Quarterly Reports - Message to Our Shareholders

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1 Quarterly Reports - Message to Our Shareholders The Company is pleased to report record sales and earnings results for the third quarter of fiscal year Biomet has also announced its intent to acquire Interpore Cross International for approximately $280 million. Biomet will finance the purchase price using cash reserves and short-term debt. Interpore's 2003 net sales were approximately $67.5 million. Excluding one-time acquisition-related charges, it is anticipated the acquisition will be neutral to Biomet's diluted earnings for fiscal year ending May 31, 2005 and accretive thereafter. The transaction has been approved by the Boards of both companies and is expected to close during the second calendar quarter of 2004, subject to customary closing conditions. The planned merger will bring together a wealth of complementary products and services, providing a host of spinal solutions for our spinal surgeons and neurosurgeons worldwide. Biomet previously announced it had reached an understanding with Merck KGaA, Darmstadt, Germany, to acquire Merck's 50% interest in the Biomet Merck Joint Venture. The Joint Venture was established in 1998 and created a market-leading European orthopedic company, with current annualized sales of approximately $330 million. The aggregate purchase price offered for Merck's 50% interest was $300 million in cash to be paid from Biomet's cash reserves. It is anticipated that the acquisition will be neutral to Biomet's earnings during the fourth quarter of fiscal year 2004 and the full fiscal year 2005, and will be slightly accretive thereafter. On March 22, 2004, Biomet announced the successful completion of the Biomet Merck Joint Venture acquisition, subject only to the receipt of clearance from the competition authorities in certain European jurisdictions. Biomet's net sales increased 16% during the third quarter to $410,185,000. Gross profit increased 19% to $294,193,000 during the quarter, representing 71.7% of sales. Selling, general and administrative expenses increased 14% to $145,712,000 and represented 35.5% of sales, improving 70 basis points over the third quarter of last year. Operating income increased 28% to $132,589,000 with operating margins at 32.3% of sales. Net income increased 19% to $86,600,000 during the third quarter, while diluted earnings increased 21% to $0.34 per share. Excluding foreign currency, which increased sales by approximately $18 million, net sales during the third quarter increased 11%. Domestic sales increased 11% to $271,520,000 during the quarter and international sales increased 11% on a constant currency basis to $138,665,000. Biomet's direct sales presence in Japan continues to experience excellent market penetration with third quarter revenues of $5.2 million, up 107% over last year's third quarter. During the third quarter of 2004, reconstructive device sales increased 22% to $270,203,000. Worldwide reconstructive device sales increased 15%, constant currency. Knee sales increased 18% worldwide and 15% in the United States during the third quarter. Worldwide knee sales increased 12%, constant currency. Knee products driving growth during the third quarter were the Ascent Primary and Revision Systems, the Biomet OSS (Orthopaedic Salvage System) utilized for oncology and revision procedures, and the minimally invasive Vanguard Unicompartmental Knee System. Following the Company's market-leading role in minimally invasive unicompartmental knees, Biomet continued its pioneering efforts by becoming the first company to introduce minimally invasive total knee instruments to the orthopedic market. During fiscal year 2004, approximately 250 sets of Biomet's Microplasty Minimally Invasive Total Knee Instruments have been introduced, with more than 100 additional sets scheduled for release during the fourth quarter. The proprietary Microplasty Total Knee Instruments are designed to provide the patient with a more rapid recovery by allowing for a substantially reduced incision size along with minimal muscle disruption. Approximately 50 surgeons completed training on the Microplasty Total Knee Instrumentation during the third quarter, bringing the total number of surgeons trained on this specific technique to more than 200 surgeons during this fiscal year. The first live webcast of a Microplasty Total Knee Replacement took place on March 23, James W. Scott,

