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, 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 November 30, 2000, the registrant had 178,687,668 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 8-10
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 November 30, 2000 and May 31, 2000
(in thousands)
ASSETS
November 30, May 31,
2000 2000
------------ -------
(Unaudited)
Current assets:
Cash and cash equivalents $ 166,885 $ 213,606
Investments 14,022 34,129
Accounts and notes receivable, net 267,607 249,792
Inventories 254,447 240,162
Deferred income taxes 32,801 25,811
Prepaid expenses and other 32,830 26,128
--------- ---------
Total current assets 768,592 789,628
--------- ---------
Property, plant and equipment, at cost 309,563 299,294
Less, Accumulated depreciation 127,279 116,037
--------- ---------
Property, plant and equipment, net 182,284 183,257
--------- ---------
Investments 183,808 159,533
Intangible assets, net 9,149 9,100
Excess acquisition costs over fair value
of acquired net assets, net 137,815 60,654
Other assets 17,589 16,276
--------- ---------
Total assets $1,299,237 $1,218,448
========= =========
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at November 30, 2000 and May 31, 2000
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
November 31, May 31,
2000 2000
------------ -------
(Unaudited)
Current liabilities:
Short-term borrowings $ 68,985 $ 70,546
Accounts payable 20,979 25,612
Accrued income taxes 10,755 17,288
Accrued wages and commissions 26,735 24,224
Other accrued expenses 50,780 43,773
--------- ---------
Total current liabilities 178,234 181,443
Long-term liabilities:
Deferred federal income taxes 6,118 5,386
Other liabilities 415 423
--------- ---------
Total liabilities 184,767 187,252
--------- ---------
Minority interest 90,344 87,873
--------- ---------
Contingencies (Note 8)
Shareholders' equity:
Common shares 98,658 85,086
Additional paid-in capital 41,451 41,451
Retained earnings 947,243 866,011
Accumulated other comprehensive loss (63,226) (49,225)
--------- ---------
Total shareholders' equity 1,024,126 943,323
--------- ---------
Total liabilities and shareholders' equity $1,299,237 $1,218,448
========= =========
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the six and three month periods ended November 30, 2000 and 1999
(Unaudited, in thousands, except per share data)
Six Months Ended Three Months Ended
November 30, November 30,
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $473,716 $437,456 $243,459 $224,747
Cost of sales 137,416 132,864 70,125 68,398
------- ------- ------- -------
Gross profit 336,300 304,592 173,334 156,349
Selling, general and
administrative expenses 170,114 153,014 87,180 78,193
Research and development expense 20,159 18,575 10,295 9,148
Special charge -- 9,000 -- 9,000
------- ------- ------- -------
Operating income 146,027 124,003 75,859 60,008
Other income, net 10,181 7,028 4,711 4,410
------- ------- ------- -------
Income before income taxes
and minority interest 156,208 131,031 80,570 64,418
Provision for income taxes 53,512 47,812 27,562 23,787
------- ------- ------- -------
Income before minority interest 102,696 83,219 53,008 40,631
Minority interest 2,471 3,261 1,210 1,845
------- ------- ------- -------
Net income $100,225 $ 79,958 $ 51,798 $ 38,786
======= ======= ======= =======
Earnings per share:
Basic $.56 $.46 $.29 $.22
==== ==== ==== ====
Diluted $.56 $.45 $.29 $.22
==== ==== ==== ====
Shares used in the computation
of earnings per share:
Basic 178,256 175,139 178,486 175,236
======= ======= ======= =======
Diluted 180,086 178,199 180,472 177,749
======= ======= ======= =======
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 six months ended November 30, 2000 and 1999
(Unaudited, in thousands)
2000 1999
---- ----
Cash flows from (used in) operating activities:
Net income $100,225 $ 79,958
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 14,652 13,371
Amortization 5,745 4,828
Gain on sale of investments, net (1,284) (432)
Minority interest 2,471 3,261
Deferred federal income taxes (909) (181)
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts and notes receivable, net (8,407) (10,079)
Inventories (17,252) (15,234)
Prepaid expenses and other (9,803) (2,206)
Accounts payable (3,182) (159)
Accrued income taxes (3,209) (7,029)
Accrued wages and commissions 1,185 20
Other accrued expenses 3,902 12,760
------- ------
Net cash from operating activities 84,134 78,878
------- ------
Cash flows from (used in) investing activities:
Proceeds from sales and maturities of investments 33,742 7,323
Purchases of investments (35,817) (13,288)
Capital expenditures (16,434) (21,723)
