UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 28, 1995:
Common Shares - No Par Value 116,209,426 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 116,209,426 Rights
(Class) (Number of Shares)
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 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 28, 1995 and May 31, 1994
(in thousands)
ASSETS
February 28, May 31,
1995 1994
------------ -------
Current assets:
Cash and cash investments $ 58,262 $ 70,391
Short-term investments 76,478 70,451
Accounts and notes receivable, net 128,919 96,800
Inventories 133,141 92,263
Prepaid expenses and other 20,108 12,322
------- -------
Total current assets 416,908 342,227
------- -------
Property, plant and equipment, at cost 100,031 83,460
Less, Accumulated depreciation 37,946 32,336
------- -------
Property, plant and equipment, net 62,085 51,124
------- -------
Intangible assets, net 8,561 9,599
Excess acquisition cost over fair value
of acquired net assets, net 23,299 11,427
Investments in and advances to affiliates 502 1,678
Other assets 4,141 2,022
------- -------
Total assets $ 515,496 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 28, 1995 and May 31, 1994
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
1995 1994
------------ -------
Current liabilities:
Short-term borrowings $ 2,217 $ 1,606
Accounts payable 24,756 18,604
Accrued income taxes 18,014 13,620
Accrued wages and commissions 11,557 8,249
Other accrued expenses 18,905 11,740
------- -------
Total current liabilities 75,449 53,819
Long-term liabilities:
Deferred federal income taxes 4,232 3,529
Other liabilities 3,238 3,446
------- -------
Total liabilities 82,919 60,794
------- -------
Contingencies (Note 7)
Shareholders' equity:
Common shares 64,603 47,290
Additional paid-in capital 11,970 13,606
Retained earnings 356,576 299,510
Unrealized gain on certain equity securities 1,100 --
Cumulative translation adjustment (1,672) (3,123)
------- -------
Total shareholders' equity 432,577 357,283
------- -------
Total liabilities and shareholders' equity $ 515,496 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the nine and three month periods ended February 28, 1995 and 1994
(in thousands, except earnings per share)
Nine Months Ended Three Months Ended
February 28, February 28,
----------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $323,805 $272,869 $120,719 $ 95,663
Cost of sales 101,398 84,070 38,716 29,231
------- ------- ------- -------
Gross profit 222,407 188,799 82,003 66,432
Selling, general and
administrative expenses 119,800 100,356 45,534 34,825
Research and development expense 16,081 15,348 5,235 5,244
------- ------- ------- -------
Operating income 86,526 73,095 31,234 26,363
Other income, net 4,515 3,802 1,460 1,706
------- ------- ------- -------
Income before income taxes 91,041 76,897 32,694 28,069
Provision for income taxes 33,975 26,693 12,150 9,985
------- ------- ------- -------
Net income $ 57,066 $ 50,204 $ 20,544 $ 18,084
======== ======== ======== ========
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .50 $ .44 $ .18 $ .16
==== ==== ==== ====
Weighted average number of shares 115,210 115,285 116,147 115,285
======= ======= ======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended February 28, 1995 and 1994
(in thousands)
1995 1994
---- ----
Cash flows from (used in) operating activities:
Net income $ 57,066 $ 50,204
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 6,747 6,046
Amortization 3,456 2,684
Gain on sale of marketable securities, net (60) (984)
Equity in losses of affiliates 1,400 1,350
Deferred income taxes 96 --
Changes in current assets and current liabilities:
Accounts and notes receivable, net (12,453) (7,556)
Inventories (19,424) (10,197)
Prepaid expenses and other (1,516) (688)
Accounts payable (477) 2,715
Accrued income taxes 3,120 (354)
Accrued wages and commissions 613 (20)
Other accrued expenses 2,813 1,770
------ ------
Net cash from operating activities 41,381 44,970
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 11,388 7,728
Purchase of marketable securities (16,254) (15,148)
Capital expenditures (8,856) (5,065)
Cash invested in and advanced to affiliates (225) (25)
Purchase of Kirschner, net of cash acquired (27,315) --
Increase in other assets (503) (940)
Other 187 (125)
------ ------
Net cash used in investing activities (41,578) (13,575)
------ ------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (11,972) (698)
Issuance of common shares 1,066 740
Repurchase of shares -- (2,697)
------ ------
Net cash used in financing activities (10,906) (2,655)
------ ------
Effect of exchange rate changes on cash (1,026) 138
------ ------
Increase (decrease) in cash and cash investments (12,129) 28,878
Cash and cash investments, beginning of year 70,391 44,579
------ ------
Cash and cash investments, end of period $ 58,262 $ 73,457
====== ======
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: ACQUISITIONS.
