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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, 1995.
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 17, 1995, as reported by NASDAQ, was approximately $1,561,561,000. As of
July 17, 1995, there were 115,261,422 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PARTS OF FORM 10-K
INTO WHICH DOCUMENT
IDENTITY OF DOCUMENT IS INCORPORATED
<S> <C>
Proxy Statement with respect to the 1995 Annual
Meeting of Shareholders of the Registrant Part III
</TABLE>
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 has corporate headquarters
in Warsaw, Indiana and manufacturing and/or office facilities in more than
fifteen locations worldwide. 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.
The merger of Kirschner Medical Corporation ("Kirschner") into a wholly
owned subsidiary of the Company was consummated on November 4, 1994. The total
purchase price for all of the issued and outstanding common shares of Kirschner
was $38,900,000. As consideration for their Kirschner shares, each Kirschner
shareholder, at their individual election, received $10.75 for each Kirschner
share, either in cash, Biomet common shares or a combination of cash and such
shares. Kirschner is based in Hunt Valley, Maryland with manufacturing
facilities in Hunt Valley, Maryland; Fair Lawn, New Jersey; Marlow, Oklahoma;
Delray Beach, Florida; and Valencia, Spain. Kirschner designs, develops,
manufactures, markets and distributes reconstructive implant devices and
related instrumentation and fracture fixation devices. Kirschner's AOA
Division ("AOA") manufactures, markets and distributes a broad line of
musculoskeletal orthopedic support products. Kirschner's Spanish subsidiary,
Industrias Quirurgicas de Levante, s.a. ("IQL"), manufactures, markets and
distributes reconstructive implant and fracture fixation products.
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, Kirschner, AOA, Arthrotek, IQL, 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 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 most
recent fiscal years ended May 31, 1995:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------
1995 1994 1993
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 $272,643 60% $218,145 58% $188,963 56%
EBI Products 98,490 22 88,714 24 82,136 25
Other Products 81,139 18 66,436 18 64,274 19
-------- ---- -------- ---- -------- ----
Total $452,272 100% $373,295 100% $335,373 100%
======== ==== ======== ==== ======== ====
</TABLE>
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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.
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 the 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 hip
and knee 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.
In September 1994, the Company received 510(k) clearance from the FDA
for the Rx90 and Impact cobalt chrome stems for use with bone cement. These
stems feature PMMA (Polymethyl Methacrylate) cement spacers proximally to
provide greater centralization of the stem. These cement spacers are designed
to ease intraoperative alignment.
Since 1985, one of Biomet's largest selling 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 bone 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. In May 1995,
the FDA approved for cemented use the Mallory-Head Modular Calcar System.
This system provides the surgeon with intraoperative flexibility to
independently match femoral geometry with the appropriate implant size and
shape, even in cases of severe bone deficiency.
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.
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The Alliance Family is designed to address the growing trend of
standardization of total hip systems within hospitals and across surgeon
groups. The Alliance provides the largest selection of primary and revision
stems available using a single set of instrumentation. The Alliance family
includes the Integral, Bi-Metric, Answer, Hip Fracture and Rx90 Hip Systems.
The Maxim Total Knee System 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
and became the Company's largest selling knee system during fiscal year 1995.
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 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, prior
to surgery, by recreating 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.
Kirschner offers a variety of reconstructive products to meet the
growing demands of the market, including several knee, shoulder and hip
systems. Kirschner's Performance Knee provides a full range of implant
components designed to meet the wide variety of surgical indications seen in
today's total knee patient population. The TC-IV Knee meets the demands of
cost containment while the Hybridfit Knee combines features of the Performance
Knee femoral component with modified tibial components of the TC-IV Knee for
additional versatility. Kirschner's current shoulder product line is comprised
of the Neer II, Kirschner II-C and Modular II-C shoulder implant devices. The
Modular II-C and the Kirschner II-C have a proximal plasma spray coating to
enhance fixation. As with all prostheses, because of the variation in patient
anatomy, Kirschner offers an array of prosthesis sizes and configurations
allowing the surgeon to select the most appropriate prosthesis for each
patient. Kirschner plans to introduce the Atlas Modular prosthesis to further
augment the surgeon's ability to match the prosthesis to the individual
patient. It incorporates a modular stem as well as a modular head to reduce
the inventory required to support a shoulder procedure. The Atlas will be
introduced once FDA 510(k) clearance has been obtained. Kirschner manufactures
and markets various femoral, acetabular and bipolar hip prostheses which
address a wide range of patient demands and market requirements. Kirschner's
femoral stems are available in a variety of geometric designs and in smooth,
porous coated and textured surfaces. These products allow for press fit and
cemented applications. Kirschner's C-2 femoral stem has been demonstrated to
resist rotational forces in a superior manner. These varied products allow the
orthopedic surgeon to select various surfaces and designs to meet the diverse
needs of individual patients.
Reconstructive devices contributing to the Company's sales growth
include the Maxim Total Knee System, the Bio-Modular Shoulder, the Mallory-Head
Total Hip System, the Integral 180 and 225 Revision Total Hips, ArCom
polyethylene products and the Alliance Family of products.
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In fiscal year 1996, the Company's product expansion will include new
lines of acetabular components, new cemented and cementless hip stems and
expanded product offerings for total shoulders. The Company also plans to
extend the distribution of its BIOS (Biomet Intra-Operative Sensor) system for
evaluating the kinematics of total knee systems. The BIOS System should
provide a much higher level of precision in total joint implantation and soft
tissue management, while also providing immediate feedback.
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 postoperative 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. The Model 1200 Bone Healing System, introduced
during fiscal year 1994, is a light-weight, smaller and easier to use unit,
which was designed to 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. When used conjunctively
with the EBI Bone Healing System, the FLX Flexible Treatment Coils 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
implantable devices consist of a generator providing a constant direct current
to a titanium cathode placed where bone growth is required. Over the years EBI
has developed new techniques and device modifications for the SpF product line.
These techniques and modifications address the anterior and posterior lumbar
interbody fusion market segments.
EBI's arrangement with Orthofix s.r.l. ("Orthofix") of Verona, Italy,
to distribute the Orthofix Dynamic Axial External Fixation System in the
United States, Canada and the Caribbean Island Basin expired on May 31, 1995
and will not be renewed. EBI, with the support of Biomet, began the
development of its own advanced fixation system in order to remain a market
leader in the fixation industry. EBI believes that it will be able to satisfy
customer demand until the launch of its advanced fixation system. EBI expects
no material adverse impact on its external fixation sales.
