UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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
incorporation or organization) Identification No.)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of August 2, 2005, 15,980,908 shares of common stock were issued and
outstanding.
Table of Contents
Page
PART I FINANCIAL INFORMATION................................................3
Item 1. Condensed Financial Statements.....................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................17
Item 3. Quantitative and Qualitative Disclosure About Market Risk.........28
Item 4. Controls and Procedures...........................................28
PART II OTHER INFORMATION...................................................29
Item 1. Legal Proceedings.................................................29
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds........29
Item 4. Submission of Matters to a Vote of Security Holders...............30
Item 6. Exhibits..................................................... ....31
SIGNATURES....................................................................34
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which relate to our business
and financial outlook and 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.
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, unanticipated expenditures,
changing relationships with customers, suppliers and strategic partners,
unfavorable results in litigation matters, 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, currency
or interest rate fluctuations and the other risks described under item 1 -
"Business - Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2004.
2
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands except share data) June 30, December 31,
2005 2004
------------- -------------
Assets (Unaudited) (Note 2)
Current assets:
Cash and cash equivalents.................................. $ 20,145 $ 25,944
Restricted cash............................................ 9,571 14,302
Trade accounts receivable, net............................. 82,215 75,321
Inventories................................................ 33,234 32,895
Deferred income taxes...................................... 3,948 4,130
Prepaid expenses and other current assets.................. 12,391 10,000
------------- -------------
Total current assets......................................... 161,504 162,592
Securities and other investments............................. 4,082 4,082
Property, plant and equipment, net........................... 19,041 18,326
Patents and other intangible assets, net..................... 68,157 70,627
Goodwill, net................................................ 166,392 169,329
Other long-term assets ...................................... 5,205 6,144
------------- -------------
Total assets............................................... $ 424,381 $ 431,100
============= =============
Liabilities and shareholders' equity
Current liabilities:
Bank borrowings............................................ $ 69 $ 76
Current portion of long-term debt.......................... 10,302 10,057
Trade accounts payable..................................... 9,748 9,507
Other current liabilities.................................. 20,408 25,745
------------- -------------
Total current liabilities.................................. 40,527 45,385
Long-term debt............................................... 50,917 67,249
Deferred income taxes........................................ 16,812 17,555
Other long-term liabilities.................................. 1,270 3,739
------------- -------------
Total liabilities.......................................... 109,526 133,928
------------- -------------
Contingencies (Note 16)
Shareholders' equity:
Common shares (15,926,451 and 15,711,943 shares issued
at June 30, 2005 and December 31, 2004, respectively)..... 1,593 1,572
Additional paid-in capital................................. 103,787 98,388
Retained earnings.......................................... 202,257 182,073
Accumulated other comprehensive income..................... 7,218 15,139
------------- -------------
Total shareholders' equity................................. 314,855 297,172
------------- -------------
Total liabilities and shareholders' equity $ 424,381 $ 431,100
============= =============
The accompanying notes form an integral part of these condensed consolidated
financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
Three Months Ended Six Months Ended
--------------------------- ---------------------------
(Unaudited, U.S. Dollars, in thousands except
share and per share data) 2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales............................................ $79,540 $70,794 $157,228 $141,533
Cost of sales........................................ 20,775 19,697 41,671 39,243
------------ ------------ ------------ ------------
Gross profit..................................... 58,765 51,097 115,557 102,290
Operating expenses
Sales and marketing.............................. 28,799 25,638 56,397 51,774
General and administrative....................... 8,703 7,418 17,379 14,667
Research and development......................... 2,869 2,694 5,808 6,010
Amortization of intangible assets................ 1,661 1,813 3,289 3,145
KCI litigation costs............................. 163 332 505 704
------------ ------------ ------------ ------------
42,195 37,895 83,378 76,300
------------ ------------ ------------ ------------
Total operating income .......................... 16,570 13,202 32,179 25,990
Interest expense, net............................... (1,251) (1,370) (2,561) (2,899)
Other income (expense), net......................... (608) (173) 1,435 17
Gain (loss) in joint venture, net................... - (180) - 225
------------ ------------ ------------ ------------
Income before income tax........................ 14,711 11,479 31,053 23,333
Income tax expense................................... (5,306) (3,604) (10,869) (7,114)
------------ ------------ ------------ ------------
Net income ..................................... $9,405 $7,875 $20,184 $16,219
------------ ------------ ------------ ------------
Net income per common share - basic.................. $0.59 $0.52 $1.28 $1.07
------------ ------------ ------------ ------------
Net income per common share - diluted................ $0.58 $0.50 $1.24 $1.02
------------ ------------ ------------ ------------
Weighted average number of common shares - basic....
15,872,638 15,276,961 15,828,686 15,158,409
------------ ------------ ------------ ------------
Weighted average number of common shares - diluted... 16,294,098 15,872,346 16,228,849 15,826,981
------------ ------------ ------------ ------------
The accompanying notes form an integral part of these condensed consolidated
financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(U.S. Dollars, in thousands except share data) 2005 2004
------------ ------------
Cash flows from operating activities:
Net income.................................................. $ 20,184 $ 16,219
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 7,215 7,181
Deferred royalty income..................................... (2,443) --
Provision for doubtful accounts............................. 2,104 2,133
Loss on equity investments.................................. -- 609
Tax benefit on non-qualified stock options.................. 1,162 3,457
Deferred taxes.............................................. (561) (1,136)
Loss (Gain) on sale of assets and investments............... 39 (1,566)
Other ...................................................... 66 1,072
Change in operating assets and liabilities:
Restricted cash............................................. 4,731 (16,201)
Accounts receivable......................................... (11,637) (5,205)
Inventories................................................. (1,501) (1,286)
Prepaid expenses and other.................................. (2,635) (1,082)
Accounts payable............................................ 772 (1,718)
Current liabilities......................................... (4,423) (2,495)
------------ ------------
Net cash provided by (used in) operating activities........... 13,073 (18)
------------ ------------
Cash flows from investing activities:
Investments in affiliates and subsidiaries.................. -- (2,081)
Proceeds from sale of assets................................ -- 1,578
Capital expenditures........................................ (6,101) (7,758)
Proceeds from sale of joint venture......................... -- 1,300
Other....................................................... -- 440
------------ ------------
Net cash used in investing activities......................... (6,101) (6,521)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................. 3,964 7,135
Payment of debt issuance costs.............................. -- (529)
Net repayment of loans and borrowings....................... (16,094) (3,705)
------------ ------------
Net cash (used in) provided by financing activities........... (12,130) 2,901
------------ ------------
Effect of exchange rate changes on cash....................... (641) (117)
------------ ------------
Net decrease in cash and cash equivalents..................... (5,799) (3,755)
Cash and cash equivalents at the beginning of the year........ 25,944 31,356
------------ ------------
Cash and cash equivalents at the end of the period............ $ 20,145 $ 27,601
------------ ------------
The accompanying notes form an integral part of these condensed consolidated
financial statements.
5
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: 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 product market.
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and
regulations, certain information and note disclosures, normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States, have been condensed or omitted. In the opinion of
management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended June 30, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005. The balance
sheet at December 31, 2004 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
Consolidated Financial Statements and Notes thereto of our Annual Report on Form
10-K for the year ended December 31, 2004.
NOTE 3: RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2005
presentation. The reclassifications have no effect on previously reported net
income or shareholders' equity.
NOTE 4: RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (R), "Share-Based
Payment", a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 (R) also supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees". The revision will require companies to recognize
compensation costs based on the fair value of the equity or liability
instruments issued and to report the benefits of tax deductions in excess of
recognized compensation cost as a financing cash flow rather than as an
operating cash flow as reported in the accompanying consolidated statements of
cash flows. While we cannot estimate what these amounts will be in the future
(because they depend on, among other things, when employees exercise their
options), the amount of operating cash flows recognized in the six months ended
June 30, 2005 and 2004 for such excess tax distributions were $1.2 million and
$3.5 million, respectively. Statement 123 (R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans.
