Back to GetFilings.com
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 March 31, 2004
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 May 4, 2004, 15,230,962 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.................................................14
Item 3. Quantitative and Qualitative Disclosure
About Market Risk..........................................20
Item 4. Controls and Procedures........................................20
PART II OTHER INFORMATION..................................................21
Item 1. Legal Proceedings..............................................21
Item 6. Exhibits and Reports on Form 8-K...............................21
SIGNATURES...................................................................23
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, 2003.
2
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands except per share data) March 31, December 31,
2004 2003
----------------- ----------------
Assets (Unaudited) (Note 2)
Current assets:
Cash and cash equivalents..................................... $ 40,067 $ 33,559
Trade accounts receivable, net................................ 72,360 70,690
Inventories................................................... 32,054 30,713
Deferred income taxes......................................... 3,978 3,978
Prepaid expenses and other.................................... 11,505 8,928
----------------- ----------------
Total current assets........................................ 159,964 147,868
Securities and other investments............................... 4,881 5,775
Property, plant and equipment, net............................. 18,181 19,169
Patents and other intangible assets, net....................... 64,433 65,726
Goodwill, net.................................................. 166,092 168,397
Other long-term assets ........................................ 5,441 6,244
----------------- ----------------
Total assets................................................ $ 418,992 $ 413,179
================= ================
Liabilities and shareholders' equity
Current liabilities:
Bank borrowings............................................... $ 1,547 $ 72
Current portion of long-term debt............................. 11,073 11,063
Trade accounts payable........................................ 10,793 11,569
Other current liabilities..................................... 26,233 30,236
----------------- ----------------
Total current liabilities................................... 49,646 52,940
Long-term debt................................................. 96,362 99,072
Deferred income taxes.......................................... 16,160 16,642
Other long-term liabilities.................................... 3,710 3,749
----------------- ----------------
Total liabilities........................................... $ 165,878 $ 172,403
Contingencies (Note 14)
Shareholders' equity:
Common shares (15,182,598 and 14,980,010 shares issued
at March 31, 2004 and December 31, 2003, respectively)....... 1,518 1,498
Additional paid-in capital.................................... 86,031 81,960
Retained earnings............................................. 156,267 147,924
Accumulated other comprehensive income........................ 9,298 9,394
----------------- ----------------
Total shareholders' equity.................................. 253,114 240,776
----------------- ----------------
Total liabilities and shareholders' equity $ 418,992 $ 413,179
================= ================
The accompanying notes form an integral part of these condensed consolidated
financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited, U.S. Dollars, in thousands except share and per share data) 2004 2003
--------------- ---------------
Net sales...................................................... $ 70,739 $ 48,181
Cost of sales.................................................. 19,546 12,585
--------------- ---------------
Gross profit............................................... 51,193 35,596
Operating expenses
Sales and marketing........................................ 26,136 17,600
General and administrative................................. 7,247 4,982
Research and development................................... 3,316 2,131
Amortization of intangible assets.......................... 1,333 278
KCI litigation costs....................................... 372 862
--------------- ---------------
38,404 25,853
--------------- ---------------
Total operating income .................................... 12,789 9,743
Interest income (expense), net................................ (1,529) 57
Other income (expense), net................................... 595 (383)
--------------- ---------------
Income before income tax................................. 11,855 9,417
Income tax expense............................................. (3,511) (3,464)
--------------- ---------------
Net income ............................................. $ 8,344 $ 5,953
=============== ===============
Net income per common share - basic............................ $ 0.55 $ 0.43
=============== ===============
Net income per common share - diluted.......................... $ 0.53 $ 0.41
=============== ===============
Weighted average number of common shares - basic.............. 15,039,870 13,704,052
Weighted average number of common shares - diluted............. 15,745,473 14,499,614
The accompanying notes form an integral part of these condensed consolidated
financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited, U.S. Dollars, in thousands) 2004 2003
---------------- -----------------
Cash flows from operating activities:
Net income................................................... $ 8,344 $ 5,953
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,534 1,628
Provision for doubtful accounts........................... 1,344 1,240
Loss on equity investments................................ 428 372
Tax benefit on non-qualified stock options................ 1,057 142
Deferred taxes............................................ (465) --
Gain on sale of assets and investments.................... (1,470) --
Other .................................................... 36 70
Change in operating assets and liabilities:
Accounts receivable....................................... (2,616) (176)
Inventories............................................... (1,143) 1,353
Prepaid expenses and other................................ (997) 2,241
Accounts payable.......................................... (1,136) (1,716)
Current liabilities....................................... 37 202
---------------- -----------------
Net cash provided by operating activities.............. 6,953 11,309
---------------- -----------------
Cash flows from investing activities:
Investments in affiliates and subsidiaries................ (1,105) (22,071)
Capital expenditures...................................... (1,933) (974)
Proceeds from sale of investment.......................... 1,300 --
Other..................................................... -- (300)
---------------- -----------------
Net cash used in investing activities.................. (1,738) (23,345)
---------------- -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 3,034 8,385
Repurchase of treasury shares............................. -- (1,880)
Payment of debt issuance costs............................ (460) --
Proceeds from loans and borrowings....................... 1,482 39
Repayment of loans and borrowings......................... (2,762) (1,920)
---------------- -----------------
Net cash provided by financing activities.............. 1,294 4,624
Effect of exchange rate changes on cash........................ (1) 151
---------------- -----------------
Increase (decrease) in cash and cash equivalents............... 6,508 (7,261)
Cash and cash equivalents at the beginning of the year......... 33,559 48,813
---------------- -----------------
Cash and cash equivalents at the end of the period............. $ 40,067 $ 41,552
================ =================
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 months ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2004. The balance sheet at
December 31, 2003 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, 2003.
