Orthofix International 10-Q 3-31-2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
one)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
1934
|
For
the
quarterly period ended March 31, 2007
OR
o
|
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 incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
7
Abraham de Veerstraat
|
|
|
Curaçao
|
|
|
Netherlands
Antilles
|
|
N/A
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
599-9-4658525
|
|
|
(Registrant’s
telephone number, including area code)
|
|
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
the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated filer o
|
|
Accelerated
filer x
|
|
Non-Accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As
of May
7, 2007, 16,540,041 shares
of
common stock were issued and outstanding.
|
3
|
Item
1.
|
|
3
|
Item
2.
|
|
18
|
Item
3.
|
|
25
|
Item
4.
|
|
26
|
|
27
|
Item
1.
|
|
27
|
Item
1A.
|
|
27
|
Item
6.
|
|
28
|
|
31
|
Forward-Looking
Statements
This
Form
10-Q contains forward-looking statements within the meaning of Section 21E
of
the Securities Exchange Act of 1934, which relate to our business and financial
outlook and which are based on our current beliefs, assumptions, 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,” “projects”,
“intends”, “predicts,” “potential” or “continue” or other comparable
terminology. These forward-looking statements are not guarantees of our future
performance and involve risks, uncertainties, estimates and assumptions that
are
difficult to predict. Therefore, our actual outcomes and results may differ
materially from those expressed in these forward-looking statements. You should
not place undue reliance on any of these forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any such statement to reflect new
information, the occurrence of future events or circumstances or otherwise.
Factors
that could cause actual results to differ materially from those indicated by
the
forward-looking statements or that could contribute to such differences include,
but are not limited to, unanticipated expenditures, changing relationships
with
customers, suppliers and strategic partners, unfavorable results in litigation
matters, risks relating to the protection of intellectual property, changes
to
the reimbursement policies of third parties, changes to governmental regulation
of medical devices, the impact of competitive products, changes to the
competitive environment, the acceptance of new products in the market,
conditions of the orthopedic industry and the economy, currency or interest
rate
fluctuations and the other risks described under Item 1A - “Business - Risk
Factors” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2006 and Part II, Item 1A - “Risk Factors” in this Form 10-Q.
|
PART
I FINANCIAL
INFORMATION
|
Item
1. Condensed
Financial Statements
CONDENSED
CONSOLIDATED BALANCE SHEETS
(U.S.
Dollars, in thousands except share data and per share
date)
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
(Unaudited)
|
|
(Note
2)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
21,805
|
|
$
|
25,881
|
|
Restricted
cash
|
|
|
5,897
|
|
|
7,300
|
|
Trade
accounts receivable, net
|
|
|
108,754
|
|
|
104,662
|
|
Inventories,
net
|
|
|
78,127
|
|
|
70,395
|
|
Deferred
income taxes
|
|
|
9,020
|
|
|
6,971
|
|
Prepaid
expenses and other current assets
|
|
|
21,307
|
|
|
18,759
|
|
Total
current assets
|
|
|
244,910
|
|
|
233,968
|
|
Securities
and other investments
|
|
|
4,082
|
|
|
4,082
|
|
Property,
plant and equipment, net
|
|
|
26,778
|
|
|
25,311
|
|
Patents
and other intangible assets, net
|
|
|
257,692
|
|
|
261,159
|
|
Goodwill
|
|
|
314,389
|
|
|
313,070
|
|
Deferred
taxes and other long-term assets
|
|
|
25,640
|
|
|
24,695
|
|
Total
assets
|
|
$
|
873,491
|
|
$
|
862,285
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Bank
borrowings
|
|
$
|
2,738
|
|
$
|
78
|
|
Current
portion of long-term debt
|
|
|
3,300
|
|
|
3,334
|
|
Trade
accounts payable
|
|
|
21,104
|
|
|
26,051
|
|
Other
current liabilities
|
|
|
37,758
|
|
|
31,577
|
|
Total
current liabilities
|
|
|
64,900
|
|
|
61,040
|
|
Long-term
debt
|
|
|
307,255
|
|
|
312,055
|
|
Deferred
income taxes
|
|
|
95,471
|
|
|
95,019
|
|
Other
long-term liabilities
|
|
|
1,637
|
|
|
1,536
|
|
Total
liabilities
|
|
|
469,263
|
|
|
469,650
|
|
|
|
|
|
|
|
|
|
Contingencies
(Note 16)
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
shares (16,501,062 and 16,445,859 shares issued at March 31, 2007
and
December 31, 2006, respectively)
|
|
|
1,651
|
|
|
1,645
|
|
Additional
paid-in capital
|
|
|
132,923
|
|
|
128,297
|
|
Retained
earnings
|
|
|
253,500
|
|
|
248,433
|
|
Accumulated
other comprehensive income
|
|
|
16,154
|
|
|
14,260
|
|
Total
shareholders’ equity
|
|
|
404,228
|
|
|
392,635
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
873,491
|
|
$
|
862,285
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Unaudited,
U.S. Dollars, in thousands except share and per share
data)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
117,032
|
|
$
|
81,116
|
|
Cost
of sales
|
|
|
30,796
|
|
|
21,459
|
|
Gross
profit
|
|
|
86,236
|
|
|
59,657
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
44,583
|
|
|
30,788
|
|
General
and administrative
|
|
|
15,906
|
|
|
12,475
|
|
Research
and development
|
|
|
6,337
|
|
|
2,964
|
|
Amortization
of intangible assets
|
|
|
4,468
|
|
|
1,770
|
|
|
|
|
71,294
|
|
|
47,997
|
|
Operating
income
|
|
|
14,942
|
|
|
11,660
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(5,664
|
)
|
|
(145
|
)
|
Other
expense, net
|
|
|
(556
|
)
|
|
(52
|
)
|
KCI
settlement, net of related costs
|
|
|
-
|
|
|
1,093
|
|
Income
before minority interests and income taxes
|
|
|
8,722
|
|
|
12,556
|
|
Minority
interests
|
|
|
(43
|
)
|
|
-
|
|
Income
before income taxes
|
|
|
8,679
|
|
|
12,556
|
|
Income
tax expense
|
|
|
(2,412
|
)
|
|
(4,310
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,267
|
|
$
|
8,246
|
|
|
|
|
|
|
|
|
|
Net
income per common share - basic
|
|
$
|
0.38
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
Net
income per common share - diluted
|
|
$
|
0.37
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic
|
|
|
16,464,571
|
|
|
16,020,250
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - diluted
|
|
|
16,926,257
|
|
|
16,184,755
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Unaudited,
U.S. Dollars, in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
6,267
|
|
$
|
8,246
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
6,937
|
|
|
3,522
|
|
Amortization
of debt costs
|
|
|
164
|
|
|
254
|
|
Provision
for doubtful accounts
|
|
|
876
|
|
|
1,921
|
|
Deferred
taxes
|
|
|
(2,978
|
)
|
|
(951
|
)
|
Stock
based compensation
|
|
|
2,599
|
|
|
2,127
|
|
Minority
interest
|
|
|
(10
|
)
|
|
-
|
|
Step
up of fair value in inventory
|
|
|
930
|
|
|
-
|
|
Other
|
|
|
(767
|
)
|
|
(264
|
)
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
1,403
|
|
|
13,762
|
|
Accounts
receivable
|
|
|
(4,597
|
)
|
|
(3,680
|
)
|
Inventories
|
|
|
(8,224
|
)
|
|
(2,103
|
)
|
Prepaid
expenses and other
|
|
|
(2,474
|
)
|
|
(202
|
)
|
Accounts
payable
|
|
|
(5,069
|
)
|
|
(667
|
)
|
Current
liabilities
|
|
|
6,539
|
|
|
(20,194
|
)
|
Net
cash provided by operating activities
|
|
|
1,596
|
|
|
1,771
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Investments
in affiliates and subsidiaries
|
|
|
(985
|
)
|
|
(1,108
|
)
|
Capital
expenditures
|
|
|
(4,571
|
)
|
|
(1,618
|
)
|
Net
cash used in investing activities
|
|
|
(5,556
|
)
|
|
(2,726
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
1,637
|
|
|
637
|
|
Tax
benefit on non-qualified stock options
|
|
|
396
|
|
|
53
|
|
Repayment
of long-term debt
|
|
|
(4,834
|
)
|
|
(15,069
|
)
|
Proceeds
(repayments) of bank borrowings
|
|
|
2,631
|
|
|
(23
|
)
|
Net
cash used in financing activities
|
|
|
(170
|
)
|
|
(14,402
|
)
|
Effect
of exchange rate changes on cash
|
|
|
54
|
|
|
176
|
|
Net
decrease in cash and cash equivalents
|
|
|
(4,076
|
)
|
|
(15,181
|
)
|
Cash
and cash equivalents at the beginning of the year
|
|
|
25,881
|
|
|
63,786
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
21,805
|
|
$
|
48,605
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
NOTES
TO
THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Orthofix
International N.V. (the “Company”) is a multinational corporation principally
involved in the design, development, manufacture, marketing and distribution
of
medical equipment, principally for the orthopedic products market.
