Orthofix International Announces Third Quarter Results And Additional Debt Payment Ahead of Scheduled Maturity

http://www.businesswire.com/news/home/20091029006243/en

* Q309 sales totaled $135.1 million, up 4% from Q308; up 7% on a constant
currency basis
* Sales of spinal implants & biologics were up 10%, to $28.5 million, vs. prior
year; sales of spine stimulation products grew 12%, to $39.6 million
* Sales in the orthopedic business decreased 2%, but increased 6% on a constant
currency basis
* Sales in the sports medicine business grew 4% in total, to a record $24.7
million; U.S. sales increased 6%
* Consolidated gross margin improved to 76.3%; operating margin increased to
13.1%
* Q309 reported net income was $0.36 per diluted share; excluding certain items,
adjusted net income was $0.44 per diluted share
* The Company made an additional $5 million debt payment ahead of schedule
maturity in October

BOSTON--(Business Wire)--
Orthofix International N.V. (NASDAQ:OFIX) (the Company) today announced its
results for the third quarter ended September 30, 2009. Total revenue was $135.1
million, which was an increase of 4% over the third quarter of 2008. Excluding
the unfavorable $3.6 million impact of foreign currency on third quarter sales,
revenue increased 7% on a constant currency basis.

Reported third quarter net income totaled $6.2 million, or $0.36 per share. This
compared with a reported loss of $237.3 million, or ($13.87) per share, in the
third quarter of the prior year. Excluding certain items summarized in the table
below, third quarter adjusted net income was $7.7 million, or $0.44 per share.

The Company`s third quarter operating income was $17.8 million, or 13.1% of
total revenue, compared with an operating loss of $289.5 million in the prior
year. Excluding certain items summarized in the table below, third quarter
adjusted operating income was $19.1 million, or 14.2% of revenue, compared to
$14.4 million, or 11.1% of revenue in the prior year.

"Our third quarter results reflected continued growth in each of our core
businesses on a constant currency basis. This included another strong
performance from our spinal implants division, which generated 20% sales growth
from our cervical and lumbar implant devices. This increase was driven primarily
by the success of recent new product introductions, including the Firebird™
pedicle screw system and Pillar™ SA interbody device," said President and CEO
Alan Milinazzo. "During the quarter the Musculoskeletal Transplant Foundation
continued to increase its production capacity of our new stem cell-based
allograft, Trinity® Evolution™, to a point where it met, and exceeded, the
production levels included in our original commercialization plans.
Additionally, as a result of continued strong cash generation during the third
quarter, this month we made another $5 million debt repayment ahead of
schedule."

Guidance

As a result of certain items impacting Orthofix`s actual third quarter and
estimated fourth quarter tax rates, the Company raised its full-year tax rate
guidance to a new range of 37%-39%. Additionally, the Company now expects to
incur approximately $800,000 in fourth quarter legal costs associated with an
ongoing investigation of the bone growth stimulation industry. The Company did
not revise its operating expectations, and reiterated its full-year revenue
guidance of $535-$545 million, its gross profit margin guidance of 74%-75%, its
operating profit margin guidance of 11%-12%, and its EBITDA guidance of $93-98
million. Additionally, the Company reiterated its expectations for 8%-12%
full-year revenue growth and fourth quarter operating profitability in its
spinal implants division.

Non-GAAP Performance Measures

The first table below presents a reconciliation of third quarter net income
calculated in accordance with generally accepted accounting principles (GAAP) to
a non-GAAP performance measure, referred to as "adjusted net income", that
excludes from net income the items specified in the table. The second table
below presents a reconciliation of operating income calculated in accordance
with GAAP to a non-GAAP measure, referred to as "adjusted operating income",
that excludes from operating income the items specified in the table.
Additionally a reconciliation between third quarter net income calculated in
accordance with GAAP and a non-GAAP measure, referred to as "Consolidated
EBITDA", are included in the Regulation G Supplemental Information Schedule
attached to this release. Management believes it is important to provide
investors with the same non-GAAP metrics it uses to supplement information
regarding the performance and underlying trends of Orthofix`s business
operations in order to facilitate comparisons to its historical operating
results and internally evaluate the effectiveness of the Company`s operating
strategies. A more detailed explanation of the items in the table below that are
excluded from GAAP net income, as well as why management believes the non-GAAP
measures are useful to them, is included in the Regulation G Supplemental
Information schedule attached to this press release.