NOTE 3: NEW ACCOUNTING PRONOUCEMENT
In December 2003, the FASB issued FASB Interpretation No. ("FIN") 46R,
"Consolidation of Variable Interest Entities and Interpretation of ARB No. 51."
This interpretation, which replaces FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities," clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support. This
interpretation is required in financial statements for periods ending after
March 15, 2004 for those companies that have yet to adopt the provisions of FIN
46. The Company adopted FIN 46R in January 2004 and the initial adoption did not
have a material impact on our consolidated financial statements.
NOTE 4: INVENTORY
Inventories are as follows:
March 31, December 31,
(In thousands) 2004 2003
-------------- --------------
Raw materials $ 6,604 $ 6,153
Work-in-process 2,700 2,453
Finished goods 13,578 13,437
Field inventory 5,127 5,202
Consignment inventory 7,867 7,124
Less reserve for obsolescence (3,822) (3,656)
-------------- --------------
$32,054 $30,713
============== ==============
6
NOTE 5: ACQUISITIONS
On December 30, 2003, the Company purchased 100% of the stock of Breg, Inc.
(Breg) for a purchase price of $150 million plus closing adjustments and
acquisition costs. The acquisition and related costs were financed with $110
million of senior secured bank debt, cash on hand and the issuance of 731,715
shares of Orthofix common stock.
The acquisition was accounted for using the purchase method in accordance
with Statement of Financial Accounting Standards No. 141 "Business
Combinations". The allocation of the purchase price has been performed based on
assignment of fair values to assets acquired and liabilities assumed. Fair
values are based, in part, on appraisals performed by an independent appraisal
firm.
The purchase price for the acquisition is preliminary and is subject to
potential upward or downward adjustments based on the receipt of final asset
appraisals and final transaction costs. Based on information obtained during the
period, the preliminary purchase price allocation of Breg was adjusted,
resulting in a reduction in the carrying amount of goodwill. Additional
information including the final appraisal of acquired intangibles is still
pending which could result in further adjustments to the purchase price
allocation.
A preliminary allocation of the purchase price as of March 31, 2004
reflects the following:
Working capital, other than cash $14,374
Fixed assets acquired 5,569
Identifiable intangible assets (definite lived) 35,401
Identifiable intangible assets (indefinite lived) 23,900
Deferred tax liability (14,250)
Goodwill 91,307
---------------
Total purchase price $156,301
===============
In first quarter 2004, the Company purchased a distributor in Puerto Rico
for $1.4 million, which consisted of $1.1 million in cash and $0.3 million of
assumed liabilities. The preliminary purchase price included approximately $0.9
million of working capital and $0.5 million of goodwill.
NOTE 6: GOODWILL
The change in the net carrying value of goodwill for the period ended March
31, 2004 is as follows:
(In thousands)
Balance at December 31, 2003 $168,397
Acquisitions 532
Adjustments to Breg goodwill (See Note 5) (3,205)
Foreign currency effects 368
----------------
Balance at March 31, 2004 $166,092
================
NOTE 7: COMMON SHARES
For the three months ended March 31, 2004, the Company issued 202,588
shares of common stock upon the exercise of outstanding stock options for
proceeds of $3.0 million.
NOTE 8: COMPREHENSIVE INCOME
7
Other comprehensive income includes foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities, net of
tax. During the three month period ended March 31, 2003, the Company
reclassified $1.4 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
March 31,
------------------------
2004 2003
--------- ---------
Net income $8,344 $5,953
Other comprehensive income:
Unrealized loss on marketable
Securities, net of taxes -- (54)
Foreign currency translation adjustment (96) 2,077
--------- ---------
Total comprehensive income $8,248 $7,976
========= =========
8
NOTE 9: BUSINESS SEGMENT INFORMATION
Prior to the acquisition of Breg, the Company managed its operations as two
geographic business units, the Americas and International plus Group activities.
Subsequent to the acquisition, the Company's operations are managed as three
business segments (Americas Orthofix, Americas Breg, and International Orthofix)
plus Group activities. Americas Orthofix consists of the operations, existing
prior to the acquisition of Breg, which are in the United States, Mexico,
Brazil, and Puerto Rico. Americas 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 independent distributors. International Orthofix consists of
operations, existing prior to the acquisition of Breg, which are located in the
rest of the world plus export distribution operations.
