snia spa

SORIN GROUP - annual report 2004
CONTENTS
Board of Directors, Board of Statutory Auditors, Independent Auditors
The SORIN Group
Consolidated Financial Highlights
Report on Operations
Operating Performance
Operating Performance and Financial Position of the
SORIN Group and SORIN S.p.A.
Net Revenues by Geographic Region
Research and Development
Human Resources and Industrial Relations
Transactions Among Group Companies and with Related Parties
Corporate Governance
Information About the Transition to International Accounting Principles
Significant Events Occurring After December 31, 2004
Motion to Replenish the Loss Incurred in 2004
SORIN Group — Consolidated Financial Statements at December 31, 2004
Consolidated Balance Sheet
Consolidated Statement of Income
Notes to the Financial Statements
Appendix: Companies of the SORIN Group
Report of the Independent Auditors
SORIN S.p.A. – Annual Financial Statements at December 31, 2004
Balance Sheet
Statement of Income
Notes to the Financial Statements
Report of the Board of Statutory Auditors
Report of the Independent Auditors
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Fo r ad d itio n al i n fo r m at i o n :
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w w w . so rin . c o m
S O R IN S . p. A.
V ia Bo rgo n uo v o, 1 4
20121 Milan
te l. + 39 02. 6 3 3 2 1
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te l. + 39 02. 6 3 3 2 .3 2 2
In v e sto r. R e lation s @ s o r i n .co m
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160
Design: Landor Associates
Printed by: Lucini, Milan
Report on Operations
Consolidated Financial Statements
Statutory Financial Statements
of SORIN S.p.A.
at December 31, 2004
SORIN S.p.A. – Capital Stock: 354,070,392.00 euros – Registered Office: 14 Via Borgonuovo, Milan – Milan Company Register No. 04160490969
Board of Directors
Chairman
Umberto Rosa
Deputy Chairman
Emilio Gnutti
Chief Executive Officer
Drago Cerchiari
(1)
Directors
Leonardo Bossini
Carlo Callieri *
Michele Cappone
Giorgio Cirla *
Umberto Colombo •
Maurizio Dallocchio •
Tiberio Lonati
Claudio Pieri
Marco Vitale *
Board of Statutory Auditors
Chairman
Marco Spadacini
Statutory Auditors
Luigi Martino
Raoul Francesco Vitulo
Independent Auditors
Reconta Ernst & Young S.p.A.
(1) By a resolution dated January 8, 2004, the Board of
Directors granted the Chief Executive Officer the power
to carry out all acts necessary for the Company’s
ordinary operations, as well as the authority to buy and
sell real property and enter into lease agreements with
terms that may exceed nine years.
*
•
Member of the Internal Control Committee
Member of the Compensation Policies Committee
2
Committees
Compensation Policies Committee
Provides consulting support with regard to the fees received by Directors, the
compensation of top management and the Company’s overall compensation
policies. Its member are:
Umberto Colombo
Maurizio Dallocchio
Coordinator
Internal Control Committee
Provides consulting and input support. Its members are:
Marco Vitale
Carlo Callieri
Giorgio Cirla
Coordinator
3
The SORIN GROUP
SORIN S.p.A. was established on January 2, 2004 through the partial, proportional
demerger of SNIA S.p.A.. SORIN S.p.A. is the parent company of a group with
operations in medical technology and the treatment of cardiovascular and kidney
diseases. On January 5, 2004, Borsa Italiana admitted all of the common shares
of SORIN S.p.A. for trading.
Europe’s largest medical technology group specializing in the treatment of
cardiovascular diseases.
SORIN, a world leader in Cardiac Surgery, offers innovative therapies for cardiac
rhythm dysfunctions (Cardiac Rhythm Management), interventional cardiology
(Vascular Therapy & New Businesses) and the treatment of kidney diseases
(Renal Care).
A Unique Wealth of Innovative Technologies
For over 40 years, the world’s medical community has known and appreciated
the companies and brands of the SORIN Group: Dideco, CarboMedics, COBE
Cardiovascular, Stöckert, Mitroflow, ELA Medical, Sorin Biomedica Cardio,
Sorin Biomedica CRM, Bellco and Soludia.
A Global Presence
SORIN is present in more than 80 countries throughout the world, serving over
5,000 public and private treatment centers.
Each year, over one million people are treated with products and therapies
developed by the SORIN Group.
An Unwavering Commitment to Health
The SORIN Group is committed to using the wealth of knowhow it has acquired
through decades of research to develop innovative products to treat cardiovascular
and kidney diseases, which are among the most common and socially burdensome
illnesses.
About 480 research professionals work every day to improve the quality of life for
millions of people.
SORIN’S Vision
The SORIN Group wants to be recognized by the medical community, patients,
stockholders, the financial community, the biomedical industry, government
agencies and its employees not only as a top player in cardiac surgery, but as the
world leader in the overall cardiovascular market and as a true innovator in the
fields of Cardiac Rhythm Management and Vascular Therapy.
4
Operations of the SORIN Group
Business Units
Main Products
Brands
Carbomedics
Cobe CV
Dideco
Mitroflow
Sorin Biomedica Cardio
Stöckert
Cardiac
Surgery
Disposable devices and
implantable products and
systems used in cardiac
surgery
• Cardiopulmonary systems
(oxygenators, custom packs)
• Heart-Lung machines
• Mechanical and tissue
cardiac valves
• Annuloplasty rings
• Disposables and systems for
autologous blood transfusion
and apheresis
Cardiac
Rhythm
Management
Implantable devices, monitoring
systems and cardiac rhythm
control accessories
• Pacemakers
• Implantable defibrillators
• Systems to treat heart
failure (CRT-D, CRT-P)
• Programmers
• Electrodes
• Catheters for
Ela Medical
Sorin Biomedica CRM
electrophysiology
• Holter monitors
Vascular
Therapy & New
Businesses
Coronary and peripheral stents
used in angioplasty procedures
• Coronary stents
• Peripheral stents
• Catheters and accessories
Sorin Biomedica Cardio
Dideco
for angioplasty
• New blood-derivative
technologies
Renal Care
Disposable devices and
hemodialysis systems and
accessories to treat patients
with chronic renal failure
• Dialyzer filters
• Dialysis systems
• Fluids, cartridges, and
concentrates
• Hematic lines
5
Bellco
Soludia
Management Team
In January 2004, the Company adopted a new organizational model based on three
management levels:
Corporate: Chairman, Chief Executive Officer; Administration, Finance and
Control; Corporate Development; Corporate Legal Affairs; Internal Auditing and
Human Resources and Organization; all of which are responsible for defining the
Group’s strategic objectives and developing Group-wide synergies.
Business Units: Cardiac Surgery, Cardiac Rhythm Management, Vascular
Therapy & New Businesses and Renal Care, each of which mirrors an area of
medical therapy in which SORIN operates. These four Business Units define global
marketing strategies, and each focuses on excellence in innovation and
manufacturing in its market segment.
Regions: The two Regions — North America and International — are responsible
for increasing the market penetration of all SORIN Group product lines, leveraging
existing market share, providing integrated customer management and exploiting
available product synergies.
From left to right (front row): Drago Cerchiari Chief Executive Officer, Umberto Rosa Chairman;
(second row): André-Michel Ballester President, Cardiac Rhythm Management BU, Rodger Stewart President, North
America Region, Brian Sheridan VP, Corporate Legal Affairs, Gregory Cash President, Vascular Therapy & New
Businesses BU, Eric Beard President, International Region, Marco Chiadò Piat VP, Corporate Development,
Anton Giorgio Failla VP, Chief Financial Officer, Franco Vallana President, Cardiac Surgery BU,
Giovanni Caruso Executive VP, Corporate.
6
Chairman
Umberto Rosa
Chief Executive Officer
Drago Cerchiari
EVP, Corporate
VP, Chief Financial Officer
Giovanni Caruso
Anton Giorgio Failla
VP, Corporate Development
VP, Corporate Legal Affairs
Marco Chiadò Piat
Brian Sheridan
VP, Chief Internal Auditing
Aldo Lombardi
President,
Cardiac Surgery BU
President,
International Region
President,
North America Region
Franco Vallana
Eric Beard
Rodger Stewart
President,
Cardiac Rhythm Management BU
André-Michel Ballester
President,
Vascular Therapy
& New Businesses BU
Gregory Cash
SVP,
Renal Care BU
Stefano Rimondi
Global Presence
7
Consolidated
Financial Highlights
The pro forma operating data were obtained by consolidating the historical data of
those companies of the SNIA Group that were headed by the beneficiary company
and making the adjustments necessary to include only the operating data
attributable to the businesses transferred to SORIN S.p.A.
In order to interpret the pro forma operating results for 2003 accurately, it is
important to keep in mind that, since the data provide a representation based on a
hypothetical situation, i.e., that the demerger occurred on January 1, 2003, the
historical data do not necessarily match the pro forma data.
2004
Statement of Income
Net revenues (2)
EBITDA
EBIT
Income before taxes and minority interest
Net loss before minority interest
Group interest in net loss
721.3
65.4
2.2
(44.4)
(43.9)
(44.1)
715.3
84.1
11.3
(17.9)
(31.3)
(31.5)
663.6
(316.1)
347.5
346.2
699.8
(296.0)
403.8
402.7
35.8
54.0
4,745
4,776
33.4
51.9
4,754
4,801
(0.124)
–
0.978
2.324
(0.089)
–
1.137
–
(%)
(%)
(%)
(%)
(%)
9.1
0.3
0.3
2.3
(6.1)
11.8
1.6
–
2.1
(4.4)
(%)
(11.8)
–
0.91
0.73
Balance Sheet at December 31
Net invested capital
Net indebtedness
Stockholders’ equity before minority interest
Group interest in stockholders’ equity
Other Data
Capital expenditures
Research and development
Number of employees at end of the period
Average number of employees during the period
Data per Share (in euros)
Consolidated earnings per share
Dividends per share
Consolidated stockholders’ equity per share
Stock market price (average for the year)
Key Indicators
EBITDA/Net revenues
EBIT/Net revenues
EBIT/Average net invested capital
Financial expense/Net revenues
Net loss before minority interest/Net revenues
Group interest in net loss/
Group interest in stockholders’ equity
Net indebtedness/Stockholder’s
equity before minority interest
2003
pro forma (1)
(in millions of euros)
(1) The balance sheet data and the number of employees at end of the period are those at 1/2/04,
when SORIN S.p.A. was established.
(2) Includes sales and service revenues and cost recoveries.
8
Report on Operations
Dear Stockholders:
In 2004, the biomedical operations that were demerged from the SNIA Group
operated for the first time as an independent enterprise, and at the same time
radically changed their management structure and implemented a series of
integration projects that had become necessary after the aggressive acquisition
strategy of the previous three years.
The year ended with a consolidated net loss of about 44 million euros,
due mainly to restructuring charges. Nevertheless, 2004 represents a pivotal
moment in SORIN’s history, a period during which the Group laid the
foundations for a strong turnaround, which will become evident as early as the
second half of 2005.
The main integration projects launched in 2004 included:
• Simplification of the Group’s structure, which was accomplished through
mergers and a significant reduction in the number of Group companies;
• Consolidation of mechanical valve manufacturing at the Saluggia factory and
transformation of the Austin plant from a manufacturing location to an
assembly facility for the American market;
• Consolidation of the manufacture of hemodialysis therapy products at the
Mirandola facility;
• Streamlining of the Group’s logistics to optimize the use of working capital;
• Reallocation of Company resources to businesses that generate greatest
value added.
In November 2004, SORIN’s Board of Directors approved a restructuring
program that included the projects outlined above and authorized the requisite
expenditures. Accordingly, the 2004 consolidated financial statements reflect an
addition of about 33 million euros to the reserve for restructuring charges, most
of which will be incurred in 2005.
Also in 2004, in order to coordinate and optimize customer service, SORIN
adopted a new organization that establishes, alongside the conventional
structure by business units, areas of responsibility based on geographic regions.
The profound changes described above, coupled with SORIN’s unstinting
commitment to research and development of new and increasingly effective
therapies for cardiovascular diseases and hemodialysis, are key aspects of a plan
that is being implemented to help the Group regain its strong upward momentum
and which is expected to produce visible benefits before the end of 2005.
9
Operating Performance
In 2004, the SORIN Group reported net revenues of 721.3 million euros, or 0.8%(1)
more than the 715.3 million euros booked last year. On a comparable
consolidation and euro/dollar translation basis, revenues show a year-over-year
increase of 4.2%.
The table below provides a breakdown of revenues by Business Unit in 2004 and
shows a comparison with the data for 2003.
Net revenues by
business unit
2004
2003
pro forma
(millions
of euros)
(millions
of euros)
Cardiac Surgery
416.1
423.9
–1.8
+2.8
Cardiac Rhythm Management
175.1
166.9
+4.9
+6.7
23.8
23.3
+2.1
+6.1
105.7
102.6
+3.1
+3.6
0.6
(1.4)
–
–
721.3
715.3
+0.8
+4.2
Vascular Therapy & New Businesses
Renal Care
SORIN S.p.A., other revenues and adj.
Total
Change
Change with
comparable
scope of cons.
& for. exch. (2)
%
%
2004
Revenues
by Business
Unit
(%) (%)
Ricavi Net
Netti
2004 per
Business
Unit
CS:
RC 15%
Cardiac Surgery
CS 58%
CRM: Cardiac Rhythm Management
VT:
Vascular Therapy & New Businesses
RC:
Renal Care
CRM 24%
VT 3%
(1) The 2003 data provided in this report are pro forma data obtained by consolidating the
historical data of those companies of the SNIA Group that were headed by the beneficiary
company and making the adjustments necessary to include only the operating data
attributable to the businesses transferred to SORIN S.p.A.
(2) The change in the scope of consolidation mentioned in this Report refers to Carbomedics,
which was acquired on January 21, 2003. In the absence of accounting data, the statement
of income amounts, up to the EBIT level, for the first 20 days of 2003 were estimated on
the basis of information obtained from sources other than the accounting records.
10
The Cardiac Surgery Business Unit (the Group’s largest, representing 58% of total
sales) continued to expand at a rate that is consistent with the overall growth of its
target market.
Consistent with its expectation that the Cardiac Rhythm Management Business Unit
will be the source of significant growth in the future, the SORIN Group invested
heavily in these operations in 2004, launching a process designed to modernize and
expand its manufacturing organization.
In the second half of the year, the Vascular Therapy Business Unit, which is also
expected to enjoy strong growth, was awarded a CE mark for Janus, enabling it to
begin marketing this innovative drug-eluting stent. The market immediately showed
interest in this product, generating attractive sales results.
The Renal Care Business Unit held its market share relatively steady in 2004 while
focusing primarily on redesigning and streamlining its manufacturing facilities and
processes.
Total EBITDA decreased to 65.4 million euros, compared with 84.1 million euros
in 2003. Restated on a comparable consolidation and foreign exchange translation
basis, 2003 EBITDA amounted to 72.7 million euros.
The Group’s EBIT totaled 2.2 million euros in 2004, down from the 11.3 million
euros earned the previous year, due mainly to the decline in the value of the U.S.
dollar. On a comparable foreign exchange translation and consolidation basis, EBIT
show a gain of 1.3 million euros compared with 2003.
The Group’s interest in net loss was 44.1 million euros, compared with a negative
figure of of 31.5 million euros in 2003. This year’s loss is after net extraordinary
charges of 28.8 million euros related mainly to a provision booked to cover the cost
of restructuring programs launched at the end of the year. Restated on a comparable
consolidation and euro/dollar exchange rate basis, the 2003 Group interest in net
loss amounts to 41.9 million euros.
At December 31, 2004, the net indebtedness of the SORIN Group totaled 316.1
million euros, compared with 296.0 million euros at January 2, 2004. This increase
is the net result of a better operating performance, offset by a series of extraordinary
transactions, including the purchase of buildings at the Saluggia industrial facility,
the recapitalization of unconsolidated companies (which are currently being
liquidated or sold) and interest expense.
In 2004, the Group factored, with recourse, some of its receivables. The outstanding
portion of these receivables totaled 24.3 million euros at December 31, 2004,
compared with 30.5 million euros at January 2, 2004.
The 2004 statutory financial statements of SORIN S.p.A. show a net loss of 31.8
million euros, after 25 million euros in extraordinary charges incurred in connection
with the Group’s restructuring program.
11
In 2005, the Group expects to increase both unit sales and market share at a faster
pace than it has in recent years. This will be especially true during the second half
of the year. The programs that are currently being implemented to improve the
organization and develop and launch innovative products should produce significant
growth for the Cardiac Rhythm Management and Vascular Therapy Business Units.
Because these businesses have the highest expected profit margins, any increase in
their unit sales will have a positive impact on the Group’s overall profitability.
The Group’s net indebtedness is expected to increase slightly, as the cash flow that
its operations are expected to generate in 2005 will not be sufficient to cover the
outlays that will be incurred in connection with the restructuring program and the
year’s interest expense.
Cardiac Surgery
The Cardiac Surgery Business Unit designs, manufactures and markets implantable
and external biomedical devices that are used mainly to treat cardiac patients who
require surgery.
In 2004, the Business Unit had revenues of 416.1 million euros, compared with
423.9 million euros last year. The strong negative impact of unfavorable exchange
rates is the reason for this 1.8% decrease. On a comparable consolidation and
euro/dollar translation basis, revenues show an increase of 2.8% over 2003.
An analysis of performance by product line, with data restated on a comparable
euro/dollar translation basis, shows that shipments of heart-lung machines were up
significantly and that sales of oxygenators and autologous transfusion products
increased. The Business Unit’s positive performance in the cardiac valve market
was made possible by strong sales of tissue valves, which more than offset a
modest decline in shipments of mechanical valves. Lastly, sales of annuloplasty
rings, which are used to repair natural cardiac valves, were also up significantly.
The Business Unit is continuing to invest heavily in research and innovation.
A broad array of products and therapies are slated for completion, launch or
development in 2005.
The most significant products include:
• The new Performa adult oxygenator, which combines the best technologies
offered today by Dideco and Cobe Cardiovascular;
• New annuloplasty rings and suture rings for mechanical valves;
• The new S5 heart-lung machine;
• A platelet gel suitable for use in cardiac surgery;
• Percutaneously implantable valves, which are being developed in connection with
a technology that will allow a less invasive procedure for implanting artificial
cardiac valves.
12
During 2004, capital expenditures went mainly to:
• Expand production capacity and cut manufacturing costs of tissue valves at the
Vancouver plant;
• Automate industrial logistics at Stöckert’s plant in Munich;
• Replace equipment at the Mirandola factory and expand manufacturing capacity
for new products.
The main projects launched during the year included:
• Consolidation of the production of mechanical cardiac valves at the Saluggia
center of excellence, shifting manufacturing of Carbomedics valves gradually
away from the facility in Austin, Texas (USA), which will continue to function as
a finished-product assembly plant for the North American market.
The transfer will occur gradually and should be completed in the first quarter of
2006. The shifting of manufacturing responsibility will be managed in a manner
that ensures full compliance with the requirements of the applicable EC and FDA
regulations and preserves the continuity of the relevant authorizations. The
expected benefits of the consolidation process include: greater operating
flexibility in managing brands and product lines, which will allow the Group to
compensate for changes in market conditions; significant economies of scale and
a reduction in manufacturing costs; and a closer integration of R&D and
manufacturing operations.
• Optimization of working capital use by implementing programs to achieve
significant inventory reductions as compared with the previous year.
• Launch of a program to improve efficiency, increase flexibility, reduce time to
market and decrease manufacturing costs of the cardiopulmonary and autologous
transfusion product lines.
During the year, the Company completed the purchase of the buildings at the Saluggia
facility from SNIA at a price of 8.4 million euros. SORIN conducts a significant portion
of its production activities at this location. As mentioned earlier in this Report, it plans
to expand these activities in connection with programs to streamline and concentrate
manufacturing operations that are currently being carried out at different locations.
The main initiatives launched in 2004 to promote new products included:
• Attendance at three conventions, each the most important in its discipline, that
were held in the United States and Europe (STS in January, AATS in May and
EACTS in September). At these conventions the Business Unit offered
presentations, wet lab experiments and satellite symposia to highlight the
outstanding results of recent clinical studies of its products.
• The addition of several prestigious cardiac surgery centers to the roster of
SORIN training centers for physicians who are planning to implant tissue valves
and annuloplasty rings.
• The publication of articles in cardiac surgery periodicals, each confirming
the excellent long-term performance of SORIN mechanical valves.
At December 31, 2004, the Business Unit had 2,862 employees, compared
with 2,909 employees at January 2, 2004.
13
Cardiac Rhythm Management
The Cardiac Rhythm Management Business Unit designs, manufactures and
markets implantable devices, monitoring systems and accessories that are used for
cardiac stimulation, i.e., to control and manage cardiac rhythm and treat patients
with related diseases.
Revenues totaled 175.1 million euros in 2004, a gain of 4.9% (6.7% on a
comparable euro/dollar translation basis) over the 166.9 million euros booked in the
same period a year ago.
The Business Unit’s performance was hampered by manufacturing problems that
limited the availability of its latest-generation models. The Business Unit has been
addressing this issue by investing heavily in new machinery and equipment,
increasing working capital and adding new skilled technicians. The addition of
these new production resources began to produce positive results in the second half
of the year.
The Cardiac Rhythm Management Business Unit is continuing to invest a sizable
portion of its resources and energy in research and development, with the dual goal
of upgrading and adding new features to its existing product line and developing
new families of sophisticated devices for the future.
In addition to medium- and long-term programs, the main research and
development projects that will come to fruition in 2005, enabling the Business Unit
to consolidate its technological leadership and to launch highly innovative products
and therapies, included:
• The second generation of the innovative AAIsafeR/AAIsafeR2 physiological
stimulation algorithm, which can be used to stimulate the right ventricle only
when strictly necessary, in response to an atrioventricular blockage. The resulting
drastic reduction in unnecessary ventricular stimulation is forty percent better
than the results produced by other products currently available on the market.
• The new Ovatio line of implantable defibrillators (Implantable Cardiac
Defibrillators — ICDs) and resynchronizers (Cardiac Resynchronisation Therapy
— CRT-D), which combine a leading-edge defibrillator platform with the unique
benefits of the AAIsafeR2 physiological stimulation algorithm.
• A line of New Living pacemakers, which will include both conventional single- and
dual-chamber pacemakers (New Living SR and DR) and cardiac resynchronization
therapy pacemakers (CRT-P) (New Living CHF), which will offer the unique
advantages provided by a peak endocardial acceleration (PEA) sensor.
The numerous clinical trials conducted by the Cardiac Rhythm Management
Business Unit within the framework of its own clinical research and to comply with
regulatory requirements included:
• Clinical studies to secure FDA approval for systems that prevent atrial fibrillation
and to market the AAIsafeR algorithm, which is used in the Symphony family of
pacemakers, in the United States.
• Clinical studies to secure FDA approval to market a cardiac resynchronization
therapy defibrillator (CRT-D) belonging to the Alto product family (Alto2 MSP)
in the United States.
14
The Business Unit received the following product approvals in 2004:
• FDA approval to market steroid-releasing electrodes in the United States.
• FDA approval and CE mark for the transfer of the production of ELA
Medical–branded electrodes to Saluggia.
The following products were launched in Europe:
• Alto2 MSP, a cardiac resynchronization therapy device (CRT-D) in the Alto2
product family.
• Talent3 MSP (second launch, first launched in 2002), the only cardiac
resynchronization therapy pacemaker (CRT-P) in the world that can be used to
monitor patients who suffer from sleep apnoea.
During 2004, the Cardiac Rhythm Management Business Unit played a significant
role at NASPE and was even more actively involved at Cardiostim, Europe’s main
convention (attended by over 4,000 cardiologists and electrophysiologists), which is
held in Nice, France, every two years.
In December, the Business Unit was one of the participants in a congress in Rome,
where it sponsored a series of interesting scientific seminars focused specifically on
the AAIsafeR physiological stimulation algorithm.
The Business Unit used this venue to make important scientific presentations about
the distinctive characteristics of its products, focusing on the AAIsafeR algorithm
and issues relating to sleep apnoea and peak endocardial acceleration.
At December 31, 2004, the Business Unit had 962 employees, compared with 928
at January 2, 2004.
Vascular Therapy & New Businesses
The Vascular Therapy & New Businesses B. U. designs, manufactures and markets
coronary and endovascular stents and catheters for angioplasty.
Revenues totaled 23.8 million euros in 2004, about the same as last year. Restated
on a comparable foreign currency translation basis, revenues show an increase of
6.1%.
Revenues increased at a significantly faster pace during the fourth quarter of 2004
(+50% compared with the preceding quarters), following the market launch of the
Janus drug-eluting stent, which received the CE mark on October 25, 2004.
Janus is a highly innovative drug-eluting stent that combines the clinical
characteristics of Carbostent (zero occurrences of thrombosis linked to this device
in over five years of implants) with those of drug-eluting stents (reduction in the
rate of restenosis). Moreover, the absence of delicate polymer coatings, such as
those used in competing drug-eluting stents, allows implantation with the direct
stenting technique, which is preferred by most surgeons.
15
Enrollment in the Jupiter II clinical trial was completed at the end of December 2004.
The purpose of this trial, which includes 331 patients participating through 16
European centers, is to gather further clinical evidence of Janus’ safety and
effectiveness. The trial results will be published in the third quarter of 2005.
The Business Unit also began to develop a new coronary stent that will be made
primarily of stellite. This special alloy can be used to make thinner and more
flexible stents. The resulting devices will be easier to implant and will adjust more
readily to the shape of contorted blood vessels.
In the area of products for peripheral vascular procedures, the Business Unit
completed the development of the Flype and HiFlype self-expanding stents, which
were awarded the CE mark. These products have been designed to treat occlusions,
respectively, of the iliac and femoral arteries, which currently account for the
largest segment of the peripheral market.
The Business Unit also succeeded in broadening its existing product line following
the receipt of CE certification for the following devices:
• Tecnic Carbostents with diameters small enough for use in small blood vessels
and bypass grafts.
• Two families of catheters for peripheral angioplasty that are compatible with ’014
and ’018 guidewires and can be used to treat renal and infrapopliteal arteries.
• Tecnic Plus, a new family of stents coated with Carbofilm™ that are not
drug-eluting but feature a new delivery system that provides improved
navigability and makes inserting the stent in a blood vessel easier.
In addition, the Business Unit began distributing the Grip II catheter for
angioplasty, which is used to treat calcified and/or fibrotic lesions and occurrences
of in-stent restenosis.
In 2004, the Business Unit was an active participant in key industry events,
including the ESC in Munich, the Solaci in Argentina, the JIM in Rome, the TCT
in Washington and the Euro-PCR in Paris, where Vascular Therapy presented three
live cases in which CTO catheters were used and Tecnic stents were implanted.
Most of the Business Unit’s capital expenditures in 2004 were used to expand
production of the Janus drug-eluting stent.
At December 31, 2004, the Business Unit had 362 employees, up from 355 at
January 2, 2004.
16
Renal Care
The Renal Care Business Unit designs, manufactures and markets biomedical
devices for the treatment of patients with kidney diseases.
In 2004, revenues increased to 105.7 million euros, or 3.1% more than the 102.6
million euros reported in 2003. Fluctuations in exchange rates had little impact on
revenues since 90% of the Business Unit’s sales are invoiced in euros.
The dialysis market has been growing at a rate that reflects a natural increase in the
number of patients, due largely to an increase in life expectancy, but is also affected
by continuing pressure on prices.
The Business Unit pursued growth primarily by developing new dialysis methods,
increasing production of its line of filters and strengthening its presence in key
hemodialysis markets in Europe in anticipation of a trend to use kidney treatment
technologies in the fields of intensive care and cardiology.
The Business Unit is continuing to invest in research and innovation. The main
projects carried out in 2004 focused on:
• Development of vascular access devices for patients suffering from chronic renal
failure (catheters);
• Optimization of the technique of hemodiafiltration with endogenous reinfusion
(HFR);
• Online hemodiafiltration with acetate (PHF) and with acetate-free concentrates
(LYMPHA);
• Sepsis treatment;
• Treatment of patients suffering from heart failure;
• Development of biotechnologies and systems that use locoregional perfusion, funded
in part by the Fund for Investments in Basic Research (abbreviated FIRB in Italian);
• A.P.D. (Automatic Peritoneal Dialysis);
• Acute Renal Failure.
In 2004, the Renal Care Business Unit was awarded the CE mark for several types
of catheters and launched various products, including:
• LYMPHA, the first acetate-free online hemodiafiltration system, which provides
patients with the short-term advantage of greater cardiovascular stability during
dialysis and the long-term advantages that result from the absence of acetate in
the dialysis fluid. The entire system is protected by a patent that covers both the
equipment and the filters.
• New filtration absorption systems covered by patents held by the Renal Care
Business Unit. These systems are used in applications such as the C.P.F.A.
treatment, which is used to treat multiorgan systemic infections (sepses) that may
or may not be associated with acute renal failure. Another filtration technique
marketed by the Business Unit is the HFR Evolution, which is used to treat
patients suffering from MIA (malnutrition, chronic inflammation and
arteriosclerosis) syndrome.
These new developments were discussed at a symposium organized in Treviso,
Italy, in March 2004. The symposium was attended by 450 nephrology specialists,
who expressed their appreciation for the opportunity to attend an event of such
great scientific significance.
17
Another important convention, which was held in Bergamo, Italy, in September,
provided an opportunity to discuss At-Home Night Dialysis, a technique that is
currently the subject of significant interest in the medical community.
In 2004, capital expenditures were used mainly to:
• Modernize the dialyzer sterilization department by using the steam method for
synthetic membranes.
• Reorganize the Toulouse plant in France.
• Install equipment at customer locations within the framework of contracts to
supply complete dialysis treatment (Service Operations).
The main projects launched in 2004 included:
• Transferring the operations that manufacture hemodialysis filters from Saluggia
to Bellco’s main production site in Mirandola (Modena, Italy), with the goal of
reducing manufacturing costs through integration with other kidney-related
activities.
• Outsourcing the production of hematic lines.
Completion of these projects is expected in the second half of 2005.
The Renal Care Business Unit had 508 employees at December 31, 2004, compared
with 523 at January 2, 2004.
Results by Geographic Region
An analysis of revenues by geographic region shows that the Group strengthened
its presence in North America in 2004. This market accounted for 23% of total
revenues, despite a sharp decline in the value of the U.S. dollar. Restated on a
comparable foreign exchange translation basis, North American revenues show a
gain of 7.5% compared with 2003.
As mentioned earlier in this Report, the Group adopted a new marketing
organization in 2004 that will help it strengthen its sales force both at the regional
and country level. In 2004, the projects that are being implemented to reduce the
number of Group companies and consolidate sales units resulted in the establishment
of marketing companies for France, Germany and the Benelux countries.
The projects for the UK, Spain, Japan and Italy will be completed in 2005.
The Group also continued to implement projects designed to improve the efficiency
of administrative and business support processes through the establishment, when
appropriate, of shared services for homogeneous regions. In North America, for
example, a single organization now provides Group administrative services to all of
the Business Units and companies operating in that region.
18
Operating Performance and
Financial Position of the
SORIN Group and SORIN S.p.A.
The pro forma operating data were obtained by consolidating the historical data for those
companies of the SNIA Group that were headed by the beneficiary company and making
the adjustments necessary to include only the operating data attributable to the businesses
transferred to SORIN S.p.A.
In order to interpret the pro forma operating results for 2003 accurately, it is important to
keep in mind that, since the data provide a representation based on a hypothetical situation,
i.e., that the demerger occurred on January 1, 2003, the historical data do not necessarily
match the pro forma data.
19
Operating Performance of
the Main Group Companies
The data provided below are taken from the financial
statements supplied by these companies for the
preparation of consolidated financial statements.
In 2004, the Group underwent a reorganization process
that involved mergers and transfers of companies and
commercial branches. As a result, a comparison of 2004
and 2003 data is not provided below, since the results of
these two years are not comparable.
Dideco S.r.l. (SORIN S.p.A. 100%)
This company produces oxygenators and autologous
transfusion systems. In 2004, it transferred its French
branch to Sorin Group France S.A.S.
Stöckert Instrumente GmbH (Germany)
(Dideco S.r.l. 100%)
This company produces heart-lung machines for
extracorporeal circulation. In 2004, it became the only
German company authorized to distribute the products
of the SORIN Group.
2004
•
•
•
•
Net revenues
EBITDA
EBIT
Net income
161.1
30.6
23.7
22.3
2004
•
•
•
•
(in millions of euros)
Net revenues
EBITDA
EBIT
Net loss
69.1
3.8
0.6
(0.2)
(in millions of euros)
Cobe Cardiovascular Inc. (USA)
(Dideco S.r.l. 100%)
This company produces oxygenators.
Sorin Biomedica Cardio S.r.l.
(SORIN S.p.A. 100%)
This company produces cardiac valves and coronary
stents. In 2004, it transferred its German and French
sales branches to Stöckert Instrumente GmbH and Sorin
Group France S.A.S., respectively.
2004
•
•
•
•
Net revenues
EBITDA
EBIT
Net income
142.9
14.6
6.5
16.5
2004
(in millions of U.S. dollars)
•
•
•
•
Carbomedics Inc. (USA)
(Cobe Cardiovascular Inc. 100%)
This company produces cardiac valves.
(in millions of euros)
2004
•
•
•
•
Net revenues
EBITDA
EBIT
Net income
Net revenues
EBITDA
EBIT
Net loss
65.0
19.1
11.9
1.8
(in millions of U.S. dollars)
20
78.9
0.5
(3.2)
(12.8)
Ela Medical S.A.S. (France)
(SORIN S.p.A. 100%)
This company produces pacemakers and defibrillators.
In 2004, it transferred its marketing operations to Sorin
Group France S.A.S.
Net revenues
EBITDA
EBIT
Net loss
92.3
7.5
2.6
(17.8)
Sorin Biomedica CRM S.r.l.
(Ela Medical S.A.S. 100%)
This company produces pacemakers.
2004
Net revenues
EBITDA
EBIT
Net loss
Net revenues
EBITDA
EBIT
Net loss
(in millions of euros)
(in millions of euros)
•
•
•
•
2004
•
•
•
•
2004
•
•
•
•
Bellco S.r.l.
(SORIN S.p.A. 100%)
This company produces dialysis filters, systems and
concentrates.