Acquisitions, net of cash acquired (90,602) (13,530)
Other (2,061) (3,098)
------- ------
Net cash used in investing activities (111,172) (44,316)
------- ------
Cash flows from (used in) financing activities:
Increase (decrease) in short-term borrowings, net (11,369) 20,647
Issuance of common shares 13,571 2,438
Cash dividends (18,993) (15,785)
------- ------
Net cash from (used in) financing activities (16,791) 7,300
------- ------
Effect of exchange rate changes on cash (2,892) (2,879)
------- ------
Increase (decrease) in cash and cash equivalents (46,721) 38,983
Cash and cash equivalents, beginning of year 213,606 132,081
------- -------
Cash and cash equivalents, end of period $166,885 $171,064
======= =======
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 six-month period
ended November 30, 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 Form 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's softgood 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
six and three months ended November 30:
Six Months Ended Three Months Ended
November 30, November 30,
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Reconstructive $287,893 $275,910 $145,801 $142,832
Fixation 94,755 85,363 48,224 43,329
Spinal products 35,801 25,119 21,692 12,951
Other 55,267 51,064 27,742 25,635
------- ------- ------- -------
$473,716 $437,456 $243,459 $224,747
======= ======= ======= =======
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 November 30, 2000
and 1999 was $(16,427,000) and $(1,736,000), respectively. Other comprehensive
income (loss) for the six months ended November 30, 2000 and 1999 was
($14,001,000) and $(4,897,000), respectively. Total comprehensive income
combines reported net income and other comprehensive income. Total
comprehensive income for the three months ended November 30, 2000 and 1999 was
$35,371,000 and $37,050,000, respectively. Total comprehensive income for the
six months ended November 30, 2000 and 1999 was $86,224,000 and $75,061,000,
respectively.
NOTE 3: INVENTORIES.
Inventories at November 30, 2000 and May 31, 2000 are as follows:
November 30, May 31,
2000 2000
------------ -------
(in thousands)
Raw materials $ 28,301 $ 28,511
Work-in-process 31,126 28,962
Finished goods 100,812 101,307
Consigned inventory 94,208 81,382
------- -------
$254,447 $240,162
======= =======
NOTE 4: COMMON SHARES.
During the six months ended November 30, 2000, the Company issued 1,034,441
Common Shares upon the exercise of outstanding stock options for proceeds
aggregating $13,571,225. 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: ACQUISITIONS.
On September 25, 2000, the Company through its EBI subsidiary acquired
Biolectron, Inc. for $90 million in cash. Biolectron's products principally
address the spinal fusion, fracture healing and arthroscopy market segments.
The Company accounted for this acquisition as a purchase. Management has not
completed its final analysis of the allocation of the purchase price, but
anticipates that the average life expectancy of these intangibles will be
approximately 18 years.
The Company also purchased one of its foreign distributors during the quarter
for $2.3 million cash. The Company accounted for this acquisition as a purchase
and recorded approximately $2 million of goodwill.
NOTE 8: 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF NOVEMBER 30, 2000
The Company's cash and investments decreased $42,553,000 to $364,700,000 at
November 30, 2000, which includes the $18,993,000 cash dividend paid during the
first quarter and the $102,700,000 paid for acquisitions and debt payoff from
the acquired companies.
Cash flows provided by operating activities were $84,134,000 for the first six
months of fiscal 2001 compared to $78,878,000 in 2000. Net income plus
depreciation and amortization were the principal sources of cash from operating
activities, offset by increases in accounts receivable, inventories and prepaid
expenses and other assets.
Cash flows used in investing activities were $111,172,000 for the first six
months of fiscal 2001 compared to a use of $44,316,000 in 2000. The primary use
of cash flows for investing activities were purchases of investments, purchases
of capital equipment and business acquisitions offset by sales and maturities of
investments.
Cash flows used in financing activities were $16,791,000 for the first six
months of fiscal 2001 compared to a source of $7,300,000 in 2000. The primary
use of cash flows from financing activities was the cash dividend paid in the
first quarter and debt payoff from acquired companies while the primary source
of cash flows from financing activities was from cash receipts from stock
option exercises.