In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107
regarding the interaction between SFAS 123 (R) which was revised in December
2004 and certain SEC rules and regulations and provides the SEC's staff views
regarding the valuation of share-based payment arrangements for public
companies. The Company is evaluating the impact this guidance will have on its
financial conditions, results of operation and cash flows.
In April 2005, the SEC issued a press release that revises the required
date of adoption under SFAS 123 (R). The new rule allows for companies to adopt
the provisions of SFAS 123 (R) beginning on the first annual period beginning
after June 15, 2005. Based on the new required adoption date, the Company
currently expects to adopt SFAS 123 (R) effective January 1, 2006 using the
"modified prospective" method. Under the modified prospective method,
compensation cost is recognized in the financial statements beginning with the
effective date, based on the requirements of SFAS 123 (R) for all share-based
payments granted after that date, and based on the requirements of SFAS 123 for
all unvested awards granted prior to the effective date of SFAS 123 (R). The
Company is currently
6
evaluating the different valuation methods available to determine the fair
market value of the Company's stock options and therefore is unable to estimate
the impact of this new standard.
NOTE 5: INVENTORY
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. Field inventory represents
immediately saleable finished goods inventory that is in the possession of the
Company's direct sales representatives.
Inventories were as follows:
June 30, December 31,
(In thousands) 2005 2004
------------- -------------
Raw materials $6,709 $6,456
Work-in-process 3,184 2,445
Finished goods 13,219 14,823
Field inventory (as described above) 5,613 5,346
Consignment inventory 8,618 7,835
Less reserve for obsolescence (4,109) (4,010)
------------- -------------
$33,234 $32,895
============= =============
NOTE 6: GOODWILL
The change in the net carrying value of goodwill for the period ended June
30, 2005 is as follows:
(In thousands)
Americas America International
Orthofix Breg Orthofix Total
------------ ----------- ------------- -----------
At December 31, 2004 $32,952 $91,762 $44,615 $169,329
Foreign Currency - - (2,937) (2,937)
------------ ----------- ------------- -----------
At June 30, 2005 $32,952 $91,762 $41,678 $166,392
============ =========== ============= ===========
7
NOTE 7: LONG TERM DEBT
June 30, December 31,
(In thousands) 2005 2004
------------- -------------
Long-term obligations $60,750 $76,750
Other loans 469 556
------------- -------------
61,219 77,306
Less current portion (10,302) (10,057)
------------- -------------
$50,917 $67,249
============= =============
Long-term debt primarily consists of a senior secured bank facility, as
amended, entered into by Colgate Medical Limited ("Colgate", or the "Borrower"),
concurrent with the closing of the Breg acquisition. At June 30, 2005 and
December 31, 2004 this senior secured bank facility had outstanding borrowings,
included in long-term obligations, of $60.8 million and $76.8 million,
respectively. The senior secured bank facility provides for (1) a five-year
amortizing term loan of $110 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 million, which was not drawn on as of June 30, 2005. This
obligation has a floating interest rate of LIBOR or prime rate plus a margin.
The current interest rate is LIBOR plus 2.00%, which is adjusted quarterly based
on the Borrower's leverage ratio.
In May 2004, the Company entered into a three year fully amortizable
interest rate swap agreement (the "Swap"). Under the Swap, the Company pays a
fixed rate of 3.16% and receives interest at floating rates based on the three
month LIBOR rate at each quarterly re-pricing date until the expiration of the
Swap. As of June 30, 2005 the interest rate on the debt related to the Swap was
5.16% (3.16% plus a margin of 2.00%). The effective interest rate, including the
impact of the Swap, as of June 30, 2005 on the senior secured debt was 5.13%.
In conjunction with obtaining the senior secured bank facility and the
amendment thereto, the Company incurred debt issuance costs of $3.6 million. As
of June 30 2005, $2.4 million of unamortized debt issuance costs was recorded in
other long-term assets.
NOTE 8: COMMON SHARES
For the six months ended June 30, 2005, the Company issued 214,508 shares
of common stock upon the exercise of outstanding stock options and warrants for
proceeds of $4.0 million.
8
NOTE 9: COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) is comprised of foreign
currency translation adjustments and the effective portion of the gain (loss)
for derivatives designated and accounted for as a cash flow hedge. The
components of and changes in other comprehensive income (loss) are as follows:
Foreign Fair Value Accumulated
Currency of Other
Translation Derivatives, Comprehensive
Adjustments net of tax Income/(Loss)
------------ ------------ -------------
Balance at December 31, 2004 $15,047 $ 92 $15,139
Unrealized gain on derivative
instrument, net of tax of $36 -- 85 85
Foreign currency translation (8,006) -- (8,006)
adjustment ------------ ------------ -------------
Balance at June 30, 2005 $7,041 $177 $7,218
============ ============ =============
(In thousands) Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
2005 2004 2005 2004
---------- ---------- ---------- ---------
Net income $9,405 $7,875 $20,184 $16,219
Other comprehensive income:
Unrealized (loss) gain on
derivative instrument (See
Note 15) (91) 70 85 70
Foreign currency translation
adjustment (4,546) (714) (8,006) (810)
---------- ---------- ---------- ---------
Total comprehensive income $4,768 $7,231 $12,263 $15,479
---------- ---------- ---------- ---------
NOTE 10: BUSINESS SEGMENT INFORMATION
The Company's segment information is prepared on the same basis that the
Company's management reviews the financial information for operational decision
making purposes.
Prior to the acquisition of Breg, the Company's segments were identified by
geographic areas. In 2004, management identified Breg as a reportable segment
because Breg's customer type differed from the previous type of Orthofix
customer.
Americas Orthofix
Americas Orthofix operation ("Americas") consists of operations in the
United States, excluding Breg, as well as operations in Mexico, Brazil, and
Puerto Rico. The Americas uses both direct and distributor sales representatives
to sell to hospitals, doctors, and other healthcare providers in the Americas
market.
Americas Breg
Americas Breg operation ("Breg") consists of Breg, Inc., which was acquired
December 30, 2003. 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 distributors and affiliates.
9
International Orthofix
International Orthofix operation ("International") consists of operations
which are located in the rest of the world as well as independent distributors.
International uses both direct and distributor sales representatives to sell to
hospitals, doctors, and other healthcare providers.
Group Activities
Group Activities are comprised of the Parent's operating expenses and
identifiable assets.