31.7
1.2
–
(2.6)
(in millions of euros)
21
91.4
9.2
2.9
(2.7)
Sorin Group
Consolidated Operating Results
The 2004 fiscal year ended with a net loss of 44.1
million euros, compared with a pro forma net loss of
31.5 million euros in 2003 (-41.9 million euros on a
comparable foreign exchange translation basis). The loss
is the product of a decrease in EBIT (-9.1 million euros),
which were penalized by 10.4 million euros as a result
of the appreciation of the euro versus the U.S. dollar,
and 17.8 million euros in nonrecurring charges, which
reflect primarily the establishment of a reserve to cover
the restructuring costs that will be incurred to increase
the effectiveness and efficiency of corporate processes.
The tax liability and the writedowns of financial assets
decreased by 13.9 million euros and 2 million euros,
respectively, but financial expense increased by 1.6
million euros.
2004
A.-B. Net production
value (EBIT)
Change
(*)
11.3
– 9.1
(16.8)
(15.2)
– 1.6
(1.0)
(3.0)
+ 2.0
Income before
extraordinary items
and taxes
(15.6)
(6.9)
– 8.7
Extraordinary income
(expense)
(28.8)
(11.0)
–17.8
(44.4)
0.5
(17.9)
(13.4)
–26.5
+13.9
(0.2)
(0.2)
–
(44.1)
(31.5)
– 12.6
Financial income
(expense)
D.
Value adjustments
on financial assets
Income (Loss)
before taxes
•
Income taxes
•
Minority interest in
net income (loss)
Net income (loss)
Production value
B.6.7.8.11.14. Cost of raw
materials, outside
services and
miscellaneous
operating costs
Value added
generated
B.9. Personnel
expense
EBITDA
B.10. Depreciation,
amortization and
writedowns
B.12.13. Provisions for
risks and charges
A.-B.Net production
value (EBIT)
2.2
C.
E.
2003
pro
forma
A.
(in millions of euros)
2004
2003
pro
forma
Change
(*)
760.6
758.5
+ 2.1
(435.7)
(419.6)
–16.1
324.9
338.9
–14.0
(259.5)
(254.8)
– 4.7
65.4
84.1
–18.7
(61.9)
(68.8)
+ 6.9
(1.3)
(4.0)
+ 2.7
2.2
11.3
– 9.1
(in millions of euros)
Net revenues increased to 721.3 million euros, or 0.8%
more than the 2003 pro forma revenues (+4.2% on a
comparable foreign exchange translation basis*).
Because of a reduction in the contribution provided by
the capitalization of internally produced assets (-6.2
million euros), this revenue gain had only a limited
impact on production value, which grew from 758.5
million euros in 2003 to 760.6 million euros in 2004.
The cost of raw materials and outside services and the
amount of personnel expense increased both in absolute
terms and as a percentage of production value. As a
result, EBIT decreased by 9.1 million euros, due mainly
to the appreciation of the euro versus the U.S. dollar.
Restated on a comparable euro/U.S.dollar exchange rate,
EBIT show an increase of 1.3 million euros compared
with 2003.
(*) Net revenues include sales and service revenues and
recovered costs.
22
Financial expense increased by 1.6 million euros
compared with the pro forma figure for 2003 due to a
rise in the Group’s average indebtedness and to higher
interest rates.
Value adjustments on financial assets were a negative
1.0 million euros. They refer almost entirely to the
writedown of the carrying value of a minority interest
(1.467%) that SORIN S.p.A. holds in Istituto Europeo di
Oncologia S.r.l.
Net extraordinary expense of 28.8 million euros is the
net result of provisions booked to cover the cost of
restructuring and streamlining the Group’s manufacturing
and distribution organizations (33.5 million euros) and
the gain stemming from early repayment of the loan
provided by the seller in connection with the acquisition
of Carbomedics (9.0 million euros).
A breakdown of net invested capital is as follows:
12/31/04
1/2/04
Change
B.I. Intangibles
315.3
330.2
–14.9
B.II. Property, plant
and equipment
128.2
132.9
– 4.7
B.III. Financial fixed
assets
1.8
3.3
– 1.5
•
Capital invested in
fixed assets
445.3
466.4
–21.1
•
Net working
capital
249.3
262.8
–13.5
C.
Reserve for
employee severance
indemnities
(31.0)
(29.4)
– 1.6
663.6
699.8
–36.2
Net invested capital
(in millions of euros)
The Group earned an income tax credit of 0.5 million
euros, after current taxes of 4.8 million euros.
The Group’s interest in net loss, which is the product of
the items discussed above, amounted to 44.1 million euros.
Consolidated Balance Sheet
and Financial Position
The decrease in net invested capital, which is a result of
reductions in working capital and capital invested in
fixed assets, was reflected in its entirety in stockholders’
equity, while indebtedness increased from 296 million
euros at January 2, 2004 to 316.1 million euros at the
end of the year.
The ratio of net indebtedness to stockholders’ equity
went from 0.73 at January 2, 2004 to 0.91 at December
31, 2004.
•
Net invested
capital
•
Stockholders’ equity
•
Net indebtedness
12/31/04
1/2/04
663.6
347.5
(316.1)
699.8
403.8
(296.0)
Change
–36.2
–56.3
+20.1
(in millions of euros)
23
Net invested capital decreased by 36.2 million euros,
due mainly to the establishment of the reserve for
restructuring charges mentioned above and a decrease in
capital invested in fixed assets attributable both to the
excess of depreciation and amortization over additions
for the year and to the impact of asset disposals and
writedowns. Working capital held at about the same
level as in 2003, as the boost provided by an increase in
revenues offset the negative impact of currency
translation losses caused by the appreciation of the euro
versus the U.S. dollar.
A breakdown of stockholders’ equity is as follows:
•
Capital stock
•
Reserves
•
Group interest
in net income (loss)
for the period
Group interest in
consolidated
stockholders’ equity
12/31/04
1/2/04
Change
354.1
36.2
354.1
48.6
–
–12.4
–
–44.1
346.2
402.7
Minority interest in
capital stock and
reserves
1.1
1.1
•
Minority interest
in net income (loss)
for the year
0.2
–
A.
Consolidated stockholders’ equity incl.
minority interest
12/31/04
1/2/04
Change
18.4
30.3
– 11.9
26.4
+28.4
Short-term financial assets
C.IV. Liquid assets
Financial receivables
(44.1)
•
Minority interest in
consolidated
stockholders’ equity
A breakdown of net indebtedness is as follows:
1.3
347.5
1.1
403.8
–56.5
•
Short-term financial
receivables
54.8
•
Long-term financial
receivables
––
D.
Financial accrued
income and
prepaid expenses
1.5
3.4
– 1.9
74.7
60.1
+14.6
–
Total financial assets
•
Short-term financial
payables
(127.0)
(222.0) – 95.0
•
Long-term financial
payables
(259.9)
(129.9) + 130.0
E.
Financial accrued
expenses and
deferred income
(3.9)
(4.2) – 0.3
Total financial
liabilities
(390.8)
(356.1) +34.7
Net indebtedness
(316.1)
(296.0) +20.1
+ 0.2
+ 0.2
–56.3
(in millions of euros)
–
(in millions of euros)
The decrease in consolidated stockholders’ equity is
chiefly the result of the loss incurred in 2004 and
reflects the impact of losses stemming from the
translation into euros of assets belonging to foreign
companies. These losses were caused for the most part
by the decline in value of the U.S. dollar.
Short-term financial receivables includes 48.3 million
euros in trade receivables assigned with recourse and on
a deferred collection basis to Ifitalia (17.9 million euros
at January 2, 2004). Short-term financial payables
includes a liability of equal amount owed to Ifitalia, less
commissions, for the funds advanced prior to collecting
those receivables.
Long-term payables increased, due mainly to the
combined impact of the receipt of new loans totaling
166.1 million euros, the early repayment of the
financing provided to Cobe Cardiovascular Inc. by the
seller of Carbomedics (which at January 2, 2004
amounted to 29.4 million euros) and the reclassification
as short-term debt of 6.2 million euros in loan
installments maturing by December 31, 2005.
24
The main new financing transactions include:
• A contract signed on May 13, 2004 by SORIN S.p.A.
and a pool of banks headed by Mediobanca for a
syndicated loan of 140 million euros. Concurrently
with this transaction, SORIN rescheduled the loans it
received in 1999 and 2001 in connection with the
acquisitions of Cobe Cardiovascular and Ela
Medical.
• A contract signed by SORIN S.p.A. and BNP Paribas
for a 20-million-euro loan.
• Mortgages totaling 5.8 million euros received by Sorin
Biomedica S.r.l. and Sorin Biomedica Cardio S.r.l. to
cover a portion of the price paid to SNIA S.p.A. for
buildings located in Saluggia.
The early repayment of the loan owed by Cobe
Cardiovascular Inc. required the payment of US$ 25
million to eliminate a total liability of US$ 37.2 million.
The difference of US$ 12.2 million comprises a price
adjustment of US$ 1 million, which had the effect of
reducing the goodwill recognized upon acquisition, and
out-of-period income of US$ 11.2 million, which was
recognized in earnings, from early payment of the debt.
The amount Dideco S.p.A. owed to SNIA S.p.A. in
accordance with the Demerger Proposal (109.8 million
euros at January 2, 2004) was repaid in full during the
first six months of 2004.
Consistent with its financial resources provisioning
policy, the Group assigned some of its receivables with
recourse. The receivables outstanding at December 31,
2004 amounted to 24.3 million euros.
If assigned receivables that are still outstanding are
included, net indebtedness increases from 326.5 million
euros at January 2, 2004 to 340.3 million euros at
December 31, 2004.
In July, the securitization of receivables owed to health
care companies by the Regional Health Administration of
the Lazio Region was successfully completed through the
25
conduit of Atlantide Finance. Some SORIN Group
companies participated in this transaction, assigning, with
recourse, trade receivables totaling 5.8 million euros.
In 2004, the turnover of assigned receivables was 154.2
million euros.
The table below provides a condensed version of the
statement of cash flow:
Net negative cash balance at beginning of year
(113.5)
•
Cash flow from operating activities
24.7
•
Cash flow used for investments in
fixed assets
(54.0)
•
Cash flow from financing
activities
•
Other changes
•
Change in negative cash balance due to
foreign exchange fluctuations
Net negative cash balance at end of year
94.6
(0.5)
(1.3)
(50.0)
(in millions of euros)
The changes shown in the statement of cash flow are net of
foreign exchange differences that arise from the translation of
financial statements of foreign companies consolidated as of
January 2, 2004.
The net negative cash balance does not include long-term debt,
nor the installments on such debt due within one year.
SORIN S.p.A.
Operating Results
SORIN S.p.A. was established on January 2, 2004
through the partial, proportional demerger of SNIA
S.p.A. On January 5, 2004, Borsa Italiana authorized
trading in SORIN S.p.A. shares (all common shares) to
begin.
The pro forma operating data for 2003, which are based
on restated historical data from SNIA S.p.A., are
provided for informational purposes.
The 2004 fiscal year ended with a loss of 31.8
million euros, mainly as a result of extraordinary
charges consisting of provisions added to reserves in
anticipation of the costs that the Group expects to
incur in the future in connection with its restructuring
process.
2004
C.
D.
E.
•
Change
(*)
– 6.7
Financial income
(expense)
7.2
13.9
Value adjustments
on financial assets
(1.8)
(2.9)
A.-B.Net production
value (EBIT)
•
2003
pro
forma
Income (Loss)
before extraordinary items
and taxes
Extraordinary
income (expense)
Income (Loss)
before taxes
•
Income taxes
•
Net income (loss)
The components of financial income, which totaled
7.2 million euros, are: dividends from affiliated
companies of 13.6 million euros and interest income of
7.5 million euros (earned mainly on current account
balances with Group companies), offset in part by
interest paid on long-term indebtedness (10.6 million
euros), premiums on derivatives that hedge interest rate
and foreign exchange fluctuations (3.0 million euros)
and foreign exchange translation losses (0.3 million
euros).
Value adjustments on financial assets refer to the
amount provided to cover losses by the investee
company Istituto Europeo di Oncologia S.r.l. (0.8
million euros) and writedowns booked to reflect an
impairment of the value of the investments in Sorin
Group International S.A. (0.2 million euros) and Biofin
Holding International S.A. (0.8 million euros).
EBIT, which were negative by 12.2 million euros,
include nonrecurring charges of 1.7 million euros.
A breakdown of the items that comprise EBIT is
provided below:
+1.1
2004
(12.2)
(7.3)
– 4.9
•
Net revenues
•
Other revenues
7.7
1.2
Total production value
8.9
(6.8)
3.7
–10.5
•
Cost of raw materials, outside services
and miscellaneous operating costs
(25.0)
(3.0)
–22.0
•
Personnel expense
•
Depreciation and amortization
(31.8)
(31.8)
0.7
–32.5
(4.1)
+ 4.1
(3.4)
–28.4
EBIT
(10.0)
(9.2)
(1.9)
(12.2)
(in millions of euros)
(in millions of euros)
(*) The changes are shown as positive or negative based on
their impact on the result for the period.
26
The loss before extraordinary items of 25 million
euros is mainly the result of provisions added to the
reserve for restructuring, which is being established to
fund costs that will be incurred in the future as a result
of the Group’s reorganization process.
Balance Sheet and
Financial Position
The Company’s balance sheet underwent a significant
change in 2004 due to an increase in net invested capital
(+175.0 million euros) attributable primarily to
disbursements made to subsidiaries. The resources
needed to make these payments were secured entirely
through borrowing. As a result, the net financial position
went from net financial assets of 63.9 million euros at
January 2, 2004 to indebtedness of 142.9 million euros
at December 31, 2004.
•
Net invested
capital
•
Stockholders’ equity
•
Net (indebtedness)
financial assets
12/31/04
1/2/04
Change
683.2
540.3
508.2 +175.0
572.1 – 31.8
The increase in net invested capital is the net result
of contrasting factors. Specifically, working capital
decreased by 30.4 million euros due to additions
totaling 24.7 million euros to the reserve for
restructuring and a reduction of operating capital
attributable mainly to an increase in trade accounts
payable, which did not exist in the financial
statements at January 2, 2004. These deductions were
more than offset by investments in fixed assets,
primarily financial fixed assets (203.5 million euros)
and additions to intangibles (6.8 million euros),
mainly for capitalization of startup and expansion
costs, charges incurred to secure medium- and longterm financing and software acquisition costs. A
breakdown of financial fixes assets is as follows:
Financial fixed assets at 1/2/04
•
(142.9)
63.9 +206.8
(in millions of euros)
A breakdown of net invested capital is as follows:
Disbursements to:
Dideco S.r.l.
Sorin LifeWatch S.r.l.
B.I.
Intangibles
1/2/04
Change
6.3
1.1 + 5.2
B.II. Property, plant
and equipment
0.8
0.4 + 0.4
B.III. Financial fixed
assets
709.7
509.7 +200.0
716.8
511.2 +205.6
(32.2)
(1.8) – 30.4
•
Capital invested
in fixed assets
•
Net working
capital
C.
Reserve for
employee severance
indemnities
Net invested
capital
(1.4)
683.2
(1.2) –
Purchase of equity investment in
Sorin Group International S.A.
•
Utilization of reserve for risks and charges
0.1
(1.8)
•
Recognition of asset value impairments
and replenishment of losses (*)
(1.7)
27
709.7
(in millions of euros)
Stockholders’ equity decreased by 31.8 million euros,
due exclusively to the loss incurred in 2004.
0.2
508.2 +175.0
(in millions of euros)
202.0
1.4
•
Financial fixed assets at 12/31/04
12/31/04
509.7
(*) This amount does not include 0.2 million euros added to
the reserve for miscellaneous risks to recognize the impact
of the negative equity of Sorin Group International S.A.
A breakdown of the net financial position is as follows:
C.III. Financial assets not
held as fixed assets
C.IV. Liquid assets
12/31/04
1/2/04
Change
179.9
2.3
251.1
–
– 71.2
+ 2.3
•
Short-term
financial receivables
1.5
0.6
+ 0.9
•
Financial accrued
income and
prepaid expenses
1.4
3.1
– 1.7
Total financial assets
•
Short-term
financial payables
•
Long-term
financial payables
•
Financial accrued
expenses and
deferred income
Total financial
liabilities
Net (indebtedness)
financial assets
185.1
254.8
– 69.7
(75.9)
(93.2) – 17.3
(248.4)
(93.9) +154.5
The main components of long-term debt are indebtedness
of 93.4 million euros(1) resulting from the demerger,
which was incurred to finance the acquisitions of Cobe
Cardiovascular and ELA Medical and two new financing
facilities established in 2004, including a 140-million-euro
syndicated loan provided by a pool of banks headed by
Mediobanca, and a 20-million-euro loan supplied
by BNP Paribas. A portion of this loan, amounting to
5 million euros, is due within one year and, consequently,
it has been recognized as short-term indebtedness.
No loans were assigned in 2004 and no assigned loans
were outstanding at January 2, 2004.
The table below provides a condensed version of the
statement of cash flow:
Net cash balance at beginning of year
(3.7)
(328.0)
(142.9)
(3.8) –
0.1
209.6
•
Cash flow from operating activities
•
Cash flow used for investments
in fixed assets
•
Cash flow from financing
activities
107.7
Net cash balance at end of year
110.5
(190.9) +137.1
4.1
(210.9)
63.9 +206.8
(in millions of euros)
(in millions of euros)
To optimize the management of the Group’s cash
resources, SORIN S.p.A. provides support and guidance
to its subsidiaries through a unified control of fund flows
and the execution of Group-wide agreements with credit
institutions (centralized cash management system).
It is through this process that the Company’s short-term
assets and liabilities are generated. Specifically, the
former consist primarily of loans receivable from Group
companies and the latter represent mainly indebtedness
owed to credit institutions.
The net cash balance is before deducting medium- and
long-term indebtedness, including the installments due
within one year.
SORIN S.p.A. does not own treasury shares or shares of
its controlling company, nor did it buy or sell such
shares in 2004.
(1) The difference from the amount shown at January 2, 2004
reflects the translation intro euros at the exchange rate in
force on December 31, 2004 of the portion of indebtedness
denominated in U.S. dollars.
28
Net Revenues by Geographic Region
Net Revenues by Origin
2004
millions of euros
2003 pro forma
%
millions of euros
%
Italy
Rest of Europe
North America
Rest of the world (*)
369.9
200.0
147.9
3.5
51.3
27.7
20.5
0.5
352.0
199.2
154.2
9.9
49.2
27.8
21.6
1.4
Total
721.3
100.0
715.3
100.0
(*) Consists entirely of products purchased from outside suppliers.
Net Revenues by Destination
2004
millions of euros
2003 pro forma
%
millions of euros
%
Italy
Rest of Europe
North America (*)
Rest of the world
126.9
313.2
165.9
115.3
17.6
43.4
23.0
16.0
125.1
302.9
164.1
123.2
17.5
42.3
22.9
17.3
Total
721.3
100.0
715.3
100.0
(*) Restated on a comparable foreign exchange translation basis, North American revenues show a gain of 7.5%.
Net Revenues by Destination (%)
RoW 16%
EU:
Europe
EU 61%
RdM: Rest of the world
NA:
NA 23%
29
North America
Research and Development
In 2004, the SORIN Group continued to pursue its research and development
(R&D) projects aggressively. Total R&D spending increased to 54.0 million euros
in 2004, or 4% more than the 51.9 million euros invested in 2003. On average,
R&D expenditures were equal to 7.5% of consolidated net revenues (7.3% in 2003).
The significance of the Group’s extraordinary commitment to technological
innovation is highlighted in a report published by the European Commission
entitled “The 2004 EU Industrial R&D Investment Scoreboard,” which analyzes
R&D spending by the top 500 companies in Europe. The SORIN Group is ranked
sixth among Italian companies in terms of overall investments in research (but first
among medium-size groups) and third when R&D spending is measured as a
percentage of revenues. In Europe, the Group is the twelfth largest R&D spender
among European biomedical groups.
The Group’s R&D organization has a staff of about 480 employees, who work in
the R&D centers of the Group’s operating companies in Europe (Italy, France and
Germany) and the United States. At the facility in Saluggia (Vercelli, Italy), about
110 research specialists work at centers operated by Sorin Biomedica Cardio
(cardiac valves and stents) and Sorin CRM (pacemakers). In Mirandola (Modena,
Italy), close to 100 research specialists are employed at facilities owned by Dideco
(oxygenators and autologous transfusion systems) and Bellco (hemodialysis). In
Paris, the Ela Medical research center (pacemakers, defibrillators and CRT-Ds) has
a staff of over 180 specialists. Additional centers include the German facilities
operated by Stöckert (heart-lung machines) in Munich and, in the United States,
those established by Cobe Cardiovascular (cardiopulmonary) in Denver, Colorado,
and by Carbomedics (mechanical valves) in Austin, Texas. The Group’s Parent
Company established an R&D Committee, headed by the Chief Executive Officer,
which assesses, approves and monitors the research and development programs
proposed by the Business Units.
The Group is devoting a significant effort to restructure its organization, with the
goal of increasing center specialization and exploiting intra-Group synergies
through integrated projects that involve different Business Units and leverage the
specific competencies of each unit, while avoiding duplications. The Group’s new
product pipeline is also being enriched through numerous collaboration agreements
with leading scientific and medical institutions in several European countries and
the United States and through the involvement of Group companies in Italian and
European research projects, which are carried out in cooperation with universities,
hospitals and other research facilities.
The Cardiac Surgery Business Unit is pursuing a number of research projects.
A project in the area of oxygenators resulted in the development of a new, simplified
version of an existing model with an integrated centrifugal pump (MiniByPass)
called ECC.O. The visible components of the new version are one-third smaller than
those of conventional systems, with concomitant benefits for patients.
30
Marketing of the ECC.O is already under way in Europe. Meanwhile, work has
begun on the development of a next-generation MiniByPass circuit that will be
available in two years. An ECMO (ExtraCorporeal Membrane Oxygenation)
version of the ECC.O is now being developed for a “crash cart.” This is a mini
heart-lung machine (HLM) called APEC that can also be used in catheterization
labs to provide cardiorespiratory support to patients in cardiogenic shock or who are
suffering from acute respiratory failure. EOS, a new hollow-fiber oxygenator for
pediatric applications, has been introduced in the European market, with positive
results. Production of this system benefits from industrial synergies with the
AVANT adult oxygenator. Development work has also begun on the new L001 and
L002 oxygenators designed, respectively, for neonatal and pediatric applications.
They will replace the Lilliput 1 and Lilliput 2, which have now reached the final
phase of their life cycle. The L001, which was expressly designed for infants
weighing less than 4 kilograms, has no competition in this segment of the market.
As part of the Group’s strategic redeployment, the Cardiac Surgery Business Unit
launched a plan to consolidate and realign its future production of oxygenators, which
will be based on the PERFORMA, a highly innovative model that features advanced
design and incorporates the best technologies developed by Dideco and Cobe CV.
In the autologous transfusion area, a project is currently under way to develop a
next-generation ATS system that will replace the BRAT-Cobe and ELECTA-Dideco
systems. The clinical trials of the SUPREMA, a new cellular separator for
autologous transfusion applications based on the ELECTA platform, have been
completed. This system can perform preoperatory apheresis, intraoperatory cell
saving and postoperatory recovery functions. A preproduction series of the version
for apheresis applications, called MULTIPLE, has been produced and used
successfully by blood banks to collect platelets from donors.
The blood management area represents a new field of activity for the Business Unit,
which is busy developing new product lines. Research on applications for the Business
Unit’s proprietary erythrocyte drug-loading (RBC-Drug Loading) technology has
yielded promising results for the treatment of inflammatory diseases. The system that
has been developed, which synergistically combines technologies that were already
available within the Company for use in autologous transfusion applications, includes a
machine (Drug Loader), disposable hematic lines and the appropriate reagents and
drugs. In the fall of 2004, the Business Unit launched a centralized procedure for
European registration of a new cystic fibrosis drug (orphan drug).
An innovative area of research involves the Pluricell system for ex-vivo expansion
of hematopoietic stem cells, which is being developed for applications in the
cellular therapy of oncological blood illnesses (bone-marrow transplant). A new
version is currently being evaluated under a research project on the feasibility of
using hematopoietic stem cells for the reconstruction of heart tissues damaged by
coronary diseases.
The most innovative projects in the area of cardiac valves involved the development
of a percutaneous pericardium valve mounted on a stent collapsed inside a catheter
(animal testing is currently under way, with excellent results) and of a flexible
annuloplasty ring. In addition, a project to upgrade the suture rings for the Bicarbon
31
prosthesis has been completed, completely satisfying the expectations of surgeons
with regard to optimum implantability in all valve illnesses and delivering
substantial reductions in production time and costs.
The research activity carried out by the Cardiac Rhythm Management Business Unit
in 2004 resulted in a top-to-bottom renewal of its product line. In the bradycardial
segment, following a successful first implant, the Business Unit received ICR
(Internal Clinical Release) approval for its new line of Symphony pacemakers,
which use the innovative AAIsafeR2 algorithm to preserve the heart’s spontaneous
atrioventricular conductivity. In addition, it received the CE mark for the NewLiving DR system and began development of a new, leading-edge platform called
Arcane.
In the area of leads, the Business Unit received the CE mark for a product called
Silthin QS with steroid-elution.
Projects involving tachycardia therapy included the start of clinical trials of the
next generation of ICD Ovatio implantable defibrillators. These systems, which are
based on the Symphony electronic platform, constitute a key element of the
Business Unit’s growth strategy. The first implant of an ICD Isoline 2CR lead has
been completed, and the CE mark should follow some time in 2005.
In the segment of cardiac resynchronization therapy devices (CRT-D), the Business
Unit received ICR approval for the Alto 2 MSP, Ela’s first CRT-D product, which is
based on the Alto 2 627 platform.
Products developed in the field of Holter Monitors include Spiderflash, which is a
high-end event-recorder software that broadens the range of products that the
Business Unit can offer in new areas.
Work carried out by the Vascular Therapy & New Businesses Business Unit in the
field of stent research yielded important results in the development of innovative
devices that can be used for both coronary and peripheral applications. R&D
projects focused on three main areas: expanded clinical trials of a new drug-eluting
stent called Janus Carbostent, development and manufacturing applications of new
alloys for stent production, and expansion of the existing product line.
In the field of coronary stents, JANUS, a revolutionary stent that combines the
benefits of Carbofilm™ (a special pyrolitic carbon film produced by SORIN that is
highly biocompatible and has proven to be effective in reducing the risk of
thrombosis) with an exclusive, patented drug-eluting system, received the CE mark
in October 2004. A new clinical trial called JUPITER II has been launched to
provide even greater clinical evidence of the safety and effectiveness of JANUS.
JUPITER II is an international, randomized, double-blind trial carried out at
multiple centers that involves the use of JANUS Carbostents to treat the stenosis of
coronary arteries. A total of 330 patients have been enrolled at 16 centers in Europe.
The study coordinator is Marie-Claude Morice, who is located in Massy, France.
32
Enrollment was completed in December 2004, and the trial’s findings should be
available sometime in 2005.
In the area of new materials for stent production, the Business Unit, having carried
out the necessary clinical trials, completed the development of and was awarded the
CE mark for a stent made of nitinol that is suitable for use in iliac and femoral
arteries. Nitinol is a nickel and titanium alloy that can be produced in tubular form
and processed through a sophisticated manufacturing cycle to produce devices that
are superelastic and, therefore, can be bent significantly without losing their
original shape. Devices that have this characteristic are invaluable for use in vessels
such as superficial femoral arteries, where stents can be subject to major external
stress.
Another project involved the development of a coronary stent the base material of
which is stellite. This alloy, which SORIN has been using for a number of years to
make the housings for single-disk valves, makes it possible to produce thinner
stents that have the same mechanical properties of similar stents but are more
flexible. Stents made with this alloy are easier to implant and can conform to more
contorted blood vessels. These stents will also serve as a drug-eluting platform for
the next generation of SORIN stents. By the end of 2004, the development process
had reached the prototype construction and bench testing stages.
The main research project that the Renal Care Business Unit carried out in 2004 at
Bellco’s facilities involved the development of new hemodialysis equipment.
The HFR Evolution project and the upgrades made to the Formula system’s
hardware and software to improve the support of the Business Unit’s niche
activities and increase reliability were completed successfully.
Other completed projects included the in vivo validation and optimization of
mathematical models developed specifically for sensor applications and to support
the decision-making process involving, on the one hand, the selection of the dialytic
recipe and, on the other, the optimization of the patient’s condition in terms of
making the therapy tolerable during and in between treatments.
Additional projects involved: construction of a second prototype of a system for
automated peritoneal dialysis (APD), which has undergone in vitro and in vivo
validation with excellent results; definition of the functional and technical
specifications of a next-generation extracorporeal dialysis system that makes
significant use of disposable components; development of an innovative method for
treating solid tumors by means of locoregional perfusion; and development of new
biofeedback systems.
33
Human Resources
and Industrial Relations
At December 31, 2004, the Group had 4,745 employees, or 9 less than the 4,754
employees who were on staff at the beginning of the year.
A breakdown of the change is provided below:
Employees at 1/2/04
4,754
•
Additions
–
•
Reductions
–
•
Net change in the scope of consolidation
–
•
Turnover
– 9
Total changes
– 9
Employees at 12/31/04
4,745
At December 31, 2004, the Group’s Italian companies had 2,302 employees (48.5%
of the total staff), or 25 more than at the beginning of the year. As of the same date,
companies outside Italy had 2,443 employees (51.5% of the total staff), or 34 less
than at January 2, 2004.
An analysis of the staff decrease in terms of employee type shows that Sales &
Marketing and Manufacturing increased employment by 26 and 17 employees,
respectively. At the same time, G&A decreased by 28 employees and the remaining
departments shrank their staff by 24 employees.
Restated on a comparable currency translation basis, the revenue per employee
increased by 4.7% compared with 2003.
34
The table below provides a breakdown of the Group’s employees by country and
Business Unit:
Geographic Region
At
1/2/04
At
12/31/04
Change
Italy
Rest of Europe
North America
Rest of the world
2,277
1,024
1,336
117
2,302
1,055
1,270
118
+ 25
+ 31
– 66
+ 1
Total
4,754
4,745
–
Business Unit
At
1/2/04
At
12/31/04
9
Change
Cardiac Surgery
Cardiac Rhythm Management
Vascular Therapy & New Businesses
Renal Care
SORIN S.p.A.
2,909
928
355
523
39
2,862
962
362
508
51
–
+
+
–
+
47
34
7
15
12
Total
4,754
4,745
–
9
The most significant human resources projects carried out in 2004 are reviewed below:
• The Group completed the implementation of a new matrix-based structure based
on two main levels: the Business Units (Cardiac Surgery, Cardiac Rhythm
Management, Vascular Therapy & New Businesses and Renal Care) and the
Regions (International and North America). This structure, which is designed to
ensure that each of the Group’s businesses remains properly focused and to
maximize geographic penetration through a customer-oriented approach, is
supported at the corporate level, where the strategic guidelines for the entire
SORIN Group are developed and resources are efficiently allocated.
• The management staff has gone through a major overhaul: 28% of the Group’s
110 executives and key managers are new hires (mostly hired from companies in
the same industry) and 25% occupy entirely new positions.
• The Group introduced a new system of Performance Management Objectives
(PMO) that provides the top 400 employees of the SORIN Group with incentives
for improving the competitive position of the operations in which they work and
brings them on par with best industry practices. In addition, the Group approved a
stock option plan for about 110 of its key managers. The purpose of the plan is to
bring about a virtuous convergence of the goals pursued by the Group’s managers
and the interests of its stockholders. The introduction of the PMO and stock
option plan has significantly increased the variable portion of the compensation
available to managers.
35
• A Job Grading and Salary Range system has been applied throughout the SORIN
Group, with the goal of positioning the Company competitively vis-à-vis its main
international competitors and providing a more transparent and fair treatment
within the Group.
• A Talent Management Analysis, which will involve about 600 employees, is
being implemented to identify and develop the professional skills and
competencies of key personnel.
• The various Business Units offered training programs, focused mainly on their
management and sales staff, with the goal of bringing the professional skills of
their employees in line with the Group’s changed strategic objectives and
operating needs.
• In order to establish uniform practices and reduce costs, the Group introduced
international policies for the management and allocation of company cars, the
reporting of travel expenses and the use of information and telephone systems.
• Lastly, the SORIN Group is continuing to carry out those internal
communications initiatives that it launched immediately after its founding to
inform its employees about key events and its operating performance.
36
Transactions Among Group Companies
and with Related Parties
Transactions Between SORIN
S.p.A. and Other Group
Companies
SORIN S.p.A. provides support and guidance to
companies of the Group in the areas of human resources
development and cash management, including
centralized cash management services and the execution
of Group-wide agreements with credit institutions, and
on legal, tax and corporate issues.
These services are provided at cost, with payment due at
the end of each six-month period. Any interest charged
is computed at market rates.
Subsidiaires
and affiliated
companies
Statement of Income at December 31, 2004
•
•
•
•
Sales and service revenues and other revenues
Raw materials, outside services, use of
property not owned and other charges
Interest income and other income
Interest expense and other charges
7.5
0.7
7.6
0.3
Balance Sheet at December 31, 2004
Assets
• Trade receivables
• Financial receivables
0.1
179.9
Liabilities
• Trade payables
• Financial payables
0.2
41.4
Memorandum Accounts
– Guarantees and sureties provided to outsiders
on behalf of subsidiaries
– Guarantees and sureties received from subsidiaries
– Off-balance-sheet financial instruments
22.2
8.7
7.3
(in millions of euros)
37
Transactions Between the SORIN
Group and Group Companies
That Are Not Consolidated
Line-by-Line
Subsidiaries and
affiliated comp.
that are not
consolidated
line-by-line
Statement of Income at December 31, 2004
•
•
•
•
Sales and service revenues and other revenues
Raw materials, outside services, use of
property not owned and other charges
Interest income and other income
Interest expense and other charges
–
–
–
–
Balance Sheet at December 31, 2004
Assets
• Trade receivables
• Financial receivables
• Other receivables
–
–
–
Liabilities
• Trade payables
• Financial payables
• Other liabilities
–
–
–
Memorandum Accounts
– Guarantees and sureties provided to outsiders
on behalf of subsidiaries
(in millions of euros)
38
0.1
Principal Intra-Group
Transactions Carried Out
in 2004
In 2004, the Group began to implement a program to
simplify its structure by reducing the number of
companies it comprises and lower overhead. Most of the
intra-Group transactions reviewed below were executed
within the context of this program:
• Dideco S.r.l. provided Cobe Cardiovascular Inc. with
an advance on capital contributions in the amount of
US$ 2.9 million
• Carbomedics Inc. transferred 100% of its interest in
Carbomedics Canada Inc. to Cobe Cardiovascular Inc.
