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 28, 2005.
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)
(574) 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 February 28, 2005, the registrant had 251,864,378 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 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
Item 3. Quantitative and Qualitative Disclosure about
Market Risks 13
Item 4. Controls and Procedures 13
Part II. Other Information 14
Signatures 15
Index to Exhibits 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at February 28, 2005 and May 31, 2004
(in thousands)
ASSETS
February 28, May 31,
2005 2004
----------- -------
(Unaudited)
Current assets:
Cash and cash equivalents $ 99,867 $ 159,243
Investments 10,902 10,030
Accounts and notes receivable, net 489,467 465,949
Inventories 456,612 389,391
Deferred income taxes 79,654 69,379
Prepaid expenses and other 38,556 21,877
--------- ---------
Total current assets 1,175,058 1,115,869
--------- ---------
Property, plant and equipment, at cost 558,109 466,460
Less, Accumulated depreciation 243,392 197,634
--------- ---------
Property, plant and equipment, net 314,717 268,826
--------- ---------
Investments 61,994 66,339
Goodwill 440,896 266,860
Intangible assets, net 89,824 53,571
Other assets 15,239 16,232
--------- ---------
Total assets $2,097,728 $1,787,697
========= =========
The accompanying notes are a part of the consolidated financial statements.
BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
at February 28, 2005 and May 31, 2004
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
2005 2004
----------- -------
(Unaudited)
Current liabilities:
Short-term borrowings $ 300,461 $ 109,654
Accounts payable 57,771 55,365
Accrued income taxes 12,620 18,940
Accrued wages and commissions 52,594 51,288
Other accrued expenses 103,523 78,155
--------- ---------
Total current liabilities 526,969 313,402
Long-term liabilities:
Deferred income taxes 32,346 26,085
--------- ---------
Total liabilities 559,315 339,487
--------- ---------
Contingencies (Note 9)
Shareholders' equity:
Common shares 184,509 167,301
Additional paid-in capital 60,908 60,344
Retained earnings 1,263,962 1,218,682
Accumulated other comprehensive income 29,034 1,883
--------- ---------
Total shareholders' equity 1,538,413 1,448,210
--------- ---------
Total liabilities and shareholders' equity $2,097,728 $1,787,697
========= =========
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 28, 2005 and 2004
(Unaudited, in thousands, except per share data)
Nine Months Ended Three Months Ended
---------------- ------------------
2005 2004 2005 2004
---- ---- ---- ----
Net sales $1,376,857 $1,168,065 $482,023 $410,185
Cost of sales 395,155 330,400 138,068 115,992
--------- --------- ------- -------
Gross profit 981,702 837,665 343,955 294,193
Selling, general and
administrative expenses 505,989 414,773 179,224 145,712
Research and development expense 58,543 46,450 20,461 15,892
In-process research and development 26,020 -- -- --
--------- --------- ------- -------
Operating income 391,150 376,442 144,270 132,589
Other income, net 2,157 10,260 2,641 3,570
--------- --------- ------- -------
Income before income taxes and
minority interest 393,307 386,702 146,911 136,159
Provision for income taxes 144,891 134,659 50,127 47,430
--------- --------- ------- -------
Income before minority interest 248,416 252,043 96,784 88,729
Minority interest -- 6,273 -- 2,129
--------- --------- ------- -------
Net income $ 248,416 $ 245,770 $ 96,784 $ 86,600
========= ========= ======= =======
Earnings per share:
Basic $0.98 $0.96 $0.38 $0.34
==== ==== ==== ====
Diluted $0.97 $0.95 $0.38 $0.34
==== ==== ==== ====
Shares used in the computation
of earnings per share:
Basic 253,000 255,916 252,182 255,110
======= ======= ======= =======
Diluted 255,029 257,892 253,994 257,244
======= ======= ======= =======
Cash dividends per common share $.20 $.15 $ -- $ --
==== ==== ==== ====
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 28, 2005 and 2004
(Unaudited, in thousands)
2004 2004
---- ----
Cash flows from (used in) operating activities:
Net income $248,416 $245,770
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 45,001 38,876
Amortization 5,212 2,274
Write off of in-process research and development 26,020 --
Loss (Gain) on sale of investments, net 103 (583)
Minority interest -- 6,273
Deferred income taxes (3,159) (1,562)
Changes in current assets and liabilities:
Accounts and notes receivable, net 8,774 (37,130)
Inventories (29,136) (2,059)
Accounts payable (1,519) (6,782)
Accrued income taxes (6,318) 4,597
Other (8,678) 4,419
