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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number: 0-19961
ORTHOFIX INTERNATIONAL N.V.
(Exact name of registrant as specified in its charter)
Netherlands Antilles N/A
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Abraham de Veerstraat
Curacao
Netherlands Antilles N/A
- ------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
599-9-4658525
---------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]
As of August 8, 2003, 14,210,955 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............................12
Item 3. Quantitative and Qualitative Disclosure About Market Risk..........19
Item 4. Controls and Procedures............................................19
PART II OTHER INFORMATION..................................................20
Item 4. Submission of Matters to a Vote of Security Holders................20
Item 6. Exhibits and Reports on Form 8-K...................................21
SIGNATURES ...........................................................21
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, relating to our business and
financial outlook, which are based on our current expectations, estimates,
forecasts and projections. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
other comparable terminology. These forward-looking statements are not
guarantees of future performance and involve risks, uncertainties, estimates and
assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from those expressed in these forward-looking
statements. You should not place undue reliance on any of these forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which it is made, and we undertake no obligation to update any such statement to
reflect new information, the occurrence of future events or circumstances or
otherwise.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation. We
would like to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act in connection with the forward-looking
statements included in this document.
A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including,
but not limited to, the risks described under Item 1 - "Business - Risk Factors"
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
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PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
- ---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2003 AND DECEMBER 31, 2002
(U.S. Dollars, in thousands except share data) June 30, December 31,
2003 2002
----------------- ----------------
Assets (Unaudited) (Note 2)
Current assets:
Cash and cash equivalents.................................... $38,684 $48,813
Trade accounts receivable, net............................... 60,214 54,654
Inventories.................................................. 23,730 23,471
Deferred income taxes........................................ 3,271 3,271
Prepaid expenses and other................................... 5,778 6,789
----------------- ----------------
Total current assets........................................... 131,677 136,998
Securities and other investments............................... 7,145 4,753
Property, plant and equipment, net............................. 13,055 13,841
Patents and other intangible assets, net....................... 5,505 4,214
Goodwill, net.................................................. 72,367 58,781
Other long-term assets ........................................ 1,445 2,187
----------------- ----------------
Total assets................................................... $231,194 $220,774
----------------- ----------------
Liabilities and shareholders' equity
Current liabilities:
Bank borrowings.............................................. $2,854 $6,977
Current portion of long-term debt............................ 119 399
Trade accounts payable....................................... 8,200 9,637
Other current liabilities.................................... 22,604 20,113
----------------- ----------------
Total current liabilities.................................... 33,777 37,126
Long-term debt................................................. 48 44
Deferred income taxes.......................................... 1,907 2,202
Other long-term liabilities.................................... 3,546 3,451
----------------- ----------------
Total liabilities............................................ 39,278 42,823
Minority interests............................................. -- 9,867
Contingencies (Note 11)
Shareholders' equity:
Common shares................................................ 1,423 1,384
Additional paid-in capital................................... 53,479 50,884
Less: 63,000 treasury shares, at cost (2002: 195,000)...... (2,513) (5,281)
----------------- ----------------
52,389 46,987
Retained earnings............................................ 135,642 123,194
Accumulated other comprehensive income (loss)................ 3,885 (2,097)
----------------- ----------------
Total shareholders' equity..................................... 191,916 168,084
----------------- ----------------
Total liabilities, minority interests and shareholders' equity. $231,194 $220,774
----------------- ----------------
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, 2003 AND 2002
(Unaudited, U.S. Dollars, in thousands except share Three Months Ended Six Months Ended
data and per share data) ------------------------------ -------------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
Net sales.............................................. $51,565 $45,580 $99,746 $87,175
Cost of sales.......................................... 13,009 11,840 25,595 21,751
------------- ------------- ------------- --------------
Gross profit....................................... 38,556 33,740 74,151 65,424
Operating expenses
Sales and marketing ............................... 19,507 15,666 37,107 30,752
General and administrative......................... 5,118 4,640 10,099 8,784
Research and development........................... 2,128 1,971 4,258 4,103
Amortization of intangible assets.................. 119 147 397 312
KCI litigation costs............................... 1,264 -- 2,126 --
------------- ------------- ------------- --------------
28,136 22,424 53,987 43,951
------------- ------------- ------------- --------------
Total operating income ............................ 10,420 11,316 20,164 21,473
Other income (expense), net........................... 24 (661) (302) (936)
------------- ------------- ------------- --------------
Net income before income tax and minority interests 10,444 10,655 19,862 20,537
Income tax expense..................................... (3,949) (3,406) (7,414) (6,311)
------------- ------------- ------------- --------------
Income before minority interests .................. 6,495 7,249 12,448 14,226
Minority interests..................................... -- (473) -- (861)
------------- ------------- ------------- --------------
Net income ........................................ $6,495 $6,776 $12,448 $13,365
------------- ------------- ------------- --------------
Net income per common share - basic.................... $0.46 $0.52 $0.89 $1.04
