UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 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 February 29, 1996:
Common Shares - No Par Value 115,607,128 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,607,128 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 7-9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 29, 1996 and May 31, 1995
(in thousands)
ASSETS
February 29, May 31,
1996 1995
------------ -------
Current assets:
Cash and cash investments $ 80,386 $ 34,091
Marketable securities 20,834 56,354
Accounts and notes receivable, net 155,500 140,283
Inventories 146,680 140,885
Prepaid expenses and other 21,144 20,289
------- -------
Total current assets 424,544 391,902
------- -------
Property, plant and equipment, at cost 131,312 121,018
Less, Accumulated depreciation 51,447 40,710
------- -------
Property, plant and equipment, net 79,865 80,308
------- -------
Marketable securities 32,495 34,030
Intangible assets, net 8,001 8,170
Excess acquisition cost over fair value
of acquired net assets, net 18,915 22,828
Investments in and advances to affiliates 142 185
Other assets 1,570 1,661
------- -------
Total assets $ 565,532 $ 539,084
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of February 29, 1996 and May 31, 1995
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
February 29, May 31,
1996 1995
------------ -------
Current liabilities:
Short-term borrowings $ 2,880 $ 3,518
Accounts payable 12,001 27,194
Accrued income taxes 11,142 12,366
Accrued wages and commissions 11,220 13,050
Liability for purchased common shares -- 10,406
Other accrued expenses 18,664 22,616
------- -------
Total current liabilities 55,907 89,150
Long-term liabilities:
Deferred federal income taxes 2,240 2,240
Other liabilities 1,960 3,077
------- -------
Total liabilities 60,107 94,467
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares 65,682 64,526
Additional paid-in capital 13,131 12,624
Retained earnings 431,064 364,087
Unrealized gain on certain equity securities 983 2,800
Cumulative translation adjustment (5,435) 580
------- -------
Total shareholders' equity 505,425 444,617
------- -------
Total liabilities and shareholders' equity $ 565,532 $ 539,084
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the nine and three month periods ended February 29, 1996 and
February 28, 1995
(in thousands, except earnings per share)
Nine Months Ended Three Months Ended
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $393,742 $323,805 $133,469 $120,719
Cost of sales 128,702 101,398 43,873 38,716
------- ------- ------- -------
Gross profit 265,040 222,407 89,596 82,003
Selling, general and
administrative expenses 148,063 119,800 48,565 45,534
Research and development expense 17,687 16,081 5,638 5,235
------- ------- ------- -------
Operating income 99,290 86,526 35,393 31,234
Other income, net 7,403 4,515 1,804 1,460
------- ------- ------- -------
Income before income taxes 106,693 91,041 37,197 32,694
Provision for income taxes 39,716 33,975 13,704 12,150
------- ------- ------- -------
Net income $ 66,977 $ 57,066 $ 23,493 $ 20,544
======= ======= ======= =======
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .58 $ .50 $ .20 $ .18
==== ==== ==== ====
Weighted average number of shares 115,386 115,210 115,500 116,147
======= ======= ======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended February 29, 1996 and 1995
(in thousands)
1996 1995
---- ----
Cash flows from (used in) operating activities:
Net income $ 66,977 $ 57,066
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 8,850 6,747
Amortization 5,912 3,456
Gain on sale of marketable securities, net (2,947) (60)
Equity in losses of affiliates -- 1,400
Deferred income taxes -- 96
Changes in current assets and current liabilities:
Accounts and notes receivable, net (16,927) (12,453)
Inventories (7,842) (19,424)
Prepaid expenses and other (999) (1,516)
Accounts payable (14,675) (477)
Accrued income taxes (3,881) 3,120
Accrued wages and commissions (1,785) 613
Other accrued expenses (823) 2,813
------ ------
Net cash from operating activities 31,860 41,381
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 58,368 11,388
Purchase of marketable securities (20,178) (16,254)
Capital expenditures (9,406) (8,856)
Cash invested in and advanced to affiliates -- (225)
Purchase of Kirschner, net of cash acquired -- (27,315)
Increase in other assets (1,568) (503)
Other (772) 187
------ ------
Net cash from (used in) investing activities 26,444 (41,578)
------ ------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (627) (11,972)
Issuance of common shares 1,156 1,066
Repurchase of shares (10,406) --
------ ------
Net cash used in financing activities (9,877) (10,906)
------ ------
Effect of exchange rate changes on cash (2,132) (1,026)
------ ------
Increase (decrease) in cash and cash investments 46,295 (12,129)
Cash and cash investments, beginning of year 34,091 70,391
------ ------
Cash and cash investments, end of period $ 80,386 $ 58,262
====== ======
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 February 29, 1996 and May 31, 1995 are as follows:
February 29, May 31,
1996 1995
------------ -------
(in thousands)
Raw materials $ 20,800 $ 19,146
Work-in-process 15,262 15,163
Finished goods 65,708 62,884
Consigned inventory 44,910 43,692
------- -------
$146,680 $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 nine months ended February 29, 1996, the Company
issued 419,463 common shares upon the exercise of outstanding
stock options for proceeds aggregating $1,156,000.