• Dideco S.r.l. transferred 100% of its interest in Sorin
Biomedica Canada Inc. to Cobe Cardiovascular Inc.
• Cobe Cardiovascular Inc. underwrote a capital
increase of 0.2 million Canadian dollars carried out by
Carbomedics Canada Inc.
• Cobe Cardiovascular Inc. transferred 100% of its
interest in Mitroflow Inc. to Carbomedics Canada Inc.
• Cobe Cardiovascular Inc. transferred 100% of its
interest in Sorin Biomedica Canada Inc. to
Carbomedics Canada Inc.
• Mitroflow Inc., Sorin Biomedica Canada Inc. and
Carbomedics Canada Inc. were merged into a newly
established company called Sorin Group Canada Inc.,
which is a wholly owned subsidiary of Cobe
Cardiovascular Inc.
• SORIN S.p.A. provided Dideco S.r.l. with an advance
on capital contributions in the amount of 202 million
euros.
• SORIN S.p.A. transferred 100% of its interest in Sorin
Cobe CV Inc. to Cobe Cardiovascular Inc. at a price
of US$ 100.
• Ela Medical S.A.S. advanced US$ 5.2 million to Ela
Medical Inc.
• Ela Medical S.A.S. transferred 100% of its interest in
Ela Medical Inc. to Cobe Cardiovascular Inc. at a
price of US$ 1. As a result of this sale, Ela Medical
S.A.S. recognized a loss of 3.0 million euros.
• The real estate companies Dorniac S.C.I. and Le Tertre
S.C.I. were merged into Laboratoire Soludia S.A.S.
39
• Biofin Holding International N.V. transferred 100% of
its interest in Sorin Biomedica Cardio Deutschland
GmbH to Stöckert Instrumente GmbH at a price of 0.9
million euros. As a result of this sale, Biofin Holding
International N.V. recognized a loss of 0.5 million
euros.
• Ela Medical S.A.S. conveyed 100% of its interest in
Ela Medical GmbH to Stöckert Instrumente GmbH.
Concurrently, Stöckert Instrumente GmbH increased
its capital stock by 0.1 million euros. With this
transaction, Ela Medical S.A.S. acquired a 7.02%
interest in Stöckert Instrumente GmbH, which it then
sold to Dideco S.r.l. The transactions described above
generated an aggregate loss of 0.5 million euros.
• Sorin Biomedica Cardio Deutschland GmbH and Ela
Medical GmbH were merged into Stöckert
Instrumente GmbH.
• Dideco S.r.l. transferred 99.87% of its interest in Sorin
Biomedica Benelux S.A. to Biofin Holding
International N.V. at a price of 2.8 million euros. As a
result of this sale, Dideco S.r.l. recognized a gain of
0.3 million euros.
• Ela Medical S.A.S. transferred 100%(1) of its interest
in Ela Benelux S.A. to Sorin Biomedica Benelux S.A.
at a price of 0.7 million euros. As a result of this sale,
Ela Medical S.A.S. recognized a loss of 0.7 million
euros.
• Ela Benelux S.A. was merged into Sorin Biomedica
Benelux S.A., which then changed its name to Sorin
Group Belgium S.A.
• Biofin Holding International N.V. transferred 100% of
its interest in Sorin Biomedica Cardio France S.A.S. to
Sorin Group France S.A.S., a newly established
company, at a price of 2.8 million euros. As a result of
this sale, Biofin Holding International N.V. recognized
a gain of 0.9 million euros.
(1) Including shares held by nominees.
• Sorin Biomedica CRM S.r.l. transferred 100% of its
interest in Sorin Biomedica CRM France S.A.S. to
Sorin Group France S.A.S., a newly established
company, at a price of 1.2 million euros. As a result of
this sale, Sorin Biomedica CRM S.r.l. recognized a
loss of 0.2 million euros.
• Sorin Biomedica Cardio France S.A.S and Sorin
Biomedica CRM France S.A.S. were merged into
Sorin Group France S.A.S.
• Ela Medical S.A.S. transferred 100% of its interest in
Ela Medical BV to Biofin Holding International N.V.
at a price of 0.7 million euros. As a result of this sale,
Ela Medical S.A.S. recognized a gain of 0.3 million
euros.
• Dideco S.r.l. transferred 100% of its interest in Sorin
Group Nederland N.V. (formerly Sorin Biomedica
Nederland N.V.) to Biofin Holding International N.V
at a price of 0.8 million euros. As a result of this sale,
Dideco S.r.l. recognized a gain of 0.1 million euros.
• Dideco S.r.l. transferred 100%(1) of its interest in
Cobe Cardiovascular España S.A. to Biofin Holding
International N.V.
• Sorin Biomedica Cardio S.r.l. transferred 100% of its
interest in Sorin Biomedica España S.A. to Biofin
Holding International N.V at a price of 1.8 million
euros. As a result of this sale, Sorin Biomedica Cardio
S.r.l. recognized a loss of 0.5 million euros.
• Cardio Medical B.V. was merged into Sorin
Biomedica Cardio Nederland B.V.
• Sorin Biomedica Cardio Nederland B.V., Ela Medical
B.V. and Carbomedics Holding Netherlands B.V. were
merged into Sorin Group Nederland N.V.
• SORIN S.p.A. provided Sorin LifeWatch S.r.l. with an
advance on capital contributions in the amount of 1.5
million euros.
• Ela Medical S.A.S. transferred 100% of its interest in
Sorin Group International S.A. (formerly Ela Medical
S.A.) to SORIN S.p.A. at a price of 0.1 million euros.
As a result of this sale, Ela Medical S.A.S. recognized
a loss of 0.3 million euros.
(1) Including shares held by nominees.
In addition to the transactions described above, the
program to reduce the number of companies resulted in
the transfer or conveyance of the distribution business
(foreign branches) of the following companies:
From
To
Gain (Loss)
resulting
form the
transfer or
conveyance
Dideco S.r.l.
Sorin Group France S.A.S.
0.4
Sorin Biomedica Cardio S.r.l.
Sorin Group France S.A.S
0.8
Sorin Biomedica Cardio S.r.l.
Stöckert Instr. GmbH
–
Ela Medical S.A.S.
Sorin Group France S.A.S.
–
(in millions of euros)
Unless otherwise stated, all transfers or conveyances of equity
investments or business operations were carried out at book
value.
40
Transactions Between the SORIN
Group and Its Controlling Company
BIOS S.p.A. and the Controlling
Company’s Subsidiaries
In 2004, BIOS S.p.A. sold to SORIN S.p.A., Dideco
S.r.l., Ela Medical S.r.l., Sorin Biomedica CRM S.r.l. and
Sorin Biomedica S.r.l. income tax credits totaling 2.5
million euros.
In December 2004, the Italian companies of the SORIN
Group (SORIN S.p.A., Bellco S.r.l., Dideco S.r.l., Ela
Medical S.r.l., Sorin Biomedica Cardio S.r.l., Sorin
Biomedica CRM S.r.l., Sorin Biomedica S.r.l. and Sorin
LifeWatch S.r.l.), in their capacity as subsidiaries, were
included in the consolidated national tax return filed by
BIOS S.p.A., in its capacity as controlling company,
after executing individual and separate agreements with
BIOS S.p.A.
The following clause is an integral part of these
contracts, which are in effect for three years beginning
January 1, 2004:
“The Parties agree that under no circumstances may this
contract may be construed as having adverse economic
effect or consequences on SORIN and the other
consolidated companies compared with those that would
have resulted if the abovementioned companies had
availed themselves of the option of filing a consolidated
national tax return with SORIN and the consolidator.”
(from the contract signed by SORIN S.p.A. and
BIOS S.p.A.)
In 2004, the SORIN Group executed transactions with
the SNIA Group, which is controlled by BIOS S.p.A.
SNIA S.p.A.
and its
subsidiaries
Statement of income at December 31, 2004
•
•
•
•
Sales and service revenues and other revenues
Raw materials, outside services, use of
property not owned and other charges
Interest income and other income
Interest expense and other charges
0.3
2.9
–
0.8
Balance sheet at December 31, 2004
Assets
• Trade receivables
0.1
Liabilities
• Trade payables
0.1
(in millions of euros)
41
All transactions with the SNIA Group were executed on
market terms.
Transactions with Other Related
Parties
The main transactions are reviewed below:
• Buildings owned by SNIA S.p.A. in Mirandola and
Saluggia were leased to Bellco S.r.l., Sorin Biomedica
S.r.l. and Sorin Biomedica Cardio S.r.l. at a total cost
of 1.2 million euros. In December 2004, Sorin
Biomedica S.r.l. and Sorin Biomedica Cardio S.r.l.
bought from SNIA S.p.A. he buildings in Saluggia for
a total price of 8.4 million euros. The price was
determined by means of an expert appraisal provided
by American Appraisal Italia;
• SNIA S.p.A. is subletting a portion of a building at 14
Via Borgonuovo, where the headquarters of SORIN
S.p.A. are located, at a cost of 1.6 million euros;
• SORIN S.p.A. signed a contract covering the
temporary provision of accounting services by SNIA
S.p.A. in connection with the preparation of the
statutory financial statements of the Group’s Parent
Company and some of its subsidiaries and of the
consolidated financial statements at December 31,
2003 (0.2 million euros);
• SORIN S.p.A. signed a contract covering the
provision of supplemental services involving the
individual who is Chairman of both companies
(0.1 million euros).
On May 13, 2004, SORIN S.p.A. entered into an
agreement for medium- and long-term financing
syndicated by Mediobanca. The agreement also calls for
the rescheduling of the outstanding balances on mediumand long-term loans transferred to SORIN S.p.A. upon
demerger. These loans were incurred to finance the
acquisitions of Cobe Cardiovascular and Ela Medical.
The lender banks include Interbanca S.p.A. and Unipol
Banca S.p.A., which, as of December 31, 2004, were
owed, respectively, 9.2 million euros and 8 million
euros, equal, respectively, to 3.92% and 3.43% of the
total loan.(1) During the first half of 2004, the
installments on the loans transferred upon demerger that
matured in 2004, which included 3.3 million euros owed
to Interbanca S.p.A., have been paid in full.
In 2004, Banca Monte dei Paschi di Siena S.p.A., which
is a stockholder of BIOS S.p.A., provided SORIN S.p.A.
with a mixed-use credit line that included overdraft
facilities and short-term loans (hot money) totaling 25
million euros. As of December 31, 2004, only the
overdraft facilities had been utilized, in the amount of
0.5 million euros.
The indebtedness of 109.8 million euros owed by
Dideco S.p.A. to SNIA S.p.A. in connection with the
demerger was repaid in full in the first half of 2004.
All transactions with Interbanca S.p.A., Unipol Banca
S.p.A. and Banca Monte dei Paschi di Siena S.p.A. were
executed on market terms.
(1) Unipol Banca S.p.A. is a subsidiary of Compagnia
Assicuratrice Unipol S.p.A.
Interbanca S.p.A. and Compagnia Assicuratrice Unipol
S.p.A. are stockholders of BIOS S.p.A.
42
Corporate Governance
Corporate Governance System of
SORIN S.p.A.
The system of corporate governance adopted by SORIN S.p.A. is consistent with
the guidelines of the Code of Conduct published by Borsa Italiana.
SORIN has chosen a management and control system based on the use of a Board
of Directors and a Board of Statutory Auditors.
The Board of Directors is a governance body that enjoys the most ample powers over
both the Company’s regular and nonrecurring business transactions. It provides
direction to the Company’s management by defining power delegation guidelines;
grants and revokes powers; reviews and approves the Company’s strategic, industrial
and financial plans, which are prepared by the Chief Executive Officer (CEO) and the
corporate structure of the Group; and approves those transactions with respect to which
the CEO has a conflict of interest and those that have a material impact on the
Company’s statement of income, balance sheet or financial position, especially when
these transactions involve related parties. The Board of Directors is also responsible for
assessing the effectiveness of the Company’s organization and administrative and
accounting systems, and evaluating its overall operating performance.
The Board of Directors delegates to the CEO (a Director with executive powers) the
task of running the Company, within the limits of the powers granted to him. The Board
of Directors has established an Internal Control Committee and a Compensation
Policies Committee, both of which provide consulting and input support.
The Directors were appointed to a three-year term of office when the Company was
first established. Their term of office will expire when a Stockholders’ Meeting is
convened to approve the 2006 statutory financial statements. Directors may be
reelected, but are subject to statutory electability and term-limit requirements.
The CEO has the power to carry out the Company’s ordinary operations, as well as
the authority to buy and sell real property and enter into lease agreements with
terms that may exceed nine years.
The Board of Statutory Auditors is the governance body charged with ensuring that
the applicable laws and the Bylaws are complied with, that principles of sound
management are being followed and, especially, that the Company’s system of
internal controls and its organization and administrative and accounting systems are
functioning as intended. The Board of Statutory Auditors is also responsible for
assessing the independence and technical qualifications of the Independent Auditors.
The Board of Statutory Auditors was appointed to a three-year term of office when
the Company was first established. Its term of office will expire when a
Stockholders’ Meeting is convened to approve the 2006 statutory financial
statements. Statutory Auditors may be reelected, but must meet statutory
requirements of integrity and independence.
Pursuant to the Company’s Bylaws, one Statutory Auditor must be elected by a
representative group of minority stockholders who are organized in the appropriate
manner to file a slate of candidates. The current threshold is 3% of the shares that
convey the right to vote at a Regular Stockholders’ Meeting.
43
In accordance with the provisions of Legislative Decree No. 231/2001, the
Company has adopted a Code of Conduct that defines the principles, values and
behaviors that must be followed by all members of the corporate organization, i.e.,
Directors, Statutory Auditors, employees, agents, distributors and major suppliers.
The Stockholders’ Meeting is the governance body that represents all of the stockholders.
When meeting in Ordinary Session, it approves the annual report, elects and dismisses
Directors, elects the Board of Statutory Auditors and selects its Chairman, determines the
fees payable to Directors and Statutory Auditors, awards the audit assignment, and passes
resolutions concerning the responsibilities of Directors and Statutory Auditors. When
meeting in Extraordinary Session, it approves amendments to the Bylaws and
extraordinary transactions, such as capital increases, mergers and demergers.
As required by law, the Company’s financial statements are audited by a company
listed in a special register maintained by the Consob. The audit assignment has been
entrusted to Reconta Ernst & Young S.p.A. for 2004, 2005 and 2006.
The Company’s capital stock amounts to 354,070,392.00 euros, divided into
354,070,392 common shares, par value 1 euro each.
In June 2004, the Stockholders’ Meeting approved a capital increase of 10.6 million
euros that will be used to service three stock option plans — one reserved for the
Chairman and the CEO and two earmarked for the executives of the SORIN Group.
Plan beneficiaries will be able to purchase SORIN common shares in accordance
with the terms and conditions of the respective Plan Regulations.
In accordance with Article 2497 bis of the Italian Civil Code, the Board of
Directors has adopted a resolution acknowledging that SORIN S.p.A. exercises
management and coordination authority over its subsidiaries.
BIOS S.p.A. does not exercise management or coordination authority over SORIN
S.p.A. because it does not engage in actions that could be construed as having such an
effect, nor does it influence SORIN’s management strategy in any way.
Composition of the Capital Stock
SORIN’s capital stock amounts to 354,070,392.00 euros, divided into 354,070,392
common shares, par value 1 euro each.
SORIN has about 28,000 stockholders.
SORIN is controlled by BIOS S.p.A.
Based on the data posted to the Stock Register, supplemented with communications
provided to the Company pursuant to law and other available information, the
following parties controlled, directly or indirectly, more than 2% of the voting
shares:
Name
Number of shares held
% of total common shares held
BIOS S.p.A.
210,764,150
59.526%
The stockholders of BIOS S.p.A. executed an agreement, which has been made
public pursuant to Article 122 of the Uniform Finance Law, that covers 59.53% of
the capital stock of SORIN S.p.A. This agreement regulates the manner in which
voting rights may be exercised within BIOS, particularly with regard to issues
conerning the interest held by BIOS in SORIN.
44
Composition and Functions of the
Board of Directors
The Board of Directors can have between 5 and 15 members, who are elected to a
three-year term of office and may be reelected. Before electing a Board of Directors,
the Stockholders’ Meeting must determine the number of Board members.
The current Board of Directors, which was appointed when the Company was
established and holds office until the Stockholders’ Meeting convenes to approve
the financial statements at December 31, 2006, has 13 members. Directors are
subject to statutory electability and term-limit requirements.
The current members of the Board of Directors are:
Chairman
– Umberto Rosa
Deputy Chairman
– Emilio Gnutti
– Drago Alberto Cerchiari Chief Executive Officer – Executive Director
– Leonardo Bossini
– Carlo Callieri
Independent Director
– Michele Cappone
– Giorgio Cirla
– Umberto Colombo
Independent Director
– Maurizio Dallocchio
– Tiberio Lonati
– Claudio Pieri
– Marco Vitale
Independent Director
On November 22, 2004 and December 31, 2004, respectively, Directors Giovanni
Consorte and Mauro Gambaro resigned due to the need to attend to numerous other
commitments.
At the meeting held on February 14, 2005, the Board of Directors coopted Michele
Cappone, who will serve until a Stockholders’ Meeting is convened to approve the
2004 statutory financial statements. On that occasion, the Board of Directors will
ask the Stockholders’ Meeting to confirm Michele Cappone’s appointment until the
regular expiration of the term of office of the current Board of Directors.
Pursuant to Article 12 of SORIN’s Bylaws, the Board of Directors has all of the
ordinary and extraordinary powers needed to govern the Company. Consequently, it
may perform all acts, including acts of disposition, that it may deem useful for the
furtherance of the Company’s purpose, except those that the law expressly reserves for
the Stockholders’ Meeting. Pursuant to and for the purposes of Article 2365, Section
Two, of the Italian Civil Code, Directors are expressly granted the power to adopt
resolutions concerning mergers (in the cases covered by Articles 2505 and 2505 bis of
the Italian Civil Code), the opening or closing of secondary offices, the designation of
Directors empowered to represent the Company, the reduction of the Company’s
capital stock when stockholders exercise the right to have their shares redeemed, the
amending of the Bylaws to make them consistent with statutory provisions and the
transfer of the Company’s registered office to any location inside Italy. In addition, the
Board of Directors has the following exclusive powers and obligations:
– It reviews and approves the Company’s strategic, industrial and financial plans
and the corporate structure of the Group.
45
– It attributes powers to Directors and revokes them.
– After hearing the proposals of the Compensation Policies Committee and the
recommendations of the Board of Statutory Auditors, it determines the
compensation payable to Directors with executive authority and to those who
perform special functions. It also allocates among its members the total
compensation provided to the Board of Directors.
– It oversees the general performance of the Company, with special emphasis on
potential conflicts of interest, by drawing primarily on information provided by
Directors with executive authority and the Internal Control Committee, and by
comparing, on a regular basis, actual results with budget projections.
– It reviews and approves all transactions involving the Company and its
subsidiaries that have a material impact on the Company’s statement of income
and balance sheet, especially when these transactions involve related parties.
– It assesses the adequacy of the organization and general administrative system
adopted by the Company and the Group under the supervision of the CEO.
The CEO is the only Director that has been granted executive authority.
On January 8, 2004, at a meeting held shortly after the Company was established,
the Board of Directors appointed Drago Cerchiari Chief Executive Officer. Mr.
Cerchiari is also an employee of SORIN S.p.A.
The Board of Directors has attributed to the CEO the power to carry out all acts
necessary in the Company’s ordinary operations, as well as the authority to buy and
sell real property and enter into lease agreements with terms that may exceed nine
years.
The CEO is required to report to the Board of Directors, at least quarterly, on the
activities carried out by virtue of the powers he has received and on material
transactions executed by the Company and its subsidiaries and also on transactions
involving potential conflicts of interest.
Chairman Umberto Rosa is empowered to represent the Company and is
responsible for coordinating the work of the Board of Directors and ensuring that
the Company’s rules of corporate governance are being applied correctly. In
addition, he represents the Company in its relations with the scientific community
and trade associations and oversees corporate initiatives in such areas as medical
research and treatment, environmental issues and interaction with regulatory
authorities.
Deputy Chairman Emilio Gnutti is also empowered to represent the Company and
exercises the same powers as the Chairman, when the Chairman is absent or
unavailable.
In 2004, the Board of Directors met eight times. Eight meetings are scheduled for
2005; four have already been held.
The CEO must secure the approval of the Board of Directors before executing
material transactions, particularly when they involve the divestiture or acquisition
of equity investments or business operations, the disposal or purchase of patents or
trademarks, the posting of guarantees, or the establishment of medium- and longterm financing facilities.
46
Material transactions are those that have a significant effect on the Company’s
statement of income or balance sheet, have a strategic impact on its operations or
affect its operating performance in a meaningful way.
Because SORIN S.p.A. is the Group’s parent company, its Board of Directors
coordinates the strategies and management policies of the Group’s subsidiaries and
reviews their operating and financial plans prior to their implementation.
Transactions with Related Parties
The Board of Directors, adopting the guidelines provided in the relevant Consob
communication, has defined related parties as follows:
a) Parties who control, are controlled by or are under the joint control of the issuer;
b) Parties belonging directly or indirectly to a voting syndicate, as defined in
Article 122, Section 1, of Legislative Decree No. 58/98, the purpose of which is
to exercise voting rights, provided that the total holdings included in the
syndicate constitute a controlling interest;
c) Parties linked with the issuer and parties that exercise a significant influence on
the issuer;
d) Parties in a position of authority with regard to the issuer’s administration,
management and control;
e) Immediate family of individuals covered under letters a), b), c) and d);
f) Parties controlled by individuals covered under letters b), c), d) and e) or over
whom the individuals covered under letters a), b), c), d) and e) exercise a
significant influence;
g) Parties who share a majority of their Directors with the issuer.
In view of the new regulatory framework introduced in 2005 with the adoption of
international accounting standards and based on the guidelines provided by the
Consob, related parties will be identified in a manner consistent with the method
used in the consolidated financial statements, making explicit reference to the
provision of IAS 24.
Directors who have a direct, indirect or contingent interest in transactions with
related parties must inform the Board of Directors promptly and in detail about the
existence of such an interest and on the conditions thereof. They must remove
themselves from the Board meeting when relevant issues are discussed.
Information about such transactions must be disclosed in the reports on Operations
issued by the Company.
The Board of Directors has adopted the following conduct guidelines for the
handling of transactions with related parties:
– Prior to executing a transaction with a related party, including intra-Group
transactions but not customary or standard transactions, the CEO must submit
the transaction for review by the Internal Control Committee and obtain a
resolution of the Board of Directors approving the transaction;
47
– The Board of Directors, in order to prevent the execution of transactions with
related parties on less than fair terms, directly negotiates transactions that
involve amounts greater than 1,000,000 euros, or whenever a transaction with a
related party requires its intervention because of the transaction’s nature, value or
characteristics. The Board of Directors may secure the assistance of one or more
experts who will be asked to render an opinion on the financial terms and/or the
fairness and/or the technical aspects of a transaction.
– The abovementioned experts will be selected among individuals whose
professional skills and area of expertise are well known and whose independence
and absence of conflicts of interest have been carefully ascertained.
– Customary or standard transactions are those the purpose or nature of which is
not extraneous to the Company’s normal operations and those that are not
problematic due to their characteristics, the risks inherent in the transaction
counterparty or the time of execution.
– The Board of Directors must be provided with adequate information about the
nature of the relationship, the manner in which a transaction is being executed,
the terms and conditions of its implementation, the valuation process used, the
underlying interests and motives, and any risks faced by the Company.
Election and Compensation of Directors
The Bylaws do not contain specific provisions concerning the election of Directors.
Motions placing the names of Directors in nomination are filed by the Chairman in
the course of the Stockholders’ Meeting, upon designation by the controlling
stockholder. Given the Company’s current stock ownership, the establishment of a
nominating committee was not deemed to be necessary.
According to established practice, when Stockholders’ Meetings are convened to
elect Directors, the Chairman reads the curriculum vitae of each candidate before
the vote.
The compensation of the Chairman and of the Chief Executive Officer is
determined by the Board of Directors upon the recommendation of the
Compensation Policies Committee.
The following Directors are members of the Compensation Policies Committee:
Umberto Colombo and Maurizio Dallocchio. Until he resigned on December 31,
2004, Mauro Gambaro was also a member of this Committee. The Board of
Directors will appoint a new Committee member once the Stockholders’ Meeting
has approved resolutions electing a new Board of Directors. The Committee
provides consulting support with regard to the fees paid to Directors, the
compensation paid to senior executives, the Group’s overall compensation policies
and the implementation of its stock option plan.
The Committee meets periodically to attend to the tasks entrusted to it.
In 2004, the Compensation Policies Committee met twice.
48
Stock Option Plan
According to the Company Bylaws, the capital stock may be increased as follows:
– By up to 877,878.00 euros through the issuance of up to 877,878 SORIN
common shares, par value 1 euro each, reserved for the conversion of stock
options awarded to executives, which are exercisable between July 1, 2003 and
July 1, 2006, in accordance with the capital increase resolutions adopted on
February 12, 2002 and November 22, 2002 by the Board of Directors of SNIA
S.p.A. pursuant to Article 2443 of the Italian Civil Code. As a result of the
execution of the partial and proportional demerger of certain assets of SNIA
S.p.A. for the benefit of the Company, these resolutions were accepted and
adopted by the Company, insofar as they apply to it. The subscription of the
abovementioned capital increases must take place on or before July 1, 2006.
– By an additional 1,123,359.00 euros through the issuance of 1,123,359 SORIN
common shares, par value 1 euro each, reserved for the conversion of stock
options awarded to executives, which are exercisable between July 1, 2004 and
July 1, 2007 in accordance with the capital increase resolutions adopted on July
31, 2002 and November 22, 2002 by the Board of Directors of SNIA S.p.A.
pursuant to Article 2443 of the Italian Civil Code. As a result of the execution of
the partial and proportional demerger of certain assets of SNIA S.p.A. for the
benefit of the Company, these resolutions were accepted and adopted by the
Company, insofar as they apply to it. The subscription of the abovementioned
capital increases must take place on or before July 1, 2007.
– By an additional 10,600,000.00 euros through the issuance of 10,600,000
SORIN common shares, par value 1 euro each, reserved for the conversion of
stock options (rights to receive shares) awarded to Directors and executives,
which are exercisable between May 31, 2005 and June 30, 2009 in accordance
with the capital increase resolution adopted on June 30, 2004 by the
Stockholders’ Meeting of SORIN S.p.A. The subscription of the abovementioned
capital increases must take place on or before June 30, 2009.
The exercise price of the stock options awarded under the former SNIA plan, which
was taken over by the Company as a result of the demerger transaction, was set at
3.527 euros. Using generally accepted rules of financial equivalence, this price was
determined by applying to the share price an adjustment factor of 1.52688088,
which was determined by Borsa Italiana S.p.A. when SORIN’s shares were
accepted for trading.
The exercise price of the stock options awarded under Plans 1, 2 and 3, which were
approved by the Stockholder’s Meeting on June 30, 2004, must be the greater of:
(i) The arithmetic mean of the closing prices recorded for SORIN shares on the
Online Stock Market during the month before the date of the award of stock
options by the Board of Directors;
(ii) The arithmetic mean of the closing prices recorded for SORIN shares on the
Online Stock Market from the first day of trading (January 5, 2004) and the last
price available as of June 30, 2004, which was 2.345 euros.
The share subscription price determined in the manner describe above may never be
lower than the price per share determined based on the stockholders’ equity of
SORIN S.p.A.
49
The stock option plans approved in 2004 are being implemented with the following
objectives:
– To establish a virtuous relationship between the objectives of SORIN’s
management team and with the interests of the Company’s stockholders and
emphasize the results-oriented approach set forth in the 2004-2008 business plan;
– To motivate, retain and attract key resources in an especially competitive market
for management talent;
– To increase proportionately the variable part of management compensation and
increase the risk factor.
The exercise of stock options is predicated on the attainment of performance
objectives, which are tied to the results of the 2004-2008 business plan (net sales
and operating cash flow).
The plans provide for blackout periods around the dates when quarterly, semiannual
and annual results are announced.
Plan 1 is reserved for the Chairman and the Chief Executive Officer.
Plan 2 is reserved for members of the Executive Committee.
Plan 3 is reserved for key managers.
Provided the conditions set forth in the respective Regulations are met, the options
may be exercised as follows:
a)
b)
c)
d)
e)
10% of awarded options starting on May 31, 2005;
20% of awarded options starting on May 15, 2006;
20% of awarded options starting on May 15, 2007;
20% of awarded options starting on May 15, 2008;
30% of awarded options starting on May 15, 2009.
Between June 30, 2004 and December 31, 2004, the Company awarded a total of
9,680,000 options, broken down as follows: 1,000,000 to the Chairman, 1,600,000
to the Chief Executive Officer and 7,080,000 to Group executives. Based on
approved price computation criteria, the share subscription price for these options is
2.345 euros per share.
The table below provides an overview of the options awarded to employees.
2004
Number of
subscribable
shares
Options outstanding at 1/2/04
New options awarded
(Options exercised during the period)
Options outstanding at 12/31/04
Options exercisable at 12/31/04
Options exercisable at 5/31/05
2,001,237
9,680,000
–
11,681,237
2,001,237
2,969,237
(1) Market price on 1/5/04.
(2) Weighted average of prices between 1/5/04 and the date of award.
(3) Market price on 12/30/04.
50
Subscription
price
(in euros)
Market
price
(in euros)
3.527
2.345
–
3.140 (1)
2.342 (2)
–
(3)
2.349
System of Internal Control
SORIN has adopted a system of internal control that it uses to monitor the risks that
are inherent in the types of businesses that it and its subsidiaries operate and to
oversee the operating and financial performance of the Company and the Group.
Under this system, the Chief Executive Officer is required to identify risk areas that
could have a significant impact on the Company, particularly from a financial
standpoint, based on the likelihood that such risks may materialize, the Company’s
limited ability to minimize their impact on its operations and their magnitude.
The system of internal control comprises policies, procedures and rules of conduct
that are designed to ensure the efficiency of the Company’s organization, as well as
an internal and external reporting system and a reliable accounting system.
The Board of Directors monitors the system of internal control with the assistance
of the Internal Control Committee.
The Chief Executive Officer defines the tools and methods needed to implement the
system of internal control and ensures that the overall system is effective, functions
correctly and is updated to take into account changes in operating conditions and in
the relevant laws and regulations.
The Internal Control Committee has a consulting and advisory function. Its
members, the majority of whom are independent Directors, are: Marco Vitale, Carlo
Callieri and Giorgio Cirla.
The Internal Control Committee has the following specific functions:
a) It provides support to the Board of Directors in determining the guidelines for
the Company’s internal auditing system and verifying, on a regular basis, the
effectiveness of the existing system;
b) It evaluates the plan prepared by the Internal Control Officer, who reports to the
Committee on a regular basis;
c) It assesses, together with the Company’s Chief Administrative Officer and its
independent auditors, the efficacy of the accounting principles it has adopted and
ascertains whether they have been applied consistently throughout the Group
when the consolidated financial statements are being prepared;
d) It evaluates the proposals submitted by independent auditors who are seeking the
Company’s audit assignment, as well as the independent auditors’ audit work
plan and the findings submitted in their audit report and suggestions letter;
e) It informs the Board of Directors (at least every six months, when the annual and
semiannual reports are approved) about the work it has performed and the
effectiveness of the Company’s internal auditing system;
f) It performs additional tasks entrusted to it by the Board of Directors, particularly
in the area of contacts with the independent auditors.
Responsibility for the Company’s internal auditing activities rests with the Internal
Control Officer.
In performing his/her work, the Internal Control Officer will rely on the support of
specialized consultants retained for that purpose.
51
Meetings of the Internal Auditing Committee will be attended by the Chairman of
the Board of Statutory Auditors, or another Statutory Auditor designated by the
Chairman of the Board of Statutory Auditors. The Chairman of the Board of
Directors and the Chief Executive Officer may also be asked to attend.
The Committee meets regularly to discuss internal audit issues and makes reports to
the Board of Directors, when the Board meets to approve the annual and semiannual
financial statements, on the effectiveness of the system of internal controls and
provides the Board with an analysis of those issues that require closer scrutiny.
In 2004, the Committee met three times.
Organizational Model Pursuant to Legislative Decree No. 231/2001
The Board of Directors has adopted an organizational and management model that
complies with the requirements of Legislative Decree No. 231/2001. This Decree
established an administrative liability in connection with criminal proceedings
against a company for certain crimes perpetrated by Directors, executives or other
employees in the interest or for the benefit of the Company.
The model adopted by SORIN is consistent with the guidelines developed for this
purpose by trade associations and represents a further step in the Company’s effort
to ensure that its business operations and corporate activities are conducted fairly
and transparently, with the goal of protecting the image of the Company, its
subsidiaries and employees, while at the same time giving stockholders adequate
assurance that the Company is being managed efficiently and fairly.
The abovementioned model defines the task of the Oversight Board, which is
responsible for overseeing proper implementation of and compliance with the
model, monitoring the flow of information and managing the penalty system that
applies to violations stemming from transactions with the public administration and
corporate crimes.
The Oversight Board is staffed with employees of the Internal Audit Department,
who report to the Internal Control Committee on a regular basis and to the Chief
Executive Officer on an ongoing basis.
In its work, the Oversight Board, while functioning separately, distinctly and
independently, will be supported by a Joint Support Committee, the members of
which will be representatives of the Finance and Control, Human Resources and
Organization, Corporate Counsel, and Information Technology Departments and by
a Statutory Auditor.
The Board of Directors has also approved a Code of Conduct, which is available on
the Company website: www.sorin.com.
Handling of Confidential Information
The CEO is responsible for the information communicated to the financial markets.
The Board of Directors has established a special internal procedure for the handling
of information that is relevant to the public. This procedure governs the flow of
52
information and ensures that, pursuant to law, the information is disseminated
promptly and in a nonselective manner.