------- -------
Net cash from operating activities 284,716 254,093
------- -------
Cash flows from (used in) investing activities:
Proceeds from sales and maturities of investments 41,630 215,286
Purchases of investments (36,607) (106,694)
Capital expenditures (73,396) (42,594)
Acquisitions, net of cash acquired (266,229) --
Other (3,070) (1,587)
------- -------
Net cash from (used in) investing activities (337,672) 64,411
------- -------
Cash flows from (used in) financing activities:
Increase in short-term borrowings, net 183,733 (2,254)
Issuance of common shares 19,466 21,874
Cash dividends (50,872) (38,604)
Purchase of common shares (155,405) (152,020)
------- -------
Net cash used in financing activities (3,078) (171,004)
------- -------
Effect of exchange rate changes on cash (3,342) 3,773
------- -------
Increase (decrease) in cash and cash equivalents (59,376) 151,273
Cash and cash equivalents, beginning of year 159,243 225,650
------- -------
Cash and cash equivalents, end of period $ 99,867 $376,923
======= =======
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 accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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 nine-month period ended February 28, 2005 are not necessarily
indicative of the results that may be expected for the fiscal year ending
May 31, 2005. 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, 2004.
The accompanying consolidated balance sheet at May 31, 2004, has been derived
from the audited Consolidated Financial Statements at that date, but does not
include all disclosures required by accounting principles generally accepted
in the United States.
The Company operates in one business segment, musculoskeletal products, which
includes the designing, manufacturing and marketing of reconstructive products,
fixation devices, spinal products and other products. Other products consist
primarily of EBI's softgoods and bracing products, Arthrotek's arthroscopy
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 the Rest of World. Major markets
included in the Rest of World geographic market are Canada, South America,
Mexico, Japan and the Pacific Rim.
Net sales of musculoskeletal products by product category are as follows for the
nine and three month periods ended February 28, 2005 and 2004:
Nine Months Ended Three Months Ended
----------------- ------------------
2005 2004 2005 2004
---- ---- ---- ----
(in thousands)
Reconstructive $ 910,087 $ 755,726 $326,220 $270,203
Fixation 185,131 184,889 62,090 62,460
Spinal products 158,756 116,267 52,615 39,322
Other 122,883 111,183 41,098 38,200
--------- --------- ------- -------
$1,376,857 $1,168,065 $482,023 $410,185
========= ========= ======= =======
As permitted by SFAS No. 123, the Company accounts for its employee stock
options using the intrinsic value method. Accordingly, no compensation expense
is recognized for the employee stock-based compensation plans. If compensation
expense for the Company's employee stock options had been determined based on
the fair value method of accounting, pro forma net income and diluted earnings
per share for the nine and three month periods ended February 28, 2005 and 2004
would have been as follows:
Nine Months Ended Three Months Ended
----------------- ------------------
2005 2004 2005 2004
---- ---- ---- ----
Net income as reported (in thousands) $248,416 $245,770 $ 96,784 $ 86,600
Deduct: Total stock-based employee
compensation expense determined
under the fair value method for
all awards net of related tax
effects (in thousands) 4,694 3,853 1,660 1,290
------- ------- ------- -------
Pro forma net income (in thousands) $243,722 $241,917 $ 95,124 $ 85,310
======= ======= ======= =======
Earning per share:
Basic, as reported $0.98 $0.96 $0.38 $0.34
==== ==== ==== ====
Basic, pro forma $0.96 $0.95 $0.38 $0.33
==== ==== ==== ====
Diluted, as reported $0.97 $0.95 $0.38 $0.34
==== ==== ==== ====
Diluted, pro forma $0.96 $0.94 $0.37 $0.33
==== ==== ==== ====
On December 16, 2004, the FASB finalized SFAS No. 123R "Share-Based Payment,"
which will be effective for interim or annual reporting periods beginning after
June 15, 2005. The new standard will require us to expense stock options and
the FASB believes the use of a binomial lattice model for option valuation is
capable of more fully reflecting certain characteristics of employee share
options. The Company has begun a process to analyze how the utilization of a
binomial lattice model could impact the valuation of our options. The effect
of expensing stock options on our results of operations using the Black-Scholes
model is presented in the table above.