For the three month period ended June 30:
External Sales Intersegment Sales
---------------------- ---------------------
(In thousands) 2005 2004 2005 2004
---------- ---------- ---------- --------
Americas Orthofix $35,878 $31,134 $534 $430
Americas Breg 17,391 16,412 89 93
International Orthofix 26,271 23,248 14,132 14,301
---------- ---------- ---------- --------
Total $79,540 $70,794 $14,755 $14,824
========== ========== ========== ========
For the six month period ended June 30:
External Sales Intersegment Sales
---------------------- ---------------------
(In thousands) 2005 2004 2005 2004
---------- ---------- ---------- --------
Americas Orthofix $69,642 $60,927 $1,004 $843
Americas Breg 35,385 33,271 263 93
International Orthofix 52,201 47,335 28,903 30,546
---------- ---------- ---------- --------
Total $157,228 $141,533 $30,170 $31,482
========== ========== ========== ========
For the three and six month periods ended June 30:
Three Months Ended Six Months Ended
Operating Income (Expense) June 30, June 30,
---------------------- ----------------------
(In thousands) 2005 2004 2005 2004
----------- ---------- --------- -----------
Americas Orthofix $9,123 $7,415 $16,720 $13,507
Americas Breg 2,453 2,224 5,347 4,528
International Orthofix 6,748 5,292 13,508 10,566
Group Activities (1,511) (1,021) (2,851) (2,083)
Eliminations (243) (708) (545) (528)
----------- ---------- --------- -----------
Total $16,570 $13,202 $32,179 $25,990
=========== ========== ========= ===========
10
Sales by Market Sector For Information Purposes Only:
Sales by Market Sector
for the three month period ended June 30, 2005
---------------------------------------------------------
Americas International
(In thousands) Orthofix Americas Breg Orthofix Total
----------- -------------- ------------- -------------
Orthopedic
Spine $25,263 $ - $ (40) $25,223
Reconstruction 2,149 17,391 12,174 31,714
Trauma 8,089 - 8,513 16,602
----------- -------------- ------------- -------------
Total Orthopedic 35,501 17,391 20,647 73,539
Non-Orthopedic 377 - 5,624 6,001
----------- -------------- ------------- -------------
Total $35,878 $17,391 $26,271 $79,540
=========== ============== ============= =============
Sales by Market Sector
for the three month period ended June 30, 2004
---------------------------------------------------------
Americas International
(In thousands) Orthofix Americas Breg Orthofix Total
----------- -------------- ------------- -------------
Orthopedic
Spine $20,197 $ - $ 41 $20,238
Reconstruction 1,781 16,391 10,982 29,154
Trauma 8,973 21 7,137 16,131
----------- -------------- ------------- -------------
Total Orthopedic 30,951 16,412 18,160 65,523
Non-Orthopedic 183 - 5,088 5,271
----------- -------------- ------------- -------------
Total $31,134 $16,412 $23,248 $70,794
=========== ============== ============= =============
11
Sales by Market Sector
for the six month period ended June 30, 2005
---------------------------------------------------------
Americas International
(In thousands) Orthofix Americas Breg Orthofix Total
----------- -------------- ------------- -------------
Orthopedic
Spine $48,330 $ - $ 69 $48,399
Reconstruction 4,242 35,385 24,675 64,302
Trauma 16,326 - 16,330 32,656
----------- -------------- ------------- -------------
Total Orthopedic 68,898 35,385 41,074 145,357
Non-Orthopedic 744 - 11,127 11,871
----------- -------------- ------------- -------------
Total $69,642 $35,385 $52,201 $157,228
=========== ============== ============= =============
Sales by Market Sector
for the six month period ended June 30, 2004
---------------------------------------------------------
Americas International
(In thousands) Orthofix Americas Breg Orthofix Total
----------- -------------- ------------- -------------
Orthopedic
Spine $39,784 $ - $ 74 $39,858
Reconstruction 3,496 33,051 22,707 59,254
Trauma 17,288 220 13,930 31,438
----------- -------------- ------------- -------------
Total Orthopedic 60,568 33,271 36,711 130,550
Non-Orthopedic 359 - 10,624 10,983
----------- -------------- ------------- -------------
Total $60,927 $33,271 $47,335 $141,533
=========== ============== ============= =============
NOTE 12: INCOME TAXES
The difference between the reported provision for income taxes and a
provision computed by applying the statutory rates applicable to each subsidiary
of the Company is primarily attributable to the generation of unutilizable net
operating losses in various jurisdictions, the Company's tax holiday benefit in
the Seychelles, tax planning associated with the acquisition of Breg and the new
Section 199 deduction related to income attributable to production activities
occurring in the United States. This deduction was enacted as part of the
American Jobs Creation Act of 2004.
12
NOTE 13: EARNINGS PER SHARE
For the six month periods ended June 30, 2005 and 2004, there were no
adjustments to net income (the numerators) for purposes of calculating basic and
diluted net income per common share. The following table sets forth a
reconciliation of the share numbers (the denominators) in computing earnings per
share in accordance with Statement of Financial Accounting Standards No. 128,
`Earnings Per Share':
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- ---------------
Weighted average common shares - basic 15,872,638 15,276,961 15,828,686 15,158,409
Effect of dilutive securities:
Stock options 421,460 595,385 400,163 668,572
------------- ------------- ------------- ---------------
Weighted average common shares - diluted 16,294,098 15,872,346 16,228,849 15,826,981
============= ============= ============= ===============
The Company did not include 200,000 and 550,000 options in the diluted
shares outstanding calculation for the three and six month periods ended June
30, 2005 because their inclusion would have been antidilutive or because their
exercise price exceeded the average market price of our common stock during the
period. For the three and six month periods ended June 30, 2004, the Company did
not include 200,000 options in the diluted shares outstanding calculations
because their inclusion would have been antidilutive or because their exercise
price exceeded the average market price for our common stock during the period.
13
NOTE 14: STOCK BASED COMPENSATION
The Company accounts for stock based awards to employees under the
intrinsic value method in accordance with APB 25 "Accounting for Stock Issued to
Employees." For the three and six month periods ended June 30, 2005, $87,000 and
$174,000, respectively, of compensation expense was recognized relating to
options granted at exercise prices lower than the fair market value of the
underlying stock on the date of grant compared to $90,000 and $180,000 for the
same periods of the prior year, respectively. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock Based
Compensation Transition and Disclosure and Amendment of FASB Statement No. 123",
the Company has provided the Company's pro forma net income and net income per
common share for the three and six month periods ended June 30, 2005 and June
30, 2004 as if the Company had accounted for its employee stock option plans
under the fair value method. The Company used the same pricing model and
assumptions that were used in the Annual Report on Form 10-K for the year ended
December 31, 2004. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2005 2004 2005 2004
--------- --------- --------- ---------
Net income
As reported $9,405 $7,875 $20,184 $16,219
Add: Stock-based employee
compensation expense included
in reported net income, net
of related tax effects 87 90 174 180
Less: Total stock-based employee
compensation expense determined
under fair value method for all
awards net of tax (662) (405) (1,282) (847)
--------- --------- --------- ---------
Pro forma $8,830 $7,560 $19,076 $15,552
Net income per common share - basic
As reported $0.59 $0.52 $1.28 $1.07
Pro forma $0.56 $0.49 $1.21 $1.03
Net income per common share - diluted
As reported $0.58 $0.50 $1.24 $1.02
Pro forma $0.54 $0.48 $1.18 $0.98
14
NOTE 15: DERIVATIVE INSTRUMENT
In May 2004, the Company entered into a three year fully amortizable
interest rate swap agreement (the "Swap") to manage its interest rate exposure
related to a portion of the Company's $110.0 million credit facility entered
into on December 30, 2003. The Swap has a notional amount of $50.0 million and
expires on June 27, 2007. The amount outstanding under the Swap as of June 30,
2005 was $33.3 million. Under the Swap, the Company pays a fixed rate of 3.16%
and receives interest at floating rates based on the three month LIBOR rate at
each quarterly re-pricing date until the expiration of the Swap.
The Swap is designated as a cash flow hedge and, at June 30, 2005, is
determined to be effective. At June 30, 2005, the fair value of the derivative
was approximately $253,000 and has been included in prepaid expenses and other
current assets. The net unrealized loss of approximately $91,000, net of a tax
benefit of $39,000, has been included in other comprehensive income for the
three month period ended June 30, 2005. The net unrealized gain of approximately
$85,000, net of tax of $36,000, has been included in the other comprehensive
income for the six month period ended June 30, 2005. The fair value of the Swap
is the estimated amount the Company would pay or receive to terminate the
agreement at the reporting date.