Directors and employees are required to treat as confidential any information they
obtain while discharging their duties.
As required by Article 2.6.3 of the Regulations of Borsa Italiana S.p.A., the Board
of Directors of SORIN S.p.A. has adopted a Code of Conduct (Internal Dealing)
that governs the communication of transactions involving financial instruments of
SORIN S.p.A. that are carried out by Relevant Persons of the SORIN Group.
The Code of Conduct is available on the Company website: www.sorin.com.
Relevant Persons include the Company’s Directors and Statutory Auditors; the
managers of the Finance Administration and Control, Human Resources and
Organization, Corporate Counsel and Corporate Affairs Departments of SORIN
S.p.A.; the Chairmen of the Boards of Directors, Chief Executive Officers and
Chief Operating Officers of unlisted subsidiaries that, based on the latest financial
statements, have total assets in excess of 100 million euros and stockholders’ equity
in excess of 20 million euros; and all other individuals designated as Relevant
Persons by the Board of Directors.
A communication from a Relevant Person is required for transactions involving
amounts in excess of 50,000 euros for each calendar quarter. Disclosure thereof
must be provided to the financial markets within five stock market trading days of
the beginning of each calendar quarter. If the total amount of the transactions
exceeds 250,000 euros, the communication must be given immediately and
disclosed to the financial markets within one day after it is received by the
Company.
During certain periods of the year, the Board of Directors will have the option of
barring Relevant Persons from executing transactions involving SORIN securities
or limiting their ability to execute such transactions.
Relations with Stockholders
Relations with Stockholders and institutional investors are handled by the Investor
Relations Department.
The Company has also created a website (www.sorin.com) where investors can
consult the Company’s Bylaws, the Report on Corporate Governance, the Code of
Ethics, the Code of Conduct, press releases, annual reports and quarterly and
semiannual reports, as well as documents prepared in connection with presentations to
financial analysts, financial highlights and the stock market price of SORIN shares.
The Company has not adopted specific regulations for the handling of
Stockholders’ Meetings because it believes that the powers that the Meeting’s
Chairman enjoys under the current Bylaws give him sufficient authority to ensure
the orderly conduct of the Meeting, while at the same time avoiding the problems
that could arise should the Stockholders’ Meeting fail to comply with formal
regulations.
53
Statutory Auditors
Pursuant to the Bylaws, the Board of Statutory Auditors must have three Statutory
Auditors and three Alternates.
At least one Statutory Auditor and one Alternate must be elected from the slate
submitted by minority stockholders, if such slates are filed.
The Bylaws require that Statutory Auditors be elected on the basis of slates
submitted by one or more stockholders who collectively own at least 3% of the
voting stock.
Only individuals who meet the professional requirements set forth in the applicable
regulations issued by the Ministry of Justice can be elected Statutory Auditors.
Candidates who are not certified public accountants can be elected if they have at
least three years of experience working in one of the areas listed in the
abovementioned regulations or in areas related to the fields or industries that are
part of the Company’s corporate purpose.
Election slates may not include candidates who serve as Statutory Auditors in five
other publicly traded companies.
The slates must be filed at the Company’s registered office at least 10 days prior to
the first calling of the Stockholders’ Meeting.
Affidavits by which individual candidates accept their nomination and attest under
their responsibility that there are no grounds for ineligibility or incompatibility and
that they meet the requirements of the law and the Bylaws for holding the office of
Statutory Auditor must be filed together with each list by the same deadline.
In the course of Stockholders’ Meetings convened to elect Statutory Auditors,
adequate information about each candidate must be provided prior to voting.
All members of the current Board of Statutory Auditors, who were appointed when
the Company was established through the demerger of the Medical Technology
Operations of SNIA S.p.A., are certified public accountants. Their term of office
expires on the date of the Stockholders’ Meeting convened to approve the financial
statements at December 31, 2006.
The members of the Board are the people who held the same offices within the
demerged company SNIA S.p.A. where one statutory and one alternate auditor had
been appointed on the basis of a minority shareholding list.
The table below lists the corporate governance posts that each member of the Board
of Statutory Auditors holds in other publicly traded companies:
Name
Company
Post held
Marco SPADACINI
SNIA S.p.A. (*)
AUTOSTRADE S.p.A. (*)
FONDIARIA SAI S.p.A. (*)
IMMSI S.p.A. (*)
A. MONDADORI EDITORE S.p.A. (*)
Statutory Auditor
Statutory Auditor
Statutory Auditor
Statutory Auditor
Director
Luigi MARTINO
SNIA S.p.A. (*)
Chairman of the Board
of Statutory Auditors
Raoul VITULO
SNIA S.p.A. (*)
Statutory Auditor
(*) Publicly traded company.
54
List of Corporate Governance Posts Held by Directors
The table below lists the publicly traded companies, financial institutions, banks,
insurance companies and large corporations in which the Directors and Statutory
Auditors of SORIN S.p.A. serve as Directors or Statutory Auditors.
Name
Company
Post held
Umberto ROSA
SNIA S.p.A.(*)
AIR LIQUIDE ITALIA S.p.A.
AMPLIFON S.p.A.
ACTELIOS S.p.A.
BoD Chairman
BoD Chairman
Director
Director
Emilio GNUTTI
BANCA MONTE DEI PASCHI
DI SIENA (*)
UNIPOL ASSICURAZIONI S.p.A. (*)
ASM Brescia S.p.A. (*)
HOPA S.p.A.
G.P. FINANZIARIA S.p.A.
HOLINVEST S.p.A.
FINGRUPPO HOLDING S.p.A.
OLIMPIA S.p.A.
FINSOE S.p.A.
EARCHIMEDE S.p.A.
UNIV. DEGLI STUDI DI BRESCIA
Vice Chairman
Director
Director
BoD Chairman
Chairman and CEO
BoD Chairman
CEO
Director
Director
BoD Chairman
Director
Drago CERCHIARI
–
–
Leonardo BOSSINI
FIN-BOSS S.p.A.
BOSSINI S.p.A.
BOSSINI TORNERIE METALLICHE E AFFINI S.r.l.
BOSSINI SERVICE S.r.l.
BOSSINI IMMOBILIARE S.r.l.
EMMEGI S.r.l
JOTA S.r.l
BOSSINI ESPANA SL
DEDRAFIN S.p.A.
SNIA S.p.A.(*)
SOCIETÀ ITALIANA LASTRE S.p.A.
HOPA S.p.A.
BANCO DI BRESCIA
HI-SPRING S.p.A.
MONTINI S.p.A.
FONDERIE REGALI S.r.l
HOLINVEST S.p.A.
FINGRUPPO S.p.A.
AGRICOLA BERSI SERLINI S.r.l.
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
BoD Chairman
Director
Vice Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Carlo CALLIERI
INIZIATIVA PIEMONTE S.p.A.
INDUSTRIA & FINANZA SGR S.p.A.
SNIA S.p.A.(*)
CEO
Director
Vice Chairman
Michele CAPPONE
LIMONI S.p.A.
VEMER-SIBER GROUP S.p.A. (*)
Director
Director
(*) Publicly traded company.
55
Name
Company
Post held
Giorgio CIRLA
INTERBANCA INTERNATIONAL
HOLDING S.p.A.
INTERBANCA S.p.A.
ANTONVENETA ABN AMRO
BANK S.p.A.
HOPA S.p.A.
INTERBANCA GESTIONE INVESTIMENTI SGR S.p.A.
Director
Director
Director
Umberto
COLOMBO
ACEA S.p.A. (*)
IMPREGILO S.p.A. (*)
SAES GETTERS S.p.A. (*)
Director
Director
Director
Maurizio
DALLOCCHIO
VEMER SIBER S.p.A. (*)
BIOS S.p.A.
MARCOLIN S.p.A. (*)
ILLY CAFFÈ S.p.A.
ME.PE. S.p.A.
ENPAM
FINSOE S.p.A.
INTERBANCA GESTIONE INVESTIMENTI SGR S.p.A.
SNIA S.p.A. (*)
BANQUE PICTET & CIE ITALIA
SIRTI S.p.A. (*)
MERCATONE UNO S.p.A.
ESPRINET S.p.A.
HOLINVEST S.p.A.
EARCHIMEDE S.p.A.
SVILUPPO ITALIA S.p.A.
IMI INVESTIMENTI S.p.A.
FINGRUPPO S.p.A.
SAN PAOLO IMI S.p.A. (*)
BOTTA COSTRUZIONI S.p.A.
TRE BI IMMOBILIARE S.r.l.
VALTIDONE S.p.A.
EUROPEAN INVESTMENT BANK (*)
BoD Chairman
BoD Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
BoSA Chairman
BoSA Chairman
BoSA Chairman
BoSA Chairman
BoSA Chairman
BoSA Chairman
BoSA Chairman
Statutory Auditor
Statutory Auditor
Statutory Auditor
Statutory Auditor
Member of the
Supervisory Board
Tiberio LONATI
SNIA S.p.A. (*)
A.L.F.A. S.p.A.
ALFA ACCIAI S.p.A.
BANCA VALORI
CASCINA 6 ORE
CILMAC S.r.l.
DINEMA S.p.A.
FINGRUPPO HOLDING S.p.A.
IMMOBILIARE TRE STELLE S.r.l.
LONATI S.p.A.
M.I.L.
MATEC S.p.A.
LONATI GROUP SERVICE S.r.l.
MORGANTE S.r.l.
SANGIACOMO
SANTONI S.p.A.
SOLIS S.r.l.
TECNOPEA S.r.l.
VIGNONI S.r.l.
Director
Director
Director
Director
Sole Director
BoD Chairman
CEO
Director
CEO
CEO
CEO
CEO
CEO
BoD Chairman
CEO
CEO
Sole Director
CEO
CEO
(*) Publicly traded company.
56
BoD Chairman
CEO
Name
Company
Claudio PIERI
CONSORZIO OPERATIVO
GRUPPO MPS
MPS GESTIONE CREDITI
BANCA S.p.A.
MONTE PASCHI VITA
Marco VITALE
Post held
Director
Director
Director
A.S.M. BRESCIA S.p.A. (*)
BANCA POPOLARE DI MILANO (*)
BIPIEMME GESTIONI SGR
CASSA DI RISPARMIO DI ALESSANDRIA
DEUTZ AG (*) (Frankfurt Stock Exchange)
ERMENEGILDO ZEGNA HOLDITALIA S.p.A.
ETICA SGR
MIROGLIO S.p.A.
PICTET INTERNATIONAL CAPITAL MANAGEMENT
PICTET & C. SIM S.p.A.
RECORDATI INDUSTRIA CHIMICA
E FARMACEUTICA S.p.A. (*)
SAME DEUTZ FAHR S.p.A.
SAME DEUTZ FAHR GROUP S.p.A.
Director
Vice Chairman
BoD Chairman
Director
Member Supervisory Board
Director
Director
Director
Director
Director
Director
Director
BoD Chairman
(*) Publicly traded company.
Equity Investments of Directors and Statutory Auditors
First and last
name
Investee
company
Number of
shares held
at the end of
the previous
year (1)
Number
of shares
bought
Number
of shares
sold
Number of
shares held
at
12/31/04
Giorgio Cirla
(through his spouse)
SORIN S.p.A.
15,000
none
15,000
Drago Cerchiari
SORIN S.p.A.
23,900
none
23,900
(1) The Company’s first fiscal year ended in December 31, 2004.
57
Information About the
Transition to International
Accounting Principles
Introduction
Under EU Regulation No. 1606 of July 19, 2002, companies whose shares are
traded in regulated markets within the European Union are required to prepare their
consolidated financial statements in accordance with international accounting
principles starting with the 2005 reporting year. These requirements were
incorporated into Italian law by means of Legislative Decree No. 38 of February 28,
2005. On February 17, 2005, acting within the context of this regulatory
framework, the Consob released a draft document containing transitional
regulations that Italian publicly traded companies will be required to comply with
in order to effect a gradual transition to the international accounting principles as
they prepare interim financial statements on the scheduled reporting deadlines
during the 2005 reporting year.
Pursuant to the abovementioned regulations, the SORIN Group is actively engaged
in implementing the Project for the Transition to International Accounting
Principles, with the goal of developing new accounting treatments and developing
accounting data that comply with the new standards in a manner consistent with the
methods and deadlines provided by international and Italian regulatory authorities.
At this point, since the abovementioned Project is still ongoing, it is still too early
to provide quantitative data on the effects of this transition. The information
provided in the following pages offers just an overview of the issues that will have
a significant impact on future consolidated financial statements of the SORIN
Group, particularly with regard to the adjustments that will be required in terms of
methods and organization, and of the areas that will be most affected by the
transition to international accounting principles.
For the sake of full disclosure, the SORIN Group has announced that, based on
current plans, it expects to present consolidated financial statements prepared in
accordance with international accounting principles when it publishes its report for
the third quarter of 2005. These principles will be adopted for the preparation of the
statutory financial statements of SORIN S.p.A. in 2006.
Overview
The adoption of new accounting principles requires a complete overhaul of the
existing financial statement forms, notes to the financial statements and valuation
criteria.
Pending the publication of a Consob resolution that provides the standardized forms
that companies will be required to use pursuant to Article 9, Section 3, of the
58
abovementioned Decree, the requirements of IAS 1 with regard to the presentation
of financial statements are as follows: the balance sheet must show assets and
liabilities, and current and noncurrent items separately; the statement of income,
which retains the step-by-step presentation with intermediate result levels, may no
longer show extraordinary items. Moreover, the statement of changes in equity and
the cash flow statement become as required under IAS 7, an integral part of the
financial statements. In general, the differences introduced by the new accounting
principles affect financial statement balances in a number of ways, such as:
• Elimination of all assets and liabilities that do not met IFRS recognition
requirements;
• Recognition of all assets and liabilities that meet IFRS requirements for inclusion
in the financial statements;
• Restatement in accordance with new valuation criteria of items recognized in
previous years;
• Reclassification of items presented in the financial statements in a manner that
does not conform with IFRS guidelines.
Options Selected Among the Alternatives Available Under IFRS 1
The options selected by the SORIN Group among the alternatives available under
IFRS 1 with regard to the first-time implementation of the international accounting
principles are reviewed below.
1) Adoption of IAS 32 and 39 to account for financial instruments as of January 1,
2005 (instead of January 1, 2004, as for most other international principles), with
recognition of the impact of this change in accordance with the method provided
in IAS 8.
2) Forward-looking implementation of IFRS 3 Business Combinations as of
January 1, 2004.
3) Undifferentiated inclusion in equity reserves of cumulative differences from the
translation of financial statements of foreign companies as of the transition date.
4) Adoption of IFRS 2 to account for stock options awarded after November 7,
2002.
With regard to the segment reporting required under IAS 14, the SORIN Group is
currently evaluating what may be the best presentation approach, based on the
primary and secondary reporting format.
Scope of Consolidation
Under the international principles, companies of insignificant size, companies in
liquidation and companies with businesses that are not consistent with those of
the group to which they belong may no longer be excluded from the scope of
consolidation. Consequently, all subsidiaries will be consolidated line by line
(IAS 27).
59
Property, Plant and Equipment
The new accounting treatments that apply to property, plant and equipment introduce
certain changes in the classification and valuation criteria, as compared with Italian
accounting principles. The areas that are most affected are reviewed below.
• Separate classification of appurtenant land, with the resulting need to
derecognize the existing accumulated depreciation established when these assets
were classified as part of buildings (IAS 16).
• Recognition on the asset side of the balance sheet of assets held under finance
leases and recognition of the corresponding financial liabilities in accordance
with the valuation criteria provided by the new accounting principles (IAS 17).
• Separate classification of real estate investments held for rental income or for
appreciation of invested capital (IAS 40).
Intangibles
The main changes to intangibles resulting from the application of the new
accounting principles instead of the previous standards occur in the following areas:
• Goodwill, consolidation differences and other intangibles with an unspecified
life expectancy are no longer amortized. Instead, they will be subject to a test at
least once a year to determine if their value has been impaired, using the method
provided in IAS 36 Impairment of Assets.
• New criteria have been provided for the capitalization of development costs, the
valuation of which must take into account any special conditions that may
characterize the businesses in which the SORIN Group operates (IAS 38).
• Internally generated intangibles (such as startup and expansion costs) may no
longer be recognized, and existing balances must be removed from the financial
statements (IAS 38).
• Leasehold improvements must be reclassified in accordance with the
requirements that govern their capitalization among property, plant and
equipment (IAS 16).
Financial Instruments
The international accounting principles introduce a number of significant
innovations with respect to the criteria applied to the recognition and valuation of
financial transactions. More specifically:
• The criteria for recognizing and valuing financial instruments have changed to
reflect the adoption of the fair value criterion provided in IAS 39.
• Hedging relationships that on the IAS transition date do not meet the
requirements of IAS 39 can no longer be used and, consequently, the relevant
assets and liabilities must be valued in accordance with the classification
provided in IAS 39.
60
• New rules must be adopted for the accounting treatment applied to the factoring
of receivables. These new rules include more restrictive conditions for the
removal of factored receivables from the balance sheet (IAS 39).
• Implied interest must be shown separately when noncurrent receivables and
payables are first recognized, when the associated terms are not consistent with
standard market terms (IAS 39).
• Loans outstanding must be valued at their amortized cost, including incidental
costs incurred to secure the loans. They are currently capitalized as an intangible
asset.
Reserves
The international accounting principles introduce certain innovations with respect to
the reserves that are listed on the liabilities side of the balance sheet. They are:
• Adoption of different criteria for the recognition of reserves for risks and
charges that provide more restrictive criteria for the establishment of reserves
based on the expectation of future costs and require the recognition as liabilities
of transactions previously handled off the balance sheet (IAS 37).
• Use of special actuarial valuation methods for the treatment of the reserve for
employee severance indemnities and reserves for pensions (IAS 19).
Other Issues
Lastly, another significant issue raised by the introduction of international
accounting principles has to do with the accounting treatment of share-based
payment transactions (stock options), which provides new rules for the recognition
of the impact that such transactions have on the balance sheet and statement of
income (IFRS 2).
61
Significant Events Occurring
after December 31, 2004
On March 16, 2005, the entire interest held by SORIN
S.p.A. in Sorin LifeWatch S.r.l. was sold to buyers
outside the Group.
This transaction had no impact on the statement of
income due to the utilization of a reserve that already
existed on the balance sheet at January 2, 2004 of
SORIN S.p.A.
62
Motion to Replenish the Loss
Incurred in 2004
Dear Stockholders:
The financial statements at December 31, 2004 show a
loss of 31,825,388 euros, which we ask you to cover in
its entirety by using the “Additional paid-in capital.”
After this utilization, the “Additional paid-in capital”
will amount to 79,088,485 euros.
Milan, March 31, 2005
Umberto Rosa
Chairman
Drago Cerchiari
Chief Executive Officer
63
SORIN Group
Consolidated Financial Statements
at December 31, 2004
65
Consolidated Balance Sheet
Assets
Item
12/31/04
Total
A. Receivables from stockholders
B. Fixed Assets
I. Intangibles
1. Start-up and expansion costs
3. Industrial patents and
intellectual property rights
4. Permits, licenses, trademarks
and similar rights
5. Goodwill
6. Work in progress and advances
7. Other intangibles
8. Consolidation difference
1/2/04
Item
–
–
4,119
1,173
7,945
20,793
22,563
115,150
410
88,183
76,915
21,381
124,933
567
79,725
81,674
II. Property, plant and equipment
1. Land and buildings
2. Plant and machinery
3. Manufacturing and
distribution equipment
4. Other assets
5. Construction in progress
and advances
315,285
330,246
38,537
28,107
37,507
31,895
44,266
12,214
45,893
14,322
5,124
3,273
III. Financial fixed assets
1. Equity investments in:
a. unconsolidated subsidiaries
b. affiliated companies
d. other companies
128,248
132,890
235
14
1,574
423
14
2,852
1,823
3,289
1,823
3,289
Total intangibles (B.I.)
Total property, plant and equipment (B.II.)
Total equity investments (B.III.1.)
2. Long-term loans to:
b. affiliated companies
1. due within one year
Total
Total long-term loans to
affiliated companies (B.III.2.b.)
d. other companies
2. due after one year
Total long-term loans to
other companies (B.III.2.d.)
Total long-term loans (B.III.2,)
3. Other securities
Total financial fixed assets (B.III.)
Total fixed assets (B)
445,356
(in thousands of euros)
66
466,425
Assets
Item
C. Current assets
I. Inventories
1. Raw materials, auxiliaries
and supplies
2. Work in progress and
semifinished goods
4. Finished goods and merchandise
5. Advances
Total inventories (C.I.)
II. Accounts receivable
1. Trade accounts receivable
a. due within one year
b. due after one year
Total trade accounts
receivable (C.II.1.)
2. Accounts receivable
from subsidiaries
a. due within one year
Total accounts receivable from
subsidiaries (C.II.2.)
3. Accounts receivable from
affiliated companies
a. due within one year
Total accounts receivable from
affiliated companies (C.II.3.)
4-bis. Tax credits
a. due within one year
b. due after one year
Total tax credits (C.II.4-bis)
4-ter. Deferred-tax assets
a. due within one year
b. due after one year
Total deferred-tax assets (C.II.4-ter)
5. Accounts receivable from outsiders
a. due within one year
b. due after one year
Total accounts receivable
from outsiders (C.II.5.)
Total accounts receivable (C.II.)
12/31/04
Total
1/2/04
Item
49,435
52,636
46,125
103,000
1,213
41,691
96,531
896
199,773
191,754
214,360
1,513
215,277
3,425
215,873
218,702
44
131
44
131
35
35
8,466
516
9,496
936
8,982
10,432
18,885
26,838
39,962
45,723
39,962
61,860
929
31,412
1,008
62,789
32,420
333,446
301,647
(in thousands of euros)
67
Total
Consolidated Balance Sheet
Assets
Item
III. Financial assets not held
as fixed assets
4. Other equity investments
6. Other securities
7. Other financial assets
Total financial assets (C.III.)
IV. Liquid assets
1. Bank and postal accounts
3. Cash on hand
Total liquid assets (C.IV.)
(continued)
12/31/04
Total
1/2/04
Total
Item
8
41
41
8
18,334
42
30,282
63
18,376
30,345
Total current assets (C)
551,636
523,754
D. Accrued income and prepaid expenses
1. Accrued income
2. Prepaid expenses
968
6,568
Total accrued income and
prepaid expenses (D)
Total assets (A+B+C+D)
(in thousands of euros)
68
2,796
9,756
7,536
12,552
1,004,528
1,002,731
Liabilities and stockholders’
equity
A. Stockholders’ equity
• Capital stock
• Reserves
• Net income (loss) for the year
Total Group interest in consolidated
stockholders’ equity
• Minority interest in capital stock
and reserves
Item
12/31/04
Total
354,070
36,226
(44,074)
354,070
48,601
–
346,222
402,671
1,307
1,123
Total consolidated stockholders’
equity including minority interest (A)
B. Reserves for risks and charges
1. Reserve for pensions and
similar obligations
2. Reserve for taxes
b. Deferred taxes
4. Consolidation reserve for future
risks and charges
5. Other reserves
347,529
5,212
5,600
5,113
807
56,377
807
41,079
C. Reserve for employee
severance indemnities
Total due to banks (D.4.)
5. Due to other lenders
a. due within one year
b. due after one year
Total due to other lenders (D.5.)
6. Advances
a. due within one year
b. due after one year
Total advances (D.6.)
7. Trade accounts payable
a. due within one year
Total trade accounts payable (D.7.)
69,134
52,211
31,047
29,391
66,737
259,766
60,515
100,467
326,503
160,982
58,150
132
152,845
29,446
58,282
182,291
533
13
914
40
546
954
97,546
91,656
97,546
91,656
(in thousands of euros)
69
Total
403,794
6,350
Total reserves for risks and charges (B)
D. Liabilities
4. Due to banks
a. due within one year
b. due after one year
1/2/04
Item
Consolidated Balance Sheet
Liabilities and
stockholders’ equity
8. Liabilities represented by
credit instruments
a. due within one year
Total liabilities represented by
credit instruments (D.8.)
Item
12/31/04
Total
8,041
2,111
8,041
–
602
–
602
11,025
13,539
11,025
13,539
10,618
9,479
10,618
9,479
14,902
45
19,113
89
14,947
19,202
Total accounts payable
to subsidiaries (D.9.)
Total taxes payable (D.12.)
13. Contributions to pension and
social security institutions
a. due within one year
Total contributions to pension and
social security institutions (D.13.)
14. Other liabilities
a. due within one year
b. due after one year
Total other liabilities (D.14.)
Total liabilities (D)
E. Accrued expenses and
deferred income
1. Accrued expenses
2. Deferred income
1/2/04
Item
2,111
9. Accounts payable to subsidiaries
a. due within one year
12. Taxes payable
a. due within one year
(continued)
521,578
32,708
2,532
Total accrued expenses and
deferred income (E)
Total liabilities and
stockholders’ equity (A+B+C+D+E)
(in thousands of euros)
70
Total
486,746
26,218
4,371
35,240
30,589
1,004,528
1,002,731
Memorandum accounts
Item
• Guarantees and sureties provided
to subsidiaries
• Guarantees and sureties provided
to outsiders
• Other guarantees provided to outsiders
• Other memorandum accounts
12/31/04
Total
1/2/04
Item
106
106
13,134
–
289,991
20,398
14,590
306,310
Total memorandum accounts
303,231
(in thousands of euros)
71
Total
341,404
Consolidated Statement of Income
Item
A. Production value
1. Sales and service revenues
2. Change in inventory of work in progress,
semifinished goods and finished goods
4. Increases in company produced additions to fixed assets
5. Other revenues and income:
a. operating grants
b. miscellaneous revenues and income
Total other revenues and income (A.5.)
12/31/04
Total
718,980
14,561
12,334
–
14,664
14,664
Total production value (A)
760,539
B. Cost of production
6. Raw materials, auxiliaries, supplies and merchandise
7. Outside services
8. Use of property not owned
9. Personnel costs:
a. wages and salaries
b. social security contributions
c. provision for severance indemnities
d. provision for pensions and similar obligations
e. other personnel costs
Total personnel costs (B.9.)
238,607
171,218
15,897
199,706
51,878
5,117
966
1,862
259,529
10. Depreciation, amortization and writedowns:
a. amortization of intangibles
b. depreciation of property, plant and equipment
d.writedowns of loans included in
current assets and liquid assets
Total depreciation, amortization and writedowns (B.10.)
11. Change in inventory of raw materials, auxiliaries,
supplies and merchandise
12. Provisions for risks
13. Other provisions
14. Miscellaneous operating costs
Total cost of production (B)
28,887
31,372
1,612
61,871
2,737
1,232
–
7,202
758,293
Net production value (A-B)
2,246
(in thousands of euros)
72
Item
C. Financial income and expense
16. Other financial income from:
b. securities included in financial fixed
assets, other than equity investments
c. securities included in current assets,
other than equity investments
d. miscellaneous financial income from:
1. subsidiaries
4. outsiders
12/31/04
Total
1
3,330
Total other financial income (C.16.)
3,331
17. Interest and other financial expense:
a. interest paid to subsidiaries
b. interest paid to affiliated companies
d. interest paid to outsiders
1
–
20,942
Total interest and other financial expense (C.17.)
17-bis. Foreign exchange gains (losses)
20,943
806
Total financial income and expense
(C.16.- C.17. + - C.17-bis.)
(16,806)
D. Value adjustments on financial assets
18. Upward adjustments of:
a. unconsolidated equity investments
40
Total upward adjustments (D.18.)
40
19. Writedowns of:
a. unconsolidated equity investments
1,067
Total writedowns (D.19.)
1,067
Total value adjustments on financial assets (D.18. - D.19.)
E. Extraordinary income and expense
20. Income:
a. gains on disposals
b. other extraordinary income
(1,027)
145
12,922
Total extraordinary income (E.20.)
13,067
(in thousands of euros)
73
Consolidated Statement of Income (continued)
Item
21. Expense:
a. losses on disposals
b. taxes attributable to prior fiscal years
c. other extraordinary expense
12/31/04
Total
903
225
40,701
Total extraordinary expense (E.21.)
41,829
Total extraordinary income and expense (E.20. - E.21.)
Income before taxes (A - B + - C + - D + - E)
(28,762)
(44,349)
22. Income taxes:
a. current
b. deferred (prepaid)
4,846
(5,306)
26. Net income (loss) before minority interest
(43,889)
27. Minority interest in net income (loss)
185
28. Group interest in net income (loss)
(44,074)
(in thousands of euros)
74
Notes to the Financial Statements
Foreword
SORIN S.p.A. was established on January 2, 2004
through the partial, proportional demerger of SNIA
S.p.A. On January 5, 2004, Borsa Italiana admitted all of
the common shares of SORIN S.p.A. for trading.
The SORIN Group is a newly established enterprise.
Consequently, a comparison with 2003 operating data is
not available. In the case of the balance sheet, the
comparison is made with the accounting data resulting
from the demerger completed on January 2, 2004.
Scope of Consolidation
The consolidated financial statements of the SORIN
Group include the financial statements at December 31,
2004 of the Parent Company, SORIN S.p.A., and those
of the Italian and foreign subsidiaries in the capital stock
of which SORIN S.p.A. holds a direct or indirect interest
of more than 50%, which are consolidated on a line-byline basis.
The financial statements used in the consolidation are
those approved by the Stockholders’ Meeting of the
respective companies with any adjustments necessary to
make them consistent with the Group accounting
principles described on the following pages.
When the financial statements of a company are not
approved by its Stockholders’ Meeting in time for the
preparation of the consolidated financial statements, the
preliminary financial statements approved by the Board
of Directors are used for the Italian companies and the
financial statements prepared for consolidation purposes
are used for foreign companies.
The closing date of the consolidated financial statements is
December 31, the same as for the Parent Company SORIN
S.p.A. If the fiscal year of a company included in the
consolidation is different from the closing date of the
consolidated financial statements, the company in question
is consolidated on the basis of a pro-forma annual financial
statement that reflects the official Group fiscal year.
Subsidiaries that fall in the categories listed in Article 28
of Legislative Decree No. 127/1991 are not
75
consolidated. In particular, companies that are dormant
or in liquidation are not consolidated.
A list of the companies included in the SORIN Group
and schedules showing the changes that occurred to the
scope of consolidation in 2004 are annexed to the
consolidated financial statements.
Principles of
Consolidation, Valuation
Criteria and Accounting
Principles
The principles of consolidation, valuation criteria and
accounting principles used in preparing the consolidated
financial statements comply with the provisions of
Legislative Decree No. 127 of April 9, 1991 and with
the pronouncements of the Italian Board of Certified
Public Accountants and Bookkeepers and are consistent
with those used to prepare the financial statements upon
demerger on January 2, 2004.
Principles of Consolidation
The consolidation principles applied were the following:
a) Assets and liabilities of consolidated companies are
included on a line-by-line basis, offsetting the
carrying value of the respective investment held by
the Parent Company or other consolidated companies
against the underlying interest in the respective
stockholders’ equity. When companies are first
consolidated, any difference resulting from the
abovementioned offsetting process that cannot be
attributed to individual assets or liabilities is booked
as an asset and amortized on a straight-line basis over
a maximum of 20 years.
In the case of acquisitions completed before 1993
(transferred through the demerger of SNIA S.p.A.),
this difference was charged against equity reserves in
the consolidated balance sheet.
b) Receivables and payables and revenues and expenses
arising from transactions between companies included
in the scope of consolidation are eliminated.
c) Significant earnings included in the inventories of
consolidated companies and gains from intra-Group
disposals of assets are likewise eliminated.
d) Dividends distributed by consolidated companies are
eliminated from the statement of income and
transferred to reserves.
e) Minority interest in stockholders’ equity and net
income is shown separately on the balance sheet and
in the statement of income, respectively.
f) Financial statements denominated in foreign
currencies are translated into euros using year-end
exchange rates for the balance sheet and average
annual exchange rates for the statement of income.
Any differences between the net income translated in
euros at average exchange rates and at year-end rates
are posted to consolidated stockholders’ equity.
Exchange differences between the value of the
opening balances of stockholders’ equity translated at
the exchange rates prevailing on the balance sheet
date and those used in the financial statements for the
previous fiscal year are reflected directly in
consolidated stockholders’ equity.
The exchange rates used are shown in the Other
Information section of the Notes to the Financial
Statements.
Valuation Criteria and
Accounting Principles
The valuation criteria and accounting principles applied
are reviewed below.
historical cost less accumulated amortization, the value
of the asset is adjusted to reflect the impairment.
Start-up and expansion costs include costs incurred by
Group companies to establish and expand their
operations. They include incorporation expenses and
costs paid in connection with capital increases and the
start-up of production facilities. They are amortized over
five years.
Research, development and advertising expenses are
charged in full to income in the year they are incurred.
All related operating grants are recognized as income
when collected.
Industrial patents and intellectual property rights are
capitalized when they are acquired for consideration
from a party outside the Group or when they are
produced internally, provided they have been legally
recognized and exist as an identifiable asset. Items
purchased from outsiders are booked at cost, plus
incidentals. Internally produced items are booked on the
basis of the direct costs incurred to obtain legal
recognition of the protected right. In both cases, they are
amortized over their useful life, but not in excess of the
period of legal protection.
Permits, licenses and trademarks are booked at the cost
incurred to obtain them and amortized over the life of
the respective contracts.
Goodwill is capitalized if the consolidating company
acquired it for consideration. It is booked at cost and
amortized on a straight-line basis. Generally, it is
amortized over 20 years, given the long-term investment
approach required by investments in the biomedical
business.
Intangibles
Property, Plant And Equipment
Intangibles are booked at their purchase price or internal
production cost, inclusive of incidentals and directly
attributable costs. The cost thus determined is amortized
on a straight line, based on an asset’s estimated useful
life.
If on the balance sheet date the value of an intangible
asset is found to have been impaired, compared with
76
Assets acquired from outsiders are booked at cost,
including installation expenses, without deducting any
grants received. Internally produced assets are booked
by capitalizing all direct and indirect costs attributed by
the individual companies that produced them.
Interest paid on loans received for the purpose of buying
or building a specific asset is added to the cost of the
asset until the asset is put into service.
Maintenance and repair costs that do not extend the
useful life of assets are charged to income in the year
they are incurred.
Assets are eliminated upon sale or demolition.
