UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1993.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 30, 1993:
Common Shares - No Par Value 115,189,191 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,189,191 Rights
(Class) (Number of Shares)
The Index to Exhibits is at page _____ in the sequential numbering system.
Total pages:_______.
BIOMET, INC.
CONTENTS
Pages
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets 1-2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1993 and May 31, 1993
(in thousands)
ASSETS
November 30, May 31,
1993 1993
------------ -------
Current assets:
Cash and cash investments $ 73,895 $ 44,579
Short-term investments 46,476 49,044
Accounts and notes receivable, net 81,790 84,708
Inventories (Note 2) 88,242 83,003
Prepaid expenses and other 9,662 9,705
------- -------
Total current assets 300,065 271,039
------- -------
Property, plant and equipment, at cost 79,752 77,678
Less, Accumulated depreciation 28,152 24,609
------- -------
Property, plant and equipment, net 51,600 53,069
------- -------
Intangible assets, net 10,575 11,417
Excess acquisition cost over fair value
of acquired net assets, net 8,787 9,638
Investments in affiliates 3,921 3,896
Other assets 5,685 5,350
------- -------
Total assets $ 380,633 $ 354,409
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1993 and May 31, 1993
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30, May 31,
1993 1993
------------ -------
Current liabilities:
Short-term borrowings $ 2,207 $ 2,436
Accounts payable 12,048 12,959
Accrued income taxes 11,717 12,202
Accrued wages and commissions 7,065 7,227
Other accrued expenses 12,566 11,828
------- -------
Total current liabilities 45,603 46,652
Long-term liabilities:
Deferred federal income taxes 2,564 2,564
Other liabilities 3,523 3,874
------- -------
Total liabilities 51,690 53,090
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares (Note 3) 47,331 46,829
Additional paid-in capital 10,409 13,106
Retained earnings 274,738 242,618
Cumulative translation adjustment (3,535) (1,234)
------- -------
Total shareholders' equity 328,943 301,319
------- -------
Total liabilities and shareholders' equity $ 380,633 $ 354,409
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the six and three month periods ended November 30, 1993 and 1992
(in thousands, except earnings per share)
Six Months Ended Three Months Ended
November 30, November 30,
1993 1992 1993 1992
---- ---- ---- ----
Net sales $177,206 $160,554 $90,313 $82,424
Cost of sales 54,839 50,427 27,869 26,088
------- ------- ------ ------
Gross profit 122,367 110,127 62,444 56,336
Selling, general and administrative expenses 65,531 58,822 33,260 29,800
Research and development expense 10,104 8,757 5,074 4,337
------- ------- ------ ------
Operating income 46,732 42,548 24,110 22,199
Other income, net 2,096 2,240 1,344 994
------- ------- ------ ------
Income before income taxes 48,828 44,788 25,454 23,193
Provision for income taxes (Note 5) 16,708 14,311 8,665 7,319
------- ------- ------ ------
Net income $ 32,120 $ 30,477 $16,789 $15,874
======= ======= ====== ======
Earnings per share, based on the weighted
average number of shares outstanding
during the periods presented $ .28 $ .27 $ .15 $ .14
==== ==== ==== ====
Weighted average number of shares 115,308 114,739 115,308 114,739
======= ======= ======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1993 and 1992
(in thousands)
1993 1992
---- ----
Cash flows from (used in) operating activities:
Net income $ 32,120 $ 30,477
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 4,036 3,685
Amortization 2,660 1,907
Gain on sale of marketable securities, net (897) (639)
Changes in current assets and current liabilities:
Accounts and notes receivable, net 1,864 (4,493)
Inventories (6,674) (18,942)
Prepaid expenses and other (68) (1,124)
Accounts payable (463) (1,171)
Accrued income taxes (304) 3,301
Accrued wages and commissions (128) 61
Other accrued expenses 850 (157)
------ ------
Net cash from operating activities 32,996 12,905
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 7,460 8,684
Purchase of marketable securities (3,994) (15,718)
Capital expenditures (3,141) (9,503)
Cash invested in affiliates (25) (875)
Payments on patents capitalized -- (1,822)
Increase in other assets (1,539) (1,073)
Other (226) 79
------ ------
Net cash used in investing activities (1,465) (20,228)
------ ------
Cash flows from (used in) financing activities:
Issuance of common shares 502 1,348
Purchase of treasury shares (2,697) --
Decrease in short-term borrowings (87) --
Payment of long-term debt -- (4,429)
------ ------
Net cash used in financing activities (2,282) (3,081)
------ ------
Effect of exchange rate changes on cash 67 (302)
------ ------
Increase (decrease) in cash and cash investments 29,316 (10,706)
Cash and cash investments, beginning of year 44,579 57,878
------ ------
Cash and cash investments, end of period $ 73,895 $ 47,172
====== ======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: OPINION OF MANAGEMENT.
