07.27.07
$2 Billion
Key Executives:
Jeffrey R. Binder, President and CEO
Daniel P. Florin, Sr. VP and CFO
J. Pat Richardson, VP, Finance and Treasurer
William C. Kolter, President, Orthopedics
Glen A. Kashuba, Sr. VP and President Trauma and Spine
Robert E. Durgin, Corporate VP, Global Regulatory Affairs
No. of Employees: 6,300
World Headquarters: Warsaw, IN
The past year has been one of change for Biomet Inc. From high-profile management changes, to questions of stock option impropriety, and ongoing takeover deals, Biomet made its fair share of headlines in 2006 and continues to do so in 2007. In the midst of the various corporate intrigue, the Warsaw, IN-based company showed steady, if modest, growth in overall net sales and profits for fiscal year 2006, which ended May 31, 2006.
For fiscal 2006, Biomet reported $2 billion in net sales, compared to $1.9 billion for 2005. Net income for 2006 was $406 million, up from $351 million for the previous fiscal year. By product segment, reconstructive device sales grew 10% to $1.38 billion; fixation sales increased 2% to $251.4 million; spinal product sales experienced growth of 4% to $222 million; and “other product” sales increased 5% to $173 million.
In particular, Biomet attributed its strong knee sales growth of 14% in the United States and 13% worldwide to continued demand for its Vanguard Complete Knee System and the Oxford Unicompartmental Knee System. In 2006, the company introduced the Vanguard SSK (Super Stabilized Knee) Revision System.
Hip sales increased 11% worldwide and 8% in the United States during fiscal year 2006. Hip products driving the year’s expansion, according to Biomet, were the M2a-Magnum Large Metal Articulation System, the Taperloc Hip Stem, ArComXL Polyethylene and the C2a-Taper Acetabular System. Additionally, ReCap Total Resurfacing System sales were strong in Europe during fiscal year 2006, Biomet said. Also in 2006, Biomet received FDA clearance to market Regenerex acetabular cups and augments, which the company expects to drive increased hip sales this year.
On the management front, in March 2006, Biomet founder and CEO Dane Miller abruptly resigned. After almost a year without a permanent chief executive, Biomet announced that Jeffrey R. Binder—a 15-year veteran of the orthopedic device industry—would join the company as president, CEO and a member of the board of directors. Binder replaced Daniel Hann, who served as interim chief executive following Miller’s departure. Hann later resigned in the wake of stock option backdating improprieties.
When an option is “backdated,” the vesting date on stock options is altered to make them more valuable. The process is not illegal under the stipulation that it is documented properly and reported to investors. An investigation by a special committee covered 17,000 grants to purchase approximately 17 million Biomet shares on more than 500 different grant dates from 1996 through 2006. Biomet restated its most recent annual report to reflect the disparity in the recorded expenses for stock option grants and the actual expenses for the grants, which were estimated at $50 million. The committee reported that most of the options issued during the period in question were not priced at the fair market value on the date of their respective grants.
“The company’s chief financial officer and general counsel during the period were or should have been aware of certain accounting and legal ramifications, respectively, of issuing an option with an exercise price lower than the fair market value on the date of issuance,” according to the committee, which also noted that Biomet “failed to maintain adequate books and records concerning its stock option grants.”
Following the committee’s findings, Gregory Hartman, senior vice president of finance and the company’s chief financial officer and treasurer, and Hann, executive vice president of administration and a member of the board of directors, resigned in March this year. In June, Daniel Florin joined the company as its new CFO, previously serving as vice president and corporate controller for Boston Scientific.
Most industry analysts, however, see the stock option probe as having a minor impact on the company’s overall performance. It certainly didn’t keep Biomet from becoming an attractive takeover target.
In December 2006, Biomet announced plans to go private after a group of private equity investors (including Dane Miller) agreed to acquire the orthopedic manufacturer for $10.9 billion, beating an offer from orthopedic rival Smith & Nephew. In May, however, the private equity group, called LVB Acquisition (which includes Texas Pacific, Blackstone Group, Kohlberg Kravis Roberts & Co., and Goldman Sachs & Co.), raised the offer to $11.4 billion after Biomet shareholders rejected the initial $10.9 billion offer for being too low.