The historical cost of certain assets has been restated as
a result of inflation adjustments made pursuant to laws
enacted specifically for such purpose.
The amounts booked to assets are depreciated annually
on a straight-line basis at a rate that reflects the
estimated useful lives of the assets. Assets purchased
during the fiscal year are depreciated at half the regular
rate to reflect their shorter period of utilization.
No depreciation is taken until the assets are put into
service.
If on the balance sheet date the value of a component of
property, plant and equipment is found have been
impaired, compared with historical cost less accumulated
depreciation, the value of the asset is adjusted to reflect
the impairment.
Capital grants are booked as deferred income when
collected and recognized as income on a pro-rata basis
over the useful lives of the respective assets.
Financial Fixed Assets
Equity Investments
Equity investments in companies that are not
consolidated either on a line-by-line basis or by the
proportional method are valued as follows:
a. by the equity method, if the interest held directly or
indirectly by the Parent Company is at least 20%;
b. at cost, when the interest held directly or indirectly is
less than 20%.
Inventories
Raw materials and auxiliaries and finished products are
valued at the lower of purchase or production cost or
market value.
Cost is determined by the FIFO method and the
computation is carried out on the basis of the monthly
weighted average cost.
77
Work in progress is valued at the average cost of
production for the year, based on the percentage of
completion.
The cost of work in process and finished goods includes
the pro-rata share of the depreciation taken on the
respective production equipment, and indirect production
costs.
Work and services in process under long-term contracts
are valued on the basis of the revenues accrued under
the respective contracts using the percentage of
completion method.
Receivables and Payables
Receivables are carried at their estimated realizable
value. Payables are shown at their face value.
Receivables and payables denominated in foreign
currencies, including medium- and long-term
receivables, are adjusted to year-end exchange rates. Any
resulting gains or losses are credited or debited to the
statement of income.
When contracts have been executed to hedge foreign
exchange risks, any gain or loss that arises upon valuing
these contracts at year-end exchange rates, compared
with their value at the spot rates prevailing at the time of
purchase, are reflected in the statement of income,
offsetting the impact of any losses or gains generated by
the underlying transaction.
Factoring of Receivables
Accounts receivable assigned with recourse are deleted
from the balance sheet and the respective proceeds are
deducted from net borrowings. Factoring charges are
reflected in the statement of income on an accrual basis.
Contingent liabilities from the risk of recourse are
reflected under memorandum accounts at the face value
of the receivables assigned with recourse and still
outstanding.
Accounts receivable assigned without recourse are
likewise deleted from the balance sheet and the
respective proceeds are deducted from net borrowings.
Factoring charges are reflected in the statement of
income when the receivables are assigned or collected.
The existence of a recourse risk must be disclosed in the
memorandum accounts only for the amount guaranteed
to the factor (deductible).
Factored trade receivables that will be collected upon
maturity are reclassified as financial receivables and the
advance received as consideration for these receivables,
net of the commission paid, is recognized as a financial
liability. The interest paid on the advance is recognized
in earnings on an accrual basis.
pursuant to contracts or statutes, and the reserve for
restructuring, which provides for costs arising from
corporate restructuring and reorganization programs.
Accruals and Deferrals
The reserve for employee severance indemnities is
computed in accordance with labor legislation and the
pertinent collective bargaining agreements. It reflects the
accrued liability of Group companies toward their
employees, net of any advances paid.
Accrued income and expenses are the offsetting entries
of revenues and expenses attributable to two or more
years, for which the respective cash entries had not been
made on the balance sheet date.
Prepaid expenses and deferred income represent the
portion of cost and revenues attributable to two or more
years, which cannot be reflected in the statement of
income in the year when the respective cash entry was
made.
They are reflected in the financial statements on an
accrual basis, in accordance with the general principle of
matching costs and revenues.
Reserves for Risks and Charges
The reserve for pensions and similar obligations reflects
benefits accrued by employees based on seniority or
other rights and includes the pension fund obligations
that exist in certain countries where the Group operates.
The reserve for taxes reflects deferred-tax obligations
and any liabilities that are deemed likely to arise as a
result of ongoing tax audits or disputes, the amount or
date of occurrence of which cannot be determined.
The other reserves for risks and charges cover contingent
liabilities of the Group companies, determined on the
basis of a realistic assessment of their disposition, which
cannot be attributed to specific asset accounts.
Other reserves include a reserve for warranties, which
covers commitments to guarantee products for a
specified period of time or operation undertaken
78
Reserve for Employee
Severance Indemnities
Off-Balance Sheet Instruments
Contracts executed to hedge foreign exchange risks are
shown among memorandum accounts at the notional
amount.
Charges and income, representing the financial
component of these contracts, are recognized on an
accrual basis.
Any gain or loss that arises upon valuing hedging
contracts at year-end exchange rates, compared with
their value at the spot rates prevailing at the time of
purchase, are reflected in the computation of net income,
offsetting the impact of any losses or gains generated by
the underlying transaction.
Contracts executed to hedge interest rate risks are shown
among memorandum accounts at the face value of the
principal amounts actually hedged. Any resulting gains
or losses (interest differentials) are recognized in
earnings on an accrual basis.
Revenue Recognition
Revenues, net of returns, discounts, allowances, bonuses
and directly related taxes, are recognized at the time title
to the goods passes to the customer or the provision of
the services is completed.
Income Taxes
The provision for current taxes, including local taxes
(IRAP), is booked as taxes payable, on the basis of a
reasonable valuation of the tax liability for the current
fiscal year, taking into account any tax loss carryforward
and exemptions.
Insofar as SORIN S.p.A. and those Italian subsidiaries
that are included in the national consolidated tax return
filed by BIOS S.p.A. are concerned, current taxes
include the corporate income tax (IRES) charges/credits
that arise from a consolidated tax filing, offset in the
balance sheet by payables to/receivables from the
controlling company BIOS S.p.A.
Prepaid and deferred taxes are computed on the
temporary differences that arise between the values
assigned to assets for reporting and tax purposes and on
those items like tax loss carryforwards which, while not
recognized on the balance sheet, have the potential of
creating future tax credits.
Deferred-tax assets are recognized when there is
reasonable certainty that they will be recovered.
The corresponding balance sheet item is “II. Accounts
receivable-4.ter. Deferred-tax assets.”
Deferred taxes are not recognized when it is unlikely
that a corresponding liability will arise.
The corresponding balance sheet item is “B. Reserves
for risks and charges - 2 b. Reserve for deferred taxes”.
79
Analysis of the Individual Items
Balance Sheet
ASSETS
B.
FIXED ASSETS
B.I. Intangibles
Intangibles decreased to 315,285,000 euros, or
14,961,000 euros less than at January 2, 2004.
A breakdown of the individual intangibles and the
changes that occurred during the period is as follows:
B.I.3.
B.I.4.
B.I.1.
Start-up Industrial Permits,
patents
licenses,
and
tradeexpansion and intellectual marks and
costs
property
similar
rights
rights
Balance at
1/2/04
• Net carrying
value
B.I.5.
Goodwill
B.I.6.
Work in
progress
and
advances
B.I.7.
Other
intangibles
B.I.8.
Consolidation
difference
Total
81,674
330,246
1,173
20,793
21,381
124,933
567
79,725
1
(278)
(1,165)
(890)
(42)
(2,336)
(4,710)
(11,547)
515
1,618
(532)
9,946
–
4,248
637
4,857
142
417
10,469
20,770
(2,134)
Change for
the period
• Change in the
scope of
consolidation
• Currency
conversion
differences
• Reclassifications
• Purchases/
Internal
production
• Disposals/
Writedowns
• Amortization
for the period
(141)
(108)
(11)
(1,106)
(768)
(1,162)
(1,552)
(3,014)
(9,547)
(8,853)
(4,759)
(28,887)
Balance at
12/31/04
• Net carrying
value
4,119
7,945
22,563
115,150
88,183
76,915
315,285
(in thousands of euros)
Reclassifications refer mainly to Mitroflow Inc., a
Canadian company included in the Carbomedics
acquisition and merged into Sorin Group Canada Inc.
80
410
B.I.1. Start-up and expansion costs
The increase of 2,946,000 euros from January 2, 2004 is
the net result of additions for the period, consisting
mainly of the capitalization of costs incurred to establish
the Company and list the shares of SORIN S.p.A., less
amortization.
Additions include 3,711,000 euros in costs to establish
the Company and change its status and 408,000 euros in
expenses incurred for the capital stock increase.
B.I.3. Industrial patents and intellectual property rights
This item was 12,848,000 euros lower than at January 2,
2004, due mainly to the reclassification to “Other
intangibles” of 9,929,000 euros attributable to Sorin
Group Canada Inc.
B.I.4. Permits, licenses, trademarks and similar rights
This item, which increased by 1,182,000 euros compared
with January 2, 2004, includes permits valued at
3,206,000 euros, licenses booked at 6,830,000 euros and
trademarks carried at 12,527,000 euros.
B.I.5. Goodwill
Goodwill totaled 115,150,000 euros. The decrease of
9,783,000 euros compared with January 2, 2004 is
mainly the result of the amortization for the year.
The largest component is the goodwill attributed to Cobe
Cardiovascular Inc., which had a net carrying value of
77,899,000 euros at December 31, 2004.
B.I.7. Other intangibles
Other intangibles increased to 88,183,000 euros, or
8,458,000 euros more than at January 2, 2004 due to the
reclassification of 9,929,000 euros from Industrial
patents and intellectual property rights. This item
consists primarily of the customer portfolio and
technology of Cobe Cardiovascular Inc. (24,895 million
euros), Carbomedics Inc. (30,635 million euros) and
Sorin Group Canada Inc. (8,712 million euros).
81
B.I.8. Consolidation difference
The consolidation differences decreased by 4,759,000
euros compared with January 2, 2004 due to the
amortization for the year.
This item includes 64,528,000 euros attributable to Ela
Medical, 6,935,000 euros attributable to Laboratoire
Soludia and 5,452,000 euros attributable to
Carbomedics.
B.II. Property, plant and equipment
This item totaled 128,248,000 euros, or 4,642,000 euros
less than at January 2, 2004. The table below shows a
breakdown of its components and the changes that
occurred in 2004.
Balance at 1/2/04
• Gross value
• Accumulated depreciation
• Net carrying value
Changes in 2004:
• Changes in the scope of consolidation
- Gross value
- Accumulated depreciation
• Foreign exchange differences
- Gross value
- Accumulated depreciation
• Reclassifications
- Gross value
- Accumulated depreciation
• Purchases/Internal production
• Disposals/Writedowns
- Gross value
- Accumulated depreciation
• Depreciation for the year
Balance at 12/31/04
• Gross value
• Accumulated depreciation
• Net carrying value
B.II.1.
Land and
buildings
B.II.2.
Plant and
machinery
B.II.3.
Manufact.
and distrib.
equipment
B.II.4.
Other
assets
B.II.5.
Construct.
in progr.
and advan.
Total
54,844
(17,337)
37,507
73,520
(41,625)
31,895
131,004
(85,111)
45,893
45,807
(31,485)
14,322
(1,904)
716
(982)
670
(2,738)
2,296
(637)
596
(123)
–
(6,384)
4,278
(87)
130
8,883
1,473
63
3,044
528
4,568
10,859
(2,469)
959
5,811
(5,165)
–
7,167
(5,720)
5,720
35,764
(4,113)
371
(2,966)
(832)
376
(7,600)
(6,678)
5,702
(16,164)
(3,229)
1,503
(4,642)
(28)
–
–
(14,880)
7,952
(31,372)
57,623
(19,086)
38,537
76,223
(48,116)
28,107
132,975
(88,709)
44,266
45,283
(33,069)
12,214
3,273 308,448
– (175,558)
3,273 132,890
5,124 317,228
– (188,980)
5,124 128,248
(in thousands of euros)
Depreciation for the period was taken on a straight-line
basis using the rates shown below and taking into account
the remaining estimated useful lives of the assets.
Buildings
• Industrial buildings
Plant and machinery
• General purpose and specialized
Other assets
• Furniture and fixtures
• Vehicles
• Miscellaneous equipment
12.0/20.0%
20.0/25.0%
10.0/40.0%
2.0/10.0%
No capitalized interest was added to property, plant and
equipment in 2004.
3.0/22.5%
82
B.III. Financial fixed assets
B.III.1. Equity investments
Equity investments amounted to 1,823,000 euros or
1,466,000 euros less than at January 2, 2004.
B.III.1.a.
B.III.1.b.
B.III.1.d.
Equity investments Equity investments Equity investments
in unconsolidated
in affiliated
in other
subsidiaries
companies
companies
Balance at 1/2/04
Changes in 2004
• Changes in the scope of consolidation
• Purchases/Subscriptions/
Capital contributions
• Disposals/Liquidations
• Upward value adjustments
• Writedowns
• Dividends
• Foreign exchange differences
• Other changes
Balance at 12/31/04
Total
423
14
2,852
3,289
–
–
–
–
4,196
(19)
40
(305)
–
–
(4,100)
–
–
–
–
–
–
–
–
(516)
–
(762)
–
–
–
4,196
(535)
40
(1,067)
–
–
(4,100)
235
14
1,574
1,823
(in thousands of euros)
Purchases/Subscriptions/Capital contributions refer to
Sorin Consultoria Administrativa Ltda (2,432,000 euros),
Sorin LifeWatch S.r.l. (1,450,000 euros), Sorin
Biomedica Norge A.S. (313,000 euros) and Sobedia
Energia (1,000 euros).
Disposals/Liquidations reflect the sale to outsiders of the
investments in Société de Gestion Sainte Marguerite
S.G.M. and Soludia Maghreb S.A.
Writedowns were booked almost exclusively to
recognize the loss suffered by the investment in Istituto
Europeo di Oncologia S.r.l. (761,000 euros) and the
writedown of the stockholders’ equity of Sorin
Biomedica Norge A.S. (304,000 euros), which was later
sold.
83
Other changes refer to the reclassification under equity
investments of a reserve for risks established upon
divestiture primarily to recognize an interest in the 2003
negative equity of investee companies, which was later
covered by the capital contributions listed in the table
above, and to the losses incurred in 2004 by the
subsidiary Sorin LifeWatch S.r.l.
A breakdown of equity investments by valuation method
is provided below:
Equity investments in
unconsolidated subsidiaries
1/2/04
12/31/04
Equity investments in
affiliated companies
12/31/04
Equity investments
valued by
the equity method:
• Sorin LifeWatch S.r.l.
• Sorin Consultoria
Administrativa Ltda
• Ela SP S.r.l.
39
409
192
–
–
10
Total equity investments
valued by
the equity method
231
419
Equity investments
valued at cost:
• Istituto Europeo
di Oncologia S.r.l.
• Société de Gestion
Sainte Marguerite SGM
• Sar-Med S.r.l.
• Other companies
4
4
14
Total equity investments
valued at cost
4
4
Total equity investments
235
423
(in thousands of euros)
84
1/2/04
Equity investments in
other companies
12/31/04
1/2/04
841
1,602
14
–
730
3
507
730
13
14
14
1,574
2,852
14
14
1,574
2,852
C.
CURRENT ASSETS
C.I. Inventories
Balance at
1/2/04
C.I.1.
C.I.2.
C.I.4.
C.I.5.
Raw materials, auxiliaries and supplies
Work in progress and semifinished goods
Finished goods and merchandise
Advances
Total
Change
in 2004
Balance at
12/31/04
52,636
41,691
96,531
896
– 3,201
+ 4,434
+ 6,469
+ 317
49,435
46,125
103,000
1,213
191,754
+ 8,019
199,773
(in thousands of euros)
C.II. Accounts receivable
At 333,446,000 euros, accounts receivable were
31,799,000 euros higher than at January 2, 2004.
At December 31, 2004, the outstanding balance of
assigned receivables totaled 24,357,000 euros (all
assigned without recourse), compared with 30,521,000
euros (18,141,000 euros assigned with recourse) at
January 2, 2004.
In 2004, the turnover of assigned receivables came to
154,169,000 euros.
Balance at
1/2/04
Trade accounts receivable
a. due within one year
b. due after one year
Accounts receivable from subsidiaries
C.II.2.
a. due within one year
C.II.3.
Accounts receivable from affiliates
a. due within one year
C.II.4.bis Tax credits
a. due within one year
b. due after one year
C.II.4.ter Deferred-tax assets
a. due within one year
b. due after one year
Accounts receivable from outsiders
C.II.5.
a. due within one year
b. due after one year
Change
in 2004
Balance at
12/31/04
C.II.1.
Total
(in thousands of euros)
85
215,277
3,425
–
917
– 1,912
214,360
1,513
131
–
87
44
–
+
35
35
9,496
936
– 1,030
420
–
8,466
516
39,962
–
– 21,077
+ 26,838
18,885
26,838
31,412
1,008
+ 30,448
–
79
61,860
929
301,647
+ 31,799
333,446
Due after
five years
C.II.1.a. Trade accounts receivable due within one year
At 214,360,000 euros, this item was 917,000 euros less
than at January 2, 2004.
A writedown of 23,211,000 euros was recognized to
bring the carrying value of these receivables to their
estimated realizable value.
C.II.1.b. Trade accounts receivable due after one year
This item totaled 1,513,000 euros, or 1,912,000 euros
less than at January 2, 2004.
A writedown of 9,000 euros was recognized to bring the
carrying value of these receivables to their estimated
realizable value.
C.II.2.a. Accounts receivable from subsidiaries due
within one year
The balance in this account was 44,000 euros.
The table below shows the amount owed by each
subsidiary:
12/31/04
1/2/04
Trade receiv. Trade receiv.
•
Sorin Biomedica
Norge AS
•
Sorin LifeWatch S.r.l.
–
44
121
25
Total before adjustments
44
146
–
(15)
44
131
Value adjustments
Total
(in thousands of euros)
86
C.II.3.a. Accounts receivable from affiliated companies
due within one year
The entire balance of 35,000 euros is owed by La
Bouscarre S.C.I.
C.II.4-bis.a. Tax credits due within one year
Tax credits due within one year amounted to 8,466,000
euros, or 1,030,000 euros less than at January 2, 2004.
C.II.4-bis.b. Tax credits due after one year
This item totaled 516,000 euros at December 31, 2004,
showing a decrease of 420,000 euros compared with
January 2, 2004.
C.II.4-ter Deferred-tax assets
At 45,723,000 euros, this item increased by 5,761,000
euros compared with January 2, 2004.
A breakdown of deferred-tax assets, net of the reserve
for deferred taxes, is provided below:
Deferred taxes due on:
- Depreciation of fixed assets
- Other items
Total deferred taxes
Deferred-tax assets arising from:
- Reserve for inventory writedowns
and intra-Group eliminations
- Depreciation of fixed assets
- Value adjustments on financial assets
- Reserve for risks and charges
- Other items
Total deferred-tax assets
Total deferred-tax assets arising
from tax loss carryforward
Total deferred-tax assets net of the
reserve for deferred taxes
Temporary differences excluded
from the computation of
deferred taxes for:
- Reserves the taxation of which
has been suspended
- Other items
Total
Temporary differences excluded
from the computation of
deferred-tax assets
Tax loss carryforward excluded
from the computation of
deferred-tax assets
Amount of
temporary
differences
1/2/04
Average
% tax
rate
5,546
54
5,600
13,765
234
36,60%
32,05%
5,038
75
5,113
33.86%
37.46%
33.03%
33.99%
34.12%
8,654
2,147
12,808
5,682
463
29,754
18,531
5,501
38,889
13,103
1,662
35.31%
39.50%
33.05%
34.62%
36.46%
6,544
2,173
12,852
4,536
606
26,711
33.00%
15,969
48,416
27.37%
13,251
Amount of
temporary
differences
12/31/04
Average
% tax
rate
15,252
175
36.36%
30.86%
25,560
5,731
38,772
16,718
1,357
48,390
Tax
impact
40,123
Tax
impact
34,849
49,243
25,306
74,549
49,243
32,465
81,708
180,814
188,894
187,636
153,164
(in thousands of euros)
The difference between the tax impact at December 31,
2004 and at January 2, 2004, which amounts to
5,274,000 euros (after 32,000 euros in foreign exchange
differences) was reflected in the year’s net income in the
amount of 5,306,000 euros.
The computation of deferred taxes did not take into
account temporary differences the future taxation of
which is unlikely and temporary differences arising from
87
reserves the taxation of which has been suspended and
for which there are no plans to use them in a manner
that would render them taxable. Temporary differences
and tax loss carryforward amounts the recoverability of
which is not certain were excluded from the computation
of deferred-tax assets.
C.II.5.a. Accounts receivable from outsiders due within
one year
These receivables increased to 61,860,000 euros, or
30,448,000 euros more than at January 2, 2004.
12/31/04
C.IV. Liquid assets
Liquid assets amounted to 18,376,000 euros, or
11,969,000 euros less than at January 2, 2004.
They include 18,334,000 euros in bank deposits and
42,000 euros in cash and securities on hand.
1/2/04
D.
•
Financial receivables
•
Other receivables
Total
54,802
7,058
26,355
5,057
61,860
31,412
(in thousands of euros)
ACCRUED INCOME AND PREPAID
EXPENSES
As shown in the table below, accrued income and
prepaid expenses decreased to 7,536,000 euros, or
5,016,000 euros less than at January 2, 2004:
12/31/04
Financial receivables include 48,343,000 euros for trade
receivables assigned to Ifitalia for deferred collection. At
January 2, 2004 the same type of receivables amounted
to 17,873,000 euros.
Other receivables, which represent miscellaneous items,
include 385,000 euros owed by employees, 781,000
euros owed by various government agencies, security
deposits amounting to 246,000 euros and social security
contribution prepayments of 921,000 euros.
C.II.5.b. Accounts receivable from outsiders due after
one year
These receivables, which totaled 929,000 euros, or
79,000 euros less than at January 2, 2004, refer almost
exclusively to security deposits.
C.III.7. Other financial assets
The only item listed under other financial assets of
41,000 euros is the balance in a current account that
SORIN S.p.A. has with Sorin LifeWatch S.r.l.
88
1/2/04
D.1. Accrued income
•
•
Financial
items
Non-financial
items
938
2,237
30
968
559
2,796
572
1,146
D.2. Prepaid expenses
•
Financial items
•
Non-financial
items:
- interest
and sales
commissions
- prepaid rent
142
2,173
–
2,093
- other prepaid
expenses
3,681
5,996 6,517 8,610
6,568
9,756
Total accrued income
and prepaid expenses
(in thousands of euros)
7,536
12,552
liabilities and stockholders’ equity
A.
STOCKHOLDERS’ EQUITY
Group interest in stockholders’ equity
As shown in the table below, this item decreased by
56,449,000 euros to 346,222,000 euros.
Balance at 1/2/04
Capital
stock
Reserves
(*)
Other
consolidation
reserves
Net income
(loss) for
the year
354,070
218,012
(169,411)
–
Decreases due to:
• Differences from the translation of
financial statements denominated
in foreign currencies
• Other changes
(11,916)
(459)
Net income (loss) for the year
Balance at 12/31/04
354,070
218,012
(181,786)
Total Group
interest in consolidated stockholders’ equity
402,671
(11,916)
(459)
(44,074)
(44,074)
(44,074)
346,222
(in thousands of euros)
(*) As shown in the statement of changes in the stockholders’ equity of SORIN S.p.A. that appears elsewhere in these Notes, the
reserves are those of the Parent Company.
Foreign exchange differences are attributable for the
most part to foreign companies whose reporting
currency is the U.S. dollar.
Other consolidation reserves are negative by
181,786,000 euros. They include the value assigned to
certain equity investments in excess of the interest in the
stockholders’ equity of the consolidated companies that
could not be allocated to specific asset accounts, which,
89
insofar as acquisitions completed before 1993 and
transferred to the Company following the demerger of
SNIA S.p.A. are concerned, are recognized as a
deduction from stockholders’ equity, as required by laws
then in force.
A reconciliation between stockholders’ equity and net
income of SORIN S.p.A. and the corresponding amounts
for the Group is provided below.
Capital
stock
SORIN S.p.A.
354,070
• Net income (loss) of consolidated companies
• Capital stock and reserves of consolidated cos.
• Carrying value of invest. in consolidated cos.
• Writedown of investments in companies
valued by the equity method
218,012
709,530
(1,094,024)
Net income
(loss) for year
354,070
Total
(31,825)
540,257
(13,677)
(13,677)
709,530
(1,061,504)
32,520
(3)
Consolidation adjustments:
• Elimination of dividends
• Elimination of intra-Group inventory gains
net of tax effect
• Consolidation differences
• Goodwill and other intangibles attributable
to Cobe Cardiovascular Inc.
• Other adjustments
SORIN Group
Reserves
(3)
17,704
(17,704)
(9,811)
87,355
(4,378)
(4,639)
(14,189)
82,716
111,040
(3,577)
(8,246)
3,875
102,794
298
36,226
(44,074)
346,222
(in thousands of euros)
The consolidation adjustment applied to Cobe
Cardiovascular Inc. refers to goodwill and other
intangibles that were written down in the Company’s
2002 financial statements but reinstated in the
consolidated financial statements.
The reason for this treatment of goodwill and other
intangibles in the consolidated financial statements
reflects the fact that the fair value of the Cardiac surgery
Business Unit, of which Cobe Cardiovascular is an
integral part, is greater than its book value.
90
Minority interest in capital stock and reserves
As a result of the contribution of the year’s result, this
item increased by 184,000 euros during 2004 to a
balance of 1,307,000 euros. It refers to a 49% interest in
the stockholders’ equity of Ela Medical Cormedica Lda
(547,000 euros) and Ela Medical Izasa S.A. (760,000
euros).
RESERVES FOR RISKS AND CHARGES
B.
B.1. Reserve for pensions and similar obligations
At 6,350,000 euros, this reserve was 1,138,000 euros
higher than at January 2, 2004.
Balance at 1/2/04
A breakdown of this item is provided below:
Balance at 1/2/04
Changes:
Change in the scope of consolidation
•
Reclassifications from other reserves
•
Provisions for the year
•
•
Currency conversion differences
Utilizations
Balance at 12/31/04
•
Change in the scope of consolidation
•
Currency conversion differences
•
5,212
Changes:
•
•
–
270
(234)
1,630
(528)
6,350
(in thousands of euros)
B.2.b. Reserve for deferred taxes
In 2004, the reserve for taxes increased by 487,000
euros to 5,600,000 euros.
Additional information on the reserve for deferred taxes
is provided in the note to item C.II.4-ter. Deferred-tax
assets, which contains a breakdown of the items
included in the reserve.
B.4. Consolidation reserve for future risk and charges
The balance of 807,000 euros refers to certain
companies acquired, as part of the Carbomedics
transaction, at price lower than the value of the
underlying stockholders’ equity.
B.5. Other reserves
Other reserves totaled 56,377,000 euros or 15,298,000
euros more than at January 2, 2004. They include a
Reserve for miscellaneous risks (19,567,000 euros), a
Reserve for restructuring (33,580,000 euros), a Reserve
for warranties (1,250,000 euros) and a Reserve for
supplemental customer handling indemnities for agents
(1,980,000 euros).
•
Reclassifications
Provisions
Utilizations and transfer to earnings
Balance at 12/31/04
–
(839)
(2,823)
36,594
(17,634)
56,377
(in thousands of euros)
The largest of the provision (33,522,000 euros) is an
addition to the Reserve for restructuring set aside in
connection with a program to overhaul the Group’s
manufacturing and service operations.
Utilizations and transfers to earnings includes 4,100,000
euros deducted from the value of equity investments, as
explained in the note to “B.III.1, Equity investments,”
and 3,178,000 euros from the derecognition of a reserve
for foreign currency risks established when a US$
reserve of Sorin Group Canada Inc. was valued at yearend exchange rates in 2003. Under the new principles
established with the reform of Italian corporate law,
foreign exchange differences that arise from the
valuation of medium- and long-term items must be
recognized in earnings.
C.
RESERVE FOR EMPLOYEE SEVERANCE
INDEMNITIES
At 31,047,000 euros, this reserve was 1,656,000 euros
more than at January 2, 2004. A breakdown is as
follows:
Balance at 1/2/04
29,391
Changes:
•
Change in the scope of consolidation
•
Reclassifications and transfers
•
Utilizations
•
•
Currency conversion differences
Provision for the year
Balance at 12/31/04
(in thousands of euros)
91
41,079
–
–
(373)
5,117
(3,088)
31,047
D.
LIABILITIES
Liabilities totaled 521,578,000 euros, or 34,832,000
euros more that at January 2, 2004.
Balance at
1/2/04
Due to banks
a. due within one year
b. due after one year
D.5. Due to other lenders
a. due within one year
b. due after one year
D.6. Advances
a. due within one year
b. due after one year
D.7. Trade accounts payable
a. due within one year
D.8. Liabilities represented by
credit instruments
a. due within one year
D.9. Accounts payable to subsidiaries
a. due within one year
D.12. Taxes payable
a. due within one year
D.13. Contributions to pension and
social security institutions
a. due within one year
D.14. Other liabilities
a. due within one year
b. due after one year
Change in
2004
Balance at
12/31/04
Due after
five years
D.4.
Total
60,515
100,467
+ 6,222
+159,299
66,737
259,766
152,845
29,446
– 94,695
– 29,314
58,150
132
914
40
–
–
381
27
533
13
91,656
+
5,890
97,546
8,041
–
5,930
2,111
602
–
602
–
13,539
–
2,514
11,025
9,479
+
1,139
10,618
19,113
89
–
–
4,211
44
14,902
45
+ 34,832
521,578
486,746
(in thousands of euros)
92
5,468
5,468
D.4.a. Amount due to banks within one year
The amount due to banks within one year increased by
6,222,000 euros to 66,737,000 euros.
This balance includes the current portion of medium- and
long-term debt amounting to 6,116,000 euros (223,000
euros secured by mortgages on land and buildings).
D.4.b. Amount due to banks after one year
The amount due to banks after one year increased by
159,299,000 euros to 259,766,000 euros due mainly to
medium- and long-term financing received by Sorin
Biomedica Cardio S.r.l. and Sorin Biomedica S.r.l.
(5,577,000 euros*) to fund a portion of the price paid to
buy certain buildings in Saluggia, and by SORIN S.p.A.
(155,000,000 euros*). Indebtedness secured by
mortgages on land and buildings amounted to 5,577,000
euros.
A breakdown by maturity date of bank borrowings
outstanding at December 31, 2004 is provided below:
•
2006
•
2007
•
2009
•
•
2008
After 2009
33,651
74,019
75,881
70,747
5,468
259,766
(in thousands of euros)
A breakdown by interest rate of bank borrowings
outstanding at December 31, 2004 is as follows:
•
Rates up to 2%
•
Rates between 3% and 4%
•
•
•
Rates between 2% and 3%
Rates between 4% and 5%
Rates over 5%
1,596
–
256,598
1,442
130
259,766
(in thousands of euros)
D.5.a. Amounts due to other lenders within one year
At 58,150,000 euros, this item was 94,695,000 euros less
than at January 2, 2004. The repayment to SNIA S.p.A.
of the indebtedness incurred by Dideco S.r.l. in
connection with the demerger (109,756,000 euros)
accounts for the decrease. This item includes the amount
owed to Ifitalia for advance payments on future
collections of factored trade receivables, which is equal
to the financial receivable owed by Ifitalia and reflected
under item “C.II.5.a. - Accounts receivable from
outsiders within one year,” net of commissions.
D.5.b. Amounts due to other lenders after one year
The amounts due to other lenders after one year
decreased by 29,314,000 euros to 132,000 euros as the
net result of the early repayment of the financing
provided to Cobe Cardiovascular Inc. by the seller of
Sulzer Carbomedics Inc. (29,446,000 euros at January 2,
2004) and the receipt of new financing by Sorin Group
Canada Inc. (132,000 euros).
D.7.a. Trade accounts payable due within one year
Trade accounts payable totaled 97,546,000 euros, or
5,890,000 euros more than at January 2, 2004.
(*) These amounts are net of the current installments.
93
D.8.a. Liabilities represented by credit instruments due
within one year
This account, which had a balance of 2,111,000 euros,
consists entirely of commercial paper.
D.9.a. Accounts payable to subsidiaries due within one
year
This account had a zero balance at December 31, 2004.
The amount owed at the beginning of the year included
loans payable to Sorin LifeWatch S.r.l. (593,000 euros)
and Ela SP S.r.l. (9,000 euros).
D.12.a. Taxes payable due within one year
At 11,025,000 euros, taxes payable due within one year
were 2,514,000 euros less than at January 2, 2004.
D.13.a. Contributions to pension and social security
institutions due within one year
At 10,618,000 euros, this item was 1,139,000 euros
higher than at January 2, 2004. It consists of liabilities to
Italian social security institutions (I.N.P.S. and
F.I.S.D.A.F.).
D.14.a. Other liabilities due within one year
Other liabilities due within one year came to 14,902,000
euros, or 4,211,000 euros less than at January 2, 2004.
A total of 5,810,000 euros was owed to employees.
ACCRUED EXPENSES AND DEFERRED
INCOME
D.
Accrued expenses and deferred income increased by
4,651,000 euros to 35,240,000 euros compared with
January 2, 2004.
12/31/04
E.1. Accrued expenses
•
•
Financial items
1,752
Non-financial
items:
- interest and
sales
commissions
- personnel
- other accrued
expenses
869
20,906
762
1,358
17,502
9,181 30,956
6,596 25,456
32,708
26,218
2,131
3,469
E.2. Deferred income
•
•
Financial items
Non-financial
items:
- Capital grants
- other deferred
income
93
308
Total accrued
expenses and
deferred income
(in thousands of euros)
94
1/2/04
128
401
774
902
2,532
4,371
35,240
30,589
Memorandum Accounts
12/31/04
Guarantees provided
• Guarantees and sureties provided to outsiders:
- on behalf of subsidiaries
- on behalf of outsiders
106
13,134
1/2/04
106
20,398
13,240
• Other guarantees provided to outsiders:
- Portfolio risks and risks on receivables
assigned with and without recourse
- Other risks
20,504
14,590
14,590
Other memorandum accounts
• Assets of outsiders held by the Group
• Group assets held by outsiders
• Sureties/Guarantees received by the Group
• Off-balance-sheet financial instruments:
- Interest rate swaps executed to hedge
the risk of fluctuations in interest rates
- Currency swaps and forward
foreign exchange contracts
that hedge foreign exchange risks:
· bought from outsiders
· sold to outsiders
- Currency swaps and forward
foreign exchange contracts that
hedge asset impairment risks:
· sold to outsiders
• Miscellaneous memorandum accounts
Total
(in thousands of euros)
95
41,386
58,797
13,240
35,094
25
29,874
12,436
921
34,528
11,904
97,703
148,794
100,183
54,374
47,413
101,787
36,417
13,353
8,376
289,991
306,310
303,231
341,404
GUARANTEES PROVIDED
OTHER MEMORANDUM ACCOUNTS
Guarantees and sureties provided to outsiders on
behalf of subsidiaries
The only item included in this account is a guarantee
provided on behalf of Sorin LifeWatch S.r.l.