NOTE 16: CONTINGENCIES
Litigation
The Company is subject to the contingencies discussed below:
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, unfair
competition and is seeking damages. KCI has filed counterclaims alleging
inequitable conduct by Novamedix before the United States Patent and Trademark
Office, fraud and unfair competition. KCI withdrew several of its counterclaims,
but continues to assert affirmative defenses contending that the patents are
invalid, unenforceable, and not infringed. During 2002, the United States Patent
and Trademark Office issued re-examination certificates validating four U.S.
vascular patents owned by the Company. A portion of any amounts received by the
Company will be payable to former owners of Novamedix under the original
purchase agreement. The U.S. District Court in San Antonio, Texas recently
denied certain motions filed by KCI that would have disposed of the case without
a trial. The case is currently set for trial to begin on Monday, January 9,
2006.
On September 29, 2004, Triage Medical Inc. ("Triage") filed an action
against Orthofix International N.V. That action, which the Company removed to
federal court, is entitled Triage Medical Inc. vs. Orthofix International N.V.,
Case No: SACV04-1377 JVS. Triage contended that the Company agreed to negotiate
an acquisition of Triage, and as a part of the acquisition process, to make an
unconditional $2.0 million escrow payment to Triage. Triage contended further
that the Company terminated the acquisition process and failed to make the
payment as a result of which Triage was damaged. The Company answered the
complaint denying any liability and pleading certain defenses. On July 12, 2005,
Triage and the Company engaged in mediation proceedings at which the parties
agreed to resolve the action against the Company and to dismiss the lawsuit with
prejudice. The settlement amount of $350,000 was fully accrued in the second
quarter.
In addition, the Company, in the normal course of its business, is involved
in various legal proceedings or claims from time to time.
Although management cannot predict the outcome of any proceedings or claims
made against the Company, management does not anticipate that the ultimate
outcome of any such proceedings or claims will have a material adverse effect on
the Company's financial position but may be material to the Company's results of
operations or cash flows in the period in which such proceedings or claims are
resolved.
15
Concentrations of credit risk
There have been no material changes from the information provided in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004.
NOTE 17: SUBSEQUENT EVENTS
On July 20, 2005 the Finance Bill of 2005 was enacted in the United
Kingdom. The Company has determined this new legislation will increase its tax
liability in the United Kingdom. The Company is in the process of quantifying
the impact, but has determined its effective tax rate will increase over the
remainder of 2005.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion and analysis addresses our liquidity, financial
condition, and the results of our operations for the three and six months ended
June 30, 2005 compared to our results of operations for the three and six months
ended June 30, 2004. These discussions should be read in conjunction with our
historical consolidated financial statements and related notes thereto and the
other financial information included in this Form 10-Q and in our Annual Report
on Form 10-K for the year ended December 31, 2004.
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 electrical bone growth 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, Brazil and Puerto Rico. In
several of these and other markets, we also distribute our products through
independent distributors.
Our condensed consolidated financial statements include the financial
results of the Company and our 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 the period end exchange
rates, and revenue and expense items are translated at weighted average rates of
exchange prevailing during the period. 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 seasonal 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 have in place an interest
rate swap derivative instrument to hedge our exposure to interest rate
fluctuation. We do not ordinarily use derivative instruments to hedge foreign
exchange exposure.
We manage our operations as three business segments: Americas Orthofix,
Americas Breg and International Orthofix. Americas Orthofix consists of
operations in the United States, excluding Breg, as well as operations in
Mexico, Brazil, and Puerto Rico. Americas Breg consists of Breg's domestic and
independent international distributor operations. International Orthofix
consists of operations which are located in the rest of the world as well as
independent export distribution operations. Group Activities are comprised of
the Parent's operating expenses and identifiable assets.
17
Segment and Market Sector Revenues
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, Reconstruction, and Trauma, which together
accounted for 93% of our total net sales in the three and six months ended June
30, 2005 and 93% and 92% of our total net sales in the three and six months
ended June 30, 2004, respectively. Sales of non-orthopedic products, including
the airway management products for use during anesthesia, woman's care and other
products, accounted for 7% of our total net sales in the three and six months
ended June 30, 2005 and 7% and 8% of our total net sales in the three and six
months ended June 30, 2004, respectively.
The following tables display the net sales by business segment and net
sales by Market Sectors for the three and six months ended June 30, 2005 and
2004. We provide net sales by Market Sector for information purposes only. We
keep our books and records and account for net sales, cost of sales and expenses
by business segment.
Business Segment:
Three Months Ended June 30,
(In US$ thousands) 2005 2004
------------------------ -------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
---------- ------------- ---------- -------------
Americas Orthofix $35,878 45% $31,134 44%
Americas Breg 17,391 22% 16,412 23%
International Orthofix 26,271 33% 23,248 33%
---------- ------------- ---------- -------------
Total $79,540 100% $70,794 100%
========== ============= ========== =============
Six Months Ended June 30,
(In US$ thousands) 2005 2004
------------------------ --------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
---------- ------------- ---------- --------------
Americas Orthofix $69,642 44% $60,927 43%
Americas Breg 35,385 23% 33,271 24%
International Orthofix 52,201 33% 47,335 33%
---------- ------------- ---------- --------------
Total $157,228 100% $141,533 100%
========== ============= ========== ==============
18
Market Sector:
Three Months Ended June 30,
(In US$ thousands) 2005 2004
------------------------ -------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
---------- ------------- ---------- -------------
Orthopedic
Spine $25,223 32% $20,238 29%
Reconstruction 31,714 40% 29,154 41%
Trauma 16,602 21% 16,131 23%
---------- ------------- ---------- -------------
Total Orthopedic 73,539 93% 65,523 93%
Non-Orthopedic 6,001 7% 5,271 7%
---------- ------------- ---------- -------------
Total $79,540 100% $70,794 100%
========== ============= ========== =============
Six Months Ended June 30,
(In US$ thousands) 2005 2004
------------------------ -------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
---------- ------------- ---------- -------------
Orthopedic
Spine $48,399 31% $39,858 28%
Reconstruction 64,302 41% 59,254 42%
Trauma 32,656 21% 31,438 22%
---------- ------------- ---------- --------------
Total Orthopedic 145,357 93% 130,550 92%
Non-Orthopedic 11,871 7% 10,983 8%
---------- ------------- ---------- --------------
Total $157,228 100% $141,533 100%
========== ============= ========== ==============
19
The following table presents certain items from our statements of
operations as a percentage of net sales for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
---- ---- ---- ----
(%) (%) (%) (%)
Net sales........................... 100 100 100 100
Cost of sales....................... 26 28 27 28
Gross profit........................ 74 72 73 72
Operating expenses
Sales and marketing .............. 36 36 36 37
General and administrative........ 11 10 11 10
Research and development.......... 4 4 4 4
Amortization of intangible assets. 2 3 2 2
KCI litigation costs............. -- -- -- 1
Total operating income.............. 21 19 20 18
Net income.......................... 12 11 13 11
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Sales by Business Segment:
Net sales increased 11% to $157.2 million for the first six months of 2005
compared to $141.5 million for the first six months of 2004. The impact of
foreign currency increased sales by $1.9 million, or 1.2%, during the first six
months of 2005 as compared to the first six months of 2004.