------------- ------------- ------------- --------------
Net income per common share - diluted.................. $0.44 $0.45 $0.85 $0.89
------------- ------------- ------------- --------------
Weighted average number of common shares - basic...... 14,112,563 13,054,650 13,909,436 12,912,565
------------- ------------- ------------- --------------
Weighted average number of common shares - diluted..... 14,753,417 15,080,655 14,628,146 15,031,153
------------- ------------- ------------- --------------
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, 2003 AND 2002
(Unaudited, U.S. Dollars, in thousands) 2003 2002
---------------- -----------------
Cash flows from operating activities:
Net income................................................ $12,448 $13,365
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 3,193 2,550
Provision for doubtful accounts............................ 2,584 2,151
Loss on sale of fixed assets............................... -- 168
Loss on equity investments................................. 603 793
Minority interest in net income of consolidated subsidiaries -- 861
Tax benefit on non-qualified stock options................. 314 --
Other ..................................................... 108 (159)
Change in operating assets and liabilities:
Increase in accounts receivable......................... (6,831) (6,609)
Decrease/(increase) in inventories...................... 509 (4,199)
Decrease in prepaid expenses and other.................. 653 853
(Decrease)/increase in accounts payable................. (1,901) 852
Increase in other current liabilities................... 3,044 518
---------------- -----------------
Net cash provided by operating activities...................... 14,724 11,144
---------------- -----------------
Cash flows from investing activities:
Investments in affiliates and subsidiaries................ (23,659) (7,254)
Capital expenditures...................................... (2,194) (3,084)
---------------- -----------------
Net cash used in investing activities.......................... (25,853) (10,338)
---------------- -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 9,483 13,268
Repurchase of treasury shares............................. (4,395) (10,335)
Proceeds from loans and borrowings........................ 37 --
Repayment of loans and borrowings......................... (4,846) (2,611)
---------------- -----------------
Net cash provided by financing activities...................... 279 322
---------------- -----------------
Effect of exchange rate changes on cash........................ 721 1,123
---------------- -----------------
(Decrease)/increase in cash and cash equivalents............... (10,129) 2,251
Cash and cash equivalents at the beginning of the year......... 48,813 34,273
---------------- -----------------
Cash and cash equivalents at the end of the period............. $38,684 $36,524
---------------- -----------------
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 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
six months ended June 30, 2003 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2003. The balance sheet at
December 31, 2002 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, 2002.
NOTE 3: INVENTORY
Inventories are as follows:
June 30, December 31,
(In thousands) 2003 2002
--------------- -----------------
Raw materials $3,276 $2,177
Work-in-process 1,491 1,210
Finished goods 9,457 11,668
Field inventory 6,175 5,260
Consignment inventory 6,295 5,910
Less reserve for obsolescence (2,964) (2,754)
--------------- -----------------
$23,730 $23,471
--------------- -----------------
NOTE 4: ACQUISITIONS AND INVESTMENTS
During the second quarter of 2003, Ferrer Freeman & Co., a private equity
firm that invests exclusively in health care and health care-related companies,
purchased 100% of HealthSouth's interest in OrthoRx, which resulted in them
becoming the Company's new partner in the 50/50 joint venture. On May 6, 2003
and June 16, 2003, the Company invested an additional $350,000 and $1,150,000,
respectively in the OrthoRx joint venture. Ferrer Freeman & Co. matched the
Company's investment.
On March 20, 2003, the Company completed the acquisition of the remaining
48% minority interest in Intavent Orthofix Limited ("IOL") for $20.6 million
(including acquisition costs) with an effective date of January 14, 2003. The
Company utilized an independent firm to complete a valuation of IOL. The Company
used cash on hand to complete this purchase from Intavent Limited (Intavent).
Mr. Gaines-Cooper, Chairman of Orthofix, is a settlor of a trust which owns a
30% interest in Intavent. IOL has been a fully consolidated subsidiary and is
now a wholly-owned subsidiary of the Company. The Company recorded this
additional equity purchase using the purchase
-6-
method of accounting and the impact has been included in the results of
operations from the date of acquisition. A preliminary allocation of the
purchase price reflects the settlement of a minority interest obligation of
approximately $9.9 million and $10.7 million of additional goodwill. The Company
expects to finalize the purchase price allocation during 2003.
The pro forma effect on operations or earnings per share would not be
substantially different than those reported, assuming consummation of the
purchase as of January 1, 2003. The pro forma unaudited results of operations
and earnings per share for the three and six month periods ended June 30, 2002,
assuming consummation of the purchase as of January 1, 2002, are as follows:
Three Months Ended June 30 Six Months Ended June 30
----------------------------------- ---------------------------------
As Reported Pro Forma As Reported Pro Forma
---------------- --------------- --------------- -------------
Net sales $45,580 $45,580 $87,175 $87,175
Net income 6,776 7,217 13,365 14,195
Per share data:
Basic $0.52 $0.55 $1.04 $1.10
Diluted $0.45 $0.48 $0.89 $0.94
On February 5, 2003, the Company purchased an equity interest in Innovative
Spinal Technologies (IST), a start-up company focused on commercializing spinal
products, for $1.5 million. The investment is accounted for at cost.
NOTE 5: COMMON SHARES
For the six months ended June 30, 2003, the Company issued 661,792 shares
of common stock upon the exercise of outstanding stock options and warrants for
proceeds of $9.5 million and paid $4.4 million to purchase 157,000 shares of its
common stock in the open market for treasury. During the period, the Company
also retired 265,000 treasury shares recorded at a cost of $7.2 million.
NOTE 6: COMPREHENSIVE INCOME
Other comprehensive income includes foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities, net of
tax. During the three and six month periods ended June 30, 2003, the Company
reclassified $1.0 million and $2.7 million, respectively, of foreign currency
translation impact on goodwill that is denominated in a non-U.S. dollar
currency, from comprehensive income to goodwill. These reclassifications had no
impact on the results of operations or cash flows of the Company. Total
comprehensive income combines reported net income and other comprehensive
income.
