizing Bone-Healing Using PEMF," which also seeks to identify specific
signal characteristics that are causally related to a bone-healing response to
PEMF technology in order to optimize the PEMF signal.

         In January 2003, we announced that we had purchased an equity interest
in IST, a start-up company focused on commercializing spinal products. The
investment of $1.5 million provides us with the ability to participate in spine
product research and development efforts with IST. This collaboration has
already assisted us to create the next generation of dynamic bracing: Dynamic
Adjustable Spine Stabilization (DASS), which will address the need of controlled
bracing for post-surgical rehabilitation patients.

Patents, Trade Secrets and Licenses

         We rely on a combination of patents, trade secrets, license agreements
and non-disclosure agreements to protect our proprietary intellectual property.
We own numerous U.S. and foreign patents and have numerous pending patent
applications and license rights regarding patents held by third parties. Our
primary products are patented in all major markets in which they are sold. There
can be no assurance that pending patent applications will result in issued
patents, that patents issued 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 protections. Third parties might also obtain patents
that would require licensing by us for the conduct of our business. We rely on
confidentiality agreements with key employees, consultants and other parties to
protect, in part, trade secrets and other proprietary technology that we seek to
protect.

         We license certain orthopedic products from third parties. We have
acquired rights under such licenses in exchange for lump-sum payments or
arrangements under which we pay to the licensor a percentage of sales. However,
there is no assurance that these licenses will continue to be made available to
us on terms that are acceptable to us or at all. The terms of our license
agreements vary in length from three 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.

         We also license certain of our products to others. Pursuant to our
license agreement with Stryker for BoneSource, we manufactured and sold
BoneSource to Stryker through February 17, 2003 and received a royalty based on
Stryker's revenues from BoneSource sales. In 2003, Stryker began manufacturing
of BoneSource and continues to pay us a royalty based on sales of the product.

Government Regulation

         Sales of medical devices, including our orthopedic products, are
subject to U.S. and foreign regulatory requirements that regulate the
development, approval, testing, manufacture, labeling, marketing and sale of
medical products, which 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.

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Orthofix International N.V.

         Our products are subject to the regulatory powers of the FDA pursuant
to the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetics
Act, or the 1976 Amendments, the Safe Medical Devices Act of 1990, and
regulations issued or proposed hereunder. With the exception of our stimulation
products, our products fall into FDA classifications that require less review by
the FDA pursuant to Section 510(k) of the 1976 Amendments than devices that
require pre-market approval applications. Our stimulation products are
classified as Class III by the FDA, and have been approved for commercial
distribution in the United States following the submission of the required
pre-market approval applications.

         The medical devices that we develop, manufacture and market are subject
to rigorous regulation by the FDA and numerous other federal, state and foreign
governmental authorities. The process of obtaining regulatory approvals to
market a medical device, particularly from the FDA, can be costly and
time-consuming, and there can be no assurance that such approvals will be
granted on a timely basis, if at all. While we believe that we have obtained all
necessary clearances for the manufacture and sale of our products and that they
are generally in compliance with applicable FDA and other material regulatory
requirements, there can be no assurance that we will be able to continue such
compliance. If the FDA came to believe that we were not in compliance with
applicable law or regulations, it could institute proceedings to detain or seize
our products, issue a recall, impose operating restrictions, enjoin future
violations and assess civil and criminal penalties against us, our officers or
our employees and could recommend criminal prosecution to the Department of
Justice. In addition, the regulatory process may delay the marketing of new
products for lengthy periods and impose substantial additional costs if the FDA
lengthens review times for new devices.

         Moreover, foreign governmental authorities have become increasingly
stringent in their regulation of medical devices, and our products may become
subject to more rigorous regulation by foreign governmental authorities in the
future. We cannot predict whether U.S. or foreign government regulations may be
imposed in the future that may have a material adverse effect on our business
and operations. The European Commission, or 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 CE certification from a "notified body"
in order to be able to sell products within the member states of the European
Union. 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 and
products.

         We devote significant time, effort and expense to addressing government
and regulatory requirements applicable to our business. We believe our
operations are in material compliance with applicable law. Our profitability
depends in part upon our ability and our distributors' ability to obtain and
maintain all necessary certificates, permits, approvals and clearances from U.S.
and foreign regulatory authorities and to operate in compliance with applicable
regulations.

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 United States, Western Europe and Japan, and our focus on innovative,
minimally invasive products will continue to have a positive effect on the
demand for our products.

Primary Markets

         In 2003, the Americas, including its principal market, the United
States, accounted for 57% of total net sales by geographic origination. After
the acquisition of Breg, we now have approximately 330 direct and distributor
sales representatives dedicated to the domestic market and 150 direct and
distributor sales representatives focused on foreign markets.

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Orthofix International N.V.

         In 2003, International accounted for 43% of total net sales by
geographic origination with 19% derived from the United Kingdom and 8% derived
from Italy. Other than Kendall Healthcare Products, no single international
customer accounted for greater than 2% of total net sales.

          We have non-exclusive distribution agreements for the Spinal-Stim Lite
with Medtronic Sofamor Danek Group and for the Physio-Stim Lite with Royce
Medical Company. The A-V Impulse System is distributed in the United States
under an exclusive, long-term distribution agreement with Kendall Healthcare
Products. Kendall Healthcare Products accounted for approximately 10% of our
total net sales in 2003, while sales through Medtronic Sofamor Danek accounted
for approximately 9% of total net sales. Sales to all other customers were
broadly distributed.

         Our products sold in the United States are either prescribed by medical
professionals for the care of their patients or sold to hospitals, independent
distributors or other healthcare providers, all of whom may be primarily
reimbursed for the healthcare products provided to patients by third-party
payors, such as government programs, including Medicare and Medicaid, private
insurance plans and managed care programs. Our products are also sold in many
other countries, such as the United Kingdom and Italy, to publicly funded
healthcare systems.

Sales Force and Distribution Network

         We have established a broad distribution network within the United
States and across 86 countries via direct representatives and distributors. This
established distribution network provides us with a strong platform to introduce
new products and expand sales of existing products. We distribute our product
lines through approximately 230 direct sales representatives, including 170
field sales representatives in the United States. These sales representatives
undergo extensive training and develop the necessary technical expertise to sell
our products to orthopedic physicians and surgeons, orthopedic shops, hospitals,
surgery centers and others.

         By acquiring Breg, we added approximately 46 domestic relationships,
most with independent distributors. These relationships sell primarily to
surgery centers and office environments, which represent new distribution
channels for Orthofix. These clients are served by approximately 160 sales
representatives.

         Outside the United States, we employ approximately 60 direct sales
representatives throughout our international sales subsidiaries. We also utilize
50 independent distributors in over 70 countries in Europe, the Far East, the
Middle East and Central and South America. In order to provide support to our
independent distributor network, we have a sales service group consisting of
seven sales and marketing specialists who regularly visit the independent
distributors.

         As a result of the Breg transaction, we added Breg's existing 50
international distributor relationships to our own. These Breg relationships are
served by approximately 90 international sales representatives.

Marketing

         Until 2000, we primarily sold orthopedic devices outside the United
States and focused our stimulation products sales efforts in the United States.
However, since 2000, we have expanded our offerings of orthopedic devices in the
United States and have since begun to market the Spinal-Stim and Physio-Stim
lines in Europe and Mexico. To facilitate distribution of stimulation products
in the European Union, we obtained a CE mark for our stimulation products in
December 1998.

         In general, we seek to market our products principally to medical
professionals who are the decision makers in their patient's treatment. This
focus is designed to complement our product development and marketing strategy,
which seeks to encourage and maintain interactive relationships with the leading
orthopedic, trauma and other surgeons. These relationships facilitate the
introduction of design improvements and create innovative products that meet the
needs of surgeons and patients, thereby expanding the market for 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

                                       19



Orthofix International N.V.

procedures, for our sales force and distributors in a variety of languages in
printed, video and multimedia formats. To provide additional advanced training
for surgeons, we organize monthly multilingual teaching seminars at our facility
in Verona, Italy. The Verona seminars, which in 2003 were attended by over 880
surgeons from around the world, include a variety of lectures from specialists
as well as demonstrations and hands-on workshops. We also provide sales training
at our training centers in Winston-Salem, North Carolina and McKinney, Texas and
at our recently acquired Breg training center in Vista, California.
Additionally, each year many of our sales representatives and distributors
independently conduct basic courses for surgeons in the application of certain
of our products.

Competition

     For external and  internal  fixation  devices,  our  principal  competitors
include Synthes AG, Zimmer, Inc., Stryker Corp., Smith & Nephew plc and EBI
Medical Systems, a subsidiary of Biomet, Inc. OSCAR and BoneSource compete
principally with products produced by Biomet, Inc. and Norian Corporation,
respectively. Our stimulation products compete principally with similar products
marketed by EBI Medical Systems, dj Orthopedics, Inc., and Exogen, Inc., a
subsidiary of Smith & Nephew plc. The principal non-pharmacological products
competing with our A-V Impulse System are manufactured by Huntleigh Technology
PLC and Kinetic Concepts Inc. We have filed an action against Kinetic Concepts
Inc. for patent infringement. For a description of the litigation, see Item 3 -
"Legal Proceedings."

     The  principal  competitors  for the newly  acquired  Breg bracing and cold
therapy products include dj Orthopedics, Inc., Aircast Inc., EBI Medical Systems
and various smaller private companies.  For pain therapy products, the principal
competitors are I-Flow Corporation, Stryker Corp. and dj Orthopedics, Inc.

         We believe that our competitive position is strong with respect to
product features such as innovation, 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 that we compete effectively in these areas,
particularly with respect to cost savings resulting from the reduction of
operating time and the avoidance of a second operative procedure for the removal
of treatment devices.

Manufacturing and Sources of Supply

         We generally design, develop, assemble, test and package all our
products, and subcontract the manufacture of a substantial portion of the
component parts. Through subcontracting, we attempt to maintain operating
flexibility in meeting demand while focusing our resources on product
development and marketing and still maintaining quality assurance standards. In
addition to designing, developing, assembling, testing and packaging its
products, Breg, our recently acquired subsidiary, also manufactures a
substantial portion of the component parts used in its products.

         Although certain of our key raw materials are obtained from a single
source, we believe that alternate sources for these materials are available.
Adequate raw material inventory supply is maintained to avoid product flow
interruptions. We have not experienced difficulty in obtaining the materials
necessary to meet our production schedule.

         Our products are currently manufactured and assembled in the United
States, Italy, the United Kingdom, Mexico and the Seychelles. We are in the
process of transitioning a majority of Breg's manufacturing activities from its
Vista, California facility to the Mexicali, Mexico plant. We expect this
transition to be completed by the end of 2004. We believe that our plants comply
in all material respects with the requirements of the FDA and all relevant
regulatory authorities outside the United States. For a description of the
regulations to which we are subject, see Item 1 - "Business - Government
Regulation." We actively monitor each of our subcontractors in order to maintain
manufacturing and quality standards and product specification conformity.

         Our business is generally not seasonal in nature. However, sales
associated with products for elective procedures appear to be influenced by the
somewhat lower level of such procedures performed in the late summer. In
addition, we do not consider backlog of firm orders to be material.

                                       20



Orthofix International N.V.


Capital Expenditures

         We had capital expenditures in the amount of $5.2 million, $7.1 million
and $6.8 million in 2003, 2002 and 2001, respectively, principally for computer
software and hardware, patents and machinery and equipment, including the
leasehold improvements for a leased facility in McKinney, Texas in 2001. We
currently plan to invest approximately $5.4 million in the Americas, including
approximately $1.9 million in Breg, and approximately $3.7 million in
International in 2004 for a total of approximately $9.1 million to support the
planned expansion of our business. We expect these capital expenditures to be
financed principally with cash generated from operations.

Employees

         At December 31, 2003, we had approximately 988 employees worldwide,
including employees gained through the acquisition of Breg, of which
approximately 752 were employed within the Americas unit and approximately 236
were employed within the International unit. Our relations with our Italian
employees, who numbered 61 at December 31, 2003, 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 that we have
good relations with our employees. Of our approximately 988 employees, 426 were
employed in sales and marketing functions, 175 in general and administrative,
315 in production and 72 in research and development.

                                       21




                                  RISK FACTORS

         You should carefully consider the risks described below. These risks
are not the only ones that our company may face. Additional risks not presently
known to us or that we currently consider immaterial may also impair our
business operations. This Form 10-K 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 Form 10-K.

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 United States. Some patent applications in the United
States 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 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 seek to protect, in part, by
entering into confidentiality agreements with 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 products arising from
research, we may not be able to maintain the confidentiality of information
relating to these products.

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 devices 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 charges relating to the
alleged infringement of patent or proprietary rights of third parties. Any such
litigation could:

         o        require us to incur substantial expense, even if the costs of
                  our defense are covered by insurance or we are successful in
                  the litigation;

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

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

         o        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 medical
devices industry have often been settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and
could include the long-term payment of royalties. Furthermore, the required
licenses may not be made available to us on acceptable terms. Accordingly, an
adverse determination in a judicial or administrative proceeding or a failure

                                       22



Orthofix International N.V.

to obtain necessary licenses could prevent us from manufacturing and selling
some products or increase our costs to market these products.

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 to our customers or to our
independent distributors and purchased by hospitals, doctors and other
healthcare providers, who together with us may be reimbursed for the healthcare
services provided to their patients by third-party payors, such as government
programs, including Medicare and Medicaid, private insurance plans and managed
care programs. Third-party payors may deny reimbursement if they determine that
a device used in a procedure was not used in accordance with cost-effective
treatment methods as determined by such third-party payor, was investigational
or was used for an unapproved indication or for other reasons. Also, third-party
payors are increasingly challenging the prices charged for medical products and
services. Limits put on reimbursement could make it more difficult for people to
buy our products and reduce, or possibly eliminate, the demand for our products.
In addition, in the event that governmental authorities enact additional
legislation or adopt regulations that affect third-party coverage and
reimbursement, demand for our products may be reduced with a consequent material
adverse effect on our sales and profitability. It is also possible that the
government's focus on coverage of off-label uses for FDA-approved devices could
lead to changes in coverage policies regarding off-label uses by TriCare,
Medicare and/or Medicaid. There can be no assurance that we or our distributors
will not experience significant reimbursement problems in the future.

         Our products are sold in many countries, such as the United Kingdom and
Italy, with 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.

We are subject to extensive government regulation that increases our costs and
could prevent us from marketing or selling our products.

         The medical devices we manufacture and market are subject to rigorous
regulation by the Food and Drug Administration, or FDA, and numerous other
federal, state and foreign governmental authorities. These authorities regulate
the development, approval, testing, manufacture, labeling, marketing and sale of
medical devices. For a description of these regulations, see Item 1 - "Business
- - Government Regulation."

         For example, approval by governmental authorities, including the FDA in
the United States, is generally required before any medical devices may be
marketed in the United States or other countries. The process of obtaining FDA
and other regulatory 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 or 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. Moreover, we cannot predict
whether U.S. or foreign government regulations that may have a material adverse
effect on us may be imposed in the future.

         Our profitability depends, in part, upon our and our distributors'
ability to obtain and maintain all necessary certificates, permits, approvals
and clearances from U.S. and foreign regulatory authorities and to operate in
compliance with applicable regulations. There can be no assurance that we have
obtained, will obtain or will remain in compliance with, applicable FDA and
other U.S. and foreign material regulatory requirements. If the FDA or other
U.S. or foreign regulatory authority determines that we were not in compliance
with applicable law or regulations, it could institute proceedings to detain or
seize our products, issue a recall, impose operating restrictions, enjoin future
violations and assess civil and criminal penalties against us, our officers or
our employees and could recommend criminal prosecution. Any such consequences
could have a material adverse effect on our business, financial condition or
results of operations.

                                       23



Orthofix International N.V.

We are subject to product liability claims that may not be covered by insurance
and could require us to pay substantial sums.

         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 is 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 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 us.

New developments by others could make our products or technologies
non-competitive or obsolete.

         The orthopedic device industry in which we compete is undergoing, and
is expected to continue to undergo, 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.

         Recent approval and introduction of Bone Morphogenic Proteins (BMPs) by
Medtronic Sofamor Danek Group have begun to show some market acceptance as a
substitute for autograft bone in spinal fusion surgeries. Our Spinal-Stim
product is FDA-approved for both failed fusions and healing enhancement as an
adjunct to spinal fusion surgery, most typically for multilevel or high-risk
patients. In 2002, Medtronic Sofamor Danek Group conducted clinical studies with
BMPs. Participation of physicians in the clinical studies had an adverse impact
on our stimulation product sales growth in the second half of 2002. Although
product sales growth returned to historic product growth rates in 2003, as
physicians participate in further clinical studies with BMPs, it could have a
further adverse impact on stimulation product sales. Although BMPs are
considered or classified as a bone growth material, they have yet to be
clinically proven to be effective in high-risk patients.

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 orthopedic products successfully depends, in
part, on the acceptance of the products by independent third parties (including
hospitals, doctors, 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.

The industry in which we operate is highly competitive.

         The medical devices industry is fragmented and 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 - Competition."

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.

                                       24



Orthofix International N.V.

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

         We sell our products in many countries through independent
distributors. Each distributor has the exclusive right to sell our products in
its territory and is generally prohibited from selling any products that compete
with ours. The terms of our distribution agreements vary in length 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 and we generally have the
right to terminate if the distributor does not meet agreed sales targets or
fails to make payment on time. Any termination of our existing relationships
with independent distributors could have an adverse effect on our business
unless and until alternative distribution arrangements are put in place.

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 foreign currency and
receivables denominated in foreign currency are greater or less than our
liabilities denominated in foreign currency, we have foreign exchange exposure.
We have substantial activities outside of the United States that are subject to
the impact of foreign exchange rates. The impact of foreign exchange rates on
sales outside of the United States was to increase net sales by $7.6 million in
International for 2003, primarily as the result of a stronger Euro and U.K.
Sterling against the U.S. dollar, and to decrease net sales by $0.5 million in
the Americas for 2003, primarily as a result of a weaker Mexican Peso against
the U.S. dollar. 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.

We are subject to differing tax rates in several jurisdictions in which we
operate.

         We have subsidiaries in several countries. 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. Tax authorities in such jurisdictions may challenge our treatment of
such intercompany transactions under the residency criteria, transfer pricing
provisions or any other aspects of their respective tax laws. If we are
unsuccessful in defending our treatment of intercompany transactions, we may be
subject to additional tax liability or penalty, which would adversely affect our
profitability.

Provisions of Netherlands Antilles law may have adverse consequences to our
shareholders.

         Our corporate affairs are governed by our Articles of Incorporation and
the corporate law of the Netherlands Antilles (CCNA) (Articles 100-144).
Although some of the provisions of the CCNA resemble some of the provisions of
the corporation laws of a number of states in the United States, 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 Orthofix were incorporated in a jurisdiction
within the United States. For example, there is no statutory right of appraisal
under Netherlands Antilles corporate law nor is there a right for shareholders
of a Netherlands Antilles corporation to sue a corporation derivatively. In
addition, we have been advised by Netherlands Antilles counsel that it is
unlikely that (1) the courts of the Netherlands Antilles 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 the Netherlands
Antilles in relation to liabilities predicated upon the U.S. federal securities
laws.

                                       25



Orthofix International N.V.

Our business is subject to economic, political 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 doing business internationally. Net sales
outside the United States represented 35% of our total net sales in 2003. 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 United
States. Accordingly, our future results could be harmed by a variety of factors,
including:

    o    changes in foreign currency exchange rates;

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

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

    o    consequences from changes in tax laws;

    o    difficulty in staffing and managing widespread operations;

    o    differing labor regulations;

    o    differing protection of intellectual property; and

    o    unexpected changes in regulatory requirements.