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, 2007 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2007. The balance sheet
at
December 31, 2006 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, 2006.
NOTE
3:
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
|
On
January 1, 2007 the Company adopted the provisions of FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which
clarifies the accounting for uncertainty in income taxes. As a result of the
implementation of FIN 48, the Company recognized $1.2 million in additional
liability for unrecognized tax benefits (including interest and penalties),
which was accounted for as a reduction to the January 1, 2007 balance of
retained earnings. As of March 31, 2007, the Company’s unrecognized tax benefits
totaled $1.5 million including interest of $0.2 million. All of the unrecognized
tax benefits recorded would affect the Company’s effective tax rate if
recognized.
The
Company files a consolidated income tax return in the U.S. federal jurisdiction
and numerous consolidated and separate income tax returns in many state and
foreign jurisdictions. The following table summarizes these open tax years
by
major jurisdiction:
|
|
Open
Tax Year
|
|
|
Examination
in
|
|
Examination
not yet
|
Jurisdiction
|
|
Progress
|
|
Initiated
|
|
|
|
|
|
United
States
|
|
N/A
|
|
2005-2006
|
|
|
|
|
|
Various
States
|
|
1996-2005
|
|
1996-2005
|
|
|
|
|
|
Brazil
|
|
N/A
|
|
2004-2006
|
|
|
|
|
|
Cyprus
|
|
N/A
|
|
2005-2006
|
|
|
|
|
|
France
|
|
N/A
|
|
2002-2006
|
|
|
|
|
|
Germany
|
|
2003-2005
|
|
2006
|
|
|
|
|
|
Italy
|
|
N/A
|
|
2002-2006
|
|
|
|
|
|
Mexico
|
|
N/A
|
|
2000-2006
|
|
|
|
|
|
Netherlands
|
|
N/A
|
|
2004-2006
|
|
|
|
|
|
Puerto
Rico
|
|
N/A
|
|
N/A
|
|
|
|
|
|
Seychelles
|
|
N/A
|
|
N/A
|
|
|
|
|
|
Switzerland
|
|
N/A
|
|
2004-2006
|
|
|
|
|
|
United
Kingdom
|
|
N/A
|
|
2003-2006
|
The
Company recognizes potential accrued interest and penalties related to
unrecognized tax benefits within its global operations in income tax expense.
To
the extent interest and penalties are not assessed with respect to uncertain
tax
positions, amounts accrued will be reduced and reflected as a reduction of
the
overall income tax provision.
NOTE
4:
|
STOCK-BASED
COMPENSATION
|
The
Company accounts for its stock-based compensation plans in accordance with
SFAS
No. 123(R), “Share-Based Payment”, using the modified prospective transition
method. Under SFAS No. 123(R), all stock-based compensation costs are measured
at the grant date, based on the estimated fair value of the award, and is
recognized as an expense in the income statement over the requisite service
period.
The
following table shows the detail of stock-based compensation by line item in
the
Condensed Consolidated Statements of Income:
(In
thousands)
|
|
Three
Months Ended
March
31,
2007
|
|
Three
Months Ended
March
31,
2006
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$
|
89
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
551
|
|
|
210
|
|
|
|
|
|
|
|
|
|
General
and administrative (1)
|
|
|
1,477
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
253
|
|
|
112
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,370
|
|
$
|
1,981
|
|
|
(1) |
2006
amount includes $656 of stock-based compensation from the accelerated
vesting of options associated with the transition of senior management
in
the first quarter of 2006.
|
NOTE
5:
|
RECLASSIFICATIONS
|
Certain
prior year amounts have been reclassified to conform to the 2007 presentation.
The reclassifications have no effect on previously reported net income or
shareholders’ equity.
Inventories
are valued at the lower of cost or estimated net realizable value, after
provision for excess or obsolete items. Cost is determined on a weighted-average
basis, which approximates the FIFO method. The valuation of work-in-process,
finished goods, field inventory and consignment inventory includes the cost
of
materials, labor and production. Field inventory represents immediately saleable
finished goods inventory that is in the possession of the Company’s direct sales
representatives.
Inventories
were as follows:
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
9,195
|
|
$
|
8,384
|
|
Work-in-process
|
|
|
9,725
|
|
|
6,665
|
|
Finished
goods
|
|
|
32,841
|
|
|
34,901
|
|
Field
inventory (as described above)
|
|
|
9,493
|
|
|
7,485
|
|
Consignment
inventory
|
|
|
23,929
|
|
|
20,173
|
|
|
|
|
85,183
|
|
|
77,608
|
|
Less
reserve for obsolescence
|
|
|
(7,056
|
)
|
|
(7,213
|
)
|
|
|
$
|
78,127
|
|
$
|
70,395
|
|
The
following acquisitions were recorded using the purchase method of accounting:
Blackstone
Acquisition
On
September 22, 2006, the Company purchased 100% of the stock of Blackstone
Medical, Inc. (“Blackstone”) for a purchase price of $333.0 million plus
acquisition costs and subject to certain closing adjustments. The acquisition
and related costs were financed with approximately $330.0 million of senior
secured bank debt, as described in Note 9, and cash on hand. Blackstone, a
privately held company based in Springfield, Massachusetts, specializes in
the
design, development and marketing of spinal implant and related biologic
products. Blackstone's product lines include spinal fixating devices including
hooks, rods, screws, plates, various spacers and cages and related biologics
products.
The
Company considered this acquisition as a way to fortify and further advance
its
business strategy to expand its spinal sector. The acquisition broadened the
Company's product lines, reduced reliance on the success of any single product
and enlarged channel opportunities for products from Blackstone’s and Orthofix’s
existing operations.
Factors
that contributed to the valuation of Blackstone included the recognition that
Blackstone had established itself as what the Company believes to be one
of the largest private spine companies with a broad portfolio of spinal
product offerings. Further, Blackstone has a strong brand name and product
identity in the spinal industry. Blackstone has a history of sales and earnings
growth that compares favorably to the fast growing spinal market that its
product lines serve. Orthofix valued Blackstone after reviewing a range of
valuation methodologies provided by its financial advisors for the transaction,
including comparable publicly-traded companies, comparable precedent
transactions, discounted cash flow analysis and comparison to Orthofix's trading
multiples.
The
acquisition has been accounted for using the purchase method in accordance
with
SFAS No. 141, “Business Combinations”. The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on their
estimated fair market value at the date of acquisition.
A
preliminary allocation of the purchase price reflects the
following:
Current
assets, other than cash
|
|
$
|
40,101
|
|
Fixed
assets acquired
|
|
|
2,872
|
|
Intangible
assets not subject to amortization - registered trademarks
|
|
|
77,000
|
|
Intangible
assets subject to amortization (12-16 year weighted average useful
life):
|
|
|
|
|
Distribution
Networks (12 - 16 year weighted average useful life)
|
|
|
55,000
|
|
Patents
(13 year weighted average useful life)
|
|
|
70,000
|
|
|
|
|
244,973
|
|
Goodwill
(indefinite lived intangible asset)
|
|
|
133,641
|
|
In-process
research and development
|
|
|
40,000
|
|
Deferred
tax asset
|
|
|
14,985
|
|
Total
assets acquired
|
|
|
433,599
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(13,037
|
)
|
Deferred
tax liability
|
|
|
(78,442
|
)
|
Total
liabilities assumed
|
|
|
(91,479
|
)
|
Net
assets acquired
|
|
$
|
342,120
|
|
The
results of Blackstone’s operations have been included in the Company’s
consolidated results of operations from the date of acquisition.
The
preliminary purchase price has been allocated to assets acquired, purchased
in-process research and development, and liabilities assumed based on their
estimated fair value at the acquisition date. The amount of the purchase price
allocated to purchased in-process research and development was written off
at
the date of acquisition and resulted in a charge of $40.0 million. This charge
was included in the research and development expense line item on the
Consolidated Statements of Operations for the year ended December 31, 2006
and
was principally comprised of the value of the Dynamic Stabilization and Cervical
Disk which together accounted for 93% of the fair value. The fair value of
the
in-process research and development was estimated using the
discounted earnings method. The amount written off as purchased in-process
research and development was not deductible for income tax purposes in the
United States. In addition, other items that may affect the final purchase
price
allocation include finalization of acquisition costs, and other information
that
provides a better estimate of the fair value of the assets acquired and the
liabilities assumed including potential litigation reserves.