EBI also distributes the Temptek product line, a controlled cold
therapy unit used to aid in the reduction of postoperative pain, edema and
blood loss. The application of controlled cold therapy has recently expanded
into spinal treatment. This product is currently manufactured by Temptek, Inc.
of Dallas, Texas. The terms of the distribution arrangement between Temptek,
Inc. and EBI have recently been renegotiated. EBI will continue to distribute
the Temptek units purchased and EBI will market and distribute its own line of
controlled cold therapy units in 1996.
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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. Kirschner manufactures and distributes an extensive
orthopedic support product line through its AOA Division. Walter Lorenz
Surgical, Inc. ("Lorenz Surgical") manufactures and 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 the Company 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
system. 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. In addition, the
S.S.T. small bone locking nail and the Vector Intertrochanteric Nail, a
compression nailing system, continue to enhance the Company's fracture fixation
family.
In fiscal year 1995, the Biomet Retrograde Femoral Nail was introduced
as a clinical option for femoral fractures that occur below mid-shaft. The
Retrograde Femoral Nail completes the Company's line of nailing systems by
allowing for the treatment of distal femoral fractures.
The Compression Hip Screw System was designed to provide strong and
stable internal fixation for a variety of intertrochanteric, subtrochanteric
and basilar neck fractures. The BMP Cable System is used intraoperatively,
often as part of revision hip surgery, to reduce the risk of fracture or to
repair existing femoral fractures. System specific instrumentation for the
BMP Cable System 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 are used 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.
AOA's line of orthopedic support devices include traction framing
equipment, back supports, wrist and forearm splints, cervical collars, shoulder
immobilizers, slings, abdominal binders, wrist and forearm splints, back
supports, knee braces and immoblizers, rib belts, ankle supports and a variety
of other orthopedic splints. In addition to these products, AOA manufactures
and distributes a variety of casting products for use in the application and
removal of orthopedic casts and splints. Included are both synthetic casting
tape and synthetic splints fabricated using an advanced fiberglass/polyester
substrate material impregnated with a polymer resulting in casting and
splinting products that are lightweight, high strength and available in a
variety of colors.
AOA has recently launched several new products including the
Performance Neoprene System of ankle, knee, thigh and wrist supports and the
Ascend Ankle Bracing System which is designed for use in treatment of both
acute and chronic ankle injury and can also be used by athletes
prophylactically to prevent ankle injury.
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 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 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.
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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 five product categories: power instruments, manual instruments,
visualization products, soft tissue anchors and procedure specific instruments
and implants. Arthrotek' s principal products currently include the Harpoon
Soft Tissue Anchor System, the IES 1000 System, the PowerPump 800, the Tunneloc
ACL Fixation System and manual instruments featuring the Ellipticut and
BackBiter instruments. The Harpoon line was expanded during fiscal year 1995
to include the Mini-Harpoon and the Lactosorb Harpoon, a resorbable suture
anchor developed by Poly-Medics (discussed below) and currently in clinical
trials. 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. The PowerPump 800 provides the
ability for surgeons to independently control flow and pressure and use the
pump in conjunction with other arthroscopy shaver systems. The Tunneloc
System was augmented with the Bone Mulch Screw, which recently received 510(k)
clearance from the FDA.
ORAL-MAXILLOFACIAL PRODUCTS. The Company manufactures and distributes
oral-maxillofacial, craniofacial and neurosurgical titanium implants, along
with surgical instrumentation, principally marketed to oral-maxillofacial,
neurosurgical and craniofacial surgeons through its Lorenz Surgical subsidiary
headquartered in Jacksonville, Florida. Orthognathic surgical instruments,
craniofacial instruments, rigid fixation plating systems, TMJ instruments,
exodontia instruments and Hard Tissue Replacement Polymer are among the
products offered by Lorenz Surgical. Lorenz Surgical recently began marketing
powered surgical instruments for use in cranio-maxillofacial and small
bone surgery. Additionally, Lorenz Surgical is currently developing resorbable
plates and screws in conjunction with Poly-Medics which will be marketed by
Lorenz Surgical domestically upon receiving FDA clearance or approval.
Clearance has been granted to market the resorbable plates and screws in
numerous international markets. Lorenz Surgical has received 510(k) clearance
for its dental implants and is currently evaluating entry into the dental
implant market.
PRODUCT DEVELOPMENT
For the years ended May 31, 1995, 1994 and 1993, the Company expended
approximately $21,770,000, $20,521,000 and $17,995,000 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 1995 of the following products: Mallory-Head
Modular Calcar Hip System, Posterior Stabilized AGC Knee System, Modular
Acetabular Revision System, Constrained Cup System, Freeman/Samuelson Knee
System, Lateralized Integral Hip System and Index Cup 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
clinical investigations and providing equipment and/or funding basic research
to study cells and simple biological systems. Typically, EBI receives
proprietary rights with respect to the data developed as the result of research
sponsored by it. EBI has 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
pre-market approval application ("PMA"). The FDA is in the process of formally
reviewing the PMA, however, based on discussions with the FDA, EBI has no
reason to believe approval is imminent. 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
augmentation; fracture healing; and musculoskeletal soft tissue repair and
reattachment. Poly-Medics' Hard Tissue Replacement Polymer Facial Implants and
custom craniofacial implants are being distributed through Lorenz Surgical.
Clinical studies utilizing Poly-Medics' resorbable polymers are currently in
process for maxillofacial, trauma and soft tissue reattachment applications.
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 three
of the Company's hip systems, in which a surface coating is applied over the
systems' porous coating. HAP is believed to bond directly to bone at a
cellular level.
6
<PAGE> 8
The Company has a 51% equity interest in Polymers Reconstructive A/S
("Polymers") and holds exclusive worldwide distribution rights, with the
exception of Scandinavia, for the Vacuum Pac Cement System. The patented
Vacuum Pac Cement System is a proprietary method of mixing bone cement within
and delivering it from a single self-contained unit. At the present time,
Polymers is considering several organizational and development changes with
clinical trials and test marketing to begin in certain international markets
sometime in calendar year 1996.
On May 30, 1995, the Company and Hercules Incorporated ("Hercules")
agreed to terminate the BHC Laboratories, Inc. joint venture and enter into a
supply agreement whereby Hercules will supply consolidated laminated composite
materials to the Company for orthopedic applications.
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 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.
Biomet continues its financial support of CRI as it explores other applications
for its guidable catheter technology.
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, Kirschner, AOA, Biomet Ltd.
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 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
devices 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 certain patient
groups for two or more years, making periodic reports to the FDA.
7
<PAGE> 9
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 that a summary be made available
of the safety and effectiveness in the 510(k) process and adds design
validation as a requirement of Good Manufacturing Practices. The Act also
grants the FDA the authority to require manufacturers to conduct post-market
surveillance on most permanent implants and devices that potentially present a
serious risk to human health, and further grants the FDA the authority to
require 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 effect on the Company or its operations.
