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, 2000.
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.)
56 East Bell Drive, Warsaw, Indiana 46582
(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
As of August 31, 2000, the registrant had 178,293,536 common shares outstanding.
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
Item 3. Quantitative and Qualitative Disclosure about
Market Risks 10
Part II. Other Information 11
Signatures 12
Index to Exhibits 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at August 31, 2000 and May 31, 2000
(in thousands)
ASSETS
August 31, May 31,
2000 2000
---------- -------
Current assets:
Cash and cash equivalents $ 254,269 $ 213,606
Investments 14,805 34,129
Accounts and notes receivable, net 244,696 249,792
Inventories 248,871 240,162
Deferred income taxes 25,811 25,811
Prepaid expenses and other 29,610 26,128
--------- ---------
Total current assets 818,062 789,628
--------- ---------
Property, plant and equipment, at cost 306,858 299,294
Less, Accumulated depreciation 121,597 116,037
--------- ---------
Property, plant and equipment, net 185,261 183,257
--------- ---------
Investments 179,581 159,533
Intangible assets, net 8,505 9,100
Excess acquisition costs over fair value
of acquired net assets, net 59,764 60,654
Other assets 18,633 16,276
--------- ---------
Total assets $1,269,806 $1,218,448
========= =========
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at August 31, 2000 and May 31, 2000
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
2000 2000
---------- -------
Current liabilities:
Short-term borrowings $ 75,403 $ 70,546
Accounts payable 19,265 25,612
Accrued income taxes 31,388 17,288
Accrued wages and commissions 22,319 24,224
Other accrued expenses 42,078 43,773
--------- ---------
Total current liabilities 190,453 181,443
Long-term liabilities:
Deferred federal income taxes 7,426 5,386
Other liabilities 426 423
--------- ---------
Total liabilities 198,305 187,252
--------- ---------
Minority interest 89,134 87,873
--------- ---------
Contingencies (Note 7)
Shareholders' equity:
Common shares 92,270 85,086
Additional paid-in capital 41,451 41,451
Retained earnings 895,445 866,011
Accumulated other comprehensive loss (46,799) (49,225)
--------- ---------
Total shareholders' equity 982,367 943,323
--------- ---------
Total liabilities and shareholders' equity $1,269,806 $1,218,448
========= =========
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended August 31, 2000 and 1999
(in thousands, except per share amounts)
2000 1999
---- ----
Net sales $230,257 $212,709
Cost of sales 67,291 64,466
------- -------
Gross profit 162,966 148,243
Selling, general and
administrative expenses 82,934 74,821
Research and development expense 9,864 9,427
------- -------
Operating income 70,168 63,995
Other income, net 5,470 2,618
------- -------
Income before income taxes
and minority interest 75,638 66,613
Provision for income taxes 25,950 24,025
------- -------
Income before minority interest 49,688 42,588
Minority interest 1,261 1,416
------- -------
Net income $ 48,427 $ 41,172
======= =======
Earnings per share:
Basic $ .27 $ .24
==== ====
Diluted $ .27 $ .23
==== ====
Shares used in the computation of earnings per share:
Basic 177,970 175,041
======= =======
Diluted 179,908 177,861
======= =======
Cash dividends per common share $ .11 $ .09
==== ====
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, 2000 and 1999
(in thousands)
2000 1999
---- ----
Cash flows from (used in) operating activities:
Net income $ 48,427 $ 41,172
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 7,262 6,293
Amortization 1,854 2,055
Gain on sale of investments, net (244) (139)
Minority interest 1,261 1,416
Deferred federal income taxes (90) (90)
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts and notes receivable, net 5,624 (5,080)
Inventories (8,508) (5,736)
Prepaid expenses and other (3,221) 596
Accounts payable (6,944) 2,611
Accrued income taxes 11,590 11,119
Accrued wages and commissions (1,905) (1,729)
Other accrued expenses (2,077) 2,268
------- ------
Net cash from operating activities 53,029 54,756
------- ------
Cash flows from (used in) investing activities:
Proceeds from sales and maturities of investments 24,645 5,890
Purchases of investments (20,512) (5,965)
Capital expenditures (8,621) (11,117)
Acquisitions, net of cash acquired -- (3,733)
Other (839) (1,397)
------- ------
Net cash used in investing activities (5,327) (16,322)
------- ------
Cash flows from (used in) financing activities:
Increase in short-term borrowings, net 4,016 9,212
Issuance of common shares 7,184 2,092
Cash dividends (18,993) (15,786)
------- ------
Net cash used in financing activities (7,793) (4,482)
------- ------
Effect of exchange rate changes on cash 754 (3,119)
------- ------
Increase in cash and cash equivalents 40,663 30,833
Cash and cash equivalents, beginning of year 213,606 132,081
------- -------
Cash and cash equivalents, end of period $254,269 $162,914
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION.