Third Quarter Adjusted Net Income Q309 Q308
($000's) EPS ($000's) EPS

Reported GAAP net income/(loss) $6,188 $0.36 ($237,251) ($13.87)

Specified Items:

Strategic investments $450 $0.02 $320 $0.02
Reorganization/consolidation costs $376 $0.02 $1,501 $0.09
Foreign exchange loss $501 $0.03 $1,457 $0.08
Unrealized, non-cash loss on interest rate swap $137 $0.01 --- ---
Asset impairment & inventory reserve --- --- $237,689 $13.90
Credit agreement amendment costs --- --- $3,579 $0.21

Adjusted net income $7,652 $0.44 $7,295 $0.43

NOTE: Some calculations may be impacted by rounding

Third Quarter Adjusted Operating Income Q309 Q308
($000's) ($000's)

Reported GAAP operating income/(loss) $17,751 ($289,517)

Specified Items:

Strategic investments $750 $500
Reorganization/consolidation costs $627 $2,408
Asset impairment & inventory reserve --- $301,023

Adjusted operating income $19,128 $14,414

Adjusted operating income as a percent of revenue 14.2% 11.1%

Revenue

Total third quarter sales in the Company`s spine sector were up 11%
year-over-year, to $68.1 million. Spine stimulation revenue increased 12%, to
$39.6 million due to the continued success of the Company`s devices, which
include the only FDA-approved stimulator for the cervical spine. Spinal implant
and biologic revenue was $28.5 million, which was 10% higher than the third
quarter of 2008. The year-over-year growth in spinal implant and biologic
revenue was primarily due to a 20% increase in U.S. sales of lumbar and cervical
spine implant devices, partially offset by a 19% decrease in revenue from
biologics. The growth in sales of lumbar and cervical spine implant devices was
driven primarily by the Company`s recent introductions of the Firebird™ pedicle
screw system and Pillar™ SA interbody device. The decrease in biologics revenue
from the spinal implants division was a result of the transition to Trinity®
Evolution™ from the Company`s prior stem cell-based allograft. During the third
quarter, sales of Trinity® Evolution™ in the spine division totaled
approximately $3.5 million. While the average sales price for the new allograft
is approximately the same as the previous product, under the terms of the
Company`s contractual arrangement with its new supplier, the Musculoskeletal
Transplant Foundation (MTF), the Company records 70% of the sales price of the
new Trinity® Evolution™ allograft versus previously recording 100% of the sales
price of the prior product. The Company does not purchase inventory of Trinity®
Evolution™ and so does not incur any associated cost of sales. As such, the
gross profit margin for the new allograft is 100% of the recorded revenue, which
compares favorably to the gross profit margin of approximately 50% for the prior
allograft. Orthofix began the full market release of Trinity® Evolution™, which
was developed in collaboration with MTF, on July 1st of this year.

Reported third quarter revenue in the Company`s orthopedic business was $33.3
million, which was a decrease of 2%, but represented growth of 6% on a constant
currency basis, compared with the prior year. The constant currency revenue
growth was driven primarily by increases in global sales of deformity correction
and external fixation devices of 36% and 6%, respectively, as well as 15% growth
in the global sales of Physio-Stim™ bone growth stimulation devices.
Additionally, the Company reported approximately $640,000 in sales of Trinity®
Evolution™ in its orthopedic business.