Our subsidiary Colgate Medical Limited's senior secured bank credit facility
contains significant financial and operating restrictions and mandatory
prepayments that may have an adverse effect on our operations and limit our
ability to grow our business.

         When we acquired Breg on December 30, 2003, one of our wholly owned
subsidiaries, Colgate Medical Limited, entered into a new senior secured bank
credit facility with a syndicate of financial institutions to finance the
transaction. Orthofix and each of Colgate's direct and indirect subsidiaries,
including Orthofix Inc. and Breg, have guaranteed the obligations of Colgate
under the senior secured bank facility. The senior secured bank facility
provides for (1) a five-year amortizing term loan facility of $110.0 million and
(2) a five-year revolving credit facility of $15.0 million, upon which we had
not drawn as of March 12, 2004.

         Further, in addition to scheduled debt repayments, our new senior
secured bank facility requires us to make mandatory prepayments with (a) the
excess cash flow (as defined in the credit agreement) of Colgate and its
subsidiaries in an amount initially equal to 75% of the excess annual cash flow
of Colgate and its subsidiaries, reducing to 50% upon the attainment of a
leverage ratio of less than or equal to 1.50 to 1.00 or less, (b) the net cash
proceeds of any debt issuance by Colgate and its subsidiaries or any equity
issuance by us or Colgate or any of its subsidiaries, (c) the net cash proceeds
of asset dispositions over a minimum threshold or (d) unless reinvested,
insurance proceeds or condemnation awards. These mandatory prepayments could
limit our ability to grow our business.

         The credit agreement contains customary negative covenants applicable
to Colgate and its subsidiaries, including restrictions on indebtedness, liens,
dividends and mergers and sales of assets. The credit agreement also contains
certain financial covenants, including a fixed charge coverage ratio, an
interest coverage ratio and a leverage ratio applicable to Colgate and its
subsidiaries on a consolidated basis, and a leverage ratio applicable to
Orthofix and its subsidiaries on a consolidated basis. A breach of any of these
covenants could result in an event of default under the credit agreement, which
could permit acceleration of the debt payments under the facility. See Item 7 -
"Liquidity and Capital Resources."

                                       26



Orthofix International N.V.

We may not be able to successfully integrate Breg's operations into our business
and may not achieve the anticipated benefits of the acquisition.

         We are in the process of integrating into our company the operations of
Breg. The integration of Breg's operations into our business involves numerous
risks, including:

         o   difficulties in incorporating Breg's product lines, sales personnel
             and marketing operations into our business;

         o   the diversion of our resources and our management's attention from
             other business concerns;

         o   the loss of key distributors; and

         o   the loss of key employees.

         Our failure to integrate and manage Breg's business successfully could
adversely affect our business and financial performance. In addition, if Breg's
operations and financial results do not meet our expectations, we may not
realize the synergies, operating efficiencies, market position, or revenue
growth we anticipate from the acquisition.

                                       27








Item 2.  Properties
- -------------------

         The Company's principal facilities are:




                                                                                                      
Facility                                                         Location                       Square Feet    Ownership
- --------                                                         --------                       -----------    ---------
Manufacturing, warehousing, distribution and research and        McKinney, TX                   70,000         Leased
development facility for Stimulation and Bracing Products
and administrative facility for Orthofix Inc.

Research and development, component manufacturing, quality       Verona, Italy                  38,000         Owned
control and training facility for fixation products and
sales management and administrative facility for Italy

Research and development, training and technology facility       Winston-Salem, NC              7,600          Leased

Administrative offices for Orthofix International N.V. and       Huntersville, NC               7,300          Leased
Orthofix Inc.

Sales management, distribution and administrative offices        Henley, England                1,480          50% Owned
for Orthofix International N.V.

Administrative offices for Orthofix Ltd.                         Guildford, England             8,000          Leased

Sales management for OSCAR product and administrative            South Devon, England           2,500          Leased
offices for Orthosonics Ltd.

Sales management, distribution and administrative offices        Andover, England               9,000          Leased
for A-V Impulse product

Sales management, distribution and administrative facility       Maidenhead, England            9,000          Leased
for United Kingdom

Sales management, distribution and administrative facility       Mexico City, Mexico            3,444          Leased
for Mexico

Sales management, distribution and administrative facility       Sao Paulo, Brazil              1,300          Owned
for Brazil

Sales management, distribution and administrative facility       Gentilly, France               3,854          Leased
for France

Sales management, distribution and administrative facility       Valley, Germany                3,000          Leased
for Germany

Sales management, distribution and administrative facility       Steinhausen, Switzerland       1,180          Leased
for Switzerland

Assembly and packaging facility for fixation products            Victoria, Mahe, Seychelles     5,597          Leased

Administrative, manufacturing, warehousing, distribution and     Vista, California              126,000        Leased
research and development facility for Breg



                                       28


Orthofix International N.V.



                                                                                                      
Manufacturing facility for Breg products                         Mexicali, Mexico               63,000         Leased



         Over the last twelve months, Breg has shifted several labor-intensive
manufacturing operations from its Vista, California plant to its Mexicali,
Mexico facility. We expect that the transition of Breg's manufacturing
operations to Mexico will be completed by the end of 2004. Approximately 21,888
square feet of manufacturing space that is no longer being utilized at the
Vista, California plant has been listed for sublease.

         In 2004, we expect to consolidate our U.K. facilities in Henley,
Guildford, and Maidenhead into a single facility. We believe this will bring
greater efficiency and future cost savings to our U.K. and International
operations.

Item 3.  Legal Proceedings
- --------------------------

         Except as described below, there are no material pending legal
proceedings to which the Company is a party or of which any of its property is
subject.

Earnout and Bonus Litigation

         On December 4, 1998, the special committee, or the Review Committee,
established to determine the amount of any contingent contract rights under the
Merger Agreement, dated May 8, 1995, between Orthofix International and American
Medical Electronics (AME) in settlement of all claims of the holders of record
of AME common stock and the options and warrants to acquire such stock as of
August 21, 1995, unanimously determined that Orthofix International would pay to
the AME record holders an earnout of $500,000 plus interest and 12% of the net
recovery received from the resolution in 2000 of a litigation against Biomet,
Inc. and Electro Biology, Inc., up to a maximum of $5,500,000, plus interest.
The Review Committee has not calculated the amount of the capped figure, but
Orthofix International believes it is between $5,000,000 and $5,500,000. An
arbitrator acting under the auspices of the American Arbitration Association, or
AAA, subsequently entered a consent award based on the Review Committee's
determination.

         On January 29, 1999, two couples who owned shares of AME common stock
commenced a civil action in Colorado federal court against Orthofix Inc. and the
members of the Review Committee seeking, among other relief, the maximum earnout
and bonus under the Merger Agreement of $18 million plus interest. The
plaintiffs also seek to represent all AME record holders. Clarence Frere, Louise
Frere, Joseph Mooibroek and Marla B. Mooibroek, individually and on behalf of
all others similarly situated v. Orthofix Inc., Arthur Schwalm, Robert
Gaines-Cooper, James Gero, and John and Jane Does One (1) Through Four (4), No.
99-S-445 (D. Colo.). In a related action, commenced on June 2, 1999, the same
plaintiffs filed a motion in the United States District Court for the Southern
District of New York seeking to intervene in the AAA arbitration and vacate the
consent award. Clarence Frere, Louise Frere, Joseph Mooibroek, and Marla B.
Mooibroek, individually and on behalf of all others similarly situated v.
Orthofix Inc., Arthur Schwalm, Robert Gaines-Cooper, James Gero, and John and
Jane Does One (1) Through Four (4), No. 99 Civ. 4049 (S.D.N.Y.). The two actions
have been consolidated in the New York federal court and Orthofix International
has been added as a party.

         The New York federal court resolved the two consolidated actions in
favor of the Company and its subsidiary. On July 12, 2002, the New York federal
court denied the plaintiffs' motion to vacate the consent award. On May 21,
2003, the court denied plaintiffs' motion for leave to file a second amended
complaint and dismissed the Earnout and Bonus action in its entirety with
prejudice. Plaintiffs filed an appeal to the United States Court of Appeals for
the Second Circuit. The appeal is fully briefed and was submitted in March 2004.

         We are vigorously defending the trial court's decision in favor of the
Company and its subsidiary. We expect the appeal to be heard and decided in the
first half of 2004. We have previously reserved approximately $5.2 million plus
accrued interest for the settlement of this matter.

                                       29



Orthofix International N.V.

KCI Litigation

         Novamedix, a subsidiary of the Company, filed an action in federal
court in the Western District of Texas on February 21, 1992 against Kinetic
Concepts Inc (KCI) alleging infringement of the patents relating to Novamedix's
A-V Impulse System product, breach of contract, and unfair competition. In this
action, Novamedix is seeking a permanent injunction enjoining further
infringement by KCI. Novamedix also seeks damages relating to past infringement,
breach of contract, and unfair competition. KCI has filed counterclaims alleging
that Novamedix engaged in inequitable conduct before the United States Patent
and Trademark Office and fraud as to KCI and that Novamedix engaged in common
law and statutory unfair competition against KCI. KCI seeks a declaratory
judgment that the patents are invalid, unenforceable, and not infringed. KCI
also seeks monetary damages, injunctive relief, costs, attorney's fees, and
other unspecified relief. During 2002, the United States Patent and Trademark
Office issued re-examination certificates validating four U.S. vascular patents
owned by us. The U.S. District Court in San Antonio, Texas has restored the
litigation to active status, and has provided a Scheduling Order that will
govern this matter. KCI has sought to add a charge of infringement against
Novamedix under a recently issued KCI patent but that request was denied on a
procedural basis. KCI retains the right to seek enforcement of its patent in a
separate proceeding. A portion of any amounts received will be payable to former
owners of Novamedix under the original purchase agreement. In 2003, discovery
was largely completed and several motions are now pending before the Court on
liability and damage issues.

Item 4.  Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------

         There were no matters submitted to a vote of security holders during
the fourth quarter of 2003.

                                       30



Orthofix International N.V.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------

Market for Our Common Stock

         Our common stock is traded on the Nasdaq National Market under the
symbol "OFIX." The following table shows the quarterly range of high and low
sales prices for our common stock as reported by Nasdaq for each of the two most
recent fiscal years ended December 31, 2003. As of March 5, 2004 we had
approximately 240 holders of record of our common stock.

                                              High                 Low
         2002                                ------              ------
         First Quarter                       $41.49              $32.80
         Second Quarter                       41.67               33.00
         Third Quarter                        35.97               24.68
         Fourth Quarter                       29.37               23.50

         2003
         First Quarter                        30.64               23.69
         Second Quarter                       34.42               25.68
         Third Quarter                        37.54               31.81
         Fourth Quarter                       51.05               36.10

Dividend Policy

         We have not paid dividends to holders of our common stock in the past.
We currently intend to retain all of our consolidated earnings to finance credit
agreement obligations resulting from the recently completed Breg acquisition and
to finance the continued growth of our business. We have no present intention to
pay dividends in the foreseeable future.

         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 received from our subsidiaries.

Recent Sales of Unregistered Securities

         Except as described below, there were no securities sold by us
during 2003 that were not registered under the Securities Act.

         On May 28, 2003, we issued 132 shares of our common stock to one of our
warrant holders upon the exercise of 132 of our warrants. These warrants were
initially issued by Kinesis Medical, Inc. and originally entitled the holder of
warrants to purchase one share of Kinesis common stock at an exercise price per
share ranging from $1.00 to $2.00. On August 15, 2000, in conjunction with our
asset purchase agreement with Kinesis, each outstanding Kinesis warrant was
converted into 0.05261 Orthofix warrants to purchase shares of our common stock
at a price per share ranging from $19.125 to $38.25, subject to adjustment as
determined by the warrant agreement.

         In connection with our acquisition of Breg on December 30, 2003, we
issued an aggregate of 731,715 shares of our common stock to certain former
shareholders of Breg at a price of $38.00 per share.

         The above transactions were exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) and the rules and regulations
promulgated under the Securities Act on the basis that the transactions did not
involve a public offering.

                                       31



Orthofix International N.V.

Exchange Controls

         Although there are Netherlands Antilles laws that may impose foreign
exchange controls on us and that may affect the payment of dividends, interest
or other payments to nonresident holders of our securities, including the shares
of common stock, we have been granted an exemption from such foreign exchange
control regulations by the Central Bank of the Netherlands Antilles. Other
jurisdictions in which we conduct operations may have various currency or
exchange controls. In addition, we are subject to the risk of changes in
political conditions or economic policies that could result in new or additional
currency or exchange controls or other restrictions being imposed on our
operations. As to our securities, Netherlands Antilles law and our Articles of
Incorporation impose no limitations on the right of nonresident or foreign
owners to hold or vote such securities.

Taxation

         Under the laws of the Netherlands Antilles as currently in effect, a
holder of shares of common stock who is not a resident of, and during the
taxable year has not engaged in trade or business through a permanent
establishment in, the Netherlands Antilles will not be subject to Netherlands
Antilles income tax on dividends paid with respect to the shares of common stock
or on gains realized during that year on sale or disposal of such shares; the
Netherlands Antilles do not impose a withholding tax on dividends paid by us.
There are no gift or inheritance taxes levied by the Netherlands Antilles when
at the time of such gift or at the time of death, the relevant holder of common
shares was not domiciled in the Netherlands Antilles. No reciprocal tax treaty
presently exists between the Netherlands Antilles and the United States.

                                       32



Orthofix International N.V.

Item 6.  Selected Financial Data
- --------------------------------

         The following selected consolidated financial data for the years ended
December 31, 2003, 2002, 2001, 2000 and 1999 have been derived from our audited
consolidated financial statements. The financial data as of December 31, 2003
and 2002 and for the years ended December 31, 2003, 2002 and 2001 should be read
in conjunction with Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and our consolidated financial statements
and notes thereto included elsewhere in this Form 10-K. Our consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (US GAAP).



                                                                           Year ended December 31,
                                                    --------------------------------------------------------------
                                                                                          
                                                         2003         2002        2001         2000         1999
                                                         ----         ----        ----         ----         ----
                                                            (In US$ thousands, except margin and per share data)
Consolidated operating results

Net sales.........................................      $203,707   $177,595     $162,360     $131,782    $121,284
Gross profit......................................       152,617    132,776      119,408       95,993      87,733
Gross profit margin...............................           75%        75%          74%          73%         72%
Total operating income............................        40,584     42,939       30,499       22,725      23,216
Net income(1).....................................        24,730     25,913       20,964       44,816      12,912
Net income per share of common stock (basic)......          1.76       1.96         1.60         3.40        0.99
Net income per share of common stock (diluted)....          1.68       1.76         1.42         3.20        0.97






Consolidated financial position                                               As of December 31,
(at year-end)
                                                    --------------------------------------------------------------
                                                       2003        2002        2001         2000         1999
                                                       ----        ----        ----         ----         ----
                                                                    (In US$ thousands, except share data)
                                                                                          
Total assets .....................................     $413,179    $220,774     $188,914     $190,434    $136,722
Total debt........................................      110,207       7,420        5,560       10,818      14,248
Shareholders' equity..............................      240,776     168,084      138,102      132,988      89,570
Weighted average number of shares of
   common stock outstanding (basic)...............   14,061,447  13,196,524   13,086,467   13,182,789  13,029,834

Weighted average number of shares of
   common stock outstanding (diluted).............   14,681,883  14,685,236   14,737,567   13,986,098  13,364,127


  ---------------
  (1)    Net income for 2000 includes $29.9 million of income after tax related
         to the EBI litigation.


                                       33


Orthofix International N.V.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
         of Operations
         -------------

         The following discussion and analysis addresses the results of our
operations which are based upon the consolidated financial statements included
herein, which have been prepared in accordance with accounting principles
generally accepted in the United States. This discussion should be read in
conjunction with "Forward-Looking Statements" and the Company's consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-K.
This discussion and analysis also addresses our liquidity and financial
condition and other matters.

General

         We are a diversified orthopedic products company offering a broad line
of minimally invasive surgical, as well as non-surgical, products for the Spine,
Reconstruction and Trauma Market Sectors. Our products are designed to address
the lifelong bone-and-joint health needs of patients of all ages, helping them
achieve a more active and mobile lifestyle. We design, develop, manufacture,
market and distribute medical equipment used principally by musculoskeletal
medical specialists for orthopedic applications. Our main products are external
and internal fixation devices used in fracture treatment, limb lengthening and
bone reconstruction, non-invasive stimulation products used to enhance the
success rate of spinal fusions and to treat non-union fractures, and bracing
products used for ligament injury prevention, pain management and protection of
surgical repair to promote faster healing. Our products also include a device
for enhancing venous circulation, cold therapy, other pain management products,
bone cement and devices for removal of the bone cement used to fix artificial
implants, a bone substitute compound and airway management products.

         We have administrative and training facilities in the United States,
the United Kingdom and Italy and manufacturing facilities in the United States,
the United Kingdom, Italy, Mexico and the Seychelles. We directly distribute our
products in the United States, the United Kingdom, Ireland, Italy, Germany,
Switzerland, Austria, France, Belgium, Mexico and Brazil. In several of these
and other markets, we also distribute our products through independent
distributors.

         Our consolidated financial statements include the financial results of
the Company and its wholly owned and majority owned subsidiaries and entities
over which we have control. All intercompany accounts and transactions are
eliminated in consolidation. The equity method of accounting is used when we
have significant influence over significant operating decisions but do not hold
control. Under the equity method, original investments are recorded at cost and
adjusted by our share of undistributed earnings or losses of these companies.
All material intercompany transactions and profits associated with the equity
investees are eliminated in consolidation.

         Our reporting currency is the United States dollar. All balance sheet
accounts, except shareholders' equity, are translated 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 foreign
currency transactions are included in other income (expense). Gains and losses
resulting from the translation of foreign currency financial statements are
recorded in the accumulated other comprehensive income (loss) component of the
shareholders' equity.

         Our financial condition, results of operations and cash flows are not
significantly impacted by seasonality trends. In addition, we do not believe our
operations will be significantly affected by inflation. However, in the ordinary
course of business, we are exposed to the impact of changes in interest rates
and foreign currency fluctuations. Our objective is to limit the impact of such
movements on earnings and cash flows. In order to achieve this objective, we
seek to balance non-dollar income and expenditures. We do not ordinarily use
derivative instruments to hedge foreign exchange exposure. See Item 7A -
"Quantitative and Qualitative Disclosures About Market Risk."

         During the three years ended December 31, 2003, we managed our
operations in two geographic business units: the Americas and International. The
Americas unit includes the United States, Mexico and Brazil. The International
unit covers the rest of the world plus export operations. Effective December 30,
2003, we acquired Breg. Due to the timing of the acquisition, Breg had no impact
on our statement of operations for the year ended December 31, 2003.

                                       34



Orthofix International N.V.

Critical Accounting Policies

         Our discussion of operating results is based upon the consolidated
financial statements and accompanying notes to the consolidated financial
statements prepared in conformity with accounting principles generally accepted
in the United States. The preparation of these statements necessarily 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 amount of revenues and
expenses during the reported period. These estimates and assumptions form the
basis for the carrying values of assets and liabilities. On an ongoing basis, we
evaluate these estimates, including those related to allowance for doubtful
accounts, sales allowances and adjustments, inventories, investments, intangible
assets and goodwill, income taxes, litigation and contingencies. We base our
estimates on historical experience and various other assumptions and believe our
estimates for the carrying values of assets and liabilities are reasonable.
Actual results may differ from these estimates. We have reviewed our critical
accounting policies with the Audit Committee of the Board of Directors.