The accompanying consolidated financial statements include the accounts of
Biomet, Inc. and its subsidiaries (individually 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, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 31, 2001. 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, 2000.
The accompanying consolidated balance sheet at May 31, 2000, has been derived
from the audited Consolidated Financial Statements at that date, but does not
include all disclosures required by generally accepted accounting principles.
The Company has one reportable segment, musculoskeletal products, which includes
designing, manufacturing and marketing of reconstructive products, fixation
devices, spinal products and other products. Other products consist primarily
of Arthrotek's arthroscopy products, AOA softgoods products, general instruments
and operating room supplies. The Company manages its business segment primarily
on a geographic basis. These geographic markets are comprised of the United
States, Europe and other. Other geographic markets include Canada, South
America, Mexico, Japan and the Pacific Rim.
Net sales of musculoskeletal products by product category are as follows for the
three months ended August 31:
2000 1999
---- ----
(in thousands)
Reconstructive $142,092 $133,078
Fixation 46,531 42,034
Spinal products 14,109 12,168
Other 27,525 25,429
------- -------
$230,257 $212,709
======= =======
NOTE 2: COMPREHENSIVE INCOME.
Other comprehensive income includes foreign currency translation adjustments
and unrealized appreciation of available-for-sale securities, net of taxes.
Other comprehensive income (loss) for the three months ended August 31, 2000
and 1999 was $2,426 and $(2,883), respectively. Total comprehensive income
combines reported net income and other comprehensive income. Total
comprehensive income for the three months ended August 31, 2000 and 1999 was
$50,853 and $38,289, respectively.
NOTE 3: INVENTORIES.
Inventories at August 31, 2000 and May 31, 2000 are as follows:
August 31, May 31,
2000 2000
---------- -------
(in thousands)
Raw materials $ 27,663 $ 28,511
Work-in-process 28,452 28,962
Finished goods 103,010 101,307
Consigned inventory 89,746 81,382
------- -------
$248,871 $240,162
======= =======
NOTE 4: COMMON SHARES.
During the three months ended August 31, 2000, the Company issued 640,308 Common
Shares upon the exercise of outstanding stock options for proceeds aggregating
$7,183,429. On July 6, 2000, the Company announced a three-for-two stock split
payable August 8, 2000 to shareholders of record July 18, 2000. All information
on the number of common shares and all per share data for the previous year have
been restated for this stock split.
NOTE 5: EARNINGS PER SHARE.
Earnings per common share amounts ("basic EPS") are computed by dividing net
income by the weighted average number of common shares outstanding and excludes
any potential dilution. Earnings per common share amounts assuming dilution
("diluted EPS") are computed by reflecting potential dilution from the
exercise of stock options.
NOTE 6: 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 benefits relating to
operations in Puerto Rico, tax-exempt income and tax credits.
NOTE 7: CONTINGENCIES.