Sports medicine revenue in the third quarter grew 4% compared with 2008, to a
record $24.7 million. This growth was driven by an 8% increase in U.S. revenue
from the Company`s core bracing and cold therapy products, which was a
reflection of the recent expansion of certain product lines, including soft
goods and spine bracing, as well as bracing for the upper extremities and the
ankles and feet.

Gross Margin

The gross profit margin in the third quarter of 2009 was 76.3%, which was 13.4
percentage points higher than the third quarter of 2008. The year-over-year
improvement is primarily due to an $11.5 million inventory reserve taken in the
third quarter of 2008. Additionally, the gross margin in the third quarter of
2009 increased due to a higher mix of revenue from the Company`s higher margin
spine stimulation and spinal implants businesses.

Operating Expenses

Third quarter sales and marketing (S&M) expenses as a percent of revenue
increased 190 basis points year-over-year, to 40.7%. The higher S&M ratio was
due primarily to an increase in commission expenses reflecting the
implementation of sales programs with new distributor partners. This increased
investment in sales & marketing has facilitated the development of new customer
relationships and increased sales in both the spine stimulation and orthopedic
businesses.

General and administrative (G&A) expenses in the third quarter of 2009 increased
by 50 basis points year-over-year, to 15.4% of sales. This included $627,000
($376,200 net of tax, or $0.02 per share) in costs associated with the ongoing
reorganization and consolidation plan at the Company`s spinal implants business.
G&A expenses were also higher compared with the prior year due to infrastructure
increases in some faster growing international markets.

Research and development (R&D) expenses as a percent of revenue were 5.8% in the
third quarter of 2009, compared with 5.0% in the prior year. R&D expenses in the
third quarter of 2009 included a $750,000 ($450,000 net of tax, or $0.02 per
share) milestone payment associated with the Company`s previously announced
strategic agreement with Intelligent Implant Systems.

Other Income and Expenses

Third quarter net interest expense was $6.4 million, compared with net interest
expense of approximately $4.2 million in the third quarter of the prior year.
The year-over-year increase reflects a higher interest rate on the Company`s
outstanding term debt partially offset by a lower outstanding debt balance.

During the third quarter the Company also incurred an unrealized, non-cash loss
of approximately $229,000 ($137,400 net of tax, or $0.01 per share) which
resulted from changes in the fair value of the Company`s interest rate swap.

Mark-to-market adjustments related to this swap are required to be reported in
quarterly earnings through the expiration of the swap in June 2011.

The Company also incurred a foreign exchange loss of approximately $835,000
($501,000 net of tax, or $0.03 per share) in the third quarter primarily due to
unrealized, non-cash foreign currency adjustments resulting from a weakening of
the U.S. dollar against various foreign currencies. A number of Orthofix`s
foreign subsidiaries have intercompany and trade accounts payable that are
denominated in currencies, most notably the U.S. Dollar, other than their local
currency, and movements in the relative values of those currencies have and are
expected to continue to result in foreign exchange gains and losses.

Taxes

The reported tax rate in the third quarter of 2009 was 40%. This was higher than
the Company`s previous full-year guidance of 33%-35% primarily due to an
increase in the reserve for unrecognized tax benefits related to R&D credits
taken in previously filed tax returns. The increase in the reserve for these
specific items negatively impacted the 3rd quarter tax rate by approximately 4
percentage points. Due to the higher 3rd quarter tax rate, as well as the
Company`s expected mix of taxable income in its various U.S. and international
markets in the 4th quarter, the Company now expects its full year tax rate to be
37%-39%.

Cash and Liquidity

Orthofix`s Consolidated EBITDA, as calculated in accordance with the Company`s
amended credit facility, was $26.1 million in the third quarter. At the end of
the third quarter the Company`s leverage ratio, as defined in its amended credit
facility, was 2.9, which was below the 3.5 maximum leverage ratio allowed in the
amended credit facility. Cash flow from operations in the third quarter of 2009
was approximately $11.2 million, which was greater than cash flow of
approximately $167,000 in the prior year. The increase in cash flow was due
primarily to improved operating profits and as well as improved working capital
management. Orthofix continues to have a $45 million unused revolving credit
facility, and at the end of the third quarter the Company was in compliance with
the financial covenants contained in its amended credit agreement.