NOTE 2: BUSINESS COMBINATION.
On June 18, 2004, the Company, through its EBI subsidiary, acquired Interpore
International, Inc. ("Interpore") for $270.5 million in cash. The primary
reason for making the Interpore acquisition was to broaden the product
portfolio the Company offers in the spinal market. The Company accounted for
this acquisition as a purchase, and the operating results of Interpore have been
consolidated from the date of acquisition. Interpore's respective assets and
liabilities have been recorded at their estimated fair values in the Company's
financial statements, with the excess purchase price being allocated to
goodwill.
The Company completed its initial purchase price allocation in accordance with
U.S. generally accepted accounting principles. The process included interviews
with Interpore management, review of the economic and competitive environment
in which Interpore operates and examination of assets, including historical
performance and future prospects. The purchase price allocation was based on
information currently available to the Company, and expectations and
assumptions deemed reasonable to the Company's management. No assurances can
be given, however, that the underlying assumptions used to estimate expected
technology based product revenue, development costs or profitability, or the
events associated with such technology, will occur as projected.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed in the acquisition:
As of
June 16, 2004
-------------
Current assets $ 60,316
Property, plant and equipment 9,307
Intangible assets not subject to amortization:
Trademarks and trade names 1,260
Intangible assets subject to amortization:
Trademarks and trade names 2,270
Developed technology 16,180
Distribution and sales agreements 11,440
License agreements 3,450
In-process research and development 26,020
Other assets 83
Goodwill 169,596
-------
Total assets acquired 299,922
-------
Deferred taxes 14,512
Other current liabilities 14,909
-------
Total liabilities assumed 29,421
-------
Net assets acquired $270,501
=======
The $26,020,000 assigned to in-process research and development was written off
as of the acquisition date. The weighted average amortization period for
amortizable intangibles is 10 years. No amount of goodwill is expected to be
deductable for tax purposes. Pro forma financial information reflecting this
acquisition has not been presented as it is not materially different from the
Company's historical results.
NOTE 3: COMPREHENSIVE INCOME.
Other comprehensive income includes foreign currency translation adjustments
and unrealized depreciation of available-for-sale securities, net of taxes.
Other comprehensive income for the three months ended February 28, 2005
and 2004 was $8,620,000 and $27,186,000, respectively. Other comprehensive
income for the nine months ended February 28, 2005 and 2004 was $27,151,000
and $39,668,000, respectively. Total comprehensive income combines reported
net income and other comprehensive income. Total comprehensive income for the
three months ended February 28, 2005 and 2004 was $105,404,000 and $113,786,000,
respectively. Total comprehensive income for the nine months ended February 28,
2005 and 2004 was $275,567,000 and $285,438,000, respectively.
NOTE 4: INVENTORIES.
Inventories at February 28, 2005 and May 31, 2004 are as follows:
February 28, May 31,
2005 2004
------------ -------
(in thousands)
Raw materials $ 47,253 $ 34,075
Work-in-process 56,104 43,187
Finished goods 187,460 163,299
Consigned inventory 165,795 148,830
------- -------
$456,612 $389,391
======= =======
NOTE 5: DEBT.
In connection with the Interpore acquisition, the Company entered into a 36
month revolving credit facility in the amount of $200 million. Interest is
payable at LIBOR plus 0.5%. At February 28, 2005, $180 million was outstanding
and the interest rate was 3.17%.
NOTE 6: COMMON SHARES.
During the nine months ended February 28, 2005, the Company issued 1,109,353
Common Shares upon the exercise of outstanding stock options for proceeds
aggregating $19,466,000. Purchases of Common Shares pursuant to the Common
Share Repurchase Programs aggregated 3,507,270 shares for $155,405,000 during
the nine months ended February 28, 2005.