(In thousands) Three Months Ended Six Months Ended
------------------------------- -------------------------------
2003 2002 2003 2002
------------- -------------- ------------- --------------
Net income $6,495 $6,776 $12,448 $13,365
Other comprehensive income:
Unrealized loss on marketable securities
net of taxes (49) (16) (103) (14)
Foreign currency translation adjustment 4,008 3,946 6,085 3,552
------------- -------------- ------------- --------------
Total comprehensive income $10,454 $10,706 $18,430 $16,903
------------- -------------- ------------- --------------
-7-
NOTE 7: BUSINESS SEGMENT INFORMATION
The Company's operations are managed as two geographic business units (the
Americas and International) plus Group activities. The Americas consists of the
United States, Mexico and Brazil. International consists of the rest of the
world plus export distribution operations.
For the three month periods ended June 30:
Net Sales To Intersegment Operating
External Customers Net Sales Income/(Expense)
--------------------------- ------------------------------- ------------------------
(In thousands) 2003 2002 2003 2002 2003 2002
------------ ------------- -------------- --------------- ------------- ---------
International $21,899 $19,453 $12,521 $10,600 $3,001 $7,112
Americas 29,666 26,127 192 166 7,255 6,354
Group activities -- -- -- -- (1,050) (1,014)
Eliminations -- -- -- -- 1,214 (1,136)
--------- -------- -------- -------- -------- -------
Total $51,565 $45,580 $12,713 $10,766 $10,420 $11,316
--------- -------- -------- -------- -------- -------
For the six month periods ended June 30:
Net Sales To Intersegment Operating
External Customers Net Sales Income/(Expense)
----------------------------- ---------------------------- --------------------------
(In thousands) 2003 2002 2003 2002 2003 2002
------------ --------------- -------------- ------------ ------------- ----------
International $43,384 $36,701 $25,065 $20,197 $7,918 $13,375
Americas 56,362 50,474 349 221 13,358 11,600
Group activities -- -- -- -- (2,071) (1,828)
Eliminations -- -- -- -- 959 (1,674)
------------- --------- -------- --------- -------- -------
Total $99,746 $87,175 $25,414 $20,418 $20,164 $21,473
------------- --------- -------- --------- -------- -------
Identifiable Assets
------------------------------
June 30, December 31,
(In thousands) 2003 2002
------------- --------------
International $162,836 $169,071
Americas 89,469 80,848
Group 78,740 56,652
Eliminations (99,851) (85,797)
----------- ---------
Total $231,194 $220,774
----------- ---------
-8-
A reconciliation of combined operating income for each business unit to
consolidated income before income taxes and minority interests for the three and
six month periods ended June 30 is as follows:
(In thousands) Three Months Ended Six Months Ended
------------------------------- -------------------------------
2003 2002 2003 2002
------------- -------------- ------------- --------------
Operating income - Business Units $10,420 $11,316 $20,164 $21,473
Other income / (expense) 24 (661) (302) (936)
------------- -------------- ------------- --------------
Consolidated income before tax
and minority interests $10,444 $10,655 $19,862 $20,537
------------- -------------- ------------- --------------
NOTE 8: INCOME TAX EXPENSE
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 Company's tax holiday benefit in
the Seychelles.
NOTE 9: EARNINGS PER SHARE
For each of the three and six month periods ended June 30, 2003 and 2002,
there were no adjustments to net income (the numerators) for purpose of
calculating basic and diluted net income per common share. The following table
sets forth a reconciliation of 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
------------------------------- -------------------------------
2003 2002 2003 2002
------------- -------------- ------------- --------------
Weighted average common shares - basic 14,112,563 13,054,650 13,909,436 12,912,565
Effect of diluted securities:
Stock options 640,854 2,026,005 718,710 2,118,588
------------- -------------- ------------- --------------
Weighted average common shares - diluted 14,753,417 15,080,655 14,628,146 15,031,153
------------- -------------- ------------- --------------
The Company did not include in the diluted shares outstanding calculation
70,966 and 71,212 options for the three and six month periods ended June 30,
2003, respectively, because their inclusion would be antidilutive or their
exercise price exceeded the average market price of our common stock during the
period. All options were included in the diluted shares outstanding calculation
for the three and six month periods ended June 30, 2002 as the average market
value of our common stock for the period was higher than the exercise prices of
all options outstanding for the period.
-9-
NOTE 10: 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" and related interpretations and, accordingly, no compensation cost
has been recognized for stock options issued under the Company's plans.
In December 2002, Statement of Financial Accounting Standards (SFAS) No.
148, "Accounting for Stock Based Compensation Transition and Disclosure and
Amendment of FASB Statement No. 123" was issued. This statement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock based employee compensation and requires
prominent disclosure in both annual and interim financial statements about the
method of accounting for stock based employee compensation and the effects of
the method used on reporting results. The interim financial statement disclosure
aspect of this standard is effective beginning with these financial statements
and the provision has been adopted herein.
Pro forma information regarding the Company's net income and net income per
common share for the three and six month periods ended June 30, 2003 and 2002
has been determined 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, 2002. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period.