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 approximately nine
Section 510(k) notifications pending with the FDA and is experiencing delays in
the clearance of new products by the FDA. While these delays have improved
recently, they are expected to continue through fiscal year 1996. 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 such
delays on the future operations of the Company.
The Company is currently positioning itself for the changing regulatory
environment internationally. "ISO 9000" is an internationally recognized set
of guidelines that are aimed at ensuring the manufacture of quality products.
A company that passes an ISO audit becomes internationally recognized as being
well run and functioning under a quality system. Seventeen countries have
adopted ISO 9000 for medical products. ISO 9000 registered companies are able
to sell their products in these countries without the added burden of
individual country regulations. Although not required until 1998, the Company
has taken the first steps in obtaining this registration. The Company's United
Kingdom and Spain facilities have passed this audit and are registered. EBI
has established themselves in the international market through product
registration. The Company's other facilities are preparing for their
registration audits in fiscal year 1996.
SALES AND MARKETING
Biomet Products are distributed in the United States through
approximately 322 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.
Kirschner's products are distributed in the United States through its
AOA and Orthopedics Divisions. AOA and Orthopedics are separate and distinct
sales and marketing organizations. AOA markets and distributes Kirschner's
soft goods through a direct sales force of approximately 46 persons.
Orthopedics markets and distributes Kirschner's orthopedic reconstructive
implant devices through an independent agency system. The agency system
consists of approximately 73 manufacturer's representatives who collectively
employ approximately 181 sales representatives.
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 140
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.
Lorenz Surgical products are distributed in the United States through
its direct sales force of approximately 40 sales consultants operating in
assigned territories throughout the United States and through a growing
international distribution network in Central and South America, Canada,
Australia, 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
8
<PAGE> 10
dealers in other international markets. EBI products are sold internationally
by EBI's wholly-owned subsidiary, EBI Medical Systems Ltd., ("EBIMSL") a United
Kingdom corporation. EBIMSL utilizes the direct sales force of Biomet Ltd., a
United Kingdom corporation and wholly owned subsidiary of the Company.
Kirschner products are sold internationally through independent sales
representatives. The Company's products are distributed in approximately 100
countries worldwide.
For the fiscal years ended May 31, 1995, 1994 and 1993, the Company's
foreign sales were $108,461,000, $85,079,000 and $78,274,000 respectively, or
24%, 23% and 23% 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, 1995, inventory of
approximately $43,692,000 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
reconstructive 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 Health Care Initiatives (formerly the
Large Account Management Program). A group of individuals from the Warsaw,
Indiana office work directly with the sales force, 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 together with
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 become increasingly
important in recent years 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 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 or slightly lower
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 above, the Company has
initiated Health Care Initiatives 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
9
<PAGE> 11
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. EBI's external fixation devices will compete 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, a business group of American Cyanamid Company.
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.
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. The results of the
Company's operations are not materially dependent on raw material costs.
EMPLOYEES
As of May 31, 1995, the Company's domestic operations (including Puerto
Rico) employed 1,882 persons, of whom 1,071 were engaged in production and 811
in sales, marketing, administrative and clerical efforts. The Company's
European subsidiaries employed 687 persons, of whom 476 were engaged in
production and 211 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 of 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 the highly skilled machine operators required for the
manufacture of Biomet Products. The Company's European locations at Bridgend,
South Wales; Swindon, England; Valencia, Spain; 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
November 1995. The Company does not anticipate any adverse material financial
impact as a result of the expiration of this patent. 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, KIRSCHNER, POLYMEDICS, AOA, IQL 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.
10
<PAGE> 12
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
of EBIMS, including accounting,
order entry and customer service
for all EBI products and sales and
administrative offices of EBI Parsippany, New Jersey 63,000 Owned
Manufacturing facility of EBI Parsippany, New Jersey 45,000 Owned
Office and warehouse facility of Biomet
and EBI Ontario, Canada 1,800 Leased
Manufacturing
and administrative facilities of
Biomet Ltd. (1) Bridgend, South Wales 80,345 Owned
(2) Swindon, England 53,420 Owned
Office and manufacturing facility
of Arthrotek (1) Ontario, California 35,400 Owned
(2) Redding, California 6,250 Leased
Office and manufacturing facilities
of Biomet Deutschland GmbH (1) Berlin, Germany 17,800 Leased
(2) Ansbach, Germany 4,800 Leased
Administrative and distribution facility
of Lorenz Surgical Jacksonville, Florida 32,450 Owned
Office and warehouse facility of Biomet SpA Milan, Italy 10,764 Owned
Principal manufacturing facility of Kirschner
for orthopedic implants Fair Lawn, New Jersey 40,000 Owned
Manufacturing facility of Kirschner for AOA
products (1) Marlow, Oklahoma 30,000 Owned
(2) Delray Beach, Florida 8,000 Leased
Executive, manufacturing and administrative
offices of Kirschner Hunt Valley, Maryland 35,714 Leased
</TABLE>
11
<PAGE> 13
ITEM 2. PROPERTIES (continued)
<TABLE>
<CAPTION> OWNED/
FACILITY LOCATION SQUARE FEET LEASED
- -------- -------- ----------- ------
<S> <C> <C> <C>
Office and manufacturing facilities of IQL Valencia, Spain 80,000 Owned
Office facility of IQL Madrid, Spain 6,000 Owned
Office and warehouse facilities of Biomet S.A. Chaumont, France 30,560 Owned
Office facility of Biomet Taiwan Taipei, Taiwan 700 Leased
Office and manufacturing facilities of
Polymers Farum, Denmark 7,500 Leased
</TABLE>
The Company believes that its facilities are adequate, well maintained
and suitable for the development, manufacture and marketing of all its
products.
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 $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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
12
<PAGE> 14
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., 49
President and Chief Executive Officer of the 1977 President and Chief
Company; Director of the Company since 1977 Executive Officer and
Director of the Company.
NILES L. NOBLITT, 44
Chairman of the Board of the Company since 1978 Chairman of the Board
September 1986; Director of the Company since 1978. and Director of the Company.
CHARLES E. NIEMIER, 39
Senior Vice President - International Operations of 1984 Senior Vice President -
the Company since November 1991; International Operations
Senior Vice President - Warsaw Operations from and Director of the Company.
May 1990 to November 1991; prior to November 1991,
Vice President - Finance of the Company;
Director of the Company since 1987.
GARRY L. ENGLAND, 41
Senior Vice President - Warsaw Operations of the 1987 Senior Vice President -
Company since May 1994; Vice President - Warsaw Operations of the
Research and Development of the Company Company.
from November 1991 to May 1994; prior to
November 1991,Vice President - Manufacturing
of the Company.
