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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended MAY 31, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ____________.
Commission file No. 0-12515.
[BIOMET, INC. LOGO]
(Exact name of registrant as specified in its charter)
INDIANA 35-1418342
(State of incorporation) (IRS Employer Identification No.)
AIRPORT INDUSTRIAL PARK, P.O. BOX 587, WARSAW, INDIANA 46581-0587
(Address of principal executive offices) (Zip Code)
(219) 267-6639
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE RIGHTS TO PURCHASE COMMON SHARES
(Title of class) (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the Common Shares held by nonaffiliates of the
registrant, based on the average bid and asked prices of the Common Shares on
July 19, 1994, as reported by NASDAQ, was approximately $1,003,128,000. As of
July 19, 1994, there were 114,517,051 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K
IDENTITY OF DOCUMENT INTO WHICH DOCUMENT
IS INCORPORATED
Proxy Statement with respect to the 1994 Annual
Meeting of Shareholders of the Registrant Part III
The Index to Exhibits is at page ____ in the sequential numbering system.
Total pages: ______.
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PART I
ITEM 1. BUSINESS.
GENERAL
Biomet, Inc., an Indiana corporation incorporated in 1977 ("Biomet"),
and its subsidiaries design, manufacture and market products used primarily by
orthopedic medical specialists in both surgical and non-surgical therapy,
including reconstructive and trauma devices, electrical bone growth
stimulators, orthopedic support devices, operating room supplies, powered
surgical instruments, general surgical instruments, arthroscopy products and
oral-maxillofacial products and instruments. Biomet and its subsidiaries
currently operate manufacturing and/or office facilities in Warsaw, Indiana;
Parsippany, New Jersey; Ontario, Aliso Viejo and Redding, California;
Jacksonville, Florida; Guaynabo, Puerto Rico; Bridgend, South Wales; Swindon,
England; Milan, Italy; Berlin and Ansbach, Germany and Ontario, Canada.
Biomet markets its products in the United States through independent commission
sales representatives, in the United Kingdom and Germany primarily through
direct factory sales representatives, and in other international markets
through both independent and direct factory sales representatives and specialty
medical product dealers. Electro-Biology, Inc. ("EBI"), Biomet's principal
domestic subsidiary, sells electrical stimulation and external fixation devices
through direct factory sales representatives in the United States and the
United Kingdom and through specialty medical product dealers in the remainder
of its markets. Biomet and its subsidiaries currently distribute products in
approximately 100 countries.
Unless the context otherwise requires, the term "Company" as used
herein refers to Biomet and all of its subsidiaries.
PRODUCTS
The Company's products can be divided into three groups:
Reconstructive Products, EBI Products and Other Products. The Company's
Reconstructive Products (principally hips, knees and shoulders) and its Other
Products (fixation and trauma devices, orthopedic support devices, operating
room supplies and arthroscopy products are designed, manufactured and marketed
under the Biomet, Arthrotek and Effner trade names (the "Biomet Products").
Also included in Other Products are oral-maxillofacial products and instruments
and general surgical instruments which are marketed under the Walter Lorenz
trade name. Through EBI, the Company develops, manufactures and markets
non-invasive and implantable electrical bone growth and spinal fusion
stimulators and distributes the Orthofix line of external fixation devices (the
"EBI Products"). The following table shows the net sales and percentages of
net sales contributed by each of these product groups for each of the three
fiscal years ended May 31, 1994:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------
1994 1993 1992
PERCENT PERCENT PERCENT
NET OF NET NET OF NET NET OF NET
SALES SALES SALES SALES SALES SALES
------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Reconstructive Products $218,145 58% $188,963 56% $162,259 59%
EBI Products 88,714 24 82,136 25 73,549 27
Other Products 66,436 18 64,274 19 38,987 14
------- ----- -------- ---- ------- ----
Total $373,295 100% $335,373 100% $274,795 100%
======= ===== ======== ==== ======= ====
</TABLE>
RECONSTRUCTIVE PRODUCTS
Reconstructive products are used to replace joints which have
deteriorated as a result of disease (various forms of arthritis and
osteoporosis) or injury. Reconstructive joint surgery involves the
modification of the area surrounding the affected joint and the insertion of
one or more manufactured components. The Company's primary reconstructive
joints are the hip, knee and shoulder, but it also has the capability of
producing other peripheral joints (including the ankle, elbow and great toe).
The Company also produces the associated instruments required by the orthopedic
surgeon to implant the Company's reconstructive products.
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All femoral hip prostheses produced by the Company consist of a
femoral head, neck and stem, which can be forged or machined depending on the
design and material used. Because of variations in human anatomy and differing
design preferences among surgeons, femoral prostheses are manufactured by the
Company in a variety of head sizes, neck lengths, stem lengths, stem
cross-sections and configurations. The Company currently offers several total
hip systems, most of which utilize titanium or cobalt chromium alloy femoral
components and ultra-high molecular weight polyethylene-lined acetabular
components. Many of the femoral prostheses utilize a porous coating either to
enhance the attachment of bone cement to the stem or with a press-fit
configuration which allows the component's use without bone cement.
In February 1994, the United States Food and Drug Administration
("FDA") cleared several of Biomet's porous-coated hip components for cementless
use. This clearance to market was granted pursuant to Section 510(k) of the
Federal Food, Drug and Cosmetic Act and is specifically for noncemented
applications in skeletally mature patients undergoing primary hip replacement
surgery as a result of noninflammatory degenerative joint diseases including
osteoarthritis, avascular necrosis, traumatic arthritis, slipped capital
epiphysis, fused hip, fracture of the pelvis and diastrophic variant. The
510(k) cleared hip components include Mallory-Head Porous Primary Femoral
Components, Bi-Metric Porous Primary Femoral Components, Integral Porous
Primary Femoral Components, Taperloc Porous Primary Femoral Components,
Ranawat/Burstein Porous Primary Femoral Components, Impact Modular Femoral
Components, Mallory-Head Modular Femoral Components, PMI Primary Femoral
Components, Mallory-Head Acetabular Components, Universal/QSAC Acetabular
Components, Ranawat/Burstein/Rx90 Acetabular Components and Impact Acetabular
Components.
In July 1993, the Company received FDA clearance to market and sell
ArCom, a new manufacturing method for polyethylene, for use in all of its
polyethylene components. ArCom devices are machined from uniform compression
molded bar stock, manufactured by Biomet, or molded directly from high
molecular weight polyethylene resin. The processes used to mold devices and
manufacture bar stock are designed to maximize mechanical and wear properties
of the polyethylene bearing material. In addition, the finished components are
packaged in argon, an inert gas, to avoid oxidative degradation during and
after sterilization.
Since 1985, one of Biomet's largest and fastest growing reconstructive
systems has been the Mallory-Head Total Hip System. The Mallory-Head Hip
System is designed to meet surgeon needs for both primary and revision total
hip arthroplasty. The primary femoral components feature a specific proximal
finned geometry for cementless indications and a slightly different proximal
ribbed geometry for those patients requiring fixation with bone cement. The
goal of each of these primary femoral stems is to ensure proximal loading of
the femur to recreate near-normal bone stresses.
The Mallory-Head revision femoral components provide innovative
solutions for difficult revision cases. The long stem revision components
feature the primary proximal finned geometry with additional stem lengths to
bridge cortical defects and to provide increased stability. The head/neck
porous revision components feature multiple resection levels to compensate for
proximal bone deficiencies. An optional trochanteric bolt provides additional
rotational stability and implant fixation. During fiscal year 1995, Biomet
plans to introduce a modular version of these head/neck revision stems to
address the complicated revision femur. This new component will allow the
surgeon greater flexibility in optimizing component fit in the metaphysis and
diaphysis regions simultaneously.
The Mallory-Head acetabular component is designed with Biomet's
RingLoc technology to maximize inter-component congruency. The acetabular
component is hemispherical in shape and utilizes four peripheral fins to
enhance rim fixation and prevent rotation. A solid finned shell without screw
holes is also available for the surgeon who prefers not to supplement component
fixation with bone screws but instead to maximize bone-to-implant contact.
The Maxim Total Knee System, introduced in fiscal year 1993,
incorporates primary, posterior stabilized and revision components with
state-of-the-art biomaterials and competes in the revision constrained knee
market segment, addressing surgical situations where the surgeon is required to
replace a knee that has a compromised posterior cruciate ligament. The Company
has also developed supporting instrumentation for the implantation of the Maxim
Total Knee System components. The Maxim Total Knee System continued to expand
into new accounts during fiscal year 1994 securing a greater share of the
domestic total knee market. The Company anticipates that the Maxim Total Knee
System will become its largest selling knee system during the next fiscal year.
The Company's AGC Total Knee System with its wide variety of options
and features is one of the most versatile and comprehensive total knee systems
in the orthopedic industry. The AGC Total Knee System consists of left and
right femoral components, matching reinforced tibial components, and
appropriately sized reinforced patella components for patellar resurfacing.
AGC components are available either with or without a porous titanium alloy
surface designed to enhance the attachment of bone cement to the implant
surfaces. The Company has also developed surgical techniques and supporting
implantation instruments for the AGC and its other knee systems. These
instruments allow for accurate implantation of the components and improved
ligament and tendon balance in the knee following the surgical procedure. The
Company has expanded
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its total knee product line to include the Finn Knee
Replacement System. This system offers both resurfacing and segmental
component options in a wide range of sizes to address severe bone loss due to a
previous failure or tumor resections.
Biomet's Patient-Matched Implant ("PMI") services group expeditiously
designs, manufactures and delivers one-of-a-kind reconstructive and trauma
devices to orthopedic specialists. This service continues to enhance Biomet's
reconstructive market sales. In order to assist orthopedic surgeons and their
surgical teams in preoperative planning, Biomet's PMI group utilizes a
three-dimensional ("3-D") bone and soft tissue reconstruction imaging system.
A patented technology owned by the Company allows the use of CT or MRI data to
produce 3-D reconstructions for the design and manufacture of PMIs. With this
imaging technology, Biomet's PMI group is able to assist the physician by
recreating, prior to surgery, electronic 3-D models. Within strict deadlines,
the model is translated into a PMI design for the actual manufacturing of the
custom implant for the patient. Biomet continues to advance the application of
imaging technology for the design and production of reconstructive devices for
various joints of the body.
The Company manufactures and distributes the patented Ultra-Drive Bone
Cement Removal System ("Ultra-Drive") which utilizes ultrasonic technology to
safely and effectively remove bone cement during revision arthroplasty
procedures. This system reduces the amount of time the orthopedic surgeon
would usually spend removing an implant and cement during revision procedures.
Additionally, the Ultra-Drive reduces the possibility of accidental bone trauma
associated with conventional methods addressing bone cement removal. The
Company is engaged in ongoing research and development efforts to enhance the
use of the Ultra-Drive in other orthopedic applications.
Reconstructive devices contributing to the Company's sales growth
include the Maxim Total Knee System, the Bio-Modular Shoulder, the Mallory-Head
Calcar, Impact Modular, Integral 180 and 225 Revision Total Hips, ArCom
polyethylene products and the Alliance Instrumentation System.
EBI PRODUCTS
EBI's primary product categories consist of invasive and non-invasive
electrical stimulation devices used in the treatment of recalcitrant bone
fractures (nonunions), spinal fusion stimulation devices used as an adjunctive
treatment in spinal fusion procedures, external fixation devices and a
controlled cold therapy unit to aid in the reduction of post-operative pain,
edema and blood loss. The FDA has defined a "nonunion" as a case in which nine
months have elapsed from the date of a fracture with no sign of healing for
three months. EBI's non-invasive devices generally provide an alternative to
surgical intervention in the treatment of recalcitrant bone fractures and
failed joint fusions.
One of EBI's primary products, the EBI Bone Healing System, is a
non-invasive device which produces low-energy pulsed electromagnetic field
("PEMF") signals that induce weak pulsing currents in living tissues exposed to
the signals. These pulses, when suitably configured in amplitude, repetition
rate and duration, affect bone cells. EBI's non-invasive stimulator has two
components: treatment heads and a control unit. The treatment heads contain
electrical coils and are connected to the control unit. The control unit
transforms household current or battery power into a predetermined sequence of
pulsed currents that are induced into the fracture site through the treatment
heads which may be placed over a patient's cast, incorporated into the cast, or
worn over the skin.
EBI's Model 1020 Bone Healing System utilizes household current or a
rechargeable power supply and allows for complete patient ambulation during
treatment. This model usually incorporates the treatment coil into the
patient's cast or the coil can be worn over the skin if required. The coil
design is capable of treating the vast majority of nonunion fracture locations.