         Revenue Recognition

         For bone growth stimulation and bracing products, prescribed by a
physician, we recognize revenue when the product is placed on and accepted by
the patient. For sales to commercial customers, including hospitals and
distributors, revenues are recognized at the time of shipment. We derive a
significant amount of our revenues in the United States from third-party payors,
including commercial insurance carriers, health maintenance organizations,
preferred provider organizations and governmental payors such as Medicare.
Amounts paid by these third-party payors are generally based on fixed or
allowable reimbursement rates. These revenues are recorded at the expected or
pre-authorized reimbursement rates, net of any contractual allowances or
adjustments. Some billings are subject to review by such third-party payors and
may be subject to adjustment.

         Allowance for Doubtful Accounts and Contractual Allowances

         The process for estimating the ultimate collection of accounts
receivable involves significant assumptions and judgments. Historical collection
and payor reimbursement experience is an integral part 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. In the
judgment of management, adequate allowances have been provided for doubtful
accounts and contractual allowances. Our estimates are periodically tested
against actual collection experience.

         Inventory Allowances

         We write down our inventory for inventory excess and obsolescence equal
to the difference between the cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions.
Inventory is analyzed to assess the adequacy of inventory excess and
obsolescence provisions. Reserves in excess and obsolescence provisions are
recorded as adjustments to cost of goods sold. If conditions or assumptions used
in determining the market value change, additional inventory write-down in the
future may be necessary.

         Goodwill and Other Intangible Assets

         We adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," effective January 1, 2002. The ongoing impact will be that
goodwill and indefinite lived intangible assets are no longer amortized, but
instead tested at least annually for impairment. As a result, we evaluate the
recoverability and measure the potential impairment of our goodwill under SFAS
142. The annual impairment test requires an estimation of the fair value of the
reporting unit, which involves judgment. We performed the impairment test of
goodwill as required by SFAS No. 142 and noted no impairment issues with the
carrying value of goodwill or indefinite lived intangible assets as of December
31, 2003.

                                       35



Orthofix International N.V.

         Litigation and Contingent Liabilities

         From time to time, we and our operations are parties to or targets of
lawsuits, investigations, and proceedings, including product liability, personal
injury, patent and intellectual property, health and safety, and employment
matters, which are handled and defended in the ordinary course of business.
These lawsuits, investigations or proceedings could involve substantial amounts
of claims and could also have an adverse impact on our reputation and client
base. Although we maintain various liability insurance programs for liabilities
that could result from such lawsuits, investigations or proceedings, we are
essentially 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 process of analyzing, assessing
and establishing reserve estimates for these types of claims involves judgment.
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 that present insurance coverage and
reserves are sufficient to cover currently estimated exposures, but we cannot
assure you that we will not incur liabilities in excess of recorded reserves.

         Tax Matters

         We and each of our subsidiaries are taxed at the rates applicable
within each of their respective jurisdictions. The composite income tax rate,
tax provisions, 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.

Revenues

         The following table presents certain items in our statements of
operations as a percentage of net sales for the periods indicated:





                                                                       Year ended December 31,
                                                    --------------------------------------------------------------
                                                                                             
                                                           2003                  2002                 2001
                                                           ----                  ----                 ----
                                                            (%)                  (%)                  (%)


            Net sales...........................           100                  100                   100
            Cost of sales.......................            25                   25                    26
            Gross profit........................            75                   75                    74
            Operating expenses
              Sales and marketing ..............            38                   36                    37
              General and administrative........            10                   10                    11
              Research and development..........             4                    4                     4
              Amortization of intangible assets.            --                   --                     3
              Litigation and settlement costs...             3                   --                    --
            Total operating income..............            20                   24                    19
            Net income..........................            12                   15                    13



         The following tables display net sales by geographic destination, net
sales by geographic origination, net of intercompany eliminations and net sales
by market sector. We provide net sales by geographic destination and net sales
by market sector for information purposes only. We keep our books and records
and account for net sales, costs and expenses in accordance with the geographic
origination of our products.

                                       36



Orthofix International N.V.

         Geographic Destination:



                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------     ----------   ----------------    ---------   ----------------
Americas               $137,861               68%        $122,911              69%      $113,034             70%
International            65,846               32%          54,684              31%        49,326             30%
                       ---------   ---------------     ----------   ----------------    ---------   ----------------
Total                  $203,707              100%        $177,595             100%      $162,360            100%
                       ========    ===============     ==========   ================    ==========  ================



         Geographic Origination:



                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------     ----------   ----------------    ---------   ----------------
Americas               $116,848               57%        $102,850              58%      $ 93,995             58%
International            86,859               43%          74,745              42%        68,365             42%
                       ---------   ---------------     ----------   ----------------    ---------   ----------------
Total                 $ 203,707              100%        $177,595             100%      $162,360            100%
                       ========    ===============     ==========   ================    ==========  ================



         Our revenues are generally derived from two primary sources: sales of
orthopedic and non-orthopedic products. Orthopedic products are sold into three
market sectors, Spine, Reconstruction and Trauma. Sales of non-orthopedic
products include airway management, woman's care and other products.

         Market Sector:



                                                                                  
                                                       Year ended December 31,
                                                          (In US$ thousands)
                               2003                             2002                             2001
                       -----------------------------   -----------------------------    -----------------------------
                                     Percent of                     Percent of Total                Percent of Total
                       Net Sales   Total Net Sales     Net Sales        Net Sales       Net Sales       Net Sales
                       ---------   ---------------    ----------   ----------------    ---------   ----------------
Orthopedic
  Spine                $ 79,552          39%          $ 69,613          39%             $63,575         39%
  Reconstruction         51,183          25%            43,838          25%              39,752         24%
  Trauma                 53,706          26%            46,551          26%              42,608         26%
                       ---------   ---------------    ----------   ----------------    ---------   ----------------
Total Orthopedic        184,441          90%           160,002          90%             145,935         89%

Non-Orthopedic           19,266          10%            17,593          10%              16,425         11%
                       ---------   ---------------    ----------   ----------------    ---------   ----------------
Total                  $203,707         100%          $177,595         100%            $162,360        100%
                       =========   ===============    ==========   ================    =========   ================


                                       37



Orthofix International N.V.

2003 Compared to 2002

         Sales -- Net sales increased 15% to $203.7 million in 2003 from $177.6
million in 2002.

         Net sales by geographic origination in the Americas (primarily in the
United States) increased 14% to $116.8 million in 2003 compared to $102.9
million in 2002. The Americas net sales represented 57% and 58% of our total net
sales in 2003 and 2002, respectively. The increase in net sales for 2003 was due
to strong growth in the United States (14%) and Brazil (11%) of net sales in all
orthopedic product market sectors. This increase was slightly offset by a
decrease in net sales of non-Orthofix products in Mexico where we are
discontinuing the distribution of certain non-Orthofix products.

         Net sales in International increased 16% to $86.9 million in 2003 from
$74.7 million in 2002. International net sales represented 43% and 42% of our
total net sales in 2003 and 2002, respectively. The incremental impact of
foreign exchange rates on International sales was to increase International net
sales by $7.6 million or approximately 10% for 2003, primarily as a result of a
stronger Euro and U.K. Pound against the U.S. dollar. Net of foreign currency
impact, International sales were up in all International subsidiaries except
Orthosonics, our bone cement removal business, with the largest increases in
France (24%) and in our A-V Impulse business (14%).

         All of our market sectors experienced strong net sales growth in 2003.
Sales of Spine products grew 14% to $79.6 million in 2003 from $69.6 million in
2002, with the sale of Spinal-Stim bone growth stimulation products growing
approximately 17% in 2003 over 2002. Increased sales of spinal stimulation
resulted principally from an increase in the volume of stimulators sold and from
the renewal of our distribution agreement with Medtronic Sofamor Danek. We
estimate that the renewed distribution agreement had the effect of increasing
sales by $5.9 million in 2003. Approval and introduction of BMPs by Medtronic
Sofamor Danek have begun to show some market acceptance as a substitute for
autograft bone in spinal fusion surgeries. Our Spinal-Stim product is
FDA-approved for both failed fusions and healing enhancement as an adjunct to
spinal fusion surgery, most typically for multilevel or high-risk patients. In
2002, Medtronic Sofamor Danek Group conducted clinical studies with BMPs.
Participation of physicians in the clinical studies had an adverse impact on our
stimulation product sales growth in the second half of 2002. Although product
sales growth returned to historic product growth rates in 2003, as physicians
participate in further clinical studies with BMPs, it could have a further
adverse impact on stimulation product sales. Although BMPs are considered or
classified as a bone growth material, they have yet to be clinically proven to
be effective in high-risk patients. Our sales of Reconstruction products grew
17% to $51.2 million in 2003 from $43.8 million in 2002, primarily due to sales
of our A-V Impulse system, which grew 14% in 2003, as well as from sales of
ExFix products for Reconstruction such as the Sheffield ring system and several
International distribution products, all of which experienced strong double
digit rates of growth. Sales of Trauma products grew 15% to $53.7 million in
2003 from $46.6 million in 2002. Sales of our Physio-Stim bone growth stimulator
for long bone non-unions grew approximately 21% in 2003 over 2002 while ExFix
products for Trauma grew approximately 13%. Sales of Non-Orthopedic products,
principally the Laryngeal Mask which we distribute in the United Kingdom,
Ireland and Italy, grew by 9% to $19.2 million in 2003 from $17.6 million in
2002.

         Gross Profit -- Our gross profit increased 15% to $152.6 million in
2003 from $132.8 million in 2002, primarily due to the increase in net sales of
15%. Gross profit as a percentage of net sales increased slightly to 74.9% in
2003 from 74.8% in 2002. The increase in gross profit as a percentage of net
sales was the result of a higher growth rate in higher margin bone growth
stimulation product sales, including the renewal of our distribution agreement
with Medtronic Sofamor Danek, the favorable impact of additional direct
distribution and continuing improvement in manufacturing efficiencies in our
United States operations. These positive impacts were partially offset by a
negative foreign currency impact. Although foreign currency contributed $7.6
million to our International sales growth, the year-over-year appreciation of
the Euro and the U.K. Pound against the U.S. dollar increased production costs
of external fixation and vascular products, which was detrimental to our gross
profit and gross profit margin in those situations where we sell these products
in U.S. dollars.

         Sales and Marketing Expenses -- Sales and marketing expenses, which
include commissions, royalties and bad debt provisions, generally increase and
decrease in relation to sales. Sales and marketing expenses increased $12.4
million to $76.8 million in 2003 from $64.4 million in 2002, an increase of 19%
on a sales increase of 15%. Sales and marketing expenses as a percentage of net
sales increased to 37.7% in 2003 from 36.3% in 2002. The 1.4% increase in 2003
reflects the negative impact of foreign currency on International operating
expenses, higher

                                       38


Orthofix International N.V.

commissions on stimulation sales under the terms of our renewed distribution
agreement with Medtronic Sofamor Danek and additional costs to support the
hiring of additional sales people and the launch of new products.  The PC.C.P
product was launched in the International market in the second quarter and on a
limited basis in the United States in the third quarter. In connection with the
launch of the PC.C.P product, we conducted a large training seminar for surgeons
in Verona, Italy and a training seminar for U.S. surgeons in Chicago. Further we
conducted training meetings for the sales force in Europe and the United States.

         General and Administrative Expenses -- General and administrative
expenses increased $3.3 million to $20.5 million from $17.2 million in 2002.
General and administrative expenses increased as a percentage of net sales to
10.0% in 2003 from 9.7% in 2002. The 0.3% increase in 2003 also reflects the
negative impact of foreign currency on International operating expenses. In
addition, we incurred additional expenses associated with becoming a U.S. SEC
registrant and with building administrative support in our direct sales
organizations in Europe and Mexico.

         Research and Development Expenses -- Research and development expenses
increased $0.6 million to $8.1 million in 2003 from $7.5 million in 2002, an
increase of 8%, and decreased slightly as a percentage of net sales to 4.0% in
2003 from 4.2% in 2002. Research and development decreased as a percent of net
sales in 2003 as a result of a decrease in clinical study spending in our
International unit.

         Amortization of Intangible Assets -- Amortization of intangible assets
was $1.0 million in 2003 compared to $0.7 million in 2002. Amortization of
intangible assets consists principally of the amortization of patents and
trademarks.

         Litigation and Settlement Costs -- Based on an assessment of the merits
of the Kinetic Concepts, Inc. (KCI), we incurred $4.0 million in litigation
costs in 2003 compared to no expense in 2002. We also incurred $1.7 million of
settlement cost to conclude the investigation by the Office of Inspector General
into the appropriateness of claims made to federal health care programs for the
off-label use of our FDA approved pulsed electronic magnetic field device, and
billing and coding for its off-label use. See Item 3 - "Legal Proceedings" for a
description of the legal proceedings. We expect to incur additional KCI
litigation costs in 2004, but at a lower rate than they were incurred in 2003.

         Other Income (Expense), Net -- Other income (expense), net was an
expense of $1.3 million in 2003 compared to an expense of $2.4 million in 2002.
The decrease in expense was the result of the following items: (i) a gain on
foreign exchange transactions in 2003 of $0.4 million, compared with a loss in
2002 of $0.5 million, resulting in a net improvement of $1.0 million; and (ii)
our share of losses in the OrthoRx joint venture, which totaled $1.8 million in
2003, an improvement of $0.3 million from the $2.1 million loss in 2002.
Interest income, net of interest expense, was $0.4 million less in 2003 compared
to 2002 and in 2003 we realized a gain of $0.4 million from the sale of
available-for-sale marketable securities.

         Income Tax Expense -- In 2003 and 2002, the effective tax rate was 37%
and 32%, respectively. The effective tax rate in 2003 was negatively impacted by
3.1% as a result of the KCI litigation expenses, a majority of which was not
deductible for income tax purposes. Our effective tax rate was also affected by
the fact that a larger proportion of pre-tax earnings was earned in the United
States, a relatively higher tax jurisdiction.

         Net Income -- Net income for 2003 was $24.7 million, or $1.76 per basic
share and $1.68 per diluted share, compared to $25.9 million, or $1.96 per basic
share and $1.76 per diluted share, for 2002, a decrease in net income of 5%. The
weighted average number of basic common shares outstanding was 14,061,447 and
13,196,524 during 2003 and 2002, respectively. The weighted average number of
diluted common shares outstanding was 14,681,833 and 14,685,236 during 2003 and
2002, respectively.

                                       39



Orthofix International N.V.

2002 Compared to 2001

         Sales -- Net sales increased 9% to $177.6 million in 2002 from $162.4
million in 2001. Net sales increased 11% when adjusted for the impacts of the
sale of a device product line and the formation of the OrthoRx joint venture,
which accounted for $0.7 million and $2.0 million in sales in 2001,
respectively.

         Net sales in the Americas (primarily the United States) increased to
$102.9 million in 2002 compared to $94.0 million in 2001, an increase of 9%. The
Americas' sales would have increased 13% when adjusted for the impacts of the
sale of a device product line and the formation of the OrthoRx joint venture,
referenced above. The Americas' net sales represented 58% of our total net sales
in both 2002 and 2001. The increase in 2002 from 2001 was largely due to strong
growth in net sales of orthopedic products as well as an 82% sales increase in
Mexico and a 93% increase in Brazil, which converted from distributorships to
direct sales in 2001. Net sales in International increased 9% to $74.7 million
in 2002 from $68.4 million in 2001. The primary contributors to the sales
increase were increased sales of orthopedic products from the conversion of our
distribution channel from distributorship to direct sales in France and Germany
during 2001, increased sales of OSCAR products and increased sales of the
non-orthopedic Laryngeal Mask product, partially offset by a slower growth rate
in sales from the A-V Impulse system.

         We have substantial activities outside of the United States that are
subject to the impact of changes in foreign exchange rates. The impact of
foreign exchange rates on sales outside of the United States was to increase net
sales by $1.5 million for 2002, primarily as the result of a stronger Euro and
U.K. Pound against the U.S. dollar.

         All of our market sectors experienced growth in sales in 2002. Our
sales of Spine products grew 9% to $69.6 million in 2002 from $63.6 million in
2001. The increase was primarily due to an 8% growth in sales of the Spinal-Stim
bone growth stimulator combined with a 26% growth in the sales of spine bracing
products. This increase is principally the result of higher shipment volumes.
Recent approval and introduction of BMPs have begun to show some market
acceptance as a substitute for autograft bone. Although it is classified as a
bone growth material, it has yet to be clinically proven to be effective in
high-risk patients. Participation of physicians who prescribe spinal stimulation
products in clinical studies with BMPs had an adverse impact on our Spinal-Stim
sales growth in the second half of 2002. As physicians complete their
participation in BMP clinical studies, we expect them to return to their
historic patterns of prescribing spinal stimulation products. Stimulation
products are sold almost exclusively in the United States, although we are
attempting to expand distribution for stimulation products to Europe and Mexico.
Sales of Reconstruction products grew 10%, which is primarily due to increased
sales of our external, and internal fixation products used for Reconstruction,
increased sales of the OSCAR product, as well as increased sales of the A-V
Impulse System. The increase in sales of the A-V Impulse System was the result
of expanded distribution outside of the United States. In the United States, the
A-V Impulse System is distributed by Kendall Healthcare Products. Sales to
Kendall Healthcare Products increased just 2% in 2002 as a result of their
efforts to reduce their inventory levels through lower levels of purchasing.
Sales of Trauma products grew 9% to $46.6 million in 2002 from $42.6 million in
2001. Within Trauma, sales of the Physio-Stim bone growth stimulator for long
bone non-unions grew 25%, while internal and external fixation products used for
Trauma applications grew 3% in 2002 over the prior year. Sales of non-orthopedic
products increased 7% to $17.6 million in 2002, from $16.4 million in 2001. This
increase was primarily due to growth in sales of the Laryngeal Mask product,
which we distribute in the United Kingdom, Ireland and Italy, offset by the loss
of sales on products now sold by OrthoRx following the formation of the OrthoRx
joint venture in January 2002, which accounted for $2.0 million in sales in
2001.

         Gross Profit -- The Company's gross profit increased 11% to $132.8
million in 2002 from $119.4 million in 2001, primarily due to the increase of 9%
in net sales and increased gross profit margins. Gross profit as a percentage of
net sales increased to 74.8% in 2002 from 73.5% in 2001. The increase in gross
profit as a percentage of net sales was the result of a higher growth rate in
higher margin bone growth stimulation product sales, the favorable impact of
additional direct distribution and continuing improvement in manufacturing
efficiencies in our United States operations.

         Sales and Marketing Expenses -- Sales and marketing expenses, which
include commissions, royalties and bad debt provisions, generally increase and
decrease in relation to sales. Sales and marketing expenses increased $5.0
million to $64.4 million in 2002 from $59.4 million in 2001, an increase of 8%
on a sales increase of 9%. Sales and marketing expenses as a percentage of net
sales decreased to 36.3% in 2002 from 36.6% in 2001.

                                       40




Orthofix International N.V.

         In addition to commissions, royalties and bad debt provisions which are
generally related to sales levels, sales expenses increased primarily as a
result of adding field sales personnel to the direct sales force in the United
States, the United Kingdom, Germany and France and as a result of converting to
direct distribution from distributorships in France, Germany, Mexico and Brazil
during 2001.

         Marketing expenses increased from additional workshops and product
marketing support. These additional costs were partially offset by the
discontinuance of sales and marketing costs associated with OrthoRx following
the formation of the OrthoRx joint venture at the beginning of 2002. Further,
International sales and marketing expenses were higher by approximately $0.5
million as the result of a stronger Euro and U.K. Pound against the U.S. dollar.