DANIEL P. HANN, 40
Vice President and General Counsel, 1989 Vice President and General
Secretary and Director of the Company. Counsel, Secretary and
Director of the Company.
JOEL P. PRATT, 41
Vice President and General Manager of Biomet 1990 Vice President and General
Medical Products since March 1993; Vice President - Manager of Biomet Medical
Sales and Marketing of the Company from Products.
January 1990 to March 1993.
GREGORY D. HARTMAN, 38
Vice President - Finance of the Company since 1991 Vice President - Finance of
December 1991; prior to December 1991, Controller the Company.
of the Company.
JAMES W. HALLER, 38
Controller of the Company since December 1991; 1991 Controller of the Company.
prior to December 1991, Assistant Controller
of the Company.
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C>
JERRY L. FERGUSON, 54
Senior Vice President of the Company since 1994 Senior Vice President of the
December 1994; Special Projects Advisor to Company and Director of
the Company from December 1993 to the Company.
December 1994; prior to December 1993,
Owner of Classic Car Centre, Inc.; Director
of the Company since 1978.
</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 sales prices for
the Company's Common Shares as reported by the NASDAQ-NMS for each of the three
most recent fiscal years ended May 31. They reflect inter-dealer prices,
without retail mark-up, mark-down or commission. The approximate number of
recordholders of outstanding Common Shares as of May 31, 1995 was 13,341.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1995
Fourth $18 1/2 $13 1/8
Third 17 11 1/2
Second 12 5/8 10 5/8
First 11 7/8 9
1994
Fourth $11 7/8 $ 9 5/8
Third 11 7/8 9 7/8
Second 13 1/4 8 3/8
First 11 1/4 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
</TABLE>
The Company has not paid any dividend within the last three years and the
Company does not anticipate that any dividends will be paid in the foreseeable
future.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
Income Statement Data
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Years ended May 31, 1995 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $452,272 $373,295 $335,373 $274,795 $209,690 $162,379
Cost of sales 142,143 114,829 104,741 85,657 63,652 51,428
----------------------------------------------------------------------------------------
Gross profit 310,129 258,466 230,632 189,138 146,038 110,951
Selling, general and
administrative expenses 169,332 136,191 122,170 102,695 80,212 60,945
Research and development expense 21,770 20,521 17,995 16,620 12,872 9,890
----------------------------------------------------------------------------------------
Operating income 119,027 101,754 90,467 69,823 52,954 40,116
Other income, net 5,915 5,278 3,805 6,688 5,646 3,712
----------------------------------------------------------------------------------------
Income before income taxes 124,942 107,032 94,272 76,511 58,600 43,828
Provision for income taxes 45,742 37,214 30,311 24,702 19,126 13,895
----------------------------------------------------------------------------------------
Net income $ 79,200 $ 69,818 $ 63,961 $ 51,809 $ 39,474 $ 29,933
========================================================================================
Earnings per share $.69 $.61 $.56 $.46 $.35 $.27
----------------------------------------------------------------------------------------
Weighted average number of shares 115,459 115,215 114,934 113,009 111,892 111,136
----------------------------------------------------------------------------------------
</TABLE>
BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
As of May 31, 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Working capital $302,752 $288,408 $224,387 $167,707 $118,512 $ 92,573
Total assets 539,084 418,077 354,409 279,234 210,660 153,548
Shareholders' equity 444,617 357,283 301,319 232,467 172,928 129,374
</TABLE>
- - The selected consolidated financial information includes the operations of
Kirschner Medical Corporation from November 4, 1994, Lorenz Surgical from
June 1, 1992 and Biomet Deutschland 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.
15
<PAGE> 17
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
1995 1994
Years ended May 31, 1995 1994 1993 VS. 1994 vs. 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 21% 11%
Cost of sales 31.4 30.8 31.2 24 10
------------------------------------
Gross profit 68.6 69.2 68.8 20 12
Selling, general and
administrative expenses 37.5 36.5 36.4 24 11
Research and development expense 4.8 5.5 5.4 6 14
------------------------------------
Operating income 26.3 27.2 27.0 17 12
Other income, net 1.3 1.5 1.1 12 39
------------------------------------
Income before income taxes 27.6 28.7 28.1 17 14
Provision for income taxes 10.1 10.0 9.0 23 23
------------------------------------
Net income 17.5% 18.7% 19.1% 13% 9%
====================================
</TABLE>
1995 COMPARED TO 1994
The Company achieved record net sales, net income and earnings per share in
fiscal year 1995. Net sales increased 21% to $452,272,000 as compared to
$373,295,000 in fiscal year 1994. The Company's U.S.-based revenue increased
19% to $343,811,000 in 1995, while foreign sales increased 27% to $108,461,000.
Biomet's worldwide reconstructive device sales during fiscal 1995 increased by
25% to $272,643,000 compared to last fiscal year. This increase in revenue is
primarily a result of Biomet's continued penetration into the reconstructive
device market but also reflects the acquisition of Kirschner. EBI's product
sales increased 11% over last year to $98,490,000 in fiscal 1995. This
increase was largely attributable to the resurgence in the bone healing market
and increased sales in external fixation devices. The Company's "Other
Products" revenues totaled $81,139,000, representing a 22% increase over fiscal
1994, primarily as a result of the inclusion of seven months of revenues of
AOA, a division of Kirschner.
Cost of sales increased slightly as a percentage of net sales to 31.4% for 1995
compared to 30.8% for 1994 due to the acquisition of Kirschner. Kirschner's
cost of sales historically has been higher than Biomet's due to its relatively
higher levels of outsourcing for product manufacturing. The Company's selling,
general and administrative expenses increased to 37.5% of net sales. The major
cause of this increase is the inclusion of Kirschner's relatively higher
selling, general and administrative costs, and expenses incurred in the
reconfiguration of the combined sales forces of the two companies. Research and
development expense increased to $21,770,000, but decreased as a percentage of
net sales to 4.8%, principally as the result of Kirschner's lower expenditures
on research and development. The Company remains committed to maintaining its
competitive position in the orthopedic market through technological advancements
and to capitalizing on future opportunities available within the orthopedic
market. The increase in other income is a result of income earned on higher
investment balances throughout most of fiscal 1995, although at the end of
fiscal 1995 investment balances were lower than at the beginning of the year.
The effective income tax rate increased to 36.6% in fiscal 1995 from 34.8% in
fiscal 1994. This increase is due to the changes in the Puerto Rico local
tax structure and the reduction of U.S. tax benefits from operating in Puerto
Rico. The Company's effective tax rate will continue to increase in future
years as the full impact of these tax changes takes effect. These factors
resulted in a 13% increase in net income and earnings per share for fiscal year
1995 as compared to fiscal year 1994, increasing from $69,818,000 to $79,200,000
and $.61 to $.69, respectively.