In the opinion of management, the information furnished herein includes all
adjustments necessary to reflect a fair statement of the interim periods
reported. The May 31, 1993 condensed consolidated balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2: INVENTORIES.
Inventories at November 30, 1993 and May 31, 1993 are as follows:
November 30, May 31,
1993 1993
------------ -------
(in thousands)
Raw materials $12,564 $11,374
Work in process 7,422 8,041
Finished goods 40,654 41,161
Consigned inventory 27,602 22,427
------ ------
$88,242 $83,003
====== ======
NOTE 3: COMMON SHARES.
During the six months ended November 30, 1993, the Company issued 201,139 common
shares upon the exercise of outstanding stock options for proceeds aggregating
$501,670. The Company purchased 300,000 treasury shares during the six month
period ended November 30, 1993 for $2,696,875. For financial reporting
purposes, the treasury shares are accounted for as retired.
NOTE 4: INCOME TAXES.
Effective June 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" which requires a change from the
deferred to the liability method of computing deferred income taxes. The impact
of this change was immaterial to the consolidated financial statements. The
difference between the reported provision for income taxes and a provision
computed by applying the federal statutory rate to pre-tax accounting income is
primarily attributable to tax exempt income and tax credits.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, concluded
NOTE 5: CONTINGENCIES.
In February 1990, Dr. Pedro A. Ramos filed a complaint against the Company
alleging that the Company had infringed a patent issued to him. Dr. Ramos was
seeking a royalty on sales of the Company's Bipolar articulating hip prosthesis,
costs and enhanced damages for the alleged willful infringement. During April
1993, the matter was tried before a judge of the United States District Court
for the Southern District of Florida, and on September 10, 1993 the judge
entered a final judgment and permanent injunction, which concluded the patent of
Dr. Ramos was valid and was willfully infringed by the Company. The judgment
awarded Dr. Ramos $5.3 million plus costs and accrued interest, which
represented the trebling of a $1,770,000 compensatory damage award. The Company,
after consultation with legal counsel, believes the Court erred in its finding
and that the judge's opinion is contrary to the facts and applicable law. The
Company plans to vigorously pursue its rights of appeal and is in the process of
filing the appeal. Although the ultimate outcome of this matter cannot be
determined, management of the Company, after consultation with legal counsel,
believes the judgment against the Company will be reversed on appeal.
Accordingly, no provision for any liability (except for accrued legal costs)
that might result from this matter has been made in the consolidated financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF NOVEMBER 30, 1993
As of November 30, 1993, the Company's working capital position remained strong,
increasing by $30,075,000 during the first six months of fiscal year 1994 to
$254,462,000 and resulting in a working capital ratio of 6.6 to 1. This
increase in working capital is principally attributable to the operating results
experienced by the Company during the first six months of fiscal year 1994.
Cash and short-term investments increased during the first six months by
$26,748,000 to $120,371,000. The Company's cash and short-term investments,
together with anticipated cash flow from operations, are expected to be adequate
to fund all anticipated capital requirements.
Accounts receivable decreased by $2,918,000 and inventories increased by
$5,239,000. Inventories have been increased to support the recent introduction
of several new products including the Maxim Total Knee System and the Arthrotek
Integrated Endoscopy System (IES 1000). The cost of property, plant and
equipment increased $2,074,000 during the first six months of fiscal 1994.
Included in the aforementioned changes were decreases in accounts receivable,
inventories and property, plant and equipment of approximately $148,000,
$385,000 and $159,000, respectively, attributable to the decrease from May 31,
1993 to November 30, 1993 in the exchange rates used to convert the financial
statements of the Company's foreign subsidiaries from their functional currency
to the U.S. Dollar. These decreases did not affect the Company's earnings
during the past six-month period because foreign currency translation
adjustments to balance sheet items are recognized directly in shareholders'
equity on the Company's consolidated balance sheet. The Company will continue
to be exposed to the effects of foreign currency translation adjustments.
Total liabilities decreased slightly to $51,690,000 at the end of the second
quarter of fiscal 1994.
Shareholders' equity increased $27,624,000 principally due to the Company's
first six months earnings, offset by a decrease of $2,301,000 in the cumulative
translation adjustment between periods presented and the purchase of treasury
shares.