The total cash balance of $20 million at September 30, 2009 compared with $25.6
million at December 31, 2008. The change in cash balance includes the impact of
four previously announced repayments of debt ahead of their scheduled maturities
totaling $20 million.

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss
the Company`s financial results for the third quarter. Interested parties may
access the conference call by dialing (866) 626-7622 in the U.S., and (706)
758-3283 outside the U.S., and providing the conference ID 36215938. A replay of
the call will be available for one week by dialing (800) 642-1687 in the U.S.,
and (706) 645-9291 outside the U.S., and entering the conference ID 36215938.

About Orthofix

Orthofix International, N.V. is a global medical device company offering a broad
line of minimally invasive surgical, and non-surgical, products for the spine,
orthopedic, and sports medicine market sectors that address the lifelong
bone-and-joint health needs of patients of all ages-helping them achieve a more
active and mobile lifestyle. Orthofix`s products are widely distributed around
the world to orthopedic surgeons and patients via Orthofix`s sales
representatives and its subsidiaries, including BREG, Inc. and via partnerships
with other leading orthopedic product companies. In addition, Orthofix is
collaborating in R&D partnerships with leading medical institutions such as the
Musculoskeletal Transplant Foundation, the Orthopedic Research and Education
Foundation, The University of Medicine and Dentistry of New Jersey and the
National Osteoporosis Institute. For more information about Orthofix, please
visit www.orthofix.com.

FORWARD-LOOKING STATEMENTS

This communication contains certain forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements,
which may include, but are not limited to, statements concerning the
projections, financial condition, results of operations and businesses of
Orthofix and its subsidiaries and are based on management`s current expectations
and estimates and involve risks and uncertainties that could cause actual
results or outcomes to differ materially from those contemplated by the
forward-looking statements.

Factors that could cause or contribute to such differences may include, but are
not limited to, risks relating to the expected sales of its products, including
recently launched products, unanticipated expenditures, changing relationships
with customers, suppliers, strategic partners and lenders, risks relating to the
protection of intellectual property, changes to the reimbursement policies of
third parties, changes to and interpretation of 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, credit markets and the economy, corporate development and
market development activities, including acquisitions or divestitures,
unexpected costs or operating unit performance related to recent acquisitions,
unexpected difficulties meeting covenants contained in our secured bank credit
facility and other factors described in our annual report on Form 10-K and other
periodic reports filed by the Company with the Securities and Exchange
Commission (SEC).

ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands, except per share and share data)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008

Net sales $135,098 $129,301 $401,618 $387,372
Cost of sales 31,985 47,998 101,700 117,284
Gross profit 103,113 81,303 299,918 270,088

Operating expenses
Sales and marketing 55,012 50,210 162,547 153,652
General and administrative 20,819 19,293 64,694 60,252
Research and development 7,863 6,447 25,837 19,400
Amortization of intangible assets 1,668 5,347 4,944 15,220
Impairment of goodwill and certain intangible assets 0 289,523 0 289,523
Gain on sale of Pain Care Operations 0 0 0 (1,570)
85,362 370,820 258,022 536,477

Operating income/(loss) 17,751 (289,517) 41,896 (266,389)

Other income/(expense), net
Interest expense, net (6,437) (4,249) (18,385) (13,708)
Loss on refinancing of senior secured term loan 0 (5,735) 0 (5,735)
Other income/(expense) (688) (3,822) (586) (2,737)
Unrealized non-cash gain/(loss) on interest rate swap (229) 0 1,046 0
Other income/(expense), net (7,354) (13,806) (17,925) (22,180)
Income/(loss) before income taxes 10,397 (303,323) 23,971 (288,569)
Income tax benefit/(expense) (4,209) 66,072 (8,960) 60,732
Net income/(loss) $6,188 ($237,251) $15,011 ($227,837)