(In thousands, except per share data) Three Months Ended Six Months Ended
------------------------------ -------------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
Net income
As reported $6,495 $6,776 $12,448 $13,365
Less: Total stock-based employee
compensation expense determined
under fair value method for all
awards, net of tax (584) (623) (1,170) (1,246)
------------- ------------- ------------- --------------
Pro forma $5,911 $6,153 $11,278 $12,119
Net income per common share - basic
As reported $0.46 $0.52 $0.89 $1.04
Pro forma $0.42 $0.47 $0.81 $0.94
Net income per common share - diluted
As reported $0.44 $0.45 $0.85 $0.89
Pro forma $0.40 $0.41 $0.77 $0.81
NOTE 11: CONTINGENCIES
The Company, in the normal course of its business, is involved in various
lawsuits from time to time. In addition, the Company is subject to certain other
contingencies discussed below:
On January 29, 1999, two couples who owned shares of the common stock of
American Medical Electronics Inc. ("AME") commenced a civil action against the
Company and one of its subsidiaries and the Review Committee
-10-
(defined below) seeking, among other relief, the maximum earnout and bonus under
the merger agreement. The Company is vigorously defending against the action. On
August 21, 1995, the Company acquired substantially all the outstanding stock of
AME and merged AME into Orthofix Inc. Prior to the merger, Orthofix Inc. had no
operating activity. The principal terms of the acquisition included cash
payments of approximately $47.5 million and the issuance of approximately 1.95
million shares of the Company's common stock with a fair market value of
approximately $33.5 million. Additionally, the Agreement and Plan of Merger
provided for payments contingent upon the attainment of certain gross revenue
thresholds by the Company in 1995, 1996 and/or 1997 and were not compensatory in
nature. The earnout and bonus, if paid, were to be paid in cash, common stock of
the Company or a combination thereof on a Payout Date defined in the Agreement
and Plan of Merger. The Company announced that the Review Committee, established
to determine contingent amounts payable under the Agreement and Plan of Merger
relating to the acquisition of AME, determined that Orthofix will pay the AME
Record Holders $500,000 (which was satisfied in cash and issuance of treasury
shares with a fair market value of $259,000), and 12% of the net recovery, if
any, received from its judgment against Biomet, EBI and EBI MS up to a maximum
of $5,500,000.
Novamedix, a subsidiary of the Company, filed an action on February 21,
1992 against Kinetic Concepts Inc ("KCI") alleging infringement of the patents
relating to Novamedix's A-V Impulse System product, breach of contract, and
unfair competition. In this action, Novamedix is seeking a permanent injunction
enjoining further infringement by KCI. Novamedix also seeks damages relating to
past infringement, breach of contract, and unfair competition. KCI has filed
counterclaims alleging that Novamedix engaged in inequitable conduct before the
United States Patent and Trademark Office and fraud as to KCI and that Novamedix
engaged in common law and statutory unfair competition against KCI. KCI seeks a
declaratory judgment that the patents are invalid, unenforceable, and not
infringed. KCI also seeks monetary damages, injunctive relief, costs, attorney's
fees, and other unspecified relief. During 2002, the United States Patent and
Trademark Office issued re-examination certificates validating four U.S.
vascular patents owned by us. The U.S. District Court in San Antonio, Texas has
restored the litigation to active status, and has provided a Scheduling Order
that will govern this matter. KCI has sought to add a charge of infringement
against Novamedix under a recently issued KCI patent but that request was denied
on a procedural basis. KCI retains the right to seek enforcement of its patent
in a separate proceeding. A portion of any amounts received will be payable to
former owners of Novamedix under the original purchase agreement.
On April 17, 2001 the Company received an administrative request for
records from the Office of the Inspector General of the United States Department
of Health and Human Services. On June 20, 2001, the Company received a similar
administrative request for records from the Office of the Inspector General of
the United States Department of Defense.
The Company has cooperated with government representatives throughout the
inquiry. The Company continues to believe the primary focus of the government's
inquiry concerns the appropriateness of claims the Company submitted to federal
health programs for the off-label use of the Company's FDA-approved pulsed
electronic magnetic field device, and billing and coding for its off-label use.
The Company's outside counsel have presented to governmental
representatives several letters describing the Company's coding and billing
practices for the off-label use of its pulsed electronic magnetic field device,
and discussed the Company's understanding of Medicare, Medicaid and
CHAMPUS/TriCare rules with respect to the off-label use of FDA-approved devices.
The Company does not believe that resolution of this matter will have a material
adverse effect on its financial condition or cash flows. The resolution, which
the Company expects to occur in 2003, could have a material adverse effect on
its results of operations in the period in which it occurs.
In management's opinion, the Company is not currently involved in any other
legal proceeding, individually or in the aggregate, that could have a material
effect on the financial position, liquidity or operating results of the Company.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis addresses the results of our
operations for the six and three months ended June 30, 2003, as compared to our
results of operations for the six and three months ended June 30, 2002. The
discussion and analysis also addresses our liquidity and financial condition and
other matters.
General
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, and
non-invasive stimulation products used to enhance the success rate of spinal
fusions and to treat non-union fractures. Our products also include devices for
removal of the bone cement used to fix artificial implants, the ultrasonic
treatment of musculoskeletal pain, bracing products and a bone substitute
compound, from which we receive a royalty. We also produce a device for
enhancing venous circulation used primarily in support of orthopedic procedures.
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 and the Seychelles. We directly distribute our products in
the United States, the United Kingdom, Ireland, Italy, Germany, Switzerland,
Austria, France, Belgium, Mexico and Brazil. In 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 its wholly owned and majority-owned subsidiaries and
entities over which the Company has control. All intercompany accounts and
transactions are eliminated in consolidation. The equity method of accounting is
used when the Company has significant influence over significant operating
decisions but does not hold control. Under the equity method, original
investments are recorded at cost and adjusted by the Company's share of
undistributed earnings or losses of these companies. All material intercompany
transactions and profits associated with the equity investees are eliminated in
consolidation.
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 seasonality trends. In addition, we do not believe our
operations will be significantly affected by inflation. However, in the ordinary
course of business, we are exposed to the impact of changes in interest rates
and foreign currency fluctuations. Our objective is to limit the impact of such
movements on earnings and cash flows. In order to achieve this objective, we
seek to balance non-dollar income and expenditures. We do not ordinarily use
derivative instruments to hedge foreign exchange exposure.
