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, 1996.
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, 1996:
Common Shares - No Par Value 115,647,413 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,647,413 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, 1996 and May 31, 1996
(in thousands)
ASSETS
August 31, May 31,
1996 1996
---------- -------
Current assets:
Cash and cash equivalents $ 128,773 $ 106,068
Marketable securities 26,909 30,834
Accounts and notes receivable, net 156,628 154,055
Inventories 153,785 151,465
Prepaid expenses and other 23,582 20,494
------- -------
Total current assets 489,677 462,916
------- -------
Property, plant and equipment, at cost 138,060 132,697
Less, Accumulated depreciation 55,794 52,533
------- -------
Property, plant and equipment, net 82,266 80,164
------- -------
Marketable securities 32,495 31,159
Intangible assets, net 7,188 7,665
Excess acquisition cost over fair value
of acquired net assets, net 21,235 14,947
Other assets 1,628 1,618
------- -------
Total assets $ 634,489 $ 598,469
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of August 31, 1996 and May 31, 1996
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1996 1996
---------- -------
Current liabilities:
Short-term borrowings $ 3,378 $ 3,358
Accounts payable 16,459 16,667
Accrued income taxes 24,934 11,295
Accrued wages and commissions 11,455 11,460
Other accrued expenses 18,198 19,319
------- -------
Total current liabilities 74,424 62,099
Long-term liabilities:
Deferred federal income taxes 3,609 1,509
Other liabilities 587 791
------- -------
Total liabilities 78,620 64,399
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares 74,126 68,376
Additional paid-in capital 14,299 14,410
Retained earnings 471,439 458,193
Net unrealized appreciation of
certain equity securities 484 584
Cumulative translation adjustment (4,479) (7,493)
------- -------
Total shareholders' equity 555,869 534,070
------- -------
Total liabilities and shareholders' equity $ 634,489 $ 598,469
======= =======
The accompanying notes are a part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended August 31, 1996 and 1995
(in thousands, except earnings per share)
1996 1995
---- ----
Net sales $137,178 $127,227
Cost of sales 44,428 41,279
------- -------
Gross profit 92,750 85,948
Selling, general and
administrative expenses 49,889 50,597
Research and development expense 6,518 6,197
------- -------
Operating income 36,343 29,154
Other income, net 2,351 3,796
------- -------
Income before income taxes 38,694 32,950
Provision for income taxes 14,607 12,201
------- -------
Net income $ 24,087 $ 20,749
======= =======
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .21 $ .18
==== ====
Weighted average number of shares 115,739 115,252
======= =======
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, 1996 and 1995
(in thousands)
1996 1995
---- ----
Cash flows from (used in) operating activities:
Net income $ 24,087 $ 20,749
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 3,415 2,882
Amortization 1,813 2,407
Gain on sale of marketable securities, net (62) (2,743)
Changes in current assets and current liabilities,
excluding effects of acquisitions:
Accounts and notes receivable, net 1,420 982
Inventories 1,411 (7,703)
Prepaid expenses and other (2,858) (1,490)
Accounts payable (2,394) (6,583)
Accrued income taxes 13,436 1,656
Accrued wages and commissions (21) (2,917)
Other accrued expenses (3,159) (1,614)
------- ------
Net cash from operating activities 37,088 5,626
------- ------
Cash flows from (used in) investing activities:
Cash proceeds from sales and maturities of
marketable securities 11,622 30,428
Purchases of marketable securities (9,004) (4,753)
Capital expenditures (3,458) (2,438)
Business acquisition, net of cash acquired (4,667) --
Increase in other assets (568) (1,181)
Other (227) (90)
------- ------
Net cash from (used in) investing activities (6,302) 21,966
------- ------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (69) (90)
Issuance of common shares 2,870 317
Purchase of common shares (11,375) (10,406)
------- ------
Net cash used in financing activities (8,574) (10,179)
------- ------
Effect of exchange rate changes on cash 493 (2,970)
------- ------
Increase in cash and cash equivalents 22,705 14,443
Cash and cash equivalents, beginning of year 106,068 34,091
------- ------
Cash and cash equivalents, end of period $128,773 $ 48,534
======= ======
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.
The accompanying consolidated financial statements include the
accounts of Biomet, Inc. and its wholly-owned subsidiaries
(individual and collectively referred to as the "Company"). The
unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three month period ended August 31, 1996 are not
necessarily indicative of the results that may be expected for
the fiscal year ending May 31, 1997. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on From 10-K for the
fiscal year ended May 31. 1996.
The accompanying consolidated balance sheet at May 31, 1996, has
been derived from the audited Consolidated Financial Statements
at that date, but does not include all disclosures required by
generally accepted accounting principles.
NOTE 2: INVENTORIES.