         General and Administrative Expenses -- General and administrative
expenses decreased to $17.2 million from $18.4 million in 2001, a decrease of 7%
or $1.2 million. General and administrative expenses decreased as a percentage
of net sales to 9.7% in 2002 from 11.3% in 2001. General and administrative
expenses for 2002 and 2001 included $1.8 million and $2.7 million of legal
costs, respectively, principally relating to legal costs associated with a
request and subpoena for documents received by the Company from the Office of
Inspector General of the United States Department of Health and Human Services
and the United States Department of Defense, partially offset by the recovery of
$0.6 million of legal reserves in 2002. For a description of the legal
proceedings to which we are a party, see Item 3 - "Legal Proceedings." Other
offsetting increases in general and administrative expenses included higher
depreciation costs from capital investments, primarily in information technology
of $0.7 million and unmatched costs of $0.4 million associated with opening
direct operations in France and Mexico during 2001.

         Research and Development Expenses -- Research and development expenses
increased to $7.5 million in 2002 from $7.0 million in 2001, an increase of 7%
or $0.5 million, and decreased slightly as a percentage of net sales to 4.2% in
2002 from 4.3% in 2001. The increase in expenses was primarily associated with
higher R&D costs to support new product development and increases in study
grants and clinical studies costs. For a description of our research and
development activities, see Item 1 -- "Product Development, Patents and
Licenses."

         Amortization of Intangible Assets -- Amortization of intangible assets
was $0.7 million in 2002 compared to $4.1 million in 2001. Amortization of
intangible assets in 2002 consists principally of the amortization of patents
and trademarks. As required by Statement of Accounting Standards No. 142, we
ceased amortization of goodwill beginning in 2002. Amortization of goodwill
amounted to approximately $3.3 million in 2001. See Note 7 to the Consolidated
Financial Statements.

         Other Income (Expense), Net -- Other income (expense), net was an
expense of $2.4 million in 2002 compared to an income of $0.2 million in 2001.
The change is due primarily to the formation of the OrthoRx joint venture in
January 2002 in which we held a 46% equity interest at December 31, 2002. The
joint venture is accounted for under the equity method of accounting for
investments and our share of the losses from the joint venture, $2.1 million for
2002, is included in other income (expense). The remainder of the account
balance for 2002 is net interest income of $0.2 million from cash balances and
borrowings offset by foreign exchange losses of $0.5 million primarily from
currency devaluations in Mexico and Brazil where certain trade accounts payable
are billed in U.S. dollars.

         Income Tax Expense -- In 2002 and 2001, the effective rate of income
tax was 32% and 26%, respectively. Excluding the effect of the nonrecurring item
and a tax benefit resulting from the deduction in Italy of an intra-group
dividend subsequent to the purchase of the remaining 30% minority interest in
DMO, the effective rate in 2001 would have been 32%.

         Net Income -- Net income for 2002 was $25.9 million, or $1.96 per basic
share and $1.76 per diluted share, compared to $21.0 million, or $1.60 per basic
share and $1.42 per diluted share, for 2001, an increase in net income of 24%.
The weighted average number of basic common shares outstanding was 13,196,524
and 13,086,467 during 2002 and 2001, respectively. The weighted average number
of diluted common shares outstanding was 14,685,236 and 14,737,567 during 2002
and 2001, respectively.

                                       41



Orthofix International N.V.

Liquidity and Capital Resources

         Cash and cash equivalents were $33.6 million at December 31, 2003
compared to $48.8 million at December 31, 2002, a decrease of $15.2 million.

         Net cash provided by operating activities increased to $31.8 million in
2003 from $29.3 million in 2002, an increase of $2.5 million. Net cash provided
by operating activities is comprised of net income, non-cash items and changes
in working capital. Net income decreased approximately $1.2 million to $24.7
million in 2003, including $3.8 million in after-tax KCI patent litigation costs
and $1.1 million in after-tax OIG settlement costs, from $25.9 million in 2002.
We expect to incur additional KCI litigation costs in 2004, but at a lower rate
than they were incurred in 2003. The decrease in the net income effect on cash
was offset by a $0.2 million increase in non-cash items and by a $3.5 million
reduction in the amount of cash used for working capital accounts.

         Net cash used in investing activities was $155.5 million during 2003,
compared to $16.8 million during 2002. During 2003, we purchased the remaining
48% minority interest in our UK distribution company, Intavent Orthofix Ltd.,
for $20.6 million, purchased an equity interest in Innovative Spinal
Technologies (IST) for $1.5 million, increased our investment in the OrthoRx
joint venture by $1.5 million and on December 30, 2003 completed the acquisition
of Breg for $150.0 million plus closing adjustments and transaction costs
totaling approximately $6.3 million. In addition, we invested $5.2 million in
capital expenditures during 2003.

         Net cash provided by financing activities was $106.6 million in 2003
compared to a use of $0.3 million in 2002. The majority of the financing
activity in 2003 resulted from the completion of a senior secured term note for
$110.0 million obtained in conjunction with the Breg transaction, slightly
offset by $2.7 million in fees incurred and paid to obtain the senior secured
term note. In addition, we received proceeds of $11.7 million from the issuance
of 769,117 shares of our common stock upon the exercise of options and warrants.
In 2003, we purchased 157,000 shares of our common stock in the open market for
$4.4 million, or an average per share price of $28.00. Our Board of Directors
has authorized the purchase of shares of our common stock up to a total of 50%
of the number of shares of our common stock issued from the exercise of options.
We also repaid $8.0 million of loans and borrowings, principally on a line of
credit in Italy used to finance working capital which was reduced upon the sale
of accounts receivable without recourse in Italy to a third party.

         In 2004, we anticipate the use of cash for tangible and intangible
capital expenditures will be approximately $9.1 million, including $1.9 million
at Breg, compared to $5.2 million in 2003.

         When we acquired Breg on December 30, 2003, one of our wholly owned
subsidiaries, Colgate, entered into a new senior secured bank facility with a
syndicate of financial institutions to finance the transaction. The senior
secured bank facility provides for (1) a five-year amortizing term loan facility
of $110.0 million, the proceeds of which were used for partial payment of the
purchase price of Breg, and (2) a five-year revolving credit facility of $15.0
million, upon which we had not drawn as of December 31, 2003 or as of March 12,
2004. The obligation has a floating interest rate of LIBOR or prime rate plus a
margin that is adjusted quarterly based on Colgate's leverage ratio. The
interest rate as of December 31, 2003 was 3.91%. Orthofix and each of Colgate's
direct and indirect subsidiaries, including Orthofix Inc. and Breg, have
guaranteed the obligations of Colgate under the senior secured bank facility.
The obligations of Colgate under the senior secured bank facility and Colgate's
subsidiaries under their guarantees are secured by the pledge of their
respective assets. Certain of our other subsidiaries have also guaranteed the
obligations of Colgate under the senior secured bank facility on a limited
recourse basis.

         In addition to scheduled debt repayments of $11.0 million in 2004, our
new senior secured bank facility requires us to make mandatory prepayments with
(a) the excess cash flow (as defined in the credit agreement) of Colgate and its
subsidiaries in an amount initially equal to 75% of the excess annual cash flow
of Colgate and its subsidiaries, reducing to 50% upon the attainment of a
leverage ratio of less than or equal to 1.50 to 1.00, (b) the net cash proceeds
of any debt issuance by Colgate and its subsidiaries or any equity issuance by
us or Colgate or any of its subsidiaries, (c) the net cash proceeds of asset
dispositions over a minimum threshold or (d) unless reinvested, insurance
proceeds or condemnation awards.

                                       42


Orthofix International N.V.

         The credit agreement contains customary negative covenants applicable
to Colgate and its subsidiaries, including restrictions on indebtedness, liens,
dividends and mergers and sales of assets. The credit agreement also contains
certain financial covenants, including a fixed charge coverage ratio, an
interest coverage ratio and a leverage ratio applicable to Colgate and its
subsidiaries on a consolidated basis, and a leverage ratio applicable to
Orthofix and its subsidiaries on a consolidated basis.

         At December 31, 2003, we had outstanding borrowings of $0.1 million and
unused available lines of credit of $10.6 million under a line of credit
established in Italy to finance the working capital of our Italian operations.
The terms of the line of credit give us the option to borrow amounts in Italy at
rates determined at the time of borrowing.

         We continue to search for viable acquisition candidates that expand our
worldwide presence as well as additional products appropriate for current
distribution channels. An acquisition of another company or product line by us
could result in our incurrence of additional debt and contingent liabilities.

         We believe that current cash balances together with projected cash
flows from operating activities, the unused revolving credit facility and
available Italian line of credit, the exercise of stock options, and our
remaining available debt capacity are sufficient to cover anticipated operating
capital needs and research and development costs during the next two fiscal
years.

Contractual Obligations

         The following chart sets forth our contractual obligations as of
December 31, 2003.



                                                               Payments Due By Period
- --------------------------------------- ------------------------------------------------------------------------------
(Dollars in thousands)                        Total       Less Than           1 to 3          4 to 5          Over 5
                                                           1 Year              Years           Years           Years
                                           --------       -----------         -------         -------         -------
                                                                                  
Senior secured term loan                   $110,000           $11,000         $22,000         $77,000               -
Other borrowings                                203               135              68               -               -
Operating Leases                             11,310             3,134           4,617           2,101           1,458
                                           --------       -----------         -------         -------          -------
      Total                                $121,513           $14,269         $26,685         $79,101          $1,458
                                           ========       ===========         =======         =======          =======


Off-balance Sheet Arrangements

         As of December 31, 2003 we did not have any material off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, results of operations, liquidity, capital
expenditures or capital resources.


                                       43



Orthofix International N.V.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------

         In the ordinary course of business, we are exposed to foreign currency
fluctuations and to the impact of changes in interest rates. These fluctuations
can vary sales, cost of goods, and costs of operations, the cost of financing
and yields on cash and short-term investments. Our foreign currency exposure
results from fluctuating currency exchange rates, primarily the U.S. dollar
against the Euro, U.K. Pound, Mexican Peso and Brazilian Real. We face cost of
goods currency exposure when we produce products in foreign currencies such as
the Euro or U.K. Pound and sell those products in U.S. dollars. We face
transactional currency exposures when foreign subsidiaries (or the Company
itself) enter into transactions, generally on an intercompany basis, denominated
in currencies other than their local currency. We also face currency exposure
from translating the results of our global operations into the U.S. dollar at
exchange rates that have fluctuated from the beginning of the period.
Historically, we have not used financial derivatives to hedge against
fluctuations in currency exchange rates. Based on our overall exposure for
foreign currency at December 31, 2003, a hypothetical 10% change in foreign
currency rates would impact the company's balance sheet approximately $3.5
million, net sales approximately $7.1 million and net income and cash flows
approximately $0.8 million over a one-year period.

         Our cash and cash equivalent balances and interest sensitive debt at
December 31, 2003 were $33.6 million and $110.2 million. Based on such balances,
a 1% movement in interest rates would have a $0.3 million and $1.1 million
effect on interest receivable and interest payable per year, respectively.

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
- ---------------------------------

         As of December 31, 2003, we performed an evaluation under the
supervision and with the participation of our company's management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our company's disclosure controls and procedures.
Based on the evaluation, our management, including the Chief Executive Officer
and Chief Financial Officer, concluded that our company's disclosure controls
and procedures were effective as of the end of the period covered by this
report. There were no changes in our company's internal control over financial
reporting that occurred during the fourth quarter of 2003 that have materially
affected, or are reasonably likely to materially affect, our company's internal
control over financial reporting.

                                       44



Orthofix International N.V.

                                    Part III

         Certain information required by Item 10 and the information required by
Items 11, 12, 13 and 14 of Part III 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 and Executive Officers of the Registrant
- ------------------------------------------------------------

         The following table sets forth certain information about the persons
who serve as our directors and executive officers.

Name                            Age   Position
- ----                            ---   --------
Robert Gaines-Cooper            66    Chairman of the Board of Directors
Edgar Wallner                   67    Deputy Chairman and Director
Charles W. Federico             55    Chief Executive Officer, President and
                                        Director
Thomas Hein                     56    Chief Financial Officer
Peter Clarke                    62    Executive Vice President and Director
Gary D. Henley                  55    Senior Vice President and President,
                                        Americas Division
Galvin Mould                    58    Vice President and President,
                                        International Division
Bradley R. Mason                49    Vice President and President, Breg, Inc.
Peter J. Hewett                 68    Director
Jerry C. Benjamin (2)           63    Director
James F. Gero (1)               59    Director
Frederik K. J. Hartsuiker (2)   63    Director
John W. Littlechild (1)         52    Director
Alberto C d'Abreu de Paulo (2)  65    Director
- --------------
(1)  Member of the Compensation Committee
(2)  Member of the Audit Committee

         All directors hold office until the next annual general meeting of our
shareholders and until their successors have been elected and qualified. Our
officers serve at the discretion of the Board of Directors. There are no family
relationships among any of our directors or executive officers. The following is
a summary of the background of each director and executive officer.

         Robert Gaines-Cooper. Mr. Gaines-Cooper became Chairman of Orthofix
International N.V. in 1989 and has been a Director of Orthofix International
since our formation in 1987. He is Managing Director of Chelle Medical
Ltd-Seychelles. Mr. Gaines-Cooper is also Chairman of LMA International S.A.,
Jersey, Channel Islands.

         Edgar Wallner. Mr. Wallner became a Director and President and Chief
Executive Officer of Orthofix International N.V. in October 1987. Mr. Wallner
resigned as President and Chief Executive Officer on January 1, 2001, succeeding
Mr. Hewett as Deputy Chairman on that date. From 1978 until 1987, Mr. Wallner
was Vice President of European Operations for EBI, now a subsidiary of Biomet.
From 1973 until 1978, he was Vice President of Marketing for Hydron Europe Inc.,
a soft contact lens manufacturer. Prior to 1973, Mr. Wallner spent 15 years with
The Boots Company Ltd., a multinational pharmaceutical company.

         Charles W. Federico. Mr. Federico became a Director of Orthofix
International N.V. in October 1996 and was the President of Orthofix Inc. from
October 1996 to January 1, 2002. On January 1, 2001, Mr. Federico succeeded Mr.
Wallner as President and Chief Executive Officer of Orthofix International. From
1985 to 1996, Mr. Federico was the President of Smith & Nephew Endoscopy
(formerly Dyonics, Inc.). From 1981 to 1985, Mr. Federico served as Vice
President of Dyonics, initially as Director of Marketing and subsequently as
General Manager. Previously, he held management and marketing positions with
General Foods Corporation, Air Products Corporation, Puritan Bennett Corporation
and LSE Corporation.

                                       45



Orthofix International N.V.

         Thomas Hein, CPA. Mr. Hein became the Chief Financial Officer of
Orthofix International N.V. on July 1, 2002. For the prior three years, Mr. Hein
had been the Chief Financial Officer of Orthofix Inc., our wholly owned U.S.
subsidiary. From 1996 to 1999, Mr. Hein was the Chief Financial Officer for
Prime Vision Health Inc., a diversified healthcare services company. From 1988
to 1996, Mr. Hein was V.P. of Finance and Chief Financial Officer of MDT
Corporation, a sterilization and hospital capital equipment company. Previously,
he held financial management positions with Metheus Corporation, Memorex
Corporation and Kaiser Aetna.

         Peter Clarke. Mr. Clarke became a Director and Executive Vice President
and Secretary of Orthofix International N.V. in March 1992 and was the Chief
Financial Officer of Orthofix International N.V. from January 1988 to June 30,
2002, at which time he was succeeded by Mr. Hein in that position. From 1985 to
1987, he was Financial Controller of EBI Medical Systems Ltd., a United Kingdom
subsidiary of EBI.

         Gary D. Henley. Mr. Henley joined Orthofix International N.V. in
January 1997 as Senior Vice President. On January 1, 2002, Mr. Henley succeeded
Mr. Federico as President of Orthofix Inc. Prior to joining Orthofix, Mr. Henley
was President of Smith and Nephew Video Division from 1987 until 1996. Mr.
Henley was founder and President of Electronic Systems Inc. from 1975 to 1984
and CeCorp Inc. from 1984 until 1987.

         Galvin Mould. Mr. Mould became Vice President and President of the
International Division of Orthofix International N.V. on January 1, 2004. He is
also a Director of Intavent Ltd., Novamedix, Orthosonics Ltd., Orthofix AG and
Oped AG, which are subsidiaries or investments of Orthofix International N.V. He
joined Orthofix in 1995 as Managing Director of Intavent Orthofix Ltd. Prior to
joining Orthofix, Mr. Mould served in several Director of Sales and Marketing
Positions in the healthcare market.

         Bradley R. Mason. Mr. Mason became a Vice President of Orthofix
International N.V. in December 2003 upon the acquisition of Breg, Inc. He is
also the President of Breg, Inc., which he founded in 1989 with six other
principal shareholders. Mr. Mason has over 20 years in the medical device
industry, some of which were spent with dj Orthopedics (formally DonJoy) where
he was a founder and held the position of Executive Vice President. Mr. Mason is
the named inventor on 35 issued patents in the orthopedic product arena with
several other patents pending.

         Peter J. Hewett. Mr. Hewett was the Deputy Group Chairman of Orthofix
International N.V. between March 1998 and December 2000. He is Chairman of the
Board of Orthofix Inc. He has been a non-executive Director of Orthofix
International N.V. since March 1992. Previously, Mr. Hewett served as the
Managing Director of Caradon Plc, Chairman of the Engineering Division, Chairman
and President of Caradon Inc., Caradon Plc's U.S. subsidiary and a member of the
Board of Directors of Caradon Plc of England. In addition, he was responsible
for Caradon Plc's worldwide human resources function, and the development of its
acquisition opportunities.

         Jerry C. Benjamin. Mr. Benjamin became a non-executive Director of
Orthofix International N.V. in March 1992. He has been a General Partner of
Advent Venture Partners, a venture capital management firm in London, since
1985. In the past, Mr. Benjamin was a Director for a number of private health
care companies.

         James F. Gero. Mr. Gero became a non-executive Director of Orthofix
International N.V. in February 1998. Mr. Gero became a Director of AME in 1990
and served subsequently as a Director of Orthofix Inc. He is the Chairman and
Chief Executive Officer of each of Sierra Technologies Inc. and Sierra Networks
Inc. and a Director of each of LBP, Inc., Intrusion, Inc. and Drew Industries
Inc., and Chairman of Thayer Aerospace.

         Frederik K. J. Hartsuiker. Mr. Hartsuiker became a non-executive
Director of Orthofix International N.V. in March 1992 and has been a Director of
Orthofix International B.V. since 1987. Mr. Hartsuiker is a Director of New
Amsterdam Cititrust B.V. in The Netherlands.

         John W. Littlechild. Mr. Littlechild became a non-executive Director of
Orthofix International N.V. in 1987. He has served as a General Partner of each
of HealthCare Ventures' funds, a U.S. venture capital fund, since 1991. From
1985 to 1991, he was a Senior Vice President of Advent International
Corporation. Mr. Littlechild is a Director of NitroMed, Inc. and Dyax, Inc. as
well as other privately held HealthCare portfolio companies.

                                       46



Orthofix International N.V.

         Alberto C d'Abreu de Paulo. Mr. d'Abreu de Paulo became a non-executive
Director of Orthofix International N.V. in March 1992 and has been associated
with Orthofix since its formation in 1987 as the President and Managing Director
of First Independent Trust (Curacao) N.V., a director of Orthofix until February
28, 1992. Mr. d'Abreu de Paulo is a tax attorney in private practice and a
member of the Audit Court of the Netherlands Antilles.

Audit Committee

         We have a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended. Messrs. Benjamin, Hartsuiker and d'Abreu de Paulo currently serve as
members of the Audit Committee. Under the current SEC rules and the rules of the
Nasdaq, all of the members are independent. Our Board of Directors has
determined that Mr. Benjamin is an "audit committee financial expert" in
accordance with current SEC rules. Mr. Benjamin is also independent, as that
term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange
Act of 1934, as amended.