NOTE 5: CONTINGENCIES.
On January 25, 1996, the Company announced the entry of a jury
verdict against it in the United States District Court for the
Southern District of Florida in an action brought by Raymond G.
Tronzo. That verdict, in the total amount of approximately $55
million, included damages with respect to claims of patent
infringement, breach of confidential relationship, fraud and
unjust enrichment. The jury had been instructed by the Court to
enter separate damage awards with respect to each claim, and to
disregard the possible overlap of those damage awards. As of
April 12, 1996 the Court had not entered judgment on the jury
verdict. Management anticipates, based upon the advice of
counsel, that the judgment, when entered, will be for
substantially less than the aggregate amount of the jury
verdict. The Company believes that the verdict is not supported
by the facts and the applicable law, based on evidence that the
patent in question is invalid; and, further, if the patent is
held to be valid, the Company's product does not infringe the
patent. The Company also believes that it has meritorious
arguments in support of a complete elimination of the jury
verdict, including claims that the patent in question was
improperly obtained due to alleged "inequitable conduct" on the
part of the plaintiff. Unless the final judgment, when entered,
reflects the Company's view of the law applicable to the
plaintiff's claims, the Company intends to vigorously pursue all
remedies available to it for reduction or reversal of that
judgment.
The Court has yet to rule on significant, complex and
interrelated issues that could alter or eliminate the jury
verdict, and it is not possible to estimate the amount of loss,
if any, that may ultimately be incurred. 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 this
matter, 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 thereto. Management will
continue to evaluate this matter as additional facts become
available.
NOTE 6: SUBSEQUENT EVENTS.
On March 15, 1996, the Company and United States Surgical
Corporation ("USSC") entered into an agreement terminating their
joint efforts to develop resorbable synthetic bone and hard
tissue substitute products for use in orthopedic surgery. These
efforts have been conducted at Biomet's Warsaw, Indiana,
facilities pursuant to a 1991 agreement between the parties.
Under the terms of the termination agreement, Biomet has
received a net payment of approximately $2.9 million from USSC,
and each of the parties will retain the right to pursue the
technologies developed during their joint efforts. Biomet will
recognize this non-recurring item in its fourth quarter
financial results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF FEBRUARY 29, 1996
As of February 29, 1996, the Company's working capital position
remains strong, increasing by $65,885,000 during the first nine
months of fiscal year 1996 to $368,637,000 and resulting in a
working capital ratio of 7.6 to 1. This increase in working
capital is principally attributable to the operating results
experienced by the Company during the first nine months of
fiscal year 1996. Cash and marketable securities increased
during the first nine months by $9,240,000 to $133,715,000 .
The Company's cash and marketable securities, together with
anticipated cash flow from operations, are expected to be
adequate to fund all anticipated capital requirements.
Accounts and notes receivable and inventories increased by
$15,217,000 and $5,795,000, respectively. Accounts receivable
increased due to the increased sales volume. Inventories have
been increased to support the Kirschner reconstructive implant
product line and the recent increase in international sales.