There
are
no residual values for any of the intangible assets subject to amortization
acquired during the Blackstone acquisition. Definite lived intangible assets
acquired in the Blackstone acquisition consist of:
|
|
|
|
|
|
(In
thousands)
|
|
Fair
value at
Acquisition
|
|
Remaining
Useful
Life
|
|
|
|
|
|
|
|
Distribution
network
|
|
$
|
55,000
|
|
12
to 16 Years |
|
Patents
|
|
|
70,000
|
|
13
Years |
|
Total
definite lived intangible assets
|
|
$
|
125,000
|
|
|
|
|
The
Company has determined that trademarks acquired during the Blackstone
acquisition, valued at $77.0 million, are indefinite lived intangible assets.
The Company considered the criteria prescribed by paragraphs 11 (a), (c), (e)
and (f) of SFAS 142 in making this determination. The Company is not aware
of
any legal, regulatory, or contractual provisions that limit the useful lives
of
these registered trademarks. The Company does not believe the effects of
obsolescence, demand, competition, or other economic factors will cause the
useful lives of these registered trademarks to be limited. The Company concluded
that no legal, regulatory, contractual, competitive, economic, or other factors
limit the useful life of the registered trademarks to the Company,
and therefore the useful lives of the registered trademarks are considered
to be
indefinite.
The
change in the net carrying value of goodwill for the period ended March 31,
2007
is as follows:
(In
thousands)
|
|
Domestic
|
|
Blackstone
|
|
Breg
|
|
International
|
|
Total
|
|
At
December 31, 2006
|
|
$
|
31,793
|
|
$
|
132,784
|
|
$
|
101,322
|
|
$
|
47,171
|
|
$
|
313,070
|
|
Purchase
Price Adjustment
|
|
|
-
|
|
|
857
|
|
|
-
|
|
|
-
|
|
|
857
|
|
Purchase
of Minority Interest
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
128
|
|
|
128
|
|
Foreign
Currency
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
334
|
|
|
334
|
|
At
March 31, 2007
|
|
$
|
31,793
|
|
$
|
133,641
|
|
$
|
101,322
|
|
$
|
47,633
|
|
$
|
314,389
|
|
(In
thousands)
|
|
March
31, 2007
|
|
December
31,
2006
|
|
|
|
|
|
|
|
Long-term
obligations
|
|
$
|
310,350
|
|
$
|
315,175
|
|
Other
loans
|
|
|
205
|
|
|
214
|
|
|
|
|
310,555
|
|
|
315,389
|
|
Less
current portion
|
|
|
(3,300
|
)
|
|
(3,334
|
)
|
|
|
$
|
307,255
|
|
$
|
312,055
|
|
On
September 22, 2006 our wholly-owned US holding company subsidiary, Orthofix
Holdings, Inc. (“Orthofix Holdings”), entered into a senior secured credit
facility with a syndicate of financial institutions to finance the acquisition
of Blackstone. The senior secured credit facility provides for (1) a seven-year
amortizing term loan facility of $330.0 million, the proceeds of which, together
with cash balances were used for payment of the purchase price of Blackstone;
and (2) a six-year revolving credit facility of $45.0 million. As of March
31,
2007 we had no amounts outstanding under the revolving credit facility and
$310.4 million outstanding under the term loan facility. Obligations under
the
senior secured credit facility have a floating interest rate of LIBOR plus
a
margin or prime rate plus a margin. Currently, the term loan is a LIBOR loan,
and the margin is 1.75%, which margin is adjusted quarterly based upon the
leverage ratio of the Company and its subsidiaries. The effective interest
rate
as of March 31, 2007 on the senior secured debt is 7.12%.
Each
of
the domestic subsidiaries of Orthofix (which includes Orthofix Inc., Breg Inc.,
and Blackstone Medical Inc.), Colgate Medical Limited and Victory Medical have
guaranteed the obligations of Orthofix Holdings Inc. under the senior secured
bank facility. The obligations of the subsidiaries under their guarantees are
secured by the pledges of their respective assets.
In
conjunction with obtaining the senior secured bank facility and the amendment
thereto, the Company incurred debt issuance costs of $6.0 million. As of March
31, 2007, $5.6 million of capitalized debt costs is included in other long-term
assets compared to $5.8 at December 31, 2006.
Certain
subsidiaries of the Company have effective restrictions on their ability to
pay
dividends or make intercompany loan advances pursuant to the Company’s senior
secured credit facility. The net assets of Orthofix Holdings Inc. and its
subsidiaries are restricted for distributions to the parent company. All other
subsidiaries of the Orthofix Group have access to these net assets for
operational purposes. The amount of restricted net assets of Orthofix Holdings
Inc. and its subsidiaries as of March 31, 2007 is $264.5 million compared to
$247.2 million at December 31, 2006.
For
the
three months ended March 31, 2007, the Company issued 55,203 shares of common
stock upon the exercise of outstanding stock options for proceeds of $1.6
million.
NOTE
11:
|
COMPREHENSIVE
INCOME (LOSS)
|
Accumulated
other comprehensive income is comprised of foreign currency translation
adjustments and the effective portion of the gain (loss) for derivatives
designated and accounted for as a cash flow hedge. The components of and changes
in other comprehensive income are as follows:
(In
thousands)
|
|
Foreign
Currency Translation Adjustments
|
|
Fair
Value of Derivatives
|
|
Accumulated
Other Comprehensive Income/(Loss)
|
|
Balance
at December 31, 2006
|
|
$
|
14,315
|
|
$
|
(55
|
)
|
$
|
14,260
|
|
Unrealized
loss on derivative instrument, net of tax of $54
|
|
|
-
|
|
|
(203
|
)
|
|
(203
|
)
|
Foreign
currency translation adjustment
|
|
|
2,097
|
|
|
-
|
|
|
2,097
|
|
Balance
at March 31, 2007
|
|
$
|
16,412
|
|
$
|
(258
|
)
|
$
|
16,154
|
|
(In
thousands)
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
Net
income (loss)
|
|
$
|
6,267
|
|
$
|
8,246
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instrument, net of tax of $54
|
|
|
(203
|
)
|
|
--
|
|
Foreign
currency translation adjustment
|
|
|
2,097
|
|
|
1,638
|
|
Total
comprehensive income
|
|
$
|
8,161
|
|
$
|
9,884
|
|
NOTE
12:
|
BUSINESS
SEGMENT INFORMATION
|
The
Company’s segment information is prepared on the same basis that the Company’s
management reviews the financial information for operational decision making
purposes. Concurrent with the acquisition of Blackstone, the Company redefined
its business segments and market sectors. All prior period information presented
has been restated to conform to the new segments and market sectors. The Company
is comprised of the following segments:
Orthofix
Domestic
Orthofix
Domestic (“Domestic”) consists of operations in the United States of Orthofix
Inc., which distributes stimulation and orthopedic products. Domestic uses
both
direct and distributor sales representatives to sell Spine and Orthopedic
products to hospitals, doctors and other healthcare providers in the United
States market.
Blackstone
Blackstone
(“Blackstone”) consists of Blackstone Medical, Inc., based in Springfield,
Massachusetts, and its two subsidiaries, Blackstone GmbH and Goldstone GmbH.
Blackstone specializes in the design, development and marketing of spinal
implant and related biologic products. Blackstone's operating loss includes
amortization of acquired intangible assets and inventory which has been
stepped-up in value for the Blackstone acquisition. Blackstone distributes
its
products through a network of domestic and international distributors, sales
representatives and affiliates.
Breg
Breg
(“Breg”) consists of Breg, Inc. Breg, based in Vista, California, designs,
manufactures, and distributes orthopedic products for post-operative
reconstruction and rehabilitative patient use and sells its products through
a
network of domestic and international distributors, sales representatives and
affiliates.
Orthofix
International
Orthofix
International (“International”) consists of international operations located in
Europe, Mexico, Brazil and Puerto Rico, as well as independent distributors
located outside the United States. International uses both direct and
distributor sales representatives to sell Spine, Orthopedics, Sports Medicine,
Vascular and Other products to hospitals, doctors, and other healthcare
providers.