2 M.D. of Tifton, Georgia performed the procedure, which can be viewed by visiting the website. During the third quarter, Biomet initiated the general launch of the Company's newest and most comprehensive knee system, the Vanguard Complete Knee System. The Vanguard System includes fixedbearing cruciate-retaining and posterior-stabilized versions, with numerous options in development, including mobile-bearing and revision components, as well as a patello-femoral replacement option. During the fourth quarter, Biomet is planning to launch the first 50 sets of Microplasty Vanguard Complete Knee Instruments. Hip sales increased 14% worldwide during the third quarter and 9% in the United States. Worldwide hip sales increased 8%, constant currency. Biomet's hip implant sales faced another tough comparison with last year's third quarter worldwide hip growth of 23%. Leading hip sales, Biomet's metal-on-metal articulation systems and the Company's broad line of complementary cementless stems, particularly the Taperloc, BiMetric and Integral components, continued to experience strong growth. Domestic sales of Biomet's metal-on-metal systems increased 18% during the third quarter and represented 33% of the Company's hip articulation unit sales in the United States. Designed for improved joint stability and increased range of motion, Biomet's M2a -38 hip cup continued to exp erience excellent market acceptance with a sales increase of 29% compared to last year's third quarter. Additionally, the enrollment for the C2a Ringloc ceramic -on-ceramic study is currently nearing completion. Biomet's Microplasty Minimally Invasive Hip Programs (Posterior and Anterior/Lateral Approaches) continued to experience excellent market acceptance and all training labs are overflowing. Approximately 350 sets of Microplasty Hip Instrument sets have been placed during fiscal year During the third quarter, Biomet trained more than 200 surgeons on the Microplasty Minimally Invasive Hip Programs at the Biomet Learning Center in Warsaw and the Orthopedic Learning Center in Chicago. An additional 250 surgeons are scheduled for training during the fourth quarter. Development of the Microplasty Anterior/Supine Approach with related implants and instrumentation will continue during the fourth quarter. Revision hip sales continued to experience significant growth during the third quarter. Biomet's Freedom Constrained Liner, indicated for patients with chronic hip dislocation tendencies, experienced strong market acceptance during the third quarter. With its unique patented design, the Freedom Constrained Liner allows for increased range of motion of up to 110. The MaxTi Modular and Mallory-Head Protrusio Cages, designed for difficult revision cases with substantial bone defects, continue to experience excellent market acceptance. Additionally, the Mallory-Head One-Piece Calcar and Modular Reach Hip Systems are experiencing very strong growth. During the fourth quarter, Biomet will release the ReCap Femoral Resurfacing System, a bone-conserving hemi-hip system indicated for use with patients in the early stages of osteoarthritis. In Europe, the ReCap Total Resurfacing Hip System is currently in its initial launch. Extremity sales increased 27% worldwide during the third quarter and 25% in the United States. Worldwide extremity sales increased 21%, constant currency. Growth in the extremity segment during the third quarter was driven by strong demand for the Copeland Humeral (shoulder) Resurfacing Head and the Liverpool Radial Head Replacement. The Copeland Shoulder is a bone-conserving cementless resurfacing system with excellent long-term clinical results. The Liverpool Radial Head Replacement was developed to restore the anatomy of the natural elbow joint and is used in cases of trauma, post-traumatic deformity and elbow instability. Dental reconstructive implant sales increased 29% worldwide during the third quarter and 19% in the United States. On a constant currency basis, revenues of dental reconstructive implants increased 22% worldwide. The global rollout of 3i's first internal-connection dental reconstructive implant system, the OSSEOTITE Certain Internal Connection Implant System, took place during the second and third quarters of this fiscal year. A primary advantage of 3i's OSSEOTITE Certain System is the 30º incremental rotational adjustment capabilities it offers clinicians, while the competing systems allow for only 60º incremental adjustments. The success of the OSSEOTITE Certain Implant System, along with solid broadbased market growth during the quarter, resulted in another outstanding quarter for 3i.