Property, plant and equipment increased $10,294,000 during the
first nine months of fiscal 1996. Included in the
aforementioned changes were decreases in accounts receivable,
inventories and property, plant and equipment of approximately
$1,941,000, $1,936,000 and $1,611,000, respectively,
attributable to the decrease from May 31, 1995 to February 29,
1996 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 decreases did not
affect the Company's earnings during the past nine month period
because foreign currency translation adjustments to balance
sheet items are recognized directly in shareholders' equity on
the Company's consolidated balance sheet. The Company will
continue to be exposed to the effects of foreign currency
translation adjustments.
The payment for common shares purchased prior to May 31, 1995
and a decrease in accounts payable are the primary causes of the
decrease of $33,243,000 in current liabilities. The decrease in
accounts payable is due to the payment of Kirschner's vendors
upon the consolidation of their orthopedic operations and the
payoff of several large foreign suppliers.
Shareholders' equity increased $60,808,000 principally due to
the Company's first nine months earnings. Offsetting this
increase is a decrease in the unrealized gain on certain equity
securities of $1,817,000 and an adverse cumulative translation
adjustment of $6,015,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 29, 1996
AS COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 1995
Net sales increased 22% to $393,742,000 for the nine month
period ended February 29, 1996, from $323,805,000 for the same
period last year. The Company's U.S.-based revenue increased 19%
to $295,475,000 during the first nine months, while foreign
sales increased 31% to $98,267,000. Foreign currency exchange
rates did not have a material impact on sales or earnings during
the first nine months. Biomet's worldwide reconstructive device
sales during the first nine months of fiscal 1996 were
$238,071,000, representing a 23% increase compared to the first
nine months 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 first nine months. Sales
of EBI's products were $81,010,000 for the first nine months of
fiscal 1996, representing a 13% increase as compared to the same
period in 1995. This increase was largely attributable to
increased demand for bone healing units and the continued
increase in the external fixation market. The Company's "other
products" revenues totaled $74,661,000, representing a 28%
increase over the first nine months of fiscal year 1995,
primarily as a result of increased sales of Lorenz products,
fixation products and the inclusion of Kirschner sales.
Cost of sales increased as a percentage of net sales from 31.3%
for the first nine months of fiscal 1995 to 32.7% for the first
nine months of fiscal 1996 due to the inclusion of Kirschner
sales for the period which have a lower gross profit margin and
the start-up expenses associated with the EBI manufacturing
facility purchased late last fiscal year. Selling, general and
administrative expenses increased as a percentage of net sales
to 37.6%, compared to 37.0% for the first nine months of last
year. The 1996 expenses include $1,600,000 related to the Ramos
judgment and $1,000,000 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 nine months reflects Biomet's
commitment to remain competitive through technological
advancements and to capitalize on future opportunities available
within the orthopedic market. Operating income rose 15% from
$86,526,000 for the first nine months of fiscal 1995, to
$99,290,000 for the first nine months of fiscal 1996,
corresponding to the increase in net sales. Other income
increased $2,888,000 for the first nine months of fiscal year
1996 compared to the prior year's first nine months due to
increased investable funds and realized gains on the sale of
marketable securities offset by interest expense of $400,000
related to the Ramos judgment. A gain of $2,500,000 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. The effective income tax rate decreased to 37.2% for
the current nine month period compared to 37.3% for the same
period in fiscal 1995.
These factors resulted in a 17% increase in net income to
$66,977,000 from $57,066,000 for the first nine months of fiscal
1996 as compared to the same period in fiscal 1995 . Earnings
per share increased 16%, from $.50 to $.58 for the periods
presented.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 1996
AS COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 1995
Net sales increased 11% to $133,469,000 for the third quarter of
fiscal year 1996, as compared to $120,719,000 for the same
period last year. Operating income rose 13% from $31,234,000
for the third quarter of fiscal 1995, to $35,393,000 for the
third quarter of fiscal 1996. During the third quarter, net
income increased 14% to $23,493,000 as compared to $20,544,000
for the same period last year. Earnings per share increased 11%
from $.18 per share for the third quarter of fiscal 1995, to
$.20 per share for the same period of fiscal 1996. The business
factors resulting in these changes and relevant trends affecting
the Company's business during the periods in question are
comparable to those described in the preceding discussion for
the nine-month period except for the three nonrecurring events,
the Ramo's judgment, the Kirschner restructuring and the
disposition of the Company's interest in AME, which were
recorded in the first quarter.