During the past year, the health care climate underwent numerous changes. With
the threat of health care legislation, market forces began to change the health
care industry. It appears that patients postponed procedures to some degree,
expecting a change in service delivery. Hospitals curtailed purchases of
capital equipment due to uncertainty with respect to reimbursement. Cost
containment concerns have caused health care providers to become more selective
in the use of higher-cost reconstructive devices, which are increasingly
limited to younger, more active patients. Additional changes are likely to
occur; however, it appears that the decline in the growth rate in the U.S.
orthopedic market has stabilized. With the Company's Team concept including
employee, salesman and surgeon, current product selections, proven track record
for innovative product introductions and financial strength, the Company is
well positioned to take advantage of these changes in the orthopedic market.
EBI's exclusive right to distribute the Orthofix Dynamic Axial External
Fixation System ("Orthofix") in the United States, Canada and the Caribbean
Island Basin expired on May 31, 1995. EBI has developed its own advanced
external fixation system which will be released to the market in fiscal 1996.
EBI believes that it will be able to satisfy customer demand until the launch
of its advanced fixation system.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments decreased $16,367,000 to $124,475,000 at May
31,1995. The decrease results from the purchase of Kirschner (as more fully
disclosed in Note B of the Notes to Consolidated Financial Statements), the
expansion of manufacturing capacities through facilities and equipment
purchases, and the acquisition of EBI's leased office building.
Cash flows provided by operating activities were $52,596,000 in 1995 compared
to $65,743,000 in 1994. The primary source of 1995 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 45% from $96,800,000 last year to
$140,283,000 at May 31, 1995, as a result of the Kirschner acquisition and
increases in net sales for the current fiscal year. Inventories increased 53%
to $140,885,000 at May 31, 1995 from $92,263,000 at May 31, 1994, reflecting
the Kirschner acquisition, 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). Of the increases in accounts and notes receivable and
inventories, approximately $1,813,000 and $2,708,000, respectively, were
attributable to the increase from May 31, 1994 to May 31, 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 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 $73,755,000 in 1995 compared to
$26,979,000 in 1994. The primary uses of cash flows from investing activities
include purchases of investments, capital expenditures and the purchase of
Kirschner. The Company increased its investments by $19,933,000 due to more
attractive investment yields on longer-term investments. The Company's capital
expenditures have increased as mentioned above, with the major expenditure
being the acquisition of EBI's previously leased building for $9.9 million.
Cash flows used in financing activities were $14,290,000 in 1995 compared to
$12,440,000 in 1994. The primary use of cash flows from financing activities
was the repayment of the Kirschner debt acquired in the acquisition and the
common share repurchase program. 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 through the close of business on September 22, 1995. During
fiscal 1995, the Company purchased 1,120,000 of its common shares for
$15,219,000, of which $10,406,000 was not paid until the settlement date in
June 1995. 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 $74 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.
1994 COMPARED TO 1993
In fiscal year 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.
This increase was 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 Electro-Biology, Inc.'s products were $88,714,000
in fiscal 1994, representing an 8% increase over fiscal 1993. These increases
in revenue were largely attributable to increased demand for external fixation
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% in
1993. Research and development expense slightly increased from 5.4% of net
sales in 1993 to 5.5% in 1994. The effective income tax rate increased from
32.2% in fiscal 1993 to 34.8% in fiscal 1994. 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. These factors resulted in a 9% increase in net income and
earnings per share in fiscal 1994.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and Schedule which
appears on page 21 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 1995 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 page 13.
ITEM 11. EXECUTIVE COMPENSATION.
The information included under the captions "Election of Directors -
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 Schedule which
appears on page 21 herein.
(3) EXHIBITS.
See Index to Exhibits.
(B) REPORTS ON FORM 8-K.
None.
18
<PAGE> 20
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 17, 1995.
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
19
<PAGE> 21
By: /s/ CHARLES E. NIEMIER
---------------------------------
Charles E. Niemier, Director
By: /s/ DANIEL P. HANN
---------------------------------
Daniel P. Hann, Director
By: /s/ MARILYN TUCKER QUAYLE
---------------------------------
Marilyn Tucker Quayle, Director
By: /s/ RONALD R. FISHER
---------------------------------
Ronald R. Fisher, Director
By: /s/ C. SCOTT HARRISON
---------------------------------
C. Scott Harrison, 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)
20
<PAGE> 22
BIOMET, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS: PAGE
<S> <C> <C>
Report of Independent Accountants................................................................ 22
Consolidated Balance Sheets as of May 31, 1995 and 1994.......................................... 23
Consolidated Statements of Income for the years ended May 31, 1995, 1994 and 1993................ 24
Consolidated Statements of Shareholders' Equity for the years ended May 31, 1995, 1994 and 1993.. 25
Consolidated Statements of Cash Flows for the years ended May 31, 1995, 1994 and 1993............ 26
Notes to Consolidated Financial Statements....................................................... 27-34
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts.................................................. 35
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.
</TABLE>
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
|Coopers | Coopers & Lybrand L.L.P.