The device can be pre-programmed as to duration of daily treatment and for
patient compliance history. In January 1994, EBI introduced its Model 1200
Bone Healing System. The Model 1200 is a light-weight, smaller and easier to
use unit, which should encourage patient compliance and enhance clinical
success.
EBI also manufactures the FLX Flexible Treatment Coils for use with
the EBI Bone Healing System. The FLX Flexible Treatment Coils are extremely
lightweight and provide a slim profile that enhances patient comfort and
compliance during bone healing treatment regimens, and afford higher bone
healing success rates. Additionally, EBI offers a series of coils to address
shoulder, foot, ankle, clavicle and metatarsal site applications and an
elliptical coil to be used with external fixation.
The invasive electrical stimulation devices provide an adjunct to
surgical intervention in the treatment of nonunions and spinal fusions. Spinal
fusions are surgical procedures undertaken to establish bony union between
adjacent vertebrae. EBI's SpF-4 Implantable Spinal Fusion Stimulator is used
in conjunction with bone grafting to increase the probability of fusion
success. In addition, EBI's SpF-2, a two lead supplement to its SpF
implantable spinal product line allows EBI to offer orthopedic surgeons the SpF
spinal fusion technology for the growing bilateral/lateral procedure market.
Another SpF product, the SpF-T Implantable Spinal Fusion Stimulator,
incorporates a telemetry device which emits a signal to allow device monitoring
after implantation. The compact design of the SpF-T provides easier surgical
implantation and explantation while increasing patient comfort. The
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implantable devices consist of a generator providing a constant direct current
to a titanium cathode placed where bone growth is required. In recent years
EBI has initiated device modifications and new techniques to its SpF product
line to address the anterior lumbar interbody fusion and posterior lumbar
interbody fusion market segments.
Pursuant to agreements with Orthofix s.r.l. of Verona, Italy, EBI has
been granted exclusive rights to distribute the Orthofix Dynamic Axial External
Fixation System ("Orthofix") in the United States, Canada and the Caribbean
Island Basin through May of 1995. EBI is currently engaged in negotiations to
renew the Orthofix distribution arrangement and the outcome of these
negotiations is uncertain at the present time. In the event that the Orthofix
distribution arrangement is not renewed, it could have a material adverse
impact on EBI or the Company. Orthofix is an external fixation device used by
orthopedic surgeons to hold in place complicated fractures of long bones,
commonly the tibia, from outside the affected limb in cases where fixation with
casts, rods or plates is inappropriate. Orthofix stabilizes fractures
externally from only one side of the limb and is designed to make the
application procedure less complex and time consuming than other external
fixators. EBI has expanded the Orthofix product line with the introduction of
a mini-ball joint fixator used for extra-articular Colles' fractures, a
segmental lengthener/bone transport device which is utilized for faster limb
lengthening and replacement procedures for large bone defects, and the Orthofix
Iowa Pelvic Fixator is used for treating unstable pelvic fractures. The
Orthofix Pennig Dynamic Wrist Fixator is used to treat distal radius fractures.
This device maintains reduction of the fracture while simultaneously
permitting early restoration of function. Overall, EBI's external fixation
segment has grown during fiscal year 1994 primarily through product
enhancements and the fourth quarter launch of the Pennig Mini External Fixation
System for hand and foot applications. The Orthofix devices are covered by
United States and foreign patents owned by the manufacturer.
EBI also distributes the Temptek T-1000, a controlled cold therapy
unit used to aid in the reduction of post-operative pain, edema and blood loss.
The application of controlled cold therapy has recently expanded into spinal
treatment. EBI anticipates the introduction of new controlled cold therapy
blanket designs in the next fiscal year. This product is manufactured by
Temptek, Inc. of Dallas, Texas, which has granted to EBI exclusive worldwide
rights to distribute the Temptek T-1000 unit through 1997.
OTHER PRODUCTS
The Company also manufactures and distributes several other products
including fixation and trauma devices, orthopedic support devices, operating
room supplies, arthroscopy products and oral-maxillofacial products. Biomet
Medical Products, a separate operating division of the Company, was established
during fiscal year 1993 to focus on the expansion of the Company's "other
products," except oral-maxillofacial products, and to further penetrate these
markets with new products. Walter Lorenz Surgical, Inc. ("Lorenz Surgical")
markets the oral-maxillofacial product line.
FIXATION AND TRAUMA DEVICES. The Company's fixation and trauma
devices include internal and external bone fixation devices. Internal fixation
devices manufactured by Biomet include nails, plates, screws, pins and wires
designed to temporarily stabilize traumatic bone injuries. These devices are
used by orthopedic surgeons to provide an accurate means of setting and
stabilizing fractures. These implants are intended as aids to healing and not
as a replacement of normal body structures, and may be removed when healing is
completed.
The Uniflex Nailing System, which is the Company's largest selling
fixation system, addresses a wide range of fractures utilizing one product.
The Uniflex Femoral Nailing System is used for internal fixation of femoral
fractures and the flexibility of the system enhances the load transfer to the
bone to further aid in the healing of the fracture. The Uniflex Nailing System
also includes tibial and humeral nailing systems. Both the S.S.T. small bone
locking nail and the Vector Intertrochanteric Nail, a compression nailing
system introduced in fiscal year 1993, continue to enhance the Company's
fracture fixation family.
The Company introduced the Compression Hip Screw System during the
fourth quarter of fiscal year 1994 and anticipates the introduction stage will
continue through the first half of fiscal year 1995. Additionally, the BMP
Cable System was introduced during fiscal year 1994. This system is used
introperatively, often as part of revision hip surgery, to reduce the risk of
fracture or to repair an existing femoral fracture. System specific
instrumentation is precise and allows reproducible results.
ORTHOPEDIC SUPPORT DEVICES. The Company produces an extensive line of
standard orthopedic support devices, many of which are sold under the CTN and
START trademarks. These devices include elbow, wrist, abdominal, thigh and
ankle supports, in addition to a wide variety of knee immobilizers and braces.
The CTN product line primarily addresses the sports medicine market. CTN
Compression wraps with Soft-Ice were released during the third quarter of
fiscal year 1993 for use in compression cold-therapy treatment, both
post-operative and during rehabilitation. The Company also distributes the
Active Ankle, a unique ankle stirrup brace which addresses the sports
rehabilitation market.
OPERATING ROOM SUPPLIES. The Company's principal products in the
operating room supplies category are surgical suction devices, filters and
drapes. The Redi-Vacette Closed Wound Suction System provides post-operative
wound suction
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drainage following both orthopedic and nonorthopedic surgical
procedures. The Redi-Flow Filter automatically strains the flow of body
liquids during surgery. The filter collects fine bone chips and tissue for
subsequent pathological evaluation, and saves operating room time by reducing
suction clogs in surgical procedures. The Redi-Drape protects the sterile
operating field from contamination, and provides a drainage bag and built-in
instrument pouches to assist the surgeon.
The Company's patented Blockaid cut-resistant glove liner, formerly
known as Centurion, continues to enhance the Company's operating room supply
product line. The construction of the glove liner represents a break-through
in continuous filament knitting technology allowing stainless steel to be
encased in synthetic fibers, providing the most cut-resistant fabric in the
market today. Unlike thicker, spun fibers, these glove liners are thin enough
to allow increased tactile sensitivity. This product reduces the risk of
exposure of operating room personnel to infectious diseases.
ARTHROSCOPY PRODUCTS. Arthroscopy is a less-invasive orthopedic
surgical procedure in which an arthroscope is inserted through a small incision
to allow the surgeon direct visualization of the joint. This market is
comprised of four product categories: power instruments, manual instruments,
visualization products and accessories. Arthrotek's principal products
currently include the Ellipticut and BackBiter manual instruments, ACL
instrumentation utilized in the reconstruction of the anterior cruciate
ligament, a suture punch, rotary forceps and ligament fixation implants. FDA
510(k) clearance was recently received for the marketing of Arthrotek's
interference screws. Arthrotek also offers the IES 1000 System, a
fully-integrated arthroscopy system consisting of a camera, light source,
shaver, pump, monitor, printer and VCR maintained in a pre-wired cart. During
fiscal year 1994, Arthrotek introduced the PowerPump 800 which enables the use
of the IES pump in conjunction with other arthroscopy shaver systems. In May
1993, Arthrotek received FDA clearance to market and sell the Harpoon Suture
Anchor for use in attaching soft tissues, tendons and ligaments to bone during
surgical shoulder repair procedures. The introduction of the Harpoon Suture
Anchor was completed during fiscal year 1994. To extend its suture anchor
line, Arthrotek is developing a miniature version of the Harpoon.
Additionally, Arthrotek is working with Poly-Medics (discussed below) to
develop a resorbable suture anchor.
ORAL-MAXILLOFACIAL PRODUCTS. The Company distributes
oral-maxillofacial and craniofacial instruments and implants principally
marketed to oral-maxillofacial, neurological and craniofacial surgeons through
its Lorenz Surgical subsidiary headquartered in Jacksonville, Florida which was
acquired in July 1992. Orthognathic instruments, craniofacial instruments,
rigid fixation systems, TMJ instruments and exodontia instruments are among
the products offered by Lorenz Surgical. Lorenz Surgical recently began
marketing micropowered surgical instruments for use in cranio-maxillofacial and
small bone surgery. Additionally, Lorenz Surgical is currently developing
resorbable plates and screws and dental implants in conjunction with
Poly-Medics which will be marketed by Lorenz Surgical upon receiving FDA
clearance or approval. Many of the screws and plating products, previously
manufactured outside of the Company, are now manufactured in Warsaw, Indiana.
PRODUCT DEVELOPMENT
For the years ended May 31, 1994, 1993 and 1992, the Company expended
approximately $20,521,000, $17,995,000 and $16,620,000 respectively, on
research and development, and it is expected that research and development
expenses will continue to increase. The Company's principal research and
development efforts relate to its reconstructive devices, electrical
stimulation products and arthroscopy products.
The Company's research and development efforts contributed to the
introduction in fiscal year 1994 of the following products: BMP Cable System,
Biomet Compression Hip Screw System, Impact Revision Hip System, Integral
Revision Hip System, RingLoc Bi-Polar Acetabular Cup, Fracture Hip System,
ArCom polyethylene products and Axial Knee Instrumentation System.
EBI conducts a program of research and development intending to
maintain its proprietary position and to expand the range of conditions
treatable with its electrical stimulation products. This program includes
providing equipment and/or funding basic research to study cells and simple
biological systems, and clinical investigations. Typically, EBI receives
proprietary rights with respect to the data developed as the result of research
sponsored by it. EBI recently completed clinical trials to investigate the
application of its products in the treatment of avascular necrosis ("AVN") of
the femoral head, a debilitating and degenerative disease. In May 1994, EBI
received notice from the FDA that it has completed its initial review of EBI's
premarket approval application ("PMA"). Further, the FDA has determined the
PMA is sufficiently complete to permit a substantive review by the FDA and is,
therefore, suitable for filing. EBI also currently has clinical trials
underway to develop new indications with PEMF technology for the treatment of
fresh fractures.
In July 1991, the Company and United States Surgical Corporation
("U.S. Surgical") entered into a cooperative effort to develop and market a
line of state-of-the-art bioresorbable orthopedic and oral-maxillofacial
implants. The cooperative effort has been named Poly-Medics. The Company is
contributing its product development, marketing and distribution capabilities
while U.S. Surgical is contributing its expertise in polymer technology and
product development that led to its successful development of resorbable
staples and sutures. Poly-Medics is focusing on three primary areas: bone
replacement and
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augmentation; fracture healing; and musculoskeletal soft tissue
repair and reattachment. Poly-Medics has launched the Hard Tissue Replacement
Malleable Facial Implant line of products and is distributing them through
Lorenz Surgical. Clinical studies utilizing Poly-Medics resorbable polymers
are currently in process for maxillofacial, soft tissue reattachment
applications and peripheral nerve repair.
The Company is continuing its work to develop hydroxyapatite ("HAP"),
a bioactive surface, to be applied to orthopedic implants which, by eliminating
the fibrous tissue interface between the implant and the bone, would improve
apposition and attachment to the implant and bone ingrowth into the porous
surface of implants. Clinical trials are currently being conducted with the
Company's AGC Knee System and four of its hip systems, in which a surface
coating is applied over the systems' porous coating. HAP bonds directly to
bone at a cellular level.
The Company has a 51% equity interest in Polmers Reconstructive A/S
and has obtained exclusive worldwide distribution rights, with the exception of
Scandinavia, for the Polymers Boneloc Bone Cement System. The patented Boneloc
Bone Cement System is a proprietary new method of mixing bone cement within and
delivering it from a single self-contained unit. Boneloc is currently being
marketed outside the United States and the Company is conducting clinical
trials within the United States. The Company expects Boneloc to be fully
released upon completing the clinical trials and obtaining FDA approval.
