-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TZp8sOLheV1iAHOsSbWYjtma+bV24jMHoAHiD5WXOBxc9M4yjAZXiFJ/hU+3s4ld mY4W1/kiTU01X5XqNO7vBA== 0000351346-96-000005.txt : 19960416 0000351346-96-000005.hdr.sgml : 19960416 ACCESSION NUMBER: 0000351346-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOMET INC CENTRAL INDEX KEY: 0000351346 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 351418342 STATE OF INCORPORATION: IN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12515 FILM NUMBER: 96547324 BUSINESS ADDRESS: STREET 1: AIRPORT INDUSTRIAL PARK STREET 2: P O BOX 587 CITY: WARSAW STATE: IN ZIP: 46581-0587 BUSINESS PHONE: 2192676639 MAIL ADDRESS: STREET 1: AIRPORT INDUSTRIAL PARK STREET 2: P O BOX 587 CITY: WARSAW STATE: IN ZIP: 46581-0587 10-Q 1 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. EX-27 2
5 9-MOS MAY-31-1996 FEB-29-1996 80386000 20834000 162237000 6737000 146680000 424544000 131312000 51447000 565532000 55907000 0 0 0 65682000 439782000 565532000 393742000 393742000 128702000 165750000 0 0 919000 106693000 39716000 66977000 0 0 0 66977000 .58 .58
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