NOTE 7: 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 8: 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, tax credits and the write-off of
in-process research and development, which is not tax affected.
NOTE 9: CONTINGENCIES.
On March 29, 2005, the Company received a subpoena from the U.S. Department of
Justice through the U.S. Attorney for the District of New Jersey requesting
documents related to any consulting and professional service agreements with
orthopedic surgeons using or considering the use of Biomet's hip or knee
implants. It is the Company's understanding that similar inquiries have been
directed to other companies in the orthopedics industry. The Company intends
to fully cooperate with the Department of Justice inquiry.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF February 28, 2005
The Company's cash and investments decreased $62,849,000 since May 31, 2004 to
$172,763,000 at February 28, 2005. This decrease resulted from the
$50,872,000 dividend paid during the first quarter, the $155,405,000 used to
purchase shares during the first nine months pursuant to the Company's share
repurchase programs and the acquisition of Interpore during the first quarter,
offset by positive cash flow from operations and an increase in short term
borrowings.
Cash flows provided by operating activities were $284,716,000 for the first
nine months of fiscal 2005 compared to $254,093,000 in 2004. The primary
sources of fiscal year 2005 cash flows from operating activities were net
income, depreciation and the write-off of in-process research and development
at the acquisition date of Interpore. The primary use was an increase in
inventory. Inventories increased from new product introductions, specifically
new knee systems introduced in the US and Europe. Accounts and notes
receivable and inventory balances were increased during the nine month period
by $19.6 million and $12.6 million, respectively, due to currency exchange
rates.
Cash flows used in investing activities were $337,672,000 for the first nine
months of fiscal 2005 compared to a source of $64,411,000 in 2004. The primary
use of cash flows from investing activities were the acquisition of Interpore
and capital expenditures. (see Footnote 2 in the Notes to Consolidated
Financial Statements)
Cash flows used in financing activities were $3,078,000 for the first nine
months of fiscal 2005 compared to a use of $171,004,000 in 2004. The
primary source of cash flows from financing activities was the 36 month
revolving credit facility in the amount of $200 million used for the
Interpore acquisition. The primary uses were the cash dividend paid and the
share repurchase programs. In July 2004, the Company's Board of Directors
declared a cash dividend of twenty cents ($0.20) per share payable to
shareholders of record at the close of business on July 16, 2004.
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 share repurchases.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28, 2005
AS COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 2004
Net sales increased 18% to $1,376,857,000 for the nine months ended February
28, 2005, from $1,168,065,000 for the same period last year. This sales
growth includes a positive impact from foreign currency of $27.8 million and
additional sales from the acquisition of Interpore of $39.1 million, leaving
net sales growth for the nine months in local currencies at 12%. The Company's
U.S.-based revenue increased 17% to $918,514,000 during the first nine months
of fiscal 2005, while foreign sales increased 21% to $458,343,000. The
Interpore acquisition added $30.9 million to U.S.-based revenue and $8.2
million to foreign revenue. The Company's worldwide sales of reconstructive
products during the first nine months of fiscal 2005 were $910,087,000,
representing a 20% increase compared to the first nine months of last year.
Sales of fixation products were $185,131,000 for the first nine months fiscal
2005, representing a minimal increase as compared to the same period in 2004.
Sales of spinal products were $158,756,000 for the first nine months of fiscal
2005, representing a 37% increase as compared to the same period in 2004. The
increase was primarily a result of the Interpore acquisition and strong growth
in EBI's spinal implants and orthobiological products. Fixation and spinal
product sales have been negatively impacted by the combination of the Interpore
and EBI sales forces, and at the same time the integration of Biomet's internal
fixation sales force into EBI's fixation sales force. The Company expects this
negative impact to continue during the next quarter. The Company's sales of
other products totaled $122,883,000, representing an 11% increase over the first
nine months of fiscal year 2004.