For the three month period ended March 31:
External Sales Intersegment Sales
------------------------- -------------------------
(In thousands) 2004 2003 2004 2003
-------- -------- -------- --------
Americas Orthofix $29,793 $26,696 $ 413 $ 157
Americas Breg 16,859 -- -- --
International Orthofix 24,087 21,485 16,245 12,543
------- ------- -------- --------
Total $70,739 $48,181 $16,658 $12,700
======== ======== ======== ========
Operating Income (Expense) Three Months Ended March 31,
------------------------------
(In thousands) 2004 2003
---------- ----------
Americas Orthofix $ 6,092 $6,104
Americas Breg 2,304 --
International Orthofix 5,304 5,052
Group activities (1,107) (1,021)
Eliminations 196 (392)
---------- ----------
Total $12,789 $9,743
========== ==========
The following table presents identifiable assets by segment, excluding
intercompany balances and investments in consolidated subsidiaries. The December
31, 2003 balances have been reclassified to conform to the current period
presentation.
9
Identifiable Assets
March 31, December 31,
(In thousands) 2004 2003
------------ ------------
Americas Orthofix $108,016 $103,493
Americas Breg 178,212 181,298
International Orthofix 138,904 137,011
Group activities 7,323 5,036
Eliminations (13,463) (13,659)
------------ ------------
Total $418,992 $413,179
============ ============
NOTE 10: 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 Company's tax holiday benefit in
the Seychelles, tax planning associated with the acquisition of Breg and an
increase in earnings in jurisdictions with lower tax rates.
NOTE 11: DISPOSITION OF ASSETS
During the three month period ended March 31, 2004, the Company sold a
portion of its investment in OrthoRx to its partner in the joint venture, Ferrer
Freeman & Co. The sale, combined with not electing to participate in the next
round of financing, reduced the Company's ownership in OrthoRx to approximately
21%. The Company recorded a gain on the sale of the investment of approximately
$0.8 million, which is reported as other income.
During the same period, the Company also sold its one-half interest in a
property, as part of its plan to consolidate its United Kingdom facilities. The
sale resulted in a gain of approximately $0.6 million, which is reported as
other income. This facility was purchased by a company owned by Bird Island
Trust, of which Mr. Robert Gaines-Cooper, Chairman of Orthofix Board of
Directors, is a beneficiary. The amount paid for this facility exceeded the fair
value as determined by two independent appraisal firms.
NOTE 12: EARNINGS PER SHARE
For the three month periods ended March 31, 2004 and 2003, 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 denominators in computing earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, `Earnings Per Share':
Three Months Ended
March 31,
-------------------------------
2004 2003
------------- --------------
Weighted average common shares - basic 15,039,870 13,704,052
Effect of diluted securities:
Stock options 705,603 795,562
------------- --------------
Weighted average common shares - diluted 15,745,473 14,499,614
============= ==============
All options were included in the diluted shares outstanding calculation for
the three month period ended March 31, 2004, as the average market value of our
common stock for the period was higher than the exercise prices of all
10
options outstanding for the period. The Company did not include in the diluted
shares outstanding calculation 130,333 options for the three month period ended
March 31, 2003, because their inclusion would be antidilutive or their exercise
price exceeded the average market price of our common stock during the period.
NOTE 13: 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 month period ended March 31, 2004, $90,000 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. No compensation expense was recorded for the three month period ended
March 31, 2003. 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
month periods ended March 31, 2004 and 2003 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, 2003. 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
March 31,
(In thousands, except per share data) 2004 2003
-------------- --------------
Net income
As reported $8,344 $5,953
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects 90 --
Less: Total stock-based employee compensation expense
determined under fair value method for all awards net of tax (671) (586)
-------------- --------------
Pro forma $7,763 $5,367
Net income per common share - basic
As reported $0.55 $0.43
Pro forma $0.52 $0.39
Net income per common share - diluted
As reported $0.53 $0.41
Pro forma $0.49 $0.37
11
NOTE 14: CONTINGENCIES
Litigation
The Company, in the normal course of its business, is involved in various
lawsuits from time to time. In addition, the Company is subject to certain other
contingencies discussed below:
On December 4, 1998, the special committee, or the Review Committee,
established to determine the amount of any contingent contract rights under the
Merger Agreement, dated May 8, 1995, between Orthofix International and American
Medical Electronics, or AME, in settlement of all claims of the holders of
record of AME common stock and the options and warrants to acquire such stock as
of August 21, 1995, unanimously determined that Orthofix International would pay
to the AME record holders an earnout of $500,000 plus interest and 12% of the
net recovery received from the resolution in 2000 of a litigation against
Biomet, Inc. and Electro Biology, Inc., up to a maximum of $5,500,000, plus
interest. The Review Committee has not calculated the amount of the capped
figure, but Orthofix International believes it is between $5.0 million and $5.5
million. An arbitrator acting under the auspices of the American Arbitration
Association, or AAA, subsequently entered a consent award based on the Review
Committee's determination.
On January 29, 1999, two couples who owned shares of AME common stock
commenced a civil action in Colorado federal court against Orthofix Inc. and the
members of the Review Committee and sought, among other relief, the maximum
earnout and bonus under the Merger Agreement of $18 million plus interest. The
plaintiffs also sought to represent all AME record holders. Clarence Frere,
Louise Frere, Joseph Mooibroek, and Marla B. Mooibroek, individually and on
behalf of all others similarly situated v. Orthofix Inc., Arthur Schwalm, Robert
Gaines-Cooper, James Gero, and John and Jane Does One (1) Through Four (4), No.