Code of Ethics

         We have adopted a code of ethics applicable to our directors, officers
and employees worldwide, including our Chief Executive Officer and Chief
Financial Officer. A copy of our code of ethics is filed as Exhibit 14.1 to this
Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

         We will provide the information regarding Section 16(a) beneficial
ownership reporting compliance 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
"Section 16(a) Beneficial Ownership Reporting Compliance," and possibly
elsewhere therein. That information is incorporated by reference in this Item 10
by reference.

                                       47



Orthofix International N.V.

Item 11.  Executive Compensation
- --------------------------------

         We will provide information that is responsive to this Item 11
regarding compensation paid to our executive officers 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 Stockholders
            --------------------

         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
- --------------------------------------------------------

         We will provide information that is responsive to this Item 13
regarding transactions with related parties 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.


                                       48




Orthofix International N.V.

                                     Part IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------

(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:

          1.        Financial Statements

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

          2.        Financial Statement Schedules

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

          3.       Exhibits

Exhibit
Number       Description

3.1          Certificate of Incorporation of the Company (filed as an exhibit to
             the Company's annual report on Form 20-F for the fiscal year ended
             December 31, 2000 and incorporated herein by reference).

3.2          Articles of Incorporation of the Company (filed as an exhibit to
             the Company's annual report on Form 20-F for the fiscal year ended
             December 31, 2000 and incorporated herein by reference).

10.1         Orthofix Inc. Employee Stock Purchase Plan (filed as an exhibit to
             the Company's annual report on Form 10-K for the fiscal year ended
             December 31, 2002 and incorporated herein by reference). (1)

10.2         Orthofix International N.V. Staff Share Option Plan (filed as an
             exhibit to the Company's annual report on Form 10-K for the fiscal
             year ended December 31, 2002 and incorporated herein by reference).
             (1)

10.3         Form of Performance Accelerated Stock Option under the Staff Share
             Option Plan (filed as an exhibit to the Company's annual report on
             Form 10-K for the fiscal year ended December 31, 2002 and
             incorporated herein by reference). (1)

10.4         Orthofix International N.V. Executive Share Option Plan (filed as
             an exhibit to the Company's annual report on Form 10-K for the
             fiscal year ended December 31, 2002 and incorporated herein by
             reference). (1)

10.5*        Form of Performance Accelerated Stock Option Inducement Agreement.
             (1)

10.6         Employment Agreement, dated as of July 1, 2001, between Orthofix
             International N.V. and Charles W. Federico (filed as an exhibit to
             the Company's annual report on Form 10-K for the fiscal year ended
             December 31, 2002 and incorporated herein by reference). (1)

10.7         Employment Agreement, dated as of March 1, 2003, between the
             Company and Thomas Hein (filed as an exhibit to the Company's
             annual report on Form 10-K for the fiscal year ended December 31,
             2002 and incorporated herein by reference). (1)

10.8         Employment Agreement, dated as of March 1, 2003, between the
             Company and Gary D. Henley (filed as an exhibit to the Company's
             annual report on Form 10-K for the fiscal year ended December 31,
             2002 and incorporated herein by reference). (1)

                                       49



Orthofix International N.V.

10.9         Employment Agreement, dated as of July 1, 1999, between
             Orthofix International N.V. and Robert Gaines-Cooper (filed
             as an exhibit to the Company's annual report on Form 10-K for
             the fiscal year ended December 31, 2002 and incorporated
             herein by reference). (1)

10.10        Employment Agreement, dated as of July 1, 1999, between Orthofix
             International N.V. and Edgar Wallner (filed as an exhibit to the
             Company's annual report on Form 10-K for the fiscal year ended
             December 31, 2002 and incorporated herein by reference). (1)

10.11*       Employment Agreement, dated as of November 20, 2003, between
             Orthofix International N.V. and Bradley R. Mason. (1)

10.12        Full Recourse Promissory Note between Orthofix International N.V.
             and Charles W. Federico dated January 10, 2002 (filed as an exhibit
             to the Company's annual report on Form 10-K for the fiscal year
             ended December 31, 2002 and incorporated herein by reference).

10.13        Full Recourse Promissory Note between Orthofix International N.V.
             and Gary D. Henley dated January 10, 2002 (filed as an exhibit to
             the Company's annual report on Form 10-K for the fiscal year ended
             December 31, 2002 and incorporated herein by reference).

10.14        Share Purchase Agreement, dated as of March 20, 2003, between
             Orthofix International N.V. and Intavent Limited (filed as an
             exhibit to the Company's quarterly report on Form 10-Q for the
             quarter ended June 30, 2003 and incorporated herein by reference).

10.15        Acquisition Agreement dated as of November 20, 2003, among Orthofix
             International N.V., Trevor Acquisition, Inc., Breg, Inc. and
             Bradley R. Mason, as shareholders' representative (filed as an
             exhibit to the Company's current report on Form 8-K filed January
             8, 2004 and incorporated herein by reference).

10.16        Voting and Subscription Agreement dated as of November 20, 2003,
             among Orthofix International N.V. and the significant shareholders
             of Breg, Inc. identified on the signature pages thereto (filed as
             an exhibit to the Company's current report on Form 8-K filed
             January 8, 2004 and incorporated herein by reference).

10.17        Credit Agreement dated as of December 30, 2003, among Colgate
             Medical Limited, as borrower, and Orthofix International N.V and
             certain subsidiaries of the borrower, as guarantors, certain
             limited guarantors party thereto, the lenders parties thereto,
             Wachovia Bank, National Association, as administrative agent, and
             Wachovia Capital Markets, LLC, as sole lead arranger and book
             manager (filed as an exhibit to the Company's current report on
             Form 8-K filed January 8, 2004 and incorporated herein by
             reference).

14.1*        Code of Ethics of the Company.

21.1*        Subsidiaries of the Company.

23.1*        Consent of Ernst & Young, independent auditors.

23.2*        Consent of PricewaterhouseCoopers, independent accountants.

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.

32.2*        Section 1350 Certification of Chief Financial Officer.
- ----------
*    Filed herewith.

(1) Management Contract or Compensatory Plan or Arrangement.

                                       50



Orthofix International N.V.

(b)     Reports on Form 8-K

        The following reports on Form 8-K were filed during the fourth quarter
of 2003:

        On November 26, 2003, we filed a current report on Form 8-K (Date of
Report: November 25, 2003) reporting under Item 5 that we had entered into an
acquisition agreement with Breg, Inc. and a representative of Breg's
shareholders for the acquisition of Breg, and that we had entered into a voting
and subscription agreement with certain significant shareholders of Breg.

                                       51



Orthofix International N.V.

                                   SIGNATURES

         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.

                           ORTHOFIX INTERNATIONAL N.V.


Dated:  March 12, 2004        By:   /s/  Charles W. Federico
                                    ---------------------------------------
                                    Name:  Charles W. Federico
                                    Title: Chief Executive Officer and President


         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/ CHARLES W. FEDERICO       Chief Executive Officer,       March 12, 2004
- -------------------------      President and Director
   Charles W. Federico

/s/ THOMAS HEIN                Chief Financial Officer        March 12, 2004
- -------------------------      (Principal Accounting Officer)
   Thomas Hein

/s/ ROBERT GAINES-COOPER       Chairman of the Board of       March 12, 2004
- -------------------------      Directors
   Robert Gaines-Cooper

/s/ EDGAR WALLNER              Deputy Chairman and Director   March 12, 2004
- -------------------------
   Edgar Wallner

/s/ PETER CLARKE               Executive Vice President and   March 12, 2004
- -------------------------      Director
   Peter Clarke

/s/ JERRY C. BENJAMIN                Director                 March 12, 2004
- -------------------------
   Jerry C. Benjamim

/s/ ALBERTO C D'ABREU DE PAULO       Director                 March 12, 2004
- ------------------------------
   Alberto C d'Abreu de Paulo

/s/ JAMES F. GERO                    Director                 March 12, 2004
- -------------------------
   James F. Gero

 /s/ FREDERIK K. J. HARTSUIKER       Director                 March 12, 2004
- ------------------------------
  Frederik K. J. Hartsuiker

/s/ PETER J. HEWETT                  Director                 March 12, 2004
- -------------------------
  Peter J. Hewett

/s/ JOHN W. LITTLECHILD              Director                 March 12, 2004
- -------------------------
  John W. Littlechild

                                       52




Orthofix International N.V.

Index to Consolidated Financial Statements
                                                                            Page

Index to Consolidated Financial Statements..................................F-1
Statement of Management's Responsibility for Financial Statements...........F-2
Report of Independent Auditors..............................................F-3
Report of Independent Accountants...........................................F-4
Report of Independent Auditors..............................................F-5
Report of Independent Auditors..............................................F-6
Consolidated Balance Sheets as of December 31, 2003 and 2002................F-7
Consolidated Statements of Operations for the years ended December 31,
  2003, 2002 and 2001.......................................................F-8
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 2003, 2002 and 2001......................................F-9
Consolidated Statements of Cash Flows for the years ended December 31,
  2003, 2002 and 2001......................................................F-10
Notes to the Consolidated Financial Statements.............................F-11
Schedule 2-- Valuation and Qualifying Accounts..............................S-1
Report of Independent Accountants on Financial Statement Schedule...........S-2

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

                                      F-1




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 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 accountants in 2003
and 2002, and engaged PricewaterhouseCoopers (and for two subsidiaries, Ernst &
Young) in 2001, to audit and render an opinion on the consolidated financial
statements in accordance with auditing standards generally accepted in the
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 accountants to ensure that each is meeting its responsibilities and
to discuss matters concerning internal controls and financial reporting. Ernst &
Young LLP have and PricewaterhouseCoopers had full and free access to the Audit
Committee.



Robert Gaines-Cooper
Chairman of the Board of Directors

Charles W. Federico
President, Chief Executive Officer and Director

Thomas Hein
Chief Financial Officer

                                      F-2



Orthofix International N.V.

Report of Independent Auditors

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

         We have audited the accompanying consolidated balance sheets of
Orthofix International N.V. as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the 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, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.

         As described in Note 7 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective January 1, 2002.

                                                     /s/ ERNST & YOUNG LLP

Charlotte, North Carolina
March 5, 2004

                                      F-3



Orthofix International N.V.

Report of Independent Accountants

To the Board of Directors and Shareholders of Orthofix International N.V.:

In our opinion, based on our audit and the report of another auditor, the
consolidated statement of operations, of changes in shareholders' equity and of
cash flows for the year ended December 31, 2001 present fairly, in all material
respects, the results of Orthofix International N.V. and its subsidiaries' (the
"Company") operations and cash flows for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. 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 audit. We did not audit the financial statements of
Novamedix Distribution Limited or Inter Medical Supplies Limited, for the year
ended December 31, 2001, both of which are wholly owned subsidiaries, which
statements reflect total revenues of $21.2 million for the year ended December
31, 2001. Those statements were audited by another auditor whose report thereon
has been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts included for Novamedix Distribution Limited or Inter
Medical Supplies Limited is based solely on the report of the other auditor. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit and the report of the other auditor provide a
reasonable basis for the opinion expressed above.


/s/ PRICEWATERHOUSECOOPERS


London, England
June 25, 2002

                                      F-4




Report of Independent Auditors

To the Board of Directors and Management of Inter Medical Supplies Limited, a
subsidiary of Orthofix International N.V.

         We have audited the accompanying statements of operations,
shareholder's equity and cash flows for the year ended December 31, 2001 of
Inter Medical Supplies Limited, a subsidiary of Orthofix International N.V. (not
presented separately herein). These financial statements are the responsibility
of the Company's Directors. Our responsibility is to express an opinion on these
financial statements based on our audit.

         We conducted our audit in accordance with auditing standards generally
accepted in the 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 the Directors, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Inter Medical Supplies Limited for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.


                                      /s/ ERNST & YOUNG

7 June 2002
Nicosia, Cyprus

                                      F-5



Orthofix International N.V.

Report of Independent Auditors

To the Board of Directors and Management of Novamedix Distribution Limited, a
subsidiary of Orthofix International N.V.

         We have audited the accompanying statements of operations,
shareholders' equity and cash flows of Novamedix Distribution Limited, a
subsidiary of Orthofix International N.V. for the year ended December 31, 2001
(not presented separately herein). These financial statements are the
responsibility of the Company's Directors. Our responsibility is to express an
opinion on these financial statements based on our audit.

         We conducted our audit in accordance with auditing standards generally
accepted in the 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 the Directors, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Novamedix Distribution Limited for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.

                                      /s/ ERNST & YOUNG

7 June 2002
Nicosia, Cyprus


                                      F-6




Orthofix International N.V.



Consolidated Balance Sheets as of December 31, 2003 and 2002




(U.S. Dollars, in thousands except share and per share data)                            2003               2002
                                                                                  -----------------     -----------------
                                                                                                  
Assets
Current assets:
 Cash and cash equivalents...............................................                 $33,559            $48,813
 Trade accounts receivable, less allowance for doubtful accounts of $4,314
 and $3,156 at December 31, 2003 and 2002, respectively..................                  70,690             54,654
 Inventories.............................................................                  30,713             23,471
 Deferred income taxes...................................................                   3,978              3,271
 Prepaid expenses........................................................                   2,865              2,257
 Other current assets....................................................                   6,063              4,532
                                                                                  -----------------     -----------------
Total current assets.....................................................                 147,868            136,998
Securities and other investments.........................................                   5,775              4,753
Property, plant and equipment, net.......................................                  19,169             13,841
Patents and other intangible assets, net.................................                  65,726              4,214
Goodwill, net............................................................                 168,397             58,781
Other long-term assets ..................................................                   6,244              2,187
                                                                                  -----------------     -----------------
Total assets.............................................................                $413,179            $220,774
                                                                                  =================     =================
Liabilities and shareholders' equity
Current liabilities:
  Bank borrowings........................................................                     $72             $6,977
  Current portion of long-term debt......................................                  11,063                399
  Trade accounts payable.................................................                   9,640              7,562
  Accounts payable to related parties....................................                   1,929              2,075
  Other current liabilities..............................................                  30,236             20,113
                                                                                  -----------------     -----------------
  Total current liabilities..............................................                  52,940             37,126
                                                                                  -----------------     -----------------
Long-term debt...........................................................                  99,072                 44
Deferred income taxes....................................................                  16,642              2,202
Deferred income..........................................................                   2,500              2,500
Other long-term liabilities..............................................                     186                 58
Deferred compensation....................................................                   1,063                893
                                                                                  -----------------     -----------------
  Total liabilities......................................................                 172,403             42,823

Minority interests                                                                             --              9,867
Commitments and contingencies (Notes 11 and 15)
Shareholders' equity
  Common shares $0.10 par value
  Authorized:       30,000,000              (2002:  30,000,000)..........
  Issued:           14,980,010              (2002:  13,840,477)..........                   1,498              1,384
  Outstanding:      14,980,010              (2002:  13,636,178)..........
 Additional paid-in capital                                                                81,960             50,884
Less:  treasury shares, at cost (2003: -; 2002: 195,000).................                      --             (5,281)
                                                                                  -----------------     -----------------
                                                                                           83,458             46,987
  Retained earnings......................................................                 147,924            123,194
  Accumulated other comprehensive income.................................                   9,394             (2,097)
                                                                                  -----------------     -----------------
Total shareholders' equity...............................................                 240,776            168,084
                                                                                  -----------------     -----------------
Total liabilities, minority interests and shareholders' equity...........                $413,179           $220,774
                                                                                  =================     =================



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





                                       F-7





Orthofix International N.V.







Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001

                                                                                        
(U.S. Dollars, in thousands, except share and per share data)            2003          2002          2001
                                                                     ------------- ------------- -------------
Net sales......................................................       $203,707      $177,595      $162,360
Cost of sales..................................................         51,090        44,819        42,952
                                                                     ------------- ------------- -------------
     Gross profit..............................................        152,617       132,776       119,408
                                                                     ------------- ------------- -------------
Operating expenses
    Sales and marketing........................................         76,756        64,433        59,397
    General and administrative.................................         20,465        17,192        18,384
    Research and development...................................          8,128         7,509         6,985
    Amortization of intangible assets..........................            995           703         4,143
    Litigation and settlement costs............................          5,689            --            --
                                                                     ------------- ------------- -------------
                                                                       112,033        89,837        88,909
                                                                     ------------- ------------- -------------
    Total operating income ....................................         40,584        42,939        30,499
                                                                     ------------- ------------- -------------
Other income (expense)
    Interest income............................................            654           813         1,673
    Interest expense ..........................................           (815)         (610)       (1,137)
    Loss in joint venture......................................         (1,785)       (2,056)           --
    Other, net.................................................            677          (556)         (368)
                                                                     ------------- ------------- -------------
Other income (expense), net....................................         (1,269)       (2,409)          168
                                                                     ------------- ------------- -------------
  Income before income taxes and minority interests............         39,315        40,530        30,667
Income tax expense.............................................        (14,585)      (12,875)       (7,867)
                                                                     ------------- ------------- -------------
  Income before minority interests.............................         24,730        27,655        22,800
                                                                     ------------- ------------- -------------
Minority interests.............................................             --        (1,742)       (1,836)
                                                                     ------------- ------------- -------------
  Net income ..................................................        $24,730       $25,913       $20,964
                                                                     ============= ============= =============
Net income per common share - basic............................         $1.76         $1.96         $1.60
                                                                     ============= ============= =============


Net income per common share - diluted..........................         $1.68         $1.76         $1.42
                                                                     ============= ============= =============


Weighted average number of common shares - basic...............        14,061,447    13,196,524    13,086,467
                                                                     ============= ============= =============


Weighted average number of common shares - diluted.............        14,681,883    14,685,236    14,737,567
                                                                     ============= ============= =============




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





                                      F-8






Orthofix International N.V.





Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001


                               Number of                                                  Accumulated
(U.S. Dollars,  in              Common                 Additional   Treasury                 Other         Total
thousands, except share         Shares        Common     Paid-in     Shares    Retained  Comprehensive  Shareholders'
data)                         Outstanding     Shares     Capital    (at cost)  Earnings     Income         Equity
                             --------------  --------- ---------  ----------- ----------   ---------     ----------
                                                                                    
At December 31, 2000.....      13,206,297     $1,366    $66,711     $(5,841)    $76,317    $(5,565)       $132,988

Net income...............               -          -          -           -      20,964          -          20,964
Other comprehensive income
  Unrealized gain on
  marketable securities (net
  of taxes of $12).......               -          -          -           -           -         19              19
  Translation adjustment.               -          -          -           -           -     (1,186)         (1,186)
                                                                                                         ----------
Total comprehensive income                                                                                  19,797

Common shares issued.....         177,479         18      1,755           -           -          -           1,773
Shares purchased for
treasury.................        (581,500)         -          -      (16,456)         -          -         (16,456)
                             --------------  --------- ---------  ----------- ----------   ---------     ----------
At December 31, 2001.....      12,802,276      1,384     68,466      (22,297)    97,281     (6,732)        138,102

Net income...............                          -          -           -      25,913          -          25,913
Other comprehensive income
  Translation adjustment.               -          -          -           -           -      4,635           4,635
                                                                                                         ----------
Total comprehensive income                                                                                  30,548

Common shares issued.....       1,510,902        151     21,169           -           -          -          21,320
Shares retired from treasury            -       (151)   (38,751)      38,902          -          -               -
Shares purchased for
treasury.................        (677,000)         -          -      (21,886)         -          -         (21,886)
                             --------------  --------- ---------  ----------- ----------   ---------     ----------
At December 31, 2002.....      13,636,178      1,384     50,884       (5,281)   123,194     (2,097)        168,084

Net income...............               -          -          -           -      24,730          -          24,730
Other comprehensive income
  Unrealized gain on
  marketable securities
  (net of taxes of $112).               -          -          -           -           -        185             185
  Reclassification adjustment
  for gains on the sale of
  marketable securities..               -          -          -           -           -       (341)           (341)
  Translation adjustment.                                                                   11,647          11,647
                                                                                                         ----------
Total comprehensive income                                                                                  36,221

Common shares issued.....         769,117         73     12,988           -           -         -           13,061
Common shares issued in
connection with Breg
acquisition..............         731,715         73     27,732           -           -         -           27,805
Shares retired from treasury                     (32)    (9,644)       9,676          -         -                -
Shares purchased for
treasury.................        (157,000)         -          -       (4,395)         -         -           (4,395)
                             --------------  --------- ---------  ----------- ----------   ---------     ----------
At December 31, 2003.....      14,980,010     $1,498    $81,960    $      -    $147,924     $9,394        $240,776
                             --------------  --------- ---------  ----------- ----------   ---------     ----------



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





                                      F-9





Orthofix International N.V.






Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001


(U.S. Dollars, in thousands)                                                   2003         2002          2001
                                                                           ------------   ----------   ----------
                                                                                              
Cash flows from operating activities:
Net income ..........................................................         $24,730      $25,913      $20,964
Adjustments to reconcile net income to net cash provided by operating
activities:
    Depreciation and amortization....................................           6,949        5,829        7,950
    Provision for doubtful accounts..................................           5,192        4,980        3,564
    Loss on sale of fixed assets.....................................               -           39           42
    Deferred taxes...................................................             131        1,092         (381)
    Minority interest in net income of consolidated subsidiaries.....               -        1,742        1,836
    Tax benefit on non-qualified stock options.......................           1,358          863          301
    Other............................................................           3,193        2,156          (88)
Changes in operating assets and liabilities, net of effects of acquisitions:
    Accounts receivable..............................................          (9,287)     (11,567)      (8,275)
    Inventories......................................................            (435)      (3,790)        (380)
    Other current assets.............................................             989        2,306       (1,272)
    Trade accounts payable...........................................          (1,024)         939         (243)
    Other current liabilities........................................              (7)      (1,198)      (5,150)
                                                                           ------------   ----------   ----------
Net cash provided by operating activities............................          31,789       29,304       18,868
                                                                           ------------   ----------   ----------
Cash flows from investing activities:
    Payments made in connection with acquisitions and investments,           (150,572)      (8,514)      (8,957)
         net of cash acquired........................................
    Capital expenditures.............................................          (5,238)      (7,130)      (6,769)
    Proceeds from sale of equipment..................................               -          218          152
    Restricted cash..................................................               -            -          932
    Other............................................................             354       (1,330)           -
                                                                           ------------   ----------   ----------
Net cash used in investing activities................................        (155,456)     (16,756)     (14,642)
                                                                           ------------   ----------   ----------
Cash flows from financing activities:
    Net proceeds from issue of common shares.........................          11,705        20,457        1,773
    Repurchase of treasury shares....................................          (4,395)      (21,886)     (16,456)
    Payment of debt issuance costs...................................          (2,783)            -            -
    Proceeds from loans and borrowings...............................         110,092         3,144        1,812
    Repayment of loans and borrowings................................          (7,995)       (2,028)      (6,786)
                                                                           ------------   ----------   ----------
Net cash provided by (used in) financing activities..................         106,624          (313)     (19,657)
                                                                           ------------   ----------   ----------
Effect of exchange rates changes on cash.............................           1,789         2,305         (754)
                                                                           ------------   ----------   ----------
Net (decrease) increase in cash and cash equivalents.................         (15,254)       14,540      (16,185)
Cash and cash equivalents at the beginning of the year...............          48,813        34,273       50,458
                                                                           ------------   ----------   ----------
Cash and cash equivalents at the end of the year.....................         $33,559       $48,813      $34,273
                                                                           ============   ==========   ==========
Supplemental disclosure of cash flow information
Cash paid during the year for:
  Interest...........................................................            $770          $683         $752
  Income taxes.......................................................         $14,546        $9,219      $14,673


Non-cash investing activities
Issuance of common stock to acquire Breg, Inc........................         $27,805            -            -


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



                                      F-10








Orthofix International N.V.
Notes to the consolidated financial statements


Description of business

           Orthofix International N.V. and its subsidiaries (the Company) is a
multinational corporation principally involved in the design, development,
manufacture, marketing and distribution of medical equipment, principally for
the orthopedic products market.

1    Accounting policies

     (a)  Basis of consolidation

           The consolidated financial statements include the financial
statements of the Company and its wholly owned and majority-owned subsidiaries
and entities over which the Company has control. Percents of ownership at
December 31, 2003 were as follows (100% owned unless otherwise noted):

Orthofix Inc. (U.S.A.)
Breg, Inc. (U.S.A.)
Orthofix Holdings Inc. (U.S.A)
Orthofix US LLC (U.S.A.)
Orthofix S.r.l. (Italy)
Novamedix Services Limited (U.K.)
Orthosonics Limited (U.K.)
Intavent Orthofix Limited (U.K.)
Colgate Medical Limited (U.K.)
Orthofix Limited (U.K.)
Orthofix UK Limited (U.K.)
Novamedix Distribution Limited (Cyprus)
Inter Medical Supplies Limited (Cyprus)
Inter Medical Supplies Limited (Seychelles)
Orthofix AG (Switzerland) 70% owned
Orthofix GmbH (Germany) 70% owned
Orthofix International B.V. (Holland)
Orthofix II B.V. (Holland)
Orthofix S.A. (France)
Orthofix do Brasil (Brazil) 89.5% owned
Promeca S.A. de C.V. (Mexico) 61.25% owned

           All intercompany accounts and transactions are eliminated in
consolidation. The equity method of accounting is used when the Company has
significant influence over operating decisions but cannot exercise control.
Under the equity method, original investments are recorded at cost and adjusted
by the Company's share of undistributed earnings or losses of these companies.
All material intercompany transactions and profits associated with the equity
investees are eliminated in consolidation.

           The results of subsidiaries acquired during the year are included in
the consolidated statements of operations from the date of their acquisition.

     (b)  Foreign currency translation

           Foreign currency translation is performed in accordance with SFAS No.
52, "Foreign Currency Translation." All balance sheet accounts, except
shareholders' equity, are translated 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 foreign currency transactions
are included in other income (expense). Gains and losses




                                      F-11






Orthofix International N.V.
Notes to the consolidated financial statements (cont.)



resulting from the translation of foreign currency financial statements are
recorded in the accumulated other comprehensive income component of
shareholders' equity.

     (c)  Inventories

           Inventories are valued at the lower of cost or estimated net
realizable value, after provision for excess or obsolete items. Cost is
determined on a weighted-average basis, which approximates the FIFO method. The
valuation of work-in-process, finished goods, field inventory and consignment
inventory includes the cost of materials, labor and production.

     (d)  Reporting currency

           The reporting currency is the United States Dollar.

     (e)  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-dollar income and expenditure. The Company does not ordinarily use
derivative instruments to hedge foreign exchange exposure.

     (f)  Long-Lived Assets

           Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment charges as computed in accordance with the
Company's policy. Depreciation is computed on a straight-line basis over the
useful lives of the assets, except for land, which is not depreciated.
Depreciation of leasehold improvements is computed over the shorter of lease
term or the useful life of the asset. The useful lives are as follows:

                                                        Years
                                                        -----
                  Buildings                            25 to 33
                  Plant and equipment                   2 to 10
                  Furniture and fixtures                 4 to 8

           Expenditures for maintenance and repairs and minor renewals and
improvements, which do not extend the life of the respective asset is expensed.
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 operations. Fully
depreciated assets remain in the accounts until retired from service.

           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 primarily include patents and other technology agreements, trademarks,
licenses, customer relationships and distribution networks. They are generally
amortized using the straight-line method over estimated useful lives of 5 to 25
years for all acquisitions completed prior to June 30, 2001. For acquisitions
completed subsequent to June 30, 2001, identifiable intangible assets are
generally amortized over their useful life using a method of amortization that
reflects the pattern in which the economic benefit of the intangible assets are
consumed.

           Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired businesses and was amortized by the
straight-line method, in most cases over 15 to 20 years for all acquisitions
completed prior to June 30, 2001. Effective July 1, 2001, the Company adopted
the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," applicable to business combinations
completed after June 30, 2001. Effective January 1, 2002, additional provisions
of SFAS No. 142, relating to business combinations completed prior to June 30,
2001 became effective and were adopted. Under the provisions of SFAS No. 142,
intangible assets deemed to have indefinite lives and goodwill are not subject
to amortization beginning January 1, 2002.




                                      F-12






Orthofix International N.V.
Notes to the consolidated financial statements (cont.)



           The Company reviews long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In general, the Company recognizes an impairment loss when the sum
of undiscounted expected future cash flows over the assets' remaining estimated
useful life is less than the carrying value of such assets. The measurement for
such impairment loss is then based on the fair value of the related asset or
group of assets.

     (g)  Revenue recognition

           Revenues are recognized as income in the period in which title passes
and the products are delivered or for royalties, when the royalty is earned.
Revenues for inventory delivered on consignment are recognized as the product is
accepted or used by the consignee. Revenues exclude any value added or other
local taxes, intercompany sales and trade discounts. Revenues are reduced for
estimated returns under the Company's limited guarantee programs. Shipping and
handling costs are included in cost of sales.

     (h)  Research and development costs

           Expenditures for research and development are expensed as incurred.

     (i)  Income taxes

           Income taxes have been provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income
taxes arise because of differences in the treatment of income and expense items
for financial reporting and income tax purposes. Deferred tax assets and
liabilities resulting from such differences are recorded based on the enacted
tax rates that will be in effect when the differences are expected to reverse.

     (j)  Concentration of credit risk

           The Company performs on-going credit evaluations of its customers and
generally does not require collateral. When the Company becomes aware of a
customer's inability to meet its obligations, such as in the case of bankruptcy
filing or deterioration in the customer's financial condition, the Company
records a specific reserve to reduce the related receivable to the amount the
Company reasonably believes is collectible. The Company also records reserves
for bad debt for all other customers based on a variety of factors including the
length of time the receivables are past due, the financial condition of the
customer, macroeconomic conditions and historical experience. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations.

           The Company invests its excess cash in deposits with major banks. The
Company has not experienced any losses on its deposits.

     (k)  Net income per common share

         Net income per common share is computed in accordance with SFAS No.
128, "Earnings per Share." Net income per common share - basic is computed using
the weighted average number of common shares outstanding during each of the
respective years. Net income per common share - diluted is computed using the
weighted average number of common and common equivalent shares outstanding
during each of the respective years. Common equivalent shares represent the
diluted effect of the assumed exercise of outstanding share options (see Note 18
to the Consolidated Financial Statements) and the only differences between basic
and diluted shares result solely from the assumed exercise of certain
outstanding share options and warrants.

     (l)  Cash and cash equivalents

           The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.




                                      F-13






Orthofix International N.V.
Notes to the consolidated financial statements (cont.)



     (m)  Sale of accounts receivable

           The Company follows the provisions of SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities".
Trade accounts receivable sold without recourse are removed from the balance
sheet at the time of sale.

     (n)  Securities and other investments

           Marketable equity securities are classified as available-for-sale.
Such securities are carried at fair value, with the unrealized gains and losses,
net of income taxes, reported as a component of shareholders' equity. Any gains
or losses from the sale of these securities are recognized using the specific
identification method.

     (o)  Use of estimates in preparation of financial statements

           The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

     (p)  Reclassifications

           Certain prior year amounts have been reclassified to conform to the
2003 presentation.

     (q)  Acquisition of treasury stock

           It is the Company's practice, where appropriate, to buy in its own
shares in order to enhance shareholder value. Treasury stock is held at cost
until it is retired.

     (r)  Stock based compensation

           The Company accounts for stock based awards to employees under the
intrinsic value method in accordance with APB 25 and related interpretation.
Accordingly, the Company has adopted the disclosure only alternative of SFAS No.
148 "Accounting for Stock Based Compensation Transition and Disclosure an
amendment of FASB statement No. 123" (FASB 148). Under APB 25, no compensation
cost has been recognized for stock options issued under these plans.







                                      F-14





Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


           Pro forma information regarding the Company's net income and net
income per common share for the years ended December 31, 2003, 2002 and 2001 as
required by SFAS 148 has been determined as if the Company had accounted for its
employee stock option plans under the fair value method of the statement. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.

                                                  Year ended December 31,
                                            ----------------------------------
(In thousands except per share data)          2003        2002       2001
                                            ---------  ----------  -----------
Net income
  As reported                                $24,730     $25,913    $20,964

  Stock based employee compensation
    cost, net of related tax effects          (2,454)     (2,492)    (2,749)
                                            ---------  ----------  -----------

  Pro forma                                  $22,276     $23,421    $18,215

Net income per common share - basic

  As reported                                  $1.76       $1.96      $1.60

  Pro forma                                    $1.58       $1.77      $1.39

Net income per common share - diluted

  As reported                                  $1.68       $1.76      $1.42

  Pro forma                                    $1.52       $1.59      $1.24


           The fair value of the options under each plan is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2003, 2002 and 2001,
respectively: dividend yield of 0%, 0% and 0%; expected volatility of 35%, 35%
and 40%; risk-free interest rates of 3.5%, 3.5% and 3.5%; and expected lives of
4.50, 4.50 and 4.50 years.

           The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions including the expected price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

     (s)  Recently issued Accounting Standards

         In January 2003, FASB Interpretation No. 46 (FIN 46), "Consolidation of
Variable Interest Entities," was issued. The interpretation provides guidance on
consolidating variable interest entities and requires the consolidation of any
variable interest entities (VIE) in which an enterprise absorbs a majority of
the entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity. In December 2003, the FASB completed
deliberations of proposed modifications to FIN 46 (Revised Interpretations)
resulting in multiple effective dates based on the nature as well as the
creation date of the VIE. However, the Revised Interpretations must be applied
no later than the Company's first quarter of 2004. Based upon the information
known to date, the Company does not believe it has any significant VIEs.

     (t)  Fair Value of Financial Instruments

           The carrying amounts reflected in the consolidated balance sheet for
cash and cash equivalents, accounts receivable, short-term bank debt and
accounts payable approximate fair value due to the short-term maturities of



                                      F-15






Orthofix International N.V.
Notes to the consolidated financial statements (cont.)



these instruments. The Company's long-term secured debt carries a floating rate
of interest and approximates fair value.

     (u)  Advertising Costs

           The Company expenses all advertising costs as incurred.

     (v)  Other Comprehensive Income

           Other comprehensive income includes foreign currency translation
adjustments and unrealized gains and losses on available-for-sale securities.
As of December 31, 2003 and 2002, foreign currency translation  was a gain of
$9.4 million and a loss of $2.3 million, respectively.  There were no unrealized
gains or losses on available-for-sale marketable securities as of December 31,
2003 and a gain of $0.2 million as of December 31, 2002.

2    Acquisitions

           On December 30, 2003, the Company purchased 100% of the stock of
Breg, Inc. (Breg) for a purchase price of $150 million plus closing adjustments
and acquisition costs. The acquisition and related costs were financed with $110
million of senior secured bank debt, cash on hand and the issuance of 731,715
shares of Orthofix common stock. Breg, based in Vista, California, designs,
manufactures and distributes orthopedic products for post-operative
reconstruction and rehabilitative patient use and sells its products through a
network of domestic and international independent distributors.

         The acquisition has been accounted for using the purchase method in
accordance with Statement of Financial Accounting Standards No. 141 "Business
Combinations". The purchase price has been preliminarily allocated to the assets
acquired and liabilities assumed based on their estimated fair market value at
the date of acquisition.

           A preliminary allocation of the purchase price reflects the
following:

       Working capital, other than cash                              $11,169
       Fixed assets acquired                                           5,569
       Identifiable intangible assets (definite lived)                35,401
       Identifiable intangible assets (indefinite lived)              23,900
       Deferred tax liability                                        (14,250)
       Goodwill                                                       94,512
                                                              ---------------
       Preliminary purchase price                                   $156,301
                                                              ===============

         The purchase price for the acquisition is subject to potential upward
or downward adjustments based on the difference between the estimated and final
working capital of Breg as defined in the acquisition agreement. An escrow
account of $12.0 million has been established to fund the working capital
adjustment and other indemnities. Distributions under the escrow agreement are
scheduled during 2005. In addition, other items that may affect the final
purchase price allocation include revisions to intangible assets based on final
appraisals and other information that provides a better estimate of the fair
value of the assets acquired and the liabilities assumed.

           On March 20, 2003, the Company completed the acquisition of the
remaining 48% minority interest in Intavent Orthofix Limited (IOL) for $20.6
million, including acquisition costs, with an effective date of January 14,
2003. The Company utilized an independent firm to complete a valuation of IOL.
The Company used cash on hand to complete this purchase from Intavent Limited
(Intavent). Mr. Gaines-Cooper, Chairman of Orthofix, is a settlor of a trust
which owns a 30% interest in Intavent. IOL has been a fully consolidated
subsidiary and is now a wholly-owned subsidiary of the Company. The Company
recorded this additional equity purchase using the purchase method of accounting
and the impact has been included in the results of operations from the date of
acquisition. A final allocation of the purchase price reflects the settlement of
a minority interest obligation of approximately $9.9 million, identifiable
intangible assets of approximately $1.2 million and $9.5 million of additional
goodwill.




                                      F-16




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


           The summary pro forma condensed unaudited results of operations and
earnings per share for the years ended December 31, 2003 and 2002, assuming
consummation of the acquisitions during 2003 as of January 1, 2003 and 2002,
respectively, are as follows:




                                    Year Ended December 31, 2003               Year Ended December 31, 2002
                               ----------------------------------------    --------------------------------------
                                  As Reported            Pro Forma            As Reported          Pro Forma
                               ------------------    ------------------    ---------------     ------------------
                                                                                   
     Net sales                     $203,707              $264,944              $177,595            $231,697
     Net income                      24,730                26,128                25,913              28,589
     Per share data:
          Basic                       $1.76                 $1.77                 $1.96               $2.05
          Diluted                     $1.68                 $1.70                 $1.76               $1.85



           In December 2001, the Company purchased an additional 15% equity
interest in Orthosonics Limited (OSN) for $190,000, thereby raising the
Company's ownership in OSN from 70% to 85%. In December 2002, minority interest
holders exercised put options to sell their remaining 15% equity interest in OSN
to the Company for approximately $660,000, therefore resulting in a wholly-owned
subsidiary. The results of operations for the years ending December 31, 2002 and
2001 have been included on a fully consolidated basis in the Statement of
Operations of the Company with a minority interest adjustment until the date OSN
was wholly-owned. The impact of the additional equity ownership on the results
of operations had the acquisition occurred at the beginning of the periods are
immaterial. As a result of these transactions, a minority interest obligation of
approximately $203,000 was settled and approximately $647,000 of additional
goodwill was recorded. In July, 2003, the Company paid $0.7 million for the
earn-up provision, accrued for in 2002, associated with the acquisition of the
remaining 15% equity interest.

         In December, 2002, the Company acquired an additional 21.5% equity
interest in Orthofix do Brasil for $70,000, thereby raising the Company's
ownership of Orthofix do Brasil to 89.5% from 68%.

           On April 20, 1999, the Company paid $1.9 million to the shareholders
in Novamedix Distribution Limited (NDL) for an additional 10% equity interest,
following exercise by such shareholders of their put option over such shares,
thereby raising the Company's ownership of NDL from 80% to 90%. In December
1999, the Company acquired the remaining 10% equity interest in NDL for $2
million. In April 2002, the Company paid $5.2 million for the earn-up provision
associated with the acquisition of NDL.






                                      F-17







Orthofix International N.V.
Notes to the consolidated financial statements (cont.)