Cost of sales increased as a percentage of net sales to 28.7% for the first nine
months of fiscal 2005 from 28.3% for the same period last year. The current
period impact of inventory step-up relating to acquisitions was 1.6%. This
increase was offset by a decrease of 1.2% primarily as a result of higher growth
rates in reconstructive devices, where gross margins are higher. Selling,
general and administrative expenses, as a percentage of net sales, increased to
36.7% compared to 35.5% for the first nine months of last year. This increase
is a result of Interpore's traditionally higher selling, general and
administrative expenses (0.4%), increased bad debt expense for EBI's domestic
insurance receivables (0.6%) and continued expansion and integration of EBI's
direct sales force. Research and development expenditures, as a percentage of
net sales, increased to 4.3% compared to 4.0% for the first nine months of last
year reflecting Interpore's traditionally higher expenditures on research and
development (0.2%) and the Company's continued emphasis on new product
introductions. In-process research and development expense relates to the
acquired in-process research and development related to the Interpore
acquisition, which was written off at the acquisition date. Operating income
increased 4% from $376,442,000 for the first nine months of fiscal 2004, to
$391,150,000 for the first nine months of fiscal 2005. The affect on operating
income for the previously discussed acquisition related expenses was a reduction
of $47,826,000. Other income decreased from $10,260,000 last year to $2,157,000
this year. Other income has been negatively impacted by a reduction in cash
available for investments and an increase in short term debt, due to
acquisitions. In addition, over the last twelve quarters, the Company has used
$757,312,000 to purchase its common stock. The effective income tax rate
increased to 36.8% for the first nine months of fiscal year 2005 from 34.8% last
year primarily as a result of write-off of in-process research and development
not being tax affected.
These factors resulted in a 1% increase in net income from $245,770,000 to
$248,416,000, a 2% increase in basic earnings per share from $0.96 to $0.98
and a 2% increase in diluted earnings per share from $0.95 to $0.97 for the
periods presented. The affect of acquisition related expenses as discussed in
the preceding paragraph, net of tax, on net income, basic earnings per share and
diluted earnings per share was to decrease them by $40,252,000, $0.16 per share
and $0.16 per share, respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2005
AS COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 2004
Net sales increased 18% to $482,023,000 for the third quarter ended February
28, 2005, from $410,185,000 for the same period last year. This sales growth
includes a positive impact from foreign currency of $11.2 million and additional
sales from the acquisition of Interpore of $11.7 million, leaving net sales
growth for the quarter in local currencies at 12%. The Company's U.S.-based
revenue increased 15% to $313,204,000 during the third quarter of fiscal 2005,
while foreign sales increased 22% to $168,819,000. The Interpore acquisition
added $9.1 million to U.S.-based revenue and $2.6 million to foreign revenue.
The Company's worldwide sales of reconstructive products during the third
quarter of fiscal 2005 were $326,220,000, representing a 21% increase compared
to the third quarter of last year. Sales of fixation products were $62,090,000
for the third quarter of fiscal 2005, representing a slight decrease as compared
to the same period in 2004. Sales of spinal products were $52,615,000 for the
third quarter of fiscal 2005, representing a 34% increase as compared to the
same period in 2004. The increase was primarily a result of the Interpore
acquisition and strong growth in EBI's spinal implants and orthobiological
products. Fixation and spinal product sales have been negatively impacted by
the combination of the Interpore and EBI sales forces, and at the same time
the integration of Biomet's internal fixation sales force into EBI's fixation
sales force. The Company expects this negative impact to continue during the
next quarter. The Company's sales of other products totaled $41,098,000,
representing an 8% increase over the third quarter of fiscal year 2004.
Cost of sales increased as a percentage of net sales to 28.6% for the third
quarter of fiscal 2005 from 28.3% for the same period last year. The current
period impact of inventory step-up relating to acquisitions was 1.5%. This
increase was offset by a decrease of 1.2% primarily as a result of higher
growth rates in reconstructive devices, where gross margins are higher.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 37.2% compared to 35.5% for the third quarter last year. This
increase is a result of Interpore's traditionally higher selling, general and
administrative expenses (0.3%), increased bad debt expense for EBI's domestic
insurance receivables (0.9%) and continued expansion and integration of
EBI's direct sales force. Research and development expenditures, as a
percentage of net sales, increased to 4.2% compared to 3.9% for the third
quarter last year reflecting Interpore's traditionally higher expenditures
on research and development (0.2%) and the Company's continued emphasis on
new product introductions. Operating income increased 9% from $132,589,000
for the third quarter of fiscal 2004, to $144,270,000 for the third quarter
of fiscal 2005. The affect on operating income for the previously discussed
acquisition related expenses was a reduction of $7,402,000. Other income
decreased from $3,570,000 last year to $2,641,000 this year. Other income
has been negatively impacted by a reduction in cash available for investments
and an increase in short term debt, due to acquisitions and common stock
repurchases. The effective income tax rate decreased from 34.8% last year
to 34.1% this year. This is a result of finalizing the European reorganization
in connection with the Company's purchase of Merck's interest in the Biomet
Merck joint venture and obtaining tax clearances from the respective tax
authorities.