We manage our operations in two geographic business units: the Americas and
International. The Americas unit covers the United States, Mexico and Brazil.
The International unit covers the rest of the world plus export operations.
Revenues
Our revenues are generally derived from two primary sources: sales of
orthopedic and non-orthopedic products. Sales of orthopedic products, including
orthopedic devices, stimulation products and vascular products, accounted for
89% and 88% of our total net sales in the three and six months ended June 30,
2003, respectively, as compared to 88% of our total net sales for the same
periods in the prior year. Sales of non-orthopedic products, including some
vascular products and the Laryngeal Mask product, accounted for 11% and 12% of
our total net sales in the three and six months ended June 30, 2003,
respectively, as compared to 12% of our total net sales for the same periods in
the prior year.
-12-
The following tables display the net sales by geographic destination and by
geographic origination, net of inter-company eliminations, for each of our
geographic markets and by each of our product groups for the three and six
months ended June 30, 2003 and 2002. We provide net sales by geographic
destination and by product group for information purposes only. We keep our
books and records and account for net sales, costs and expenses in accordance
with the geographic origination of our products.
Geographic Destination:
-----------------------
Three Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Americas $34,522 67% $31,569 69%
International 17,043 33% 14,011 31%
------------- -------------- ------------- --------------
Total $51,565 100% $45,580 100%
------------- -------------- ------------- --------------
Six Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Americas $65,724 66% $60,374 69%
International 34,022 34% 26,801 31%
------------- -------------- ------------- --------------
Total $99,746 100% $87,175 100%
------------- -------------- ------------- --------------
Geographic Origination:
----------------------
Three Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Americas $29,666 58% $26,127 57%
International 21,899 42% 19,453 43%
------------- -------------- ------------- --------------
Total $51,565 100% $45,580 100%
------------- -------------- ------------- --------------
Six Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Americas $56,362 57% $50,474 58%
International 43,384 43% 36,701 42%
------------- -------------- ------------- --------------
Total $99,746 100% $87,175 100%
------------- -------------- ------------- --------------
-13-
Product Groups:
--------------
Three Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Orthopedic
Devices $16,422 32% $14,151 31%
Stimulation 23,703 46% 20,377 45%
Vascular(1) 5,793 11% 5,725 12%
------------- -------------- ------------- --------------
Total Orthopedic 45,918 89% 40,253 88%
Non-Orthopedic
Vascular(1) 1,020 2% 1,010 2%
Other 4,627 9% 4,317 10%
------------- -------------- ------------- --------------
Total Non-Orthopedic 5,647 11% 5,327 12%
------------- -------------- ------------- --------------
Total $51,565 100% $45,580 100%
------------- -------------- ------------- --------------
- ----------------------------
(1) Approximately 85% of the revenue from vascular products is classified
as from orthopedic applications while 15% is classified as from
Non-Orthopedic applications.
Six Months Ended June 30,
------------------------------------------------------------------
(In thousands) 2003 2002
------------------------------- -------------------------------
Net Sales Percent of Net Sales Percent of
Net Sales Net Sales
------------- -------------- ------------- --------------
Orthopedic
Devices $31,571 31% $27,235 31%
Stimulation 44,827 45% 39,119 45%
Vascular(1) 11,771 12% 10,579 12%
------------- -------------- ------------- --------------
Total Orthopedic 88,169 88% 76,933 88%
Non-Orthopedic
Vascular(1) 2,076 2% 1,867 2%
Other 9,501 10% 8,375 10%
------------- -------------- ------------- --------------
Total Non-Orthopedic 11,577 12% 10,242 12%
------------- -------------- ------------- --------------
Total $99,746 100% $87,175 100%
------------- -------------- ------------- --------------
- --------------------------
(1) Approximately 85% of the revenue from vascular products is classified
as from orthopedic applications while 15% is classified as from
Non-Orthopedic applications.
-14-
Select Financial Data
The following table presents certain items in our statements of operations
as a percentage of net sales for the periods indicated:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
2003 2002 2003 2002
------------- -------------- ------------- --------------
(%) (%) (%) (%)
------------- -------------- ------------- --------------
Net sales.............................. 100 100 100 100
Cost of sales.......................... 25 26 26 25
Gross profit........................... 75 74 74 75
Operating expenses
Sales and marketing.............. 38 34 37 35
General and administrative....... 10 10 10 10
Research and development......... 4 4 4 5
Amortization of intangible assets..... . 1 1 1 --
Litigation costs................. 2 -- 2 --
Total operating income................ 20 25 20 25
Net income............................ 13 15 12 15
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
Sales - Net sales increased 14% to $99.7 million for the first six months
of 2003, compared to $87.2 million for the same period of 2002. The impact of
foreign currency increased sales by $4.1 million in the first six months of 2003
as compared to the same period of 2002.
Net sales in the Americas (primarily the United States) increased 12% to
$56.4 million for the first six months of 2003, compared to $50.5 million for
the same period of 2002. The Americas represented 57% and 58% of total net
sales during the first six months of 2003 and 2002, respectively. The increase
in sales was primarily the result of an increase in volume of stimulators sold,
a contract increase and moderate growth in orthopedic devices.
Net sales in International increased 18% to $43.4 million for the first six
months of 2003, compared to $36.7 million for the same period of 2002. The
primary contributors were increased sales of orthopedic devices, vascular
products and the Laryngeal Mask product. The impact of foreign currency
increased International sales for the period by $4.6 million.