99-S-445 (D. Colo.). In a related action, commenced on June 2, 1999, the same
plaintiffs filed a motion in the United States District Court for the Southern
District of New York and sought to intervene in the AAA arbitration and vacate
the consent award. Clarence Frere, Louise Frere, Joseph Mooibroek, and Marla B.
Mooibroek, individually and on behalf of all others similarly situated v.
Orthofix Inc., Arthur Schwalm, Robert Gaines-Cooper, James Gero, and John and
Jane Does One (1) Through Four (4), No. 99 Civ. 4049 (S.D.N.Y.). The two actions
were consolidated in New York and Orthofix International was added as a party.
The New York federal courts resolved the two consolidated actions in favor
of the Company and its subsidiary. On July 12, 2002, the trial court denied the
plaintiffs' motion to vacate the consent award. On May 21, 2003, the trial court
denied plaintiffs' motion for leave to file a second amended complaint and
dismissed the earnout and bonus action in its entirety with prejudice. On
appeal, on March 12, 2004, the United States Court of Appeals for the Second
Circuit summarily affirmed the judgment in favor of the Company and its
subsidiary. A request for further review in the United States Supreme Court is
currently due no later than June 10, 2004.
If Plaintiffs do not seek or the Supreme Court does not grant further
review, the Company anticipates that the Review Committee will calculate the
settlement payment and that it will pay the appropriate amount. The Company has
previously reserved approximately $5.2 million plus accrued interest for the
settlement of this matter.
Novamedix, a subsidiary of the Company, filed an action on February 21,
1992 against Kinetic Concepts Inc ("KCI") alleging infringement of the patents
relating to Novamedix's A-V Impulse System product, breach of contract, and
unfair competition. In this action, Novamedix is seeking a permanent injunction
enjoining further infringement by KCI. Novamedix also seeks damages relating to
past infringement, breach of contract, and unfair competition. KCI has filed
counterclaims alleging that Novamedix engaged in inequitable conduct before the
United States Patent and Trademark Office and fraud as to KCI and that Novamedix
engaged in common law and statutory unfair competition against KCI. KCI seeks a
declaratory judgment that the patents are invalid, unenforceable, and not
infringed. KCI also seeks monetary damages, injunctive relief, costs, attorney's
fees, and other unspecified relief. During 2002, the United States Patent and
Trademark Office issued re-examination certificates validating four U.S.
vascular patents owned by us. The U.S. District Court in San Antonio, Texas has
restored the litigation to active status, and has provided a Scheduling Order
that will govern this matter. KCI has sought to add a charge of infringement
against Novamedix under a recently issued KCI patent but that request was denied
on a procedural basis. KCI retains the right to seek enforcement of its patent
in a separate proceeding. A portion of any amounts received will be payable to
former owners of Novamedix under the original purchase
12
agreement. In late April, several motions were ruled on by the Magistrate Judge.
In these rulings, the Magistrate in part granted and denied in part KCI's
motion. Both parties indicate that they plan to object to portions of the
Magistrate Judge's rulings.
In management's opinion, the Company is not currently involved in any other
legal proceeding, individually or in the aggregate, that will have a material
effect on the financial position, liquidity or operating results of the Company.
Concentrations of credit risk
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, 2003.
NOTE 15: SUBSEQUENT EVENTS
In April 2004, the Company purchased the intellectual property of the
Gotfried Percutaneous Compression Plating (PC.C.P) System for approximately $4.0
million. As a result of this new agreement, the previous agreement which
included a license and worldwide marketing rights for this product was
terminated.
13
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 three months ended March 31, 2004, as compared to our results
of operations for the three months ended March 31, 2003. The discussion and
analysis also addresses our liquidity and financial condition and other matters.
General
We are a diversified orthopedic products company offering a broad line of
minimally invasive surgical, as well as non-surgical, products for the spine,
reconstruction and trauma Market Sectors. Our products are designed to address
the lifelong bone-and-joint health needs of patients of all ages, helping them
achieve a more active and mobile lifestyle. We design, develop, manufacture,
market and distribute medical equipment used principally by musculoskeletal
medical specialists for orthopedic applications. Our main products are external
and internal fixation devices used in fracture treatment, limb lengthening and
bone reconstruction, non-invasive stimulation products used to enhance the
success rate of spinal fusions and to treat non-union fractures, and bracing
products used for ligament injury prevention, pain management and protection of
surgical repair to promote faster healing. Our products also include a device
for enhancing venous circulation, cold therapy, other pain management products,
bone cement and devices for removal of the bone cement used to fix artificial
implants, a bone substitute compound and airway management products.
We have administrative and training facilities in the United States, the
United Kingdom and Italy and manufacturing facilities in the United States, the
United Kingdom, Italy, Mexico and the Seychelles. We directly distribute our
products in the United States, the United Kingdom, Ireland, Italy, Germany,
Switzerland, Austria, France, Belgium, Mexico and Brazil. In several of these
and other markets, we also distribute our products through independent
distributors.
