UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 30, 1994:
Common Shares - No Par Value 116,087,232 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 116,087,232 Rights
(Class) (Number of Shares)
BIOMET, INC.
CONTENTS
Pages
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets 1-2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1994 and May 31, 1994
(in thousands)
ASSETS
November 30, May 31,
1994 1994
------------ -------
Current assets:
Cash and cash investments $ 50,969 $ 70,391
Short-term investments 81,961 70,451
Accounts and notes receivable, net 121,287 96,800
Inventories 124,767 92,263
Prepaid expenses and other 20,101 12,322
------- -------
Total current assets 399,085 342,227
------- -------
Property, plant and equipment, at cost 99,098 83,460
Less, Accumulated depreciation 37,237 32,336
------- -------
Property, plant and equipment, net 61,861 51,124
------- -------
Intangible assets, net 9,075 9,599
Excess acquisition cost over fair value
of acquired net assets, net 23,983 11,427
Investments in and advances to affiliates 585 1,678
Other assets 3,765 2,022
------- -------
Total assets $ 498,354 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1994 and May 31, 1994
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30, May 31,
1994 1994
------------ -------
Current liabilities:
Short-term borrowings $ 6,315 $ 1,606
Accounts payable 24,984 18,604
Accrued income taxes 16,560 13,620
Accrued wages and commissions 10,868 8,249
Other accrued expenses 19,111 11,740
------- -------
Total current liabilities 77,838 53,819
Long-term liabilities:
Deferred federal income taxes 4,246 3,529
Other liabilities 3,335 3,446
------- -------
Total liabilities 85,419 60,794
------- -------
Contingencies (Note 7)
Shareholders' equity:
Common shares 64,309 47,290
Additional paid-in capital 11,858 13,606
Retained earnings 336,032 299,510
Unrealized gain on certain equity securities 800 --
Cumulative translation adjustment (64) (3,123)
------- -------
Total shareholders' equity 412,935 357,283
------- -------
Total liabilities and shareholders' equity $ 498,354 $ 418,077
======= =======
The accompanying notes are a part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
for the six and three month periods ended November 30, 1994 and 1993
(in thousands, except earnings per share)
Six Months Ended Three Months Ended
November 30, November 30,
---------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
Net sales $203,086 $177,206 $106,860 $ 90,313
Cost of sales 62,682 54,839 32,877 27,869
------- ------- ------- -------
Gross profit 140,404 122,367 73,983 62,444
Selling, general and
administrative expenses 74,266 65,531 39,100 33,260
Research and development expense 10,846 10,104 5,631 5,074
------- ------- ------- -------
Operating income 55,292 46,732 29,252 24,110
Other income, net 3,055 2,096 1,664 1,344
------- ------- ------- -------
Income before income taxes 58,347 48,828 30,916 25,454
Provision for income taxes 21,825 16,708 11,507 8,665
------- ------- ------- -------
Net income $ 36,522 $ 32,120 $ 19,409 $ 16,789
======== ======== ======== ========
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .32 $ .28 $ .17 $ .15
==== ==== ==== ====
Weighted average number of shares 114,733 115,308 114,986 115,308
======= ======= ======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1994 and 1993
(in thousands)
1994 1993
---- ----
Cash flows from (used in) operating activities:
Net income $ 36,522 $ 32,120
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 4,256 4,036
Amortization 2,097 1,760
Gain on sale of marketable securities, net (53) (897)
Equity in losses of affiliates 1,200 900
Deferred income taxes 96 --
Changes in current assets and current liabilities:
Accounts and notes receivable, net (4,599) 1,864
Inventories (10,599) (6,674)
Prepaid expenses and other (1,467) (68)
Accounts payable (940) (463)
Accrued income taxes 1,536 (304)
Accrued wages and commissions (78) (128)
Other accrued expenses 2,977 850
------ ------
Net cash from operating activities 30,948 32,996
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 3,254 7,460
Purchase of marketable securities (13,911) (3,994)
Capital expenditures (5,711) (3,141)
Cash invested in and advanced to affiliates (107) (25)
Purchase of Kirschner, net of cash acquired (27,315) --
Increase in other assets 148 (1,539)
Other 666 (226)
------ ------
Net cash used in investing activities (42,976) (1,465)
------ ------
Cash flows from (used in) financing activities:
Issuance of common shares 772 502
Repurchase of shares -- (2,697)
Decrease in short-term borrowings (7,771) (87)
------ ------
Net cash used in financing activities (6,999) (2,282)
------ ------
Effect of exchange rate changes on cash (395) 67
------ ------
Increase (decrease) in cash and cash investments (19,422) 29,316
Cash and cash investments, beginning of year 70,391 44,579
------ ------
Cash and cash investments, end of period $ 50,969 $ 73,895
====== ======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: OPINION OF MANAGEMENT.