Net sales in Americas Orthofix (the "Americas"), primarily in the United
States, increased to $69.6 million in the first six months of 2005 compared to
$60.9 million in the first six months of 2004, an increase of 14%. The Americas
represented 44% of total net sales during the first six months of 2005 and 43%
of total net sales for the first six months of 2004. The increase in sales was
primarily the result of a 21% increase in sales in the spine Market Sector
attributable to sales of Cervical-Stim(R) which was approved by the FDA in
December 2004. The Americas Trauma market sector decreased 6% in the first six
months of 2005 as compared to the same period in the prior year. This decrease
is attributable to a decline in external fixation sales and the cannibalization
of some stimulation sales, previously recorded in the Trauma market sector, by
the recent introduction of the Cervical-Stim(R). In the Americas Trauma market
sector, external fixation devices are sharing the market for treatment of
difficult fractures with alternatives such as plating and nailing. Recognizing
this trend, we have introduced the contour plate for distal radius fractures and
anticipate the introduction of other internal fixation products to our Americas
Trauma product line. The following table illustrates net sales by market sector
in the Americas:
20
Net Sales for the
Six Months Ended June 30,
---------------------------------------
(In US$ thousands) 2005 2004 Growth
------------------- ------------------ --------
Orthopedic
Spine $48,330 $39,784 21%
Reconstruction 4,242 3,496 21%
Trauma 16,326 17,288 -6%
------------------- ------------------
Total Orthopedic 68,898 60,568 14%
Non-Orthopedic 744 359 107%
------------------- ------------------
Americas Orthofix $69,642 $60,927 14%
=================== ==================
Net sales in Americas Breg ("Breg"), increased $2.1 million to $35.4
million for the first six months of 2005 compared to $33.3 million for the first
six months of 2004, an increase of 6%. The increase in sales was primarily due
to the sale of Breg bracing products which increased 9% from the first six
months of 2005. During the first six months of 2005, Breg experienced delays in
the introduction of several new products which affected its expected overall
growth rate. In response, Breg recently introduced the new Fusion(TM) XT knee
brace and Polar Care(R) Lite 500 products.
Net sales in International Orthofix ("International") increased 10% to
$52.2 million in the first six months of 2005 compared to $47.3 million in first
six months of 2004. The factors that led to this increase were increased sales
of external fixation products and continued strength in sales of the ISKD,
internal limb-lengthening device and the PC.C.P hip fracture fixation system.
The impact of foreign currency increased International Orthofix sales by $1.8
million during the first six months of 2005 as compared to the first six months
of 2004. The following table illustrates net sales by market sector in
International:
Net Sales for the
Six Months Ended June 30,
---------------------------------------
(In US$ thousands) 2005 2004 Growth
------------------- ------------------ --------
Orthopedic
Spine $69 $74 -7%
Reconstruction 24,675 22,707 9%
Trauma 16,330 13,930 17%
------------------- ------------------
Total Orthopedic 41,074 36,711 12%
Non-Orthopedic 11,127 10,624 5%
------------------- ------------------
International Orthofix $52,201 $47,335 10%
=================== ==================
Sales by Market Sector:
Net sales of spine products increased 21% to $48.4 million in the six
months of 2005 compared to $39.9 million in the first six months of 2004. As
discussed above, the increase is primarily due to sales of Cervical-Stim(R)
which was approved by the FDA in December 2004 and began selling in January
2005.
Sales of our reconstruction products increased 9% to $64.3 million in the
first six months of 2005 compared to $59.3 million in the first six months of
2004. The increase in this market sector was attributable to sales of our
external fixation products used in reconstruction applications which increased
13% and to sales of the Breg products which increased 8% worldwide.
21
Sales of our trauma products increased 4% to $32.7 million in the first six
months of 2005, compared to $31.4 million in the first six months of 2004. This
market sector was positively impacted from an overall 8% growth in sales of
external fixation products. Growth in this market sector was negatively impacted
by a decrease of 6% in sales of stimulation products used for long bone
applications including the effect of cannibalization of some stimulation sales
previously recorded in this market sector by Cervical-Stim(R), as discussed
above.
Sales of our non-orthopedic products grew 8% to $11.9 million in the first
six months of 2005 compared to $11.0 million in the first six months of 2004.
The increase was primarily due to an increase in sales of woman's care and other
products. This increase was partially offset by a decrease in sales of airway
management products due to the introduction of a new single-use version of the
Laryngeal Mask which has a lower selling price than reusable Laryngeal Mask
products.
Gross Profit - Our gross profit increased 13% to $115.6 million in the first six
months of 2005, from $102.3 million in the first six months of 2004. The
increase was primarily due to the increase of 11% in net sales. Gross profit as
a percent of net sales in the first six months 2005 was 73.5% compared to 72.3%
in the first six months of 2004, which was a result of a favorable product mix
resulting from higher sales of higher margin stimulation products and higher
gross margins at Breg as a result of moving manufacturing facilities to Mexico.
Gross profit in the first six months of 2004 was negatively impacted by a
non-recurring charge of $0.5 million from purchase accounting for the step-up in
value of acquired Breg inventory.
Sales and Marketing Expenses - Sales and marketing expenses, which include
commissions, royalties and bad debt provision, generally increase and decrease
in relation to sales. Sales and marketing expense increased $4.6 million to
$56.4 million in the first six months of 2005 compared to $51.8 million in the
first six months of 2004, an increase of 9% on a net sales increase of 11% over
the same period. Sales and marketing expense as a percent of net sales decreased
to 35.9% in the first six months of 2005 from 36.6% in the first six months of
2004. Sales and marketing expense as a percent of net sales benefited from a
product mix that included higher stimulation sales in the first six months of
2005 when compared to the first six months of 2004. Stimulation sales generally
incur less commission expense than our other key products. We also experienced
an increase in the collectibility of doubtful accounts for the first six months
of 2005 when compared to the same period of the prior year which reduced bad
debt expense as a percent of net sales for the current period.
General and Administrative Expense - General and administrative expense
increased $2.7 million in the first six months of 2005 to $17.4 million compared
to $14.7 million in the first six months of 2004. This increase is primarily
attributable to costs associated with Section 404 of the Sarbanes-Oxley Act of
2002, legal costs, and higher employee benefit costs in the United States.
General and administrative expense as a percent of net sales was 11% for the
first six months of 2005 compared to 10% for the first six months of 2004.
Research and Development Expense - Research and development expense decreased
$0.2 million in the first six months of 2005 to $5.8 million compared to $6.0
million in the first six months of 2004 and remained constant as a percent of
net sales at 4% in 2005 compared to 2004.
Amortization of Intangible Assets - Amortization of intangible assets was $3.3
million in the first six months of 2005 compared to $3.1 million for the first
six months of 2004.
KCI Litigation Costs - Litigation costs for our case against Kinetics Concepts
Inc. ("KCI") (further described in Note 16 "Contingencies" of Item 1, "Condensed
Financial Statements"), was $0.5 million in the first six months of 2005,
compared to $0.7 million in the first six months of 2004.
22
Interest Expense, net - Interest expense was $2.6 million in the first six
months of 2005 compared to $2.9 million in the first six months of 2004. We
incurred interest expense on borrowings under our senior secured term loan of
approximately $2.5 million which included the amortization of debt placement
costs. The reduction in interest expense in the first six months of 2005 when
compared to the same period of 2004 is a result of a decrease in the borrowing
amount under our senior secured term loan, partially offset by a rise in
interest rates and the increase in amortization of debt placement costs.
Other Income, net - Other income, net was income of $1.4 million in the first
six months of 2005 compared to income of $17,000 in the first six months of
2004. Other income for the first six months of 2005 was attributable to $2.4
million of deferred royalty income resulting from the conclusion of the
BoneSource agreement with Stryker which was partially offset by $0.9 million of
foreign currency losses. For the first six months of 2004, we sold our interest
in a property as part of our plan to consolidate our United Kingdom facilities
that resulted in a gain of approximately $0.6 million which was partially offset
by foreign exchange losses of $0.5 million.