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 potential business acquisitions.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
AS COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 1999
Net sales increased 8% to $473,716,000 for the six-month period ended November
30, 2000, from $437,456,000 for the same period last year. Excluding the
impact of foreign currency and discontinued products, which reduced the first
six months sales by $18 million and $4.4 million, respectively, net sales
increased 13% during the first six months of fiscal year 2001. The discontinued
product line, which did not meaningfully contribute to the Company's operating
income, is associated with the Company'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 13% to $331,392,000 during the first six months, while foreign sales
decreased 1.4% to $142,324,000. Excluding the negative foreign exchange
adjustment and discontinued products, domestic sales increased 14%, while
foreign sales in local currencies increased 12%. Biomet's worldwide sales of
reconstructive products during the first six months of fiscal 2001 were
$287,893,000, representing a 4% increase compared to the first six 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 $94,755,000 for the
first six months of fiscal 2001, representing an 11% increase as compared to the
same period in 2000. Sales of spinal products were $35,801,000 for the first
six months of fiscal 2001, representing a 43% increase as compared to the same
period in 2000. Sales of spinal hardware contributed to this increase.
Increases in both fixation and spinal products were positively influenced by the
acquisition of Biolectron in September of this quarter. The Company's sales of
other products totaled $55,267,000, representing an 8% increase over the first
six months of fiscal year 2000, primarily as a result of increased sales of
AOA's softgood products and Arthrotek's arthroscopy products.
Cost of sales decreased as a percentage of net sales to 29.0% for the first six
months of fiscal 2001 from 30.4% 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. Excluding the $9 million non-recurring charge for the final
resolution of outstanding litigation matters during the second quarter of last
year, selling, general and administrative expenses as a percentage of net sales
increased slightly from 35.0% for the first six months of last year to 35.9% for
the current six month period. This increase in the percentage is a result of
acquisitions of international distributors. Research and development
expenditures increased during the first six months to $20,159,000 reflecting the
Company's continued emphasis on new product introductions. Operating income
increased 18% (10% excluding last year's special charge) to $146,027,000 for the
first six months of fiscal 2001. Other income increased 45% resulting from the
increase in the Company's investable cash and higher investment yields. The
effective income tax rate decreased to 34.3% for the first six months of fiscal
year 2001 from 36.5% 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 a 25% increase in net income (17% excluding last
year's special charge) to $100,225,000 from $79,958,000 for the first six months
of fiscal 2001 as compared to the same period in fiscal 2001. Basic earnings
per share increased 22% (14% excluding last year's special charge), from $.46 to
$.56 for the periods presented, while diluted earnings per share increased 24%
(17% excluding last year's special charge), from $.45 to $.56 for the periods
presented.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000
AS COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 1999
Net sales increased 8% to $243,459,000 for the second quarter of fiscal 2001, as
compared to $224,747,000 for the same period last year. Excluding the impact of
foreign currency and discontinued products, which reduced the second quarter
sales by $11 million and $2.4 million, respectively, net sales increased 14%
during the first six months of fiscal year 2001. Operating income increased 26%
(10% excluding last year's special charge) from $60,008,000 for the second
quarter of fiscal 2000, to $75,859,000 for the second quarter of fiscal 2001.
During the second quarter, net income increased 34% (16% excluding last year's
special charge) to $51,798,000 as compared to $38,786,000 for the same period
last year. Basic and diluted earnings per share increased 32% (16% excluding
last year's special charge), from $.22 to $.29 for the periods presented. 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.
ACQUISITION
As discussed in Note 7 of the Notes to Consolidated Financial Statements, on
September 25, 2000, the Company acquired Biolectron, Inc..
NEW ACCOUNTING STANDARDS
Staff Accounting Bulletin No 101, "Revenue Recognition in Financial Statements"
(SAB 101), provides guidance in applying generally accepted accounting
principles to selected revenue recognition issues in financial statements. In
June 2000, the SEC issued SAB 101B, an amendment to SAB 101 which delays the
implementation of SAB 101 until no later than the fourth quarter of fiscal years
beginning after December 15, 1999. This pronouncement is not expected to have a
material impact on the Company's financial position or results of operations.
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 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.
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 October 6, 2000 with respect to item 5
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: 1/12/2001 BY: /s/ GREGORY D. HARTMAN
--------- -------------------------
Gregory D. Hartman
Senior Vice President - Finance and Treasurer
(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.
(99) No exhibit.