Our 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 a
company has 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.
Prior to the acquisition of Breg, Inc. ("Breg") in December 2003, we
managed our operations as two geographic business units, the Americas and
International plus Group activities. Subsequent to the acquisition, our
operations are managed as three business segments (Americas Orthofix, Americas
Breg and International Orthofix) plus Group activities. Americas Orthofix
consists of the operations, existing prior to the acquisition of Breg, which are
in the United States, Mexico, Brazil, and Puerto Rico. Americas Breg consists of
Breg's domestic and international
14
operations. International Orthofix consists of operations, existing prior to the
acquisition of Breg, which are located in the rest of the world plus export
distribution operations.
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 (28%), Reconstruction (42%) and Trauma (22%),
which together accounted for 92% of our total net sales in the three months
ended March 31, 2004, as compared to 90% of our total net sales for the same
period in the prior year. Sales of non-orthopedic products, including the airway
management products, woman's care and other products, accounted for 8% of our
total net sales in the three months ended March 31, 2004, as compared to 10% of
our total net sales for the same period in the prior year.
The following tables display the net sales by geographic destination and
net sales by business segment, net of intercompany eliminations, for each of our
geographic markets and by each of our Market Sectors for the three months ended
March 31, 2004 and 2003. We provide net sales by geographic destination and by
Market Sector for information purposes only. We maintain our books and records
by business segment.
Geographic Destination:
Three Months Ended March 31,
(In thousands) 2004 2003
------------------------- -------------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
--------- ---------- --------- -----------
Americas $51,308 73% $31,202 65%
International 19,431 27% 16,979 35%
--------- ---------- --------- -----------
Total $70,739 100% $48,181 100%
========= ========== ========= ===========
Business Segment:
Three Months Ended March 31,
(In thousands) 2004 2003
------------------------- -------------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
--------- ---------- --------- -----------
Americas Orthofix $29,793 42% $26,696 55%
Americas Breg 16,859 24% -- --%
International Orthofix 24,087 34% 21,485 45%
--------- ---------- --------- -----------
Total $70,739 100% $48,181 100%
========= ========== ========= ===========
15
Market Sector:
Three Months Ended March 31,
(In thousands) 2004 2003
------------------------- --------------------------
Percent of Percent of
Total Net Total Net
Net Sales Sales Net Sales Sales
--------- ------------- --------- ------------
Orthopedic
Spine $19,620 28% $18,312 38%
Reconstruction 29,697 42% 12,384 26%
Trauma 15,710 22% 12,614 26%
--------- ------------- --------- ------------
Total Orthopedic 65,027 92% 43,310 90%
Non-Orthopedic 5,712 8% 4,871 10%
--------- ------------- --------- ------------
Total $70,739 100% $48,181 100%
========= ============= ========= ============
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
The following table presents certain items in our statements of operations
as a percentage of net sales for the periods indicated:
Three Months Ended March 31,
---------------------------------------
2004 2003
---- ----
(%) (%)
Net sales........................... 100 100
Cost of sales....................... 28 26
Gross profit........................ 72 74
Operating expenses
Sales and marketing .............. 37 37
General and administrative........ 10 10
Research and development.......... 5 4
Amortization of intangible assets. 2 1
Litigation costs................. -- 2
Total operating income.............. 18 20
Net income.......................... 12 12
Sales - Net sales increased 47% to $70.7 million for the first three months of
2004, which included $16.9 million of net sales attributable to Americas Breg,
compared to $48.2 million for the first three months of 2003. The impact of
foreign currency increased sales by $2.4 million during the first quarter of
2004 as compared to the first quarter of 2003.
Net sales in Americas Orthofix, primarily the United States, increased to
$29.8 million in the first quarter of 2004 compared to $26.7 million in the
first quarter of 2003, an increase of 12%. Americas Orthofix represented 42% of
total net sales during the first quarter of 2004 and 55% of total net sales for
the same period of 2003. The increase in sales was primarily the result of
increased volume of stimulators and external fixators sold together with a
strong start-up of PC.C.P hip fracture system sales.
Net sales in Americas Breg for the first quarter of 2004 were $16.9
million, which represented 24% of total net sales during the first quarter of
2004. Breg was acquired on December 30, 2003; therefore there are no sales for
16
Breg Americas for the comparable period of the prior year. However, on a year
over year basis, Americas Breg sales grew 14% in the first quarter of 2004
compared to the first quarter of 2003.
Net sales in International Orthofix increased 12% to $24.1 million in the
first quarter of 2004 compared to $21.5 million in the first quarter of 2003.
The primary contributors were increased sales of external fixation products,
strong start-up sales of the PC.C.P hip fracture system and strong growth of
non-orthopedic airway management products. The impact of foreign currency
increased International Orthofix sales for the quarter by $2.1 million.