3 Sales of bone cements and accessories increased 43% worldwide during the third quarter and increased 85% in the United States, further securing Biomet's number two position in the estimated $205 million domestic market. Sales of bone cements and accessories increased 26% worldwide, excluding the effects of foreign currency. Palacos Bone Cement and the complementary Optivac Vacuum Mixing and Delivery System continued to experience excellent growth rates. Additionally, Palacos G antibiotic-loaded bone cement received strong market acceptance during the short time period since the U.S. Food and Drug Administration clearance of this product during the third quarter. Palacos G is comprised of standard Palacos Bone Cement with the addition of Gentamicin antibiotic and is cleared for use in the second stage of a two-stage revision. Palacos bone cement with Gentamicin has been the standard of care in Europe for nearly 35 years. Now, domestic surgeons also have access to the world's most clinically proven antibioticloaded bone cement. The proprietary Generation 4 Bone Cement with VacPac self-contained mixing and delivery system continues to experience excellent market acceptance. The benefits of the Generation 4 System include the elimination of fume exposure during the mixing process, improved consistency and quality of the cement, and reduced operating room time due to the ease of mixing. The GPS (Gravitational Platelet Separation) System continued to experience excellent market acceptance during the third quarter, contributing to the Company's reconstructive sales growth. The GPS System, distributed by Biomet's Cell Factor Technologies Division, requires minimal operator intervention and consistently produces the highest quality concentrate of any platelet system on the market. The GPS System possesses broad potential applications in the reconstructive, plastic and spine segments of the market and promotes more rapid healing of wounds, such as diabetic ulcers and general surgical incisions. Worldwide fixation sales increased 6% to $62,460,000 during the third quarter of fiscal year Lorenz Surgical's craniomaxillofacial fixation sales increased 19% worldwide and 13% in the United States during the quarter. Lorenz is currently introducing several new products to the market, including the RapidFlap SpinDown System for cranial flap fixation and the Titanium RapidFire Screw Delivery System, an innovative product that effectively reduces operating room time. Electrical stimulation sales increased 9% worldwide and 8% in the United States during the third quarter. With the recent approval from the U.S. Food and Drug Administration for the Mechanism of Action expanded label claim, the EBI Bone Healing System and the Pulsed Electromagnetic Field (PEMF) technology can now be more clearly differentiated from competitive systems. EBI's technology has been demonstrated to increase the production of a cascade of bone morphogenic proteins ("BMPs") and other osteopromotive growth factors, which are known to facilitate the healing of fractures and spinal fusions. This is in stark contrast to commercially available BMPs, which deliver a single short-lived growth factor to the fracture or fusion site. External fixation sales were flat worldwide and decreased 2% in the United States during the third quarter. On a constant currency basis, external fixation sales decreased 1% worldwide. Several new external fixation products are currently being introduced, augmenting the DynaFix Vision product line, including MRI compatible clamps and the DynaFix Vision Radiolucent Unilateral Fixator. Internal fixation sales decreased 11% worldwide during the third quarter and decreased 5% in the United States. Worldwide internal fixation sales decreased 15%, constant currency. The Company continues to focus on execution of the transition of the internal fixation business to the EBI business unit. Additionally, EBI is currently developing internal fixation line extensions, including minimally invasive plating options, which are scheduled for launch during the fourth quarter. Worldwide spinal product sales increased 9% to $39,322,000 and increased 8% in the United States during the third quarter of Domestic sales of spinal implant and orthobiological products for the spine increased 20% during the quarter. Sales of spinal stimulation systems increased 4% in the United States. The SpinalPak-II Stimulation System was recently introduced to the market. The SpinalPak-II System is