Gain in Joint Venture, net - No gain or loss in the joint venture was recorded
in the first six months of 2005 compared to a gain of $0.2 million in the first
six months of 2004 which was a result of the sale of our ownership in the
OrthoRx joint venture partially offset by our portion of losses. We have not
recorded a gain or loss in the joint venture during 2005 because at December 31,
2004, our investment in OrthoRx, which is accounted for using the equity method
of accounting, had been reduced to zero.
Income Tax Expense - Our estimated worldwide effective tax rate was 35.0% and
30.5% during the first six months of 2005 and 2004, respectively. The increase
in the expected effective tax rate is due primarily to the non-recurrence of a
non-taxable gain on the sale of OrthoRx shares in 2004, which reduced the
effective tax rate, and a higher proportion of pretax income being earned in the
United States, a higher tax jurisdiction, in 2005 when compared to the same
period of the prior year. Due to the enactment of the Finance Bill of 2005 in
the United Kingdom on January 20, 2005, we anticipate an increase in our
effective tax rate for the remainder of 2005.
Net Income - Net income for the first six months of 2005 was $20.2 million, or
$1.28 per basic share and $1.24 per diluted share, compared to $16.2 million, or
$1.07 per basic share and $1.02 per diluted share, for the first six months of
2004, an increase in net income of 24%. The weighted average number of basic
common shares outstanding was 15,828,686 and 15,158,409 during the first six
months of 2005 and 2004, respectively. The weighted average number of diluted
common shares outstanding was 16,228,849 and 15,826,981 during the first six
months of 2005 and 2004, respectively.
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30,
2004
Sales by Business Segment:
Net sales increased 12% to $79.5 million for the second quarter of 2005
compared to $70.8 million for the second quarter of 2004. The impact of foreign
currency increased sales by $0.9 million, or 1.1%, during the second quarter of
2005 as compared to the second quarter of 2004.
Net sales in Americas Orthofix (the "Americas"), primarily in the United
States, increased to $35.9 million in the second quarter of 2005 compared to
$31.1 million in the second quarter of 2004, an increase of 15%. The Americas
represented 45% of total net sales during the second quarter of 2005 and 44% of
total net sales for the second quarter of 2004. The increase in sales was
primarily the result of a 25% increase in sales in the Spine market sector
attributable to sales of Cervical-Stim(R) which was approved by the FDA in
December 2004. The Americas Trauma market sector decreased 10% in the second
quarter of 2005 as compared to the same period in the prior year. This decrease
is attributable to a decline in external fixation sales and the cannibalization
of some stimulation sales, previously recorded in the Trauma market sector, by
the recent introduction of the Cervical-Stim(R). In the Americas Trauma market
sector, external fixation devices are sharing the market for treatment of
difficult fractures with alternatives such as plating and nailing. Recognizing
this trend, we have introduced the contour plate for distal radius fractures and
anticipate the introduction of other internal fixation products to our Americas
Trauma product line. The following table illustrates net sales by market sector
in the Americas:
23
Net Sales for the
Three Months Ended June 30,
---------------------------------------
(In US$ thousands) 2005 2004 Growth
------------------- ------------------ --------------
Orthopedic
Spine $25,263 $20,197 25%
Reconstruction 2,149 1,781 21%
Trauma 8,089 8,973 -10%
------------------- ------------------
Total Orthopedic 35,501 30,951 15%
Non-Orthopedic 377 183 106%
------------------- ------------------
Americas Orthofix $35,878 $31,134 15%
=================== ==================
Net sales in Americas Breg ("Breg"), increased $1.0 million to $17.4
million for the second quarter of 2005 compared to $16.4 million for the second
quarter of 2004, an increase of 6%. The increase in sales was primarily due to
the sale of Breg bracing products which increased 8% from the second quarter of
2005. During the second quarter of 2005, Breg experienced delays in the
introduction of several new products which affected its expected overall growth
rate. In response, Breg recently introduced the new Fusion(TM) XT knee brace and
Polar Care(R) Lite 500 products.
Net sales in International Orthofix ("International") increased 13% to
$26.3 million in the second quarter of 2005 compared to $23.2 million in second
quarter of 2004. The factors that led to this increase were increased sales of
external fixation products and continued strength in sales of the PC.C.P hip
fracture fixation system. The impact of foreign currency increased International
Orthofix sales by $0.8 million during the second quarter of 2005 as compared to
the second quarter of 2004. The following table illustrates net sales by market
sector in International:
Net Sales for the
Three Months Ended June 30,
---------------------------------------
(In US$ thousands) 2005 2004 Growth
------------------- ------------------ --------------
Orthopedic
Spine $(40) $41 -198%
Reconstruction 12,174 10,982 11%
Trauma 8,513 7,137 19%
------------------- ------------------
Total Orthopedic 20,647 18,160 14%
Non-Orthopedic 5,624 5,088 11%
------------------- ------------------
International Orthofix $26,271 $23,248 13%
=================== ==================
Sales by Market Sector:
Net sales of spine products increased 25% to $25.2 million in the second
quarter of 2005 compared to $20.2 million in the second quarter of 2004. As
discussed above, the increase is primarily due to sales of Cervical-Stim(R)
which was approved by the FDA in December 2004 and began selling in January
2005.
Sales of our reconstruction products increased 9% to $31.7 million in the
second quarter of 2005 compared to $29.2 million in the second quarter of 2004.
The increase of $2.5 million in this market sector was attributable to sales of
the Breg products which increased 7%, sales of AV Impulse which increased 9%,
sales of external fixation
24
products used in reconstruction applications which increased 6%, sales of ISKD
which increased 122% and sales of OSCAR which increased 21%.
Sales of our trauma products increased 3% to $16.6 million in the second
quarter of 2005, compared to $16.1 million in the second quarter of 2004. This
Market Sector was positively impacted from an 7% growth in sales of external
fixation products and at 40% sales growth in our PC.C.P. hip fracture fixation
system. Growth in this Market Sector was negatively impacted by a decrease of 9%
in sales of stimulation products used for long bone applications including the
effect of cannibalization of some stimulation sales previously recorded in this
market sector by Cervical-Stim(R), as discussed above.
Sales of our non-orthopedic products grew 14% to $6.0 million in the second
quarter of 2005 compared to $5.3 million in the second quarter of 2004. The
increase was primarily due to an increase in sales of woman's care and other
products.
Gross Profit - Our gross profit increased 15% to $58.8 million in the second
quarter of 2005, from $51.1 million in the second quarter of 2004. The increase
was primarily due to the increase of 12% in net sales. Gross profit as a percent
of net sales in the second quarter 2005 was 73.9% compared to 72.2% in the
second quarter of 2004, which was a result of a favorable product mix resulting
from higher sales of higher margin stimulation products and higher gross margins
at Breg as a result of moving manufacturing facilities to Mexico.
Sales and Marketing Expenses - Sales and marketing expenses, which include
commissions, royalties and bad debt provision, generally increase and decrease
in relation to sales. Sales and marketing expense increased $3.2 million to
$28.8 million in the second quarter of 2005 compared to $25.6 million in the
second quarter of 2004, an increase of 12% on a net sales increase of 12% over
the same period. Sales and marketing expense as a percent of net sales remained
constant at 36.2% in the second quarter of 2005 as compared to second quarter of
2004.
General and Administrative Expense - General and administrative expense
increased $1.3 million in the second quarter of 2005 to $8.7 million compared to
$7.4 million in the second quarter of 2004. This increase is primarily
attributable to costs associated with Section 404 of the Sarbanes-Oxley Act of
2002, legal costs, and higher employee benefit costs in the United States.
General and administrative expense as a percent of net sales was 11% for the
second quarter of 2005 compared to 10% for the second quarter of 2004.
Research and Development Expense - Research and development expense increased
$0.2 million in the second quarter of 2005 to $2.9 million compared to $2.7
million in the second quarter of 2004 and remained constant as a percent of net
sales at 4% in 2005 compared to 2004.