Group
Activities
Group
Activities are comprised of Orthofix International N.V., the ultimate parent
corporation and Orthofix Holdings, Inc., the U.S. holding company.
The
tables below present information by reportable segment:
The
following table presents external and intersegment sales by segment for the
three month periods ended March 31:
|
|
External
Sales
|
|
Intersegment
Sales
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Domestic
|
|
$
|
39,115
|
|
$
|
36,520
|
|
$
|
989
|
|
$
|
707
|
|
Blackstone
|
|
|
26,394
|
|
|
-
|
|
|
702
|
|
|
-
|
|
Breg
|
|
|
20,123
|
|
|
18,561
|
|
|
473
|
|
|
297
|
|
International
|
|
|
31,400
|
|
|
26,035
|
|
|
8,413
|
|
|
16,187
|
|
Total
|
|
$
|
117,032
|
|
$
|
81,116
|
|
$
|
10,577
|
|
$
|
17,191
|
|
The
following table presents operating income (loss) by segment for the three month
period ended March 31:
|
|
Operating
Income
(Loss)
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Domestic
|
|
$
|
12,726
|
|
$
|
8,500
|
|
Blackstone
|
|
|
(614
|
)
|
|
-
|
|
Breg
|
|
|
1,557
|
|
|
1,458
|
|
International
|
|
|
6,077
|
|
|
4,758
|
|
Group
Activities
|
|
|
(3,499
|
)
|
|
(2,366
|
)
|
Eliminations
|
|
|
(1,305
|
)
|
|
(690
|
)
|
Total
|
|
$
|
14,942
|
|
$
|
11,660
|
|
The
following tables present sales by market sector for the three month
periods ended March 31, 2007 and 2006:
|
|
Sales
by Market Sector
for
the three month period ended March 31, 2007
|
|
(In
thousands)
|
|
Orthofix
Domestic
|
|
Blackstone
|
|
Breg
|
|
Orthofix
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spine
|
|
$
|
29,604
|
|
$
|
26,394
|
|
$
|
-
|
|
$
|
151
|
|
$
|
56,149
|
|
Orthopedics
|
|
|
9,511
|
|
|
-
|
|
|
-
|
|
|
18,134
|
|
|
27,645
|
|
Sports
Medicine
|
|
|
-
|
|
|
-
|
|
|
20,123
|
|
|
1,035
|
|
|
21,158
|
|
Vascular
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,921
|
|
|
4,921
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,159
|
|
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,115
|
|
$
|
26,394
|
|
$
|
20,123
|
|
$
|
31,400
|
|
$
|
117,032
|
|
|
|
Sales
by Market Sector
for
the three month period ended March 31, 2006
|
|
(In
thousands)
|
|
Orthofix
Domestic
|
|
Blackstone
|
|
Breg
|
|
Orthofix
International
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spine
|
|
$
|
27,821
|
|
$
|
-
|
|
$
|
-
|
|
$
|
45
|
|
$
|
27,866
|
|
Orthopedics
|
|
|
8,699
|
|
|
-
|
|
|
-
|
|
|
14,204
|
|
|
22,903
|
|
Sports
Medicine
|
|
|
-
|
|
|
-
|
|
|
18,561
|
|
|
627
|
|
|
19,188
|
|
Vascular
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,390
|
|
|
5,390
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,769
|
|
|
5,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,520
|
|
$
|
-
|
|
$
|
18,561
|
|
$
|
26,035
|
|
$
|
81,116
|
|
The
difference between the reported provision for income taxes and a provision
computed by applying the statutory rate of the Company is attributable to the
income tax benefits realized from the Company’s European restructuring in 2006
and a similar transaction in 2002, whereby certain intangible assets were sold
between subsidiaries in order to optimize the Company’s supply chain. Such
assets were sold at estimates of fair value based upon valuations provided
by an
independent third-party which remain subject to review by the local taxing
authorities. Further the effective tax rate has been affected by non-deductible
foreign losses, the generation of unutilizable net operating losses in various
jurisdictions, tax planning associated with the acquisition of Breg and the
Section 199 deduction related to income attributable to production activities
occurring in the United States.
NOTE
14:
|
EARNINGS
PER SHARE
|
For
the
three month periods ended March 31, 2007 and 2006, there were no adjustments
to
net income (the numerators) for purposes of calculating basic and diluted net
income per common share. The following table sets forth a reconciliation of
the
share numbers (the denominators) in computing earnings per share in accordance
with SFAS No. 128, “Earnings Per Share”:
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
16,464,571
|
|
|
16,020,250
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Effect
of SFAS No. 123 (R)
|
|
|
340,555
|
|
|
(14,669
|
)
|
Stock
options outstanding
|
|
|
121,131
|
|
|
179,174
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
|
|
16,926,257
|
|
|
16,184,755
|
|
The
Company did not include 10,500 and 589,668 options in the diluted shares
outstanding calculation for the three month periods ended March 31, 2007 and
2006, respectively, because their inclusion would have been antidilutive or
because their exercise price exceeded the average market price of the Company’s
common stock during the period.
NOTE
15:
|
DERIVATIVE
INSTRUMENT
|
In
2006,
the Company entered into a cross-currency swap agreement to manage its foreign
currency exposure related to a portion of the Company’s intercompany receivable
of a U.S. dollar functional currency subsidiary that is denominated in Euro.
The
derivative instrument, a ten-year fully amortizable agreement with a notional
amount of $63.0 million, is scheduled to expire on December 30, 2016. The
instrument is designated as a cash flow hedge. The amount outstanding under
the
agreement as of March 31, 2007 is $63.0 million. Under the agreement, the
Company pays Euro and receives U.S. dollars based on scheduled cash flows in
the
agreement. During the first quarter 2007, the Company recognized the unrealized
loss on the change in fair value of this swap arrangement of $0.2 million within
other comprehensive income.
Litigation
The
Company, in the normal course of its business, is involved in various lawsuits
from time to time and may be subject to certain other
contingencies.
In
management’s opinion, except as discussed below, the Company is not currently
involved in any legal proceeding, individually or in the aggregate, that could
have a material effect on the financial position, liquidity or operating results
of the Company.
The
Company's subsidiary, Blackstone Medical, is a defendant in a patent
infringement lawsuit captioned
Medtronic Sofamor Danek USA Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico
Operations Co., and Medtronic Sofamor Danek Deggendorf, GmbH v. Blackstone
Medical, Inc.,
Civil
Action No. 06-30165-MAP, filed on September 22, 2006 in the United States
District Court for the District of Massachusetts. The plaintiffs allege that
(i)
they are the exclusive licensees of United States Patent Nos. 6,926,718 B1,
6,936,050 B2, 6,936,051
B2, 6,398,783 B1 and 7,066,961 B2
( the
“Patents”), and (ii) Blackstone Medical's making, selling, offering for sale,
and using within the United States of its Blackstone Anterior Cervical Plate,
3º
Anterior Cervical Plate, Hallmark Anterior Cervical Plate and Construx Mini
PEEK
VBR System products is infringing and has infringed the Patents, and that such
infringement has been willful. The Complaint requests both damages and an
injunction against further alleged infringement of the Patents. The Complaint
does not specifically state an amount of damages. Blackstone Medical has denied
infringement and asserts that the Patents are invalid.
Risks
and Uncertainties
As
of
March 31, 2007, the Company has a Euro denominated intercompany receivable
of
6.2 million in an entity with U.S. Dollar functional currency for which there
was no offsetting Euro payable. Accordingly, the Company is exposed to potential
movements in currency rates between the Euro and the U.S. Dollar. The Company
is
currently evaluating the options to limit the currency exposure on this Euro
denominated receivable.
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, 2006.
Item
2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion and analysis addresses our liquidity, financial condition,
and the results of our operations for the three months ended March 31, 2007
compared to our results of operations for the three months ended March 31,
2006.
These discussions should be read in conjunction with our historical consolidated
financial statements and related notes thereto and the other financial
information included in this Form 10-Q and in our Annual Report on Form 10-K
for
the year ended December 31, 2006.
General
We
are a
diversified orthopedic products company offering a broad line of surgical and
non-surgical products for the Spine, Orthopedics, Sports Medicine and Vascular
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 invasive and minimally invasive spinal
implant products and related biologics; non-invasive bone growth stimulation
products used to enhance the success rate of spinal fusions and to treat
non-union fractures; external and internal fixation devices used in fracture
treatment, limb lengthening and bone reconstruction; 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 bone cement used to fix artificial implants
and airway management products used in anesthesia applications.
