UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 28, 1994:
Common Shares - No Par Value 115,299,695 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,299,695 Rights
(Class) (Number of Shares)
The Index to Exhibits is at page _____ in the sequential numbering system.
Total pages:_______.
BIOMET, INC.
CONTENTS
Pages
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets 1-2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 28, 1994 and May 31, 1993
(in thousands)
ASSETS
February 28, May 31,
1994 1993
------------ -------
Current assets:
Cash and cash investments $ 73,457 $ 44,579
Short-term investments 57,448 49,044
Accounts and notes receivable, net 91,267 84,708
Inventories (Note 2) 91,682 83,003
Prepaid expenses and other 10,286 9,705
------- -------
Total current assets 324,140 271,039
------- -------
Property, plant and equipment, at cost 81,783 77,678
Less, Accumulated depreciation 30,255 24,609
------- -------
Property, plant and equipment, net 51,528 53,069
------- -------
Intangible assets, net 10,011 11,417
Excess acquisition cost over fair value
of acquired net assets, net 8,041 9,638
Investments in affiliates 3,921 3,896
Other assets 4,965 5,350
------- -------
Total assets $ 402,606 $ 354,409
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 28, 1994 and May 31, 1993
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
1994 1993
------------ -------
Current liabilities:
Short-term borrowings $ 1,848 $ 2,436
Accounts payable 15,208 12,959
Accrued income taxes 11,731 12,202
Accrued wages and commissions 7,174 7,227
Other accrued expenses 13,494 11,828
------- -------
Total current liabilities 49,455 46,652
Long-term liabilities:
Deferred federal income taxes 2,564 2,564
Other liabilities 3,339 3,874
------- -------
Total liabilities 55,358 53,090
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares (Note 3) 47,569 46,829
Additional paid-in capital 10,409 13,106
Retained earnings 292,822 242,618
Cumulative translation adjustment (3,552) (1,234)
------- -------
Total shareholders' equity 347,248 301,319
------- -------
Total liabilities and shareholders' equity $ 402,606 $ 354,409
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the nine and three month periods ended February 28, 1994 and 1993
(in thousands, except earnings per share)
Nine Months Ended Three Months Ended
February 28, February 28,
1994 1993 1994 1993
---- ---- ---- ----
Net sales $272,869 $244,604 $95,663 $84,050
Cost of sales 84,070 76,831 29,231 26,404
------- ------- ------ ------
Gross profit 188,799 167,773 66,432 57,646
Selling, general and
administrative expenses 100,356 89,403 34,825 30,581
Research and development expense 15,348 13,363 5,244 4,606
------- ------- ------ ------
Operating income 73,095 65,007 26,363 22,459
Other income, net 3,802 3,190 1,706 950
------- ------- ------ ------
Income before income taxes 76,897 68,197 28,069 23,409
Provision for income taxes (Note 4) 26,693 21,688 9,985 7,377
------- ------- ------ ------
Net income $ 50,204 $ 46,509 $18,084 $16,032
======= ======= ====== ======
Earnings per share, based on the weighted
average number of shares outstanding
during the periods presented $ .44 $ .41 $ .16 $ .14
==== ==== ==== ====
Weighted average number of shares 115,285 114,836 115,285 114,836
======= ======= ======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended February 28, 1994 and 1993
(in thousands)
1994 1993
---- ----
Cash flows from (used in) operating activities:
Net income $ 50,204 $ 46,509
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 6,046 5,516
Amortization 4,034 2,915
Gain on sale of marketable securities, net (984) (711)
Changes in current assets and current liabilities:
Accounts and notes receivable, net (7,556) (12,038)
Inventories (10,197) (20,001)
Prepaid expenses and other (688) 192
Accounts payable 2,715 (4,765)
Accrued income taxes (354) 3,231
Accrued wages and commissions (20) (232)
Other accrued expenses 1,770 965
------- -------
Net cash from operating activities 44,970 21,581
------- -------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 7,728 9,793
Purchase of marketable securities (15,148) (16,529)
Capital expenditures (5,065) (13,175)
Cash invested in affiliates (25) (875)
Payments on patents capitalized -- (2,733)
Increase in other assets (940) (759)
Other (125) (2,819)
------- -------
Net cash used in investing activities (13,575) (27,097)
------- -------
Cash flows from (used in) financing activities:
Issuance of common shares 740 1,913
Purchase of treasury shares (2,697) --
Decrease in short-term borrowings (385) --
Payment of long-term debt (313) (4,377)
------- -------
Net cash used in financing activities (2,655) (2,464)
------- -------
Effect of exchange rate changes on cash 138 (43)
------- -------
Increase (decrease) in cash and cash investments 28,878 (8,023)
Cash and cash investments, beginning of year 44,579 57,878
------- -------
Cash and cash investments, end of period $ 73,457 $ 49,855
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: OPINION OF MANAGEMENT.