All product groups experienced growth in the first six months of 2003
compared to the same period of 2002. Sales of orthopedic devices grew 16% to
$31.6 million for the period in 2003 from $27.2 million for the same period of
2002. The increase was primarily due to increased sales of our external and
internal fixation products. Sales of stimulation products grew 15% to $44.8
million for the first six months of 2003 from $39.1 million in the same period
of the prior year. The increase in sales was primarily due to an increase in
sales of stimulators, resulting from an increase in volume of stimulators sold
and the renewal of our distribution agreement with Medtronic Sofamor Danek. The
renewed distribution agreement had the effect of increasing sales by $1.5
million in the first six months of 2003. Stimulation products are sold almost
exclusively in the United States, although we are attempting to expand
distribution of stimulation products to Europe and Mexico. Sales of vascular
products grew 11% to $11.8 million for the first six months of 2003 from $10.6
million for the same period of 2002. The growth was principally the result of
increased sales in Japan and through our Company-owned distributors in Europe.
Approximately 85%
-15-
of the sales from vascular products are classified as from orthopedic
applications, while 15% is classified as from non-orthopedic applications.
Sales of our non-orthopedic products grew 13% to $11.6 in the first six
months of 2003 compared to $10.2 million for the same period of 2002. The
increase was primarily due to the growth in sales of the Laryngeal Mask product,
including a new single use version, which we distribute in the United Kingdom,
Ireland and Italy, and increased sales of vascular products for non-orthopedic
applications.
Gross Profit - Our gross profit increased 13% to $74.2 million in the first six
months of 2003, from $65.4 million for the same period of 2002. The increase was
primarily due to the 14% increase in net sales partially offset by a slight
decrease in gross profit margin. Gross profit as a percent of net sales for the
first six months of 2003 was 74.3% compared to 75.0% for the same period in
2002, reflecting the negative impact of foreign currency translation, partially
offset by a favorable product mix and the renewal of our distribution agreement
with Medtronic Sofamor Danek. Although foreign currency contributed $4.1 million
to sales growth, the year over year appreciation of the Euro and the Great
Britain Pound against the U.S. Dollar was detrimental to our gross profit and
gross profit margin in those situations where we produce products in Euros or
Pounds and sell them in U.S. Dollars.
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 $6.4 million to
$37.1 million in the first six months of 2003 from $30.8 million in the same
period of 2002, an increase of 21% on a net sales increase of 14% over the same
period. Sales and marketing expense as a percent of net sales increased to 37.2%
in the first six months of 2003 from 35.3% for the same period of 2002. The
increase is the result of our investment in several areas of sales and marketing
during the first six months of 2003 and higher commissions on stimulation sales
resulting from the renewed distribution agreement with Medtronic Sofamor Danek.
New sales people were hired, trained and equipped to have a meaningful impact on
sales in 2003. We launched the PC.C.P product in the International market with a
large training seminar for surgeons in Verona, Italy, and are preparing to
launch the product in the United States in the third quarter. Further, in
preparation for the launch of the PC.C.P product, we conducted training meetings
for the sales force in Europe and the United States.
General and Administrative Expense - General and administrative expense
increased $1.3 million for the first six months of 2003 to $10.1 million from
$8.8 million in the same period of 2002. The expense remained constant as a
percentage of net sales at 10% during both periods. We incurred additional
expenses associated with becoming a U.S. SEC registrant and with building
administrative support in our direct distributorship organizations in Europe and
Mexico.
Research and Development Expense - Research and development expense increased
$0.2 million to $4.3 million for the first six months in 2003 from $4.1 million
for the same period in 2002. The expense as a percentage of net sales was 4.3%
and 4.7% for the first six month of 2003 and 2002, respectively. During 2003,
our focus has been continuing new product development and enhancements and
additions to current product lines.
Amortization of Intangible Assets - Amortization of intangible assets was $0.4
million in the first six months of 2003 compared to $0.3 million for the same
period of 2002. The amortization consists principally of the amortization of
patents and trademarks and was in-line with our product development efforts.
KCI Litigation Expense - Based on an assessment of the merits of the Kinetic
Concepts Inc. ("KCI") case (further described in Note 11 "Contingencies" of Item
1. "Condensed Financial Statements"), we incurred $2.1 million in litigation
costs in the first six months of 2003 compared to no expense for the same period
of the 2002.
-16-
Other Income (Expense), Net - Other expense, net was $0.3 million in the first
six months of 2003 compared to an expense of $0.9 million for the same period of
2002. The decrease in expense was principally the result of gains on foreign
exchange transactions in 2003 of $0.2 million, compared with losses in 2002 of
$0.2 million, resulting in a net improvement of $0.4 million. Our share of
losses in the OrthoRx joint venture totaled $0.6 million for the first six
months of 2003, an improvement from the $0.8 million loss in the same period of
2002. Interest income, net of interest expense, was $0.1 million for the first
six months of 2003 compared to $0.2 million for the same period of 2002.
Income Tax Expense - In the first six months of 2003 and 2002, the effective tax
rate was 37.3% and 30.7%, respectively. The effective tax rate in the first six
months of 2003 was negatively impacted by 3.5% as a result of the KCI litigation
expenses incurred for the period.
Net Income - Net income for the first six months of 2003 was $12.4 million,
including $2.1 million of KCI litigation expenses, or $0.89 per basic share and
$0.85 per diluted share, compared to $13.4 million, or $1.04 per basic share and
$0.89 per diluted share, for the same period of 2002. The weighted number of
basic common shares outstanding was 13,909,436 and 12,912,565 during the first
six months of 2003 and 2002, respectively. The weighted number of diluted common
shares outstanding was 14,628,146 and 15,031,153 during the first six months of
2003 and 2002, respectively.