Despite transitions in leadership and ownership, Biomet remains focused on expansion. In late 2006, the company announced that it allotted $21 million to expand its operations in Warsaw, which is expected to create another 260 jobs in the area. The first part of the plan calls for the company reconfiguring a 30,000-square-foot building to accommodate the company’s spinal implant manufacturing operations. The project, which will take about two years, will cost about $4.2 million and create 100 new jobs. Next, the company will construct a 60,000-square-foot addition. This project will take four years to complete, cost $17 million and create a minimum of 160 jobs. As of press time, it’s unclear whether the takeover will alter the company’s planned facility expansion.
For the first quarter of 2007, Biomet reported a 5% increase in net sales to $508 million compared to the same quarter of 2006. Net income inched 2% to $102 million. Company officials pointed to strong sales of orthopedic reconstructive devices (9% increase worldwide at $352 million) and dental reconstructive implants. However, sales of Biomet Trauma and Biomet Spine (formerly EBI) were approximately $12 million below management’s expectations for the first quarter of fiscal year 2007. The company has made numerous changes at its Biomet Trauma and Biomet Spine subsidiary, including the appointment of Chuck Niemier, former COO International Operations, as president, and the appointments of a new vice president of finance and vice president of sales.
“We are also making significant progress with the implementation of a new computer system, sales support systems, the in-sourcing of the manufacture of spinal hardware products and expanding the research and development team,” said Hann, interim CEO at the time. “Additionally, since May 31, 2005, the company has eliminated over 330 positions at the former EBI operations. We believe that the new management team and infrastructure changes at Biomet Trauma and Biomet Spine will allow the Company to provide greater focus on the spine and trauma markets and to our customers.”
Also for the first quarter of 2007 (ended August 2006), worldwide knee sales showed double-digit growth at 11%. Notably, other double-digit gains came from worldwide extremity sales at 12% during the quarter, and dental reconstructive implant sales increased at 11% worldwide. For the first nine months of fiscal 2007, net sales increased 5% to $1.6 billion.
Key Executives:
Jeffrey R. Binder, President and CEO
Daniel P. Florin, Sr. VP and CFO
J. Pat Richardson, VP, Finance and Treasurer
William C. Kolter, President, Orthopedics
Glen A. Kashuba, Sr. VP and President Trauma and Spine
Robert E. Durgin, Corporate VP, Global Regulatory Affairs
No. of Employees: 6,300
World Headquarters: Warsaw, IN
The past year has been one of change for Biomet Inc. From high-profile management changes, to questions of stock option impropriety, and ongoing takeover deals, Biomet made its fair share of headlines in 2006 and continues to do so in 2007. In the midst of the various corporate intrigue, the Warsaw, IN-based company showed steady, if modest, growth in overall net sales and profits for fiscal year 2006, which ended May 31, 2006.
For fiscal 2006, Biomet reported $2 billion in net sales, compared to $1.9 billion for 2005. Net income for 2006 was $406 million, up from $351 million for the previous fiscal year. By product segment, reconstructive device sales grew 10% to $1.38 billion; fixation sales increased 2% to $251.4 million; spinal product sales experienced growth of 4% to $222 million; and “other product” sales increased 5% to $173 million.
In particular, Biomet attributed its strong knee sales growth of 14% in the United States and 13% worldwide to continued demand for its Vanguard Complete Knee System and the Oxford Unicompartmental Knee System. In 2006, the company introduced the Vanguard SSK (Super Stabilized Knee) Revision System.
Hip sales increased 11% worldwide and 8% in the United States during fiscal year 2006. Hip products driving the year’s expansion, according to Biomet, were the M2a-Magnum Large Metal Articulation System, the Taperloc Hip Stem, ArComXL Polyethylene and the C2a-Taper Acetabular System. Additionally, ReCap Total Resurfacing System sales were strong in Europe during fiscal year 2006, Biomet said. Also in 2006, Biomet received FDA clearance to market Regenerex acetabular cups and augments, which the company expects to drive increased hip sales this year.