In September 1985, the Company and Hercules Incorporated ("Hercules")
entered into a joint venture, BHC Laboratories, Inc., whereby the companies
intend to jointly design, develop, produce and market a line of high
performance, composite-based orthopedic products. The joint venture applied
Hercules expertise in aerospace technology to cost-effective orthopedic
devices produced by the Company. Composite-based materials can be produced
with a lower modulus of elasticity that approximates the modulus of cortical
bone more closely than do the current state-of-the-art metals. The use of
composite materials may enhance bone remodeling by transferring stress to the
appropriate portions of the bone. Composite materials have potential
applications in total joint replacement and internal fixation devices. Given
the long-term nature of this project, Biomet and Hercules are currently engaged
in negotitations with respect to the future restructuring of the joint venture
arrangement.
The Company has a minority equity interest in Catheter Research, Inc.
("CRI"), the developer of the CRI Vessel Occlusion System. The Company's
Vascu-Med subsidiary has obtained exclusive distribution rights to the CRI
Vessel Occlusion System in performing peripheral bypass grafting. CRI has
received approval from the FDA to market the Vessel Occlusion System, and
Vascu-Med has conducted market evaluations to determine market acceptance and
distribution strategies of the product. While the product has functioned well
clinically, the market's early response to this new technology has been
disappointing. It is not clear whether a large enough market can be developed
to create a meaningful distribution effort in the future for the product.
GOVERNMENT REGULATION
The developing, testing, marketing, and manufacturing of medical
devices such as arthroscopy products and reconstructive, electrical stimulation
and internal fixation devices are regulated under the Medical Device Amendments
of 1976 to the Federal Food, Drug and Cosmetic Act (the "1976 Amendments") and
additional regulations promulgated by the FDA. In general, these statutes and
regulations require that manufacturers adhere to certain standards designed to
ensure the safety and effectiveness of medical devices.
Under the 1976 Amendments, each medical device manufacturer must be a
"registered device manufacturer" and must comply with regulations applicable
generally to labeling, quality assurance, manufacturing practices and clinical
investigations involving humans. The FDA is authorized to obtain and inspect
devices, their labeling and advertising, and the facilities in which they are
manufactured in order to assure that a device is not improperly manufactured or
labeled. Biomet, EBI, Lorenz Surgical, Arthrotek, and Vascu-Med are registered
with the FDA.
In addition, the sale and marketing of specific medical devices are
regulated by the FDA under the 1976 Amendments, which classify medical devices
based upon the degree of regulation deemed appropriate and necessary. A device
is classified as a Class I, II or III device based on recommendations of
advisory panels appointed by the FDA. Class I devices are subject only to
general controls. Class II devices, in addition to general controls, are
subject to additional controls. Class III devices, including most devices used
or implanted in the body, require FDA pre-market approval before they may be
distributed other than in clinical trials.
The Company's reconstructive and trauma products are regulated as
Class II or Class III medical devices. The Company's electrical stimulation
products are regulated as Class III medical devices. The procedure for
obtaining approval to commercially market a device involves the submission of a
pre-market notification under Section 510(k) of the 1976 Amendments. If the
FDA determines that the device is substantially equivalent to a pre-enactment
device or to a device subsequently classified in Class I or Class II, it will
grant clearance to commercially market the device. If the FDA determines
6
<PAGE> 8
the device is not substantially equivalent to a pre-enactment device, it is
automatically placed into Class III, and will either require reclassification or
the submission of valid scientific evidence to prove the device is safe and
effective for human use. For Class III devices, in order to conduct clinical
trials the manufacturer must submit to the FDA an application for an
Investigational Device Exemption ("IDE"). An approved IDE exempts the
manufacturer from certain otherwise applicable FDA regulations and grants
approval for a clinical investigation, or human study, to generate clinical data
to prove safety and efficacy. In addition, the possibility exists that certain
devices marketed prior to 1976, or devices substantially equivalent thereto, may
be placed into Class III by the FDA. In this event, the manufacturer will be
required to submit proof of safety and efficacy for these device within 30
months of the Class III determination.
When a manufacturer believes that sufficient clinical data has been
generated to prove the safety and efficacy of the device, it may submit a
pre-market approval application ("PMA") to the FDA. The FDA reviews the PMA
and determines whether it is in submittable form and all key elements have been
included. Following acceptance of the PMA, the FDA continues its review
process which includes submission of the PMA to a panel of experts appointed by
the FDA to review the PMA and to recommend appropriate action. The panel then
recommends that the PMA be approved, not approved or approved subject to
conditions. The FDA may act according to the panel's recommendations, or it
may overrule the panel. In approving a PMA, the FDA may require some form of
post-market surveillance whereby the manufacturer follows the initial patient
group for two or more years, making periodic reports to the FDA.
The Safe Medical Device Act of 1990 (the "Act") affects medical device
manufacturers in several areas, including post-market surveillance and device
tracking procedures. The Act is the first major change to the Federal Food,
Drug and Cosmetic Act since the 1976 Amendments. The Act gives the FDA
expanded emergency recall authority, requires the submission of a summary of
the safety and effectiveness in the 510(k) process and adds design validation
as a requirement of Good Manufacturing Practices. The Act also requires all
manufacturers to conduct post-market surveillance on most permanent implants
and devices that potentially present a serious risk to human health, and
requires manufacturers of certain devices to adopt device tracking methods to
enable patients to receive required notices pertaining to the devices they
receive. The Act increases the importance of tracking products and will most
likely add additional administrative requirements pertaining to the sale of
many of the Company's implants. Although the precise impact on the Company is
currently unknown because the FDA has not yet promulgated all of the
regulations needed to fully implement the Act, management does not believe the
Act will have a material adverse affect on the Company or its operations.
In February 1992, the FDA announced that certain uncemented hip
prostheses had been reclassified from Class III to Class II. The devices in
question are "hip joint metal/polymer/metal semi-constrained porous-coated
uncemented prostheses." The FDA has indicated that the porous coating on the
femoral stem and acetabular shell must be made of either
cobalt-chromium-molybdenum beads or fibers of commercially pure titanium or
titanium-aluminum-vanadium alloy. The FDA has defined a range of porosity for
the coating and specified the types of materials that can compose the femoral
and acetabular components. The FDA has also stated that such devices must have
a "design to achieve biological fixation to bone without the use of bone
cement." It is anticipated that this reclassification will have a positive
impact on the marketing of the Company's porous-coated hip prostheses and that
such prostheses will no longer require PMAs and, consequently, require less
time for introduction into the marketplace. The Company promptly made the
appropriate filings and has since received clearance to market many of its hip
systems in accordance with this regulation.
The medical device industry extensively utilizes the pre-market
notification procedures under Section 510(k) of the 1976 Amendments in bringing
new products to the market. The Company currently has over fifteen Section
510(k) notifications pending with the FDA, and is experiencing delays in the
clearance of new products by the FDA as a result of its attempts to follow the
directives of Congress. These delays are likely to continue through the end of
fiscal year 1995. Although the delays experienced to date have not had a
material adverse impact on the operations of the Company, management is unable
to assess the impact of the current circumstances or the effects of any
increases in the time for clearance of Section 510(k) notifications on the
future operations of the Company.
SALES AND MARKETING
Biomet Products are distributed in the United States through
approximately 318 independent commission sales representatives ("distributors")
and sales associates engaged principally in the business of supplying
orthopedic products to hospitals in their geographic areas. Some of these
distributors have formal contractual arrangements with Biomet which limit
Biomet's right to terminate the distributor and provide certain long-term
benefits to the distributor upon termination.
EBI's products are distributed in the United States through EBI's
wholly-owned subsidiary, EBI Medical Systems, Inc. ("EBIMS"), a Delaware
corporation with offices in Parsippany, New Jersey. EBIMS maintains a 120
person direct sales force which operates in assigned territories throughout the
United States and through a growing international distribution network in
Central and South America, Canada, Asia and Europe.
7
<PAGE> 9
Lorenz Surgical products are distributed in the United States through
its direct salesforce of approximately 40 sales representatives operating in
assigned territories throughout the United States and through a growing
international distribution network in Central and South America, Canada, Asia
and Europe.
Elective surgery-related products appear to be influenced to some
degree by seasonal factors, as the number of elective procedures decline during
the summer months and the holiday seasons.
The Company's customers are the hospitals, surgeons and other
physicians who employ its products in the course of their practices. The
business of the Company is dependent upon the relationships maintained by its
distributors and salespersons with these customers as well as the Company's
ability to design and manufacture products which will meet the physicians'
technical requirements at a competitive price.
Biomet Products are marketed internationally primarily through direct
factory sales representatives in the United Kingdom, Italy and Germany and
through both independent and direct factory sales representatives and specialty
medical product dealers in other international markets. EBI products are sold
internationally by EBI's wholly-owned subsidiary, EBI Medical Systems Ltd., a
United Kingdom corporation which utilizes direct sales representatives and
independent commission sales representatives in the United Kingdom and
specialty medical product dealers in other parts of the world. The Company's
products are distributed in approximately 100 countries worldwide.
For the three fiscal years ended May 31, 1994, 1993 and 1992, the
Company's foreign sales were $85,079,000, $78,274,000 and $70,644,000
respectively, or 23%, 23% and 26% of net sales, respectively. Additional data
concerning operating income and identifiable assets by geographic areas are set
forth in Note I of the Notes to Consolidated Financial Statements included in
Item 8 of this Report.
The Company consigns inventory to its United States distributors and
direct salespersons for their use in marketing its products and in filling
customer orders. The Company also consigns inventory to hospitals in the
United Kingdom, Italy and Germany. As of May 31, 1994, inventory of
approximately $29,632,000 was consigned to these distributors, salespersons and
hospitals.
Under Title VI of the Social Security Amendments of 1983 (the "1983
Amendments"), hospitals receive a predetermined amount of Medicare
reimbursement for treating a particular patient based upon the patient's type
of illness identified with reference to the patient's diagnosis under one or
more of several hundred diagnosis-related groups ("DRG"). Other factors which
affect a specific hospital's reimbursement rate include the size of the
hospital, its teaching status and its geographic location.
The Prospective Payment Assessment Commission acts for Congress in
evaluating, redefining and adjusting DRGs to encompass technology changes and
efficiencies experienced by hospitals. Biomet Products are primarily covered
by DRG 209 (Major Joint and Limb Reattachment Procedures) and DRG 210 (Hip and
Femur Procedures).
The 1983 Amendments have not adversely affected the Company's
reconstructve device or electrical stimulation business. However, the Company
is experiencing pricing pressure in orthopedic support devices and operating
room supplies and in some generic internal fixation device products. The
DRG-based prospective payment system may increase the future importance of
price as a competitive factor within the orthopedic products and implantable
bone growth stimulation markets. Other effects of the prospective payment
system on the industry and on the Company cannot be estimated at the present
time.
During fiscal year 1994, the Company initiated "value added" services
and programs collectively referred to as the Large Account Management Program
("L.A.M.P."). A group of individuals from the Warsaw, Indiana office work
directly with the salesforce, orthopedic surgeons, clinics and hospital
administrators to address various concerns, as they arise, in the providing of
health care.
COMPETITION
The business of the Company is highly competitive. Approximately
seven other manufacturers offer orthopedic implant products which compete with
the Biomet Products. Major companies in this industry include Zimmer, Inc., a
subsidiary of Bristol-Myers Squibb Company; Howmedica, Inc., a subsidiary of
Pfizer, Inc.; DePuy, a subsidiary of Boehringer-Mannheim Corporation; Richards
Manufacturing Co., Inc., a subsidiary of Smith & Nephew Ltd.; Osteonics, Inc.,
a subsidiary of Stryker Corporation; Johnson & Johnson Orthopaedics, Inc., a
subsidiary of Johnson & Johnson; and Intermedics Orthopedics, Inc., a division
of Sulzermedica. Management believes these seven companies and Biomet have the
predominant share of the orthopedic implant market. Competition within the
orthopedic implant industry is primarily on the basis of service and product
design, although price competition has recently taken on increasing importance
as the orthopedic industry becomes more mature and as health care providers
become more concerned with health care costs. At the present time, price is a
factor in the sale of generic
8
<PAGE> 10
internal fixation devices, orthopedic support devices and operating room
supplies. In addition, as health care providers become more cost-conscious,
they have increasingly limited the use of higher-cost reconstructive devices to
younger, more active patients. Biomet's prices are at approximately the same
levels as those of its major competitors. Biomet believes its future success
will depend upon its service and responsiveness to distributors and orthopedic
specialists, and upon its ability to design and market innovative products which
meet the needs of the marketplace. As discussed earlier, the Company has
initiated L.A.M.P. to enhance the Company's offerings of products, services and
programs.