Net income/(loss) per common share - basic $0.36 -$13.87 $0.88 -$13.33

Net income/(loss) per common share - diluted $0.36 -$13.87 $0.87 -$13.33

Weighted average number of common 17,130,247 17,101,718 17,113,891 17,093,133
shares outstanding - basic

Weighted average number of common
shares outstanding - diluted 17,215,567 17,101,718 17,174,416 17,093,133

ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands)

September 30, December 31,
2009 2008

Assets
Current assets:
Cash and cash equivalents $6,800 $14,594
Restricted cash 13,218 10,998
Trade accounts receivable, net 127,359 110,720
Inventory, net 101,016 91,185
Deferred income taxes 20,497 17,543
Prepaid expenses and other current assets 34,426 29,610
Total current assets 303,316 274,650

Investments 345 2,095
Property, plant and equipment, net 37,559 32,660
Patents and other intangible assets, net 49,304 53,546
Goodwill 185,208 182,581
Deferred taxes and other long-term assets 13,046 15,683

Total assets $588,778 $561,215

Liabilities and shareholders' equity
Current liabilities:
Bank borrowings $3,689 $1,907
Current portion of long-term debt 3,336 3,329
Trade accounts payable 27,188 23,865
Other current liabilities 61,540 45,894
Total current liabilities 95,753 74,995

Long-term debt 255,049 277,533
Deferred income taxes 3,252 4,509
Other long-term liabilities 7,436 2,117
Total liabilities 361,490 359,154

Shareholders' equity:
Common shares 1,713 1,710
Additional paid-in capital 174,288 167,818
176,001 169,528
Retained earnings 44,658 29,647
Accumulated other comprehensive income 6,629 2,886
Total shareholders' equity 227,288 202,061

Total liabilities and shareholders' equity $588,778 $561,215

ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)

Nine Months Ended September 30,
2009 2008

Cash flows from operating activities:
Net income/(loss) $15,011 ($227,837)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 16,064 22,707
Amortization of debt costs 199 868
Provision for doubtful accounts 5,138 4,585
Provision for inventory obsolescence 6,769 10,913
Loss on refinancing of senior secured term loan 0 3,660
Impairment of goodwill and certain intangible assets 0 289,523
Impairment of investments held at cost 0 1,500
Deferred taxes (2,015) (76,861)
Share-based compensation 7,877 7,855
Minority Interest 28 0
Amortization of step up of fair value in inventory 0 365
Gain on sale of Pain Care operations 0 (1,570)
Other (159) 3,062
Change in operating assets and liabilities:
Restricted cash (2,141) (352)
Accounts receivable (18,357) (13,805)
Inventories (12,832) (16,703)
Prepaid expenses and other current assets (4,415) (5,250)
Accounts payable 2,314 2,500
Current liabilities 14,743 (2,739)
Net cash provided by operating activities 28,224 2,421

Cash flows from investing activities:
Capital expenditures (16,073) (15,831)
Proceeds from sale of investments held at cost 1,711 766
Proceeds from sale of Pain Care operations 0 5,980
Net cash used in investing activities (14,362) (9,085)

Cash flows from financing activities:
Net proceeds from issuance of common shares 7 1,734
Repayments of long-term debt (22,477) (6,223)
Proceeds from (repayments of) bank borrowings, net 1,581 (2,377)
Payment of refinancing fees 0 (283)
Cash payment for purchase of minority interest in subsidiary (1,143) (501)
Tax benefit on non-qualified stock options 2 22
Net cash used in financing activities (22,030) (7,628)

Effect of exchange rate changes on cash 374 (486)