In the opinion of management, the information furnished herein includes all
adjustments necessary to reflect a fair statement of the interim periods
reported. The May 31, 1993 condensed consolidated balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2: INVENTORIES.
Inventories at February 28, 1994 and May 31, 1993 are as follows:
February 28, May 31,
1994 1993
------------ -------
(in thousands)
Raw materials $13,464 $11,374
Work in process 9,006 8,041
Finished goods 40,512 41,161
Consigned inventory 28,700 22,427
------ ------
$91,682 $83,003
====== ======
NOTE 3: COMMON SHARES.
During the nine months ended February 28, 1994, the Company issued 311,643
common shares upon the exercise of outstanding stock options for proceeds
aggregating $740,505. The Company purchased 300,000 treasury shares during the
nine month period ended February 28, 1994 for $2,696,875. For financial
reporting purposes, the treasury shares are accounted for as retired.
NOTE 4: INCOME TAXES.
Effective June 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" which requires a change from the
deferred to the liability method of computing deferred income taxes. The impact
of this change was immaterial to the consolidated financial statements. The
difference between the reported provision for income taxes and a provision
computed by applying the federal statutory rate to pre-tax accounting income is
primarily attributable to tax exempt income and tax credits.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, concluded
NOTE 5: CONTINGENCIES.
In February 1990, Dr. Pedro A. Ramos filed a complaint against the Company
alleging that the Company had infringed a patent issued to him. Dr. Ramos was
seeking a royalty on sales of the Company's Bipolar articulating hip prosthesis,
costs and enhanced damages for the alleged willful infringement. During April
1993, the matter was tried before a judge of the United States District Court
for the Southern District of Florida, and on September 10, 1993 the judge
entered a final judgment and permanent injunction, which concluded the patent of
Dr. Ramos was valid and was willfully infringed by the Company. The judgment
awarded Dr. Ramos $5.3 million plus costs and accrued interest, which
represented the trebling of a $1,770,000 compensatory damage award. The Company,
after consultation with legal counsel, believes the Court erred in its finding
and that the judge's opinion is contrary to the facts and applicable law. The
Company plans to vigorously pursue its rights of appeal and is in the process of
filing the appeal. Although the ultimate outcome of this matter cannot be
determined, management of the Company, after consultation with legal counsel,
believes the judgment against the Company will be reversed on appeal.
Accordingly, no provision for any liability (except for accrued legal costs)
that might result from this matter has been made in the consolidated financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF FEBRUARY 28, 1994
As of February 28, 1994, the Company's working capital position remained strong,
increasing by $50,298,000 during the first nine months of fiscal year 1994 to
$274,685,000 and resulting in a working capital ratio of 6.6 to 1. This
increase in working capital is principally attributable to the operating results
experienced by the Company during the first nine months of fiscal year 1994.
Cash and short-term investments increased during the first nine months by
$37,282,000 to $130,905,000. The Company's cash and short-term investments,
together with anticipated cash flow from operations, are expected to be
adequate to fund all anticipated capital requirements.
Accounts receivable and inventories increased by $6,559,000 and $8,679,000,
respectively, during the first nine months of fiscal 1994. Accounts receivable
has increased due to the increased sales volume in February. Inventories have
been increased to support the recent introduction of several new products
including the Maxim Total Knee System and the Arthrotek Integrated Endoscopy
System (IES 1000). The cost of property, plant and equipment increased
$4,105,000 during the first nine months of fiscal 1994. Included in the
aforementioned changes were decreases in accounts receivable, inventories and
property, plant and equipment of approximately $961,000, $1,446,000 and
$872,000, respectively, attributable to the decrease from May 31, 1993 to
February 28, 1994 in the exchange rates used to convert the financial statements
of the Company's foreign subsidiaries from their functional currency to the U.S.
Dollar. These decreases did not affect the Company's earnings during the past
nine-month period because foreign currency translation adjustments to balance
sheet items are recognized directly in shareholders' equity on the Company's
consolidated balance sheet. The Company will continue to be exposed to the
effects of foreign currency translation adjustments.
Total liabilities increased slightly to $55,358,000 at the end of the third
quarter of fiscal 1994.
Shareholders' equity increased $45,929,000 principally due to the Company's
first nine months earnings, offset by a decrease of $2.3 million in the
cumulative translation adjustment between periods presented and a decrease of
2.7 million resulting from the purchase of treasury shares.