We
have
administrative and training facilities in the United States and Italy and
manufacturing facilities in the United States, the United Kingdom, Italy and
Mexico. We directly distribute our products in the United States, the United
Kingdom, Italy, Germany, Switzerland, Austria, France, Belgium, Mexico, Brazil,
and Puerto Rico. In several of these and other markets, we also distribute
our
products through independent distributors.
Our
consolidated financial statements include the financial results of the Company
and its wholly-owned and majority-owned subsidiaries and entities over which
we
have control. All intercompany accounts and transactions are eliminated in
consolidation.
Our
reporting currency is the United States Dollar. All balance sheet accounts,
except shareholders’ equity, are translated at year-end exchange rates, and
revenue and expense items are translated at weighted average rates of exchange
prevailing during the year. Gains and losses resulting from foreign currency
transactions are included in other income (expense). Gains and losses resulting
from the translation of foreign currency financial statements are recorded
in
the accumulated other comprehensive income (loss) component of shareholders’
equity.
Our
financial condition, results of operations and cash flows are not significantly
impacted by seasonal trends. In addition, we do not believe our operations
will
be significantly affected by inflation. However, in the ordinary course of
business, we are exposed to the impact of changes in interest rates and foreign
currency fluctuations. Our objective is to limit the impact of such movements
on
earnings and cash flows. In order to achieve this objective, we seek to balance
non-dollar income and expenditures. During the first three months of 2007,
we
have used derivative instruments to hedge foreign currency fluctuation
exposures. See Item 3 - “Quantitative and Qualitative Disclosures About Market
Risk.”
On
September 22, 2006, we completed the acquisition of Blackstone Medical, Inc.
(“Blackstone”), a privately held company specializing in the design, development
and marketing of spinal implant and related biologics products. The purchase
price for the acquisition was $333.0 million, subject to certain closing
adjustments, plus transaction costs totaling approximately $9.6 million as
of
March 31, 2007. The acquisition and related costs were financed with $330.0
million of senior secured bank debt and cash on hand. Financing costs were
approximately $6.0 million.
Effective
with the acquisition of Blackstone, we manage our operations as four business
segments: Domestic, Blackstone, Breg, and International. Orthofix Domestic
(“Domestic”) consists of operations of our subsidiary Orthofix Inc. Blackstone
consists of Blackstone’s domestic and international operations. Breg consists of
Breg’s domestic operations and international distributors. Orthofix
International (“International”) consists of operations which are located in the
rest of the world (excluding Blackstone’s international operations), as well as
independent export distribution operations. Group Activities are comprised
of
the operating expenses and identifiable assets of Orthofix International N.V.
and its US holding company, Orthofix Holdings, Inc.
Segment
and Market Sector Revenues
The
following tables display net sales by business segment and net sales by market
sector. We provide net sales by market sector for information purposes only.
We
keep our books and records and account for net sales, costs of sales and
expenses by business segment. In 2006, concurrent with the acquisition of
Blackstone, we have redefined our business segments and market sectors. All
prior period information has been restated to conform to the new segments and
market sectors.
Business
Segment:
|
|
Three
Months Ended March 31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
Net
Sales
|
|
Percent
of
Total
Net Sales
|
|
Net
Sales
|
|
Percent
of
Total
Net Sales
|
|
Domestic
|
|
$
|
39,115
|
|
|
33%
|
|
$
|
36,520
|
|
|
45%
|
|
Blackstone
|
|
|
26,394
|
|
|
23%
|
|
|
-
|
|
|
-%
|
|
Breg
|
|
|
20,123
|
|
|
17%
|
|
|
18,561
|
|
|
23%
|
|
International
|
|
|
31,400
|
|
|
27%
|
|
|
26,035
|
|
|
32%
|
|
Total
|
|
$
|
117,032
|
|
|
100%
|
|
$
|
81,116
|
|
|
100%
|
|
Market
Sector:
|
|
Three
Months Ended March 31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
Net
Sales
|
|
Percent
of
Total
Net Sales
|
|
Net
Sales
|
|
Percent
of
Total
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
Spine
|
|
$
|
56,149
|
|
|
48%
|
|
$
|
27,866
|
|
|
34%
|
|
Orthopedics
|
|
|
27,645
|
|
|
24%
|
|
|
22,903
|
|
|
28%
|
|
Sports
Medicine
|
|
|
21,158
|
|
|
18%
|
|
|
19,188
|
|
|
24%
|
|
Vascular
|
|
|
4,921
|
|
|
4%
|
|
|
5,390
|
|
|
7%
|
|
Other
|
|
|
7,159
|
|
|
6%
|
|
|
5,769
|
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,032
|
|
|
100%
|
|
$
|
81,116
|
|
|
100%
|
|
The
following table presents certain items from our Consolidated Statement of
Operations as a percentage of net sales for the periods indicated:
|
|
Three
Months Ended March 31,
|
|
|
|
2007
(%)
|
|
2006
(%)
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100
|
|
|
100
|
|
Cost
of sales
|
|
|
26
|
|
|
26
|
|
Gross
profit
|
|
|
74
|
|
|
74
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
38
|
|
|
38
|
|
General
and administrative
|
|
|
14
|
|
|
16
|
|
Research
and development
|
|
|
5
|
|
|
4
|
|
Amortization
of intangible assets
|
|
|
4
|
|
|
2
|
|
Total
operating income
|
|
|
13
|
|
|
14
|
|
Net
income
|
|
|
5
|
|
|
10
|
|
Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006
Net
sales
increased 44% to $117.0 million for the three months (first quarter) of 2007
compared to $81.1 million for the first three months of 2006. The impact of
foreign currency increased sales by $2.0 million during the first quarter of
2007 as compared to the first quarter of 2006.
Sales
by Business Segment:
Net
sales
in Domestic increased to $39.1 million in the first quarter of 2007 compared
to
$36.5 million in the first quarter of 2006, an increase of 7%. Domestic
represented 33% of total net sales during the first quarter of 2007 and 45%
of
total net sales for the first quarter of 2006. The increase in Domestic sales
was partially the result of a 6% increase in sales in the Spine market sector.
This increase continues to be driven by the only FDA-approved stimulator for
the
cervical spine, the Cervical-Stim®. Sales of stimulation devices increased 7%
when compared to the first quarter of 2006; however, these devices experienced
an 11% volume increase due to reimbursement pricing pressure. The Orthopedic
market sector sales increased 10% due to sales of internal fixation products
which includes our eight-Plate Guided Growth System®
and
increased sales of the Physio-Stim® which increased 17% compared to the first
quarter of 2006. These increases were slightly offset by a decrease in sales
of
external fixation products when compared to the first quarter of
2006.
Domestic
Sales by Market Sector:
|
|
Net
Sales for the
Three
Months Ended March 31,
|
|
|
|
(In
US$ thousands)
|
|
2007
|
|
2006
|
|
Growth
|
|
|
|
|
|
|
|
|
|
Spine
|
|
$
|
29,604
|
|
$
|
27,821
|
|
|
6%
|
|
Orthopedics
|
|
|
9,511
|
|
|
8,699
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,115
|
|
$
|
36,520
|
|
|
7%
|
|
Net
sales
in Blackstone were $26.4 million in the first quarter of 2007, which represents
23% of total consolidated sales for the first quarter of 2007. There are no
sales for Blackstone for the comparable period of the prior year. All of
Blackstone’s sales are recorded in our Spine market sector. On a pro forma basis
Blackstone sales increased 43% when compared to the first quarter of 2006 and
would have represented 18% of pro forma total net sales in first quarter
2006.
Net
sales
in Breg increased $1.5 million to $20.1 million for the first quarter of 2007
compared to $18.6 million for the first quarter of 2006, an increase of 8%.
The
increase in sales was primarily due to sales of Breg bracing products which
increased 9% from the first quarter of 2006. Our new Fusion XT™ products
contributed to this increase. Sales of cold therapy products increased 12%
compared to first quarter of 2006. This increase was partially offset by an
11%
decrease in sales for pain therapy products. All of Breg’s sales are recorded in
our Sports Medicine market sector.
Net
sales
in Orthofix International (“International”) increased 21% to $31.4 million in
the first quarter of 2007 compared to $26.0 million in the first quarter of
2006. International net sales represented 27% and 32% of our total net sales
in
the first quarter of 2007 and the first quarter of 2006, respectively. The
impact of foreign currency increased International sales by 7% or $2.0 million,
during the first quarter of 2007 as compared to the first quarter of 2006.
