[GRAPHIC OMITTED][GRAPHIC OMITTED]
For Further Information:
Charles W. Federico Thomas Hein
Group President & CEO CFO
Orthofix International N.V. Orthofix International N.V.
704.948.2600 704.948.2600
Orthofix Reports Third-Quarter and Nine-Months Results
including Favorable Impact from KCI Settlement
HUNTERSVILLE, N.C., Oct. 27, 2005 - Orthofix International N.V., (NASDAQ:OFIX)
today announced results for the third quarter and nine months ended Sept. 30,
2005.
Sales for the third quarter were $75.8 million, an increase of 6% over the $71.5
million reported during the same period in 2004. The incremental impact of
foreign currency on sales for the third quarter of 2005 was a positive $0.2
million or 0.3%.
Net income for the third quarter was $46.0 million, or $2.81 per diluted share,
compared with $8.4 million, or $0.53 per diluted share, for the same period in
2004. Net income for the third quarter included a gain of $38.2 million or $2.33
per diluted share, net of related costs and taxes, from the settlement of the
KCI litigation. Diluted weighted average shares outstanding were 16,384,106 and
15,953,268 during the three months ended Sept. 30, 2005, and Sept. 30, 2004,
respectively.
For the nine months, sales were $233.0 million, an increase of 9% over the
$213.0 million reported during the same period in 2004. The incremental impact
of foreign currency on sales for the first nine months of 2005 was a positive
$2.1 million or 1.0%.
Net income for the nine months was $66.2 million, or $4.07 per diluted share,
compared with $24.6 million, or $1.55 per diluted share, for the same period in
2004. Net income for the nine months included a gain of $37.7 million or $2.32
per diluted share, net of related costs and taxes, from the settlement of the
KCI litigation. Diluted weighted average shares outstanding were 16,279,724 and
15,939,801 during the nine months ended Sept. 30, 2005, and Sept. 30, 2004,
respectively.
The final net gain recorded by the Company from the KCI settlement is subject to
adjustment based on the difference between its estimated and final contractual
obligation, which it expects to finalize in the fourth quarter 2005. In addition
to the net gain of $37.3 million for the nine months, the Company recorded cash
received of $75.0 million and accrued liabilities, including applicable taxes,
of $37.3 million at Sept. 30, 2005. The accrued liabilities relate to
contractual obligations to distribute a portion of the settlement
proceeds to certain parties including the former owners of Novamedix. The
Company also noted that the third quarter and nine months effective tax rate
reflects this settlement which was reached by a wholly-owned subsidiary which is
incorporated in a favorable tax jurisdiction.
The following tables display net sales by business segment, net of inter-company
eliminations and by market sector for the three and nine months ended Sept. 30,
2005, and 2004. We provide net sales by market sector for information purposes
only. Orthofix maintains its books and records by business segment.
Net sales by business segment for the periods ended September 30,
(In millions)
|
|
Three Months Ended September 30, | Nine Months Ended September 30,
------------------------------------ | -----------------------------------
2005 2004 % Increase | 2005 2004 % Increase
-------- -------- -------------- | -------- -------- --------------
|
Americas Orthofix $ 35.9 $ 32.1 12% | $ 105.6 $ 93.0 14%
|
Americas Breg $ 18.0 17.4 3% | $ 53.3 $ 50.6 5%
|
International Orthofix $ 21.9 $ 22.0 0% | $ 74.1 $ 69.4 7%
-------- -------- -------------- | -------- -------- --------------
|
Total $ 75.8 $ 71.5 6% | $ 233.0 $ 213.0 9%
======== ======== ============== | ======== ======== ==============
|
Net sales by business segment for the periods ended September 30,
(In millions)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ -----------------------------------
2005 2004 % Increase 2005 2004 % Increase
-------- -------- -------------- | -------- -------- --------------
Orthopedic Products |
Spine $ 25.4 $ 20.4 25% | $ 73.8 $ 60.2 23%
Reconstruction 30.0 30.3 -1% | 94.3 89.6 5%
Trauma 15.0 15.7 -4% | 47.6 47.1 1%
|
-------- -------- -------------- | -------- -------- --------------
|
Total Orthopedic 70.4 66.4 6% | 215.7 196.9 10%
|
Non-Orthopedic 5.4 5.1 6% | 17.3 16.1 7%
-------- -------- -------------- | -------- -------- --------------
|
Total $ 75.8 $ 71.5 6% | $ 233.0 $ 213.0 9%
======== ======== ============== | ======== ======== ==============
|
Charles W. Federico, President and CEO of Orthofix, stated, "Third-quarter and
year-to-date sales growth in the Americas is being led by the strength of our
Spine market sector in the United States. The growth is being driven by
continued market acceptance of Cervical-Stim(R), used for cervical applications,
and good year-over-year growth of Spinal-Stim(R), used for lumbar applications.