Guarantees and sureties provided to outsiders
These guarantees secure mainly payment obligations
(8,695,000 euros) toward the tax administration —
Milan VAT Office.
Off-balance-sheet financial instruments
Interest rate swaps executed to hedge the risk of
fluctuations in interest rates
This item refers to transactions executed with outsiders
to hedge medium-term interest rate risks related to the
indebtedness of SORIN S.p.A.
Currency swaps and forward foreign exchange
contracts that hedge foreign exchange risks
This item refers to buy and sell transactions in
currencies other than the euro executed with credit
institutions in connection with commercial transactions;
forward purchases of U.S. dollars to hedge medium-term
indebtedness of SORIN S.p.A.; and forward transactions
with outsiders on behalf of Group companies executed
by SORIN S.p.A. to set fixed annual exchange rates for
the U.S. dollar, the British pound and the Japanese yen.
Currency swaps and forward foreign exchange
contracts that hedge asset impairment risks
These contracts were executed on December 30, 2004
(value date January 3, 2005 and maturity on December
30, 2005) for a total amount of US$ 50,000,000 to hedge
in part the risk of foreign exchange fluctuations with
regard to the value of the stockholders’ equity of
subsidiaries whose reporting currency is the U.S. dollar.
Miscellaneous memorandum accounts
Miscellaneous memorandum accounts include
11,041,000 euros in lease commitments.
96
The table below provides an overview of the currency
swaps and forward foreign exchange contracts
outstanding at December 31, 2004.
Position/Instrument
Purchases
Domestic currency swaps
Domestic currency swaps
Forward
Forward
Forward
Total purchases
Sales
Domestic currency swap
Domestic currency swap
Forward
Forward
Forward
Forward
Total sales
Currency
U.S. dollar
British pound
U.S. dollar
British pound
Japanese yen
U.S. dollar
British pound
British pound
U.S. dollar
Japanese yen
Other currencies
Grand total
(in thousands of euros)
97
Notional amount (face value at
expiration) and scheduled maturity
2005
2006
Total
and beyond
Market
value
8,482
721
29,422
1,418
1,343
8,482
721
29,422
1,418
1,343
6,186
723
28,927
1,382
1,350
41,386
41,386
38,568
7,283
10,453
11,181
57,707
4,910
3,680
7,283
10,453
11,181
57,707
4,910
3,680
7,284
10,200
11,104
56,704
4,908
3,720
95,214
95,214
93,920
136,600
136,600
Analysis of the Statement Of Income
COST OF PRODUCTION
(758,293,000) euros
Since the statement of income provides a detailed
breakdown of the individual revenue and expense
items and detailed information has already been
provided in the notes to the balance sheet, only the
main captions of the statement of income are
reviewed below.
B.
A.
B.7. Outside services
The cost of outside services totaled 171,218,000 euros,
broken down as follows:
PRODUCTION VALUE
760,539,000 euros
A.1. Sales and service revenues
Sales and service revenues totaled 718,980,000 euros.
They include sales revenues of 708,246,000 euros and
service revenues of 10,734,000 euros.
A revenue breakdown by geographical destination is as
follows:
2004
•
•
•
•
Italy
Rest of Europe
North America
Rest of the world
Total
126,424
312,987
164,441
115,128
718,980
(in thousands of euros)
A.4. Increases in company produced additions to fixed
assets
This item, which amounted to 12,334,000 euros,
includes 5,543,000 euros for property, plant and
equipment and 6,791,000 euros for intangibles.
Additions to intangibles consist almost entirely of costs
incurred to secure FDA approval to sell cardiac valves,
stents and pacemakers in the United States.
A.5. Other revenues and income
Other revenues and income totaled 14,664,000 euros.
This item includes rebilled costs (2,319,000 euros),
gains on the disposal of fixed assets (166,000 euros);
royalty income (1,135,000 euros); and out-of-period
income (11,044,000 euros).
98
B.6. Raw materials, auxiliaries and supplies
This item totaled 238,607,000 euros at December 31,
2004, including 232,542,000 euros for raw materials and
auxiliaries and 6,065,000 euros for utilities.
2004
•
•
•
•
Industrial services
Other services
Variable selling costs
Royalty expense
20,766
110,687
39,200
565
Total
171,218
(in thousands of euros)
Service costs include the fees paid to Directors and
Statutory Auditors. A breakdown of the fees paid for
services provided by the Directors and Statutory
Auditors to the Parent Company and to other
consolidated companies is provided below.
Services to
the Parent
Company
2004
• Directors
• Statutory
Auditors
Total
(in thousands of euros)
Services to
other
consolidated
companies
2004
1,063
–
148
43
1,211
43
B.8, Use of property not owned
This item, which totaled 15,897,000 euros, consists
mainly of lease payments, licenses, photocopier costs,
rent, hardware maintenance costs and technical support.
It includes 2,783,000 euros in rent paid to SNIA S.p.A.
for the premises at 14 Via Borgonuovo, in Milan, where
the headquarters of SORIN S.p.A. are located, and
buildings in Mirandola (MO) and Saluggia (VC) that are
leased to Bellco S.r.l., Sorin Biomedica S.r.l. and Sorin
Biomedica Cardio S.r.l.
In December, the buildings in Saluggia were purchased
by the existing tenants, Sorin Biomedica S.r.l. and Sorin
Biomedica Cardio S.r.l.
B.9. Personnel costs
Personnel costs totaled 259,529,000 euros, for an average
workforce of 4,776 employees, broken down as follows:
(average number of employees)
Parent
Company
•
•
•
•
Executives
Managers
Office staff
Production staff
Total
Companies
consolidated
as per Art. 26
L.D. No. 127/91
20
8
20
–
86
196
2,032
2,414
48
4,728
At December 31 2004, the Group had 4,745 employees,
compared with 4,754 employees at January 2, 2004.
12/31/04
•
•
•
•
Executives
Managers
Office staff
Production staff
Total
1/2/04
112
209
2,035
2,389
100
193
2,058
2,403
4,745
4,754
99
B.10.a. Amortization of intangibles
Amortization of intangibles totaled 28,887,000 euros,
including 14,306,000 euros for amortization of goodwill
and consolidation differences.
B.12. Provisions for risks
Provisions for risks of 1,232,000 euros include 747,000
euros for miscellaneous risks and a 485,000-euro
provision for warranties.
B.14. Miscellaneous operating costs
Miscellaneous operating costs of 7,202,000 euros
include 1,996,000 euros in indirect taxes and fees and
1,027,000 euros in losses on the disposal of fixed assets.
General corporate expenses, entertainment expenses,
memberships in industry associations and sundry
charges account for the balance.
C.
FINANCIAL INCOME AND EXPENSE
(16,806,000) euros
C.16. Other financial income
C.16.d. Miscellaneous financial income
C.16.d.4. Miscellaneous financial income from
outsiders
This item, which totaled 3,330,000 euros, includes:
interest earned on loans (285,000 euros); interest earned
on trade receivables (438,000 euros); gains on hedging
contracts (1,180,000 euros); and discounts and sundry
financial income (1,427,000 euros).
C.17. Interest and other financial expense
C.17.d. Interest and other financial expense paid to
outsiders
The components of this item, which amounted to
20,942,000 euros, are: interest paid on financial
transactions (11,743,000 euros), interest paid on
commercial transactions (179,000 euros), losses on
hedging contracts (4,210,000 euros) and miscellaneous
charges (4,810,000 euros) consisting mainly of discounts
paid, bank charges and bank fees.
Miscellaneous charges also include 1,856,000 euros in
discounting costs incurred in connection with the
factoring of receivables.
A breakdown of interest and other financial expense is
as follows:
2004
• Due to banks
• Due to other lenders
Total
9,850
11,092
20,942
(in thousands of euros)
The average interest rate paid by the Group was 4.163%.
C.17-bis. Foreign exchange gains (losses)
In 2004, the group earned a net foreign exchange gain of
806,000 euros. The balance is the net result of realized
foreign exchange losses of 324,000 euros and
ascertained foreign exchange gains of 1,130,000 euros.
D.
VALUE ADJUSTMENTS ON FINANCIAL
ASSETS
(1,027,000) euros
D.18.a. Upward adjustments on value of
unconsolidated equity investments
This item, which totaled 40,000 euros, reflects the
reversal of the reserve for risks on the equity investment
in Sorin Biomedica Norge A.S..
D.19.a. Writedowns of unconsolidated equity
investments
Writedowns totaled 1,067,000 euros. They reflect
primarily charges booked to recognize the losses
incurred by Istituto Europeo di Oncologia S.r.l. (761,000
euros) and to adjust the carrying value of the investment
in Sorin Biomedica Norge A.S. to the value of the
underlying stockholders’ equity (304,000 euros).
100
E.
EXTRAORDINARY INCOME AND EXPENSE
(28,762,000) euros
E.20. Extraordinary income
E.20.a. Gains on disposals
Gains on disposals totaled 145,000 euros. This item
includes gains on the sale of equity investments in
Societé de Gestion Sainte Marguerite S.G.M. (92,000
euros) and Soludia Maghreb S.A. (2,000 euros) and
gains on the disposal of fixed assets (51,000 euros).
E.20.b. Other extraordinary income
Other extraordinary income amounted to 12,922,000
euros. It includes: 8,998,000 euros in out-of-period
income earned by repaying ahead of schedule the
financing provided by the seller of Carbomedics when
this company was acquired by the Group and 3,178,000
from the reversal of a reserve for risks that had been
established in 2003 in connection with foreign exchange
gains generated by a reserve for medium- and long-term
risks, which were recognized in accordance with the new
principles established with the reform of Italian
corporate law.
E.21 Extraordinary expense
E.21.a. Losses on disposals
These losses, which totaled 903,000 euros, were incurred
on the disposal of fixed assets.
E.21.c. Other extraordinary expense
Extraordinary expense, which totaled 40,701,000 euros,
includes a provisions of 33,522,000 euros added to the
reserves for the restructuring of the manufacturing and
service organization.
INCOME TAXES
(460,000) euros
The tax credit is the result of current income taxes of
4,846,000 euros and a net balance of (5,306,000) euros
representing the difference between deferred and
(prepaid) taxes.
A reconciliation between the theoretical tax liability and the
tax liability shown on the statement of income is as follows:
Income
Taxes
Theoretical tax liability (1)
(14,635)
- Utilization of tax loss carryforward (2)
Local
taxes (IRAP)
4,959
Total
(9,676)
- Tax impact of permanent differences
(4,442)
(5,508)
(647)
(6,155)
- Deferred/(Prepaid) taxes for previous years
recognized in 2004
19,551
0
19,551
(11,012)
(9)
(11,021)
- Unrecognized (deferred)/prepaid taxes for 2004
- Income taxes paid outside Italy
- Higher (Lower) tax rate of foreign companies
- Impact of including foreign companies that reported a loss
- Tax impact of consolidation adjustments
- Miscellaneous items
Income tax liability for 2004
462
462
449
449
12,013
12,013
(1,722)
(1,722)
81
81
(4,763)
(in thousands of euros)
(1) The theoretical income tax liability was computed by
applying the corporate income tax (IRES) rate currently in
force in Italy (33%).
(2) Tax loss carryforward for which prepaid taxes had not
been recognized as of January 2, 2004.
101
(4,442)
4,303
(460)
OTHER INFORMATION
Consolidated Statement of Cash Flow
2004
A. Net liquid assets (indebtedness) at January 2
B. Cash flow – Operating activities
Net income (loss) for the year:
- Group interest
- Minority interest
Depreciation and amortization
(Gains) Losses on the disposal of fixed assets
(Gains) Losses on the valuation of equity investments
Writedowns of fixed assets
Change in working capital
Net change in reserve for employee severance indemnities
Gain on the early repayment of long-term financing
C. Cash flow – Investing activities
Investments in fixed assets:
• Intangibles
• Property, plant and equipment
• Financial fixed assets
Proceeds from the sale or redemption of fixed assets
D. Cash flow – Financing activities
Contributions of stockholders for capital increases
New borrowings
Loan repayments (1)
Valuation at year-end exchange rates of indebtedness denominated in foreign currencies
Net change in long-term loans and other financial payables
E. Distribution of earnings and reserves
Parent Company
Other Group companies to minority stockholders
F. Other changes to stockholders’ equity
G. Change to net liquid assets (indebtedness) due to foreign exchange differences
H. Net cash flow for the period (B+C+D+E+F+G)
I. Net liquid assets (indebtedness) at December 31 (A + H)
(113,548)
(44,074)
185
60,259
1,619
1,027
140
12,837
1,690
(8,998)
24,685
(20,770)
(35,764)
(4,196)
6,733
(53,997)
–
166,071
(71,007)
(467)
22
94,619
–
–
–
(459)
(1,336)
63,512
(50,036)
(in thousands of euros)
Note:
(1)
The changes shown in the statement of cash flow are net of foreign exchange differences stemming from the translation of
financial statements of foreign companies that were consolidated in the balance sheet at January 2, 2004.
Net liquid assets (indebtedness) do not include the current portion of long-term debt.
Includes a cash outflow of 18,353,000 euros for the early repayment of the loan provided to Cobe Cardiovascular Inc. by the
seller of Sulzer Carbomedics Inc.
102
Appendix to the Consolidated Statement of Cash Flow
2004
Change in working capital
–
Unadjusted net change
Change caused by:
• Companies added to the scope of consolidation
• Companies removed from the scope of consolidation
• Reclassifications and other captions of the financial statements
• Reversal of foreign exchange differences affecting the working capital of
foreign companies consolidated in the balance sheet at January 2, 2004
Change as per the statement of cash flow
13,524
–
–
4,472
(5,159)
12,837
(in thousands of euros)
2004
Net liquid assets (indebtedness) at December 31
as per the statement of cash flow (Total line I)
Long-term debt
–
Balance at January 1
Changes:
• New borrowings
• Loan repayments
• Early repayment of long-term debt with an attendant reduction
of the goodwill attributed to Carbomedics Inc.
• Portion of early repayment that required no cash outlay (1)
• Net change in long-term loans receivable and other long-term financial payables
• Valuation at year-end exchange rates of indebtedness
denominated in foreign currencies
• Foreign exchange differences
(182,486)
Net indebtedness at December 31
(266,014)
Balance at December 31
(166,071)
71,007
734
8,998
(22)
467
1,359
(316,050)
(in thousands of euros)
(1)
(50,036)
Corresponds to the gain recognized in the statement of income.
103
Breakdown of Receivables by Geographic Region
Italy
C.II.1.a.
C.II.1.b.
C.II.2.a.
C.II.3.a.
Trade accounts receivable
due within one year (*)
Total
Total
Trade accounts receivable
due after one year (*)
108,369
27,009
49,113
237,571
1,194
298
30
–
1,522
Accounts receivable from
affiliated companies
due within one year
44
–
–
–
44
Accounts receivable
from subsidiaries
due within one year
–
35
–
–
35
2,888
5,577
–
1
8,466
516
–
–
–
516
55,809
3,604
568
1,914
61,895
69
193
–
667
929
113,600
118,076
27,607
51,695
310,978
C.II.4.bis.b. Tax credits due after one year
C.II.5.b.
Rest of
the world
North
America
53,080
C.II.4.bis.a. Tax credits due within one year
C.II.5.a.
Rest of
Europe
Accounts receivable
from outsiders due
within one year (*)
Accounts receivable
from outsiders due
after one year
(in thousands of euros)
(*) The amounts are shown before valuation adjustments.
A breakdown of the “Rest of the world” trade
receivables shown above is as follows:
• Asia (excluding the Middle East)
• Central and South America
• Middle East and Africa
• Oceania
29,067
9,829
7,674
2,543
104
Breakdown of Liabilities by Geographic Region
Italy
D.4.a.
D.4.b.
Due to banks within one year
Due to banks after one year
D.5.a.
Due to other lenders
within one year
D.6.a.
Advances due within one year
D.5.b.
D.6.b.
Due to other lenders
after one year
Total
53,403
4,798
2,449
6,087
66,737
258,040
1,726
–
–
259,766
53,648
4,502
–
–
58,150
–
132
–
132
242
30
533
13
–
–
–
13
50,022
30,568
12,469
4,487
97,546
–
2,111
–
–
2,111
Contributions to pension and
social security institutions
due within one year
3,769
5,967
1,076
213
11,025
5,060
5,558
–
–
10,618
Other liabilities
due after one year
2,390
8,797
2,741
974
14,902
–
45
–
–
45
426,357
64,321
19,109
11,791
521,578
Advances due after one year
Taxes payable
due within one year
D.14.b.
Total
249
D.12.a.
D.14.a.
Rest of
the world
–
Trade accounts payable
due within one year
D.13.a.
North
America
12
D.7.a.
D.8.a.
Rest of
Europe
Liabilities represented by
credit instruments
due within one year
Other liabilities
due within one year
(in thousands of euros)
105
Translation of the Financial Statements of Foreign
Companies
The exchange rates used to translate the financial
statements of consolidated companies located in
countries that have not adopted the euro as their
currency are listed below.
Exchange rates
for one euro
Average rate
for 2004
Swiss franc
Rate at
12/31/04
Rate at
12/31/03
British pound
1.544
1.543
1.558
Danish krone
0.679
0.705
0.705
Swedish krona
7.440
7.439
7.445
Norwegian krone
9.125
9.021
9.080
U.S. dollar
8.370
8.237
8.414
Australian dollar
1.244
1.362
1.263
Canadian dollar
1.690
1.746
1.680
Singapore dollar
1.617
1.642
1.623
Japanese yen
2.101
2.226
2.145
134.398
139.650
135.050
106
Appendix
Companies
of the SORIN Group
(Status at 12/31/04)
107
SORIN Group companies at December 31, 2004
This list includes all of the companies in which SORIN S.p.A. has a consolidated
direct or indirect Group interest equal to or greater than 10%.
Company
Parent Company
SORIN S.p.A.
Registered Currency
office
Milan
EUR
Capital
stock at
12/31/04
Par value Consolidated
per share or % interest
partnership
held by
interest
the Group
354,070,392
1.00
--
Investor company
Name
--
% interest
held
(1)
--
Companies consolidated line by line
Bellco S.r.l.
Milan
EUR
15,102,906 15,102,906
100.000 SORIN S.p.A.
100.000
Dideco S.r.l.
Mirandola
EUR
7,083,952
7,083,952
100.000 SORIN S.p.A.
100.000
Mountrouge EUR
50,000,000
20
100.000 SORIN S.p.A.
100.000
(Modena)
Ela Medical
S.A.S.
Sorin Biomedica
(France)
Milan
EUR
4,732,000
4,732,000
100.000 SORIN S.p.A.
100.000
Biofin Holding
Amsterdam
EUR
4,596,339.81
0.45
100.000 SORIN S.p.A.
100.000
Internat. N.V.
(Netherlands)
Sorin Group
Lausanne
CHF
500,000
100
100.000 Sorin S.p.A.
100.000
EUR
2,489,586
1.00
100.000 Sorin S.p.A.
86.423
Cardio S.r.l.
International S.A. (Switzerland)
Sorin Biomedica
Milan
S.r.l.
Sorin
Biomedica
Laboratoire
Soludia S.A.S.
Cardio S.r.l.
13.577
331,600
wpv
100.000 Bellco S.r.l.
100.000
USD
102.55
0.01
100.000 Dideco S.r.l.
100.000
SGD
4,864,002
1.00
100.000 Dideco S.r.l.
100.000
EUR
5,000,000
1.00
100.000 Dideco S.r.l.
100.000(*)
SEK
2,100,000
100
100.000 Dideco S.r.l.
100.000
EUR
151,369.13
16.82
100.000 Dideco S.r.l.
100.000
Fourquevaux EUR
(France)
Cobe Cardio-
Arvada,
vascular Inc.
Colorado,
(USA)
Dideco Asia
Singapore
PTE Ltd.
(Singapore)
Dideco Cobe
Rungis
Cardiovasculaire
(France)
France S.A.
Sorin Group
Malmo
Scandinavia AB
(Sweden)
Sorin Group
Helsinki
Finland OY
(Finland)
(1) Unless otherwise stated, the % of voting shares is the same as the %interest held.
(*) Includes Biofin Holding International N.V. and seven shares held by nominees.
WPV = without par value
108
Companies consolidated line by line
Company
Registered Currency
office
(continued)
Par value Consolidated
per share or % interest
partnership
held by
interest
the Group
Capital
stock at
12/31/04
Investor company
Sorin Biomedica
France S.A.
Rungis
Cedex
(France)
EUR
7,000,000
7
100.000 Dideco S.r.l.
Nominees
% interest
held
(1)
99.999
0.001
Sorin Biomedica
Japan K.K.
Tokyo
(Japan)
JPY
345,000,000
wpv
100.000 Dideco S.r.l.
100.000
Sorin Biomedica Gloucester GBP
U.K. Ltd
(U.K.)
7,804,686
1.00
100.000 Dideco S.r.l.
100.000
Stöckert Ins-
EUR
1,667,000
1.00
100.000 Dideco S.r.l.
100.000
USD
10.00
0.01
100.000
Munich
trumente GmbH
(Germany)
Carbomedics
Inc.
Delaware
(USA)
Sorin Cobe
CV Inc.
Sorin Group
Canada Inc.
Ela Medical Inc.
Ela Medical
Cormedica Lda.
Delaware
USD
100
0.01
100.000
(USA)
Toronto
(Canada)
Plymouth
(USA)
Carnaxide
Concelho
CAD
USD
EUR
100
1,527
784,314
wpv
1.00
1.00
100.000
100.000
51.000
Name
Cobe
Cardiovascular
Inc.
100.000
Cobe
Cardiovascular
Inc.
100.000
Cobe
Cardiovascular
Inc.
100.000
Cobe
Cardiovascular
Inc.
100.000
Ela Medical
S.A.S.
51.000
(Portugal)
Ela Medical
Izasa S.A.
Ela Medical
Japan Co. Ltd
Barcelona
EUR
841,416.95
60.10
51.000
(Spain)
Tokyo
S.A.S.
JPY
890,000,000
wpv
100.000
(Japan)
Ela Medical
Nordic A/S
Hillerod
(Denmark)
DKK
Ela Medical
Milan
EUR
500,000
750,000
1,000
750,000
100.000
100.000
S.r.l.
Ela Medical
UK Ltd
Ela Medical
Fountain Court GBP
(U.K.)
600,000
1.00
100.000
Ela Medical
S.A.S.
100.000
Ela Medical
S.A.S.
100.000
Ela Medical
S.A.S.
100.000
Ela Medical
S.A.S.
100.000
(1) Unless otherwise stated, the % of voting shares is the same as the %interest held.
= without par value
WPV
109
51.000
Companies consolidated line by line
Company
Sorin Biomedica
CRM S.r.l.
Sorin Group
France S.A.S.
Sorin Biomedica
CRM UK Limited
Sorin Biomedica
Cardio K.K.
Japan
Cobe
Registered Currency
office
Milan
Le Plessis
Robinson
(France)
EUR
Albans
Herts
(U.K.)
GBP
Kanagawa
(Japan)
JPY
Barcelona
Cardiovascular
Espana S.A.
(Spain)
Sorin Biomedica
Espana S.A.
Barcelona
(Spain)
Sorin Group
Belgium S.A.
EUR
Brussels
(Belgium)
EUR
EUR
EUR
Sorin Group
Nieuwegein EUR
Nederland N.V. (Netherlands)
(continued)
Capital
stock at
12/31/04
Par value Consolidated
per share or % interest
partnership
held by
interest
the Group
5,000,000
5,000,000
12,200,000
5,000,000
10,000,000
3,858,420
1,803,000
2,354,988.48
980,165.27
10
1.00
wpv
60.10
6.01
3,127.47
453.78
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
Investor company
Name
Ela Medical
S.A.S.
100.000
Ela Medical
S.A.S.
100.000
Sorin
Biomedica
CRM S.r.l.
100.000
Sorin
Biomedica
Cardio S.r.l.
100.000
Biofin
Holding
Inter. N.V.
100.000
Biofin
Holding
Inter. N.V.
100.000
Biofin
Holding
Inter. N.V.
99.867
Nominees
0.133
Biofin
Holding
Inter. N.V.
CHF
Baar
Sorin Biomedica
Cardio
(Switzerland)
Switzerland AG
Sorin Biomedica
Cardio
UK Limited
Harrogate
GBP
500,000
521,000
(U.K.)
100
1.00
100.000
100.000
100.000
Biofin
Holding
Inter. N.V.
99.940
Nominees
0.060
Biofin
Holding
Inter. N.V.
(1) Unless otherwise stated, the % of voting shares is the same as the % interest held.
wpv = without par value
110
% interest
held
(1)
100.000
Companies valued by the equity method
Company
Registered Currency
office
Sorin Consulto- Bairro vila
ria Administrativa
da sera
Ltda
(Brazil)
Sorin
LifeWatch S.r.l.
Milan
BRL
EUR
Par value Consolidated
per share or % interest
partnership
held by
interest
the Group
Capital
stock at
12/31/04
30,189,865
1.00
20,000
20,000
30,987
5,164.50
99.999
Investor company
Name
Biofin
Holding
Inter. N.V.
100.000 Sorin S.p.A.
% interest
held
(1)
99,999
100.000
Companies valued at cost
Centro Industriale Ricerca
e Formazione
in liquidation
Consorzio
Sesto
S.Giovanni
(Milan)
EUR
Modena
EUR
8,000
1,000
16.667
Sorin
Biomedica
Cardio S.r.l.
16.667
25.000 Dideco S.r.l.
12.500
Bellco S.r.l.
12.500
Laboratoire
Soludia S.A.S.
50.000
Medal Energia
La Bouscarre
S.C.I.
Fourquevaux EUR
(France)
9,180
153
50.000
Sar-Med S.r.l.
Iglesias
(Cagliari)
EUR
4,560,000
1.00
16.009 Bellco S.r.l.
16.009
Sobedia
Energia
Saluggia
(Vercelli)
EUR
5,000
1,000
80.000 Bellco S.r.l.
20.000
Sorin
Biomedica
Cardio S.r.l.
20.000
Sorin
Sorin Group UK Gloucester GBP
Limited
(U.K.)
1,000,000
1.00
100.000
Biomedica
CRM S.r.l.
20.000
Sorin
Biomedica
S.r.l.
20.000
Biofin
Holding
Inter. N.V.
(1) Unless otherwise stated, the % of voting shares is the same as the % interest held.
111
100.000
Change in the Scope of Consolidation
in 2004
Companies Added to the Scope of Consolidation
Company
Newly established companies
Sorin Group Canada Inc.
Sorin Group France S.A.S.
Registered office
Toronto (Canada)
Le Plessis Robinson
(France)
Currency
CAD
EUR
Capital stock
at
12/31/04
100
12,200,000
Consolidated %
interest
held by
the Group
100.000
100.000
Companies Removed from the Scope of Consolidation
Company
Merged companies
Mitroflow Inc.(1)
Carbomedics Canada Inc.(1)
Sorin Biomedica Canada Inc.(1)
Dorniac S.C.I.(2)
La Tertre S.C.I.(2)
Ela Medical GmbH (3)
Sorin Biomedica Cardio
Deutschland GmbH (3)
Sorin Biomedica CRM
France S.A.S (4)
Sorin Biomedica Cardio
France S.A. (4)
Ela Benelux S.A. (5)
Sorin Biomedica Cardio
Nederland BV (6)
Ela Medical B.V(6)
Carbomedics Holding
Netherlands B.V.(6)
Registered office
Currency
Capital stock
at
12/31/04
Consolidated %
interest
held by
the Group
Halifax (Canada)
Toronto (Canada)
Richmond Hill (Canada)
Fourquevaux (France)
Chartres (France)
Munich (Germany)
CAD
CAD
CAD
EUR
EUR
EUR
36,992,776
55,000
943,040
1,440
9,600
1,025,000
100.000
100.000
100.000
100.000
100.000
100.000
Hamburg (Germany)
Le Plessis Robinson
(France)
EUR
512,000
100.000
EUR
1,200,000
100.000
Meudon (France)
Brussels (Belgium)
EUR
EUR
2,515,408.78
1,380,000
100.000
100.000
Utrecht (Netherlands)
Maassluis (Netherlands)
EUR
EUR
150,500
454,000
100.000
100.000
Amsterdam (Netherlands) EUR
18,000
100.000
(1) Company merged into Sorin Group Canada Inc.
(2) Company merged into Laboratoire Soludia S.A.S.
(3) Company merged into Stöckert Instrumente GmbH.
(4) Company merged into Sorin Group France S.A.S.
(5) Company merged into Sorin Group Belgium S.A.
(6) Company merged into Sorin Group Nederland NV.
Milan, March 31, 2005
Umberto Rosa
Chairman
Drago Cerchiari
Chief Executive Officer
112
Report of the Independent Auditors
113
SORIN S.p.A.
Annual Financial Statements
at December 31, 2004
115
Balance Sheet
Assets
Item
12/31/04
Total
A. Receivables from stockholders
1/2/04
Total
Item
–
–
B. Fixed Assets
I. Intangibles
1. Start-up and expansion costs
4. Permits, licenses, trademarks
and similar rights
7. Other intangibles
3,745,727
550,506
244,829
2,251,470
–
554,834
6,242,026
1,105,340
II. Property, plant and equipment
4. Other assets
833,538
435,077
Total property, plant and equipment
(B.II.)
833,538
435,077
708,891,509
840,644
508,086,304
1,602,141
709,732,153
509,688,445
709,732,153
509,688,445
Total intangibles (B.I.)
III. Financial fixed assets
1. Equity investments in:
a. subsidiaries
d. other companies
Total equity investments (B.III.1.)
Total financial fixed assets (B.III.)
Total fixed assets (B)
C. Current assets
I. Inventories
II. Accounts receivable
1. Trade accounts receivable
a. due within one year
716,807,717
511,228,862
1,183,016
–
1,183,016
–
2. Accounts receivable
from subsidiaries
a. due within one year
128,159
–
Total accounts receivable
from subsidiaries (C.II.2.)
128,159
–
Total trade accounts
receivable (C.II.1.)
(in euros)
116
Assets
Item
12/31/04
Total
4-bis. Tax credits
a. due within one year
1,858
Total tax credits (C.II.4-bis)
1,858
1/2/04
Item
5. Accounts receivable
from outsiders
a. due within one year
1,621,095
1,841,091
Total accounts receivable
from outsiders (C.II.5.)
1,621,095
1,841,091
Total accounts receivable (C.II.)
2,934,128
1,841,091
III. Financial assets not held
as fixed assets
7. Other financial assets
179,894,249
251,101,817
Total financial assets (C.III.)
179,894,249
251,101,817
2,242,831
10,000
10,000
2,252,831
10,000
Liquid assets
1. Bank and postal accounts
3. Cash on hand
Total liquid assets (C.IV.)
Total current assets (C)
185,081,208
Total
252,952,908
D. Accrued income and prepaid expenses
1. Accrued income
2. Prepaid expenses
864,172
749,817
2,082,796
4,473,965
Total accrued income and
prepaid expenses (D)
1,613,989
6,556,761
Total assets (A+B+C+D)
903,502,914
770,738,531
(in euros)
117
Balance Sheet
(continued)
Liabilities and stockholders’
equity
A. Stockholders’ equity
I. Capital stock
II. Additional paid-in capital
III. Reserves for asset revaluations
IV. Statutory reserve
V. Reserve for treasury stock
VI. Reserves under the Bylaws
VII. Other reserves:
9. Reserve for reinvested capital gains
13. Earnings reserve
Total other reserves (A.VII.)
Item
12/31/04
Total
1/2/04
Total
Item
354,070,392
110,913,874
20,990,157
62,472,597
354,070,392
110,913,874
20,990,157
62,472,597
19,697,188
3,938,247
19,697,188
3,938,247
23,635,435
23,635,435
(31,825,388)
–
VIII. Retained earnings (Loss carryforward)
IX. Net income (loss) for the year
Total stockholders’ equity (A)
B. Reserves for risks and charges
3. Other reserves for risks
and charges
540,257,067
26,060,400
572,082,455
3,000,000
Total reserves for risks and charges (B)
26,060,400
3,000,000
C. Reserve for employee
severance indemnities
1,370,750
1,209,139
D. Liabilities
4. Due to banks
a. due within one year
b. due after one year
34,515,640
248,418,695
61,047,050
93,885,297
Total due to banks (D.4.)
282,934,335
154,932,347
2,683,641
60,917
2,683,641
60,917
41,555,198
32,144,809
41,555,198
32,144,809
7. Trade accounts payable
a. due within one year
Total trade accounts
payable (D.7.)
9. Accounts payable to
subsidiaries
a. due within one year
Total accounts payable
to subsidiaries (D.9.)
(in euros)
118
Liabilities and stockholders’
equity
Item
12/31/04
Total
1/2/04
Total
Item
12. Taxes payable
a. due within one year
793,674
Total taxes payable (D.12.)
793,674
13. Contributions to pension and
social security institutions
a. due within one year
312,138
–
Total contributions to pension and
social security institutions (D.13.)
312,138
–
14. Other liabilities
a. due within one year
1,843,899
2,787,637
Total other liabilities (D.14.)