In the past, new technologies and product concepts in the industry
(principally in reconstructive products) have been introduced and applied at
extremely rapid rates. New developments in implant systems are frequently
introduced into the market before earlier concepts can be fully absorbed. It
is management's opinion that this evolution in advanced technology products
will continue for the foreseeable future.
EBI's electrical stimulation products compete with conventional
surgical procedures and non-invasive electrical stimulation devices
manufactured by others. EBI has the predominant share of the bone growth
stimulation market. Other companies offering products in the electrical
stimulation market include American Medical Electronics, Inc., Biolectron,
Inc., OrthoLogic Corp. and Exogen. Competition in the electrical stimulation
market is on the basis of product design, service and success rates of various
treatment alternatives. EBI's non-invasive stimulators offer advantages over
conventional surgery or invasive products in that their use eliminates
hospital, surgeon and operating room costs, and these products can be used in
the presence of infection without creating a risk of additional infection.
EBI's invasive stimulators offer the advantage of conformance to surgical
practice and do not require patient compliance. The Orthofix fixator competes
with other external fixation devices primarily on the basis of ease of
application and clinical results.
Arthrotek products compete in the areas of power instruments,
visualization products, accessories and manual instruments. Competitors
include Linvatec Corp., a subsidiary of Bristol-Myers Squibb Company; Stryker
Corporation; Dyonics, Inc., a subsidiary of Smith & Nephew Ltd.; Baxter Health
Care Corporation; Acufex Microsurgical, Inc.; Olympus; Richard Wolf; and Karl
Storz.
The Company's trauma and fixation product lines compete with those of
ACE Orthopedics, a division of DePuy; Zimmer, Inc., a subsidiary of
Bristol-Myers Squibb Company; Richards Manufacturing Co., Inc., a subsidiary of
Smith & Nephew Ltd., and Synthes USA.
Lorenz Surgical primarily competes in the surgical instrumentation and
oral-maxillofacial markets. Its competitors include Synthes USA; Howmedica,
Inc., a subsidiary of Pfizer, Inc.; Leibinger LP; ACE Surgical Supply Company,
Inc.; and Karl Storz, a business group of American Cyanamid Company.
RAW MATERIALS AND SUPPLIES
The raw materials used in the manufacture of the Biomet Products are
principally nonferrous metallic alloys, stainless steel, polyethylene powder
and fabrics. With the exception of cobalt alloy, none of Biomet's raw material
requirements are limited by critical supply or single origins to any material
extent. Biomet purchases its cobalt alloy from two outside suppliers and is
aware of at least three additional suppliers of cobalt alloy. EBI purchases
all components of its electrical stimulators from approximately 250 outside
suppliers, approximately 15 of whom are the single source of supply for their
particular product. In most cases, EBI believes that all components are
replaceable with similar components. In the event of a shortage, there are
alternative sources of supply available for all components, but some time would
likely elapse before EBI's orders could be filled. Certain suppliers have
discontinued supplying silicon, which is used as a component in all of EBI's
implantable stimulators. A shortage of this material is not anticipated during
the next fiscal year and EBI is currently searching for additional suppliers of
silicon and suppliers of silicon substitutes for future needs. The results of
the Company's operations are not materially dependent on raw material costs.
EMPLOYEES
As of May 31, 1994, the Company's domestic operations (including
Puerto Rico) employed 1,362 persons, of whom 727 were engaged in production and
635 in sales, marketing, administrative and clerical efforts. The Company's
European subsidiaries employed 493 persons, of whom 353 were engaged in
production and 140 in sales, marketing, administrative and clerical efforts.
None of the Company's principal domestic manufacturing employees are
represented by a labor union; the production employees at its Bridgend, South
Wales, facility are organized. Employees working at the Berlin, Germany
facility are represented by a statutory Workers' Council which negotiates
labor hours and termination rights. The Workers' Council does not represent
such employees with regard to collective bargaining of wages or benefits. The
Company believes that its relationship with all its employees is satisfactory.
The establishment of Biomet's domestic operations in north central Indiana,
near other members of the orthopedic industry, provides excellent access to
both the highly skilled machine operators and the skilled soft
9
<PAGE> 11
goods labor required for the manufacture of the Biomet Products. The
Company's European locations at Bridgend, South Wales, Swindon, England, and
Berlin and Ansbach, Germany, also provide good sources for skilled manufacturing
labor. EBI's Puerto Rican operations principally involve the assembly of
purchased components into finished products using skilled labor.
PATENTS AND TRADEMARKS
As a result of the rapid rate of development of reconstructive
products, patents have not historically been a major factor in the orthopedic
industry. However, patents on specific designs and processes can provide a
competitive advantage. Biomet has applied for and been issued patents on
certain aspects of several of its major product offerings and has patent
applications pending on several products. Management believes that patent
protection of products will become more significant as the industry matures.
EBI holds a United States Patent which covers the manufacture, use and
sale of its primary product, the EBI Bone Healing System, which expires in
1995. In connection with the 1988 settlement of certain litigation against
American Medical Electronics, Inc. ("AME"), EBI has granted to AME a license
under this patent to make, use and sell certain products.
Biomet, EBI, W. Lorenz and Arthrotek are the Company's principal
registered trademarks in the United States, and federal registration has been
obtained or is in process with respect to various other trademarks associated
with the Company's products. The Company holds or has applied for
registrations of various trademarks in its principal foreign markets.
"Orthofix" is a registered trademark of Orthofix s.r.l. in the United States.
ITEM 2. PROPERTIES.
The Company has the following properties:
<TABLE>
<CAPTION>
OWNED/
FACILITY LOCATION SQUARE FEET LEASED
- - - - -------- --------- ----------- ------
<S> <C> <C> <C>
Principal manufacturing facility
and executive offices of Biomet Warsaw, Indiana 329,000 Owned
Facility of Biomet/U.S. Surgical
cooperative effort Warsaw, Indiana 11,000 Owned
Office and manufacturing facility
of EBI Guaynabo, Puerto Rico 23,200 Owned
Marketing and sales operations Parsippany, New Jersey 63,000 Leased
of EBIMS, including accounting,
order entry and customer service
for all EBI products and Orthofix
sales and adminstrative offices
of EBI
United Kingdom manufacturing
and administrative facilities of
the Company (1) Swindon, England 28,000 Owned
(2) Bridgend, South Wales 55,500 Owned
Office and manufacturing facility
of Arthrotek (1) Ontario, California 35,400 Owned
(2) Aliso Viejo, California 4,165 Leased
(3) Redding, California 6,250 Leased
Office and manufacturing facilities
of Effner (1) Berlin, Germany 17,800 Leased
(2) Ansbach, Germany 4,800 Leased
</TABLE>
10
<PAGE> 12
ITEM 2. PROPERTIES. (continued)
<TABLE>
<CAPTION>
OWNED/
FACILITY LOCATION SQUARE FEET LEASED
- - - - -------- --------- ------------ ------
<S> <C> <C> <C>
Administrative and distribution facility
of Lorenz Surgical Jacksonville, Florida 32,450 Owned
Office and warehouse facility of Biomet SpA Milan, Italy 10,764 Owned
Office and warehouse facility of Biomet
and EBI Ontario, Canada 1,800 Leased
</TABLE>
The Company believes that its facilities are adequate, well maintained
and suitable for the development, manufacture and marketing of all its
products. The 28,000 square foot facility in Swindon is currently undergoing a
12,000 square foot expansion which is to be completed in September 1994. This
expansion is expected to provide additional manufacturing, administrative and
laboratory space. The 55,500 square foot facility in Bridgend is currently
undergoing a 13,000 square foot expansion to provide for additional
manufacturing and administrative space. The Bridgend expansion is expected to
be complete in November 1994.
ITEM 3. LEGAL PROCEEDINGS.
On February 9, 1990, Pedro A. Ramos, M.D., filed a complaint in the
United States District Court for the Southern District of Florida naming the
Company as a defendant. The plaintiff alleges the Company has infringed his
patent. In April 1993, the matter was tried before Judge Aronovitz of the
Southern District of Florida. Judge Aronovitz issued a memorandum opinion in
August 1993, finding that U.S. Patent No. 4,383,090 was willfully infringed.
On September 10, 1993, the trial court entered a final judgment and permanent
injunction in favor of Dr. Ramos. An amended final judgment was entered on
November 30, 1993 awarding Dr. Ramos a permanent injunction and damages of
$6,008,000. 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. Biomet filed Notices of Appeal to the final judgment
and amended final judgment on September 20, 1993 and December 13, 1993,
respectively. Biomet filed its Appeal Brief on March 3, 1994 and Dr. Ramos
filed his Response Brief on April 12, 1994. The appeal is scheduled for oral
argument on September 8, 1994. Biomet has negotiated a license under the
Ramos patent to continue selling its old bipolar design while it introduces a
new bipolar product. Management continues to conduct a vigorous defense of
this matter. 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.
There is no other pending litigation of a material nature in which the
Company is involved and no such litigation was terminated during the fourth
quarter of fiscal 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, business background, positions held with the Company
and tenure as an executive officer of each of the Company's executive officers
are set forth below. No family relationship exists among any of the executive
officers. Except as otherwise stated, each executive officer has held the
position indicated during the last five years.
<TABLE>
<CAPTION>
Served as Executive Current Position(s)
Name, Age and Business Experience Officer Since with the Company
- - - - --------------------------------- ------------------- -------------------
<S> <C> <C>
DANE A. MILLER, PH. D., 48
- - - - ----------------------
President and Chief Executive 1977 President and Chief
Officer of the Company; Executive Officer and
Director of the Company since 1977 Director of the Company.
NILES L. NOBLITT, 43
- - - - ----------------
Chairman of the Board of the 1978 Chairman of the Board
Company since September 1986; and Director of the
President of EBI from July 1988 Company.
to January 1990; Director of the
Company since 1978.
CHARLES E. NIEMIER, 38
- - - - ------------------
Senior Vice President - 1984 Senior Vice President -
International Operations of the International Operations
Company since November 1991; and Director of the
Senior Vice President - Company
Warsaw Operations from
May 1990 to November 1991 and
Vice President - Finance
of the Company from May 1984 to
November 1991; Director of the
Company since 1987.
GARRY L. ENGLAND, 40
- - - - ----------------
Senior Vice President - Warsaw 1987 Senior Vice President
Operations of the Company since - Warsaw Operations
May 1994; Vice President - Research of the Company.
and Development of the Company
from November 1991 to May 1994;
prior to November 1991,Vice
President - Manufacturing of the
Company.
DANIEL P. HANN, 39
- - - - --------------
Vice President and General Counsel 1989 Vice President and
of the Company since July 1989; General Counsel,
Secretary and Director of the Secretary and Director
Company since September 1989. of the Company.
JOEL P. PRATT, 40
- - - - -------------
Vice President and General 1990 Vice President and
Manager of Biomet Manager of Biomet
Medical Products since March 1993; Medical Products.
Vice President - Sales and Marketing
of the Company from January 1990 to
March 1993; prior to January 1990,
Director of Marketing of the Company.
GREGORY D. HARTMAN, 37
- - - - ------------------
Vice President - Finance of the 1991 Vice President - Finance of the Company.
Company since December 1991;
prior to December 1991, Controller
of the Company.
JAMES W. HALLER, 37
- - - - ---------------
Controller of the Company since 1991 Controller of the Company.
December 1991; Assistant Controller
of the Company from June 1990 to
December 1991; prior to June 1990,
Accounting Manager of the Company.
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C> <C>
DAVID L. MONTGOMERY, 46
- - - - -------------------
Vice President - Sales and
Marketing of the 1993 Vice President - Sales and Marketing of
Company since March 1993; the Company.
Director of Sales of the Company
from September 1990 to March 1993;
Director of Marketing of the
Company from January 1990 to
September 1990; prior to January
1990, Group Product Manager of the
Company.
ANTHONY L. FLEMING, 35
- - - - ------------------
Vice President - Research and 1994 Vice President - Research
Development of the Company and Development of the
since May 1994; prior to May 1994, Company.
Director of Product Development.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table shows the quarterly range of high and low quotations for
the Company's Common Shares as reported by the NASDAQ National Market System
for each of the three most recent fiscal years ended May 31.