On September 17, 1993 the Company's Board of Directors authorized the investment
of up to $25 million in the outstanding Common Shares of the Company in open
market or privately negotiated transactions. The number of shares purchased, if
any, will be dependent upon market conditions. Purchases may be made from time
to time between September 17, 1993 and September 16, 1994. During the second
quarter of fiscal 1994, the Company purchased 300,000 shares for $2,696,875
which have been accounted for as retired shares for financial reporting
purposes.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1994
AS COMPARED TO THE NINE MONTHS ENDED NOVEMBER 30, 1993
Net sales increased 12% to $272,869,000 for the nine month period ended February
28, 1994, from $244,604,000 for the same period last year. The Company's
U.S.-based revenue increased 14% to $213,390,000 during the first nine months,
while foreign sales for the first nine months increased 5% to $59,479,000. For
the first nine months, Biomet's foreign sales were adversely affected by
approximately $5,600,000 due to a stronger U.S. Dollar relative to the British
Pound Sterling.
Biomet's worldwide reconstructive device sales during the first nine months of
fiscal 1994 were $158,103,000, representing a 17% increase compared to the first
nine months of fiscal year 1993. This increase was primarily a result of
Biomet's continued penetration of the reconstructive device market led by the
recently introduced Maxim Total Knee System. Sales of Electro-Biology, Inc.'s
products were $64,910,000 for the first nine months of fiscal 1994, representing
an 8% increase as compared to the same period in 1993. This increase was
largely attributable to increased demand for Orthofix devices. The Company's
"other products" revenues totaled $49,856,000, representing a 1% increase over
the first nine months of fiscal year 1993, primarily as a result of increased
sales of Arthrotek's IES 1000 System and Lorenz's oral-maxillofacial implants.
Cost of sales decreased marginally as a percentage of net sales from 31.4% for
the first nine months of fiscal 1993 to 30.8% for the first nine months of
fiscal 1994 due to the increase in reconstructive device sales. Selling,
general and administrative expenses increased slightly as a percentage of net
sales from 36.6% to 36.8% for the first nine months. This increase is
attributable to increased marketing efforts through incentive commission
programs for the Company's domestic distributors. The increase in research and
development expenditures to $15,348,000 during the first nine months reflects
Biomet's commitment to remain competitive through technological advancements and
to capitalize on future opportunities available within the orthopedic market.
Operating income increased 12% from $65,007,000 for the first nine months of
fiscal 1993 to $73,095,000 for the first nine months of fiscal 1994,
corresponding to the increase in net sales. Other income increased during the
first nine months of fiscal 1994 mainly from the increase in cash and short-term
investments. The effective income tax rate increased from 31.8% for the first
nine months of fiscal 1993 to 34.7% for the same period this year. This
increase is due to the increase in the US corporate income tax rate, changes in
the Puerto Rico local tax structure resulting from the reduction of tax benefits
from operating in Puerto Rico instituted by the current administration and
increased profits in foreign countries where the tax rate is higher.
These factors resulted in an 8% increase in net income for the first nine months
of fiscal 1994 as compared to the same period in fiscal 1993, increasing from
$46,509,000 to $50,204,000 and a 7% increase in earnings per share to $.44
compared to $.41 for last year.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1994
AS COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 1993
Net sales increased 14% to $95,663,000 for the third quarter of fiscal year
1994, as compared to $84,050,000 for the same period last year. Operating
income rose 17% from $22,459,000 for the third quarter of fiscal 1993, to
$26,363,000 for the third quarter of fiscal 1994. During the third quarter, net
income increased 13% to $18,084,000 as compared to $16,032,000 for the same
period last year. Earnings per share increased 14% from $.14 per share for the
third quarter of fiscal 1993, to $.16 per share for the same period of fiscal
1994. The business factors resulting in these changes and relevant trends
affecting the Company's business during the periods in question are comparable
to those described in the preceding discussion for the nine-month period.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 1 of Form 10-Q for the period ended August 31, 1993.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
- ------------
(Registrant)
DATE: 4/13/94 BY: /s/ GREGORY D. HARTMAN
-------- -------------------------
Gregory D. Hartman
Vice President - Finance
(Principal Financial Officer)
(Signing on behalf of the registrant
and as principal financial officer)
BIOMET, INC.
FORM 10-Q
INDEX TO EXHIBITS
Sequential
Number Assigned Numbering System
in Regulation S-K Page Number
Item 601 Description of Exhibit of Exhibit
- ----------------- -------------------------------- ----------------
(2) No exhibit.
(4) 4.1 Specimen certificate for Common
Shares. (Incorporated by reference
to Exhibit 4.1 to the registrant's
Report on Form 10-K for the fiscal
year ended May 31, 1985).
4.2 Rights Agreement between Biomet,
Inc. and Lake City Bank, as Rights
Agent, dated as of December 2, 1989.
(Incorporated by reference to Exhibit
4 to Biomet, Inc. Form 8-K Current Report
dated December 22, 1989, File No. 0-12515).
(11) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(20) No exhibit.
(23) No exhibit.
(24) No exhibit.
(25) No exhibit.
(28) No exhibit.