In the opinion of management, the information furnished herein includes all
adjustments necessary to reflect a fair statement of the interim periods
reported. The May 31, 1994 condensed consolidated balance sheet data was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
NOTE 2: ACQUISITIONS.
On August 12, 1994, the Company through a wholly-owned subsidiary purchased
685,222 Common Shares of Kirschner Medical Corporation ("Kirschner") and a
promissory note in the amount of 329.5 million Spanish Pesetas (approximately
$2.5 million) issued to Kirschner's Spanish subsidiary from Figgie
International Inc. for $8,700,000. On November 4, 1994, the Company through
the same wholly-owned subsidiary purchased all of the remaining issued and
outstanding common shares of Kirschner for 1,384,309 Biomet Common Shares and
$16,245,981 cash. Kirschner, headquartered in Timonium, Maryland, designs,
develops, manufactures and markets orthopedic devices and musculoskeletal
orthopedic support products. The acquisition has been accounted for as a
purchase and the purchase price of $38,900,000, including acquisition costs,
has been allocated to the acquired net assets. The $13,327,000 excess of
acquisition cost over fair value of acquired net assets is being amortized
on a straight-line basis over 15 years.
Unaudited pro forma financial information reflecting the acquisition had it
occurred at the beginning of each period is as follows:
Six months ended November 30,
1994 1993
---- ----
Net sales $235,850,000 $211,006,000
Net income 36,731,000 32,714,000
Earnings per share .32 .28
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
Supplemental schedule of non-cash investing and financing activities incurred
in connection with the acquisition:
Fair value of assets acquired, other than cash $70,420,000
Common shares issued 16,246,000
Liabilities assumed 26,859,000
----------
Cash paid $27,315,000
==========
NOTE 3: INVESTMENTS.
Effective June 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities". This statement requires certain investments to be categorized as
either trading, available-for-sale or held-to-maturity. The Company has no
investments categorized in the trading category at November 30, 1994.
Investments in the available-for-sale category, approximately $32,721,000 at
November 30, 1994, are carried at fair value with unrealized gains and losses
recorded as a special component of shareholders' equity, approximately $800,000
at November 30, 1994. Investments in the held-to-maturity category are carried
at amortized cost, approximately $49,240,000 at November 30, 1994. The
proceeds from sales of marketable securities are all from the available-for-
sale category. Gross realized gains or losses on these sales were immaterial.
NOTE 4: INVENTORIES.
Inventories at November 30, 1994 and May 31, 1994 are as follows:
November 30, May 31,
1994 1994
------------ -------
(in thousands)
Raw materials $ 18,211 $12,729
Work in process 13,936 8,702
Finished goods 51,010 41,200
Consigned inventory 41,610 29,632
------- ------
$124,767 $92,263
======= ======
NOTE 5: INCOME TAXES.
The effective income tax rate increased due to the increase in the U.S.
corporate income tax rate, changes in the Puerto Rico local tax structure
resulting from the reduction of tax benefits from operating in Puerto Rico and
increased profits in foreign countries where the tax rate is higher. The
difference between the reported provision for income taxes and a provision
computed by applying the federal statutory rate to pre-tax accounting income
is primarily attributable to state income taxes, tax exempt income and tax
credits.
NOTE 6: COMMON SHARES.
During the six months ended November 30, 1994, the Company issued 278,998
common shares upon the exercise of outstanding stock options for proceeds
aggregating $772,432. The Company also issued 1,384,309 common shares valued
at $16,245,981 in connection with the Kirschner acquisition.
NOTE 7: CONTINGENCIES.
On February 9, 1990, Pedro A. Ramos, M.D. filed a complaint in the United
States District Court for the Southern District of Florida naming the Company
as a defendant. The plaintiff alleges the Company has infringed his patent.
In April 1993, the matter was tried before Judge Aronovitz of the Southern
District of Florida. Judge Aronovitz issued a memorandum opinion in August
1993, finding that U.S. Patent No. 4,383,090 was willfully infringed. On
September 10, 1993 the trial court entered a final judgment and permanent
injunction in favor of Dr. Ramos. An amended final judgment was entered on
November 30, 1993 awarding Dr. Ramos a permanent injunction and $6,008,000.