<TABLE>
<CAPTION>
High Low
<S> <C> <C> <C>
1994
Fourth $11 5/8 $ 9 3/4
Third 11 7/8 9 7/8
Second 12 3/4 8 3/8
First 11 3/4 8 3/8
1993
Fourth $13 1/2 $ 9 3/4
Third 18 3/4 10 3/4
Second 22 1/4 13 3/4
First 22 1/4 14 3/4
1992
Fourth $23 1/4 $15 1/2
Third 32 3/8 20
Second 23 16 1/4
First 18 5/8 13 1/8
</TABLE>
The quotations have been adjusted to give effect to all stock splits. They
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily reflect actual transactions. The approximate number of
record holders of outstanding Common Shares as of May 31, 1994 was 14,200. The
Company has not paid any dividends within the last three years and the Company
does not anticipate that any dividends will be paid in the foreseeable future.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
(in thousands, except earnings per share)
Years ended May 31, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net sales $373,295 $335,373 $274,795 $209,690 $162,379 $135,760
Cost of sales 114,829 104,741 85,657 63,652 51,428 44,312
Gross profit 258,466 230,632 189,138 146,038 110,951 91,448
Selling, general and
administrative expenses 136,191 122,170 102,695 80,212 60,945 51,917
Research and development
expense 20,521 17,995 16,620 12,872 9,890 9,521
Operating income 101,754 90,467 69,823 52,954 40,116 30,010
Other income, net 5,278 3,805 6,688 5,646 3,712 2,251
Income before income
taxes 107,032 94,272 76,511 58,600 43,828 32,261
Provision for income taxes 37,214 30,311 24,702 19,126 13,895 10,784
Net income $ 69,818 $ 63,961 $ 51,809 $ 39,474 $ 29,933 $ 21,477
Earnings per share $.61 $.56 $.46 $.35 $.27 $.19
Weighted average number
of shares 115,215 114,934 113,009 111,892 111,136 110,352
<CAPTION>
BALANCE SHEET DATA
(in thousands)
As of May 31, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Working capital $288,408 $224,387 $167,707 $118,512 $ 92,573 $ 63,010
Total assets 418,077 354,409 279,234 210,660 153,548 119,000
Shareholders' equity 357,283 301,319 232,467 172,928 129,374 97,665
</TABLE>
. The selected consolidated financial information includes the results of
operations of Lorenz Surgical from June 1, 1992 and Effner GmbH from March
21, 1991
. Earnings per share data have been adjusted to give effect to all stock
splits.
. The Company paid no cash dividends during any of the periods presented.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Income and the percentage change
from year to year.
<TABLE>
<CAPTION>
Percentage of Percentage
Net Sales Increase (Decrease)
1994 1993
Years ended May 31, 1994 1993 1992 VS. 1993 vs. 1992
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 11% 22%
Cost of sales 30.8 31.2 31.2 10 22
Gross profit 69.2 68.8 68.8 12 22
Selling, general and
administrative expenses 36.5 36.4 37.4 11 19
Research and development
expense 5.5 5.4 6.0 14 8
Operating income 27.2 27.0 25.4 12 30
Other income, net 1.5 1.1 2.4 39 (43)
Income before income
taxes 28.7 28.1 27.8 14 23
Provision for income
taxes 10.0 9.0 8.9 23 23
Net income 18.7% 19.1% 18.9% 9% 23%
</TABLE>
1994 COMPARED TO 1993
The Company achieved record net sales, net income and earnings per share in
fiscal 1994. Net sales increased 11% to $373,295,000 as compared to
$335,373,000 in 1993. The Company's U.S.-based revenue increased 12% to
$288,216,000 in 1994, while foreign sales increased 9% to $85,079,000. For
fiscal year 1994, Biomet's foreign sales were adversely affected by
approximately $6,500,000 due to a stronger U.S. Dollar relative to the British
Pound Sterling. Biomet's worldwide reconstructive device sales during fiscal
1994 were $218,145,000, representing a 15% increase compared to fiscal 1993.
These increases in revenue were primarily a result of Biomet's continued
penetration of the reconstructive device market led by the Maxim Total Knee
System introduced in late fiscal 1993. Sales of EBI's products were
$88,714,000 in fiscal 1994, representing an 8% increase over last year. This
increase was largely attributable to increased demand for Orthofix devices.
The Company's "other products" revenues totaled $66,436,000, representing a 3%
increase over 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 as a percentage of net sales to 30.8% for 1994 compared
to 31.2% for 1993 due to the continued shift in the Company's sales mix to
reconstructive devices. The Company's selling, general and administrative
expenses slightly increased to 36.5% of net sales in 1994 compared to 36.4%
last year. Research and development expense also increased slightly from 5.4%
of net sales last year to 5.5% this year, reflecting the Company's commitment
to maintain its competitive position within the orthopedic market through
technological advancements and to capitalize on future opportunities available
within the orthopedic market. The increase in other income is a direct result
of income earned on higher investment balances in fiscal 1994 compared to 1993.
The effective income tax rate increased from 32.2% in fiscal 1993 to 34.8% this
year. This increase is due to the increase in the U.S. corporate income tax
rate and changes in the Puerto Rico local tax structure resulting from the
reduction of tax benefits from operating in Puerto Rico instituted by the
Clinton Administration. The Company's effective tax rate will continue to
increase in future years as the full impact of the Clinton Administration's tax
increase takes effect. These factors resulted in a 9% increase in net income
from $63,961,000 last year to $69,818,000 and a 9% increase in earnings per
share to $.61 per share this year from $.56 per share last year.
During fiscal 1995, the Company will strive to find ways to improve its current
growth rate through increased marketing and product development efforts for
both domestic and international markets. During the past fiscal year, many
promising products were introduced into the marketplace including EBI's Model
1200 Bone Healing System, the Maxim Total Knee System, and the Impact Modular
Revision Hip System.
Management believes that some or all of the following factors may be
influencing the orthopedic industry and the Company's recent operating results.
First, although recessions historically have not had an adverse affect on the
orthopedic market, management believes the prolonged worldwide economic
weakness may be having a negative influence on elective surgical trends. In
addition, the Company is experiencing pricing pressure in orthopedic support
devices and operating room supplies and in some generic internal fixation
device products. As health care providers become more concerned with health
care costs, they have become more selective with respect to the use of
higher-cost reconstructive devices which are increasingly limited for use in
younger, more active patients. The DRG-based prospective payment system may
increase the future importance of price as a competitive factor within the
orthopedic product and implantable bone growth stimulation markets. Also, the
shift by Medicare to fixed reimbursement rates payable to physicians based on
Relative Value Units together with uncer
15
<PAGE> 17
tainties associated with the pending health care reform initiatives of the
Clinton Administration have created some uncertainty in the orthopedic market.
Finally, the Company has experienced some delays in receiving clearance of new
products from the FDA, as a result of the FDA's attempts to follow the
directives of Congress. Although such delays have not had a material adverse
impact on the financial operations of the Company, management is unable to
determine at the present time what impact such delays may have in the future if
they continue or become worse.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and short-term investments increased
$47,219,000 to $140,842,000 at May 31,1994 despite purchases of the Company's
common shares. This increase is attributable to cash flows generated from
operating activities and strict measures implemented in late fiscal 1993 to
reduce manufacturing capacities and inventory growth.
Cash flows provided by operating activities were $65,743,000 in 1994 compared
to $43,750,000 in 1993. The primary source of the 1994 cash flows from
operating activities were profits from operations and an increase in accounts
payable, partially offset by increases in accounts and notes receivable and
inventories. Accounts and notes receivable increased 14% from $84,708,000 last
year to $96,800,000 at May 31, 1994, as a direct result of the increase in net
sales for the current fiscal year. Inventories increased 11% to $92,263,000 at
May 31, 1994 from $83,003,000 at May 31, 1993, reflecting an increase in the
number of units on consignment to support the current level of sales and the
support of the recent introduction of several new products including the
Mallory-Head and Impact Modular Total Hip Systems, the Maxim Total Knee System
and Arthrotek's Integrated Endoscopy System (IES 1000). Included in the
aforementioned changes were decreases in accounts and notes receivable and
inventories of approximately $608,000 and $858,000, respectively, attributable
to the decrease from May 31, 1993 to May 31, 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 year because foreign currency translation
adjustments to balance sheet items are recognized as a component of
shareholders' equity in the Company's consolidated balance sheet. The Company
will continue to be exposed to the effects of foreign currency translation
adjustments.
Cash flows used in investing activities were $26,979,000 in 1994 compared to
$31,531,000 in 1993. The primary uses of cash flows from investing activities
include purchases of short-term investments and capital expenditures. The
Company increased its short-term investments by $21,407,000 due to more
attractive investment yields on longer-term investments. The Company's capital
expenditures have slowed due to the major expansions completed in fiscal 1993.
Cash flows used in financing activities were $12,440,000 in 1994 compared to
$2,192,000 in 1993. The primary use of cash flows from financing activities
was the common share repurchase program. 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 through the close of business on September 16, 1994. During
fiscal 1994, the Company purchased 1,260,000 shares for $12,276,000. Future
purchases, if any, will be dependent upon market conditions.
Currently available funds, together with the anticipated cash flows generated
from future operations, are believed to be adequate to cover the Company's
anticipated capital needs and research and development costs during the next
two fiscal years. The Company expects to spend approximately $65 million
during the next two fiscal years for capital expenditures and research and
development, and anticipates using a portion of its cash reserves to fund
future acquisitions and other business development activities.
In May 1993, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", which is effective for fiscal years beginning
after December 15, 1993. This statement addresses the accounting for and
reporting of investments in equity securities that have readily determinable
fair values and for all debt securities. The Company will adopt the new
statement as of June 1, 1994, and the effect of implementation will not be
material to the Company's consolidated financial statements.
1993 COMPARED TO 1992
In fiscal 1993 net sales increased 22%, or $60,578,000, to $335,373,000 as a
result of increased unit sales for the Company's products, principally Biomet's
reconstructive devices and EBI's external fixation products and the inclusion
of the sales of Lorenz Surgical. Net income and earnings per share increased
23% and 22%, respectively. These increases were possible as a result of strict
measures to control selling, general and administrative costs. Selling,
general and administrative expenses decreased from 37.4% of net sales in fiscal
1992 to 36.4% for fiscal 1993. Research and development expenditures increased
by 8% during fiscal 1993. The decline in research and development expenditures
as a percentage of net sales reflected, in part, the inclusion of Lorenz
Surgical, the operations of which were not materially dependent upon research
and development. The decrease in other income was a direct result of lower
investment rates available in fiscal 1993.
During fiscal year 1993, the Company completed the 65,000 square foot expansion
of its Warsaw facility. This additional manufacturing and office space is
expected to be sufficient to accommodate anticipated future growth.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and Schedules which
appears on page 20 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information included under the caption "Election of Directors" in
the Company's definitive Proxy Statement filed pursuant to Regulation 14A in
connection with its 1994 Annual Meeting of Shareholders (the "Proxy Statement")
is incorporated herein by reference in response to this item.
Information regarding executive officers of the Company is included in
Part I of this Report under the caption "Executive Officers of the Registrant"
on pages 12 and 13.
ITEM 11. EXECUTIVE COMPENSATION.
The information included under the captions "Compensation of Directors"
and "Executive Compensation" in the Proxy Statement is incorporated herein by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "Principal Shareholders"
and "Share Ownership of Directors and Executive Officers" in the Proxy Statement
is incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Transactions" in
the Proxy Statement is incorporated herein by reference in response to this
item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1 AND 2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
See Index to Consolidated Financial Statements and Schedules which
appears on page 20 herein.
(3) EXHIBITS.
See Index to Exhibits.
(B) REPORTS ON FORM 8-K.
None.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ DANE A. MILLER
Dane A. Miller
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on July 19,1994.
By: /s/ NILES L. NOBLITT
Niles L. Noblitt, Director
By: /s/ DANE A. MILLER
Dane A. Miller, Director (Principal
Executive Officer)
By: /s/ JERRY L. FERGUSON
Jerry L. Ferguson, Director
By: /s/ M. RAY HARROFF
M. Ray Harroff, Director
By: /s/ KENNETH V. MILLER
Kenneth V. Miller, Director
By: /s/ JERRY L. MILLER
Jerry L. Miller, Director
By: /s/ L. GENE TANNER
L. Gene Tanner, Director
By: /s/ THOMAS F. KEARNS, JR
Thomas F. Kearns, Jr., Director
18
<PAGE> 20
By: /s/ CHARLES E. NIEMIER
Charles E. Niemier, Director
By: /s/ JAMES M. NORRIS
James M. Norris, Director
By: /s/ DANIEL P. HANN
Daniel P. Hann, Director
By: /s/ MARILYN TUCKER QUAYLE
Marilyn Tucker Quayle, Director
By: /s/ GREGORY D. HARTMAN
Gregory D. Hartman, Vice President -
Finance (Principal Financial Officer)
By: /s/ JAMES W. HALLER
James W. Haller,
Controller (Principal Accounting Officer)
19
<PAGE> 21
BIOMET, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
1. FINANCIAL STATEMENTS: PAGE
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . 21
Consolidated Balance Sheets as of May 31, 1994 and 1993. . . . . . . . . 22
Consolidated Statements of Income for the years ended
May 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Shareholders' Equity for
the years ended May 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows for the years
ended May 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . 26-32
2. FINANCIAL STATEMENT SCHEDULES:
Schedule I - Marketable Securities and Other Investments . . . . . . . . 33
Schedule VIII - Valuation and Qualifying Accounts. . . . . . . . . . . . 34
Schedule IX - Short-Term Borrowings . . . . . . . . . . . . . . . . . . . 35
Schedule X - Supplementary Income Statement Information. . . . . . . . . 36
Schedules other than those listed above are omitted because they are not
required or the information is included in the Notes to Consolidated Financial
Statements.