Sales of our spine products increased 7% to $19.6 million in the first
quarter of 2004 compared to $18.3 million in the first quarter of 2003. Sales of
stimulation products for spine applications, the main component of our Spine
Market Sector, increased 11%, which included the impact of the renewed Medtronic
Sofamor Danek distribution agreement. This Market Sector was negatively impacted
by reimbursement issues relating to our Orthotrac and EZ Brace products. A
change in the reimbursement code of the EZ Brace product in the second quarter
of 2003 had a negative impact of approximately $0.5 million on
quarter-over-quarter sales in this Market Sector. These reimbursement issues and
the pending approval of a stimulator for cervical applications could impact the
growth of this Market Sector in future periods.
Sales of our reconstruction products increased 140% to $29.7 million in the
first quarter of 2004 compared to $12.4 million in the first quarter of 2003.
This increase is primarily attributable to the sales of Breg products, all of
which are classified as reconstruction products, which totaled $16.9 million in
the first quarter of 2004.
Sales of our trauma products increased 25% to $15.7 million in the first
quarter of 2004 compared to $12.7 million in 2003. This Market Sector benefited
from a strong 20% growth in sales of external fixation products, a 26% growth in
sales of stimulation products used for long bone applications, and strong
start-up sales of the PC.C.P hip fracture system.
Sales of our non-orthopedic products grew 17% to $5.7 million in the first
quarter of 2004 compared to $4.9 million in the first quarter of 2003. This
Market Sector continues to be driven by the airway management products we
distribute in the United Kingdom, Ireland and Italy.
Gross Profit - Our gross profit increased 44% to $51.2 million in the first
quarter of 2004, from $35.6 million in the first quarter of 2003. The increase
was primarily due to an increase of 47% in net sales offset by lower gross
profit levels of the Breg business, which included a non-recurring charge of
$0.5 million for the purchase accounting of the step-up in value of the acquired
Breg inventory. Gross profit as a percent of net sales in the first quarter 2004
was 72.4% compared to 73.9% in the first quarter of 2003, reflecting the impacts
of lower Breg gross profit margins, purchase accounting and foreign currency.
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 $8.5 million to
$26.1 million in the first quarter of 2004 from $17.6 million in the first
quarter of 2003, an increase of 48% on a net sales increase of 47% over the same
period. The increase is primarily the result of additional costs associated with
the Breg acquisition, for which there are no comparable costs in the first
quarter of the prior year, and foreign currency. Sales and marketing expense as
a percent of net sales increased slightly to 36.9% in the first quarter of 2004
from 36.5% in the first quarter of 2003.
General and Administrative Expense - General and administrative expense
increased $2.2 million in the first quarter of 2004 to $7.2 million from $5.0
million in the first quarter of 2003. This increase is primarily attributable to
the costs associated with the acquisition of Breg, purchase accounting
adjustments for the depreciation of the step-up in value of fixed assets
acquired and foreign currency. The expense remained constant as a percent of net
sales at 10% both quarters.
Research and Development Expense - Research and development expense increased
$1.2 million in the first quarter of 2004 to $3.3 million from $2.1 million in
the first quarter of 2003 and increased slightly as a percent of net sales
17
to 4.7% from 4.4%. Approximately $0.8 million of this increase is attributable
to the Breg acquisition, for which there were no comparable expenses for the
same period of 2003. We also incurred additional cost of $0.1 million in the
first quarter of 2004 to close our research and development location in
Winston-Salem.
Amortization of Intangible Assets - Amortization of intangible assets was $1.3
million in the first quarter of 2004 compared to $0.3 million for the same
period of 2003. The increase in amortization expense of approximately $1.1
million was due to the amortization recorded for the distribution network
acquired in the Breg acquisition.
KCI Litigation Expense - Based on an assessment of the merits of the Kinetics
Concepts Inc. (KCI) case (further described in Note 14 "Contingencies" of Item
1. "Condensed Financial Statements"), we incurred $0.4 million in litigation
costs in the first quarter of 2004, compared to $0.9 million in the same period
of 2003.
Interest Income (Expense), net - Interest income (expense), net was an expense
of $1.5 million in the first quarter of 2004 compared to income of $0.1 million
in the first quarter 2003. We incurred interest expense on our borrowings under
our senior secured term loan of approximately $1.5 million which included the
amortization of debt costs.
Other Income (Expense), Net - Other income (expense), net was income of $0.6
million in the first quarter of 2004 compared to an expense of $0.4 million in
the first quarter of 2003. The change is attributable to various income and
expense items that occurred during the first quarter of 2004 for which there was
no comparable activity for the same quarter of the prior year. We sold part of
our ownership in the OrthoRx joint venture to our partner Ferrer Freedman &
Company that resulted in a gain of approximately $0.8 million. This gain was
partially offset by our portion of the joint venture's operating losses for the
first quarter of 2004 of approximately $0.4 million, which resulted in a net
gain associated with OrthoRx of $0.4 million for the first quarter of 2004
compared to a net loss of $0.4 million for the same period of the prior year.
Further, in the first quarter 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. We also incurred foreign exchange losses of
$0.4 million in the first quarter of 2004 compared to a gain of $0.1 million in
the same period of 2003, principally as a result of the impact of foreign
currency movements on the value of current assets and current liabilities held
by foreign subsidiaries.