Sales
in the first quarter 2007 were also positively affected by a $1.9 million sale
to a distributor in Latin America. International sales in the first quarter
of
2007 were also positively impacted by a 28% increase in Orthopedic products
due
to increased sales of our internal fixation products, including the eight-Plate
Guided Growth System®,
as well
as increased sales of OSCAR and Physio-Stim®. Sales of Breg products
internationally which are included in the Sports Medicine market sector,
increased $0.4 million or 65% when compared to first quarter 2006. International
sales in the Vascular market, which consist of the A-V Impulse product,
decreased $0.5 million. Sales of our Other products increased $1.4 million
when
compared to first quarter 2006.
International
Orthofix Sales by Market Sector:
|
|
Net
Sales for the
Three
Months Ended March 31,
|
|
|
|
(In
US$ thousands)
|
|
2007
|
|
2006
|
|
Growth
|
|
|
|
|
|
|
|
|
|
Spine
|
|
$
|
151
|
|
$
|
45
|
|
|
236%
|
|
Orthopedics
|
|
|
18,134
|
|
|
14,204
|
|
|
28%
|
|
Sports
Medicine
|
|
|
1,035
|
|
|
627
|
|
|
65%
|
|
Vascular
|
|
|
4,921
|
|
|
5,390
|
|
|
(9)%
|
|
Other
|
|
|
7,159
|
|
|
5,769
|
|
|
24%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,400
|
|
$
|
26,035
|
|
|
21%
|
|
Sales
by Market Sector:
Sales
of
Spine products increased 101% to $56.1 million in the first quarter of 2007
compared to $27.9 million in the first quarter of 2006. The increase is
primarily due to the addition of Blackstone product sales and sales of our
Spinal-Stim and Cervical-Stim products which was attributable to increased
demand in the United States. Spine stimulation unit sales increased 11%;
however, sales only increased 7% compared to the first quarter of 2006 due
to
reimbursement pricing pressure. The Cervical-Stim continues to be the only
FDA-approved device for the enhancement of fusion in the cervical
spine.
Sales
of
our Orthopedic products increased 21% to $27.6 million in the first quarter
of
2007 compared to $22.9 million in the first quarter of 2006. The increase of
$4.7 million was attributable to sales of internal fixation devices including
the eight-Plate Guided Growth System®
which
increased 104% and sales of other products used in orthopedic applications
which
increased 98%. These increases were slightly offset by sales of external
fixation products which decreased 1% compared to the prior period.
Sales
of
our Sports Medicine products increased 10% to $21.2 million in the first quarter
of 2007, compared to $19.2 million in the first quarter of 2006. As discussed
above, the increase in sales is primarily due to sales of our Breg bracing
products, particularly the Fusion™ XT knee brace as well as increased sales of
Breg products internationally.
Sales
of
our Vascular products decreased 8% to $4.9 million in the first quarter of
2007
compared to $5.4 million in the first quarter of 2006. This was primarily due
to
$0.4 million decrease in A-V Impulse sales due to inventory reduction at our
primary distributor along with increased competition in the US
market.
Sales
of
Other products grew 24% to $7.2 million in the first quarter of 2007 compared
to
$5.8 million in the first quarter of 2006. The increase was primarily due to
an
increase in sales of distributed products and airway management products.
Gross
Profit
- Our
gross profit increased 45% to $86.2 million in the first quarter of 2007, from
$59.7 million in the first quarter of 2006. The increase was primarily due
to
the increase of 44% in net sales and the increase in sales of higher margin
spine stimulation products. These increases were offset by a charge of $0.9
million for the purchase accounting of the step-up in value of acquired
Blackstone inventory. Gross profit as a percent of net sales in the first
quarter 2007 was 73.7% compared to 73.5% in the first quarter of
2006.
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 $13.8 million to $44.6 million in the first quarter
of 2007 compared to $30.8 million in the first quarter of 2006. The higher
expense primarily relates to the inclusion of Blackstone sales and marketing
expense of $11.4 million for which there is no comparable cost in the prior
year. The increase in sales and marketing expense was also due to higher
commissions on higher sales and an increase of $0.3 million for FAS 123(R)
expense when compared to the prior period.
General
and Administrative Expense
-
General and administrative expense increased $3.4 million in the first quarter
of 2007 to $15.9 million compared to $12.5 million in the first quarter of
2006.
The increase is primarily attributable to the inclusion of Blackstone general
and administrative expense of $3.5 million for which there is no comparable
cost
in first quarter of 2006. The first quarter of 2007 was also negatively affected
by increased corporate development costs and professional costs related to
consideration of capital market alternatives. The first quarter of 2006 included
management transition costs incurred of $1.7 million.
Research
and Development Expense
-
Research and development expense increased $3.3 million in the first quarter
of
2007 to $6.3 million compared to $3.0 million in the first quarter of 2006.
Approximately $2.9 million is related to Blackstone, for which there was no
comparable cost in the prior year.
Amortization
of Intangible Assets
-
Amortization of intangible assets increased $2.7 million in the first quarter
of
2007 to $4.5 million compared to $1.8 million in the first quarter of 2006.
Amortization expense included $2.8 million related to amortization of intangible
assets acquired in the Blackstone acquisition.
Interest
Income (Expense), net - Interest
expense, net was $5.7 million in the first quarter of 2007 compared to $0.1
million of interest expense in the first quarter of 2006. Interest expense
for
the first quarter of 2007 included interest expense of $5.6 million related
to
the senior secured term loan used to finance the Blackstone
acquisition.
Other
Income (Expense), net - Other
expense, net increased $0.5 million in the first quarter of 2007 to $0.6 million
compared to other income of $0.1 million in the first quarter of
2006.
KCI
Settlement, Net of Related Costs
- The
gain, net of related costs, on the settlement of the KCI litigation in the
first
quarter of 2006 was $1.1 million for which there was no comparable gain in
the
first quarter of 2007.
Income
Tax Expense -
Our
estimated worldwide effective tax rate was 28% and 34% during the first quarter
of 2007 and 2006, respectively. The effective tax rate for the first
quarter of 2007 was affected by our European restructuring, non-deductible
foreign losses, the generation of unutilizable net operating in various
jurisdictions, tax planning associated with the acquisition of Breg, and an
increase in the domestic production deduction.
Net
Income (Loss)
-
Net
income for the first quarter of 2007 was $6.3 million, or $0.38 per basic share
and $0.37 per diluted share, compared to net income of $8.2 million, or $0.51
per basic share and $0.51 per diluted share, for the first quarter of 2006.
The
weighted average number of basic common shares outstanding was 16,464,571 and
16,020,250 during the first quarter of 2007 and 2006, respectively. The weighted
average number of diluted common shares outstanding was 16,926,257 and
16,184,755 during the first quarter of 2007 and 2006, respectively.
Liquidity
and Capital Resources
Cash
and
cash equivalents at March 31, 2007 were $21.8 million. This compares to $25.9
million at December 31, 2006. In addition, we had $5.9 million of restricted
cash at March 31, 2007 available for use in our US operations as compared to
$7.3 million at December 31, 2006.
Net
cash
provided by operating activities was $1.6 million for the first three months
of
2007 compared to $1.8 million provided by operating activities in the first
three months of 2006. Net cash provided by operating activities is comprised
of
net income, non-cash items (including share-based compensation) and changes
in
working capital. Net income decreased $1.9 million to $6.3 million in the first
three months of 2007 from $8.2 million in the comparable 2006 period. Non-cash
items increased $1.1 million in the first three months of 2007 compared to
the
same period in 2006 primarily as a result of the non-cash effect of increased
depreciation and amortization related to the Blackstone acquisition, a lower
provision for doubtful accounts and increased other long term assets. Working
capital accounts consumed $12.4 million of cash in the first three months of
2007 compared to $13.1 million in the same period in 2006. The principal uses
of
cash for working capital were attributable to decreases in accounts payable
along with increases in accounts receivable and inventory to support additional
sales and certain operational initiatives. These uses of cash were partially
offset by an increase in other current liabilities. Overall performance
indicators for our two primary working capital accounts, accounts receivable
and
inventory, reflect days sales in receivables of 84 days at March 31, 2007
compared to 93 days at March 31, 2006 and inventory turns of 1.6 times at March
31, 2007 compared to 2.4 times at March 31, 2006. The lower inventory turns
and
resultant higher inventory reflect inventory investment to support Blackstone
sales, to open an international distribution center, A-V Impulse safety stock,
and new internal fixation products.