Amortization of Intangible Assets - Amortization of intangible assets was $1.7
million in the second quarter of 2005 compared to $1.8 million for the second
quarter of 2004.
KCI Litigation Costs - Litigation costs for our case against Kinetics Concepts
Inc. ("KCI") (further described in Note 16 "Contingencies" of Item 1, "Condensed
Financial Statements"), was $0.2 million in the second quarter of 2005, compared
to $0.3 million in the second quarter of 2004.
25
Interest Expense, net - Interest expense was $1.3 million in the second quarter
of 2005 compared to $1.4 million in the second quarter of 2004. In the second
quarter of 2005, we incurred interest expense on borrowings under our senior
secured term loan of approximately $1.2 million which included the amortization
of debt placement costs. The reduction in interest expense in the second quarter
of 2005 when compared to the same period of 2004 is a result of a decrease in
the borrowing amount under our senior secured term loan, partially offset by a
rise in interest rates and the increase in amortization of debt placement costs.
Other Income (Expense), net - Other income (expense), net was expense of $0.6
million in the second quarter of 2005 compared to expense of $0.2 million in the
second quarter of 2004. The increase in expense was due to increased foreign
exchange losses resulting from the strengthening during the quarter of the U.S.
Dollar against the Euro.
Loss in Joint Venture, net - No gain or loss in the joint venture was recorded
in the second quarter of 2005 compared to a loss of $0.2 million in the second
quarter of 2004 which was the result of our portion of losses in the OrthoRx
joint venture in the quarter. We have not recorded a gain or loss in the joint
venture during 2005 because at December 31, 2004, our investment in OrthoRx,
which is accounted for using the equity method of accounting, had been reduced
to zero.
Income Tax Expense - Our estimated worldwide effective tax rate was 36.1% and
31.4% during the second quarter of 2005 and 2004, respectively. The increase in
the expected effective tax rate is due primarily to a higher proportion of
pretax income being earned in the United States, a higher tax jurisdiction, in
2005 when compared to the same period of the prior year.
Net Income - Net income for the second quarter of 2005 was $9.4 million, or
$0.59 per basic share and $0.58 per diluted share, compared to $7.9 million, or
$0.52 per basic share and $0.50 per diluted share, for the second quarter of
2004, an increase in net income of 19%. The weighted average number of basic
common shares outstanding was 15,872,638 and 15,276,961 during the second
quarter of 2005 and 2004, respectively. The weighted average number of diluted
common shares outstanding was 16,294,098 and 15,872,346 during the second
quarter of 2005 and 2004, respectively.
Liquidity and Capital Resources
Cash was $29.7 million at June 30, 2005, of which $9.6 million was subject
to certain restrictions under the senior secured credit agreement described
below. This compares to $40.2 million at December 31, 2004, of which $14.3
million was subject to certain restrictions under the senior secured credit
agreement.
Net cash provided by operating activities was $13.1 million for the first
six months of 2005 compared to $18,000 of cash used in operating activities for
the first six months of 2004. Net cash provided by operating activities is
comprised of net income, non-cash items and changes in working capital. Net
income increased approximately $4.0 million to $20.2 million in the first six
months of 2005 from $16.2 million in the first six months of 2004. Non-cash
items decreased $4.2 million in the first six months of 2005 compared to the
first six months of 2004, primarily as a result of the termination of the
BoneSource agreement which reduced deferred royalties. Working capital accounts
consumed $14.7 million of cash in the first six months of 2005 compared to the
use of $28.0 million in cash during the first six months of 2004 of which $16.2
million resulted from the reclassification of cash as restricted cash. The
principal uses of cash for working capital in the first six months of 2005 were
increases in accounts receivable to support additional sales and increases in
other assets. These uses of cash were partially offset by a decrease in
restricted cash. Overall, performance indicators for our two primary working
capital accounts, accounts receivable and inventory, reflect days sales in
receivables of 94 days at June 30, 2005 compared to 95 days at June 30, 2004 and
inventory turnover of 2.5 times at June 30, 2005 compared to 2.5 times at June
30, 2004.
Net cash used in investing activities was $6.1 million during the first six
months of 2005, compared to $6.5 million during the first six months of 2004.
During the first six months of 2005, we invested $6.1 million in capital
expenditures. During the first six months of 2004, we invested $2.1 million in
affiliates and subsidiaries including
26
$1.1 million for the purchase of a Puerto Rican distributor, invested $7.7
million in capital expenditures and received $3.3 million from the sale of
certain assets.
Net cash used in financing activities was $12.1 million in the first six
months of 2005 compared to cash provided by financing activities of $2.9 million
for the first six months in 2004. In the first six months of 2005, we repaid
approximately $16.0 million of principal on a senior secured term loan, which
was obtained to help finance the Breg acquisition. We also received proceeds of
$4.0 million from the issuance of 214,508 shares of our common stock upon the
exercise of stock options and warrants. In the first six months of 2004, we
received proceeds of $7.1 million from the issuance of 457,215 shares of our
common stock upon the exercise of stock options and warrants. We also had net
borrowings of $2.0 million on a line of credit in Italy used to finance working
capital. Further, in the first six months of 2004, we repaid approximately $5.5
million against principal on a senior secured term loan obtained to help finance
the Breg acquisition and paid $0.5 million for costs associated with obtaining
the senior secured term loan, which is being amortized over the term of the
credit facility.
When we acquired Breg on December 30, 2003, one of our wholly owned
subsidiaries, Colgate Medical Limited ("Colgate"), entered into a senior secured
bank credit 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. As of June 30, 2005 and as of August 2, 2005,
we had no amounts outstanding under the revolving credit facility and $60.8
million outstanding under the term loan facility. Obligations under the senior
secured bank facility have a floating interest rate of LIBOR or prime rate plus
a margin, currently LIBOR plus 2.00%, which is adjusted quarterly based on
Colgate's leverage ratio. In May 2004, we entered into a three year fully
amortizable interest rate swap agreement (the "Swap") with a notional amount of
$50.0 million and an expiration date of June 27, 2007. The amount outstanding
under the Swap as of June 30, 2005 was $33.3 million. Under the Swap we will pay
a fixed rate of 3.16% and receive interest at floating rates based on the three
month LIBOR rate at each quarterly re-pricing date until the expiration of the
Swap. As of June 30, 2005, the interest rate on the debt related to the Swap was
5.16% (3.16% plus a margin of 2.00%). Our effective interest rate, including the
impact of the Swap, as of June 30, 2005 on our senior secured debt was 5.13%.
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 pledges 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.
The credit agreement relating to the senior secured bank facility contains
customary negative covenants applicable to Colgate and its subsidiaries,
including restrictions on indebtedness, liens, dividends, mergers and the sale
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. We have assessed our compliance with the financial covenants
as of June 30, 2005, as required by the credit agreement, and note that we are
in compliance with all financial covenants.
At June 30, 2005, we had outstanding borrowings of $0.1 million and unused
available lines of credit of approximately $11.4 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 would expand
our global 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 over the near term.
27
Contractual Obligations
The following chart sets forth changes to our contractual obligations that
have occurred since December 31, 2004:
Contractual Obligations Payments Due By Period
- --------------------------------------------------------------------------------
Total Less Than 1 to 3 4 to 5 Over 5
(Dollars in thousands) 1 Year Years Years Years
--------- ----------- --------- --------- --------
Senior secured term loan:
As of December 31, 2004 $76,750 $9,700 $67,050 - -
As of June 30, 2005 $60,750 $9,900 $50,850 - -
In addition to scheduled contractual obligations of the debt as set forth
above, our 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 equal to 50% of the excess annual
cash flow of Colgate and its subsidiaries, on the maintenance of a leverage
ratio of less than or equal to 1.50 to 1.00, (b) the net cash proceeds of any
debt or equity issuances, excluding the exercise of stock options, by any of the
Credit Parties (as defined in the credit agreement), (c) the net cash proceeds
of asset dispositions over a minimum threshold or (d) unless reinvested,
insurance proceeds or condemnation awards.