Income Tax Expense - In the first quarters of 2004 and 2003, the effective tax
rate was 29.6% and 36.8%, respectively. The effective tax rate in the first
quarter of 2004 benefited from the following: i) the non-taxable gain recorded
on our sale of OrthoRx; ii) lower spending on the KCI case (which occurs in a
low tax jurisdiction); and iii) tax planning associated with the Breg
acquisition.
Net Income - Net income for the first quarter of 2004 was $8.4 million
(including the KCI litigation expenses of $0.4 million), or $0.55 per basic
share and $0.53 per diluted share, compared to $6.0 million, or $0.43 per basic
share and $0.41 per diluted share, for the first quarter of 2003, an increase in
net income of 40%. The weighted number of basic common shares outstanding was
15,039,870 and 13,704,052 during the first quarter of 2004 and 2003,
respectively. The weighted number of diluted common shares outstanding was
15,745,473 and 14,499,614 during the first quarter of 2004 and 2003,
respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $40.1 million at March 31, 2004 compared to
$33.6 million at December 31, 2003, an increase of $6.5 million.
Net cash provided by operating activities was $7.0 million for the first
quarter of 2004 compared to $11.3 million for the first quarter of 2003, a
decrease of $4.3 million. Net cash provided by operating activities is comprised
of net income, non-cash items and changes in working capital. Net income
increased approximately $2.4 million to $8.3 million in the first quarter of
2004 from $6.0 million in the first quarter of 2003. Non-cash items increased
$1.0 million from in the first quarter of 2004 compared to the first quarter of
2003, primarily as a result of the increased depreciation and amortization
expense associated with the application of purchase accounting to the assets
acquired in the Breg acquisition. Working capital accounts consumed $5.9 million
of cash in the first quarter of 2004, principally as a result of increases in
accounts receivable and inventory to support additional sales,
18
compared to a generation of cash of $1.9 million during the same period of 2003.
Key performance indicators of our two primary working capital accounts, accounts
receivable and inventory, reflect days sales in receivables of 93 days at March
31, 2004 compared to 101 days at March 31, 2003 and inventory turnover of 2.4
times at March 31, 2004 compared to 2.1 times at March 31, 2003.
Net cash used in investing activities was $1.7 million during the first
quarter of 2004, compared to $23.3 million during the first quarter of 2003.
During the first quarter of 2004, we paid $1.1 million as part of the
consideration for the purchase of a Puerto Rican distributor, invested $1.9
million in capital expenditures and received $1.3 million from the sale of
shares in the OrthoRx joint venture. During the first quarter of 2003, we
purchased the remaining 48% minority interest in our UK distribution company for
$20.6 million and invested $1.0 million in capital expenditures.
Net cash provided by financing activities was $1.3 million in the first
quarter of 2004 compared to $4.6 million for the same period in 2003. In the
first quarter of 2004, we received proceeds of $3.0 million from the issuance of
202,588 shares of our common stock upon the exercise of options and warrants. In
the first quarter of 2004, we also had net borrowings of $1.5 million on a line
of credit in Italy used to finance working capital. Further, in the first
quarter 2004, we repaid approximately $2.8 million against the principal of the
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 will be 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 new 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 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. As of March 31, 2004 and as of May 4,
2004, we had no amounts outstanding under the revolving credit facility.
Obligations under the senior secured bank facility have a floating interest rate
of LIBOR or prime rate plus a margin that is adjusted quarterly based on
Colgate's leverage ratio. The effective interest rate as of March 31, 2004 was
3.84%. Orthofix and each of Colgate's direct and indirect subsidiaries,
including Orthofix Inc. and Breg, have guaranteed the obligations of Colgate
under the senior secured bank facility. The obligations of Colgate under the
senior secured bank facility and Colgate's subsidiaries under their guarantees
are secured by the pledge of their respective assets. Certain of our other
subsidiaries have also guaranteed the obligations of Colgate under the senior
secured bank facility on a limited recourse basis.
In addition to scheduled debt repayments of $11.0 million in 2004, our
senior secured bank facility requires us to make mandatory prepayments with (a)
the excess cash flow (as defined in the credit agreement) of Colgate and its
subsidiaries in an amount initially equal to 75% of the excess annual cash flow
of Colgate and its subsidiaries, reducing to 50% upon the attainment of a
leverage ratio of less than or equal to 1.50 to 1.00, (b) the net cash proceeds
of any debt issuance by Colgate and its subsidiaries or any equity issuance by
us or Colgate or any of its subsidiaries, (c) the net cash proceeds of asset
dispositions over a minimum threshold or (d) unless reinvested, insurance
proceeds or condemnation awards.
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 and mergers and sales
of assets. The credit agreement also contains certain financial covenants,
including a fixed charge coverage ratio, an interest coverage ratio and a
leverage ratio applicable to Colgate and its subsidiaries on a consolidated
basis, and a leverage ratio applicable to Orthofix and its subsidiaries on a
consolidated basis. The Company has assessed its compliance with the financial
covenants as of March 31, 2004, on a pro forma basis, as required by the credit
agreement, noting it is in compliance with all financial covenants.
At March 31, 2004, we had outstanding borrowings of $1.5 million and unused
available lines of credit of approximately $9.0 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 gives us the option to borrow amounts in Italy
at rates determined at the time of borrowing.