1,843,899
2,787,637
Total liabilities (D)
–
330,122,885
189,925,710
E. Accrued expenses and
deferred income
1. Accrued expenses
2. Deferred income
3,649,152
2,042,660
1,252,596
3,268,631
Total accrued expenses and
deferred income (E)
5,691,812
4,521,227
Total liabilities and
stockholders’ equity (A+B+C+D+E)
903,502,914
770,738,531
Memorandum accounts
• Guarantees and sureties provided
to other companies
• Other memorandum accounts
22,170,516
248,160,771
Total memorandum accounts
13,496,813
263,134,885
270,331,287
(in euros)
119
276,631,698
Statement of Income
12/31/04
Item
A. Production value
1. Sales and service revenues
5. Other revenues and income
Total
7,008,257
1,923,127
Total production value(A)
8,931,384
B. Cost of production
6. Raw materials, auxiliaries, supplies and merchandise
7. Outside services
8. Use of property not owned
9. Personnel costs:
a. wages and salaries
b. social security contributions
c. provision for severance indemnities
e. other personnel costs
155,542
7,455,763
1,765,909
6,669,778
2,138,531
389,265
8,527
Total personnel costs (B.9.)
9,206,101
10. Depreciation, amortization and writedowns:
a. amortization of intangibles
b. depreciation of property, plant and equipment
1,648,961
217,931
Total depreciation, amortization and writedowns (B.10.)
1,866,892
14. Miscellaneous operating costs
704,059
Total cost of production (B)
21,154,266
Net production value (A-B)
(12,222,882)
C. Financial income and expense
15. Income from equity investments:
a. income from subsidiaries
13,622,983
Total income from equity investments (C.15.)
13,622,983
16. Other financial income
d. miscellaneous financial income from:
1. subsidiaries
4. outsiders
7,607,827
1,189,750
Total other financial income (C.16.)
8,797,577
(in euros)
120
12/31/04
Total
Item
17. Interest and other financial expense:
a. interest paid to subsidiaries
d. interest paid to outsiders
340,070
14,538,092
Total interest and other financial expense (C.17.)
14,878,162
17-bis. Foreign exchange gains (losses)
(339,016)
Total (C.15.+C.16.-C.17.±C.17-bis)
7,203,382
D. Value adjustments on financial assets
19. Writedowns of:
a. equity investments
1,823,801
Total writedowns (D.19.)
1,823,801
Total value adjustments on financial assets (D)
(1,823,801)
E. Extraordinary income and expense
20. Income:
a. gains on disposals
65
Total extraordinary income (E.20.)
65
21. Expense:
c. other extraordinary expense
24,982,152
Total extraordinary expense (E.21.)
24,982,152
Total extraordinary income and expense (E.20.-E.21.)
(24,982,087)
Income before taxes (A-B+-C+-D+-E)
(31,825,388)
22. Income taxes
26. Net income (loss)
–
(31,825,388)
(in euros)
121
Notes to the Financial Statements
Foreword
SORIN S.p.A. was established on January 2, 2004
through the partial, proportional demerger of SNIA
S.p.A. On January 5, 2004, Borsa Italiana admitted all of
the common shares of SORIN S.p.A. for trading.
Start-up and expansion costs include costs incurred by
the Company to establish and expand its operations and
secure a stock market listing for its shares.
They are recognized as assets and amortized using
the rates allowed by Article 2426 of the Italian
Civil Code.
additional information.
Other intangible assets consist of expenses incurred to
secure medium- and long-term loans, which are
amortized over the lives of the loans, and the cost of
application software, which is amortized using the rates
allowed by Article 2426 of the Italian Civil Code.
SORIN S.p.A. is a newly established company.
Property, Plant and Equipment
As a result, 2004 was the first fiscal year for SORIN
S.p.A., established as the beneficiary of a demerger
transaction the effects of which are described in the
Listing Prospectus, which should be consulted for
Consequently, a comparison with 2003 operating data is
not available. In the case of the balance sheet, the
comparison is made with the accounting data resulting
from the demerger completed on January 2, 2004.
Accounting Principles
and Methods
The accounting principles, valuation criteria and method
of presentation applied to the financial statements
comply with the pronouncements of the Italian Board of
Certified Public Accountants and Bookkeepers and are
consistent with those used to prepare the financial
statements upon demerger on January 2, 2004.
The valuation criteria and accounting principles applied
are reviewed below.
Intangibles
Intangibles are booked at their purchase price or
internal production cost, inclusive of incidentals and
directly attributable costs. The cost thus determined is
amortized on a straight line, based on an asset’s
estimated useful life. If on the balance sheet date the
value of an asset is deemed to have been permanently
impaired, the asset’s amortized historical value is written
down accordingly.
122
Property, plant and equipment is booked at cost plus
installation expenses and includes directly attributable
incidental expenses.
Maintenance and repair costs that do not extend the
useful lives of assets are charged to income in the year
they are incurred.
Assets are eliminated upon sale or demolition.
The amounts booked to assets are depreciated annually
on a straight-line basis at a rate that reflects the
estimated useful lives of the assets.
Assets purchased during the fiscal year are depreciated
at half the regular rate to reflect their shorter period of
utilization.
If on the balance sheet date the value of an asset is
deemed to have been permanently impaired, the
asset’s amortized historical value is written down
accordingly.
Financial Fixed Assets
Equity Investments
The carrying value used for long-term equity
investments is equal to the costs incurred to purchase the
investment or establish a company. When investments
are acquired by way of conveyance, their value is
determined by professional appraisers.
The carrying value of equity investments is written
down to reflect permanent losses in value caused by
current or anticipated operating losses incurred by
investee companies, which have or may cause the value
of the stockholders’ equities of such companies to
decrease permanently.
Equity investments that are not held as fixed assets are
booked as current assets at cost or estimated realizable
value, based on market conditions, whichever is lower.
Receivables and Payables
Receivables are carried at their estimated realizable
value. Payables are shown at their face value.
Receivables and payables denominated in foreign
currencies are adjusted to year-end exchange rates. Any
resulting gains or losses are credited or debited to the
statement of income. In the cases allowed under the
applicable statute, upon the appropriation of net income,
ascertained foreign exchange gains are posted to a
separate reserve.
When contracts have been executed to hedge foreign
exchange risks, any gain or loss that arises upon valuing
these contracts at year-end exchange rates, compared
with their value at the spot rates prevailing at the time of
purchase, is reflected in the statement of income,
offsetting the impact of any losses or gains generated by
the underlying transaction.
Factoring of Receivables
Accounts receivable assigned with recourse are deleted
from the balance sheet and the respective proceeds are
added to financial assets. Factoring charges are reflected
in the statement of income on an accrual basis.
Contingent liabilities from the risk of recourse are
reflected under memorandum accounts at the face value
of the receivables assigned with recourse and still
outstanding.
Accounts receivables assigned without recourse are
likewise deleted from the balance sheet and the
respective proceeds are added to financial assets. The
existence of a recourse risk must be disclosed in the
memorandum accounts only for the amount guaranteed
to the factor (deductible).
123
Accruals and Deferrals
Accrued income and expenses are the offsetting entries
of revenues and expenses attributable to two or more
years, for which the respective cash entries had not been
made on the balance sheet date.
Prepaid expenses and deferred income represent the portion
of cost and revenues attributable to two or more years,
which cannot be reflected in the statement of income in the
year when the respective cash entry was made.
They are reflected in the financial statements on an
accrual basis, in accordance with the general principle of
matching costs and revenues.
Reserves for Risks and Charges
The reserve for taxes reflects deferred-tax obligations
and any liabilities that are deemed likely to arise as a
result of ongoing tax audits or disputes, the amount or
date of occurrence of which cannot be determined.
The other reserves for risks and charges cover contingent
liabilities of the Group companies, determined on the
basis of a realistic assessment of their disposition, which
cannot be attributed to specific asset accounts.
Other reserves include the reserve for restructuring,
which provides for costs arising from corporate
restructuring and reorganization programs, and the
reserve for risks on equity investments, which reflects
the negative equities of investee companies.
Reserve for Employee
Severance Indemnities
The reserve for employee severance indemnities is
computed in accordance with labor legislation and the
pertinent collective bargaining agreements. It reflects the
accrued liability of Group companies toward their
employees, net of any advances paid.
Off-Balance Sheet Instruments
Contracts executed to hedge foreign exchange risks are shown
among memorandum accounts at the notional amount.
Charges and income, representing the financial
component of these contracts, are recognized on an
accrual basis.
Any gain or loss that arises upon valuing hedging
contracts at year-end exchange rates, compared with
their value at the spot rates prevailing at the time of
purchase, are reflected in the computation of net income,
offsetting the impact of any losses or gains generated by
the underlying transaction.
Contracts executed to hedge interest rate risks are shown
among memorandum accounts at the face value of the
principal amounts actually hedged. Any resulting gains
or losses (interest differentials) are recognized in
earnings on an accrual basis.
Revenue Recognition
Revenues, net of returns, discounts, allowances, bonuses
and directly related taxes, are recognized at the time title
to the goods passes to the customer or the provision of
the services is completed.
Dividends
Dividends are recognized in earnings in the year in
which they are declared by the disbursing company.
Income Taxes
SORIN S.p.A. is included in the national consolidated
tax return filed by BIOS S.p.A. as the controlling
company. As a result, current taxes include, in addition
to the provision for local taxes (IRAP), the corporate
income tax charges/credits that arise from a consolidated
tax filing, offset in the balance sheet by payables
to/receivables from the controlling company BIOS
S.p.A. The tax liability transferred to the controlling
company consists of the liability for direct taxes (IRES)
124
estimated for the year, net of any tax loss carryforwards
and exemption. The tax benefit for the controlling
company is represented by the ability to use the tax
losses transferred to it to offset the taxable income of
other companies included in the consolidated tax return.
Prepaid and deferred taxes are computed on the
temporary differences that arise between the values
assigned to assets for reporting and tax purposes and on
those items like tax loss carryforwards which, while not
recognized on the balance sheet, have the potential of
creating future tax credits.
Deferred-tax assets are recognized when there is
reasonable certainty that they will be recovered.
The corresponding balance sheet item is “II. Accounts
receivable-4.ter. Deferred-tax assets.”
Deferred taxes are not recognized when it is unlikely
that a corresponding liability will arise.
The corresponding balance sheet item is “B. Reserves
for risks and charges -.b. Reserve for deferred taxes.”
Analysis of the Individual Items
It is hereby certified that all transactions executed by the Company are reflected in its accounting records.
Balance Sheet
Assets
B.
FIXED ASSETS
B.I. Intangibles
Intangibles increased to 6,242,000 euros, or 5,136,000
euros more than at January 2, 2004.
The table below shows the carrying value of each item
and the changes that occurred during the period.
B.I.1.
Start-up and
expansion costs
Amortization period (in years)
Balance at 1/2/04
• Historical cost
• Accumulated amortization
• Net carrying value
5
B.I.4.
Permits, licenses,
trademarks and
similar rights
3
711
(160)
551
B.I.7.
Other
intangibles
Total
5
1,280
(725)
555
1,991
(885)
1,106
403
403
4,171
1,920
291
Changes in 2004
Increases for:
• Cost of application software
• Incorporation and stock listing costs
• Fees paid to secure loans
• Software licensing costs
4,171
1,920
291
Decreases for:
• Amortization
Balance at 12/31/04
• Historical cost
• Accumulated amortization
• Net carrying value
(976)
(46)
(627)
(1,649)
4,882
(1,136)
3,746
291
(46)
245
3,603
(1,352)
2,251
8,776
(2,534)
6,242
(in thousands of euros)
Start-up and expansion costs were incurred in
connection with the demerger, a capital increase used by
the demerged company for the Carbomedics acquisition
and other charges incurred to establish the Company and
list its shares.
Permits, licenses, trademarks and similar rights refers to
purchase of software licenses.
125
Other intangibles consists of costs incurred to secure
financing for the acquisition of ELA Medical, which
were transferred to the Company upon demerger; the fee
paid for a Mediobanca syndicated loan under an
agreement executed on May 13, 2004; the costs incurred
to secure a medium- and long-term financing facility
from BNP Paribas; and the cost of application software.
B.II. Property, Plant and Equipment
This item totaled 834,000 euros, or 399,000 euros more
than at January 2, 2004. The table below shows the
carrying value assigned to each item and the changes
that occurred during the period.
B.II.4. Other assets
Electronic equipVehicles
ment and other
office machines
Balance at 1/2/04
• Gross amount
• Accumulated regular depreciation
• Net carrying value
Changes in 2004
Increases for:
• Additions
• Depreciation attributable to derecognized assets
Decreases for:
• Disposals
• Regular depreciation
Balance at 12/31/04
• Gross amount
• Accumulated regular depreciation
• Net carrying value
(in thousands of euros)
It is hereby certified that the carrying value of the
Company’s assets at December 31, 2004 has not been
adjusted upwards to reflect changes in economic value
or the effects of inflation.
In 2004, depreciation was taken at the following rates:
• Office furniture and machines
• Vehicles
12.0%
25.0%
126
Total
424
(361)
63
491
(119)
372
915
(480)
435
142
100
692
100
834
200
(103)
(36)
(314)
(182)
(417)
(218)
463
(297)
166
869
(201)
668
1,332
(498)
834
B.III. Financial Fixed Assets
B.III.1. Equity Investments
As shown in the table below, equity investments
increased to 709,732,000 euros, or 200,044,000 euros
more than at January 2, 2004.
Equity
investments in
subsidiaries
Balance at 1/2/04
• Cost
• Impairment losses
• Net carrying value
516,390
(8,304)
508,086
Changes in 2004
Increases for:
• Purchases
• Subscriptions of capital stock increase
• Capital contributions
• Utilization of impairment losses
Decreases for:
• Replenishment of losses
• Impairment losses
Equity investments
in other companies
1,602
–
1,602
57
20
203,430
1,591
Balance at 12/31/04
• Cost
• Impairment losses
• Net carrying value
Total
517,992
(8,304)
509,688
57
20
203,430
1,591
(2,051)
(2,242)
(761)
(2,812)
(2,242)
717,846
(8,955)
708,891
841
–
841
718,687
(8,955)
709,732
(in thousands of euros)
As required by article 10 of Law No. 72 of March 19,
1983 and Article 2427 of the Italian Civil Code, it is
hereby certified that the carrying value of the
Company’s equity investments at December 31, 2004
has not been adjusted upwards to reflect changes in
economic value or the effects of inflation.
The changes that occurred in 2004 include:
• Purchases:
57,000 euros for 5,000 shares of Sorin Group
International S.A.
• Subscriptions of capital stock increase
20,000 euros for Sorin LifeWatch S.r.l.
127
• Capital contributions
202,000,000 euros for Dideco S.r.l. and 1,430,000
euros for Sorin LifeWatch S.r.l.
• Impairment losses
This item includes 1,359,000 euros for a
reclassification from the reserve for
miscellaneous risks related to Sorin LifeWatch
S.r.l. and 883,000 euros for a provision booked to
recognize the less than positive performance of
Sorin Group International S.A. (57,000 euros)
and Biofin Holding International S.A. (826,000
euros).
• The replenishment of losses, which is shown as a
deduction from the value of equity investments, refers
to Sorin LifeWatch S.r.l., which resulted in the
utilization of impairment losses, and to Istituto
Europeo di Oncologia S.r.l.
Differences between the carrying value and the value of
the stockholders’ equity of Dideco S.r.l., Bellco S.r.l.,
Ela Medical S.A.S. and Sorin Biomedica Cardio S.r.l.
are indicative of values (not reflected in the financial
statements of these subsidiaries) related to the current
and/or future profitability of the cash generating units
that include these companies.
The existence of any impairment losses was determined
in accordance with the international accounting principle
IAS 36 “Impairment of assets.” The first step was to
identify the cash generating units, which, in practice, are
the same as the Group’s Business Units given the
absolute organizational and managerial indivisibility of
these Units and the synergies that exist among the
companies that belong to the same unit. The fair value of
each unit was then determined in accordance with the
method provided in the abovementioned international
principle. The value thus obtained was greater than the
value at which the investments are carried on the
balance sheet of SORIN S.p.A., taking also into account
the provisions that have been established to cover Group
restructuring costs.
As required by Article 2427 of the Italian Civil Code,
the following schedules provide information about the
Company’s equity investments.
128
List of Equity Investments
(pursuant to Article 2427 of the Italian Civil Code)
129
Investments in Subsidiaries
Company
BELLCO S.r.l.
Balance at 1/2/04
Balance at 12/31/04
DIDECO S.r.l.
Balance at 1/2/04
Advance on capital contribution
Subscription of capital increase
Balance at 12/31/04
ELA MEDICAL S.A.S.
Balance at 1/2/04
Purchase
Balance at 12/31/04
SORIN BIOMEDICA CARDIO S.r.l.
Balance at 1/2/04
Balance at 12/31/04
BIOFIN HOLDING
INTERNATIONAL NV
Balance at 1/2/04
Impairment loss
Balance at 12/31/04
SORIN BIOMEDICA S.r.l.
Balance at 1/2/04
Subscription of capital increase
Balance at 12/31/04
SORIN COBE CV. INC.
Balance at 1/2/04
Sale
Balance at 12/31/04
SORIN LIFEWATCH S.r.l.
Balance at 1/2/04
Capital written off to cover losses
Contribution to cover losses
Replenishment of losses
Subscription of capital stock
Advances on capital contribution
Impairment loss
Balance at 12/31/04
SORIN GROUP INTERNATIONAL SA
Purchase
Impairment loss
Balance at 12/31/04
Head office
Milan
Mirandola (MO)
Montrouge (France)
Milan
Amsterdam
(Netherlands)
Milan
Delaware (USA)
Milan
Lausanne (CH)
TOTAL SUBSIDIARIES
(1) Data from the financial statements at December 31, 2003.
130
Curr.
EUR
EUR
Capital
stock
Par value per
share or
interest in
capital
15,102,906
15,102,906
1.00
15,102,906.00
7,083,951.16
0.52
0.84
7,083,952.00
7,083,952.00
50,000,000
20.00
50,000,000
20.00
4,732,000
4,732,000
0.52
4,732,000.00
4,596,339.81
0.45
4,596,339.81
0.45
EUR
EUR
EUR
2,489,585.28
0.72
2,489,586.00
0.52
USD
USD
USD
100
(100)
–
0.01
(0.01)
–
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
FRS
FRS
FRS
1.00
1,000,000
1,000,000.00
(1,000,000) (1,000,000.00)
20,000
20,000.00
20,000
20,000.00
500,000
100.00
500,000
100.00
% interest
held
Number of
shares or
interests in
capital owned
Cost
(in euros)
Pro rata
interest in
Stockholders’
equity
(in euros)
Stockholders’
equity in latest
approved
financial
statements
(in euros)
Impairment
losses
Carrying value
at 12/31/04
(in euros)
(in euros)
Earnings in
latest
approved
financial
statements
(in euros)
100.000
100.000
15,102,906
1
44,616,601
44,616,601
44,616,601
17,475,635
17,475,635
(444,087)
100.000
13,622,983
100.000
1
222,973,803
202,000,000
1
424,973,804
424,973,804
235,222,036
235,222,036
25,253,515
99.999
0.001
100.000
2,499,994
6
2,500,000
185,435,892
107
185,435,999
185,435,999
76,902,883
76,902,883
(17,668,192)
100.000
100.000
9,100,000
1
49,699,758
49,699,758
49,699,758
27,303,542
27,303,542
(11,206,264)
100.000
10,129,000
9,527,450
100.000
10,129,000
9,527,450
1,988,809
1,988,809
1,988,809
(825,124)
86.423
4,137,664
86.423
2,151,586
2,136,925
1
2,136,926
2,136,926
2,654,793
2,294,364
50,374
100.000
(100.000)
–
10,000
(10,000)
–
114
(114)
–
114
(114)
–
–
–
–
–
100.000
(100.000)
1
(1)
1,590,608
(1,590,608)
100.000
1
2,000,000
(2,000,000)
51,143
(51,143)
20,000
1,378,857
100.000
1
1,398,857
1,359,245
1,359,245
39,612
39,612
39,612
(1,819,780)
100.000
5,000
57,000
100.000
5,000
57,000
57,000
57,000
–
546,440(1)
546,440(1)
202,604(1)
717,846,395
8,954,886
708,891,509
6,713,517
825,124
7,538,641
131
Other Equity Investments and Interests in Consortia
Company
Head office
ISTITUTO EUROPEO DI ONCOLOGIA S.r.l. Milan
Balance at 1/2/04
Utilization of capital to cover losses
Balance at 12/31/04
TOTAL OTHER EQUITY INVESTMENTS
AND INTERESTS IN CONSORTIA
TOTAL EQUITY INVESTMENTS
AT 12/31/2004
132
Curr.
EUR
EUR
EUR
EUR
Par value per
share or
interest in
capital
Capital
stock
106,500,000 1,562,307.00
(49,194,618) (721,663.00)
57,305,382
840,644.00
–
–
–
–
Number of
shares or
interests in
capital owned
% interest
held
Cost
(in euros)
1.467
1
1.466
Impairment
losses
Carrying value
at 12/31/04
(in euros)
(in euros)
1
1,602,141
(761,497)
840,644
840,644
–
–
840,644
840,644
–
–
718,687,039
8,954,886
709,732,153
133
Stockholders’
equity in latest
approved
financial
statements
(in euros)
Pro rata
interest in
Stockholders’
equity
(in euros)
Earnings in
latest
approved
financial
statements
(in euros)
C.
CURRENT ASSETS
C.II. Accounts receivable
At 2,934,000 euros, accounts receivable were 1,093,000
euros higher than at January 2, 2004.
Balance at
1/2/04
C.II.1. Trade accounts receivable
a. due within one year
C.II.2. Accounts receivable from subsidiaries
a. due within one year
C.II.4.bis Tax credits
a. due within one year
C.II.5. Accounts receivable from outsiders
a. due within one year
Total
1,841
Change in
2004
–
1,841
Due after
five years
Balance at
12/31/04
1,183
1,183
128
128
2
2
220
1,621
1,093
2,934
(in thousands of euros)
No receivable was assigned to outsiders (with or without
recourse) in 2004.
C.II.1.a. Trade accounts receivable due within one year
This account, which had a balance of 1,183,000 euros,
did not exist at the beginning of the year. It includes
outstanding receivables for services billed to SNIA
S.p.A., mainly for temporary administrative support
(74,000 euros at December 31, 2004), and royalties
receivable.
C.II.2.a. Accounts receivable from subsidiaries due
within one year
This account, which had a balance of 128,000 euros, did
not exist at the beginning of the year.
The table below shows the exposure of each
subsidiary:
12/31/04
• Carbomedics Inc.
• Cobe Cardiovascular Inc.
• Dideco S.r.l.
• Ela Medical Inc.
• Ela Medical Nordic A/S
• Sorin Biomedica
Cardio S.r.l.
• Sorin Group Canada Inc.
• Sorin Group
Finland OY
• Stöckert Instr. GmbH
Total
1/2/04
44
11
17
1
17
–
–
–
–
–
5
9
–
–
19
5
–
–
128
–
(in thousands of euros)
C.II.4.bis.a. Tax credits
This account, which had a balance of 2,000 euros, did
not exist at the beginning of the year. It represents
credits for income tax withheld on interest income.
134
C.II.5.a. Accounts receivable from outsiders due within
one year
These receivables totaled 1,621,000 euros, or 220,000
euros less than at January 2, 2004. They consist mainly
of ascertained foreign exchange gains on hedges
(1,479,000 euros).
C.III. Financial assets not held as fixed assets
43,163
• Dideco S.r.l.
5,300
82,974
1,117
550
192,622
–
41,975
11,182
5,324
41
–
–
179,894
251,102
• Sorin Biomedica
Cardio S.r.l.
• Sorin Group
France S.a.s.
• Sorin LifeWatch S.r.l.
Total
- Interest earned
on loans
2 +
2,083
12/31/04
•
C.IV. Liquid assets
Liquid assets consist of temporary cash balances with
banks generated as part of the Company’s cash
management process, which amounted to 2,243,000
euros (zero balance at January 2, 2004). This account
also includes cash on hand of 10,000 euros, unchanged
since the beginning of the year.
34
–1,251
830
–1,219
864
•
Financial prepaid
expenses:
- Fees paid on loans
146
–
106
40
904
–
394
510
1,824 –1,811
– +
55
1,600 –1,468
13
55
132
4,474
–3,724
750
6,557
–4,943
1,614
- Foreign exchange
losses on hedging
transactions
Other prepaid
expenses:
- Outside services
- Insurance premiums
- Seniority bonuses
Total accrued income
and prepaid expenses
(in thousands of euros)
(in thousands of euros)
32
Prepaid expenses
46,748
135
Change
Financial accrued
income:
- Derivative premiums
receivable on hedging
transactions
2,081
1/2/04
• Bellco S.r.l.
• Ela Medical S.r.l.
1/2/04
•
It consists exclusively of receivables owed by
subsidiaries for the current accounts that they maintain
with the Parent Company under the Group’s centralized
cash management system and loan accounts. The table
below shows the exposure of each subsidiary.
• Biofin Holding
International N.V.
The table below provides a breakdown of this account,
which totaled 1,614,000 euros, or 4,943,000 euros less
than at January 2, 2004:
Accrued income
C.III.7. Other financial assets
At 179,894,000 euros, other financial assets were
71,208,000 euros less than at January 2, 2004.
12/31/04
D. Accrued income and prepaid expenses
Liabilities and Stockholders’
Equity
A.
STOCKHOLDERS’ EQUITY
A.IV. Statutory reserve
The statutory reserve amounted to 62,473,000 euros,
unchanged from January 2, 2004.
A.VII. Other reserves
A.I. Capital stock
The fully paid-in capital stock amounted to
354,070,392.00 euros. It consisted of 354,070,392
shares, par value 1.00 euro each.
On June 30, 2004, the Stockholders' Meeting voted to
increase the capital stock by an amount that may not
exceed 10,600,000,00 euros, through the issuance of
common shares, par value 1.00 euro each, reserved for
the exercise of options granted to Company Directors
and executives.
Options may be exercised to purchase capital stock
through subscription until June 30, 2009.
A.II. Additional paid-in capital
Additional paid-in capital totaled 110,914,000 euros,
unchanged from January 2, 2004.
A.III. Reserves for asset revaluations
At 20,990,000 euros, these reserves showed no change
compared with January 2, 2004.
They include the reserve for inflation adjustments
pursuant to Law No. 72 of 3/19/83 (20,146,000 euros)
and the reserve for inflation adjustments pursuant to
Law No. 413 of 12/301/91 (844,000 euros).
136
Other reserves, which totaled 23,635,000 euros, include
the following:
A.VII.9. Reserve for reinvested capital gains
This reserve had a balance of 19,697,000 euros,
unchanged from January 2, 2004.
It reflects gains set aside in previous years by SNIA
S.p.A. in accordance with Article 1 of Law No. 169/83.
A.VII.13. Earnings reserve
The balance of 3,938,000 euros is unchanged from
January 2, 2004, when the Company was established.
The following schedule provides a breakdown of the
components of stockholders’ equity and shows the
changes that occurred in 2004.
Statement of Changes to the Components of Stockholders’ Equity
Capital
stock
Balance
at 1/2/04
Net income (loss)
for the year
Balance in the
2004 annual
fin. statements
Additional Reserves
paid-in
for asset
capital
revaluations
354,070 110,914
354,070 110,914
20,990
20,990
Statutory
reserve
62,473
62,473
Other reserves
Earnings
Reserve
reserve
for
reinvested
capital
gains
19,697
19,697
3,938
3,938
Stockholders’
equity
Net
income
(loss)
–
572,082
(31,825)
(31,825)
(31,825)
540,257
(in thousands of euros)
Origin of the Components of Stockholders’ Equity and Amounts
That Are Distributable or Available
Total
amount
Capital stock
Amount
Amount available
distributable to cover losses
to
and/or for
stockholders stock dividends
354,070
Equity reserves:
- Additional paid-in capital
- Reserves for asset revaluations
- Statutory reserve
110,914
20,990
57,876
Earnings-based reserves:
- Statutory reserve
- Reserve for reinvested capital gains
- Earnings reserve
4,597
19,697
3,938
Net income (loss) for the year
(31,825)
Total
540,257
(in thousands of euros)
137
102,573
19,697
3,938
110,914
20,990
57,876
4,597
19,697
3,938
B.
RESERVES FOR RISKS AND CHARGES
C.
RESERVE FOR EMPLOYEE
SEVERANCE INDEMNITIES
B.3. Other reserves for risks and charges
This reserve increased to 26,060,000 euros, or
23,060,000 euros more than at January 2, 2004, as the
net result of the following items: a provision for future
Group restructuring costs (24,700,000 euros), a
provision booked to reflect the pro rata interest in the
negative stockholders’ equity of Sorin Group
International S.A. (180,000 euros), a utilization to cover
the losses incurred by Sorin LifeWatch S.r.l. (461,000
euros) and a reclassification of the loss stemming from
the impaired value of the equity investment held in Sorin
LifeWatch S.r.l. (1,359,000 euros).
At 1,371,000 euros, this reserve was higher by 162,000
euros, compared with January 2, 2004, due to the
following changes:
Balance at 1/2/04
Increases for:
• Provision for the period
• Transfers of employees and changes in employee qualification
Decreases for:
• Disbursements of indemnities
• Transfers of employees, changes in employee qualification,
advances and transfers to qualified pension funds
Balance at 12/31/04
(in thousands of euros)
138
Executives
Managers
and office
staff
650
559
1,209
304
36
85
36
389
72
(27)
(50)
(77)
(179)
(43)
(222)
784
587
1,371
Total
D.
LIABILITIES
The table below provides a breakdown of the
Company’s liabilities, none of which is
collateralized.
Balance at
1/2/04
Due to banks
a. due within one year
b. due after one year
D.7. Trade accounts payable
a. due within one year
D.9. Accounts payable to subsidiaries
a. due within one year
D.12. Taxes payable
a. due within one year
D.13. Contributions to pension and
social security institutions
a. due within one year
D.14. Other liabilities
a. due within one year
Change
in 2004
Balance at
12/31/04
D.4.
61,047
93,885
+
2,623
2,684
32,145
+
9,410
41,555
+
794
794
+
312
312
–
944
1,844
+140,197
330,123
189,926
(in thousands of euros)
139
34,515
248,419
61
2,788
Total
– 26,532
+154,534
Due after
five years
D.4.a. Due to banks – amount due within one year
This account, which had a balance of 34,515,000 euros,
or 26,532,000 euros less than at January 2, 2004,
includes the following: 2,167,000 euros in checking
account overdrafts, 23,000,000 euros in other shortterm bank transactions (hot money), 3,763,000 euros in
recognized foreign exchange losses on foreign
exchange rate hedges, 585,000 euros owed to
Mediobanca as a lump-sum indemnity and 5,000,000
euros representing the current portion of the mediumand long-term financing facilities listed in the table
below:
Loan
maturity
date
MB Finstrutture
MB Finstrutture
Mediobanca
BNP Paribas
Total
5/10/05
5/10/05
3/18/06
7/1/08
Repayment
mode
Semiann.
Semiann.
Semiann.
Semiann.
%
interest
rates
(*)
Balance
at 1/2/04
2.835(1) 20,658,276
1.850(1) 12,826,603
2.744(1) 18,307,143
3.858
51,792,022
Amount
due in
2005
5,000,000
Repayments
Early
repayments
Shortterm
portion of
principal
owed at
12/31/04
(10,329,138) (10,329,138)
(6,413,301) (6,413,302)
(18,307,143)
–
–
–
5,000,000
5,000,000 (16,742,439) (35,049,583) 5,000,000
(in euros)
(*) Variable interest rates.
(1) Interest rates in force at December 31, 2003.
On May 13, 2004, the Company and Mediobanca signed
an agreement covering the issuance of syndicated
medium- and long-term loans in the amount of 140
million euros.
Concurrently with this transaction, SORIN rescheduled
the balances due after December 31, 2004 of the loans
that were outstanding at May 13, 2004 (93,885,000
euros) and repaid all of the installments that were due on
or before December 31, 2004. On August 2, 2004, the
Company signed a contract with BNP Paribas for
medium- and long-term financing in the amount of
20,000,000 euros.
Pursuant to one of the covenants of the loan agreements,
the syndicated loan must be repaid in advance before the
Company is allowed to distribute dividends of any
amount for the 2004 and 2005 fiscal years and dividends
amounting to more than one-third of net income for the
140
2006, 2007 and 2008 fiscal years. Moreover, no dividend
may be distributed between the 2006 and 2008 fiscal
years if the Company’s indebtedness exceeds a ceiling
specified in the abovementioned agreements, unless the
abovementioned syndicated loan is repaid in advance.
As of June 30, 2004, SORIN was not in compliance with
one of the financial ratios set forth in the covenants of
the loan agreements. Under an agreement with
Mediobanca, the first usable date to verify compliance
with this ratio has been shifted to June 30, 2005. As part
of the agreement, the Company will pay Mediobanca a
lump sum indemnity of 585,000 euros.
At December 31, 2004, the Company was not in
compliance with the covenants of the BNP Paribas loan.
The Company is currently in negotiations with the
lender bank to determine the amount of the applicable
waiver fee, which is not expected to be significant.
D.4.b. Due to banks – amount due after one year
This account, which had a balance of 248,419,000 euros,
includes 155,000,000 euros representing the mediumand long-term portions of the abovementioned loans,
which were received on May 13, 2004 and August 2,
2004, and borrowings of 93,419,000 euros assumed
upon demerger, which refer to the Cobe Cardiovascular
and ELA Medical acquisitions.
Lender bank
Loan
maturity
date
Repayment
%
Medium- and
mode
inter- long-term
est
principal
rates outstanding
(*)
at 1/2/04
New
borrowings
Install.
due in
2005
reclass.
as shortterm
Diff. due
to valuation at
year-end
exchange
rates
Mediumand longterm
principal
outstanding at
12/31/04
Mediobanca (1)
Mediobanca (1)
Mediobanca
Mediobanca
BNP Paribas
Total
5/10/07
5/10/07
9/19/07
10/9/09
7/1/08
Semiann.
Semiann.
Semiann.
Semiann.
Semiann.
3.436 10,329,138
(2)
3.650 6,413,302
3.375 77,142,857
3.914
140,000,000
3.858
20,000,000 (5,000,000)
93,885,297
160,000,000
(5,000,000)
(466,602)
10,329,138
(2)
5,946,700
77,142,857
140,000,000
15,000,000
(466,602) 248,418,695
(in euros)
(*) Variable interest rates.
(1) Contracts originally executed with MB Finstrutture.
(2) Financing in U.S. dollars, converted at the exchange rates in force on 12/31/03 and 12/31/04, respectively. The corresponding
amount converted at the historical rate is 8,992,000 euros.
141
D.7.a. Trade accounts payable due within one year
These payables totaled 2,684,000 euros. They stem
primarily from the receipt of services.
