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 August 31, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of August 31, 1994:
Common Shares - No Par Value 114,544,408 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 114,544,408 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 7-8
Part II. Other Information 9
Signatures 10
Index to Exhibits 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of August 31, 1994 and May 31, 1994
(in thousands)
ASSETS
August 31, May 31,
1994 1994
---------- -------
Current assets:
Cash and cash investments $ 70,113 $ 70,391
Short-term investments 82,630 70,451
Accounts and notes receivable, net 95,863 96,800
Inventories 96,176 92,263
Prepaid expenses and other 15,481 12,322
------- -------
Total current assets 360,263 342,227
------- -------
Property, plant and equipment, at cost 85,997 83,460
Less, Accumulated depreciation 34,693 32,336
------- -------
Property, plant and equipment, net 51,304 51,124
------- -------
Intangible assets, net 9,161 9,599
Excess acquisition cost over fair value
of acquired net assets, net 11,160 11,427
Investments in and advances to affiliates 9,838 1,678
Other assets 1,965 2,022
------- -------
Total assets $ 443,691 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of August 31, 1994 and May 31, 1994
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1994 1994
---------- -------
Current liabilities:
Short-term borrowings $ 1,350 $ 1,606
Accounts payable 17,199 18,604
Accrued income taxes 19,449 13,620
Accrued wages and commissions 6,829 8,249
Other accrued expenses 14,718 11,740
------- -------
Total current liabilities 59,545 53,819
Long-term liabilities:
Deferred federal income taxes 3,529 3,529
Other liabilities 3,401 3,446
------- -------
Total liabilities 66,475 60,794
------- -------
Contingencies (Note 6)
Shareholders' equity:
Common shares 47,506 47,290
Additional paid-in capital 13,606 13,606
Retained earnings 316,623 299,510
Unrealized gain on certain equity securities 2,300 --
Cumulative translation adjustment (2,819) (3,123)
------- -------
Total shareholders' equity 377,216 357,283
------- -------
Total liabilities and shareholders' equity $ 443,691 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended August 31, 1994 and 1993
(in thousands, except earnings per share)
1994 1993
---- ----
Net sales $ 96,226 $ 86,893
Cost of sales 29,805 26,970
------- -------
Gross profit 66,421 59,923
Selling, general and
administrative expenses 35,166 32,271
Research and development expense 5,215 5,030
------- -------
Operating income 26,040 22,622
Other income, net 1,391 752
------- -------
Income before income taxes 27,431 23,374
Provision for income taxes 10,318 8,043
------- -------
Net income $ 17,113 $ 15,331
======= =======
Earnings per share, based on the weighted
average number of shares outstanding
during the periods presented $ .15 $ .13
==== ====
Weighted average number of shares 114,377 115,359
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended August 31, 1994 and 1993
(in thousands)
1994 1993
---- ----
Cash flows from (used in) operating activities:
Net income $ 17,113 $ 15,331
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 2,077 2,002
Amortization 843 866
Gain on sale of marketable securities, net (12) (222)
Equity in losses of affiliates 600 450
Changes in current assets and current liabilities:
Accounts and notes receivable, net 1,275 3,084
Inventories (3,273) (4,152)
Prepaid expenses and other (3,254) 2
Accounts payable (2,115) 1,965
Accrued income taxes 5,743 4,533
Accrued wages and commissions (1,392) (1,283)
Other accrued expenses 2,919 (564)
------- -------
Net cash from operating activities 20,524 22,012
------- -------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 1,478 8,351
Purchase of marketable securities (11,345) (3,205)
Capital expenditures (2,038) (1,355)
Cash invested in and advanced to affiliates (8,760) (6)
Increase in other assets 35 (537)
Other 536 40
------- -------
Net cash from (used in) investing activities (20,094) 3,288
------- -------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (318) (332)
Issuance of common shares 215 284
------- -------
Net cash used in financing activities (103) (48)
------- -------
Effect of exchange rate changes on cash (605) 277
------- -------
Increase (decrease) in cash and cash investments (278) 25,529
Cash and cash investments, beginning of year 70,391 44,579
------- -------
Cash and cash investments, end of period $ 70,113 $ 70,108
======= =======
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, 1994 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: INVESTMENTS.
