UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of August 31, 1995:
Common Shares - No Par Value 115,301,423 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,301,423 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 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II. Other Information 9
Signatures 10
Index to Exhibits 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of August 31, 1995 and May 31, 1995
(in thousands)
ASSETS
August 31, May 31,
1995 1995
---------- -------
Current assets:
Cash and cash investments $ 48,534 $ 34,091
Marketable securities 27,785 56,354
Accounts and notes receivable, net 139,214 140,283
Inventories 148,417 140,885
Prepaid expenses and other 21,759 20,289
------- -------
Total current assets 385,709 391,902
------- -------
Property, plant and equipment, at cost 123,484 121,018
Less, Accumulated depreciation 43,472 40,710
------- -------
Property, plant and equipment, net 80,012 80,308
------- -------
Marketable securities 37,562 34,030
Intangible assets, net 8,542 8,170
Excess acquisition cost over fair value
of acquired net assets, net 21,445 22,828
Investments in and advances to affiliates 185 185
Other assets 1,521 1,661
------- -------
Total assets $ 534,976 $ 539,084
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of August 31, 1995 and May 31, 1995
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1995 1995
---------- -------
Current liabilities:
Short-term borrowings $ 3,436 $ 3,518
Accounts payable 20,529 27,194
Accrued income taxes 13,967 12,366
Accrued wages and commissions 10,129 13,050
Liability for purchased common shares -- 10,406
Other accrued expenses 20,991 22,616
------- -------
Total current liabilities 69,052 89,150
Long-term liabilities:
Deferred federal income taxes 2,178 2,240
Other liabilities 3,088 3,077
------- -------
Total liabilities 74,318 94,467
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares 64,843 64,526
Additional paid-in capital 12,968 12,624
Retained earnings 384,837 364,087
Unrealized gain on certain equity securities 695 2,800
Cumulative translation adjustment (2,685) 580
------- -------
Total shareholders' equity 460,658 444,617
------- -------
Total liabilities and shareholders' equity $ 534,976 $ 539,084
======= =======
The accompanying notes are a part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended August 31, 1995 and 1994
(in thousands, except earnings per share)
1995 1994
---- ----
Net sales $127,227 $ 96,226
Cost of sales 41,279 29,805
------- -------
Gross profit 85,948 66,421
Selling, general and
administrative expenses 50,903 35,166
Research and development expense 6,197 5,215
------- -------
Operating income 28,848 26,040
Other income, net 4,102 1,391
------- -------
Income before income taxes 32,950 27,431
Provision for income taxes 12,201 10,318
------- -------
Net income $ 20,749 $ 17,113
======= =======
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .18 $ .15
==== ====
Weighted average number of shares 115,252 114,377
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended August 31, 1995 and 1994
(in thousands)
1995 1994
---- ----
Cash flows from (used in) operating activities:
Net income $ 20,749 $ 17,113
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 2,882 2,077
Amortization 2,407 843
Gain on sale of marketable securities, net (2,743) (12)
Equity in losses of affiliates -- 600
Changes in current assets and current liabilities:
Accounts and notes receivable, net 982 1,275
Inventories (7,703) (3,273)
Prepaid expenses and other (1,490) (3,254)
Accounts payable (6,583) (2,115)
Accrued income taxes 1,656 5,743
Accrued wages and commissions (2,917) (1,392)
Other accrued expenses (1,614) 2,919
------ ------
Net cash from operating activities 5,626 20,524
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 30,428 1,478
Purchase of marketable securities (4,753) (11,345)
Capital expenditures (2,438) (2,038)
Cash invested in and advanced to affiliates -- (8,760)
Increase in other assets (1,181) 35
Other (90) 536
------ ------
Net cash from (used) in investing activities 21,966 (20,094)
------ ------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (90) (318)
Issuance of common shares 317 215
Repurchase of shares (10,406) --
------ ------
Net cash used in financing activities (10,179) (103)
------ ------
Effect of exchange rate changes on cash (2,970) (605)
------ ------
Increase (decrease) in cash and cash investments 14,443 (278)
Cash and cash investments, beginning of year 34,091 70,391
------ ------
Cash and cash investments, end of period $ 48,534 $ 70,113
====== ======
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, 1995 condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2: INVENTORIES.