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Sales - Net sales increased 13% to $51.6 million for the second quarter of
2003 compared to $45.6 million for the second quarter of 2002. The impact of
foreign currency increased sales by $2.2 million during the second quarter of
2003 as compared to the same period of the prior year .
Net sales in the Americas (primarily the United States) increased to $29.7
million in the second quarter of 2003 compared to $26.1 million in the second
quarter of 2002, an increase of 14%. The Americas represented 58% of total net
sales during the second quarter of 2003 and 57% of total net sales for the same
period of 2002. The increase in sales was primarily the result of increased
volume of stimulators sold, a contract increase, and a moderate growth in
orthopedic devices.
Net sales in International increased 13% to $21.9 million in the second
quarter of 2003 compared to $19.5 million in 2002. The primary contributors were
increased sales of orthopedic devices, vascular products and the Laryngeal Mask
product. The impact of foreign currency increased International sales for the
quarter by $2.4 million.
All product groups experienced growth in the second quarter of 2003
compared to the second quarter of 2002. Sales of orthopedic devices grew 16% to
$16.4 million in 2003 from $14.2 million in 2002. The increase was primarily due
to increased sales of our external and internal fixation products. Sales of
stimulation products grew 16% to $23.7 million in 2003 from $20.4 million in
2002. The increase in sales was primarily due to an increase in sales of
stimulators, resulting from an increase in volume of stimulators sold and the
renewal of our distribution agreement with Medtronic Sofamor Danek. The revised
agreement increased sales by $1.5 million in the second quarter. Stimulation
products are sold almost exclusively in the United States, although we are
attempting to expand distribution for stimulation products to Europe and Mexico.
Sales of vascular products grew slightly to $5.8 million in 2003 from $5.7
million in 2002. Approximately 85% of the sales from vascular products is
classified as from orthopedic applications, while 15% is classified as from
non-orthopedic applications.
Sales of our non-orthopedic products grew 6% to $5.6 million from $5.3
million in 2002. The increase was primarily due to the growth in sales of the
Laryngeal Mask product, including a new single use version, which we distribute
in the United Kingdom, Ireland and Italy.
Gross Profit - Our gross profit increased 14% to $38.6 million in the second
quarter of 2003, from $33.7 million in the second quarter of 2002. The increase
was primarily due to the increase of 13% in net sales and increase in gross
profit margin. Gross profit as a percent of net sales in the second quarter 2003
was 74.8% compared to 74.0% in 2002, reflecting the positive impact of product
mix of stimulation product, including the renewal of our distribution
-17-
agreement with Medtronic Sofamor Danek, partially offset by negative foreign
currency impacts. Although currency contributed $2.4 million to sales growth,
the year over year appreciation of the Euro and the Great Britain Pound against
the U.S. Dollar was detrimental to our gross profit and gross profit margin in
those situations where we produce products in Euros or Pounds and sell them in
U.S. Dollars.
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 $3.8 million to
$19.5 million in the second quarter of 2003 from $15.7 million in the second
quarter of 2002, an increase of 24% on a net sales increase of 13% over the same
period. Sales and marketing expense as a percent of net sales increased to 37.8%
in the second quarter of 2003 from 34.4% in the second quarter of 2002. The
increase is the result of our investment in several areas of sales and marketing
during the second quarter of 2003 and higher commissions on stimulation sales
resulting from the renewed distribution agreement with Medtronic Sofamor Danek.
During the second quarter we continued to support, train and equip new sales
people to have a meaningful impact on sales in 2003. We continued the rollout of
the PC.C.P product in the International and U.S. markets which included training
seminars for surgeons and our sales force.
General and Administrative Expense - General and administrative expense
increased $0.5 million in the second quarter of 2003 to $5.1 million from $4.6
million in the second quarter of 2002. The expense, as a percentage of net
sales, declined from 10.2% in the second quarter of 2002 to 9.9% in the second
quarter 2003. We continued to build administrative support in our direct
distributorship organizations, primarily in Europe and Mexico for the second
quarter of 2003.
Research and Development Expense - Research and development expense as a percent
of net sales decreased from 4.3% in the second quarter 2002 to 4.1% in the
second quarter 2003. During the second quarter of 2003, our focus has been new
product development and enhancements and additions to current product lines.
Amortization of Intangible Assets - Amortization of intangible assets was
$0.1 million in the second quarter of 2003 compared to $0.1 million for the same
period of 2002. The amortization consists principally of the amortization of
patents and trademarks and was in-line with our product development efforts.
KCI Litigation Expense - Based on an assessment of the merits of the KCI case
(further described in Note 11 "Contingencies" of Item 1. "Condensed Financial
Statements"), we incurred $1.3 million in litigation costs in the second quarter
of 2003 compared to no expense in the same period of 2002.
Other Income (Expense), Net - Other income (expense), net was income of $0.02
million in the second quarter of 2003 compared to an expense of $0.7 million in
the second quarter of 2002. The decrease in expense was principally the result
of gains on foreign exchange transactions in 2003, $0.2 million, compared with
losses in 2002, $0.2 million, resulting in a net improvement of $0.4 million of
income. Our share of losses in the OrthoRx joint venture totaled $0.2 million in
the second quarter of 2003, an improvement from the $0.5 million loss in the
same period of the prior year and from the $0.4 million loss in the first
quarter of 2003. Interest income net of interest expense remained constant in
the second quarter of 2003 as compared to the same period of the prior year.