20
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
COOPERS certified public accountants
& LYBRAND
To the Shareholders and Board of Directors of Biomet, Inc.:
We have audited the consolidated financial statements and the financial
statement schedules of Biomet, Inc. and subsidiaries listed on page 20 of this
Form 10-K. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Biomet, Inc. and subsidiaries as of May 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material aspects, the information
required to be included therein.
COOPERS & LYBRAND
South Bend, Indiana
July 1, 1994
21
<PAGE> 23
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(in thousands)
as of May 31,
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70,391 $ 44,579
Short-term investments 70,451 49,044
Accounts and notes receivable, less allowance for doubtful receivables
(1994 - $3,619 and 1993 - $3,175) 96,800 84,708
Inventories 92,263 83,003
Prepaid expenses and other 12,322 9,705
Total current assets 342,227 271,039
Property, plant and equipment:
Land and improvements 2,397 2,422
Buildings and leasehold improvements 25,740 24,387
Machinery and equipment 55,323 50,869
83,460 77,678
Less, Accumulated depreciation and amortization 32,336 24,609
Property, plant and equipment, net 51,124 53,069
Intangible assets, net of accumulated amortization
(1994 - $10,124 and 1993 - $8,010) 9,599 11,417
Excess acquisition costs over fair value of acquired net assets, net of
accumulated amortization (1994 - $7,655 and 1993 - $6,020) 11,427 9,638
Investments in and advances to affiliates 1,678 7,828
Other assets 2,022 1,418
Total assets $418,077 $354,409
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 1,606 $ 2,436
Accounts payable 18,604 12,959
Accrued income taxes 13,620 12,202
Accrued wages and commissions 8,249 7,227
Other accrued expenses 11,740 11,828
Total current liabilities 53,819 46,652
Deferred federal income taxes 3,529 2,564
Other liabilities 3,446 3,874
Total liabilities 60,794 53,090
Commitments and contingencies (Note J)
Shareholders' equity
Preferred shares, $100 par value, authorized 5 shares; none issued - -
Common shares, without par value: Authorized 500,000 shares;
issued and outstanding (1994 - 114,424 shares and 1993 - 115,288 shares) 47,290 46,829
Additional paid-in capital 13,606 13,106
Retained earnings 299,510 242,618
Cumulative translation adjustment (3,123) (1,234)
Total shareholders' equity 357,283 301,319
Total liabilities and shareholders' equity $418,077 $354,409
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
22
<PAGE> 24
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
for the years ended May 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
NET SALES $373,295 $335,373 $274,795
Cost of sales 114,829 104,741 85,657
Gross profit 258,466 230,632 189,138
Selling, general and administrative expenses 136,191 122,170 102,695
Research and development expense 20,521 17,995 16,620
Operating income 101,754 90,467 69,823
Other income, net 5,867 4,730 7,516
Interest expense (589) (925) (828)
Income before income taxes 107,032 94,272 76,511
Provision for income taxes 37,214 30,311 24,702
NET INCOME $ 69,818 $ 63,961 $ 51,809
EARNINGS PER SHARE, BASED ON THE WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING DURING THE YEAR $.61 $.56 $.46
Weighted average number of shares 115,215 114,934 113,009
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
23
<PAGE> 25
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
for the years ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Additional Cumulative
Common Shares Paid-in Retained Translation
Number Amount Capital Earnings Adjustment
<S> <C> <C> <C> <C> <C>
Balance, June 1, 1991 112,378 $ 40,534 $ 7,959 $123,452 $ 983
Issuance of shares 170 1,343 - - -
Exercise of stock options 914 2,427 - - -
Tax benefit arising from the
exercise of stock options - - 2,279 - -
Net income - - - 51,809 -
Translation adjustment - - - - 1,681
Balance, May 31, 1992 113,462 44,304 10,238 175,261 2,664
Issuance of shares 4 73 - - -
Exercise of stock options 831 2,436 - - -
Tax benefit arising from the
exercise of stock options - - 2,868 - -
Acquisition of Lorenz Surgical 991 16 - 3,396 -
Net income - - - 63,961 -
Translation adjustment - - - - (3,898)
Balance, May 31, 1993 115,288 46,829 13,106 242,618 (1,234)
Issuance of shares 7 62 - - -
Exercise of stock options 389 911 - - -
Repurchase of shares (1,260) (512) (144) (11,620) -
Tax benefit arising from the
exercise of stock options - - 644 - -
Effect of change from cost to equity method
of accounting for certain unconsolidated
subsidiaries - - - (1,306) -
Net income - - - 69,818 -
Translation adjustment - - - - (1,889)
Balance, May 31, 1994 114,424 $47,290 $13,606 $299,510 $(3,123)
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
24
<PAGE> 26
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
for the years ended May 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 69,818 $ 63,961 $ 51,809
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 8,167 7,590 5,542
Amortization 3,879 4,097 2,617
Gain on sale of marketable securities, net (2,213) (670) (1,692)
Equity in losses of affiliates 1,579 143 219
Deferred federal income taxes (1,130) (401) 878
Changes in current assets and current liabilities:
Accounts and notes receivable (13,092) (14,328) (13,664)
Inventories (10,097) (22,171) (14,986)
Prepaid expenses and other (448) 332 (1,721)
Accounts payable 6,414 (4,487) 1,246
Accrued income taxes 1,818 6,054 4,341
Accrued wages and commissions 1,048 1,226 1,939
Other accrued expenses - 2,404 845
Net cash from operating activities 65,743 43,750 37,373
Cash flows from (used in) investing activities:
Proceeds from sales and maturities of short-term investments 21,259 13,784 16,118
Purchases of short-term investments (40,453) (22,351) (36,646)
Capital expenditures (6,545) (14,912) (14,048)
Cash invested in affiliates (1,466) (2,625) (1,653)
Payments on patents capitalized - (2,733) (3,134)
Increase in other assets (666) (3,172) (743)
Other 892 478 423
Net cash (used in) investing activities (26,979) (31,531) (39,683)
Cash flows from (used in) financing activities:
Increase (decrease) in short-term borrowings (719) - 230
Payments on long-term debt (418) (4,701) -
Issuance of shares 973 2,509 3,770
Repurchase of shares (12,276) - -
Net cash from (used in) financing activities (12,440) (2,192) 4,000
Effect of exchange rate changes on cash (512) (226) (4)
Increase in cash and cash equivalents 25,812 9,801 1,686
Cash and cash equivalents, beginning of year 44,579 34,778 33,092
Cash and cash equivalents, end of year $ 70,391 $ 44,579 $ 34,778
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 581 $ 948 803
Income taxes 36,480 24,444 19,033
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
25
<PAGE> 27
BIOMET INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended May 31, 1994, 1993 and 1992
Note A: Accounting Policies.
The following is a summary of the accounting policies adopted by Biomet, Inc.
and subsidiaries which have a significant effect on the consolidated financial
statements.
Principles of Consolidation - The consolidated financial statements include the
accounts of Biomet, Inc. and its subsidiaries (individually and collectively,
the "Company"). All intercompany accounts and transactions have been
eliminated in the consolidated financial statements. All foreign subsidiaries
are consolidated on the basis of an April 30 fiscal year. Investments in less
than 20% owned affiliates are accounted for on the cost method, the carrying
amount of which approximates market. Investments in more than 20% owned
affiliates are accounted for on the equity method. The equity in losses of
affiliates aggregated $1,579,000, $143,000 and $219,000, respectively, for the
years ended May 31, 1994, 1993 and 1992 and consist primarily of research and
development expense. Accordingly, these amounts are included in research and
development expense in the consolidated statements of income.
Translation of Foreign Currency - Assets and liabilities of foreign
subsidiaries are translated at rates of exchange in effect at the close of
their fiscal year. Revenues and expenses are translated at the weighted
average exchange rates during the year. Translation gains and losses are
accumulated as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included in other income, net.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Investments which do not meet the definition of cash equivalents are classified
as short-term investments.
Short-Term Investments - Short-term investments, other than marketable equity
securities, are carried at cost or amortized cost, which approximates market.
Marketable equity securities are valued at the lower of aggregate cost or
market value. Dividend and interest income are accrued as earned. The cost of
marketable securities sold is determined by the specific identification method.
Inventories - Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out method.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost less accumulated depreciation and amortization. Depreciation is computed
based on the estimated useful lives using the straight-line method. Leasehold
improvements are amortized over the term of the lease using the straight-line
method. Gains or losses on the disposition of property, plant and equipment
are included in income. Maintenance and repairs are expensed as incurred.
Intangible Assets - Intangible assets consist primarily of patents, trademarks,
product technology and acquired license agreements and are carried at cost less
accumulated amortization. Amortization of intangibles is computed based on the
straight-line method over periods ranging from eight to twelve years.
Excess Acquisition Costs Over Fair Value of Acquired Net Assets -
Excess acquisition costs over fair value of acquired net assets (goodwill) are
amortized using the straight-line method over periods ranging from eight to ten
years.
Short-Term Borrowings - The Company's German subsidiary, Effner Biomet GmbH,
has short-term borrowings of $1,606,000 and $2,436,000 as of May 31, 1994 and
1993 respectively.
Income Taxes - Effective June 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109") which requires recognition of deferred tax assets and liabilities
based on differences between the financial reporting and tax bases of assets
and liabilities, measured using the enacted tax rates in effect for the years
in which the differences are expected to reverse. Prior to the adoption of
SFAS No. 109, deferred income taxes were determined using the deferred method
pursuant to Accounting Principles Board Opinion No. 11. Under the deferred
method, tax expense was based on items of income and expense that were reported
in different years in the financial statements and tax returns and were
measured at the tax rate in effect in the year the difference originated.
Revenue Recognition, Concentrations of Credit Risk and Allowance for Doubtful
Receivables - Revenue is recognized when the product is shipped to the health
care provider. The Company provides credit, in the normal course of business,
to hospitals, private and governmental institutions and health-care agencies,
insurance providers and physicians. The Company maintains an allowance for
doubtful receivables and charges actual losses to the allowance when incurred.
The Company invests the majority of its excess cash in certificates of deposit
with financial institutions, money market securities, short-term municipal
securities and common stocks. The Company does not believe it is exposed to
any significant credit risk on its cash and cash equivalents and short-term
investments. At May 31,1994, cash and cash equivalents and short-term
investments included $30 million of deposits and $21 million of certificates of
deposit, respectively, with financial institutions in Puerto Rico, and
short-term investments also include $21 million of municipal bonds issued by
state and local subdivisions in Puerto Rico.
26
<PAGE> 28
BIOMET INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1994, 1993 and 1992
Note B: Acquisitions.
During the year ended May 31, 1994, the Company increased its ownership in
Polymers Reconstructive A/S ("Polymers"), a Dutch company involved in the
manufacturing and distribution of a proprietary bone cement system, to 51% in
several transactions. Upon exceeding 20% ownership, the Company began
accounting for this investment under the equity method, and upon achieving
majority ownership, the Company began consolidating Polymers. Goodwill
recognized in the consolidation of Polymers aggregates $3.8 million and is
being amortized over a ten-year period. Also during the year ended May 31,
1994, the Company began accounting for its investment in Catheter Research,
Inc. ("CRI"), a company involved in various research and development
activities, using the equity method to reflect its increased ownership. The
retroactive application of the equity method of accounting for Polymers and CRI
resulted in a decrease in the Company's investment in Polymers and CRI of
$492,000 and $814,000, respectively, which was charged against retained
earnings (the prior years' consolidated financial statements were not restated
to reflect the retroactive application of the equity method, since the amounts
were immaterial to prior years' consolidated financial statements).