|& Lybrand | a professional services firm
To the Shareholders and Board of Directors of Biomet, Inc.:
We have audited the financial statements and the financial statement schedule
of Biomet, Inc. and subsidiaries listed on Page 21 of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Biomet, Inc. and
subsidiaries as of May 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1995, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referrred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material aspects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
South Bend, Indiana
June 30, 1995
22
<PAGE> 24
BIOMET,INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
as of May 31, 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,091 $ 70,391
Marketable securities 56,354 70,451
Accounts and notes receivable, less allowance for doubtful receivables
(1995 - $6,039 and 1994 - $3,619) 140,283 96,800
Inventories 140,885 92,263
Prepaid expenses and other 20,289 12,322
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 391,902 342,227
- -------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and improvements 5,268 2,397
Buildings and improvements 44,571 25,740
Machinery and equipment 71,179 55,323
- -------------------------------------------------------------------------------------------------------------------------------
121,018 83,460
Less, Accumulated depreciation 40,710 32,336
- -------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 80,308 51,124
- -------------------------------------------------------------------------------------------------------------------------------
Marketable securities 34,030 -
Intangible assets, net of accumulated amortization (1995 - $12,649 and 1994 - $10,124) 8,170 9,599
Excess acquisition costs over fair value of acquired net assets, net of
accumulated amortization (1995 - $9,984 and 1994 - $7,655) 22,828 11,427
Investments in and advances to affiliates 185 1,678
Other assets 1,661 2,022
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 539,084 $ 418,077
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,518 $ 1,606
Accounts payable 27,194 18,604
Accrued income taxes 12,366 13,620
Accrued wages and commissions 13,050 8,249
Liability for purchased common shares 10,406 -
Other accrued expenses 22,616 11,740
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 89,150 53,819
Deferred federal income taxes 2,240 3,529
Other liabilities 3,077 3,446
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 94,467 60,794
- -------------------------------------------------------------------------------------------------------------------------------
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 1995 - 115,188 shares and 1994 - 114,424 shares 64,526 47,290
Additional paid-in capital 12,624 13,606
Retained earnings 364,087 299,510
Unrealized appreciation of available-for-sale securities 2,800 -
Cumulative translation adjustment 580 (3,123)
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 444,617 357,283
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 539,084 $ 418,077
===============================================================================================================================
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
23
<PAGE> 25
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, except earnings per share)
for the years ended May 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $452,272 $373,295 $335,373
Cost of sales 142,143 114,829 104,741
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 310,129 258,466 230,632
Selling, general and administrative expenses 169,332 136,191 122,170
Research and development expense 21,770 20,521 17,995
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 119,027 101,754 90,467
Other income, net 6,947 5,867 4,730
Interest expense (1,032) (589) (925)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 124,942 107,032 94,272
Provision for income taxes 45,742 37,214 30,311
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 79,200 $ 69,818 $ 63,961
===================================================================================================================================
EARNINGS PER SHARE, BASED ON THE WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING DURING THE YEAR $.69 $.61 $.56
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares 115,459 115,215 114,934
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
24
<PAGE> 26
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
(in thousands)
for the years ended May 31, 1995, 1994 and 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Additional Appreciation of Cumulative
Common Shares Paid-In Retained Available-for-Sale Translation
Number Amount Capital Earnings Securities Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 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 - - - -
Purchase 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)
Issuance of shares 35 261 - - - -
Exercise of stock options 465 1,192 - - - -
Purchase of shares (1,120) (463) (133) (14,623) - -
Tax benefit arising from the
exercise of stock options - - 689 - - -
Acquisition of Kirschner Medical 1,384 16,246 (1,538) - - -
Net income - - - 79,200 - -
Unrealized appreciation of
available-for-sale securites - - - - 2,800 -
Translation adjustment - - - - - 3,703
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1995 115,188 $64,526 $12,624 $364,087 $2,800 $ 580
=================================================================================================================================
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
25
<PAGE> 27
BIOMET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
for the years ended May 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 79,200 $ 69,818 $ 63,961
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 9,303 8,167 7,590
Amortization 5,067 3,879 4,097
Gain on sale of marketable securities, net (68) (2,213) (670)
Equity in losses of affiliates 1,815 1,579 143
Deferred federal income taxes (400) (1,130) (401)
Changes in current assets and current liabilities,
excluding effects of acquisitions:
Accounts and notes receivable (22,499) (13,092) (14,328)
Inventories (26,239) (10,097) (22,171)
Prepaid expenses and other (962) (448) 332
Accounts payable 2,999 6,414 (4,487)
Accrued income taxes (2,494) 1,818 6,054
Accrued wages and commissions 2,611 1,048 1,226
Other accrued expenses 4,263 - 2,404
- ----------------------------------------------------------------------------------------------------------
Net cash from operating activities 52,596 65,743 43,750
- ----------------------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Proceeds from sales and maturities of marketable securities 20,313 21,259 13,784
Purchases of marketable securities (37,349) (40,453) (22,351)
Capital expenditures (28,938) (6,545) (14,912)
Purchase of Kirschner Medical Corporation,
net of cash acquired (27,315) - -
Cash invested in affiliates (238) (1,466) (2,625)
Payments on patents capitalized - - (2,733)
Increase in other assets (83) (666) (3,172)
Other (145) 892 478
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (73,755) (26,979) (31,531)
- ----------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (225) (719) -
Payments on long-term debt (10,705) (418) (4,701)
Issuance of shares 1,453 973 2,509
Purchase of common shares (4,813) (12,276) -
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (14,290) (12,440) (2,192)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (851) (512) (226)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (36,300) 25,812 9,801
Cash and cash equivalents, beginning of year 70,391 44,579 34,778
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 34,091 $ 70,391 $ 44,579
==========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 936 $ 581 $ 948
Income taxes 48,350 36,480 24,444
Non-cash investing and financing activities:
Purchase of Kirschner Medical Corporation:
Common shares issued 14,708 - -
Liabilities assumed 26,859 - -
Purchase of common shares and related liability 10,406 - -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
26
<PAGE> 28
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended May 31, 1995, 1994 and 1993
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 $1,815,000, $1,579,000 and $143,000 for the years ended
May 31, 1995, 1994 and 1993, respectively, 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 marketable securities.
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. Depreciation is computed based on the
estimated useful lives 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
fifteen years.
Short-Term Borrowings - Certain of the Company's foreign subsidiaries had
short-term borrowings of $3,518,000 and $1,606,000 as of May 31, 1995 and 1994,
respectively.
Income Taxes - As discussed in Note H, 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.
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 marketable
securities. At May 31, 1995 and 1994, cash and cash equivalents and marketable
securities included $48 million and $51 million, respectively, of cash deposits
and certificates of deposit with financial institutions in Puerto Rico. Also,
at May 31, 1995 and 1994, marketable securities included $24 million and $21
million, respectively, of municipal bonds issued by state and local
subdivisions in Puerto Rico.
27
<PAGE> 29
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
Note B: 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, acquired all of the remaining issued and
outstanding common shares of Kirschner, in exchange for 1,384,309 of the
Company's common shares and $16,245,981 cash. Kirschner, headquartered in Hunt
Valley, Maryland, designs, develops, manufactures and markets orthopedic
devices and musculoskeletal orthopedic support products. The $13.3 million
excess of acquisition cost over the fair value of acquired net assets is being
amortized on a straight-line basis over 15 years. The acquisition has been
accounted for using the purchase method of accounting, with the operating
results of Kirschner included in the Company's consolidated financial
statements from the date of acquisition.
The following unaudited pro forma financial information reflects the
acquisition as if it had occurred at the beginning of each year. The unaudited
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.
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------
(in thousands, except earnings per share)
<S> <C> <C>
Net sales $481,015 $440,023
Net income 79,204 69,847
Earnings per share .68 .60
</TABLE>
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 $3.6 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 statements).
Note C: Marketable Securities.
