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, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file Number 0-12515.
BIOMET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1418342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Industrial Park, P.O. Box 587, Warsaw, Indiana 46581-0587
(Address of principal executive offices)
(219) 267-6639
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 30, 1995:
Common Shares - No Par Value 115,425,459 Shares
(Class) (Number of Shares)
Rights to Purchase Common Shares 115,425,459 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 November 30, 1995 and May 31, 1995
(in thousands)
ASSETS
November 30, May 31,
1995 1995
------------ -------
Current assets:
Cash and cash investments $ 74,103 $ 34,091
Marketable securities 19,436 56,354
Accounts and notes receivable, net 147,553 140,283
Inventories 149,641 140,885
Prepaid expenses and other 21,918 20,289
------- -------
Total current assets 412,651 391,902
------- -------
Property, plant and equipment, at cost 126,338 121,018
Less, Accumulated depreciation 46,362 40,710
------- -------
Property, plant and equipment, net 79,976 80,308
------- -------
Marketable securities 33,629 34,030
Intangible assets, net 8,477 8,170
Excess acquisition cost over fair value
of acquired net assets, net 21,126 22,828
Investments in and advances to affiliates 209 185
Other assets 1,561 1,661
------- -------
Total assets $ 557,629 $ 539,084
======= =======
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1995 and May 31, 1995
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30, May 31,
1995 1995
------------ -------
Current liabilities:
Short-term borrowings $ 3,005 $ 3,518
Accounts payable 17,331 27,194
Accrued income taxes 14,970 12,366
Accrued wages and commissions 10,749 13,050
Liability for purchased common shares -- 10,406
Other accrued expenses 22,137 22,616
------- -------
Total current liabilities 68,192 89,150
Long-term liabilities:
Deferred federal income taxes 2,242 2,240
Other liabilities 2,025 3,077
------- -------
Total liabilities 72,459 94,467
------- -------
Contingencies (Note 5)
Shareholders' equity:
Common shares 65,033 64,526
Additional paid-in capital 13,050 12,624
Retained earnings 407,571 364,087
Unrealized gain on certain equity securities 760 2,800
Cumulative translation adjustment (1,244) 580
------- -------
Total shareholders' equity 485,170 444,617
------- -------
Total liabilities and shareholders' equity $ 557,629 $ 539,084
======= =======
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, 1995 and 1994
(in thousands, except earnings per share)
Six Months Ended Three Months Ended
November 30, November 30,
---------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $260,273 $203,086 $133,046 $106,860
Cost of sales 84,829 62,682 43,550 32,877
------- ------- ------- -------
Gross profit 175,444 140,404 89,496 73,983
Selling, general and
administrative expenses 99,498 74,266 48,901 39,100
Research and development expense 12,049 10,846 5,852 5,631
------- ------- ------- -------
Operating income 63,897 55,292 34,743 29,252
Other income, net 5,599 3,055 1,803 1,664
------- ------- ------- -------
Income before income taxes 69,496 58,347 36,546 30,916
Provision for income taxes 26,012 21,825 13,811 11,507
------- ------- ------- -------
Net income $ 43,484 $ 36,522 $ 22,735 $ 19,409
======= ======= ======= =======
Earnings per share, based on
the weighted average number
of shares outstanding during
the periods presented $ .38 $ .32 $ .20 $ .17
==== ==== ==== ====
Weighted average number of shares 115,303 114,733 115,353 114,986
======= ======= ======= =======
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, 1995 and 1994
(in thousands)
1995 1994
---- ----
Cash flows from (used in) operating activities:
Net income $ 43,484 $ 36,522
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 5,997 4,256
Amortization 4,115 2,097
Gain on sale of marketable securities, net (2,824) (53)
Equity in losses of affiliates -- 1,200
Deferred income taxes -- 96
Changes in current assets and current liabilities:
Accounts and notes receivable, net (7,630) (4,599)
Inventories (9,240) (10,599)
Prepaid expenses and other (1,662) (1,467)
Accounts payable (9,648) (940)
Accrued income taxes 2,659 1,536
Accrued wages and commissions (2,294) (78)
Other accrued expenses (372) 2,977
------ ------
Net cash from operating activities 22,585 30,948
------ ------
Cash flows from (used in) investing activities:
Cash proceeds from sale of marketable securities 47,087 3,254
Purchase of marketable securities (8,984) (13,911)
Capital expenditures (5,877) (5,711)
Cash invested in and advanced to affiliates (24) (107)
Purchase of Kirschner, net of cash acquired -- (27,315)
Increase in other assets (2,399) 148
Other (928) 666
------ ------
Net cash from (used in) investing activities 28,875 (42,976)
------ ------
Cash flows from (used in) financing activities:
Decrease in short-term borrowings (581) (7,771)
Issuance of common shares 507 772
Repurchase of shares (10,406) --
------ ------
Net cash used in financing activities (10,480) (6,999)
------ ------
Effect of exchange rate changes on cash (968) (395)
------ ------
Increase (decrease) in cash and cash investments 40,012 (19,422)
Cash and cash investments, beginning of year 34,091 70,391
------ ------
Cash and cash investments, end of period $ 74,103 $ 50,969
====== ======
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 November 30, 1995 and May 31, 1995 are as follows:
November 30, May 31,
1995 1995
------------ -------
(in thousands)
Raw materials $ 21,878 $ 19,146
Work in process 15,033 15,163
Finished goods 64,940 62,884
Consigned inventory 47,790 43,692
------- -------
$149,641 $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 six months ended November 30, 1995, the Company
issued 237,794 common shares upon the exercise of outstanding
stock options for proceeds aggregating $506,867.
NOTE 5: CONTINGENCIES.
On February 9, 1990, Pedro A. Ramos, M.D. filed a complaint in
the United States District Court for the Southern District of
Florida naming the Company as a defendant. The plaintiff
alleged the Company infringed his patent. In April 1993, the
matter was tried before Judge Aronovitz of the Southern District
of Florida. Judge Aronovitz issued a memorandum opinion in
August 1993, finding that U.S. Patent No. 4,383,090 was
willfully infringed. On September 10, 1993 the trial court
entered a final judgment and permanent injunction in favor of
Dr. Ramos. An amended final judgment was entered on November
30, 1993 awarding Dr. Ramos a permanent injunction and
$6,008,000. The Company filed Notices of Appeal of the final
judgment and amended final judgment on September 20, 1993 and
December 13, 1993, respectively, with the Court of Appeals for
the Federal Circuit. On September 2, 1995 the U.S. Court of
Appeals for the Federal Circuit reversed in part and affirmed in
part the judgment previously entered against the Company. The
Court of Appeals held that, although the bipolar design did
infringe the Ramos patent under the doctrine of equivalents,
that infringement was neither literal nor willful on the part of
the Company and reduced the judgment to approximately
$2,000,000. The Company's petition for rehearing to the Court
of Appeals was denied and the case is now closed. The Company
recorded a $2,000,000 charge against pre-tax earnings for the
quarter ended August 31, 1995, to reflect the effect of this
decision. The Company has discontinued sales of its old bipolar
design in question and introduced a new bipolar product.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF NOVEMBER 30, 1995
As of November 30, 1995, the Company's working capital position
remains strong, increasing by $41,707,000 during the first six
months of fiscal year 1996 to $344,459,000 and resulting in a
working capital ratio of 6.1 to 1. This increase in working
capital is principally attributable to the operating results
experienced by the Company during the first six months of fiscal
year 1996. Cash and marketable securities increased during the
first six months by $2,693,000 to $127,168,000 . 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
$7,270,000 and $8,756,000, 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 $5,320,000 during the
first six months of fiscal 1996. Included in the aforementioned
changes were decreases in accounts receivable, inventories and
property, plant and equipment of approximately $381,000,
$421,000 and $353,000, respectively, attributable to the
increase from May 31, 1995 to November 30, 1995 in the exchange
rates used to convert the financial statements of the Company's
foreign subsidiaries from their functional currency to the U.S.
Dollar. These increases did not affect the Company's earnings
during the past six 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 $22,008,000 in total liabilities.