3    Inventories

                                                         December 31,
                                                   --------------------------
(In thousands)                                        2003         2002
                                                   ------------- ------------
Raw materials                                          $6,153       $2,177
Work-in-process                                         2,453        1,210
Finished goods                                         13,437       11,668
Field inventory                                         5,202        5,260
Consignment inventory                                   7,124        5,910
Less reserve for obsolescence                          (3,656)      (2,754)
                                                   ------------- ------------
                                                      $30,713      $23,471
                                                   ============= ============




4    Securities and other investments

           In 2003, the Company sold $250,000 of marketable equity securities
for $354,000 in cash that were included in the Consolidated Balance Sheet as
Securities and other investments at December 31, 2002.

           During 2003, Ferrer Freeman & Co., a private equity firm that invests
exclusively in health care and health care-related companies, purchased 100% of
HealthSouth's interest in OrthoRx, which resulted in it becoming the Company's
new partner in the joint venture. On May 6, 2003 and June 16, 2003, the Company
invested an additional $350,000 and $1,150,000, respectively, in the OrthoRx
joint venture. Ferrer Freeman & Co. matched the Company's investment. The
Company is accounting for this investment on the equity method and has reduced
its investment to $1.6 million and $1.9 million as of December 31, 2003 and 2002
to reflect its portion of the joint venture's net losses for the years then
ended.

           In 2003, the Company purchased an equity interest in Innovative
Spinal Technologies (IST), a start-up company focused on commercializing spinal
products, for $1.5 million. The investment is accounted for under the cost
method.





                                      F-18







Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


5    Property, plant and equipment

                                                          December 31,
                                                    -------------------------
(In thousands)                                          2003         2002
                                                    ------------  -----------
Cost
Buildings                                              $4,728       $3,414
Plant and equipment                                    31,445       23,026
Furniture and fixtures                                  9,064        7,138
                                                    ------------  -----------
                                                       45,237       33,578
Accumulated depreciation                              (26,068)     (19,737)
                                                    ------------  -----------
                                                      $19,169      $13,841
                                                    ============  ===========

           Depreciation expense for the years ended December 31, 2003, 2002 and
2001 was $5.7 million, $5.1 million and $3.8 million, respectively.

6    Patents and other intangible assets




                                                                                      December 31,
                                                                                 -------------------------
(In thousands)                                                                       2003         2002
                                                                                 ------------ ------------
                                                                                        
Cost
     Patents                                                                       $17,747      $16,104
     Other                                                                           2,250          522
     Intangible Assets Acquired:
         Trademarks                                                                 23,900            -
         Distribution network (10 year weighted average useful life)                35,000            -
         Other (9 year weighted average useful life)                                 1,644            -
                                                                                 ------------ ------------
                                                                                    80,541       16,626
Accumulated amortization
     Patents                                                                       (13,650)     (12,196)
     Other                                                                            (987)        (216)
     Intangible Assets Acquired:
         Trademarks                                                                      -            -
         Distribution network                                                            -            -
         Other                                                                        (178)           -
                                                                                 ------------ ------------
                                                                                   $65,726       $4,214
                                                                                 ============ ============


           Amortization expense for intangible assets is estimated to be
approximately $5.7 million, $5.8 million, $5.9 million, $5.5 million and $5.3
million for the periods ending December 31, 2004, 2005, 2006, 2007 and 2008,
respectively. The Company has $23.9 million of trademarks with indefinite lives
as of December 31, 2003. There were no indefinite lived intangible assets at
December 31, 2002.



                                      F-19







Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


7    Goodwill

           Under SFAS No. 142, intangible assets deemed to have indefinite lives
and goodwill are subject to annual impairment testing using the guidance and
criteria described in the standard. This testing requires the comparison of
carrying values to fair values, and when appropriate, the carrying value of
impaired assets is reduced to fair value. The Company has performed the
impairment tests of goodwill and indefinite lived intangible assets and has
determined that no impairment exists.

           In accordance with SFAS No. 142, the Company discontinued the
amortization of goodwill effective January 1, 2002. The nonamortization of
goodwill has increased the Company's net income and earnings per share beginning
in 2002. The following are unaudited pro forma results assuming goodwill had not
been amortized prior to January 1, 2002:




                                                                               Year ended December 31,
                                                                  ------------------------------------------------
(In thousands, except per share data)                                  2003              2002              2001
                                                                  -------------  -----------------  --------------
                                                                                           
Reported net income                                                 $24,730            $25,913          $20,964
Adjustment for amortization of goodwill, net of tax                       -                  -            3,345
                                                                  -------------  -----------------  --------------
         Adjusted net income                                        $24,730            $25,913          $24,309
                                                                  =============  =================  ==============

Reported net income per common share - basic                           $1.76              $1.96            $1.60
Adjustment for amortization of goodwill, net of tax                     -                  -               $0.26
                                                                  -------------  -----------------  --------------
         Adjusted net income per common share - basic                  $1.76              $1.96            $1.86
                                                                  =============  =================  ==============
Reported net income per common share - diluted                         $1.68              $1.76            $1.42
Adjustment for amortization of goodwill, net of tax                     -                  -               $0.23
                                                                  -------------  -----------------  --------------
         Adjusted net income per common share - diluted                $1.68              $1.76            $1.65
                                                                  =============  =================  ==============



           The changes in the net carrying values of goodwill for the years
ended December 31, 2003 and 2002 are as follows:

                                                         December 31,
                                                   -------------------------
(In thousands)                                         2003          2002
                                                   ------------  -----------
Beginning balance                                     $58,781      $56,707
Acquisitions                                          103,935          601
Earnouts                                                   19          850
Foreign currency effects                                5,662          623
                                                   ------------  -----------
                                                     $168,397      $58,781
                                                   ============  ===========

           For a discussion of acquisitions since January 1, 2002 and the
associated goodwill, see Note 2 to the Consolidated Financial Statements.




                                      F-20






Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


           Total goodwill acquired and earnouts by segment in 2003 and 2002 was
as follows:

(In thousands)                                       2003          2002
                                                 ------------  -----------
Americas                                           $      -       $   70
Breg                                                 94,512            -
International                                         9,442        1,381
                                                 ------------  -----------
                                                   $103,954       $1,451
                                                 ============  ===========


8    Bank borrowings

                                                        December 31,
                                                 ------------  -----------
(In thousands)                                      2003         2002
                                                 ------------  -----------
Borrowings under line of credit                      $72         $6,977
                                                 ============  ===========


         The weighted average interest rate on the line of credit as of December
31, 2003 and 2002 was 4.00% and 4.06%, respectively.

         Borrowings under lines of credit consist of borrowings in Euros. The
Company had unused available lines of credit of $10.6 million and $13.8 million
at December 31, 2003 and 2002, respectively. The terms of these lines of credit
give the Company the option to borrow amounts in Italy at rates which are
determined at the time of borrowing. The lines of credit are unsecured.

9    Other current liabilities

                                                            December 31,
                                                     ------------  -----------
(In thousands)                                              2003         2002
                                                     ------------  -----------
Accrued expenses                                         $12,001       $7,031
Salaries and related taxes payable                        11,259        4,367
Other payables                                             1,794        3,533
Provision for AME bonus and earnout (Note 15)              5,182        5,182
                                                     ------------  -----------
                                                         $30,236      $20,113
                                                     ============  ===========




                                      F-21




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)




10   Long-term debt

                                                            December 31,
                                                     ------------  -----------
(In thousands)                                           2003         2002
                                                     ------------  -----------

Long-term obligations                                 $110,000         $336
Other loans                                                135          107
                                                     ------------  -----------
                                                       110,135          443
Less current portion                                   (11,063)        (399)
                                                     ------------  -----------
                                                       $99,072          $44
                                                     ============  ===========


         Long-term obligations include a senior secured term note for $110.0
million. Concurrently with the closing of the Breg acquisition, Colgate Medical
Limited (Colgate or the Borrower), a wholly owned subsidiary of the Company,
entered into the senior secured bank facility. The senior secured bank facility
provides for (1) a five-year amortizing term loan of $110.0 million, which has a
scheduled maturity of December 30, 2008, the proceeds of which were used for
partial payment of the purchase price of Breg, and (2) a five-year revolving
credit facility of $15.0 million, which was not drawn on as of December 31,
2003. This obligation has a floating interest rate of LIBOR or prime rate plus a
margin that is adjusted quarterly based on the Borrower's leverage ratio. The
interest rate as of December 31, 2003 was 3.91%. Orthofix and each of Colgate's
direct and indirect subsidiaries, including Orthofix Inc. and Breg, have
guaranteed the obligations of Colgate under the senior secured bank facility.
The obligations of Colgate under the bank facility and Colgate's subsidiaries
under their guarantees are secured by the pledge of their respective assets.
Certain of the Company's other subsidiaries have also guaranteed the obligations
of Colgate under the senior secured bank facility on a limited recourse basis.

         In addition to the scheduled debt repayments, the senior secured bank
facility requires mandatory prepayments with (a) the excess cash flow (as
defined in the credit agreement) of Colgate and its subsidiaries in an amount
initially equal to 75% of the excess annual cash flow of Colgate and its
subsidiaries, reducing to 50% upon the attainment of a leverage ratio of less
than or equal to 1.50 to 1.00, (b) the net cash proceeds of any debt issuance by
Colgate and its subsidiaries or any equity issuance by the Company or Colgate or
any of its subsidiaries, (c) the net cash proceeds of asset dispositions over a
minimum threshold or (d) unless reinvested, insurance proceeds or condemnation
awards.

         The credit agreement contains customary negative covenants applicable
to Colgate and its subsidiaries, including restrictions on indebtedness, liens,
dividends and mergers and sales of assets. The credit agreement also contains
certain financial covenants, including a fixed charge coverage ratio, an
interest coverage ratio and a leverage ratio applicable to Colgate and its
subsidiaries on a consolidated basis, and a leverage ratio applicable to the
Company and its subsidiaries on a consolidated basis.

         The weighted average interest rate on long-term obligations as of
December 31, 2003 and 2002 was 3.92% and 7.93%, respectively.

         The aggregate maturities of long-term debt after December 31, 2003 are
as follows: 2004 - $11.1 million, 2005 - $11.1 million, 2006 - $11.0 million,
2007 - $11.0 million and 2008 - $66.0 million.






                                      F-22




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)





11   Commitments

Leases

           The Company has entered into operating leases for facilities and
equipment. Rent expense under the Company's operating leases for the years ended
December 31, 2003, 2002 and 2001 were approximately $2.6 million, $2.3 million
and $2.5 million, respectively. Future minimum lease payments under operating
leases as of December 31, 2003 are as follows:

(In thousands)

2004                                                                $3,134
2005                                                                 2,903
2006                                                                 1,714
2007                                                                 1,139
2008                                                                   962
Thereafter                                                           1,458
                                                               --------------
Total                                                              $11,310
                                                               ==============

Other

           In connection with the incorporation of Orthofix AG, the Company has
been granted an option to purchase a further 15% of the shares of that company
by the minority shareholders. The latter have been granted an option to request
the Company to purchase the remaining 15% of the shares. Both options are
exercisable between five and ten years after the incorporation of Orthofix AG,
November 2000. The purchase consideration is based on a multiple of the net
income of Orthofix AG in the twelve month period preceding the exercise date.

           In December 2002, the Company acquired the rights to a minimally
invasive method of fracture stabilization and fixation for the hip. The Company
paid $1 million for the worldwide rights to market this product for four years.
In addition, the Company will pay a royalty of up to $5 million based on future
sales. The Company at its option has the right to acquire all of the patents
pertaining to the devices for $5 million. The royalty fee paid by the Company
during the four year licensing period will be applied against the purchase price
of the patents. Royalties for the year ended December 31, 2003 were
approximately $0.2 million and are included in cost of sales.

12   Business segment information

           The Company designs, manufactures, markets and distributes medical
equipment used principally by musculoskeletal medical specialists for orthopedic
applications.

         During the three years ended December 31, 2003, the Company's
operations were managed as two geographic business units (the Americas and
International) plus Group activities. The Americas geographic business unit
includes the United States, Mexico and Brazil. International consists of the
rest of the world plus export distribution operations. Effective December 30,
2003, the Company acquired Breg. Due to the timing of the acquisition, Breg had
no impact on the Company's statement of operations for the year ended December
31, 2003; however, its identifiable and long-lived assets are presented in the
segment information below as of December 31, 2003.






                                      F-23





Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


         Net sales, operating income, and identifiable assets as of and for the
three years ended December 31, 2003 for the Company and its subsidiaries are as
follows:



                            Net sales              Operating income/(expense)         Identifiable assets
                  ------------------------------- ----------------------------  --------------------------------
(In thousands)      2003       2002       2001      2003      2002      2001       2003       2002       2001
                  ---------  ---------  --------- --------  --------  --------  ---------   ---------  ---------

                                                                            
International     $137,659   $116,601   $102,727  $17,564   $26,143   $20,065   $164,905    $169,071   $142,330

Americas           117,920    103,624     93,995   25,770    25,130    12,629     95,188      80,848     64,724

Breg                     -          -          -        -         -         -    179,237           -          -
                  ---------  ---------  --------- --------  --------  --------  ---------   ---------  ---------

Geographical
total              255,579    220,225    196,722    43,334    51,273    32,694   439,330     249,919    207,054

Group activities         -          -          -   (4,021)   (3,788)   (3,677)    79,828      56,652     64,815

Intercompany
and investment
eliminations       (51,872)   (42,630)   (34,362)    1,271    (4,546)    1,482  (105,979)    (85,797)   (82,955)
                  ---------  ---------  --------- --------  --------  --------  ---------   ---------  ---------
Total             $203,707   $177,595   $162,360   $40,584   $42,939   $30,499  $413,179    $220,774   $188,914
                  =========  =========  ========= ========  ========  ========  =========   =========  =========

                  Depreciation and amortization        Income tax expense            Other income (expense)
                  ------------------------------- ----------------------------  --------------------------------
(In thousands)      2003       2002       2001      2003      2002      2001       2003       2002       2001
                  ---------  ---------  --------- --------  --------  --------  ---------   ---------  ---------
International       $3,285     $2,927     $3,204    $4,706    $3,757    $2,493    $1,515      $1,695       $320

Americas             3,664      2,902      4,646     9,867     9,061     5,365       324        (934)      (853)

Breg                     -          -          -        -         -         -          -           -          -

Group activities         -          -        100        12        57         9    (3,108)     (3,170)       701
                  ---------  ---------  --------- --------  --------  --------  ---------   ---------  ---------
Total               $6,949     $5,829     $7,950   $14,585   $12,875    $7,867   $(1,269)    $(2,409)      $168
                  =========  =========  ========= ========  ========  ========  =========   =========  =========




         Capital expenditures for each segment are as follows:

(In thousands)                       2003          2002          2001
                                   --------     ---------     ---------

International                       $2,316        $3,492        $2,863

Americas                             2,914         3,631         3,902

Group activities                         8             7             4
                                   --------     ---------     ---------
                                    $5,238        $7,130        $6,769
                                   ========     =========     ==========

                                      F-24




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


     Geographical information

         Analysis of net sales by geographic destination:

(In thousands)                              2003          2002          2001
                                         ----------   ----------    ----------
U.S.                                      $132,858     $117,991      $110,345

Other                                        4,995        4,920         2,689
                                         ----------   ----------    ----------
Americas                                   137,853      122,911       113,034


U.K.                                        25,162       22,099        19,053

Italy                                       16,447       12,601        11,041

Other                                       24,245       19,984        19,232
                                         ----------   ----------    ----------
International                               65,854       54,684        49,326
                                         ----------   ----------    ----------
                                          $203,707     $177,595      $162,360
                                         ==========   ==========    ==========

         There are no sales in the Netherlands Antilles.

         Analysis of long-lived assets by geographic area:

(In thousands)                              2003          2002
                                         ----------   ----------
U.S.                                      $200,626      $39,936

Italy                                       12,122       10,529

U.K.                                        24,866       12,202

Cyprus                                      10,619       10,373

Others                                      10,834        8,549
                                         ----------   ----------
                                          $259,067      $81,589
                                         ==========   ==========


                                      F-25


Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


13  Income taxes

         The Company and each of its subsidiaries are taxed at the rates
applicable within each respective company's jurisdiction. The composite income
tax rate will vary according to the jurisdictions in which profits arise. The
components of the provision for income tax expense (benefit) are as follows:

                                                Year ended December 31,
                                          ------------------------------------
(In thousands)                              2003         2002          2001
                                          --------     --------     --------
Italy  - Current                           $1,948       $2,097       $1,085

       - Deferred                            (371)         (51)        (211)

Cyprus - Current                              224          516         (133)

       - Deferred                              16           28           56

U.K.   - Current                            2,670        1,518        1,342

       - Deferred                              37           17          404

U.S.   - Current                            9,471        7,651        5,097

       - Deferred                             333        1,319          165

Netherlands Antilles

       - Current                               12            5          145

Other  - Current                             (212)          (4)         (83)

       - Deferred                             457         (221)           -
                                          --------     --------     --------
         Total tax expense                $14,585      $12,875       $7,867
                                          ========     ========     ========

         Income from continuing operations before provision for income taxes
consisted of:

                                               Year ended December 31,
                                          ----------------------------------
(In thousands)                             2003         2002          2001
                                          --------     --------     --------
U.S.                                      $26,624      $24,781      $11,689

Non U.S.                                   12,691       15,749       18,978
                                          --------     --------     --------
                                          $39,315      $40,530      $30,667
                                          --------     --------     --------


                                      F-26



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


         The tax effects of the significant temporary differences, which
comprise the deferred tax liabilities and assets, are as follows:

(In thousands)                             2003           2002
                                        ----------     ----------
Deferred tax liabilities

Goodwill                                   $(845)         $(570)

Patents and other intangible assets      (13,605)          (375)

Property, Plant and Equipment               (170)           (95)

Other                                     (2,022)        (1,162)
                                        ----------     ----------
                                         (16,642)        (2,202)

Deferred tax assets

Accrued compensation                        $193           $128

Inventories and related reserves           1,461          1,146

Allowance for doubtful accounts            2,324          1,997

Net operating loss carryforwards             609             80

Deferred royalties                           939            939

Other                                          -           (162)
                                        ----------     ----------
                                           5,526          4,128

Valuation Allowance                         (529)             -
                                        ----------     ----------
                                           4,997          4,128
                                        ----------     ----------
Net deferred tax asset (liability)      $(11,645)        $1,926
                                        ==========     ==========

         During 2003, the Company generated net taxable losses in locations
where it was more likely than not that those losses will not be utilized, and
accordingly, a valuation allowance was established. Additionally, in connection
with the Breg acquisition, the Company recorded a $14.3 million deferred tax
liability related to the preliminary purchase price allocation.


                                      F-27




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


                                                 Year ended December 31,
                                            -------------------------------
(In thousands)                                 2003        2002       2001
                                            --------     -------  ---------
Statutory tax (tax rate presented
  is for 2003 only):

Italy (40.25%)                               $1,788      $2,050    $2,905

Cyprus (4.25%)                                  248         441       495

Seychelles (40%)                                806       2,460       776

U.K.  (30%)                                   2,584         930     1,556

U.S. (38.5%)                                  9,318       9,588     4,500

Netherlands Antilles                             25           -         -

Other                                          (357)       (654)       75
                                            --------    --------  ---------
                                             14,412      14,815    10,307
                                            --------    --------  ---------
Tax benefit on DMO transaction                    -           -    (1,955)

Goodwill                                          -           -       672

Change in valuation allowance                   529           -      (389)

Tax holiday benefit - Seychelles               (806)     (2,460)     (776)

Other differences                               450         520         8
                                            --------    --------  ---------
Income tax expense                          $14,585     $12,875    $7,867
                                            ========    ========  =========

         A portion of the other differences relates to income tax charged during
the year on inter-group stock profits arising from the sale of inventories from
one subsidiary to another and which have not been sold to third parties at year
end. For the twelve months ended December 31, 2003, 2002 and 2001, this amounted
to $369,000, $894,000 and $556,000, respectively.