Inventories at August 31, 1995 and May 31, 1995 are as follows:
August 31, May 31,
1995 1995
---------- -------
(in thousands)
Raw materials $ 20,549 $ 19,146
Work in process 15,696 15,163
Finished goods 65,683 62,884
Consigned inventory 46,489 43,692
------- -------
$148,417 $140,885
======= =======
NOTE 3: INCOME TAXES.
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 4: COMMON SHARES.
During the three months ended August 31, 1995, the Company
issued 113,758 common shares upon the exercise of outstanding
stock options for proceeds aggregating $317,493.
NOTE 5: 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
alleged the Company 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 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. On
September 2, 1995 the U.S. Court of Appeals for the Federal
Circuit reversed in part and affirmed in part the judgment
previously entered against the Company. The Court of Appeals
held that, although the bipolar design did infringe the Ramos
patent under the doctrine of equivalents, that infringement was
neither literal nor willful on the part of the Company and reduced
the judgment to approximately $2,000,000. The Company has
appealed the decision of the Court of Appeals, but has recorded
a $2,000,000 charge against pre-tax earnings for the quarter
ended August 31, 1995, to reflect the effect of this decision.
The Company has discontinued sales of its old bipolar design in
question and introduced a new bipolar product.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF AUGUST 31, 1995
As of August 31, 1995, the Company's working capital position
remains strong, increasing by $13,905,000 during the first three
months of fiscal year 1996 to $316,657,000 and resulting in a
working capital ratio of 5.6 to 1. This increase in working
capital is principally attributable to the operating results
experienced by the Company during the first quarter of fiscal
year 1996. Cash and marketable securities decreased during the
first quarter by $10,594,000 to $113,881,000 due to the
reduction of short-term liabilities. 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 and notes receivable decreased by $1,069,000 and
inventories increased by $7,532,000. Inventories have been
increased to support the Kirschner product line and the recent
increase in international sales. Property, plant and equipment
increased $2,466,000 during the first three months of fiscal
1996. Included in the aforementioned changes were increases in
accounts receivable, inventories and property, plant and
equipment of approximately $643,000, $436,000 and $289,000,
respectively, attributable to the increase from May 31, 1995 to
August 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 past three
month period because foreign currency translation adjustments to
balance sheet items are recognized directly in shareholders'
equity on the Company's consolidated balance sheet. The Company
will continue to be exposed to the effects of foreign currency
translation adjustments.
The payment for common shares purchased prior to May 31, 1995
and a decrease in accounts payable are the primary causes of the
decrease of $20,149,000 in total liabilities.
Shareholders' equity increased $16,041,000 principally due to
the Company's first quarter earnings. Offsetting this increase
is a decrease in the unrealized gain on certain equity
securities and cumulative translation adjustment of $2,105,000
and $3,265,000, respectively, between periods presented.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1995
AS COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 1994
Net sales increased 32% to $127,227,000 for the three month
period ended August 31, 1995, from $96,226,000 for the same
period last year. The Company's U.S.-based revenue increased 29%
to $95,815,000 during the first quarter, while foreign sales
increased 44% to $31,412,000. Biomet's worldwide reconstructive
device sales during the first quarter of fiscal 1996 were
$74,977,000, representing a 34% increase compared to the first
quarter of fiscal year 1995. This increase was primarily a
result of Biomet's continued penetration of the reconstructive
device market led by the Maxim Total Knee System and the
inclusion of Kirschner sales for the quarter. Sales of EBI's
products were $27,323,000 for the first quarter of fiscal 1996,
representing a 22% increase as compared to the same period in
1995. This increase was largely attributable to increased
demand for bone healing units. The Company's "other products"
revenues totaled $24,927,000, representing a 41% increase over
the first quarter of fiscal year 1995, primarily as a result of
increased sales of Lorenz products and fixation products and the
inclusion of Kirschner sales.