D.9.a. Accounts payable to subsidiaries due within one
year
The balance of 41,555,000 euros is higher by 9,410,000
euros, compared with January 2, 2004.
It consists mainly of amounts owed to subsidiaries for
the current accounts that they maintain with the Parent
Company under the Group’s centralized cash
management system.
A breakdown of the indebtedness owed to each
subsidiary is provided below:
12/31/04
Trade
Financial
payables
payables
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Cobe Cardiovascular Inc.
Dideco Cobe Cardiovascular France S.A.
Sorin Group Scandinavia AB
Ela Medical S.A.S. (F)
Ela Medical S.r.l.
Ela SP S.r.l. in liquidation
Sorin Group Belgium S.A.
Sorin Biomedica C.R.M. S.r.l.
Sorin Group Finland OY
Sorin Group Nederland N.V.
Sorin Biomedica France S.A.
Sorin Biomedica S.r.l.
Sorin LifeWatch S.r.l.
Stöckert Instrumente GmbH
Subtotal
Total
24,748
702
448
5,622
–
–
2
3,211
398
202
1,063
951
–
4,045
110
41,392
163
41,555
(in thousands of euros)
142
53
1/2/04
Financial
Trade
payables
payables
22,942
943
405
–
932
10
11
3,801
317
–
777
1,404
593
10
32,145
32,145
D.12.a. Taxes payable due within one year
The balance of 794,000 euros (nothing was owed at
January 2, 2004) reflects the liability for taxes withheld
(419,000 euros) and VAT payable (375,000 euros).
D.13.a. Contributions to pension and social security
institutions due within one year
The balance of 312,000 euros (nothing was owed at
January 2, 2004) reflects primarily amounts owed to
Italian social security institutions (I.N.P.S., F.I.S.D.A.F.
and FONCHIM).
D.14.a. Other liabilities due within one year
This item decreased to 1,844,000 euros, or 944,000
euros less than at January 2, 2004.
It reflects primarily the Company’s liability for seniority
bonuses.
E. ACCRUED EXPENSES AND DEFERRED
INCOME
As shown below, the balance of 5,692,000 euros is
1,170,000 euros higher than at January 2, 2004:
1/2/04
Change
12/31/04
Accrued expenses
•
Financial accrued
expenses:
- Interest on loans
•
262 + 1,250
- Derivative premiums
payable on hedging
transactions
295
131
164
696 + 1,277
1,973
1,253 + 2,396
3,649
3,269
– 1,226
2,043
3,269
– 1,226
2,043
4,522 + 1,170
5,692
Other accrued
expenses:
- Vacation pay and
bonuses owed to
employees and
related benefits
–
1,512
Deferred income
•
Financial deferred
income:
- Foreign exchange
gains on hedging
transactions
Total accrued expenses
and deferred income
(in thousands of euros)
143
Memorandum Accounts
12/31/04
Guarantees provided
• Guarantees and sureties provided
to outsiders on behalf
of subsidiaries
• Guarantees and sureties provided
to outsiders
Other memorandum accounts
• Sureties and guarantees
received from subsidiaries
• Off-balance-sheet
financial instruments
- Interest rate swaps executed
to hedge the risk of
fluctuations in interest rates
- Currency swaps and forward
foreign exchange contracts
that hedge foreign
exchange risks:
· bought from subsidiaries
· sold to subsidiaries
· bought from outsiders
· sold to outsiders
- Currency swaps and forward
foreign exchange contracts
that hedge asset impairment
risks:
· sold to outsiders
1/2/04
22,170
–
5,002
2,336
41,386
56,622
11,969
22,170
(in thousands of euros)
144
1,528
13,497
8,695
10,817
97,703
148,794
–
1,737
54,374
47,413
105,346
36,417
Total
22,170
13,497
103,524
248,161
263,135
270,331
276,632
GUARANTEES PROVIDED
OTHER MEMORANDUM ACCOUNTS
Guarantees and sureties provided to outsiders on
behalf of subsidiaries
They refer to:
• Sorin Biomedica Cardio S.r.l. (7,166,000 euros), Sorin
Biomedica CRM S.r.l. (1,201,000 euros) and Bellco
S.r.l. (328,000 euros) for a total of 8,695,000 euros.
These guarantees were provided to the Milan VAT
Office. The full amount is secured by sureties
provided by the companies involved.
• Cobe Cardiovascular Inc. (2,569,000 euros) provided
to Banca Nazionale del Lavoro to secure checking
account overdraft facilities.
• Sorin LifeWatch S.r.l. (106,000 euros). This guarantee
was provided to Franfinance SA to secure an
equipment lease
• Dideco S.r.l. (5,000,000 euros) provided to Banca
Popolare di Vicenza to secure checking account
overdraft facilities.
• Sorin Biomedica Cardio S.r.l. (4,300,000 euros)
provided to the European Regional Bank to secure a
loan.
• Sorin Biomedica S.r.l. (1,500,000 euros) provided to
the European Regional Bank to secure a loan.
145
Off-balance-sheet financial instruments
Interest rate swaps executed to hedge the risk of
fluctuations in interest rates
This item refers to transactions executed with outsiders
to hedge medium-term interest rate risks related to the
indebtedness of SORIN S.p.A.
Currency swaps and forward foreign exchange
contracts that hedge foreign exchange risks
This item refers to buy and sell transactions in
currencies other than the euro executed with credit
institutions in connection with buy and sell contracts
with credit institutions; forward purchases of U.S.
dollars to hedge medium-term indebtedness of SORIN
S.p.A.; and forward transactions with outsiders on behalf
of Group companies executed by SORIN S.p.A. to set
fixed annual exchange rates for the U.S. dollar, the
British pound and the Japanese yen.
Currency swaps and forward foreign exchange
contracts that hedge asset impairment risks
These contracts were executed on December 30, 2004
(value date January 3, 2005 and maturity on December
30, 2005) for a total amount of US$ 50,000,000 to hedge
in part the risk of foreign exchange fluctuations with
regard to the value of the stockholders’ equity of
subsidiaries whose reporting currency is the U.S. dollar.
Statement of Income
A.
PRODUCTION VALUE
8,931,000 euros
A.1. Sales and service revenues
A breakdown of sales and service revenues is as follows:
Other revenues from subsidiaries refer primarily to the
following companies:
• Carbomedics Inc.
• Cobe Cardiovascular Inc.
• Dideco S.r.l.
• Ela Medical S.A.S.
12/31/04
• Revenues from outsiders
• Revenues from subsidiaries
Total
• Sorin Biomedica Cardio S.r.l.
• Stöckert Instrumente GmbH
144
6,864
• Sorin Group Finland OY
• Sorin Group Scandinavia AB
7,008
(in thousands of euros)
(in thousands of euros)
Revenues from outsiders refer to services provided to
SNIA S.p.A., which consist mainly of temporary
administrative support.
Revenues from subsidiaries refer primarily to services
provided in the areas of finance, law, taxation, corporate
affairs and development of human resources.
The main companies with which these transactions are
executed are listed below:
• Bellco S.r.l.
• Dideco S.r.l.
• Ela Medical S.A.S.
• Sorin Biomedica Cardio S.r.l.
889
3,218
1,271
1,303
(in thousands of euros)
A.5. Other revenues and income
The main components of this item are: royalties; gains on
disposals of property, plant and equipment; amounts rebilled
for miscellaneous charges; and out-of-period income.
A breakdown is as follows:
12/31/04
• Other revenues from outsiders
• Other revenues from subsidiaries
Total
83
71
156
51
142
31
44
34
1,246
677
1,923
(in thousands of euros)
Other revenues from outsiders includes 10,000 euros for
recoveries of miscellaneous expenses incurred on behalf
of SNIA S.p.A.
146
B.
COST OF PRODUCTION
(21,154,000) euros
B.6. Raw materials, auxiliaries and supplies
Raw materials, auxiliaries and supplies valued at
155,000 euros were purchased mainly from external
suppliers.
B.7. Outside services
A breakdown of outside services, which totaled
7,456,000 euros, is as follows:
12/31/04
• Services purchased from outsiders
• Services purchased from subsidiaries
Total
6,856
600
7,456
(in thousands of euros)
Services purchased from outsiders consist mainly of
professional services provided by companies or
individuals, insurance premiums, travel expenses,
postage and telephone costs, stock listing fees and fees
for other securities-related services, IT service costs and
the accrued portion of the fees payable to Directors,
Statutory Auditors and independent auditors.
Services from subsidiaries were provided mainly by:
• Cobe Cardiosvascular Inc.
• Sorin Biomedica S.r.l.
(in thousands of euros)
465
105
Service costs include fees payable to Directors and
Statutory Auditors. A breakdown of these fees is
provided below:
At December 31, 2004, the Company had 51 employees,
compared with 39 employees at January 2, 2004.
12/31/04
12/31/04
• Fees payable to Directors
• Fees payable to Statutory Auditors
Total
1,063
148
1,211
• Executives
• Middle managers
• Office staff
Total
1/2/04
23
9
19
14
6
19
51
39
(in thousands of euros)
B.8. Use of property not owned
The balance of 1,766,000 euros includes the following:
B.14. Miscellaneous operating costs
Miscellaneous operating costs totaled 704,000 euros,
broken down as follows:
12/31/04
• Lease payments, licenses
and photocopier costs
• Rent
• Hardware maintenance and
IT support costs
Total
105
1,613
48
1,766
(in thousands of euros)
The main rent item is the amount paid to SNIA S.p.A.
(1,570,000 euros) for the Company's headquarters at 14
Via Borgonuovo, in Milan.
B.9. Personnel costs
Personnel costs totaled 9,206,000 euros. A breakdown of
the Company’s workforce is as follows:
Average number of employees
12/31/04
• Executives
• Middle managers
• Office staff
20
8
20
Total
48
147
12/31/04
• Entertainment expenses
• Memberships in industry associations
and sundry charges
• Books, magazines, newspapers
and subscriptions
• Costs of Stockholders’ Meetings
and financial reporting costs
• Tax-related charges
• Sundry costs
Total
129
146
85
149
17
178
704
(in thousands of euros)
The main component of sundry costs is nondeductible
VAT.
C.
FINANCIAL INCOME AND EXPENSE
The main components of this item are reviewed below.
C.15. Income from equity investments
Income of 13,623,000 euros reflects exclusively the
dividend distributed by the subsidiary Dideco S.r.l.
C.16. Other financial income
A breakdown by source of other financial income is as
follows:
12/31/04
• Income from outsiders
• Income from subsidiaries
Total
1,189
7,608
8,797
(in thousands of euros)
Income from outsiders consist mainly of premiums
earned on transactions executed to hedge foreign
exchange risks.
Income from subsidiaries is derived from loans provided
at market rates and transactions executed to hedge
foreign exchange risks.
The largest amounts were received from the following
subsidiaries:
• Bellco S.r.l.
• Dideco S.r.l.
• Sorin Biomedica Cardio S.r.l.
1,620
4,985
844
• Interest on bank borrowings
• Other financial expense
Total
12/31/04
14,538
340
14,878
(in thousands of euros)
148
8,857
5,681
14,538
(in thousands of euros)
Interest paid on bank borrowings include 182,000 euros
in interest paid on checking account overdrafts and
8,675,000 euros in interest paid on bank loans
(7,159,000 euros on medium- and long-term loans).
Other financial expense includes 4,210,000 euros to
hedge fluctuations in foreign exchange rates, 523,000
euros to hedge fluctuations in interest rates, 363,000
euros in bank charges and fees and 585,000 euros paid
to Mediobanca as a lump sum indemnity for the
Company’s failure to comply, as of June 30, 2004, with
the financial ratios set forth in the covenants of a loan
agreement executed on May 13, 2004.
Interest and other financial expense paid to subsidiaries
includes interest paid on loans and premiums paid on
transactions executed to hedge foreign exchange risks.
The largest amounts were paid to the following
subsidiaries:
• Cobe Cardiovascular Inc.
• Sorin Biomedica S.r.l.
(in thousands of euros)
C.17. Interest and other financial expense
A breakdown is as follows:
Total
12/31/04
• Dideco S.r.l.
(in thousands of euros)
• Paid to outsiders
• Paid to subsidiaries
A breakdown of interest and other financial expense paid
to outsiders is as follows:
172
29
34
C.17.bis Foreign exchange gains (losses)
A breakdown of this item is as follows:
E.
12/31/04
• Foreign exchange gains from
transactions with subsidiaries
• Foreign exchange gains from
transactions with outsiders
• Foreign exchange losses from
transactions with subsidiaries
• Foreign exchange losses from
transactions with outsiders
Total
- Breakdown: realized gains
ascertained losses
3,204
10,638
(2,147)
(12,034)
(339)
36
(375)
(in thousands of euros)
Foreign exchange differences arise from hedging
transactions executed on behalf of Group companies to
set fixed annual exchange rates and from the conversion
at year-end exchange rates of medium- and long-term
indebtedness in U.S. dollars.
D.
VALUE ADJUSTMENTS ON FINANCIAL
ASSETS
D.19. Writedowns
Writedowns of 1,824,000 euros include 761,000 euros
charged off to recognize the losses incurred by Istituto
Europeo di Oncologia S.r.l.; 883,000 euros booked to
reflect impairment of the carrying value of the
investments in Sorin Group International S.A. (57,000
euros) and Biofin Holding International S.A. (826,000
euros); and 180,000 euros added to the reserves for risks
and charges to reflect the interest in the negative
stockholders’ equity of Sorin Group International S.A.
149
EXTRAORDINARY INCOME AND EXPENSE
E.21.c. Other extraordinary expense
The balance of 24,982,000 euros reflects primarily
provisions booked in anticipation of future Group
restructuring charges (24,700,000 euros).
INCOME TAXES
As explained in the section of the Report on Operations
entitled Transactions Among Group Companies and with
Related Parties, in December 2004, SORIN S.p.A., in its
capacity as a subsidiary, was included in the
consolidated national tax return filed by BIOS S.p.A., in
its capacity as the controlling company.
In 2004, the Company recognized neither a liability for
current taxes, since it did not earn taxable income, nor
tax assets generated as a result of its inclusion in the
consolidated national tax return filed by BIOS S.p.A.,
since the underlying benefits were not clearly definable
and, in any case, did not involve a material amount.
Deferred taxes of 17,364,000 euros attributable to
temporary differences arising from reserves the taxation
of which has been suspended and for which there are no
plans to use them in a manner that would render them
taxable were not recognized. The same treatment was
applied to deferred taxes of 3,470,000 euros attributable
to other temporary differences the future taxation of
which is unlikely.
Lastly, deferred-tax assets that were not recognized
absent a reasonable expectation of future recovery
include 10,130,000 euros stemming from temporary
differences and 22,820,000 euros arising from tax loss
carryforwards.
Other Information
Statement of Cash Flow
2004
A. Net liquid assets (indebtedness) at January 2
B. Cash flow – Operating activities
Net income (loss) for the year:
Depreciation and amortization
(Gains) Losses on the disposal of fixed assets
Revaluations (Writedowns) of fixed assets
Change in working capital (1)
Net change in reserve for employee severance indemnities
209,556
(31,825)
1,867
(13)
1,644
32,247
162
4,082
C. Cash flow – Investing activities
Investments in fixed assets:
• Intangibles
• Property, plant and equipment
• Financial fixed assets
Proceeds from the sale or redemption of fixed assets
(6,785)
(834)
(203,507)
230
(210,896)
D. Cash flow – Financing activities
New borrowings
Loan repayments
Valuation at year-end exchange rates of indebtedness denominated in foreign currencies
160,000
(51,791)
(467)
107,742
E. Net cash flow for the period (B+C+D)
(99,072)
F. Net liquid assets (indebtedness) at December 31 (A+E)
(in thousands of euros)
Note: Net liquid assets (indebtedness) do not include the current portion of long-term debt.
(1) Before reclassification from the reserve for miscellaneous risks to the equity investments account.
150
110,484
Appendix to the Statement of Cash Flow
2004
Net liquid assets (indebtedness) at December 31
as per the statement of cash flow (Total line F)
110,484
Long-term debt
Balance at January 2
(145,677)
Changes:
• New borrowings
• Loan repayments
• Valuation at year-end exchange rates of indebtedness denominated in foreign currencies
(160,000)
51,791
467
(107,742)
Balance at December 31
(253,419)
Net liquid assets (indebtedness) at December 31
(in thousands of euros)
151
(142,935)
Compensation Paid to Directors, Statutory Auditors
and Senior Executives
First and last name
Post held
Description of post held
Term of office
Umberto Rosa
Chairman
Emilio Gnutti
Deputy Chairman
Drago Cerchiari
Chief Executive
Officer
Leonardo Bossini
Director
Carlo Callieri
Director
Giorgio Cirla
Director
Umberto Colombo
Director
Giovanni Consorte
Director
Maurizio Dallocchio Director
Mauro Gambaro
Tiberio Lonati
Director
Director
Marco Vitale
Director
Marco Spadacini
Chairman Board
Statutory Auditors
Luigi Martino
Raoul Francesco
Vitulo
Statutory Auditor
Statutory Auditor
Until approval of financial
statements at 12/31/06
Compensation
CompenNonBonuses
Other
sation for monetary and other compenpost held benefits incentives sation
Until approval of financial
statements at 12/31/06
360
Until approval of financial
statements at 12/31/06
367
Until approval of financial
statements at 12/31/06
22
From 1/2/04 to 11/22/04
30
From 1/2/04 to 12/31/04
22
Until approval of financial
statements at 12/31/06
14
Until approval of financial
statements at 12/31/06
62
Until approval of financial
statements at 12/31/06
31
Until approval of financial
statements at 12/31/06
14
Until approval of financial
statements at 12/31/06
22
Until approval of financial
statements at 12/31/06
13
Until approval of financial
statements at 12/31/06
22
Until approval of financial
statements at 12/31/06
30
Until approval of financial
statements at 12/31/06
41
4
92
717 (1)
43 (2)
41
(in thousands of euros)
Note: The list does not include a Director, whose fee, amounting to 14,000 euros, was paid directly to the company that employs
him.
(1)
(2)
Includes compensation for work performed as an employee.
Compensation received for services as Chairman of the Board of Statutory Auditors of Dideco S.r.l.
152
Stock Options Awarded to Directors and Senior Executives
First and Post
last
held
name
Umberto
Rosa
Drago
Cerchiari
Options held
Options awarded
Options exercised
Options
Options held
at the beginning
during
during
expired
at the end
of the year
the year
the year
in 2004
of the year
Number Average Aver. Number Average Aver. Number Average Average Number Number Average Aver.
of exercise expiraof exercise expiraof exercise market
of
of exercise expiraoptions price
tion options price price
options options price
tion
tion options price
Chairman
1,000,000
2.345
6/30/09
1,000,000
2.345
6/30/09
Chief Exec.
Officer
1,600,000
2.345
6/30/09
1,600,000
2.345
6/30/09
The 2004 financial statements that are being submitted
to the Stockholders’ Meeting for approval have been
audited by Reconta Ernst & Young S.p.A. in accordance
with the assignment it received on June 26, 2003 by the
Stockholders’ Meeting that approved the proposal of
partial, proportional demerger of SNIA S.p.A.
The auditing fees for 2004 are as follows: 37,600 euros
to audit the Semiannual Report (limited audit) and
annual financial statements of SORIN S.p.A.; 58,600
euros to audit the consolidated financial statements;
225,000 euros to audit the Italian subsidiaries, and
803,000 euros to audit the foreign subsidiaries, based on
the exchange rates at December 31, 2004. (1)
(1) Includes 16,700 euros payable by SORIN S.p.A. for fees
related to a summary review of the financial statements of
certain foreign companies included in the consolidated
financial statements.
Milan, March 31, 2005
Umberto Rosa
Chairman
Drago Cerchiari
Chief Executive Officer
153
Report of the Board of Statutory
Auditors to the Stockholders’
Meeting of SORIN S.p.A.
(pursuant to Article 153 of Legislative Decree No. 58/98 and Article 2429, Section 3, of the
Italian Civil Code)
Dear Stockholders:
The Board of Statutory Auditors carried out its oversight activity in accordance with the
provisions of Legislative Decree No. 58 of February 24, 1998 and with the guidelines of
the Code of Conduct for Boards of Statutory Auditors published by the Italian Board of
Certified Public Accountants and Bookkeepers. The activities we carried out and the results
we obtained are the subject of this report.
In 2004, the biomedical operations that SNIA divested through a demerger effective
January 2, 2004 operated as an independent company for the first time.
The Report of the Board of Directors provides information about the financial position,
operating performance and financial performance of the companies of the Group and about
the initiatives and programs that have been or are being implemented to ensure the
successful integration of all Group companies and, consequently, of your Company. In the
opinion of the Board of Statutory Auditors, the abovementioned information is important in
that it provides a more detailed picture of the Company’s current situation and outlook than
those that can be garnered from the data in the financial statements. This past November,
as part of its effort to carry out the integration process, your Board of Directors approved a
restructuring plan. The consolidated financial statements include a reserve of about 33
million euros that will be used to fund cash outlays, mainly in 2005.
The independent auditors Reconta Ernst & Young, which were awarded the auditing
assignments for 2004, 2005 and 2006, have rendered an unqualified opinion on the
statutory and consolidated financial statements.
The Board of Statutory Auditors met with the independent auditors for the purpose of
exchanging any information that either party may have acquired in the review process.
Overview and Results of the Oversight Activity
In accordance with the provisions of Article 149 of Legislative Decree No. 58/98, the
Board of Statutory Auditors organized its work with the goal of ensuring that:
The law and the Bylaws are being complied with;
Principles of sound management are being followed;
The organization is adequate;
The system of internal control is adequate;
All Group companies are receiving adequate instructions.
In 2004, the Board of Statutory Auditors attended eight meetings of the Board of Directors
and drew up minutes eight times, providing, in appropriate terms, information about the
control and oversight activity carried out.
154
Compliance with the Law and the Bylaws
By attending the meetings of the Board of Directors, gathering the necessary information
and carrying out the appropriate controls, the Board of Statutory Auditors was able to
ascertain that your Company is operating in accordance with the applicable laws and
regulations and its Bylaws. More specifically, Company employees monitor on an ongoing
basis compliance with the provisions that govern the operations of corporate governance
bodies and the Company’s activity, with the Company’s tax and social security contribution
requirements, and with the recommendations of the regulatory authorities. These
employees, who are skilled in the fields in which they operate, ensure proper compliance,
relying, when necessary, on the support of outside professionals who are specialists in the
relevant fields.
Respect for the Principles of Sound Management
At its meetings, the Board of Directors carefully analyzed and discussed in detail interim
reports on the Company’s performance, comparing actual results with plans, budgets and
updated forecasts, as well as all other relevant issues. The Chairman of the Board of Statutory
Auditors attended the meetings of the Compensation Committee, which comprises three
Directors without executive authority, and the Internal Control Committee, which comprises
three Directors without executive authority, two of whom are independent Directors. The
Compensation Committee met twice and the Internal Control Committee met three times.
The Board of Statutory Auditors is not aware of any management actions that were
manifestly imprudent, reckless or in contrast with the interests of the Company or its
stockholders.
The resolutions of the Board of Directors are implemented consistently by the Company’s
senior managers and the rest of the organization.
With regard to operational issues, the Board of Statutory Auditors obtained information,
reviewed useful material and organized meetings with operations managers, the
independent auditors and the Internal Control Officer. As a result, it was able to develop
direct understanding of the effectiveness and efficiency of the Company’s operations and
of the reliability and continuity of the management control tools used to ensure prompt
corrective action.
Your Company has established a centralized cash management system according to which
the subsidiaries perform the back office work and the Parent Company handles the
financial management. The Board of Statutory Auditors was able to ascertain that the
reduction of risks related to financial transactions, particularly those stemming from
fluctuations in interest rates and exchange rates, is a standard policy of the Company.
Controls carried out by the Statutory Auditors have shown that actual practice is consistent
with the standard policy discussed above.
Adequacy of the Organization
Insofar as the areas under its jurisdiction are concerned, the Board of Statutory Auditors
determined that the Company’s organization is adequate, considering the new configuration
that has been adopted, in which a conventional structure by business units is combined
with the assignment of management responsibilities by geographic region, with the goal of
coordinating and optimizing customer service.
The Board of Statutory Auditors reviewed organization charts, responsibility and authority
levels and the flow of instructions, evaluating the organization’s ability to establish adequate
155
strategic and management guidelines and carry out the necessary control of the Group’s
technical, technological, commercial, administrative and accounting operations.
The Board of Statutory Auditors ascertained that the departmental managers promptly and
reliably acquire useful and necessary information and respond by taking adequate and
effective measures. The procedures used for this purpose and the instructions given as part of
operational oversight are sufficient for the efficient performance of such activities. Delegations
of power and the resulting scope of authority are stated clearly and rationally.
The independent auditors did not raise any issues, either in minutes of meetings or in the
course of meetings, with regard to the administrative and accounting system, which they
reviewed to asses its effectiveness in representing fairly the results of the Company’s
operations, in order to ensure that the Company’s accounting records are updated promptly
and accurately, and to produce formal documents attesting to the Company’s compliance
with tax and social security contribution requirements.
Adequacy of the System of Internal Controls
The oversight work carried out with respect to the adequacy of the organization and the
Company’s compliance with the principles of sound management, coupled with discussions
with the independent auditors and representatives of the Finance and Control Department,
enabled the Board of Statutory Auditors to form a direct opinion about your Company’s
system of internal control and an indirect opinion about the corresponding systems of other
Group companies.
Insofar as your Company is concerned, the Board of Statutory Auditors directly ascertained
the existence of appropriate professional skills and of operating methods and guidelines that
are effective in ensuring compliance with instructions, protection of the corporate assets,
prompt action with regard to choices and decisions, and reliability of data and information.
Insofar as the other Group companies are concerned, the Board of Statutory Auditors
ascertained directly that: as explained later, instructions are given clearly and consistently;
senior managers of the individual companies assume responsibility for the data they
provide; and the interim elements, information and data supplied at regular intervals are
consistent. Obviously, given the current statutory constraints, the Board of Statutory
Auditors did not perform direct reviews of the other Group companies. However, it
established, together with the independent auditors, a method for the supply of information
that was followed consistently. The Board of Statutory Auditors also monitored the
Company’s internal auditing activities, which the Internal Control Committee laid out and
entrusted to a special Department, and relied on KPMG Audit S.r.l. for implementing
jointly planned activities. The Board of Statutory Auditors evaluated, on a regular basis, the
progress of the auditing plan and the findings that were developed.
Corporate Governance
In its Report on Operations, the Board of Directors reported on the Company’s system of
corporate governance, which is consistent with the Code of Conduct published by the
Committee for the Corporate Governance of Listed Companies.
Instructions Provided to Group Companies
The Board of Statutory Auditors acknowledges that your Company has developed a
comprehensive set of instructions for the other companies of the Group that define,
156
analytically and comprehensively, the criteria that must be followed to provide all required
information in a consistent manner. These instructions are constantly updated and include,
among other things, the guidelines that must be followed to provide the public with the
disclosure required pursuant to Article 114, Section One, of Legislative Decree No. 58/98.
Consolidated Tax Return
We verified that, starting in 2004, the Italian companies of the SORIN Group, which
include your Company, have been included as subsidiaries in the national consolidated tax
return filed by BIOS S.p.A. in its capacity as the controlling company and that each
company separately executed an appropriate agreement with the controlling company.
Oversight and Coordination
Your Company is not subject to the oversight and coordination of Bios S.p.A., since the
latter does not engage in actions that could be construed as entailing such activities nor
does it influence in any way your Company’s management strategy.
Statutory Financial Statements and Report on Operations
The Board of Directors provided us with the financial statements and the Report on
Operations on a timely basis.
The Board of Directors organized meetings with the independent auditors for the specific
purpose of obtaining information on the preparation of the financial statements. At these
meetings, based in part on the review that the independent auditors carried out for the
purpose of expressing their opinion, we were able to ascertain that the Company’s
information system is reliable, that the valuations reflected in the financial statements are
consistent with those of previous periods and that no questionable or irregular practices
were detected.
The independent auditors provided the Board of Statutory Auditors with their report, which
contains no qualifications. The Board of Statutory Auditors determined that: the
presentation of the financial statements is consistent with statutory requirements and
adequate for the Company’s operations; the accounting principles applied, which are
described in the notes to the financial statements, are appropriate for the Company’s
activities and operations; the financial statements are consistent with the facts and
information of which the Board of Statutory Auditors has become aware by attending
meetings of the Company’s corporate governance bodies and as a result of its oversight
activity.
The Report on Operations is exhaustive, complies with the requirements of Article 2428 of
the Italian Civil Code and provides all of the disclosures specifically recommended by the
Consob. It corresponds to and is consistent with the data and facts of the financial
statements and provides complete and clear information in a manner consistent with the
principles of truthfulness, fairness and clarity.
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Consolidated Financial Statements
Given the nature of your Company, we devoted special attention to the consolidated
financial statements, which are being provided to you for your information. In the course
of our meetings with the independent auditors, we reviewed a detailed list of the
companies included in the scope of the audit and obtained information about the different
levels of control. We also requested information about the existence of any weakness in the
instructions provided to Group companies and inconsistencies with the accounting
principles of the Parent Company. The independent auditors did not raise any objections.
Based on the opinion expressed by the independent auditors and the findings of the Board
of Statutory Auditors, the presentation of the consolidated financial statements is consistent
with the applicable statutory provisions.
Other Information
With regard to Consob Communications DEM/1025564 of April 6, 2001 and DEM/3021582
of April 4, 2003, insofar as the issues under our jurisdiction are concerned, we can attest to
the following:
1. At a Stockholders’ Meeting held on June 30, 2004, a stockholder raised a number of
objections with the Board of Statutory Auditors, including one pursuant to Article 2408
of the Italian Civil Code. The Board of Statutory Auditors, even though it determined
that the stockholder in question owned fewer shares than the number required under
Article 128 of Legislative Decree No. 58/98, carefully reviewed the objections that were
raised. The Board of Statutory Auditors found the specific complaint pursuant to Article
2408 of the Italian Civil Code, which had to do with the capital increase approved
despite allegations of subsequent reduction, as referred to in Article 2466 of the Italian
Civil Code, to be without merit. As to numerous other objections, the Board of Statutory
Auditors ascertained that the Company operated pursuant to law, was independent of the
demerged company SNIA S.p.A. and issued transparent market communications, and
that the objections raised were generally unfounded.
2. The Board of Statutory Auditors did not detect atypical or unusual transactions, as
defined by the Consob.
3. Intra-Group transactions are a product of the support that your Company provides to the
other Group companies in a number of areas, such as finance (including centralized
management of cash flows and execution of Group-wide agreements with credit
institutions), law, taxation, corporate services and personnel. The most significant intraGroup transactions, which are discussed in the Report on Operations, refer primarily to
a program that is being implemented to decrease the number of companies included in
the Group, in order to simplify the Group’s structure and reduce overhead.
4. The Report on Operations annexed to the consolidated financial statements provides a
comprehensive review of transactions with related parties. They include the transfer of
tax credits by the controlling company, Bios S.p.A., to your Company and to some of its
subsidiaries, and commercial transactions, all of which were executed on market terms.
Other transactions with related parties include the participation by Interbanca S.p.A. and
Unipol Banca S.p.A. in a medium- and long-term financing facility provided to your
Company by a bank syndicate headed by Mediobanca, and short-term financing
provided to your Company by Banca Monte dei Paschi di Siena S.p.A. All of these
banking transactions were executed on market terms.
158
In addition, on December 13, 2004, SNIA S.p.A. sold certain buildings in Saluggia
(VC) to Sorin Biomedica S.r.l. and Sorin Biomedica Cardio S.r.l. Both companies are
subsidiaries of your Company, which is controlled by Bios S.p.A., which also controls
SNIA S.p.A. Since these transactions were being executed by related parties, American
Appraisal Italia S.r.l. was retained to provide a valuation of the buildings and determine
the fairness of the sales terms. The Board of Statutory Auditors found this transaction to
be fair and in the Company’s interest.
5. The audit assignments entrusted to Reconta Ernst & Young S.p.A. included the audit of
the statutory financial statements, the consolidated financial statements and the
Semiannual Report, as well as these additional assignments:
–Opinion on the fairness of the share issue price in connection with a capital increase
reserved for the Company’s Directors, carried out in suspension of the preemptive
right of stockholders (35,000 euros);
– Professional support in connection with the adoption of the IAS that involved
diagnostics and planning (70,000 euros);
– Report on compliance with the consolidated financial ratios set forth in the loan
agreement with Mediobanca (10,000 euros);
– Professional support in connection with the adoption of the IAS that involved
development, execution and implementation (first downpayment: 84,000 euros);
– Support in connection with the study of tax issues provided by Ernst & Young (USA)
(US$ 47,500).
6. The need did not arise to make recommendations pursuant to Article 153, Section 2, of
Legislative Decree No. 58/98.
7. In the course of our oversight activity, we uncovered no omissions, objectionable facts
or irregularities that would warrant reporting them to the regulatory authorities or
mentioning them in this report.
Milan, May 2, 2005
The Board of Statutory Auditors
Marco Spadacini
Luigi Martino
Raoul Francesco Vitulo
159
Report of the Independent Auditors
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CONTENTS
Board of Directors, Board of Statutory Auditors, Independent Auditors
The SORIN Group
Consolidated Financial Highlights
Report on Operations
Operating Performance
Operating Performance and Financial Position of the
SORIN Group and SORIN S.p.A.
Net Revenues by Geographic Region
Research and Development
Human Resources and Industrial Relations
Transactions Among Group Companies and with Related Parties
Corporate Governance
Information About the Transition to International Accounting Principles
Significant Events Occurring After December 31, 2004
Motion to Replenish the Loss Incurred in 2004
SORIN Group — Consolidated Financial Statements at December 31, 2004
Consolidated Balance Sheet
Consolidated Statement of Income
Notes to the Financial Statements
Appendix: Companies of the SORIN Group
Report of the Independent Auditors
SORIN S.p.A. – Annual Financial Statements at December 31, 2004
Balance Sheet
Statement of Income
Notes to the Financial Statements
Report of the Board of Statutory Auditors
Report of the Independent Auditors
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S O R IN S . p. A.
V ia Bo rgo n uo v o, 1 4
20121 Milan
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Design: Landor Associates
Printed by: Lucini, Milan
SORIN GROUP - annual report 2004