Sales of bone growth stimulators used across all applications reflect a strong
18% growth for the third-quarter and year-to-date periods versus the prior year.
"At Breg, we experienced very positive initial market response to the Fusion(TM)
Brace introduced during the third quarter, which contributed to the 9.5% growth
in Breg's core bracing business for the quarter," Federico continued. "However,
total Breg sales reflected a lower comparative quarterly growth rate following a
computer system conversion to Oracle, which hampered order fulfillment during
the third quarter. Additionally, pain therapy products are underperforming
principally as the result of new-product introduction delays.
"Our International division continues to face competitive pressures for our A-V
Impulse and external fixation products," said Federico. "A-V Impulse sales are
behind prior year primarily as a result of the competitive landscape and
decreased prices to our principal US distributor. We have focused our attention
on increasing sales and decreasing production costs of the disposable Impad
component. With regard to external fixation, we are beginning to see an increase
in demand for plating products affecting this market. To address this demand we
have introduced our first two plating products in 2005, the Guided Growth Plate
(eight-Plate(TM)) and the Contours VPS wrist plate."
Federico noted that higher SG&A and lower operating income ratios for the third
quarter from prior quarters reflect the combined effect of lower sales and
higher spending on marketing for new product launches and previously noted
higher general and administrative costs for SOX 404, legal, and employee
benefits.
Federico concluded, "We are pleased with the outcome of the KCI litigation. Not
only did it contribute $2.33 to earnings and significant new cash to our balance
sheet during the third quarter, but also it brought to an end years of
management distraction and legal spending."
The Company made a further voluntary prepayment on its outstanding term loan
during the third quarter, reducing the balance on the term loan used to finance
the Breg acquisition from an initial balance of $110.0 million at Dec. 30, 2003
to $52.8 million at Sept. 30, 2005.
Orthofix International, N.V., a global diversified orthopedic products company,
offers a broad line of minimally invasive surgical, as well as non-surgical,
products for the Spine, Reconstruction, and Trauma market sectors that address
the lifelong bone-and-joint health needs of patients of all ages-helping them
achieve a more active and mobile lifestyle. Orthofix's products are widely
distributed around the world to orthopedic surgeons and patients - via
Orthofix's sales representatives and its subsidiaries, including Breg, Inc., and
via partnerships with other leading orthopedic product companies, such as
Medtronic
Sofamor Danek and Kendall Healthcare. In addition, Orthofix is collaborating in
R&D partnerships with leading medical institutions such as the Orthopedic
Research and Education Foundation, the Cleveland Clinic Foundation, Innovative
Spinal Technologies and National Osteoporosis Institute. For more information
about Orthofix, please visit www.orthofix.com.
FORWARD-LOOKING STATEMENTS
This communication contains certain forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements,
which may include, but are not limited to, statements concerning the
projections, financial condition, results of operations and businesses of
Orthofix and are based on management's current expectations and estimates and
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those contemplated by the forward-looking statements.
Factors that could cause or contribute to such differences may include, but are
not limited to, risks relating to the integration of the businesses of Orthofix
and Breg, unanticipated expenditures, changing relationship 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 other
factors described in the most recent report on Form 10-K and other periodic
reports filed by Orthofix with the Securities and Exchange Commission.