On August 27, 1999, the United States District Court for the Southern District
of Florida (the "District Court") entered a final judgment of $53,530 against
the Company in the Raymond G. Tronzo ("Tronzo") case. In January 1996, a jury
returned a verdict in a patent infringement matter in favor of Tronzo which
was subsequently reversed and vacated by the United States Court of Appeals for
the Federal Circuit (the "Federal Circuit"). The Federal Circuit then remanded
the case to the District Court for further consideration on the state law claims
only. Tronzo has appealed the District Court's final judgment with the Federal
Circuit and the Federal Circuit heard oral arguments on July 7, 2000. Management
expects a decision from the Federal Circuit within the next several months and
believes the Company should continue to prevail in this case.
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, principally product liability
and intellectual property cases. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company establishes accruals for losses that
are deemed to be probable and subject to reasonable estimate. Based on the
advice of counsel to the Company in these matters, management believes that the
ultimate outcome of these matters and any liabilities in excess of amounts
provided will not have a material adverse impact on the Company's consolidated
financial position or on its future business operations.
NOTE 8: SUBSEQUENT EVENT.
On September 25, 2000, the Company announced the acquisition of
Biolectron, Inc. for $90 million in cash. The acquisition will
be accounted for as a purchase transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF AUGUST 31, 2000
The Company's cash and investments increased $41,387,000 to $448,655,000 at
August 31, 2000, despite the $18,993,000 cash dividend paid during the first
quarter.
Cash flows provided by operating activities were $53,029,000 for the first three
months of fiscal 2001 compared to $54,756,000 in 2000. The primary sources of
fiscal year 2001 cash flows from operating activities were net income and an
increase in accrued income taxes. Accrued income taxes increased in the first
quarter because there is no federal tax estimate due in the first quarter.
Cash flows used in investing activities were $5,327,000 for the first three
months of fiscal 2001 compared to a use of $16,322,000 in 2000. The primary
source of cash flows from investing activities were sales and maturities of
investments offset by purchases of investments and purchases of capital
equipment.
Cash flows used in financing activities were $7,793,000 for the first three
months of fiscal 2001 compared to a use of $4,482,000 in 2000. The primary use
of cash flows from financing activities was the cash dividend paid in the first
quarter while the primary source of cash flows from financing activities was
from exercise of common stock options by Team Members. In July 2000, the
Company's Board of Directors declared a cash dividend of eleven cents ($.11)
per share payable to shareholders of record at the close of business on
July 10, 2000.
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 capital expenditures, research and
development costs and litigation settlements, if any. The Company financed the
acquisition of Biolectron, Inc. through available cash reserves.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2000
AS COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 1999
Net sales increased 8% to $230,257,000 for the three-month period ended August
31, 2000, from $212,709,000 for the same period last year. Excluding the impact
of foreign currency and discontinued products, which reduced first quarter sales
by $7 million and $2 million respectively, net sales increased 12% during the
first quarter of fiscal year 2001. The discontinued product line, which did not
meaningfully contribute to the Company's operating income, is associated with
Biomet's 3i division and its June 1, 2000 termination of a distribution
agreement with W. L. Gore & Associates. The product line represented
regenerative and non-regenerative membranes utilized in dental reconstructive
procedures. The Company's U.S.-based revenue increased 10% to $157,614,000
during the first three months of fiscal 2001, while foreign sales increased 4%
to $72,643,000. Excluding the negative foreign exchange adjustment, foreign
sales in local currencies increased 15%. Biomet's worldwide sales of
reconstructive products during the first three months of fiscal 2001 were
$142,092,000, representing a 7% 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 revision products, the
Repicci Unicondylar Knee, the Ascent Total Knee System and 3i's dental
reconstructive implants. Sales of fixation products were $46,531,000 for the
first three months of fiscal 2001, representing an 11% increase as compared to
the same period in 2000. Sales of spinal products were $14,109,000 for the
first three months of fiscal 2001, representing a 16% increase as compared to
the same period in 2000. The Company's sales of other products totaled
$27,525,000, representing an 8% increase over the first three months of fiscal
year 2000, primarily as a result of increased sales of softgood and Arthroscopy
products. The sale of many of the Company's musculoskeletal products are
elective surgery-related and accordingly are influenced by seasonal factors, as
the number of elective orthopedic procedures decline during the summer months
and the holiday season.