Income Tax Expense - In the second quarter of 2003 and 2002, the effective tax
rate was 37.8% and 32.0%, respectively. The effective tax rate in the second
quarter of 2003 was negatively impacted by 4.0% as a result of the KCI
litigation expenses incurred for the period.
Net Income - Net income for the second quarter of 2003 was $6.5 million,
including $1.3 million of KCI litigation expenses, or $0.46 per basic share and
$0.44 per diluted share, compared to $6.8 million, or $0.52 per basic share and
$0.45 per diluted share, for the second quarter of 2002. The weighted number of
basic common shares outstanding was 14,112,563 and 13,054,650 during the second
quarter of 2003 and 2002, respectively. The weighted number of diluted common
shares outstanding was 14,753,417 and 15,080,655 during the second quarter of
2003 and 2002, respectively.
-18-
Liquidity and Capital Resources
Cash and cash equivalents were $38.7 million at June 30, 2003 compared to
$48.8 million at December 31, 2002, a decrease of $10.1 million.
Net cash provided by operating activities was $14.7 million for the first
six months of 2003, compared to $11.1 million for the same period of 2002, an
increase of $3.6 million. Net cash provided by operating activities is comprised
of net income, non-cash items and changes in working capital. Net income
decreased approximately $1.0 million to $12.4 million for the first six month of
2003, including the $2.1 million impact of legal expenses incurred for pending
patent infringement claims against KCI, from $13.4 million for the same period
of the prior year. We expect to incur additional legal expenses for KCI
litigation of approximately $1.4 million over the remaining period of 2003. The
decrease in net income was offset by a $0.4 million increase in non-cash items.
Working capital accounts consumed $3.7 million of cash during the first six
months of 2003 compared to a use of $8.6 million during the same period of the
prior year, an overall improvement of $4.9 million.
We invested $25.9 million during the first six months of 2003 compared to
$10.3 million for the same period of the prior year for investments in
subsidiaries and affiliates and capital expenditures. During the first six
months of 2003, we purchased the remaining 48% minority interest of our U.K.
distribution company, Intavent Orthofix Ltd. for $20.6 million and an equity
interest in Innovative Spinal Technologies (IST) for $1.5 million. In addition,
during the first six months of 2003, we invested $2.2 million in capital
expenditures and $1.5 million in the OrthoRx joint venture. See Note 4
"Acquisitions and Investments" of Item 1. "Condensed Financial Statements" for
further information of investments made during the period.
Net cash provided by financing activities was $0.3 million for the first
six months of 2003 and 2002, respectively. Proceeds of $9.5 million were
generated from the issuance of 661,792 shares of our common stock upon the
exercise of options and warrants. During the first six months of 2003, we
purchased 157,000 shares of our common stock in the open market for $4.4
million. Our Board of Directors has authorized the purchase of shares of our
common stock up to a total of 50% of the number of shares of our common stock
issued from the exercise of options. We also repaid $4.8 million on a line of
credit upon the sale of accounts receivable without recourse in Italy to a third
party.
We believe that current cash balances together with projected cash flows
from operating activities, the exercise of stock options and available debt
capacity are sufficient to cover anticipated operating capital needs and
research and development costs over the near term.
Item 3. Quantitative and Qualitative Disclosure About Market 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, 2002.
Item 4. Controls and Procedures
As of June 30, 2003, we performed an evaluation under the supervision and
with the participation of Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
evaluation, the Company's management, including the Chief Executive Officer and
Chief Financial Officer, concluded that the Company's 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 the Company's internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
-19-
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual General Meeting of Shareholders of the Company was held on June
18, 2003. The total number of common shares eligible to vote as of the record
date, April 30, 2003, was 14,217,172 and according to the Company's Articles of
Association, 7,108,586 constituted a quorum.
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 2004:
Name Votes For Votes Withheld
--------------------------- -------------- -------------------
Jerry Benjamin 12,691,340 139,571
Peter Clarke 12,667,638 163,273
Alberto D'Abreu de Paulo 12,690,740 140,171
Charles Federico 12,691,340 139,571
Robert Gaines-Cooper 12,664,638 166,273
James Gero 12,690,940 139,971
Frederik Hartsuiker 12,690,740 140,171
Peter Hewett 12,597,559 233,352
John Littlechild 12,690,740 140,171
Edgar Wallner 12,667,488 163,423
2. An additional 250,000 shares for issuance under the Staff Share Option Plan
was reserved by a vote of 10,098,730 in favor of, with 2,629,133 against,
and 103,048 abstaining;
3. The audited Financial Statements for the year ended December 31, 2002 were
adopted and approved by a vote of 11,842,887 in favor of, with 944,436
against, and 43,588 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, 2003
was ratified by a vote of 11,781,841 in favor of, with 1,008,897 against,
and 40,173 abstaining.
-20-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
31.1* Statement Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 of Chief Executive
Officer dated August 12, 2003.
31.2* Statement Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 of Chief Financial
Officer dated August 12, 2003.
32.1* Statement Pursuant to 18 U.S.C. Section 1350 of
Chief Executive Officer dated August 12, 2003.
32.2* Statement Pursuant to 18 U.S.C. Section 1350 of
Chief Financial Officer dated August 12, 2003.
____________________________
* Filed herewith.
(b) Reports on Form 8-K
None.
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 12, 2003 By: /s/ CHARLES W. FEDERICO
--------------------------------------------
Name: Charles W. Federico
Title: Chief Executive Officer and President
Date: August 12, 2003 By: /s/ THOMAS HEIN
--------------------------------------------
Name: Thomas Hein
Title: Chief Financial Officer
-21-