These factors resulted in a 12% increase in net income to $96,784,000 for the
third quarter of fiscal 2005 as compared to $86,600,000 for the same period in
fiscal 2004, while basic and diluted earnings per share increased 12%, from
$0.34 to $0.38 for the periods presented. The affect of acquisition related
expenses as discussed in the preceding paragraph, net of tax, on net income,
basic earnings per share and diluted earnings per share was to decrease them
by $4,831,000, $0.02 per share and $0.02 per share, respectively.
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, 2005.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. As of the end of
the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of its management,
including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934). Based on this evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective in timely
notification to them of information the Company is required to disclose
in its periodic SEC filings and in ensuring that this information is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and regulations.
(b) Changes in Internal Control. During the third quarter of fiscal 2005
covered by this report, there have been no significant changes in internal
control over financial reporting that have materially affected, or were
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings.
On March 29, 2005, the Company received a subpoena from the U.S. Department
of Justice through the U.S. Attorney for the District of New Jersey
requesting documents related to any consulting and professional service
agreements with orthopedic surgeons using or considering the use of
Biomet's hip or knee implants. It is the Company's understanding that
similar inquiries have been directed to other companies in the orthopedics
industry. The Company intends to fully cooperate with the Department of
Justice inquiry.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Stock Repurchases
As of February 28, 2005, the Company had two publicly-announced share repurchase
programs outstanding. The first, announced July 1, 2004, approved the purchase
of 2,500,000 shares to be automatically purchased in equal installments over a
twelve-month period expiring July 1, 2005. The second, also announced July 1,
2004, approved the purchase of shares up to $100 million in open market or
privately negotiated transactions expiring July 1, 2005. Information on shares
repurchased in the most recently completed quarter is as follows:
Total Number Maximum Number of
of Shares Shares (or Approximate
Total Number Average Purchased as Dollar Value) that May
of shares Price Paid Part of Publicly Yet be Purchased
Period Purchased Per Share Announced Plans Under the Plans
------ ------------ ---------- ---------------- ----------------------
December 1-31 460,500 $45.04 460,500 988,000 shares
and $52,373,060
January 1-31 490,370 42.10 490,370 748,000 shares
and $41,847,274
February 1-28 228,000 43.99 228,000 520,000 shares
and $41,847,274
------- ----- ------- -----------------
1,178,870 43.61 1,178,870 520,000 shares
and $41,847,274
On March 22, 2005 the Company announced that it had expanded the share
repurchase programs by adding an additional $100 million. Purchases of the
additional $100 million of Common Shares, if any, will be dependent on market
conditions and may be made from time to time in open market or privately
negotiated transactions between March 21, 2005 and March 20, 2006.
Item 6. Exhibits.
See Index to Exhibits.
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.
------------
DATE: 4/11/2005 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
Number Assigned
in Regulation
S-K Item 601 Description 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 16, 1999. (Incorporated by reference to
Exhibit 4.01 to Biomet, Inc. Form 8-K Current
Report dated December 16, 1999, Commission File
No. 0-12515), as amended September 1, 2002 to
change rights agent to American Stock Transfer
& Trust Company.
(10) No Exhibit.
(11) No Exhibit
(15) No Exhibit.
(18) No Exhibit.
(19) No Exhibit.
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(31) 31.1 Certification of Chief Exectuive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
(32) 32.1 Written Statement of Chief Executive Officer and
Chief Financial Officer Pursuant to Sections 906 of the
Sarbanes-Oxley Act of 2002.