Other than described above there were no material changes in the
contractual obligations specified in our Annual Report on Form 10-K for the year
ended December 31, 2004.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------
We are exposed to interest rate risk in connection with our senior secured
term loan and borrowings under our revolving credit facility, which bear
floating interest rates based on the London Inter-Bank Offered Rate (LIBOR) or
the prime rate plus an applicable borrowing margin. Therefore, interest rate
changes generally do not affect the fair market value of the debt, but do impact
future earnings and cash flows, assuming other factors are held constant.
As of June 30, 2005, we had $60.8 million of variable rate debt represented
by borrowings under our senior secured term loans at an interest rate of 5.13%
of which $33.3 million was swapped for fixed rate debt at an interest rate of
5.16%. Based on the balance outstanding under the credit facility as of June 30,
2005 and the swap agreement, an immediate change of one percentage point in the
applicable interest rate on the variable rate debt would cause an increase or
decrease in interest expense of approximately $0.3 million on an annual basis.
The fair value of the interest rate swap agreement was $0.3 million at June 30,
2005.
Other than described above there have been no material changes from the
information provided in our Annual Report on Form 10-K for the year ended
December 31, 2004.
Item 4. Controls and Procedures
- --------------------------------
As of June 30, 2005, we performed an evaluation under the supervision and with
the participation of our management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were adequate and effective as of
the end of the period covered by this report. During the quarterly period
covered by this report, there were no changes in our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
28
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The Company is subject to the contingencies discussed below:
On September 29, 2004, Triage Medical Inc. ("Triage") filed an action
against Orthofix International N.V. That action, which the Company removed to
federal court, is entitled Triage Medical Inc. vs. Orthofix International N.V.,
Case No: SACV04-1377 JVS. Triage contended that the Company agreed to negotiate
an acquisition of Triage, and as a part of the acquisition process, to make an
unconditional $2.0 million escrow payment to Triage. Triage contended further
that the Company terminated the acquisition process and failed to make the
payment as a result of which Triage was damaged. The Company answered the
complaint denying any liability and pleading certain defenses. On July 12, 2005,
Triage and the Company engaged in mediation proceedings at which the parties
agreed to resolve the action against the Company and to dismiss the lawsuit with
prejudice. The settlement amount of $350,000 was fully accrued in the second
quarter.
In addition, the Company, in the normal course of its business, is involved
in various legal proceedings or claims from time to time.
Although management cannot predict the outcome of any proceedings or claims
made against the Company, management does not anticipate that the ultimate
outcome of any such proceedings or claims will have a material adverse effect on
the Company's financial position but may be material to the Company's results of
operations or cash flows in the period in which such proceedings or claims are
resolved.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
- -------------------------------------------------------------------
Except as described below, there were no securities sold by us during the
first six months of 2005 that were not registered under the Securities Act.
On April 4, 2005, we issued 53 shares of our common stock to one of our
warrant holders upon the exercise of 53 of our warrants. These warrants were
initially issued by Kinesis Medical, Inc. On August 15, 2000, in conjunction
with our asset purchase agreement with Kinesis, each outstanding Kinesis warrant
was converted on a predetermined formula into 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.
The above transaction was 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.
29
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual General Meeting of Shareholders of the Company was held on June 15,
2005. The total number of common shares eligible to vote as of the record date,
May 2, 2005, was 15,811,196 and according to the Company's Articles of
Association, 7,905,598 constituted a quorum. The total number of common shares
actually voted was 13,128,043.
At the Annual General Meeting:
1. The following persons were elected as Directors of the Company for a
one year term expiring at the Annual General Meeting in 2006:
Name Votes For Votes Withheld
------------------------------- ------------------- -----------------
Jerry Benjamin 12,605,189 522,854
Robert Gaines-Cooper 12,578,589 549,454
Charles W. Federico 12,579,012 549,031
James F. Gero 12,519,402 608,641
Peter J. Hewett 12,578,789 549,254
Guy J. Jordan 12,604,177 523,866
Thomas J. Kester 12,612,163 515,880
Walter P. Von Wartburg 12,611,407 516,636
Kenneth R. Weisshaar 12,611,757 516,286
Stefan Widensohler 12,604,633 523,410
2. An amendment to the Articles of Association of the Company that the
Chief Financial Officer and the General Counsel are authorized to
represent the Company, and that requires the Company to indemnify
directors and officers and advance the payment of legal fees and
expenses arising out of legal proceedings in which directors and
officers become involved including violations of securities laws and
derivative actions was adopted and approved by a vote of 12,605,028 in
favor, 515,609 against and 7,406 abstaining;
3. The audited Financial Statements for the year ended December 31, 2004
were adopted and approved by a vote of 13,070,963 in favor, 50,566
against and 6,524 abstaining; and
4. The selection of Ernst & Young LLP to act as independent auditors for
the Company and its subsidiaries for the fiscal year ending December
31, 2005 was ratified by a vote of 12,675,984 in favor, 450,768
against and 1,291 abstaining.
30
Item 6. Exhibits
- -----------------
(a) 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 dated June 29, 2001
and incorporated herein by reference).
3.2 * Articles of Association of the Company as Amended.
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).
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).
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).
10.4 Form of Performance Accelerated Stock Option Inducement
Agreement (filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 2003 and
incorporated here in by reference).
10.5 Orthofix International N.V. 2004 Long Term Incentive Plan, as
amended (filed as an exhibit to the Company's quarterly report
on Form 10-Q for the quarter ended September 30, 2004 and
incorporated herein by reference).
10.6 Form of Nonqualified Stock Option Agreement Under the Orthofix
International N.V. 2004 Long Term Incentive Plan.
10.7 Form of Nonqualified Stock Option Agreement for Non-Employee
Directors under the Orthofix International N.V. 2004 Long Term
Incentive Plan.
10.8 Employment Agreement, dated as of April 15, 2005, between
Orthofix International N.V. and Charles W. Federico (filed as an
exhibit to the Company's current report on Form 8-K filed April
18, 2005 and incorporated herein by reference).
10.9 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).
10.10 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).
10.11 Employment Agreement, dated as of November 20, 2003, between
Orthofix International N.V. and Bradley R. Mason (filed as an
exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2003 and incorporated herein by
reference).
10.12 Change of Control Agreement, dated as of February 18, 2005,
between Orthofix Inc. and Raymond C. Kolls (filed as an exhibit
to the Company's current report on Form 8-K filed
31
February 22, 2005 and incorporated herein by reference).
10.13 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).
10.14 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).
10.15 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 of Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by
reference).
10.16 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).
10.17 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).
10.18 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).
10.19 The First Amendment dated as of September 30, 2004 of the 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 October 6, 2004 and incorporated herein by
reference).
14.1 Code of Ethics of the Company (filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 2003 and incorporated herein by reference).
21.1 Subsidiaries of the Company (filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 2004 and incorporated herein by reference).
32
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.
33
SIGNATURES
Pursuant to the requirements 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.
Date: August 5, 2005 By: /s/ CHARLES W. FEDERICO
---------------------------------------
Name: Charles W. Federico
Title: Chief Executive Officer and President
Date: August 5, 2005 By: /s/ THOMAS HEIN
---------------------------------------
Name: Thomas Hein
Title: Chief Financial Officer
34