Cost of sales decreased as a percentage of net sales to 29.2% for the first
three months of fiscal 2001 from 30.3% last year primarily as a result of
increased sales of higher margin products, increased in-house manufacturing
efficiencies and improved margins realized through acquisitions of international
distributors. Selling, general and administrative expenses as a percentage of
net sales increased to 36.0% compared to 35.2% for the first quarter last year.
This increase in the percentage is a result of acquisitions of international
distributors and a sequential reduction in sales from the fourth quarter of
fiscal 2000 to the first quarter of fiscal 2001. Research and development
expenditures increased during the first three months to $9,864,000 reflecting
the Company's continued emphasis on new product introductions. Operating income
rose 10% from $63,995,000 for the first three months of fiscal 2000, to
$70,168,000 for the first three months of fiscal 2001. Other income increased
109% resulting from the increase in the Company's investable cash. The
effective income tax rate decreased to 34.3% for the first quarter of fiscal
year 2001 from 36.1% last year primarily as a result of certain operating unit
realignments both in the United States and internationally and as a result of
U.S. pretax income growing at a higher rate than international pretax income
where tax rates are higher.
These factors resulted in an 18% increase in net income to $48,427,000 for the
first three months of fiscal 2001 as compared to $41,172,000 for the same period
in fiscal 2000. Basic earnings per share increased 13%, from $.24 to $.27 for
the periods presented, while diluted earnings per share increased 17%, from
$.23 to $.27 for the periods presented.
SUBSEQUENT EVENT.
On September 25, 2000, the Company announced the acquisition of Biolectron, Inc.
for $90 million in cash. The acquisition will be accounted for as a purchase
transaction.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
There have been no material changes from the information provided in the
Company's Annual Report on Form 10-K for the year ended May 31, 2000.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings.
On August 27, 1999, the United States District Court for the Southern District
of Florida (the "District Court") entered a final judgment of $53,530 against
the Company in the Raymond G. Tronzo ("Tronzo") case. In January 1996, a jury
returned a verdict in a patent infringement matter in favor of Tronzo which
was subsequently reversed and vacated by the United States Court of Appeals for
the Federal Circuit (the "Federal Circuit"). The Federal Circuit then remanded
the case to the District Court for further consideration on the state law claims
only. Tronzo has appealed the District Court's final judgment with the Federal
Circuit and the Federal Circuit heard oral arguments of July 7, 2000. Management
expects a decision from the Federal Circuit within the next several months and
believes the Company should continue to prevail in this case.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on September 16,
2000.
At the Annual Meeting:
1. The following persons were elected as Directors of the Company for a
three-year term expiring in 2003.
Name Votes For Votes Withheld
Dane A. Miller, Ph. D. 119,482,708 24,916,740
Jerry L. Miller 136,329,325 7,582,132
Thomas F. Kearns, Jr. 136,442,976 7,469,982
Daniel P. Hann 136,457,491 7,453,960
The following directors will continue in office until their term expires at the
2001 Annual meeting of shareholders: M. Ray Harroff, Jerry L. Miller, Charles E.
Niemier, and Prof. Dr. Bernhard Scheuble.
The following directors will continue in office until their term expires at the
2002 Annual meeting of shareholders: C. Scott Harrison, M.D.; Niles L. Noblitt;
Kenneth V. Miller; L. Gene Tanner; and Marilyn Tucker Quayle.
2. The selection of PricewaterhouseCoopers LLP as certified public accountants
for the Company for the fiscal year ending May 31, 2001 was ratified by the
shareholders, as follows: Votes For - 142,871,454; Votes Against - 376,270; and
Abstentions and Broker Non-Votes - 566,859.
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: 10/12/2000 BY: /s/ GREGORY D. HARTMAN
---------- -------------------------
Gregory D. Hartman
Senior 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.