Shareholders' equity increased $40,553,000 principally due to
the Company's first six months earnings. Offsetting this
increase is a decrease in the unrealized gain on certain equity
securities and cumulative translation adjustment of $2,040,000
and $1,824,000, respectively, between periods presented.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
AS COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 1994
Net sales increased 28% to $260,273,000 for the six month period
ended November 30, 1995, from $203,086,000 for the same period
last year. The Company's U.S.-based revenue increased 24% to
$196,067,000 during the first six months, while foreign sales
increased 43% to $64,206,000. Foreign currency exchange rates
did not have a material impact on sales or earnings during the
first six months. Biomet's worldwide reconstructive device
sales during the first six months of fiscal 1996 were
$157,074,000, representing a 31% increase compared to the first
six months of fiscal year 1995. This increase was primarily a
result of Biomet's continued penetration of the reconstructive
device market led by the recently introduced Maxim Total Knee
System and the inclusion of Kirschner sales for the first six
months. Sales of EBI's products were $53,488,000 for the first
six months of fiscal 1996, representing a 15% 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 $49,711,000,
representing a 36% increase over the first six 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 30.9%
for the first six months of fiscal 1995 to 32.6% for the first
six 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 38.2%, compared to 36.6% for the first six months of last
year. This includes a $1,600,000 accrual for the Ramos
litigation as described in Note 5 of the Notes to Consolidated
Financial Statements, and a $1,000,000 accrual for expenses in
connection with the restructuring and consolidation of the
operations of Kirschner's reconstructive implant division. The
increase in research and development expenditures during the
first six 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 16% from $55,292,000 for the first six
months of fiscal 1995, to $63,897,000 for the first six months
of fiscal 1996, corresponding to the increase in net sales.
Other income increased $2,544,000 for the first six months of
fiscal year 1996 compared to the prior year's first six months
due to realized gains on the sale of marketable securities and
higher investment rates during the first quarter offset by
accrued interest of $400,000 incurred for the Ramos litigation
as described in Note 5 of the Notes to Consolidated Financial
Statements. A gain of $2,500,000 was realized 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 remained constant at 37.4% for each of the six month
periods presented.
These factors resulted in a 19% increase in net income and
earnings per share for the first six months of fiscal 1996 as
compared to the same period in fiscal 1995, increasing from
$36,522,000 to $43,484,000, and from $.32 to $.38, respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
AS COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
Net sales increased 25% to $133,046,000 for the second quarter
of fiscal year 1996, as compared to $106,860,000 for the same
period last year. Operating income rose 19% from $29,252,000
for the second quarter of fiscal 1995, to $34,743,000 for the
second quarter of fiscal 1996. During the second quarter, net
income increased 17% to $22,735,000 as compared to $19,409,000
for the same period last year. Earnings per share increased 18%
from $.17 per share for the second 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 six-month period except for the three nonrecurring events
which were recorded in the first quarter.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On February 9, 1990, Pedro A. Ramos, M.D. filed a complaint in
the United States District Court for the Southern District of
Florida naming the Company as a defendant. The plaintiff
alleged the Company infringed his patent. In April 1993, the
matter was tried before Judge Aronovitz of the Southern District
of Florida. Judge Aronovitz issued a memorandum opinion in
August 1993, finding that U.S. Patent No. 4,383,090 was
willfully infringed. On September 10, 1993 the trial court
entered a final judgment and permanent injunction in favor of
Dr. Ramos. An amended final judgment was entered on November
30, 1993 awarding Dr. Ramos a permanent injunction and
$6,008,000. The Company filed Notices of Appeal of the final
judgment and amended final judgment on September 20, 1993 and
December 13, 1993, respectively, with the Court of Appeals for
the Federal Circuit. On September 2, 1995 the U.S. Court of
Appeals for the Federal Circuit reversed in part and affirmed in
part the judgment previously entered against the Company. The
Court of Appeals held that, although the bipolar design did
infringe the Ramos patent under the doctrine of equivalents,
that infringement was neither literal nor willful on the part of
the Company and reduced the judgment to approximately
$2,000,000. The Company's petition for rehearing to the Court
of Appeals was denied and the case is now closed. The Company
recorded a $2,000,000 charge against pre-tax earnings for the
quarter ended August 31, 1995, to reflect the effect of this
decision. The Company has discontinued sales of its old bipolar
design in question and introduced a new bipolar product.
Item 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: 1/12/96 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.