On July 31, 1992, the Company through its wholly-owned subsidiary, Lorenz
Surgical Acquisition Corp., issued 990,873 common shares of the Company for all
of the issued and outstanding common shares of Walter Lorenz Surgical
Instruments, Inc. ("Lorenz Surgical"), a leading marketer of oral-maxillofacial
products based in Jacksonville, Florida. The historical carrying value of the
assets and liabilities of Lorenz Surgical at the date of acquisition were
approximately $12,180,000 and $8,768,000, respectively. The acquisition was
accounted for as a pooling of interests and, accordingly, the results of
operations of Lorenz Surgical are included in the Company's consolidated
statements of income from June 1, 1992. Prior years consolidated financial
statements were not restated to reflect the pooling of interests and pro forma
consolidated results of operations are not presented as the amounts are not
materially different from the Company's historical results.
Note C: Short-Term Investments.
Marketable securities included in short-term investments as of May 31, 1994 and
1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
(in thousands)
<S> <C> <C>
Aggregate cost:
Common stocks $ 4,771 $ 3,634
Preferred stocks 1.797 4,231
Bonds 41,283 19,579
Carrying amount $47,851 $27,444
Aggregate market value $50,538 $29,527
</TABLE>
At May 31, 1994 gross unrealized gains aggregated $2,955,000 and gross
unrealized losses aggregated $268,000.
Investment income included in other income, net consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Interest income $3,977 $2,839 $2,804
Dividend income 442 586 645
Net realized gains 2,202 670 1,662
Total $6,621 $4,095 $5,111
</TABLE>
Note D: Inventories
Inventories at May 31, 1994 and 1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
in thousands
<S> <C> <C>
Raw material $12,729 $11,374
Work-in-process 8,702 8,041
Finished goods 41,200 41,161
Consigned Distributor 29,632 22,427
Total 92,263 83,003
</TABLE>
27
<PAGE> 29
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1994, 1993 and 1992
Note E: Team Member Benefit Plans.
The Company has an Employee Stock Bonus Plan for eligible Team Members of the
Company and certain subsidiaries. The amounts expensed under this plan for the
years ended May 31, 1994, 1993 and 1992 were $1,546,000, $1,322,000 and
$1,162,000, respectively.
The Company also has a defined contribution profit sharing plan which covers
substantially all of the Team Members within the continental U.S. and allows
participants to make contributions by salary reduction pursuant to Section
401(k) of the Internal Revenue Code. The Company may match up to 50% of the
Team Member's contribution up to a maximum of 5% of the Team Member's
compensation. The amounts expensed under this profit sharing plan for the
years ended May 31, 1994, 1993 and 1992 were $1,075,000, $922,000 and $908,000,
respectively.
Biomet Ltd., a subsidiary based in the United Kingdom, has a defined benefit
pension plan for all of its salaried Team Members. Pension expense and related
pension amounts are immaterial to the consolidated financial statements.
Note F: Stock Option Plans.
The Company has three stock option plans: the 1984 Employee Stock Option Plan,
as amended, the 1992 Employee and Non-Employee Director Stock Option Plan (the
"Employee Plans") and the 1992 Distributor Stock Option Plan (the "Distributor
Plan").
Under the Employee Plans, options may be granted to key employees, at the
discretion of the stock option committee, and generally become exercisable in
annual increments beginning one year after the date of grant. In the case of
options granted to an employee of the Company who is a 10% or more shareholder,
the option price is an amount per share of not less than 110% of the fair
market value per share on the date of granting the option, as determined by the
Committee. No options have been granted to employees who are 10% or more
shareholders. The option price for options granted to all other employees is
an amount per share of not less than the fair market value per share on the
date of granting the option. The term of each option granted expires within
the period prescribed by the Committee, but shall not be more than five years
from the date the option is granted if the optionee is a 10% or more
shareholder, and not more than ten years for all other optionees.
An aggregate of 9,680,000 common shares have been reserved for granting under
the 1984 Employee Stock Option Plan. An aggregate of 3,000,000 common shares
have been reserved for granting under the 1992 Employee and Non-Employee
Director Stock Option Plan. The 1992 Plan does not affect options granted
under the 1984 Plan.
The Distributor Plan provides for granting of options to purchase common shares
of the Company to persons who serve as distributors of the Company's products.
An aggregate of 4,000,000 common shares have been reserved for granting under
this plan. Under the Distributor Plan, options may be granted from time to
time at the discretion of the stock option committee, and become exercisable in
full at any time or on a cumulative basis from time to time, in accordance with
the stock option agreement prescribed by the stock option committee. The
option price is determined by the stock option committee, but shall not be less
than the fair market value of such shares on the date of grant, as determined
by the committee. All rights under the option terminate upon the termination
of an optionee's distributorship with the Company unless such termination
results from retirement, disability or death. No option may have a term longer
than ten years from the date the option is granted.
The transactions for common shares under options for the years ended May 31,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Number Per Share
of Shares Option Price
<S> <C> <C>
Outstanding, June 1, 1992 3,433,099 $ 1.38 - $26.13
Granted 940,350 10.25 - 14.63
Exercised (826,737) 1.38 - 16.25
Terminated (576,132) 2.86 - 26.13
Outstanding, May 31, 1993 2,970,580 1.53 - 15.00
Granted 1,501,969 8.50 - 10.50
Exercised (525,518) 1.53 - 10.50
Terminated (885,678) 3.96 - 13.63
Outstanding, May 31, 1994 3,061,353 $ 1.53 - $15.00
</TABLE>
28
<PAGE> 30
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1994, 1993 and 1992
Note F: Stock Option Plans (Concluded).
Options outstanding at May 31, 1994 which are currently exercisable represent
974,000 shares. The remaining options become exercisable in fiscal years 1995
(599,000 shares); 1996 (381,000 shares); 1997 (416,000 shares); 1998 (356,000
shares); 1999 (310,000 shares) and 2000 through 2002 (25,353 shares). As of
May 31, 1994, 6,956,092 shares were reserved for future options, compared with
7,572,383 shares at May 31, 1993.
No adjustment was made to the weighted average number of shares outstanding to
reflect the exercise of outstanding stock options since the effect would be
immaterial.
Note G: Shareholders' Equity.
In September 1993, the Board of Directors authorized the Company to repurchase
up to $25 million of the issued and outstanding common shares of the Company in
open market purchases or privately negotiated transactions through the close of
business on September 16, 1994. During the year ended May 31, 1994, the
Company purchased 1,260,000 shares of its common stock at an aggregate cost of
$12,276,000.
On December 2, 1989, the Board of Directors of the Company approved the
adoption of a Shareholder Rights Plan (the "Plan") under which the Company
declared a dividend of one common share purchase right for each common share
outstanding to shareholders of record on December 26, 1989 (the "Right"). Each
Right entitles the shareholder to purchase from the Company one common share at
a price of $37.50 per common share, subject to adjustment. The Rights will not
be exercisable or separable from the common shares until ten business days
after a person or group acquires 15% or more or tenders for 30% or more of the
Company's outstanding common shares.
The Plan also provides that if any person or group becomes an "Acquiring
Person", each Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will entitle its holder to receive upon
exercise that number of common shares having a market value of two times the
exercise price of the Right. In the event the Company is acquired in a merger
or other business combination transaction, each Right will entitle its holder
to receive upon exercise of the Right, at the Right's then current exercise
price, that number of the acquiring company's common shares having a market
value of two times the exercise price of the Right. The Company is entitled to
redeem the Rights at a price of one cent per Right at any time prior to them
becoming exercisable, and the Rights expire on December 2, 1999. The Plan was
designed to protect the interests of the Company's shareholders against certain
coercive tactics sometimes employed in takeover.
Note H: Income Taxes.
Effective June 1, 1993, the Company adopted SFAS No. 109, (see Note A). As
permitted by SFAS No. 109, the Company has elected not to restate the financial
statements of any prior years. The adoption of SFAS No. 109 did not have a
material effect in the Company's consolidated financial statements.
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
United States operations $ 96,014 $86,356 $68,277
Foreign operations 11,018 7,916 8,234
Total $107,032 $94,272 $76,511
</TABLE>
29
<PAGE> 31
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1994, 1993 and 1992
Note H: Income Taxes (Concluded).
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Current:
Federal $25,937 $21,736 $14,840
State, including Puerto Rico 7,806 6,118 5,954
Foreign 4,601 2,858 3,030
38,344 30,712 23,824
Deferred tax (credit) expense (1,130) (401) 878
Total $37,214 $30,311 $24,702
Effective tax rate 34.8% 32.2% 32.3%
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 34.0% 34.0%
Add (deduct):
State taxes, less effect of federal reduction 3.7 3.7 4.0
Foreign income taxes at rates different from the U.S. statutory rate .3 .2 .3
Tax benefit relating to operations in Puerto Rico (4.8) (5.4) (5.5)
Research and development tax credit ( .1) - ( .3)
Earnings of Foreign Sales Corporation ( .5) ( .4) ( .3)
Other 1.2 .1 .1
34.8% 32.2% 32.3%
</TABLE>
Deferred income taxes reflect the estimated future net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The
components of the net deferred tax asset and liability at May 31, 1994 are as
follows:
<TABLE>
<CAPTION>
1994
(in thousands)
<S> <C>
Current deferred tax asset:
Accounts receivable $ 1,156
Inventories 1,932
Accrued expenses 1,695
Investments in affiliates and joint ventures 1,886
Net current deferred tax asset $ 6,669
Long term deferred tax asset (liability):
Depreciation $ (3,586)
Other 57
Net long-term deferred tax liability $ (3,529)
</TABLE>
No provision has been made for U.S. federal and state income taxes or foreign
taxes of the undistributed earnings ($33,459,000 at May 31, 1994) of foreign
subsidiaries because it is expected that such earnings will be reinvested
overseas indefinitely. Determination of the amount of any unrecognized
deferred income tax liability on these undistributed earnings is not practical.
30
<PAGE> 32
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1994, 1993 and 1992
Note I: Industry Segment and Geographic Information
The Company operates in one dominant industry segment which includes the
designing, manufacturing and marketing of reconstructive and trauma devices,
electrical bone growth stimulators, orthopedic support devices, operating room
supplies, powered surgical instruments, general surgical instruments,
arthroscopy products and oral-maxillofacial implants and instruments used
primarily by orthopedic medical specialists in both surgical and non-surgical
therapy.
Net sales, operating income and identifiable assets by geographic area are
presented in the following table. The Company's major identifiable assets are
located in the United States (North America) and the United Kingdom, Germany
and Italy (Europe).
<TABLE>
<CAPTION>
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Net sales:
North America $316,936 $283,028 $227,737
Europe 56,359 52,345 47,058
Intercompany 13,827 9,648 6,625
Eliminations (13,827) (9,648) (6,625)
$373,295 $335,373 $274,795
Operating income:
North America $ 89,805 $ 81,811 $ 61,077
Europe 11,949 8,656 8,746
$101,754 $ 90,467 $ 69,823
Identifiable assets:
North America $355,206 $300,884 $230,434
Europe 70,131 56,506 48,291
Eliminations (7,260) (2,981) 509
$418,077 $354,409 $279,234
</TABLE>
Intercompany transfers, primarily from North America to Europe, are made at
agreed upon prices which include a profit element. Domestic export sales,
primarily to European countries, aggregated $28,720,000, $25,929,000 and
$23,586,000 for the years ended May 31, 1994, 1993 and 1992, respectively.
Selected financial data of the Company's foreign subsidiaries is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Net sales $ 61,197 $ 54,505 $ 49,701
Net income $ 6,417 $ 4,871 $ 5,205
Current assets $ 53,515 $ 45,592 $ 36,344
Property, plant and equipment 11,151 9,377 10,285
Intangible assets 2,734 3,261 3,571
67,400 58,230 50,200
Current liabilities 18,332 15,777 14,683
Intercompany loans 13,803 8,746 2,517
Long-term liabilities 1,345 1,240 1,318
33,480 25,763 18,518
Net assets $ 33,920 $ 32,467 $ 31,682
</TABLE>
31
<PAGE> 33
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONCLUDED)
for the years ended May 31, 1994, 1993 and 1992
Note J: Commitments and Contingencies.
Leases - The Company's subsidiary, Electro-Biology, Inc. ("EBI"), leases its
Parsippany facility under a ten-year lease agreement, expiring in 1997,
accounted for as an operating lease, with the right to expand and/or purchase
at its option. Under the terms of the lease, EBI is obligated for normal
expenses such as maintenance, insurance, utilities and real estate taxes. At
May 31, 1994, future minimum annual payments due under this lease are as
follows: 1995 - $1,398,000; 1996 - $1,398,000 and 1997 - $932,000. Total
rental expense for all operating leases for the years ended May 31, 1994, 1993
and 1992 aggregated $1,602,000, $1,577,000 and $1,096,000, respectively.