As of May 31, 1995, the Company's marketable securities were classified as
follows:
<TABLE>
<CAPTION>
Amortized Unrealized
Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities $22,856 $ 72 $ (34) $22,894
Mortgage-backed obligations 4,207 - (42) 4,165
Equity securities 4,770 2,917 (113) 7,574
- ------------------------------------------------------------------------------------------------------------------------
Total available-for-sale 31,833 2,989 (189) 34,633
- ------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Debt securities 6,552 71 (2) 6,621
Mortgage-backed obligations 16,099 69 (305) 15,863
- ------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 22,651 140 (307) 22,484
- ------------------------------------------------------------------------------------------------------------------------
Certificates of deposit 33,100 - - 33,100
- ------------------------------------------------------------------------------------------------------------------------
Total $87,584 $3,129 $(496) $90,217
========================================================================================================================
</TABLE>
28
<PAGE> 30
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
Note C: Marketable Securities, Concluded.
Effective June 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). SFAS No. 115 requires certain securities to be
categorized as either trading, available-for-sale or held-to-maturity. Trading
securities are carried at fair value with unrealized gains and losses included
in income. Available-for-sale securities are carried at fair value with
unrealized gains and losses recorded as a separate component of shareholders'
equity. Held-to-maturity securities are carried at amortized cost. The impact
of adopting SFAS No. 115 was to increase shareholders' equity by $2,800,000
at May 31, 1995. The Company has no trading securities. Proceeds from sales of
available-for-sale securities were immaterial. The cost of marketable
securities sold is determined by the specific identification method. Gross
realized gains and losses on these sales were immaterial. Dividend and
interest income are accrued as earned. At May 31, 1995, the Company's
marketable securities include $33,100,000 of certificates of deposit,
$14,609,000 of debt securities, $4,222,000 of equity securities and $4,422,000
of mortgage-backed obligations all maturing within one year and $14,837,000 of
debt securities, $3,352,000 of equity securities and $15,842,000 of
mortgage-backed obligations all maturing past one year.
At May 31, 1994, marketable securities consisted of $22,600,000 of certificates
of deposit, $41,283,000 of debt securities and $6,568,000 of equity securities,
and the aggregate market value of debt and equity securities exceeded the
aggregate cost by $2,687,000.
Investment income included in other income, net consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $5,656 $3,977 $2,839
Dividend income 870 442 586
Net realized gains 68 2,213 670
- --------------------------------------------------------------------------------------------------------
Total $6,594 $6,632 $4,095
========================================================================================================
</TABLE>
Note D: Inventories.
Inventories at May 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Raw material $ 19,146 $12,729
Work-in-process 15,163 8,702
Finished goods 62,884 41,200
Consigned distributor 43,692 29,632
- --------------------------------------------------------------------------------------------------------
Total $140,885 $92,263
========================================================================================================
</TABLE>
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, 1995, 1994 and 1993 were $1,573,000, $1,546,000 and
$1,322,000, 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, 1995, 1994 and 1993 were $1,148,000, $1,075,000 and
$922,000, 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.
29
<PAGE> 31
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
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
stock option 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 stock option 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 had been reserved for granting under
the 1984 Employee Stock Option Plan. This plan expired on September 15, 1994
which has no effect on unexpired shares. 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 stock option 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,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Number Per Share
of Shares Option Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, June 1, 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
Granted 931,793 9.00 - 14.88
Exercised (641,905) 1.53 - 11.00
Terminated (124,597) 5.00 - 12.88
- -------------------------------------------------------------------------------------------------------------------
Outstanding, May 31, 1995 3,226,644 $ 1.53 - $15.00
===================================================================================================================
</TABLE>
Options outstanding at May 31, 1995 which are currently exercisable represent
837,000 shares. The remaining options become exercisable in fiscal years 1996
(580,000 shares); 1997 (593,000 shares); 1998 (547,000 shares); 1999 (457,000
shares); 2000 (157,000 shares) and 2001 through 2002 (55,644 shares). As of
May 31, 1995, 5,409,361 shares were reserved for future options, compared with
6,956,092 shares at May 31, 1994. 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.
30
<PAGE> 32
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
Note G: Shareholders' Equity.
In September 1994, 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 22, 1995. During the year ended May 31, 1995, the
Company purchased 1,120,000 shares of its common stock at an aggregate cost of
$15,219,000. At May 31, 1995, the Company has recorded a liability of
$10,406,000 for purchased common shares for which the settlement date was
subsequent to May 31, 1995. 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 takeovers.
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 cumulative effect of the change in the
method of accounting did not have a material effect on the consolidated
financial statements.
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
United States operations $114,595 $96,014 $86,356
Foreign operations 10,347 11,018 7,916
- ---------------------------------------------------------------------------------------------------
Total $124,942 $107,032 $94,272
===================================================================================================
<CAPTION>
The provision for income taxes is summarized as follows:
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $31,046 $25,937 $21,736
State, including Puerto Rico 10,395 7,806 6,118
Foreign 4,701 4,601 2,858
- ---------------------------------------------------------------------------------------------------
46,142 38,344 30,712
Deferred tax credit (400) (1,130) (401)
- ---------------------------------------------------------------------------------------------------
Total $45,742 $37,214 $30,311
- ---------------------------------------------------------------------------------------------------
Effective tax rate 36.6% 34.8% 32.2%
===================================================================================================
</TABLE>
31
<PAGE> 33
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
Note H: Income Taxes, Concluded.
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 35.0% 34.0%
Add (deduct):
State taxes, less effect of federal reduction 3.8 3.7 3.7
Foreign income taxes at rates different from the U.S. statutory rate 1.0 .3 .2
Tax benefit relating to operations in Puerto Rico (2.7) (4.8) (5.4)
Tax credits (.2) (.1) -
Earnings of Foreign Sales Corporation (.4) (.5) (.4)
Other .1 1.2 .1
- -------------------------------------------------------------------------------------------------------------------------------
Effective tax rate 36.6% 34.8% 32.2%
===============================================================================================================================
</TABLE>
The components of the net deferred tax asset and liability at May 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current deferred tax asset:
Accounts and notes receivable $ 2,511 $ 1,156
Inventories 4,090 1,932
Accrued expenses 3,732 1,695
Investments in affiliates 1,470 1,886
- -------------------------------------------------------------------------------------------------------------------------------
Net current deferred tax asset $11,803 $ 6,669
===============================================================================================================================
Long-term deferred tax asset (liability):
Depreciation $(2,640) $(3,586)
Other 400 57
- -------------------------------------------------------------------------------------------------------------------------------
Long-term deferred tax liability $(2,240) $(3,529)
===============================================================================================================================
</TABLE>
No provision has been made for U.S. federal and state income taxes or foreign
taxes of the undistributed earnings ($37,759,000 at May 31, 1995) 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.