- Financial tables follow -
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands, except per share and share data)
For the three months For the nine months
---------------------- ----------------------
ended September 30, ended September 30,
---------------------- ----------------------
2005 2004 2005 2004
------ ------ ------ ------
Net sales $ 75,812 $ 71,488 $ 233,040 $ 213,019
Cost of sales 20,193 19,582 61,864 58,825
--------- --------- --------- ---------
Gross profit 55,619 51,906 171,176 154,194
--------- --------- --------- ---------
Operating expenses
Sales and marketing 29,214 24,678 85,611 76,452
General and administrative 8,444 7,737 25,822 22,402
Research and development 2,516 2,722 8,323 8,732
Amortization 1,635 1,609 4,923 4,754
--------- --------- --------- ---------
41,809 36,746 124,679 112,340
--------- --------- --------- ---------
Operating income 13,810 15,160 46,497 41,854
Interest expense, net (1,160) (1,697) (3,721) (4,596)
Other income/(loss), net 73 (10) 1,508 232
KCI settlement, net of litigation costs 40,860 (562) 40,355 (1,266)
--------- --------- --------- ---------
Income before income tax 53,583 12,891 84,639 36,224
Income tax expense (7,563) (4,474) (18,434) (11,588)
--------- --------- --------- ---------
Net income $ 46,020 $ 8,417 $ 66,205 $ 24,636
Net income per common share - basic $ 2.88 $ 0.54 $ 4.17 $ 1.61
Net income per common share - diluted $ 2.81 $ 0.53 $ 4.07 $ 1.55
Weighted average number of common 15,986,599 15,570,313 15,881,902 15,296,717
shares outstanding - basic
Weighted average number of common 16,384,106 15,953,268 16,279,724 15,939,801
shares outstanding - diluted
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
As of As of
September 30, December 31,
2005 2004
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 93,883 $ 25,944
Restricted cash 10,908 14,302
Trade accounts receivable 80,885 75,321
Inventory 35,262 32,895
Deferred income taxes 3,948 4,130
Prepaid expenses and other 13,045 10,000
------------- -------------
Total current assets 237,931 162,592
Securities and other investments 4,082 4,082
Property, plant and equipment, net 19,780 18,326
Intangible assets, net 232,597 239,956
Other long-term assets 4,388 6,144
------------- -------------
Total assets $ 498,778 $ 431,100
============= =============
Liabilities and shareholders' equity
Current liabilities:
Bank borrowings $ 65 $ 76
Current portion of long-term debt 10,454 10,057
Trade accounts payable 9,183 9,507
Other current liabilities 56,063 25,745
------------- -------------
Total current liabilities 75,765 45,385
Long-term debt 42,792 67,249
Deferred income taxes 15,820 17,555
Deferred income - 2,443
Other long-term liabilities 1,253 1,296
------------- -------------
Total liabilities 135,630 133,928
------------- -------------
Shareholders' equity
Common shares 1,596 1,572
Additional paid-in capital 106,479 98,388
------------- -------------
108,075 99,960
Retained earnings 248,278 182,073
Accumulated other comprehensive income 6,795 15,139
------------- -------------
Total shareholders' equity 363,148 297,172
------------- -------------
Total liabilities and shareholders' equity $ 498,778 $ 431,100
============= =============
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
For the nine months ended September 30,
---------------------------------------
2005 2004
------------- -------------
Net cash provided by operating activities $ 95,197 $ 8,781
------------- -------------
Cash flows from investing activities:
Investment in subsidiaries and affiliates - (2,081)
Capital expenditure (8,928) (9,825)
Proceeds from sale of investments - 1,300
Proceeds from sale of assets - 1,578
Other - 440
------------- -------------
Net cash used in investing activities (8,928) (8,588)
------------- -------------
Cash flows from financing activities:
Net repayment of loans and borrowings (24,060) (17,100)
Proceeds from issuance of common stock 6,367 11,151
Payment of debt issuance costs - (532)
------------- -------------
Net cash used in financing activities (17,693) (6,481)
------------- -------------
Effect of exchange rate changes on cash (637) (7)
------------- -------------
Net increase (decrease) in cash and cash equivalents 67,939 (6,295)
Cash and cash equivalents at the beginning of the period 25,944 31,356
------------- -------------
Cash and cash equivalents at the end of the period $ 93,883 $ 25,061
------------- -------------