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, 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.
On March 15, 1996, the Company and United States Surgical
Corporation entered into an agreement terminating their joint
efforts to develop resorbable synthetic bone and hard tissue
substitute products for use in orthopedic surgery. Biomet will
recognize this non-recurring income item of approximately
$2,900,000 in its fourth quarter financial results.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On January 25, 1996, the Company announced the entry of a jury
verdict against it in the United States District Court for the
Southern District of Florida in an action brought by Raymond G.
Tronzo. That verdict, in the total amount of approximately $55
million, included damages with respect to claims of patent
infringement, breach of confidential relationship, fraud and
unjust enrichment. The jury had been instructed by the Court to
enter separate damage awards with respect to each claim, and to
disregard the possible overlap of those damage awards. As of
April 12, 1996 the Court had not entered judgment on the jury
verdict. Management anticipates, based upon the advice of
counsel, that the judgment, when entered, will be for
substantially less than the aggregate amount of the jury
verdict. The Company believes that the verdict is not supported
by the facts and the applicable law, based on evidence that the
patent in question is invalid; and, further, if the patent is
held to be valid, the Company's product does not infringe the
patent. The Company also believes that it has meritorious
arguments in support of a complete elimination of the jury
verdict, including claims that the patent in question was
improperly obtained due to alleged "inequitable conduct" on the
part of the plaintiff. The Court has yet to rule on
significant, complex and interrelated issues that could alter or
eliminate the jury verdict, and it is not possible to estimate
the amount of loss, if any, that may ultimately be incurred.
Based on the information and advice currently available to it,
management believes that it has adequate accruals to cover legal
costs and estimated loss exposure, if any, and the Company's
cash and cash equivalents are more than adequate to address the
payment of any loss that may ultimately be determined with
respect to this matter. Management will continue to evaluate
this matter as additional facts become available. Unless the
final judgment, when entered, reflects the Company's view of the
law applicable to the plaintiff's claims, the Company intends to
vigorously pursue all remedies available to it for reduction or
reversal of that judgment.
The Company is a defendant in two consolidated lawsuits now
pending in the United States District Court for the District of
New Jersey in which the plaintiffs are Orthofix Inc. and two
affiliated corporations ("Orthofix"). The complaints include
allegations of tortious interference with contractual
relations, breach of contract, patent and trademark
infringement, unfair and deceptive trade practices and failure
to pay for goods sold and delivered. The allegations generally
relate to the events surrounding the expiration of a Distributor
Agreement between Orthofix S.r.l. and an affiliate of the
Company's subsidiary, Electro-Biology, Inc. ("EBI"), in May
1995, and the acquisition by Orthofix of American Medical
Electronics, Inc., EBI's principal competitor in the sale of
electrical bone growth stimulation devices. The plaintiffs seek
the payment of approximately $880,000 for goods shipped to EBI
prior to the expiration of the Distributor Agreement, and on
April 2, 1996, the plaintiffs filed a motion for a preliminary
injunction seeking to bar the continued sale by EBI of its
inventory of Orthofix devices, to bar the sale of EBI's
"Dynafix" device for a period of 14 months and for other
injunctive relief. A hearing on that motion is expected to be
held in July or August 1996. The Company has denied all of the
substantive allegations of the complaints, other than receipt of
the goods shipped by Orthofix, and has asserted various defenses
and counterclaims against Orthofix including breach of the
Distributor Agreement by it and intentional interference with
EBI's existing and potential customer relationships. The
Company intends to vigorously contest the issuance of any
injunctive or other relief.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMET, INC.
- ------------
(Registrant)
DATE: 4/15/96 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,
Commission 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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