The Company, after consultation with legal counsel, believes the Court erred
in its finding and that the judge's opinion is contrary to the facts and
applicable law. The Company filed Notices of Appeal to the final judgment and
amended final judgment on September 20, 1993 and December 13, 1993,
respectively. The Company filed its appeal brief with the Court of Appeals for
the Federal Circuit on March 3, 1994 and Dr. Ramos filed his Response Brief on
April 12, 1994. Oral arguments were heard on September 8, 1994. The Company
has negotiated a license under the Ramos patent to continue selling its old
bipolar design while it introduces a new bipolar product. Management continues
to conduct a vigorous defense of this matter. Although the ultimate outcome of
this matter cannot be determined, management of the Company, after consultation
with legal counsel, believes the judgment against the Company will be reversed
on appeal. Accordingly, no provision for any liability (except for accrued
legal costs) that might result from this matter has been made in the
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF NOVEMBER 30, 1994
As of November 30, 1994, the Company's working capital position remains strong,
increasing by $32,839,000 during the first six months of fiscal year 1995 to
$321,247,000 and resulting in a working capital ratio of 5.1 to 1. This
increase in working capital is principally attributable to the operating
results experienced by the Company during the first six months of fiscal year
1995. Cash and short-term investments decreased during the first six months by
$7,912,000 to $132,930,000 due to the approximately $34,700,000 used in the
Kirschner acquisition (which include payment of debt). The Company's cash and
short-term investments, together with anticipated cash flow from operations,
are expected to be adequate to fund all anticipated capital requirements.
Accounts receivable and inventories increased by $24,487,000 and $32,504,000,
respectively, which includes the purchased assets of $18,545,000 and
$19,795,000, respectively, of Kirschner. In addition, inventories have been
increased to support the recent introduction of several new products including
the Maxim Total Knee System and the Arthrotek Integrated Endoscopy System (IES
1000). Property, plant and equipment increased $15,638,000 during the first six
months of fiscal 1995, which includes $8,925,000 from the Kirschner acquisition.
Included in the aforementioned changes were increases in accounts receivable,
inventories and property, plant and equipment of approximately $1,535,000,
$1,900,000 and $1,332,000, respectively, attributable to the increase from May
31, 1994 to November 30, 1994 in the exchange rates used to convert the
financial statements of the Company's foreign subsidiaries from their
functional currency to the U.S. Dollar. These increases did not affect the
Company's earnings during the past six month period because foreign currency
translation adjustments to balance sheet items are recognized directly in
shareholders' equity on the Company's consolidated balance sheet. The Company
will continue to be exposed to the effects of foreign currency translation
adjustments.
The increase in total liabilities of $24,625,000 was principally from the
Kirschner acquisition.
Shareholders' equity increased $55,652,000 due to the Company's first six
months earnings and the issuance of common stock in the Kirschner acquisition.
Also included is an increase in the unrealized gain on certain equity
securities due to the adoption of SFAS No. 115 (See Note 3 of the Notes to
Consolidated Financial Statements) and cumulative translation adjustment of
$800,000 and $3,059,000, respectively, between periods presented.
On September 16, 1994 the Company's Board of Directors authorized the
investment of up to $25 million in the outstanding Common Shares of the Company
in open market or privately negotiated transactions, extending the Share
Repurchase Program announced the previous year. The Company had repurchased
1,260,000 shares during the previous year. The number of shares purchased, if
any, will be dependent upon market conditions. Purchases may be made from time
to time between September 16, 1994 and September 22, 1995.
As previously disclosed in our 1993 Form 10-K, EBI and Orthofix s.r.l.
("Orthofix") continue to have discussions concerning the renewal of the
Orthofix distribution arrangement. The current agreement with Orthofix expires
May 31, 1995 and, if the agreement is not renewed, it could have an adverse
impact on EBI or the Company.
As more fully disclosed in Note 2 of the Notes to Consolidated Financial
Statements, the Company acquired Kirschner Medical Corporation on November 4,
1994.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994
AS COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 1993
Net sales increased 15% to $203,086,000 for the six month period ended November
30, 1994, from $177,206,000 for the same period last year. The Company's
U.S.-based revenue increased 14% to $158,046,000 during the first six months,
while foreign sales increased 18% to $45,040,000. Foreign currency exchange
rates did not have a material impact on sales or earnings during the first six
months.
Biomet's worldwide reconstructive device sales during the first six months of
fiscal 1995 were $119,924,000, representing an 18% increase compared to the
first six months of fiscal year 1994. This increase was primarily a result of
Biomet's continued penetration of the reconstructive device market led by the
recently introduced Maxim Total Knee System. Sales of Electro-Biology, Inc.'s
products were $46,692,000 for the first six months of fiscal 1995, representing
a 10% increase as compared to the same period in 1994. This increase was
largely attributable to increased demand for bone healing units. The Company's
"other products" revenues totaled $36,470,000, representing a 10% increase over
the first six months of fiscal year 1994, primarily as a result of increased
sales of arthroscopy products. The above sales increases include approximately
one month of Kirschner activity.