Effective June 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". This statement
requires certain investments to be categorized as either
trading, available-for-sale or held-to-maturity. The Company
has no investments categorized in the trading category at August
31, 1994. Investments in the available-for-sale category,
approximately $35,946,000 at August 31, 1994, are carried at
fair value with unrealized gains and losses recorded as a
special component of shareholders' equity, approximately
$2,300,000 at August 31, 1994. Investments in the
held-to-maturity category are carried at amortized cost,
approximately $46,684,000 at August 31, 1994. The proceeds from
sales of marketable securities are all from the
available-for-sale category. Gross realized gains or losses on
these sales were immaterial.
NOTE 3: INVENTORIES.
Inventories at August 31, 1994 and May 31, 1994 are as follows:
August 31, May 31,
1994 1994
---------- -------
(in thousands)
Raw materials $12,839 $12,729
Work in process 8,575 8,702
Finished goods 38,617 41,200
Consigned inventory 36,145 29,632
------- -------
$96,176 $92,263
======= =======
NOTE 4: INCOME TAXES.
The effective income tax rate increased due to the increase in
the US corporate income tax rate, changes in the Puerto Rico
local tax structure resulting from the reduction of tax benefits
from operating in Puerto Rico and increased profits in foreign
countries where the tax rate is higher. 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 state income taxes, tax
exempt income and tax credits.
NOTE 5: COMMON SHARES.
During the three months ended August 31, 1994, the Company
issued 120,483 common shares upon the exercise of outstanding
stock options for proceeds aggregating $215,311.
NOTE 6: CONTINGENCIES.
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
$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. The Company
filed Notices of Appeal to the final judgment and amended final
judgment on September 20, 1993 and December 13, 1993,
respectively. The Company filed its appeal brief with the Court
of Appeals for the Federal Circuit on March 3, 1994 and Dr.
Ramos filed his Response Brief on April 12, 1994. Oral
arguments were heard on September 8, 1994. The Company 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.
NOTE 7: ACQUISITIONS.
On July 16, 1994, the Company signed a definitive agreement to
merge Kirschner Medical Corporation ("Kirschner") with a
wholly-owned subsidiary of the Company. The agreement, as
subsequently amended, entitles each Kirschner shareholder an
election (subject to a maximum amount of stock to be issued) to
receive $10.75 per share in cash or an equivalent value in
Biomet shares (subject to a minimum ratio of .9 Kirschner shares
per 1 Biomet share). Proxies were mailed to Kirschner's
shareholders on October 5, 1994 with a special meeting to vote
on the merger scheduled for November 4, 1994. If an affirmative
vote is obtained, the merger will be consummated immediately
following the meeting of Kirschner shareholders. On August 12,
1994, the Company purchased 685,222 Kirschner Common Shares and
a promissory note in the amount of 329.5 million Spanish Pesetas
(approximately $2.5 million) issued to Kirschner's Spanish
subsidiary from Figgie International Inc. for $8,700,000. For
financial reporting purposes, this amount is included with
investments in and advances to affiliates on the consolidated
balance sheet at August 31, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF AUGUST 31, 1994
As of August 31, 1994, the Company's working capital position
remains strong, increasing by $12,310,000 during the first three
months of fiscal year 1995 to $300,718,000 and resulting in a
working capital ratio of 6.1 to 1. This increase in working
capital is principally attributable to the operating results
experienced by the Company during the first quarter of fiscal
year 1995. Cash and short-term investments increased during the
first quarter by $11,901,000 to $152,743,000. 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 $937,000 and inventories
increased by $3,913,000. 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). Property, plant and
equipment increased $2,537,000 during the first three months of
fiscal 1995. Included in the aforementioned changes were
increases in accounts receivable, inventories and property,
plant and equipment of approximately $398,000, $605,000 and
$366,000, respectively, attributable to the increase from May
31, 1994 to August 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 increases did not affect the Company's earnings during the
past three 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. As disclosed in
Note 7 of the Notes to Consolidated Financial Statements, the
increase in investments in and advances to affiliates was due to
the purchase of a common stock investment in and promissory note
of Kirschner.
The increase in accrued income taxes is the primary cause of the
increase of $5,681,000 in total liabilities. Accrued income
taxes increase in the first quarter because there is no federal
tax estimate due in the first fiscal quarter.
Shareholders' equity increased $19,733,000 principally due to
the Company's first quarter earnings. Also included is an
increase in the unrealized gain on certain equity securities due
to the adoption of SFAS No. 115 (See Note 2 of the Notes to
Consolidated Financial Statements) and cumulative translation
adjustment of $2,300,000 and $304,000, respectively, between
periods presented.