Cost of sales increased as a percentage of net sales from 31.0%
for the first quarter of fiscal 1995 to 32.4% for the first
quarter of fiscal 1996 due to the inclusion of Kirschner sales
for the quarter which have a lower gross profit margin and the
start-up expenses associated with the EBI manufacturing facility
purchased last quarter. Selling, general and administrative
expenses increased as a percentage of net sales to 40.0%,
compared to 36.5% for the first quarter of last year. This
includes a $1,600,000 accrual for the Ramos litigation as
described in Note 5 of the Notes to Consolidated Financial
Statements, and a $1,000,000 accrual for expenses in connection
with the restructuring and consolidation of the operations of
Kirschner's reconstructive implant division. The increase in
research and development expenditures during the first quarter
reflects Biomet's commitment to remain competitive through
technological advancements and to capitalize on future
opportunities available within the orthopedic market. Operating
income rose 11% from $26,040,000 for the first quarter of fiscal
1995, to $28,848,000 for the first quarter of fiscal 1996,
corresponding to the increase in net sales. Other income
increased $2,711,000 for the first quarter of fiscal year 1996
compared to the prior year's first quarter due to realized gains
on the sale of marketable securities and higher investment rates
during the first quarter offset by accrued interest of $400,000
incurred for the Ramos litigation as described in Note 5 of the
Notes to Consolidated Financial Statements. A gain of
$2,500,000 was realized by the Company on the sale of its
holdings in American Medical Electronics, Inc. in connection
with the closing of the Orthofix International NV and American
Medical Electronics, Inc. merger. The effective income tax rate
decreased from 37.6% for the first quarter of fiscal 1995 to
37.0% for the same period this year.
These factors resulted in a 21% increase in net income for the
first quarter of fiscal 1996 as compared to the same period in
fiscal 1995, increasing from $17,113,000 to $20,749,000, and a
20% increase in earnings per share from $.15 to $.18.
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
alleged the Company 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 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. On
September 2, 1995 the U.S. Court of Appeals for the Federal
Circuit reversed in part and affirmed in part the judgment
previously entered against the Company. The Court of Appeals
held that, although the bipolar design did infringe the Ramos
patent under the doctrine of equivalents, that infringement was
neither literal nor willful on the part of the Company and reduced
the judgment to approximately $2,000,000. The Company has
appealed the decision of the Court of Appeals, but has recorded
a $2,000,000 charge against pre-tax earnings for the quarter
ended August 31, 1995, to reflect the effect of this decision.
The Company has discontinued sales of its old bipolar design in
question and introduced a new bipolar product.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on
September 23, 1995. At the Annual Meeting:
1. The following persons were elected as Directors of the
Company for a three-year term expiring in 1998.
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
M. Ray Harroff 102,854,018 254,799 None
Jerry L. Miller 102,852,448 265,332 None
Charles E. Niemier 102,853,268 244,798 None
Ronald R. Fisher 102,851,413 225,585 None
The following officers will continue in office until their term expires at the
1996 Annual meeting of Shareholders: C. Scott Harrison; Niles L. Noblitt;
Kenneth V. Miller; L. Gene Tanner; and Marilyn Tucker Quayle.
The following officers will continue in office until their term expires at the
1996 Annual Meeting of Shareholders: Dane A. Miller; Jerry L. Ferguson; Thomas
F. Kearns, Jr.; and Daniel P. Hann.
2. The selection of Coopers & Lybrand L.L.P. as certified public
accountants for the Company for the fiscal year ended May 31,
1996 was ratified by the shareholders , as follows:
Votes For 102,672,635
Votes Against 363,842
Abstentions and Broker Non-Votes 850,332
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
- ------------
(Registrant)
DATE: 10/12/95 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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