         In 2001, the effective tax rate benefited from the deduction in Italy
of an intra-group dividend subsequent to the purchase of the remaining 30%
minority interest in DMO. The resulting basis differential is not taxable in the
future and therefore no deferred tax has been established for the difference
between the book and tax basis of the net assets in DMO.

         The Company has not recorded additional income taxes applicable to
undistributed earnings of foreign subsidiaries that are considered to be
indefinitely reinvested. Such earnings, which amounted to approximately $156.0
million, $124.1 million and $94.4 at December 31, 2003, 2002 and 2001,
respectively, may become taxable upon their remittance as dividends or upon the
sale or liquidation of these foreign subsidiaries. It is not practicable to
determine the amounts of net additional income tax that may be payable if such
earnings were repatriated.


                                      F-28



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


14  Related Parties

         The following related party balances and transactions as of and for the
three years ended December 31, 2003, between the Company and other companies in
which directors and/or executive officers have an interest are reflected in the
consolidated financial statements. The Company buys components related to the
A-V Impulse System, purchases quality control and logistic services and buys the
Laryngeal Mask from companies in which two board members have a beneficial
minority interest.

                                                   Year ended December 31,
                                             -----------------------------------
(In thousands)                                   2003          2002        2001
                                             ----------     ---------   --------
Sales                                           $1,706        $1,275      $1,264

Purchases                                      $15,916       $18,038     $12,126

Accounts payable                                $1,929        $2,075      $1,455

Accounts receivable                               $403          $239        $233

Due from officers (included in
   other assets)                                  $342          $330           -



15  Contingencies

Litigation

         The Company, in the normal course of its business, is involved in
various lawsuits from time to time. In addition, the Company is subject to
certain other contingencies discussed below:

         On December 4, 1998, the special committee, or the Review Committee,
established to determine the amount of any contingent contract rights under the
Merger Agreement, dated May 8, 1995, between Orthofix International and American
Medical Electronics, or AME, in settlement of all claims of the holders of
record of AME common stock and the options and warrants to acquire such stock as
of August 21, 1995, unanimously determined that Orthofix International would pay
to the AME record holders an earnout of $500,000 plus interest and 12% of the
net recovery received from the resolution in 2000 of a litigation against
Biomet, Inc. and Electro Biology, Inc., up to a maximum of $5.0 million plus
interest. The Review Committee has not calculated the amount of the capped
figure, but Orthofix International believes it is between $5.0 million and $5.5
million. An arbitrator acting under the auspices of the American Arbitration
Association, or AAA, subsequently entered a consent award based on the Review
Committee's determination.

         On January 29, 1999, two couples who owned shares of AME common stock
commenced a civil action in Colorado federal court against Orthofix Inc. and the
members of the Review Committee seeking, among other relief, the maximum earnout
and bonus under the Merger Agreement of $18 million plus interest. The
plaintiffs also seek to represent all AME record holders. Clarence Frere, Louise
Frere, Joseph Mooibroek and Marla B. Mooibroek, individually and on behalf of
all others similarly situated v. Orthofix Inc., Arthur Schwalm, Robert
Gaines-Cooper, James Gero, and John and Jane Does One (1) Through Four (4), No.
99-S-445 (D. Colo.). In a related action, commenced on June 2, 1999, the same
plaintiffs filed a motion in the United States District Court for the Southern
District of New York seeking to intervene in the AAA arbitration and vacate the
consent award. Clarence Frere, Louise Frere, Joseph Mooibroek, and Marla B.
Mooibroek, individually and on behalf of all others similarly situated v.
Orthofix Inc., Arthur Schwalm, Robert Gaines-Cooper, James Gero, and John and
Jane Does One (1) Through Four (4), No. 99 Civ. 4049 (S.D.N.Y.). The two actions
have been consolidated in the New York federal court and Orthofix International
has been added as a party.

         The New York federal court resolved the two consolidated actions in
favor of the Company and its subsidiary. On July 12, 2002, the New York federal
court denied the plaintiffs' motion to vacate the consent award. On May 21,
2003, the court denied plaintiffs' motion for leave to file a second amended
complaint and dismissed

                                      F-29



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


the Earnout and Bonus action in its entirety with prejudice. Plaintiffs filed an
appeal to the United States Court of Appeals for the Second Circuit.

         The Company is vigorously defending the trial court's decision in favor
of the Company and its subsidiary. The Company expects the appeal to be heard
and decided in the first half of 2004. The Company has previously reserved
approximately $5.2 million plus accrued interest for the settlement of this
matter.

         Novamedix, a subsidiary of the Company, filed an action on February 21,
1992 against Kinetic Concepts Inc (KCI) alleging infringement of the patents
relating to Novamedix's A-V Impulse System product, breach of contract, and
unfair competition. In this action, Novamedix is seeking a permanent injunction
enjoining further infringement by KCI. Novamedix also seeks damages relating to
past infringement, breach of contract, and unfair competition. KCI has filed
counterclaims alleging that Novamedix engaged in inequitable conduct before the
United States Patent and Trademark Office and fraud as to KCI and that Novamedix
engaged in common law and statutory unfair competition against KCI. KCI seeks a
declaratory judgment that the patents are invalid, unenforceable, and not
infringed. KCI also seeks monetary damages, injunctive relief, costs, attorney's
fees, and other unspecified relief. During 2002, the United States Patent and
Trademark Office issued re-examination certificates validating four U.S.
vascular patents owned by us. The U.S. District Court in San Antonio, Texas has
restored the litigation to active status, and has provided a Scheduling Order
that will govern this matter. KCI has sought to add a charge of infringement
against Novamedix under a recently issued KCI patent but that request was denied
on a procedural basis. KCI retains the right to seek enforcement of its patent
in a separate proceeding. A portion of any amounts received will be payable to
former owners of Novamedix under the original purchase agreement. In 2003,
discovery was largely completed and several motions are now pending before the
Court on liability and damage issues.

         The Company is not currently involved in any other legal proceeding,
individually or in the aggregate, that will have a material effect on the
financial position, liquidity or operating results of the Company.

Concentrations of credit risk

         Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash investments and accounts
receivable. Cash investments are primarily in money market funds deposited with
major financial center banks. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of individuals
comprising the Company's customer base. Certain of these customers rely on third
party healthcare payers, such as private insurance companies and governments, to
make payments to the Company on their behalf. Accounts receivable in countries
where the government funds medical spending are primarily located in North
Africa, Middle East, South America, Asia and Europe. The Company has considered
special situations when establishing allowances for potentially uncollectible
accounts receivable in such countries as Argentina, Egypt, and Turkey. The
Company maintains an allowance for losses based on the expected collectability
of all accounts receivable.

         The Company sells via a direct sales force and distributors. The
Company's distributor of the A-V Impulse System in North America, Kendall
Healthcare Inc., accounted for 10% of net sales in 2003 and 2002, respectively,
and 11% of net sales in 2001.

16  Retirement plans and deferred compensation

         Orthofix Inc. sponsors a defined contribution benefit plan (the 401(k)
Plan) covering substantially all full time employees. The 401(k) Plan allows
for 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, 2003, 2002 and 2001, expenses incurred relating to the 401(k) Plan,
including matching contributions, were approximately $708,000, $763,000 and
$696,000, respectively.


                                      F-30




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


         The Company operates defined contribution pension plans for all other
employees not described above meeting minimum service requirements. The
Company's expenses for such pension contributions during 2003, 2002 and 2001
were approximately $487,000, $415,000 and $335,000, respectively.

         Under Italian Law, Orthofix S.r.l. accrues, on behalf of its employees,
deferred compensation, which is paid on termination of employment. Each year's
provision 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 3.5% of total
commissions earned from the Company. The Company's expense for deferred
compensation during 2003, 2002 and 2001 was approximately $227,000, $200,000 and
$163,000, respectively. Deferred compensation payments of $233,000, $120,000 and
$211,000 were made in 2003, 2002 and 2001, respectively. The year-end balance
represents the amount which would be payable if all the employees and agents had
terminated employment at that date.

17  Share option plans and warrants

Option Plans

         At December 31, 2003, the Company had four stock-based compensation
plans which are described below.

Staff Share Option Plan

         The Staff Stock Option Plan (the Staff Plan) is a fixed stock option
plan which was adopted in April 1992. Under the Staff Plan, the Company may
grant options to its employees for up to 2,239,700 shares of common stock at the
estimated fair market value of such options at the date of grant. Options
generally vest based on years of service with all options to be fully vested
within five years from date of grant. Options granted under the Staff Plan
expire ten years after date of grant.

Performance Accelerated Stock Option Agreement

         In December 1999, the Company's Board of Directors adopted a resolution
approving, and on June 29, 2000, the Company's shareholders approved, the grant
to certain executive officers of the Company of performance accelerated stock
options (PASOs), which it administers as a sub-plan of the Staff Plan, to
purchase up to 1,000,000 shares of the Company's common stock, subject to the
terms summarized below. The option to purchase the Company's common stock under
the PASOs was granted effective January 1, 1999 (the Grant Date) at an
exercise price equal to $17.875 per share, the price of the Company's common
stock on the date shareholders approved the reservation of 1,000,000 shares for
issuance under the PASO plan.

         The PASOs include both service-based and performance-based vesting
provisions. Under the service-based provisions, subject to the continued
employment of the executive, the PASOs become 100% non-forfeitable and
exercisable on the fifth anniversary of the Grant Date. Vesting under the PASOs
will be accelerated, however, if certain stock price targets are achieved. The
performance-based vesting provisions provide for the vesting of one-eighth of
the PASO grant for each $5.00 increase in the price of the Company's common
stock above $15.00 per share. The total number of shares eligible for the
accelerated vesting on an annual basis is limited to 20% of the number of shares
subject to the PASO with a cumulative carryover for the unvested portion of
shares eligible for accelerated vesting for each of the prior years. During the
period ended December 31, 2003, 50,000 stock options were exercised and 50,000
were forfeited in conjunction with a termination. As of December 31, 2003,
900,000 options remain outstanding under the option agreements of which 540,000
are exercisable. Further, January 1, 2004 is the fifth anniversary of the grant
date. Subsequent to the year end date, all options under these option agreements
are exercisable.


                                      F-31



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


AME 1983 and 1990 Plans

         Under the terms of the Merger Agreement in which the Company acquired
AME, all options for AME common stock still outstanding under the 1983 Plan and
the 1990 Plan (hereinafter collectively referred to as the AME Plan) were
assumed at the effective time of the Merger by the Company and are exercisable
for common shares in accordance with their terms and after adjustment to reflect
the exchange ratio. After such adjustment immediately following the Merger,
options granted under the AME Plan totaled 624,794, of which 3,422 remained
outstanding at December 31, 2003 and expire throughout 2004.

Executive Share Option Plan

         Under the Executive Share Option Plan (Executive Plan), approved by
shareholders in March 1992, 1,945,000 shares have been reserved for issuance to
certain executive officers. The grant price, determined by the Company's Board
of Directors, cannot be less than the fair market value at the time of grant or
$14.40, the equivalent of 120% of the price in the initial public offering price
of $12.00. Fifty percent of options granted vest automatically on the tenth
anniversary of the date of grant, or earlier on the satisfaction of a
performance keyed to the market price of the common shares and a service
condition. The remaining fifty percent vest in 20% increments on the first
through fifth anniversaries of the date of grant. Options granted under the
Executive Plan expire no later than June 2004.

Performance Accelerated Stock Option Inducement Agreements

         On December 30, 2003, the Company granted inducement stock option
awards to two key executives of Breg, Inc, in conjunction with the acquisition
of Breg, Inc. The exercise price was fixed at $38.00 per share on November 20,
2003, when the Company announced it had entered into an agreement to acquire
Breg, Inc. The inducement grants include both service-based and
performance-based vesting provisions. Under the service-based provisions,
subject to the continued employment of the executive, the inducement grants
become 100% non-forfeitable and exercisable on the fourth anniversary of the
grant date. Vesting of a portion of the options under the inducement agreement
will be accelerated, if certain stock price targets are achieved. The
performance-based vesting provisions generally provide for the vesting of
one-fifth of the inducement grants for each $5.00 increase in the price of the
Company's common stock above $40.00 per share. The total number of shares
eligible for the accelerated vesting on an annual basis is limited to 25% of the
number of shares subject to the inducement grants with a cumulative carryover
for the unvested portion of shares eligible for accelerated vesting for each of
the prior years. Prior to the expiration of the term of the options, only
one-half of the vested options can be exercised in any one year. As of December
31, 2003, 200,000 options remain outstanding under the inducement grants, none
of which were exercisable.

Warrants

Kinesis Warrants

         At the time of the acquisition of Kinesis Medical Inc.'s assets,
warrants to purchase 672,685 shares of Kinesis common stock (the Kinesis
warrants) were outstanding. These were assumed by the Company pursuant to the
Asset Purchase Agreement. After adjustment to take into account the agreed
exchange ratio, 27,400 common stock warrants were outstanding. At December 31,
2003, warrants to purchase 25,819 shares of the Company's common stock remain
outstanding, all of which are exercisable and expire on August 31, 2005. The
exercise prices are fixed, and range from $19.125 to $38.25 per common share.


                                      F-32




Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


         Summaries of the status of the Company's stock option and warrant plans
as of December 31, 2003, 2002 and 2001 and changes during the years ended on
those dates are presented below:



                                                2003                         2002                         2001
                                       ---------------------------- -------------------------- ---------------------------
                                                         Weighted                 Weighted                   Weighted
                                                         Average                   Average                    Average
                                                         Exercise                 Exercise                   Exercise
Fixed Options & Warrants                 Shares            Price       Shares       Price       Shares         Price
                                       -----------      ---------  ------------  --------    ------------    -------------
                                                                                              
Outstanding at beginning of year        2,424,781         $17.08     3,820,290     $15.46      3,865,368        $14.91

Granted                                   449,500         $34.46       108,650     $30.94        132,400        $25.58

Exercised                                (747,554)        $14.77    (1,502,137)    $13.94       (141,796)        $9.00

Forfeited                                 (75,225)        $19.86        (2,022)    $17.86        (35,682)       $19.95
                                       -----------      ---------  ------------  --------    ------------    -------------
Outstanding at end of year              2,051,502         $21.62     2,424,781     $17.08      3,820,290        $15.46
                                       ===========      =========  ============  ========    ============    =============

Options exercisable at end of year      1,042,727                    1,412,552                 1,652,244

Weighted average fair value of
options granted during the year at
market value                                              $10.86                   $10.71                        $9.76

Weighted average fair value of
options granted during the year at
less than market values                                   $22.32                        -                            -


         At December 31, 2003, the Company has reserved a total of $2.1 million
shares of common stock for issuance to eligible participants under the option
plans (2,025,683) and to warrant holders (25,819).




                                Outstanding and exercisable by price range as of December 31, 2003

                                  Options and Warrants Outstanding           Options and Warrants Exercisable
                              -------------------------------------------   ----------------------------------
                                                Weighted
                                                 Average       Weighted
                                                Remaining      Average
                                 Number        Contractual     Exercise         Number        Weighted Average
Range of Exercise Prices      Outstanding         Life          Price         Exercisable      Exercise Price
                              --------------  -------------  ------------   ---------------  -----------------
                                                                                
$7.500 - $11.000                    167,429        2.91         $10.094         167,429           $10.094

$12.750 - $19.125                 1,206,110        4.48         $17.095         846,110           $16.764

$22.375 - $28.560                   187,397        7.90         $26.217          10,622           $24.127

$32.180 - $33.000                   266,000        9.36         $32.342               -             -

$36.750 - $38.250                   224,566        9.30         $37.982          18,566           $38.250
                              --------------  -------------  ------------   ---------------  -----------------
                                  2,051,502        5.82         $21.621       1,042,727           $16.151
                              --------------  -------------  ------------   ---------------  -----------------



                                      F-33



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


18  Earnings Per Share

         For each of the three years in the period ended December 31, 2003,
there were no adjustments to net income for purpose of calculating basic and
diluted net income per common share. The following is a reconciliation of the
weighted average shares used in the basic and diluted net income per common
share computations.

                                                 Year Ended December 31,
                                       -----------------------------------------
                                             2003           2002        2001
                                       -------------- ------------- ------------
Weighted average common shares-basic      14,061,447    13,196,524   13,086,467
Effect of diluted securities:
      Stock options                          620,436     1,488,712    1,651,100
                                       -------------- ------------- ------------
Weighted average common share-diluted     14,681,883    14,685,236   14,737,567
                                       ============== ============= ============


         We did not include in the diluted shares outstanding calculation
206,000 options in 2003, 59,000 options in 2002 and 53,144 options in 2001
because their inclusion would be anti-dilutive or their exercise price exceeded
the average market price of our common stock during the respective periods.

19  Subsequent events

         On February 16, 2004, the Company acquired 100% of the common stock of
a Puerto Rican distribution company, Implantes Y Sistemas Medicos, Inc. (ISMI),
for approximately $1.4 million in cash. ISMI distributes Orthofix and other
third party products.


                                      F-34



Orthofix International N.V.
Notes to the consolidated financial statements (cont.)


20  Quarterly financial data (unaudited)

(In thousands, except per share data)





                                 1st Quarter       2nd Quarter      3rd Quarter     4th Quarter         Year
                               ---------------   ---------------  --------------- ---------------    ----------
2003

                                                                                       
Net sales                           $48,181           $51,565          $51,253          $52,708       $203,707

Gross profit                         35,596            38,556           38,771           39,694        152,617

Net income                            5,953             6,495            5,442            6,840         24,730

Net income per common share:

                  Basic                 .43               .46              .38              .48           1.76

                  Diluted               .41               .44              .37              .46           1.68

2002

Net sales                           $41,595           $45,580          $44,542          $45,878       $177,595

Gross profit                         31,685            33,740           33,565           33,786        132,776

Net income                            6,590             6,776            5,974            6,573         25,913

Net income per common
   share:

                  Basic                 .52               .52              .44              .48           1.96

                  Diluted               .44               .45              .41              .45           1.76



         The sum of per share earnings by quarter may not equal earnings per
share for the year due to the change in average share calculations. This is in
accordance with prescribed reporting requirements.


                                      F-35




Orthofix International N.V.

Schedule 2 -- Valuations and Qualifying Accounts



         For the years ended December 31, 2003, 2002 and 2001:

(US Dollars, in thousands)


                                                     Additions
                                           -----------------------------------
                             Balance at
Provisions from assets      beginning of    Charged to cost      Charged to                        Balance at end
to which they apply:            year          and expenses     other accounts   Deductions/Other       of year
                           --------------  -----------------  ----------------  -----------------  ---------------
2003
                                                                                            
Allowance for doubtful
accounts receivable               3,156             5,192                76           (4,110)              4,314

Inventory provisions              2,754             1,365                58             (521)              3,656

Valuation Allowance                   -               529                 -                -                 529

2002

Allowance for doubtful
accounts receivable               2,936             4,980                57           (4,817)              3,156

Inventory provisions              2,135             1,463              (126)            (718)              2,754

2001

Allowance for doubtful
accounts receivable               2,687             3,564               117           (3,432)              2,936

Inventory provisions                976               123             1,043               (7)              2,135

Restructuring provisions            975                 -                 -             (975)                  -

Valuation allowance                 389                 -                 -             (389)                  -




                                      S-1




Orthofix International N.V.

Schedule 2 -- Valuations and Qualifying Accounts


To the Board of Directors of Orthofix International N.V.:


Our audit of the consolidated financial statements referred to in our report
dated June 25, 2002, appearing in this Form 10-K also included an audit of the
financial statement schedule listed in the index on page F-1 of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 2001, when read in conjunction with the related consolidated financial
statements.


/s/ PRICEWATERHOUSECOOPERS


London, England
June 25, 2002




                                      S-2