Net
cash
used in investing activities was $5.6 million during the first three months
of
2007 compared to $2.7 million during the first three months of 2006. During
the
first three months of 2007, we invested $4.6 million in capital expenditures
of
which $2.1 million were related to Blackstone. In the first quarter of 2007,
we
also invested $1.0 million in investment in subsidiaries and affiliates which
was a result of adjustments in purchase accounting related to Blackstone and
a
purchase of a minority interest in our subsidiary in Brazil. During the first
three months of 2006, we invested $1.6 million in capital expenditures and
paid
$1.1 million to purchase 52% of International Medical Supplies Distribution
GmbH, a distributor of Breg products in Germany.
Net
cash
used by financing activities was $0.2 million in the first three months of
2007
compared to $14.4 million used by financing activities during the first three
months of 2006. In the first three months of 2007, we repaid $4.8 million of
principal of the senior secured term loan, which was obtained to finance the
Blackstone acquisition and borrowed $2.6 million in total to support working
capital in our Italian subsidiary. In addition, we received proceeds of $1.6
million from the issuance of 55,203 shares of our common stock upon the exercise
of stock options and $0.4 million of related tax benefit. In the first three
months of 2006, we prepaid the remaining $14.8 million of the principal of
the
senior secured loan, which was obtained to help finance the Breg acquisition.
In
the first three months of 2006, we received proceeds of $0.6 million from the
issuance of 19,569 shares of our common stock upon the exercise of stock
options.
On
September 22, 2006 our wholly-owned US holding company subsidiary, Orthofix
Holdings, Inc. (“Orthofix Holdings”), entered into a senior secured credit
facility with a syndicate of financial institutions to finance the acquisition
of Blackstone. The senior secured credit facility provides for (1) a seven-year
amortizing term loan facility of $330.0 million, the proceeds of which, together
with cash balances were used for payment of the purchase price of Blackstone;
and (2) a six-year revolving credit facility of $45.0 million. As of March
31,
2007 we had no amounts outstanding under the revolving credit facility and
$310.4 million outstanding under the term loan facility. Obligations under
the
senior secured credit facility have a floating interest rate of LIBOR or prime
rate plus a margin, currently LIBOR plus 1.75%, which is adjusted quarterly
based upon the leverage ratio of the Company and its subsidiaries. Our effective
interest rate as of March 31, 2007 on our senior secured debt is 7.12%. The
Company, certain foreign subsidiaries of the Company, including Colgate Medical
Limited (Orthofix Holdings’s immediate parent) and certain of Orthofix
Holdings’s direct and indirect subsidiaries, including Orthofix Inc., Breg and
Blackstone, have guaranteed the obligations of Orthofix Holdings under the
senior secured credit facility. The obligations of Orthofix Holdings under
the
senior secured bank facility and the guarantors under their guarantees are
secured by the pledge of their respective assets located in the United States.
At
March
31, 2007, we had outstanding borrowings of $2.7 million and unused available
lines of credit of approximately 4.2 million Euro ($5.6 million) under a line
of
credit established in Italy to finance the working capital of our Italian
operations. The terms of the line of credit give us the option to borrow amounts
in Italy at rates determined at the time of borrowing.
We
will
continue to search for viable acquisition candidates that would expand our
global presence as well as add 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 available Italian line of credit, the exercise of
stock options, and our debt capacity are sufficient to cover anticipated working
capital and capital expenditure needs including research and development costs
over the near term.
Contractual
Obligations
The
following chart sets forth changes to our contractual obligations that have
occurred since December 31, 2006:
Contractual
Obligations
|
|
Payments
Due By Period
|
|
(In
thousands)
|
|
Total
|
|
Less
Than 1 Year
|
|
1
to 3 Years
|
|
4
to 5 Years
|
|
Over
5 Years
|
|
Senior
secured term loan:
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2006
|
|
$
|
315,175
|
|
$
|
3,300
|
|
$
|
6,600
|
|
$
|
6,600
|
|
$
|
298,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March
31, 2007
|
|
$
|
310,350
|
|
$
|
3,300
|
|
$
|
6,600
|
|
$
|
6,600
|
|
$
|
293,850
|
|
In
addition to scheduled contractual obligations of the debt as set forth above,
our credit agreement requires us to make mandatory prepayments with (a) the
excess cash flow (as defined in the credit agreement) of Orthofix International
N.V. and its subsidiaries, in an amount equal to 50% of the excess annual cash
flow beginning with the year ending December 31, 2007, provided, however, if
the
leverage ratio (as defined in the credit agreement) is less than or equal to
1.75 to 1.00, there will be no mandatory excess cash flow prepayments, (b)
100%
of the net cash proceeds of any debt issuances by Orthofix International N.V.
or
any of its subsidiaries or 50% of the net cash proceeds of equity issuances
by
any such party, excluding the exercise of stock options, provided, however,
if
the leverage ratio is less than or equal to 1.75 to 1.00 at the end of the
preceding fiscal year, Orthofix Holdings shall not be required to prepay the
loans with the proceeds of any such debt or equity issuance, (c) the net cash
proceeds of asset dispositions over a minimum threshold, or (d) unless
reinvested, insurance proceeds or condemnation awards.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
We
are
exposed to certain market risks as part of our ongoing business
operations. Primary exposures include changes in interest rates and
foreign currency fluctuations. These exposures can vary sales, cost of goods,
and costs of operations, the cost of financing and yields on cash and short-term
investments. We use derivative financial instruments, where appropriate,
to manage these risks. However, our risk management policy does not
allow us to hedge positions we do not hold nor do we enter into derivative
or
other financial investments for trading or speculative purposes. As of
March 31, 2007, we had a currency swap in place to minimize foreign currency
exchange risk related to a 46.2 million Euro intercompany note foreign currency
exposure.
We
are
exposed to interest rate risk in connection with our senior secured term loan
and borrowings under our revolving credit facility, which bear interest at
floating rates based on London Inter-Bank Offered Rate (LIBOR) or the prime
rate
plus an applicable borrowing margin. Therefore, interest rate changes generally
do not affect the fair market value of the debt, but do impact future earnings
and cash flows, assuming other factors are held constant.
As
of
March
31,
2007, Orthofix Holdings had $310.5 million of variable rate term debt
represented by borrowings under its senior secured term loan at a floating
interest rate of LIBOR or prime rate plus a margin, currently LIBOR plus 1.75%,
which is adjusted quarterly based upon the leverage ratio of the Company and
its
subsidiaries. The effective interest rate as of March 31, 2007 on the senior
secured debt is 7.12%. Based on the balance outstanding under the credit
facility as of December 31, 2006 an immediate change of one percentage point
in
the applicable interest rate on the variable rate debt would cause an increase
or decrease in interest expense of approximately $3.1 million on an annual
basis.
Our
foreign currency exposure results from fluctuating currency exchange rates,
primarily the U.S. Dollar against the Euro, Great Britain Pound, Mexican Peso
and Brazilian Real. We face cost of goods currency exposure when we
produce products in foreign currencies such as the Euro or Great Britain Pound
and sell those products in U.S. Dollars. We face transactional currency
exposures when foreign subsidiaries (or the Company itself) enter into
transactions, generally on an intercompany basis, denominated in currencies
other than their functional currency. As of March 31, 2007, we had an
uncovered intercompany receivable denominated in Euro for approximately 6.2
million. We are currently evaluating our options to limit the foreign
currency exposure on this receivable.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we performed an evaluation
of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a - 15(e) or 15d - 15(e)) as
of
the end of the quarter covered by this report. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in alerting them on a timely
basis to information required to be included in our submissions and filings
with
the SEC.
Changes
in Internal Control over Financial Reporting
On
September 22, 2006 the Company acquired Blackstone Medical, Inc. and, as a
result, is integrating the processes, systems and controls relating to the
acquired subsidiary into the Company’s existing system of internal control over
financial reporting. Except for the processes, systems, and controls relating
to
the integration of Blackstone Medical, Inc. there have not been any changes
in
the Company’s internal control over financial reporting as of March 31, 2007
that have materially affected or are reasonably likely to materially affect,
its
internal control over financial reporting.
Item
1.
Legal Proceedings
The
Company’s subsidiary, Blackstone Medical, is a defendant in a patent
infringement lawsuit captioned Medtronic
Sofamor Danek USA Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico
Operations Co., and Medtronic Sofamor Danek Deggendorf, GmbH v. Blackstone
Medical, Inc., Civil
Action No. 06-30165-MAP, filed on September 22, 2006 in the United States
District Court for the District of Massachusetts. The plaintiffs allege that
(i)
they are the exclusive licensees of United States Patent Nos. 6,926,718 B1,
6,936,050 B2, and (ii) Blackstone Medical’s making, selling, offering for sale,
and using within the United States its Anterior Cervical Plate and 3º Anterior
Cervical Plate products is infringing and has infringed the Patents, and that
such infringement has been willful. The Complaint requests both damages and
an
injunction against Blackstone Medical’s further alleged infringement of the
Patents. The Complaint does not specifically state an amount of damages. On
October 18, 2006, Blackstone Medical filed its Answer and Counterclaims, denying
infringement and asserting that the Patents are invalid.