On September 17, 1993 the Company's Board of Directors authorized the investment
of up to $25 million in the outstanding Common Shares of the Company in open
market or privately negotiated transactions. The number of shares purchased, if
any, will be dependent upon market conditions. Purchases may be made from time
to time between September 17, 1993 and September 16, 1994. During the second
quarter of fiscal 1994, the Company purchased 300,000 shares for $2,696,875
which have been accounted for as retired shares for financial reporting
purposes.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1993
AS COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 1992
Net sales increased 10% to $177,206,000 for the six month period ended November
30, 1993, from $160,554,000 for the same period last year. The Company's
U.S.-based revenue increased 14% to $139,189,000 during the first six months,
while foreign sales for the first six months decreased 1% to $38,017,000. For
the first six months, Biomet's foreign sales were adversely affected by
approximately $4,900,000 due to a stronger U.S. Dollar relative to the British
Pound Sterling.
Biomet's worldwide reconstructive device sales during the first six months of
fiscal 1994 were $101,659,000, representing a 15% increase compared to the first
six months of fiscal year 1993. This increase was primarily a result of
Biomet's continued penetration of the reconstructive device market led by the
recently introduced Maxim Total Knee System. Sales of Electro-Biology, Inc.'s
products were $42,392,000 for the first six months of fiscal 1994, representing
a 5% increase as compared to the same period in 1993. This increase was largely
attributable to increased demand for Orthofix devices. The Company's "other
products" revenues totaled $33,155,000, representing a 4% increase over the
first six months of fiscal year 1993, primarily as a result of increased sales
of Arthrotek's IES 1000 System and Lorenz's oral-maxillofacial implants.
Cost of sales decreased marginally as a percentage of net sales from 31.4% for
the first six months of fiscal 1993 to 30.9% for the first six months of fiscal
1994 due to the increase in reconstructive device sales. Selling, general and
administrative expenses increased slightly as a percentage of net sales from
36.6% to 37.0% for the first six months. This increase is attributable to
increased marketing efforts through incentive commission programs for the
Company's domestic distributors. The increase in research and development
expenditures to $10,104,000 during the first six months reflects Biomet's
commitment to remain competitive through technological advancements and to
capitalize on future opportunities available within the orthopedic market.
Operating income increased 10% from $42,548,000 for the first six months of
fiscal 1993 to $46,732,000 for the first six months of fiscal 1994,
corresponding to the increase in net sales. Other income decreased during the
first six months of fiscal 1994 principally because of lower investment interest
rates available to the Company, despite the increase in cash and short-term
investments. These factors resulted in a 5% increase in net income for the
first six months of fiscal 1994 as compared to the same period in fiscal 1993,
increasing from $30,477,000 to $32,120,000 and a 4% increase in earnings per
share to $.28 compared to $.27 for last year.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993
AS COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 1992
Net sales increased 10% to $90,313,000 for the second quarter of fiscal year
1994, as compared to $82,424,000 for the same period last year. Operating
income rose 9% from $22,199,000 for the second quarter of fiscal 1993, to
$24,110,000 for the second quarter of fiscal 1994. During the second quarter,
net income increased 6% to $16,789,000 as compared to $15,874,000 for the same
period last year. Earnings per share increased 7% from $.14 per share for the
second quarter of fiscal 1993, to $.15 per share for the same period of fiscal
1994. The business factors resulting in these changes and relevant trends
affecting the Company's business during the periods in question are comparable
to those described in the preceding discussion for the six-month period.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 1 of Form 10-Q for the period ended August 31, 1993.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
------------------------
(Registrant)
DATE: 1/14/94 BY: /s/ GREGORY D. HARTMAN
------- -----------------------
Gregory D. Hartman
Vice President - Finance
(Principal Financial Officer)
(Signing on behalf of the registrant
and as principal financial officer)
BIOMET, INC.
FORM 10-Q
INDEX TO EXHIBITS
Sequential
Number Assigned Numbering System
in Regulation S-K Page Number
Item 601 Description of Exhibit of Exhibit
- ----------------- ----------------------------------- ----------------
(2) No exhibit.
(4) 4.1 Specimen certificate for Common
Shares. (Incorporated by reference to
Exhibit 4.1 to the registrant's Report
on Form 10-K for the fiscal year ended
May 31, 1985).
4.2 Rights Agreement between Biomet,
Inc. and Lake City Bank, as Rights
Agent, dated as of December 2, 1989.
(Incorporated by reference to Exhibit
4 to Biomet, Inc. Form 8-K Current
Report dated December 22, 1989, File
No. 0-12515).
(11) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(20) No exhibit.
(23) No exhibit.
(24) No exhibit.
(25) No exhibit.
(28) No exhibit.