Net decrease in cash and cash equivalents (7,794) (14,778)
Cash and cash equivalents at the beginning of the year 14,594 25,064
Cash and cash equivalents at the end of the period $6,800 $10,286

External net sales by market sector
(In US$ millions)

Three Months Ended September 30, Nine Months Ended September 30,
Constant Constant
Reported Currency Reported Currency
2009 2008 Growth Growth 2009 2008 Growth Growth

Spine
Stimulation $ 39.6 $ 35.5 12 % 12 % $ 117.1 $ 104.4 12 % 12 %
Implants and Biologics 28.5 25.8 10 % 11 % 87.9 82.1 7 % 7 %
Total Spine 68.1 61.3 11 % 11 % 205.0 186.5 10 % 10 %

Orthopedic 33.3 33.8 -2 % 6 % 95.4 96.9 -1 % 8 %

Sports Medicine 24.7 23.7 4 % 5 % 73.4 70.2 4 % 5 %

Vascular 3.9 4.3 -9 % -5 % 12.6 13.4 -6 % -1 %

Other Products 5.1 6.2 -17 % -5 % 15.2 20.4 -25 % -9 %

Total $ 135.1 $ 129.3 4 % 7 % $ 401.6 $ 387.4 4 % 7 %

Regulation G Supplemental Information Schedule

The information in this schedule is set up in three sections intended to address
different aspects of Regulation G.

Section 1 includes a Reconciliation of a Non-GAAP Performance Measure for each
non-GAAP metric included in the release to which this supplemental information
is attached, except for the reconciliations pertaining to Adjusted Net Income
and Adjusted Operating Income for the third quarter of 2009, which are included
in the body of the release to which this supplemental information is attached.

Section 2 contains explanations of each of the specified items listed in each
Reconciliation of a Non-GAAP Performance Measure included in Section 1 of this
Supplemental Information Schedule or in the text of the press release to which
the schedule is attached.

Section 3 provides detailed disclosures indicating the reasons management
believes our non-GAAP measures are useful.

Section 1

Consolidated EBITDA
Orthofix International NV

(In thousands)

Q3 2009 TTM 9/30/09
Orthofix:
Net Income/(loss) $ 6,188 $ 14,295

Depreciation and Amortization 5,451 21,321
Interest 6,475 24,541
Unrealized non-cash loss on interest rate swap 230 6,929
Tax Expense 4,208 3,211
123R expense 2,547 10,610
Product Commercialization Investments - 10,500
Other Non-Cash Charges 1,021 2,616

Consolidated EBITDA $ 26,120 $ 94,023

NOTE: For the definition of Consolidated EBITDA please refer to a copy of the
credit agreement, dated September 22, 2006, which was filed as Exhibit 10.1 to
Orthofix's current report on Form 8-K filed on September 27, 2006, and a copy of
the first amendment to the credit agreement, dated September 29, 2008, which was
filed as Exhibit 10.1 to Orthofix's current report on Form 8-K filed on
September 29, 2008. These documents can be found at the SEC's website at
www.sec.gov.

Section 2

Description of Third Quarter Specified Items (earnings reconciliation)

* Unrealized, non-cash loss on interest rate swap- resulted from changes in the
fair value of the Company`s interest rate swap. Mark-to-market adjustments are
required to be reported in quarterly earnings through the expiration of the swap
in June 2011.
* Strategic investments- costs related to the Company`s strategic investment in
the development and commercialization of a new stem cell-based allograft with
MTF, and the agreement with IIS related to the development of a pedicle screw
system.
* Foreign exchange loss- due to unrealized, non-cash translation adjustments
resulting from a weakening of the U.S. dollar against various foreign
currencies. A number of Orthofix`s foreign subsidiaries have intercompany and
trade accounts payable that are held in currencies, most notably the U.S.
Dollar, other than their local currency, and movements in the relative values of
those currencies result in foreign exchange gains and losses.
* Reorganization/consolidation costs- costs associated with reorganization and
facility consolidation plans within various areas of the Company, primarily
related to the spinal implants division.
* Asset impairment & inventory reserve- an impairment charge related to
certainintangible assets recorded in connection with the acquisition of
Blackstone Medical, Inc., and reserves taken on the inventory of products at
Blackstone Medical.
* Credit agreement amendment costs- fees and the write-off of previously
capitalized debt placement costs associated with the completion of an amendment
to the Company`s credit agreement.