There
have been no material changes to our risk factors from the factors discussed
in
Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2006.
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation of the Company (filed as an exhibit to the Company’s
annual report on Form 20-F dated June 29, 2001 and incorporated herein
by
reference).
|
|
|
|
3.2
|
|
Articles
of Association of the Company as Amended (filed as an exhibit to
the
Company’s annual report on Form 10-K for the fiscal year ended December
31, 2006, as amended, and incorporated herein by reference).
|
|
|
|
10.1
|
|
Orthofix
Inc. Employee Stock Purchase Plan (filed as an exhibit to the Company’s
annual report on Form 10-K for the fiscal year ended December 31,
2002 and
incorporated herein by reference).
|
|
|
|
10.2
|
|
Orthofix
International N.V. Staff Share Option Plan (filed as an exhibit to
the
Company’s annual report on Form 10-K for the fiscal year ended December
31, 2002 and incorporated herein by reference).
|
|
|
|
10.3
|
|
Form
of Performance Accelerated Stock Option under the Staff Share Option
Plan
(filed as an exhibit to the Company’s annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference).
|
|
|
|
10.4
|
|
Form
of Performance Accelerated Stock Option Inducement Agreement (filed
as an
exhibit to the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2003 and incorporated here in by
reference).
|
|
|
|
10.5
|
|
Orthofix
International N.V. 2004 Long Term Incentive Plan, as amended (filed
as an
exhibit to the Company’s quarterly report on Form 10-Q for the quarter
ended September 30, 2004 and incorporated herein by
reference).
|
|
|
|
10.6
|
|
Form
of Nonqualified Stock Option Agreement Under the Orthofix International
N.V. 2004 Long Term Incentive Plan (filed as an exhibit to the Company’s
current report on Form 8-K filed April 17, 2006 and incorporated
herein by
reference)
|
|
|
|
10.7
|
|
Form
of Nonqualified Stock Option Agreement for Non-Employee Directors
under
the Orthofix International N.V. 2004 Long Term Incentive Plan (filed
as an
exhibit to the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2004 and incorporated herein by
reference).
|
|
|
|
10.8
|
|
Orthofix
Deferred Compensation Plan (filed as an exhibit to the Company’s annual
report on Form 10-K for the fiscal year ended December 31, 2006,
as
amended, and incorporated herein by reference).
|
|
|
|
10.9
|
|
Employment
Agreement, dated as of April 15, 2005, between the Company and Charles
W.
Federico (filed as an exhibit to the Company’s current report on Form 8-K
filed April 18, 2005 and incorporated herein by
reference).
|
|
|
|
10.10
|
|
Employment
Agreement, dated as of July 13, 2006, between the Company and Thomas
Hein
(filed as an exhibit to the Company’s annual report on Form 8-K filed July
18, 2006 and incorporated herein by reference).
|
|
|
|
10.11
|
|
Employment
Agreement, dated as of November 20, 2003, between Orthofix International
N.V. and Bradley R. Mason (filed as an exhibit to the Company’s annual
report on Form 10-K for the fiscal year ended December 31, 2003 and
incorporated herein by reference).
|
10.12
|
|
Full
Recourse Promissory Note between Orthofix International N.V. and
Charles
W. Federico dated January 10, 2002 (filed as an exhibit to the Company’s
annual report on Form 10-K for the fiscal year ended December 31,
2002 and
incorporated herein by reference).
|
|
|
|
10.13
|
|
Full
Recourse Promissory Note between Orthofix International N.V. and
Gary D.
Henley dated January 10, 2002 (filed as an exhibit to the Company’s annual
report on Form 10-K for the fiscal year ended December 31, 2002 and
incorporated herein by reference).
|
|
|
|
10.14
|
|
Acquisition
Agreement dated as of November 20, 2003, among Orthofix International
N.V., Trevor Acquisition, Inc., Breg, Inc. and Bradley R. Mason,
as
shareholders’ representative (filed as an exhibit to the Company’s current
report on Form 8-K filed January 8, 2004 and incorporated herein
by
reference).
|
|
|
|
10.15
|
|
Voting
and Subscription Agreement dated as of November 20, 2003, among Orthofix
International N.V. and the significant shareholders of Breg, Inc.
identified on the signature pages thereto (filed as an exhibit to
the
Company’s current report on Form 8-K filed on January 8, 2004 and
incorporated herein by reference.
|
|
|
|
10.16
|
|
Employee
Agreement, as amended, dated December 29, 2005 between Orthofix
International N.V. and Charles W. Federico (filed as an exhibit to
the
Company’s current report on Form 8-K filed December 30, 2005 and
incorporated herein by reference).
|
|
|
|
10.17
|
|
Form
of indemnity Agreement (filed as an exhibit to the Company’s annual report
on Form 10-K filed December 31, 2005 and incorporated herein by
reference).
|
|
|
|
10.18
|
|
Settlement
Agreement dated February 23, 2006, between Intavent Orthfix Limited,
a
wholly-owed subsidiary of Orthofix International N.V. and Galvin
Mould
(filed as an exhibit to the Company’s annual report on Form 8-K filed on
April 17, 2006 and incorporated herein by reference).
|
|
|
|
10.19
|
|
Employment
Agreement, dated July 13, 2006, between Orthofix Inc. and Alan W.
Milinazzo (filed as an exhibit to the Company’s current report on Form 8-K
filed July 18, 2006 and incorporated herein by
reference).
|
|
|
|
10.20
|
|
Employment
Agreement, dated July 13, 2006, between Orthofix Inc. and Raymond
C. Kolls
(filed as an exhibit to the Company’s current report on Form 8-K filed
July 18, 2006 and incorporated herein by reference).
|
|
|
|
10.21
|
|
Employment
Agreement, dated July 13, 2006, between Orthofix Inc. and Michael
M.
Finegan (filed as an exhibit to the Company’s current report on Form 8-K
filed July 18, 2006 and incorporated herein by
reference).
|
|
|
|
10.22
|
|
Credit
Agreement, dated as of September 22, 2006, among Orthofix Holdings,
Inc.,
Orthofix International N.V., certain domestic subsidiaries of Orthofix
International N.V., Colgate Medical Limited, Victory Medical Limited,
Swiftsure Medical Limited, Orthofix UK Ltd, the several banks and
other
financial institutions as may from time to time become parties thereunder,
and Wachovia Bank, National Association (filed as an exhibit to the
Company’s current report on Form 8-K filed September 27, 2006 and
incorporated herein by reference).
|
|
|
|
10.23
|
|
Agreement
and Plan of Merger, dated as of August 4, 2006, among Orthofix
International N.V., Orthofix Holdings, Inc., New Era Medical Limited,
Blackstone Medical, Inc. and William G. Lyons, III, as Equityholders’
Representative (filed as an exhibit to the Company's current report
on
Form 8-K filed August 7, 2006 and incorporated herein by
reference).
|
10.24
|
|
Employment
Agreement, dated as of September 22, 2006, between Blackstone Medical,
Inc. and Matthew V. Lyons (filed as an exhibit to the Company’s annual
report on Form 10-K for the fiscal year ended December 31, 2006,
as
amended, and incorporated herein by reference).
|
|
|
|
10.25
|
|
Description
of Orthofix International N.V.’s Annual Incentive including the Form of
Participation Letter (filed as an exhibit to the Company’s annual report
on Form 10-K for the fiscal year ended December 31, 2006, as amended,
and
incorporated herein by reference).
|
|
|
|
21.1
|
|
List
of Subsidiaries
|
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
|
|
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
|
|
|
|
Section
1350 Certification of Chief Executive Officer.
|
|
|
|
|
|
Section
1350 Certification of Chief Financial
Officer.
|
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 9, 2007
|
By:
|
/s/
Alan W. Milinazzo
|
|
|
Name: Alan
W. Milinazzo
|
|
|
Title: Chief
Executive Officer and President
|
|
|
|
Date:
May 9, 2007
|
By:
|
/s/
Thomas Hein
|
|
|
Name: Thomas
Hein
|
|
|
Title: Chief
Financial Officer
|