On August 12, 1994, the Company through a wholly-owned subsidiary purchased
685,222 Common Shares of Kirschner Medical Corporation ("Kirschner") 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. On November 4, 1994, the Company through
the same wholly-owned subsidiary purchased all of the remaining issued and
outstanding common shares of Kirschner for 1,384,309 Biomet Common Shares and
$16,245,981 cash. Kirschner, headquartered in Timonium, Maryland, designs,
develops, manufactures and markets orthopedic devices and musculoskeletal
orthopedic support products. The acquisition has been accounted for as a
purchase and the purchase price of $38,900,000, including acquisition costs,
has been allocated to the acquired net assets. The $13,327,000 excess of
acquisition cost over fair value of acquired net assets is being amortized
on a straight-line basis over 15 years.
Unaudited pro forma financial information reflecting the acquisition had it
occurred at the beginning of each period is as follows:
Nine months ended February 28,
1995 1994
---- ----
Net sales $352,548,000 $322,921,000
Net income 56,920,000 49,519,000
Earnings per share .49 .42
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
Supplemental schedule of non-cash investing and financing activities incurred
in connection with the acquisition:
Fair value of assets acquired, other than cash $70,420,000
Common shares issued 16,246,000
Liabilities assumed 26,859,000
----------
Cash paid $27,315,000
==========
NOTE 3: 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 February 28, 1995.
Investments in the available-for-sale category, approximately $28,018,000 at
February 28, 1995, are carried at fair value with unrealized gains and losses
recorded as a special component of shareholders' equity, approximately
$1,100,000 at February 28, 1995. Investments in the held-to-maturity category
are carried at amortized cost, approximately $48,460,000 at February 28, 1995.
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 4: INVENTORIES.
Inventories at February 28, 1995 and May 31, 1994 are as follows:
February 28, May 31,
1995 1994
------------ -------
(in thousands)
Raw materials $ 19,662 $12,729
Work in process 16,489 8,702
Finished goods 52,068 41,200
Consigned inventory 44,922 29,632
------- ------
$133,141 $92,263
======= ======
NOTE 5: INCOME TAXES.
The effective income tax rate increased due to the increase in the U.S.
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 6: COMMON SHARES.
During the nine months ended February 28, 1995, the Company issued 401,192
common shares upon the exercise of outstanding stock options for proceeds
aggregating $1,066,554. The Company also issued 1,384,309 common shares valued
at $16,245,981 in connection with the Kirschner acquisition.
NOTE 7: 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF FEBRUARY 28, 1995
As of February 28, 1995, the Company's working capital position
remains strong, increasing by $53,051,000 during the first nine
months of fiscal year 1995 to $341,459,000 and resulting in a
working capital ratio of 5.5 to 1. This increase in working
capital is principally attributable to the operating results
experienced by the Company during the first nine months of
fiscal year 1995. Cash and short-term investments decreased
during the first nine months by $6,102,000 to $134,740,000 due
to the approximately $39,300,000 used in the Kirschner
acquisition (which includes the payment of assumed debt). The
Company's cash and short-term investments, together with
anticipated cash flow from operations, are expected to be
adequate to fund all anticipated capital requirements.
Accounts receivable and inventories increased by $32,119,000 and
$40,878,000, respectively, which includes the purchased assets
of $18,545,000 and $19,795,000, respectively, of Kirschner. In
addition, 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 $16,571,000
during the first nine months of fiscal 1995, which includes
$8,925,000 from the Kirschner acquisition. Included in the
aforementioned changes were increases in accounts receivable,
inventories and property, plant and equipment of approximately
$573,000, $1,176,000 and $808,000, respectively, attributable to
the increase from May 31, 1994 to February 28, 1995 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 nine-month period because foreign
currency translation adjustments to balance sheet items are
recognized directly in shareholders' equity on the Company's
consolidated balance sheet. The Company will continue to be
exposed to the effects of foreign currency translation
adjustments.