19
We continue to search for viable acquisition candidates that expand our
worldwide presence as well as additional products appropriate for current
distribution channels. An acquisition of another company or product line by us
could result in our incurrence of additional debt and contingent liabilities.
We believe that current cash balances together with projected cash flows
from operating activities, the unused revolving credit facility and available
Italian line of credit, the exercise of stock options, and our remaining
available debt capacity are sufficient to cover anticipated operating capital
needs and research and development costs over the near term.
Contractual Obligations
During the three month period ended March 31, 2004, there were no material
changes in the contractual obligations specified in our Annual Report on Form
10-K for the year ended December 31, 2003.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes from the information provided in our
Annual Report on Form 10-K for the year ended December 31, 2003.
Item 4. Controls and Procedures
As of March 31, 2004, 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.
20
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On December 4, 1998, the special committee, or the Review Committee,
established to determine the amount of any contingent contract rights under the
Merger Agreement, dated May 8, 1995, between Orthofix International and American
Medical Electronics, or AME, in settlement of all claims of the holders of
record of AME common stock and the options and warrants to acquire such stock as
of August 21, 1995, unanimously determined that Orthofix International would pay
to the AME record holders an earnout of $500,000 plus interest and 12% of the
net recovery received from the resolution in 2000 of a litigation against
Biomet, Inc. and Electro Biology, Inc., up to a maximum of $5,500,000, plus
interest. The Review Committee has not calculated the amount of the capped
figure, but Orthofix International believes it is between $5.0 million and $5.5
million. An arbitrator acting under the auspices of the American Arbitration
Association, or AAA, subsequently entered a consent award based on the Review
Committee's determination.
On January 29, 1999, two coupls who owned shares of AME common stock
commenced a civil action in Colorado federal court against Orthofix Inc. and the
members of the Review Committee and sought, among other relief, the maximum
earnout and bonus under the Merger Agreement of $18 million plus interest. The
plaintiffs also sought to represent all AME record holders. Clarence Frere,
Louise Frere, Joseph Mooibroek, and Marla B. Mooibroek, individually and on
behalf of all others similarly situated v. Orthofix Inc., Arthur Schwalm, Robert
Gaines-Cooper, James Gero, and John and Jane Does One (1) Through Four (4), No.
99-S-445 (D. Colo.). In a related action, commenced on June 2, 1999, the same
plaintiffs filed a motion in the United States District Court for the Southern
District of New York and sought to intervene in the AAA arbitration and vacate
the consent award. Clarence Frere, Louise Frere, Joseph Mooibroek, and Marla B.
Mooibroek, individually and on behalf of all others similarly situated v.
Orthofix Inc., Arthur Schwalm, Robert Gaines-Cooper, James Gero, and John and
Jane Does One (1) Through Four (4), No. 99 Civ. 4049 (S.D.N.Y.). The two actions
were consolidated in New York and Orthofix International was added as a party.
The New York federal courts resolved the two consolidated actions in favor
of the Company and its subsidiary. On July 12, 2002, the trial court denied the
plaintiff's motion to vacate the consent award. On May 21, 2003, the trial court
denied plaintiffs' motion for leave to file a second amended complaint and
dismissed the earnout and bonus action in its entirety with prejudice. On
appeal, on March 12, 2004, the United States Court of Appeals for the Second
Circuit summarily affirmed the judgment in favor of the Company and its
subsidiary. A request for further review in the United States Supreme Court is
currently due no later than June 10, 2004.
If Plaintiffs do not seek or the Supreme Court does not grant further
review, we anticipate that the Review Committee will calculate the settlement
payment and that it will pay the appropriate amount. We have previously reserved
approximately $5.2 million plus accrued interest for the settlement of this
matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
-------- -----------
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.
21
(b) Reports on Form 8-K
On January 8, 2004, we filed a current report on Form 8-K (Date of
Report: January 7, 2004) reporting under Item 2 that we had completed
the acquisition of Breg, Inc. pursuant to an acquisition agreement
among Orthofix, Trevor Acquisition, Inc., an acquisition subsidiary of
Orthofix, Breg and a representative of the shareholders of Breg, and
that, concurrently with the closing of the acquisition, Colgate Medical
Limited, an indirect wholly owned subsidiary of Orthofix, had entered
into a new senior secured bank facility with a syndicate of financial
institutions arranged by Wachovia Securities. The report on Form 8-K
attached as exhibits under Item 7 the acquisition agreement, the
related amended and restated voting and subscription agreement, the
credit agreement and also attached a press release regarding the same.
On March 12, 2004, we filed an amended current report on Form 8-K
(Date of Report: March 12, 2004) reporting under Item 2 that were
amending our current report on Form 8-K dated January 7, 2004 regarding
the completion of the Breg acquisition to report and attach under Item
7 the required financial statements and pro forma information.
22
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: May 10, 2004 By: /s/ CHARLES W. FEDERICO
--------------------------------------------
Name: Charles W. Federico
Title: Chief Executive Officer and President
Date: May 10, 2004 By: /s/ THOMAS HEIN
--------------------------------------------
Name: Thomas Hein
Title: Chief Financial Officer
23