On September 16, 1994 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, extending the Share
Repurchase Program announced the previous year. The Company had
repurchased 1,260,000 shares during the previous year. The
number of shares purchased, if any, will be dependent upon
market conditions. Purchases may be made from time to time
between September 16, 1994 and September 22, 1995.
As more fully disclosed in Note 7 of the Notes to Consolidated
Financial Statements, the Company and Kirschner Medical
Corporation have signed a definitive merger agreement. The
Company will use its current cash and short-term investments to
fund the acquisition. The transaction is expected to be
completed in November of this year.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1994
AS COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 1993
Net sales increased 11% to $96,226,000 for the three month
period ended August 31, 1994, from $86,893,000 for the same
period last year. The Company's U.S.-based revenue increased 10%
to $74,440,000 during the first quarter, while foreign sales
increased 12% to $21,786,000. Foreign currency exchange rates
did not have a material impact on sales or earnings during the
first quarter.
Biomet's worldwide reconstructive device sales during the first
quarter of fiscal 1995 were $56,084,000, representing a 13%
increase compared to the first quarter of fiscal year 1994.
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 $22,479,000 for the first
quarter of fiscal 1995, representing an 11% increase as compared
to the same period in 1994. This increase was largely
attributable to increased demand for bone healing units. The
Company's "other products" revenues totaled $17,663,000,
representing a 5% increase over the first quarter of fiscal year
1994, primarily as a result of increased sales of Arthrotek's
IES 1000 System.
Cost of sales decreased marginally as a percentage of net sales
from 31.0% for the first quarter of fiscal 1994 to 30.9% for the
first quarter of fiscal 1995. Selling, general and
administrative expenses increased, principally as a result of
increased commissions paid on the higher volume of sales, but
decreased as a percentage of net sales to 36.5%, compared to
37.1% for the first quarter of last year. The increase in
research and development expenditures during the first quarter
reflects Biomet's commitment to remain competitive through
technological advancements and to capitalize on future
opportunities available within the orthopedic market. Operating
income rose 15% from $22,622,000 for the first quarter of fiscal
1994, to $26,040,000 for the first quarter of fiscal 1995,
corresponding to the increase in net sales. Other income
increased during the first quarter of fiscal 1995 principally
because of increases in cash and short-term investments. The
effective income tax rate increased from 34.4% for the first
quarter of fiscal 1994 to 37.6% for the same period this year.
This increase is due to the increase in the US corporate income
tax rate, changes in the Puerto Rico local tax structure
resulting from the reduction of tax benefits from operating in
Puerto Rico instituted by the current administration and
increased profits in foreign countries where the tax rate is
higher.
These factors resulted in a 12% increase in net income for the
first quarter of fiscal 1995 as compared to the same period in
fiscal 1994, increasing from $15,331,000 to $17,113,000, and a
15% increase in earnings per share from $.13 to $.15.
PART II. OTHER INFORMATION
Item 1. 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
$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. The Company
filed Notices of Appeal to the final judgment and amended final
judgment on September 20, 1993 and December 13, 1993,
respectively. The Company filed its appeal brief with the Court
of Appeals for the Federal Circuit on March 3, 1994 and Dr.
Ramos filed his Response Brief on April 12, 1994. Oral
arguments were heard on September 8, 1994. The Company 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.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on
September 16, 1994. At the Annual Meeting:
1. The following persons were elected as Directors of the
Company for a three-year term expiring in 1997.
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
Dane A. Miller 104,154,774 242,129 None
Jerry L. Ferguson 104,233,846 251,803 None
Thomas F. Kearns, Jr. 104,479,858 267,796 None
Daniel P. Hann 104,220,319 277,624 None
2. The selection of Coopers & Lybrand as certified public
accountants for the Company for the fiscal year ended May 31,
1995 was ratified by the shareholders , as follows:
Votes For 102,392,404
Votes Against 384,081
Abstentions and Broker Non-Votes 650,171
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K.
A report on Form 8-K was filed August 12, 1994 with respect to
Item 5 of that form.
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: 10/17/94 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).
(10) No exhibit.
(11) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(22) No exhibit.
(23) No exhibit.
(24) No exhibit.
(27) No exhibit.
(99) No exhibit.
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