The increase in total liabilities of $22,125,000 was principally
from the Kirschner acquisition.
Shareholders' equity increased $75,294,000 due to the Company's
first nine months earnings and the issuance of common stock in
the Kirschner acquisition. Also included is a $1,100,000
increase in the unrealized gain on certain equity securities
account due to the adoption of SFAS No. 115 (See Note 3 of the
Notes to Consolidated Financial Statements) and a $1,451,000
favorable change in the cumulative translation adjustment
account.
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
through September 22, 1995. No purchases have been made during
fiscal year 1995.
The current agreement between Orthofix s.r.l. ("Orthofix") and
EBI relating to the distribution by EBI of the Orthofix External
fixation device expires May 31, 1995. Orthofix and EBI have
held discussions concerning renewal of the distribution
agreement, but EBI has obtained no commitments with respect
thereto. EBI does not anticipate any interruption in the
availability of product to its customers through the end of the
current calendar year.
As more fully disclosed in Note 2 of the Notes to Consolidated
Financial Statements, the Company acquired Kirschner Medical
Corporation on November 4, 1994.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
AS COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 1994
Net sales increased 19% to $323,805,000 for the nine-month
period ended February 28, 1995, from $272,869,000 for the same
period last year. The Company's U.S.-based revenue increased 17%
to $249,071,000 during the first nine months, while foreign
sales increased 26% to $74,734,000. Biomet's worldwide
reconstructive device sales during the first nine months of
fiscal 1995 were $193,652,000, representing a 22% increase
compared to the first nine months 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 and the inclusion of
Kirschner sales for the entire quarter. Sales of
Electro-Biology, Inc.'s products were $71,818,000 for the first
nine months 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 $58,335,000,
representing a 17% increase over the first nine months of fiscal
year 1994, primarily as a result of increased sales of
arthroscopy products and the inclusion of Kirschner sales for
the entire quarter.
Cost of sales increased as a percentage of net sales from 30.8%
to 31.3% due to the inclusion of Kirschner sales for the quarter
which have a lower gross profit margin. Selling, general and
administrative expenses increased as a percentage of net sales
to 37.0%, compared to 36.8% for the first nine months of last
year. The increase in research and development expenditures
during the first nine months reflects Biomet's commitment to
remain competitive through technological advancements and to
capitalize on future opportunities available within the
orthopedic market. Operating income rose 18% from $73,095,000
for the first nine months of fiscal 1994, to $86,526,000 for the
first nine months of fiscal 1995, corresponding to the increase
in net sales. Other income increased during the first nine
months of fiscal 1995 principally because of higher cash and
short-term investment balances and higher investment yields.
The effective income tax rate increased from 34.7% for the first
nine months of fiscal 1994 to 37.3% 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 14% increase in net income and
earnings per share for the first nine months of fiscal 1995 as
compared to the same period in fiscal 1994, increasing from
$50,204,000 to $57,066,000, and from $.44 to $.50, respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1995
AS COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 1994
Net sales increased 26% to $120,719,000 for the third quarter of
fiscal year 1995, as compared to $95,663,000 for the same period
last year. Operating income rose 18% from $26,363,000 for the
third quarter of fiscal 1994, to $31,234,000 for the third
quarter of fiscal 1995. During the third quarter, net income
increased 14% to $20,544,000 as compared to $18,084,000 for the
same period last year. Earnings per share increased 13% from
$.16 per share for the third quarter of fiscal 1994, to $.18 per
share for the same period of fiscal 1995. The business factors
resulting in these changes and relevant trends affecting the
Company's business during the periods in question are comparable
to those described in the preceding discussion for the
nine-month period. The inclusion of Kirschner had a more
dramatic effect on the current quarter numbers as compared to
the nine-month numbers because of its inclusion for the full
quarter.
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 February
28, 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
- ------------
(Registrant)
DATE: 4/13/95 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) Financial data schedules.
(99) No exhibit.
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