Medical Insurance Plan - The Company maintains a self-insurance program for
covered medical expenses for all Team Members within the continental U.S. The
Company is liable for claims up to $125,000 per Team Member annually.
Self-insurance costs are accrued based upon the aggregate of the liability for
reported claims and a management determined estimated liability for claims
incurred but not reported.
Liability Insurance - Subsequent to 1989, the Company began self-insuring for
product liability claims. Self-insurance retention liability is $2,000,000 per
occurrence and $4,000,000 aggregate per year. Liabilities in excess of these
amounts are the responsibility of the umbrella carrier. Self-insurance costs
are accrued based on reserves set in consultation with the umbrella carrier for
reported claims and a management determined estimated liability for claims
incurred but not reported. Based on historical experience, management does not
anticipate that incurred but unreported claims would have a material impact on
the Company's consolidated financial position.
Litigation - On September 10, 1993, the judge of the United States District
Court for the Southern District of Florida entered a judgment and permanent
injunction, which concluded a patent of the plaintiff was valid and was
willfully infringed by the Company. The court held that the plaintiff was
entitled to damages of $5.3 million, plus costs and accrued interest. 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. On September 20, 1993, the Company filed an appeal and on May 13, 1994,
the briefing at the Court of Appeals for the Federal Circuit was completed. A
date for oral argument has not been set. 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.
There are various other claims, lawsuits, disputes with third parties,
investigations and pending actions involving various allegations against the
Company incident to the operation of its business. The results of litigation
proceedings cannot be predicted with certainty; however, management believes
the ultimate disposition of these matters will not have a material adverse
effect on the consolidated financial position of the Company.
Note K: Subsequent Event (unaudited).
On July 16, 1994, the Company and Kirschner Medical Corporation ("Kirschner")
signed a definitive agreement to merge Kirschner with a wholly-owned subsidiary
of the Company. In the definitive agreement, Kirschner accepted the proposal
of the Company to purchase all of the issued and outstanding shares
(approximately 3.5 million shares are issued and outstanding) of Kirschner
common stock for $10.75 per share in cash or an equivalent value in common
stock of the Company. The Company will select whether to use all cash or all
stock in the transaction. If stock is used, Kirschner shareholders will receive
not less than 0.9 shares of stock of the Company for each share of Kirschner
stock. The consummation of the transaction is subject to certain conditions,
including the approval of Kirschner shareholders.
On August 12, 1994, the Company purchased from Figgie International, Inc.
("Figgie") their entire stake in Kirschner (685,222 Kirschner shares
representing 19.9% of the issued and outstanding shares) and a $2.5 million
promissory note held by Figgie and issued to Kirschner's Spanish subsidiary,
IQL.
32
<PAGE> 34
BIOMET, INC. AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES AND OTHER INVESTMENTS
May 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Number of Amount at which
shares or each portfolio
units- of equity
principal Market value of security issues and
Name of issuer amounts of each issue at other security
and title of each bonds Cost of balance sheet issues are carried in
issue and notes each issue date the balance sheet
- - - - ------------------------ ---------- ----------- --------------- ----------------------
<S> <C> <C> <C> <C>
Marketable debt securities:
Municipal security
mutual funds $ 8,487 $ 8,489 $ 8,500 $ 8,489
U.S. state entities 5,391 5,366 5,365 5,366
U.S. local
municipalities 6,761 6,647 6,636 6,647
Puerto Rican entities 10,094 9,985 10,022 9,929
Collateralized mortgage
obligations - Puerto Rico 10,964 10,898 10,759 10,852
Marketable preferred stock 78 1,797 1,742 1,797
Marketable common stock 519 4,771 7,514 4,771
Certificates of deposit
(included in short-term
investments) 22,600 22,600 22,600 22,600
------ ------ ------
Total short-term investments $70,553 $73,138 $70,451
======= ======= =======
</TABLE>
33
<PAGE> 35
BIOMET, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
----------------------------
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts Deductions end
Description of period expenses describe describe of period
----------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts:
For the year ended
May 31, 1994 $3,175 $2,415 $129 (B) $2,137 (A) $3,619
(37) (C)
====== ====== ==== ====== ======
For the year ended
May 31, 1993 $2,891 $2,061 $265 (B) $1,972 (A) $3,175
70 (C)
====== ====== ==== ====== ======
For the year ended
May 31, 1992 $2,830 $2,086 $116 (B) $2,170 (A) $2,891
(29) (C)
====== ====== ==== ====== ======
</TABLE>
Notes:
(A) Uncollectible accounts written off
(B) Collection of previously written off accounts
(C) Effect of foreign currency translation adjustment
34
<PAGE> 36
BIOMET, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Maximum amount Average amount Weighted average
Category of Balance at Weighted outstanding outstanding interest rate
aggregate short- end average during the during the during the
term borrowings of period interest rate period period period
---------------- --------- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1994
Bank Line
of Credit (A) $1,606 10.5% $2,436 $2,021 10.5%
For the year ended May 31, 1993
Bank Line
of Credit (A) $2,436 10.5% $2,436 $2,401 10.5%
For the year ended May 31, 1992
Bank Line
of Credit (A) $2,367 10.5% $2,367 $2,180 10.5%
</TABLE>
(A) Short-term borrowings were incurred in connection with the acquisition of
Effner GmBH and represent borrowings under a $1,606 unsecured bank line of
credit with interest at 10.5%.
35
<PAGE> 37
BIOMET, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B
Item Charged to Costs and Expenses
- - - - -------------------------------- ------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Amortization of deferred charges and
intangible assets:
Excess acquisition cost $1,635 $ 1,292 $1,023
Patents 2,114 2,030 1,497
Other deferred costs 130 79 116
Royalties 6,278 4,444 3,334
</TABLE>
Items not shown above have been omitted because they are less than one percent
of net sales in each year.
36
<PAGE> 38
BIOMET, INC.
FORM 10-K
MAY 31, 1994
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Number Assigned Numbering System
in Regulation Page Number
S-K, Item 601 Title of Exhibit of Exhibit
--------------- ---------------- -----------------
<S> <C> <C> <C>
(3) 3.1 Amended Articles of
Incorporation filed July 23,
1982. (Incorporated by reference
to Exhibit 3(a) to Biomet, Inc.
Form S-18 Registration Statement,
File No. 2-78589C).
3.2 Articles of Amendment to
Amended Articles of
Incorporation filed July 11,
1983. (Incorporated by
reference to Exhibit 3.2 to
Biomet, Inc. Form 10-K Report
for year ended May 31, 1983,
File No. 0-12515).
3.3 Articles of Amendment to
Amended Articles of
Incorporation filed August 22,
1987. (Incorporated by
reference to Exhibit 3.3 to
Biomet, Inc. Form 10-K Report
for year ended May 31, 1987,
File No. 0-12515).
3.4 Articles of Amendment of the
Amended Articles of
Incorporation filed September
18, 1989. (Incorporated by
reference to Exhibit 3.4 to
Biomet, Inc. Form 10-K Report
for year ended May 31, 1990,
File No. 0-12515.)
3.5 Amended and Restated Bylaws.
(Incorporated by reference to
Exhibit 4.2 to Biomet, Inc.
Form S-3 Registration Statement,
File No. 33-33376).
(4) 4.1 Specimen certificate for
Common Shares. (Incorporated
by reference to Exhibit 4.1 to
Biomet, Inc. Form 10-K Report
for year ended May 31, 1985,
File No. 0-12515).
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).
(9) No exhibit
(10) 10.1 Employee Stock Option Plan, as
last amended December 14, 1991.
(Incorporated by reference to
Exhibit 10.1 to Biomet, Inc. Form 10-K
Report for year ended May 31, 1992,
File No. 0-12515).
10.2 Form of Employee Stock Option Agreement.
(Incoporated by reference to Exhibit 10.2
to Biomet, Inc. Form 10-K Report for year
ended May 31, 1991, File No. 0-12515).
10.3 Narrative statement as to terms
of cash bonus plan for executive
officers (Incorporated by reference
to Exhibit 10.4 to Biomet, Inc.
Form 10-K Report for year ended
May 31, 1989, File No. 0-12515).
10.4 Lease dated January 9, 1985
between EBI Medical Systems,
Inc. and Lincoln Property
Company No. 2071, Ltd.
(Incorporated by reference
to Exhibit (10)(m) to
Electro-Biology, Inc. Form
10-K Report for year ended
December 31, 1985, File No.
0-10806).
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C>
10.5 English translation of
Distributorship
Agreement relating to the
United Kingdom, dated January 1,
1989, between Orthofix s.r.l.
and EBI Medical Systems Ltd.
(UK) (Incorporated by reference
to Exhibit 10.10 to Biomet, Inc.
Form 10-K Report for year ended
May 31, 1989, File No. 0-12515).
10.6 English translation of Agency
Agreement relating to United
States, Canada and the Caribbean
Island Basin dated June 1, 1990
between Orthofix s.r.l. and EBI
Medical Systems, Inc. (Incorporated
by reference to Exhibit 10.9 to
Biomet, Inc. Form 10-K Report for
year ended May 31, 1990, File No.
0-12515).
10.7 Agreement of Merger by and among Biomet,
Inc., Lorenz Surgical Acquisition Corp.,
Walter Lorenz Surgical Instruments, Inc.,
and Walter Lorenz, dated as of July 23, 1992,
and schedules thereto. (Incorporated by reference
to Exhibit 2.1 to Biomet, Inc. Form S-3
Registration Statement, File No. 33-50420).
10.8 Employee and Non-Employee Director Stock Option
Plan, dated September 18, 1992. (Incorporated by
reference to Exhibit 19.1 to Biomet, Inc. Form 10-K
Report for year ended May 31, 1993, File No. 0-12515).
10.9 Form of Stock Option Agreement. (Incorporated by
reference to Exhibit 4.03 to Biomet, Inc. Form S-8
Registration Statement, File No. 33-65700).
(11) 11.1 Computation of Earnings Per Common Share.
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21.1 Subsidiaries of the Registrant.
(22) No exhibit.
(23) 23.1 Consent of Coopers & Lybrand.
(24) No exhibit.
(27) No exhibit.
(28) No exhibit.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
BIOMET, INC. AND SUBSIDIARIES
for the years ended May 31, 1994, 1993 and 1992
(in thousands except earnings per share)
___________________
Computation of EPS based on simple capital
structure without regard to common stock
equivalents (A):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income applicable to common shares $ 69,818 $63,961 $51,809
Weighted average number of shares
outstanding during the year 115,215 114,934 113,009
Primary earnings per common share $.61 $.56 $.46
</TABLE>
Computation of EPS using stock options as
common stock equivalents:
A computation of EPS using stock options is not presented since their inclusion
would not result in a different earnings per share amount for the years ended
May 31, 1994, 1993 and 1992.
(A) Earnings per share data have been adjusted to give effect to all stock
splits.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Biomet, Inc. (the Registrant; Indiana corporation)
Domestic subsidiaries:
OEC Ltd., Inc. (Delaware corporation)
Biomet Acquisition Corp. (Delaware corporation)
Biomet International, Inc. (Virgin Islands corporation)
Biomet Investment Corp. (Delaware corporation)
Electro-Biology, Inc. (Delaware corporation)
EBI Holding, Inc. (Delaware corporation)
EBI Medical Systems, Inc. (Delaware corporation)
Arthrotek, Inc. (Indiana corporation)
BHC Laboratories, Inc. (Delaware corporation)
Vascu-Med, Inc. (Indiana corporation)
Poly-Medics, Inc. (Indiana corporation)
Walter Lorenz Surgical, Inc. (Florida corporation)
Polymers Reconstructive A/S (Danish corporation)
Foreign subsidiaries:
Biomet Ltd. (U.K. corporation)
Effner Biomet GmbH (German corporation)
Biomet SpA (Italian corporation)
EBI Medical Systems Ltd. (U.K. corporation)
Biomet Ltda. (Brazilian corporation)
Each subsidiary is wholly-owned by its immediate parent, except for the
following: BHC Laboratories, Inc. of which Biomet, Inc. owns 50% of the
outstanding shares; Polymers Reconstructive A/S of which Biomet, Inc. owns
51% of the outstanding shares; and Biomet SpA of which Biomet Ltd. owns 51%
of the outstanding shares.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Biomet, Inc. on Form S-8 (File Nos. 33-7361, 33-26826, 33-37561, 33-50268,
33-65700 and 33-75618) and on Form S-3 (File Nos. 33-33376 and 33-27008) and in
the related Prospectus of our report dated July 1, 1994, on our audits of the
consolidated financial statements and financial statement schedules of Biomet,
Inc. and subsidiaries as of May 31, 1994 and 1993, and for each of the three
years in the period ended May 31, 1994, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
August 9, 1994