On the management front, in March 2006, Biomet founder and CEO Dane Miller abruptly resigned. After almost a year without a permanent chief executive, Biomet announced that Jeffrey R. Binder—a 15-year veteran of the orthopedic device industry—would join the company as president, CEO and a member of the board of directors. Binder replaced Daniel Hann, who served as interim chief executive following Miller’s departure. Hann later resigned in the wake of stock option backdating improprieties.
When an option is “backdated,” the vesting date on stock options is altered to make them more valuable. The process is not illegal under the stipulation that it is documented properly and reported to investors. An investigation by a special committee covered 17,000 grants to purchase approximately 17 million Biomet shares on more than 500 different grant dates from 1996 through 2006. Biomet restated its most recent annual report to reflect the disparity in the recorded expenses for stock option grants and the actual expenses for the grants, which were estimated at $50 million. The committee reported that most of the options issued during the period in question were not priced at the fair market value on the date of their respective grants.
“The company’s chief financial officer and general counsel during the period were or should have been aware of certain accounting and legal ramifications, respectively, of issuing an option with an exercise price lower than the fair market value on the date of issuance,” according to the committee, which also noted that Biomet “failed to maintain adequate books and records concerning its stock option grants.”
Following the committee’s findings, Gregory Hartman, senior vice president of finance and the company’s chief financial officer and treasurer, and Hann, executive vice president of administration and a member of the board of directors, resigned in March this year. In June, Daniel Florin joined the company as its new CFO, previously serving as vice president and corporate controller for Boston Scientific.
Most industry analysts, however, see the stock option probe as having a minor impact on the company’s overall performance. It certainly didn’t keep Biomet from becoming an attractive takeover target.
In December 2006, Biomet announced plans to go private after a group of private equity investors (including Dane Miller) agreed to acquire the orthopedic manufacturer for $10.9 billion, beating an offer from orthopedic rival Smith & Nephew. In May, however, the private equity group, called LVB Acquisition (which includes Texas Pacific, Blackstone Group, Kohlberg Kravis Roberts & Co., and Goldman Sachs & Co.), raised the offer to $11.4 billion after Biomet shareholders rejected the initial $10.9 billion offer for being too low.
Despite transitions in leadership and ownership, Biomet remains focused on expansion. In late 2006, the company announced that it allotted $21 million to expand its operations in Warsaw, which is expected to create another 260 jobs in the area. The first part of the plan calls for the company reconfiguring a 30,000-square-foot building to accommodate the company’s spinal implant manufacturing operations. The project, which will take about two years, will cost about $4.2 million and create 100 new jobs. Next, the company will construct a 60,000-square-foot addition. This project will take four years to complete, cost $17 million and create a minimum of 160 jobs. As of press time, it’s unclear whether the takeover will alter the company’s planned facility expansion.
For the first quarter of 2007, Biomet reported a 5% increase in net sales to $508 million compared to the same quarter of 2006. Net income inched 2% to $102 million. Company officials pointed to strong sales of orthopedic reconstructive devices (9% increase worldwide at $352 million) and dental reconstructive implants. However, sales of Biomet Trauma and Biomet Spine (formerly EBI) were approximately $12 million below management’s expectations for the first quarter of fiscal year 2007. The company has made numerous changes at its Biomet Trauma and Biomet Spine subsidiary, including the appointment of Chuck Niemier, former COO International Operations, as president, and the appointments of a new vice president of finance and vice president of sales.
“We are also making significant progress with the implementation of a new computer system, sales support systems, the in-sourcing of the manufacture of spinal hardware products and expanding the research and development team,” said Hann, interim CEO at the time. “Additionally, since May 31, 2005, the company has eliminated over 330 positions at the former EBI operations. We believe that the new management team and infrastructure changes at Biomet Trauma and Biomet Spine will allow the Company to provide greater focus on the spine and trauma markets and to our customers.”
Also for the first quarter of 2007 (ended August 2006), worldwide knee sales showed double-digit growth at 11%. Notably, other double-digit gains came from worldwide extremity sales at 12% during the quarter, and dental reconstructive implant sales increased at 11% worldwide. For the first nine months of fiscal 2007, net sales increased 5% to $1.6 billion.