Cost of sales remained constant as a percentage of net sales at 30.9% for the
six month periods. Selling, general and administrative expenses increased,
principally as a result of increased commissions paid on the higher volume of
sales, but decreased as a percentage of net sales to 36.6%, compared to 37.0%
for the first six months of last year. The increase in research and
development expenditures during the first six months reflects Biomet's
commitment to remain competitive through technological advancements and to
capitalize on future opportunities available within the orthopedic market.
Operating income rose 18% from $46,732,000 for the first six months of fiscal
1994, to $55,292,000 for the first six months of fiscal 1995, corresponding to
the increase in net sales. Other income increased during the first six months
of fiscal 1995 principally because of increases in cash and short-term
investments and higher investment yields. The effective income tax rate
increased from 34.2% for the first six months of fiscal 1994 to 37.4% for the
same period this year. This increase is due to the increase in the U.S.
corporate income tax rate, changes in the Puerto Rico local tax structure
resulting from the reduction of tax benefits from operating in Puerto Rico
instituted by the current administration and increased profits in foreign
countries where the tax rate is higher.
These factors resulted in a 14% increase in net income and earnings per share
for the first six months of fiscal 1995 as compared to the same period in
fiscal 1994, increasing from $32,120,000 to $36,522,000, and from $.28 to $.32,
respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1994
AS COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 1993
Net sales increased 18% to $106,860,000 for the second quarter of fiscal year
1995, as compared to $90,313,000 for the same period last year. Operating
income rose 21% from $24,110,000 for the second quarter of fiscal 1994, to
$29,252,000 for the second quarter of fiscal 1995. During the second quarter,
net income increased 16% to $19,409,000 as compared to $16,789,000 for the same
period last year. Earnings per share increased 13% from $.15 per share for the
second quarter of fiscal 1994, to $.17 per share for the same period of fiscal
1995. The business factors resulting in these changes and relevant trends
affecting the Company's business during the periods in question are comparable
to those described in the preceding discussion for the six-month period.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On February 9, 1990, Pedro A. Ramos, M.D. filed a complaint in the United
States District Court for the Southern District of Florida naming the Company
as a defendant. The plaintiff alleges the Company has infringed his patent. In
April 1993, the matter was tried before Judge Aronovitz of the Southern
District of Florida. Judge Aronovitz issued a memorandum opinion in August
1993, finding that U.S. Patent No. 4,383,090 was willfully infringed. On
September 10, 1993 the trial court entered a final judgment and permanent
injunction in favor of Dr. Ramos. An amended final judgment was entered on
November 30, 1993 awarding Dr. Ramos a permanent injunction and $6,008,000.
The Company, after consultation with legal counsel, believes the Court erred
in its finding and that the judge's opinion is contrary to the facts and
applicable law. The Company filed Notices of Appeal to the final judgment and
amended final judgment on September 20, 1993 and December 13, 1993,
respectively. The Company filed its appeal brief with the Court of Appeals for
the Federal Circuit on March 3, 1994 and Dr. Ramos filed his Response Brief on
April 12, 1994. Oral arguments were heard on September 8, 1994. The Company
has negotiated a license under the Ramos patent to continue selling its old
bipolar design while it introduces a new bipolar product. Management continues
to conduct a vigorous defense of this matter. Although the ultimate outcome of
this matter cannot be determined, management of the Company, after consultation
with legal counsel, believes the judgment against the Company will be reversed
on appeal. Accordingly, no provision for any liability (except for accrued
legal costs) that might result from this matter has been made in the
consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K.
A report on Form 8-K was filed November 18, 1994 with respect to Item 2 of that
form.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
- ------------
(Registrant)
DATE: 1/13/95 BY: /s/ GREGORY D. HARTMAN
------- -------------------------
Gregory D. Hartman
Vice President - Finance
(Principal Financial Officer)
(Signing on behalf of the registrant
and as principal financial officer)
BIOMET, INC.
FORM 10-Q
INDEX TO EXHIBITS
Sequential
Number Assigned Numbering System
in Regulation S-K Page Number
Item 601 Description of Exhibit of Exhibit
- ----------------- -------------------------------- ----------------
(2) No exhibit.
(4) 4.1 Specimen certificate for Common
Shares. (Incorporated by reference
to Exhibit 4.1 to the registrant's
Report on Form 10-K for the fiscal
year ended May 31, 1985).
4.2 Rights Agreement between Biomet,
Inc. and Lake City Bank, as Rights
Agent, dated as of December 2, 1989.
(Incorporated by reference to Exhibit
4 to Biomet, Inc. Form 8-K Current Report
dated December 22, 1989, File No. 0-12515).
(10) No exhibit.
(11) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(22) No exhibit.
(23) No exhibit.
(24) No exhibit.
(27) Financial data schedules.
(99) No exhibit.
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