Inventories at August 31, 1996 and May 31, 1996 are as follows:
August 31, May 31,
1996 1996
---------- -------
(in thousands)
Raw materials $ 21,612 $ 19,643
Work in process 16,798 15,677
Finished goods 70,686 71,974
Consigned inventory 44,689 44,171
------- -------
$153,785 $151,465
======= =======
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, 1996, the Company
issued 568,419 Common Shares upon the exercise of outstanding
stock options for proceeds aggregating $2,870,000 and purchased
747,180 outstanding Common Shares for $11,375,000.
NOTE 5: ACQUISITIONS.
On August 1, 1996, the Company completed the acquisition of one
of its foreign distributors. The purchase price consisted of
200,385 Common Shares of the Company and $4.7 million cash. The
excess acquisition cost over fair value of acquired net assets
at the acquisition date approximated $6.8 million. The
acquisition has been accounted for using the purchase method of
accounting. Pro forma consolidated results of operations are
not presented as the amounts are not materially different from
the Company's historical results.
NOTE 6: CONTINGENCIES.
In August 1996, the United States District Court for the Southern
District of Florida entered a judgment on the state law claims of
Raymond G. Tronzo that were the subject of a previous jury verdict
against the Company in the amount of approximately $55 million. In
that judgement, Tronzo was awarded damages of approximately $33.7
million, including compensatory damages of approximately $7.1 million,
punitive damages of $20 million and prejudgment interest of
approximately $6.6 million. The trial court dismissed, with prejudice,
Tronzo's claim based upon unjust enrichment. For reasons unknown, the
trial court has not yet ruled on the Company's motion challenging the
validity of Tronzo's patent. If the trail court ultimately
finds the patent to be invalid, management believes that this
finding will provide additional support to its legal arguments
challenging the judgment on the state law claims. If, however,
the trial court ultimately finds the patent to be valid, Tronzo
will be awarded an additional $5.7 million judgment for patent
infringement, including a fifty percent enhancement based upon
willfulness, and the trial court will also consider whether
Tronzo is entitled to an award of attorney's fees and an
injunction prohibiting future sales of the finned version of the
Mallory/Head acetabular cup, the device found to have infringed
the Tronzo patent. This device accounts for a relatively small
portion of the total sales of the Company's Mallory/Head Total
Hip System, and represents less than one percent of the
Company's annual sales. The Company intends to file
post-judgment motions for judgment in its favor and,
alternatively, for a new trial or to amend or modify the
judgment to seek reduction of the punitive damages and
prejudgment interest components of the judgment. Management
anticipates that it will vigorously pursue an appeal of the
judgment if these motions are not favorably resolved. Based on
the information and advice currently available, management
believes that the Company has adequate accruals to cover legal
costs and estimated loss exposure, if any, and that the
Company's cash and cash equivalents are more than adequate to
address the payment of any loss that may ultimately be incurred
with respect to this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF AUGUST 31, 1996
The Company's cash and investments increased $20,116,000 to
$188,177,000 at August 31, 1996, despite the $11,375,000 cash
outlay for Common Shares purchased during the first quarter.
Cash flows provided by operating activities were $37,088,000 for
the first three months of fiscal 1997 compared to $5,626,000 in
1996. The primary sources of 1997 cash flows from operating
activities were net income and an increase in accrued income
taxes. Accrued income taxes increase in the first quarter
because there is no federal tax estimate due in the first
quarter.
Cash flows provided by (used in) investing activities were
$(6,302,000) for the first three months of fiscal 1997 compared
to $21,966,000 in 1996. The primary source of cash flows from
investing activities were sales and maturities of marketable
securities offset by purchases of marketable securities,
purchases of capital equipment and a business acquisition (See
Note 5 of the Notes to Consolidated Financial Statements).
Cash flows used in financing activities were $8,574,000 for the
first three months of fiscal 1997 compared to $10,179,000 in
1996. The primary use of cash flows from financing activities
was the purchase of the Company's Common Shares as part of the
Common Share Repurchase Program. In June 1996, the Company's
Board of Directors authorized the purchase of up to 4,000,000
Common Shares of the Company in open market or privately
negotiated transactions through the close of business on June
23, 1997. During the first quarter, the Company purchased
747,180 Common Shares at an aggregate cost of $11,375,000.
Future purchases, if any, will be dependent on market conditions.
In September 1996, the Company's Board of Directors declared the
Company's first ever cash dividend of ten cents ($.10) per share
to shareholders of record at the close of business on October
25, 1996.