32
<PAGE> 34
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
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 and neuromuscular 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,
Italy and Spain (Europe).
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
North America $377,923 $316,936 $283,028
Europe 74,349 56,359 52,345
Intercompany 16,572 13,827 9,648
Eliminations (16,572) (13,827) (9,648)
- -----------------------------------------------------------------------------------------------
$452,272 $373,295 $335,373
- -----------------------------------------------------------------------------------------------
Operating income:
North America $106,954 $ 89,805 $ 81,811
Europe 12,073 11,949 8,656
- -----------------------------------------------------------------------------------------------
$119,027 $101,754 $ 90,467
- -----------------------------------------------------------------------------------------------
Identifiable assets:
North America $438,985 $355,206 $300,884
Europe 117,525 70,131 56,506
Eliminations (17,426) (7,260) (2,981)
- -----------------------------------------------------------------------------------------------
$539,084 $418,077 $354,409
===============================================================================================
</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 $34,112,000, $28,720,000 and
$25,929,000 for the years ended May 31, 1995, 1994 and 1993, respectively.
Selected financial data of the Company's foreign subsidiaries is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales $ 80,209 $ 61,197 $ 54,505
- ------------------------------------------------------------------------------------------------
Net income $ 6,137 $ 6,417 $ 4,871
- ------------------------------------------------------------------------------------------------
Current assets $ 87,135 $ 53,515 $ 45,592
Property, plant and equipment 21,721 11,151 9,377
Intangible assets 11,060 2,734 3,261
- ------------------------------------------------------------------------------------------------
119,916 67,400 58,230
- ------------------------------------------------------------------------------------------------
Current liabilities 32,939 18,332 15,777
Intercompany loans 28,676 13,803 8,746
Long-term liabilities 1,679 1,345 1,240
- ------------------------------------------------------------------------------------------------
63,294 33,480 25,763
- ------------------------------------------------------------------------------------------------
Net assets $ 56,622 $ 33,920 $ 32,467
================================================================================================
</TABLE>
33
<PAGE> 35
BIOMET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
for the years ended May 31, 1995, 1994 and 1993
Note J: Commitments and Contingencies.
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 - Since 1989, the Company has self-insured against product
liability claims, up to $2,000,000 per occurrence and $4,000,000 aggregate per
year. Liabilities in excess of these amounts are the responsibility of the
Company's insurance carrier. Self-insurance costs are accrued based on
reserves set in consultation with the insurance 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 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.
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.
34
<PAGE> 36
BIOMET, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended May 31, 1995, 1994 and 1993
(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 receivables:
For the year ended
May 31, 1995 $3,619 $3,614 $156 (B) $2,853 (A) $6,039
(30)(C)
(1,473)(D)
====== ====== ======== ========== ======
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)
====== ====== ======== ========== ======
</TABLE>
Notes:
(A) Uncollectible accounts written off
(B) Collection of previously written off accounts
(C) Effect of foreign currency translation adjustment
(D) Allowance of Kirschner Medical Corporation at date of
acquisition.
35
<PAGE> 37
BIOMET, INC.
FORM 10-K
May 31, 1995
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>
(2) 2.1 Agreement and Plan of Merger by and among Biomet, Inc.,
Biomet Acquisition Corp. and Kirschner Medical Corporation.
(Incorporated by reference to Exhibit 2 to Schedule 13D filed
by Biomet, Inc. with respect to the Common Stock, .10 par
value, of Kirschner, CUSIP, No. 497660100).
2.2 First Amendment to Agreement and Plan of Merger by and
among Biomet, Inc., Biomet Acquisition Corp., Kirschner
Acquisition Corp. and Kirschner Medical Corporation.
(Incorporated by reference to Exhibit 2.02 to Biomet, Inc.
Form S-4 Registration Statement, File No. 33-55483).
(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).
(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. (Incorporated by
reference to Exhibit 10.2 to Biomet, Inc. Form 10-K Report for
year ended May 31, 1991, File No. 0-12515).
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
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 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).
10.5 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 L.L.P.
(24) No exhibit.
(27) 27.1 Financial Data Schedule
(28) No exhibit.
(99) No exhibit.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
BIOMET, INC. AND SUBSIDIARIES
for the years ended May 31, 1995, 1994 and 1993
(in thousands except earnings per share)
___________________
<TABLE>
<CAPTION>
Computation of EPS based on simple capital
structure without regard to common stock
equivalents:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income applicable to common shares $79,200 $69,818 $63,961
Weighted average number of shares
outstanding during the year 115,459 115,215 114,934
Primary earnings per common share $.69 $.61 $.56
</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, 1995, 1994 and 1993.
<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)
Vascu-Med, Inc. (Indiana corporation)
Poly-Medics, Inc. (Indiana corporation)
Walter Lorenz Surgical, Inc. (Florida corporation)
Polymers Reconstructive A/S (Danish corporation)
Kirschner Medical Corporation (Delaware corporation)
Foreign subsidiaries:
Biomet Ltd. (U.K. corporation)
Biomet Deutschland GmbH (German corporation)
Biomet SpA (Italian corporation)
EBI Medical Systems Ltd. (U.K. corporation)
Biomet Ltda. (Brazilian corporation)
Biomet S.A. (French corporation)
Industrias Quirgicas de Levante, s.a. (IQL) (Spanish corporation)
Each subsidiary is wholly-owned by its immediate parent, except for the
following:
Polymers Reconstructive A/S of which Biomet, Inc. owns 51% of the
oustanding shares; and Biomet SpA of which Biomet Ltd. owns 51% of
the outstanding shares.
<PAGE> 1
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, 33-50420 and
33-27008) and in the related Prospectus of our report dated June 30, 1995, on
our audits of the consolidated financial statements and financial statement
schedule of Biomet, Inc. and subsidiaries as of May 31, 1995 and 1994, and for
each of the three years in the period ended May 31, 1995, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
July 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 34091000
<SECURITIES> 56354000
<RECEIVABLES> 146322000
<ALLOWANCES> 6039000
<INVENTORY> 140885000
<CURRENT-ASSETS> 391902000
<PP&E> 121018000
<DEPRECIATION> 40710000
<TOTAL-ASSETS> 539084000
<CURRENT-LIABILITIES> 89150000
<BONDS> 0
<COMMON> 64526000
0
0
<OTHER-SE> 380091
<TOTAL-LIABILITY-AND-EQUITY> 539084000
<SALES> 452272000
<TOTAL-REVENUES> 452272000
<CGS> 142143000
<TOTAL-COSTS> 333245000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1032000
<INCOME-PRETAX> 124942000
<INCOME-TAX> 45742000
<INCOME-CONTINUING> 79200000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79200000
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