Net Income to Consolidated EBITDA

* Depreciation and Amortization- non-cash depreciation and amortization
expenses.
* Interest- interest expense related to outstanding debt.
* Unrealized non-cash loss on interest rate swap- from changes in the fair value
of the Company`s interest rate swap. Mark-to-market adjustments are required to
be reported in quarterly earnings through the expiration of the swap in June
2011.
* Tax expense- income tax expenses incurred by the Company.
* 123R expense- non-cashequity compensation expenses.
* Product commercialization investments- costs associated with the Development
and Commercialization Agreements with MTF, and the acquisition and development
of IP from IIS.
* Other non-cash charges- certainnon-cash charges including foreign exchange
losses, an inventory step up related to an acquisition and the amortization of a
prepaid royalty.

Section 3

Management use of, and economic substance behind, Non-GAAP Performance Measures

Management uses non-GAAP measures, referred to as "adjusted net income",
"adjusted operating income" and "Consolidated EBITDA" (earnings before interest,
taxes, depreciation and amortization) to evaluate performance period over
period, to analyze the underlying trends in the Company's business, to assess
its performance relative to its competitors, and to establish operational goals
and forecasts that are used in allocating resources. In addition, following the
Company's acquisition of Blackstone, and the related increase in Orthofix`s
debt, management has increased its focus on cash generation and debt reduction.
Management uses these non-GAAP measures as the basis for assessing the ability
of the underlying operations to generate cash for use in paying down debt. In
addition, management uses these non-GAAP measures to further its understanding
of the performance of the Company's business segments. The items excluded from
Orthofix`s non-GAAP measures are also excluded from the profit or loss reported
by the Company`s business segments for the purpose of analyzing their
performance.

Material Limitations Associated with the Use of Non-GAAP Measures

The non-GAAP measures used in this release may have limitations as analytical
tools, and should not be considered in isolation or as a replacement for GAAP
performance measures. Some of the limitations associated with the use of these
non-GAAP performance measures are that they exclude items that reflect an
economic cost to the Company and can have a material effect on cash flows.
Similarly, equity compensation expense does not directly impact cash flows, but
is part of total compensation costs accounted for under GAAP.

Compensation for Limitations Associated with Use of Non-GAAP Measures

Orthofix compensates for the limitations of its non-GAAP performance measures by
relying upon its GAAP results to gain a complete picture of the Company's
performance. The GAAP results provide the ability to understand the Company`s
performance based on a defined set of criteria. The non-GAAP measures reflect
the underlying operating results of the Company`s businesses, excluding non-cash
items, which management believes is an important measure of the Company's
overall performance.

The Company provides a detailed reconciliation of the non-GAAP performance
measures to their most directly comparable GAAP measures, and encourages
investors to review this reconciliation.

Usefulness of Non-GAAP Measures to Investors

Orthofix believes that providing non-GAAP measures that exclude certain items
provides investors with greater transparency to the information used by the
Company`s senior management in its financial and operational decision-making.
Management believes that providing this information enables investors to better
understand the performance of the Company's ongoing operations and to understand
the methodology used by management to evaluate and measure such performance.
Disclosure of these non-GAAP performance measures also facilitates comparisons
of Orthofix`s underlying operating performance with other companies in its
industry that also supplement their GAAP results with non-GAAP performance
measures.

Orthofix International N.V.
Dan Yarbrough, 617-912-2903
Vice President of Investor Relations
danyarbrough@orthofix.com

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