Currently available funds, together with anticipated cash flows
generated from future operations, are believed to be adequate to
cover the Company's anticipated cash requirements, including the
payment of dividends, the Common Share Repurchase Program, the
Tronzo litigation, capital expenditures and research and
development costs.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1996
AS COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 1995
Net sales increased 8% to $137,178,000 for the three month
period ended August 31, 1996, from $127,227,000 for the same
period last year. Elective surgery-related products appear to be
influenced to some degree by seasonal factors, as the number of
elective orthopedic procedures decline during the summer months
and the holiday season. The Company's U.S.-based revenue increased
5% to $100,898,000 during the first three months, while foreign
sales increased 15% to $36,280,000. Foreign currency exchange
rates did not have a material impact on sales or earnings during
the first three months. Biomet's worldwide reconstructive
device sales during the first three months of fiscal 1997 were
$82,753,000, representing a 10% increase compared to the first
three months of last year. 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
Alliance Hip System. Sales of EBI's products were $27,965,000
for the first three months of fiscal 1997, representing a 2%
increase as compared to the same period in 1996. The decline
in the rate of growth in EBI's external fixation sales over the
prior four quarters reflects the expiration of EBI's exclusive
right to distribute Orthofix brand external fixation devices in
the United States in June 1995, at which time Orthofix, Inc. began
the direct sale of those products. EBI has continued to liquidate
its inventory of Orthofix products and, in late 1995, introduced
the Dynafix line of external fixation devices. The Dynafix products
have found wide market acceptance, with the result that total
external fixation sales continue to increase. The Company's
"other products" revenues totaled $26,460,000, representing a 6%
increase over the first three months of fiscal year 1996, primarily
as a result of increased sales of Lorenz and fixation products.
Cost of sales remained constant as a percentage of net sales at
32.4% for the first three months. Selling, general and
administrative expenses decreased as a percentage of net sales
to 36.4%, compared to 39.8% (37.8% after deducting for the
following two items) for the first three months of last year.
Last year's general and administrative expenses included $1.6
million related to the Ramos judgment and $1.0 million in
connection with the restructuring and consolidation of the
operations of Kirschner's reconstructive implant division. This
reduction is principally the result of the consolidation of the
operations of Kirschner offset by increased legal expenses. The
increase in research and development expenditures during the
first three 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 25% from $29,154,000 for the first three
months of fiscal 1996, to $36,343,000 for the first three months
of fiscal 1997, corresponding to the increase in net sales.
Other income decreased $1,445,000 for the first three months of
fiscal year 1997 compared to the prior year's first three
months. Last year's other income included a gain of $2,500,000
which was realized on the sale of the Company's holdings in
American Medical Electronics, Inc. in connection with the
closing of the Orthofix International NV and American Medical
Electronics, Inc. merger offset by interest expense of $400,000
related to the Ramos judgment. The effective income tax rate
increased to 37.8% for the current period compared to 37.0% for
the same period in fiscal 1996.
These factors resulted in a 16% increase in net income to
$24,087,000 from $20,749,000 for the first three months of
fiscal 1997 as compared to the same period in fiscal 1996 .
Earnings per share increased 17%, from $.18 to $.21 for the
periods presented.
OTHER SIGNIFICANT EVENTS.
Based on the information and advice currently available to it,
management believes that the Company has adequate accruals to
cover legal costs and estimated loss exposure, if any, with
respect to the Tronzo litigation (see Note 6 of Notes to
Consolidated Financial Statements), and that the Company's cash
and cash equivalents are more than adequate to address the
payment of any loss that may ultimately be incurred thereto.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on
September 27, 1996. At the Annual Meeting:
1. The following persons were elected as Directors of the
Company for a three-year term expiring in 1999.
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
C. Scott Harrison, M.D. 102,629,211 644,530 None
Niles L. Noblitt 103,296,655 622,065 None
Kenneth V. Miller 103,331,674 632,380 None
L. Gene Tanner 102,852,452 649,706 None
Marilyn Tucker Quayle 102,438,393 711,641 None
The following officers will continue in office until their term expires at the
1997 Annual Meeting of Shareholders: Dane A. Miller; Jerry L. Ferguson; Thomas
F. Kearns, Jr.; and Daniel P. Hann.
The following officers will continue in office until their term expires at the
1998 Annual Meeting of Shareholders: M. Ray Harroff; Jerry L. Miller; Charles
E. Niemier; and Ronald R. Fisher.
2. The selection of Coopers & Lybrand L.L.P. as certified public accountants
for the Company for the fiscal year ending May 31, 1996 was ratified by the
shareholders, as follows:
Votes For 104,037,471
Votes Against 179,281
Abstentions and Broker Non-Votes 284,757
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: 10/15/96 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 128773000
<SECURITIES> 26909000
<RECEIVABLES> 163970000
<ALLOWANCES> 7342000
<INVENTORY> 153785000
<CURRENT-ASSETS> 489677000
<PP&E> 138060000
<DEPRECIATION> 55794000
<TOTAL-ASSETS> 634489000
<CURRENT-LIABILITIES> 74424000
<BONDS> 0
<COMMON> 74126000
0
0
<OTHER-SE> 481743000
<TOTAL-LIABILITY-AND-EQUITY> 634489000
<SALES> 137178000
<TOTAL-REVENUES> 137178000
<CGS> 44428000
<TOTAL-COSTS> 56407000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105000
<INCOME-PRETAX> 38694000
<INCOME-TAX> 14607000
<INCOME-CONTINUING> 24087000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24087000
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