4 smaller in size and uses rechargeable batteries, eliminating the need for the patient to change batteries on a daily basis, thus providing for uninterrupted treatment contributing to optimal patient compliance. The Array Top-Loading Universal Spinal System was introduced on a limited basis during the third quarter and was extremely well received by EBI's customers. The Array System is EBI's first top-loading system, which opens the door to the deformity segment of the spinal products market. Also, the EBI VuePASS Minimally Invasive Fusion System was in a limited launch during the quarter and OsteoStim Demineralized Bone Matrix was launched with positive results. The development of the lumbar and cervical versions of Regain, EBI's one-piece pyrocarbon artificial disc nucleus replacement system, continues on schedule. The pyrocarbon material has a high level of strength, is biocompatible and extremely resistant to wear. Additionally, EBI is developing lumbar and cervical versions of Rescue, a total disc replacement product. During the third quarter of 2004, sales of the Company's "other products" increased 4% worldwide to $38,200,000 and decreased 2% in the United States. On a constant currency basis, "other product" sales increased 2% worldwide. Arthroscopy sales increased 10% worldwide during the quarter and 7% in the United States. Numerous Arthrotek products received 510(k) clearance from the U.S. Food and Drug Administration during the third quarter, including the resorbable CentraLoc Tibial Fixation device, a cannulated version of the ArthroRivet, the SpeedPass Suture Passer and several items from the MaxBraid product line. Sales of softgoods and bracing products increased 3% worldwide and 2% in the United States during the third quarter. Several new products were recently introduced to the market, including the Alliance Knee Brace, the EBI Gravity Ankle System and the EBI Ulnar Styloid Wrist Brace. We are pleased with the Company's record sales and earnings results during the third quarter and first nine months of fiscal year Strong performance of the Co mpany's reconstructive, spinal hardware and orthobiologics products led revenue growth during the quarter. Adding to Biomet's broad base of products and technologies with proven long-term clinical results, the Company introduced more than 410 new products to the musculoskeletal market during the past 5 years, expanding the availability of new treatment options for surgeons and their patients. Respectfully, Dane A. Miller, Ph.D. President and Chief Executive Officer Niles L. Noblitt Chairman of the Board Quarterly Reports - Featured Market Segment Bone Cements and Accessories The 2004 bone cements and accessories market in the United States is currently estimated to be $205 million with market growth currently in

5 the range of 13-15%. The market is comprised of bone cements at $120 million and accessories at $85 million. This market is experiencing renewed growth as a result of the recent introduction of antibioticloaded bone cements to the domestic market. Biomet entered the domestic bone cements and accessories market in June of 2000, with Palacos Bone Cement and the Optivac Vacuum Mixing and Delivery System. Within Biomet's first year of market introduction, the Company quickly moved into the second largest domestic market share position and continues to capture market share. The Company's antibiotic-loaded bone cement, Palacos G, first became available in the United States during the third quarter of fiscal year 2004 with the United States Food and Drug Administration clearance of the product. Palacos G bone cement is a combination of standard Palacos Bone Cement and Gentamicin antibiotic and is cleared for use in the second stage of a two-stage revision procedure. Palacos bone cement with Gentamicin has been the standard of care in Europe for nearly 35 years. Palacos G bone cement is the most clinically proven antibiotic-loaded bone cement available in the world. The Company's sales of bone cements and accessories increased 85% in the United States and 43% worldwide during the third quarter of fiscal year Generation 4 Bone Cement with the VacPac Delivery System continues to experience excellent market acceptance due to its key differentiating factors. The proprietary, self-contained VacPac System is designed to promote consistency and integrity of the cement, eliminate exposure to fumes during mixing, and reduce operating room time due to the ease of the mixing and delivery process. Generation 4 Bone Cement with the VacPac Delivery System was first introduced to the market during fiscal year The Company distributes bone cements and accessories in the United States through its orthopedic reconstructive device salesforce of approximately 550 representatives and throughout Europe and the rest of the world through a salesforce in excess of 600 representatives. Biomet is committed to offering surgeons a broad spectrum of products and technologies, as is evidenced by the Company's more than 410 new products which have been introduced to the market during the past five years. Quarterly Reports - Consolidated Statements of Income Fiscal Year rd Quarter For the periods ended February 29, 2004 and 2003 (in thousands, except per share amounts) Nine Months Three Months Net sales 1,168,065 1,013, , ,042 Cost of sales 330, , , ,636 Gross profit 837, , , ,406 Selling, general and administrative expenses 414, , , ,990 Research and development expense 46,450 40,262 15,892 14,555

6 Operating income 376, , , ,861 Other income, net 10,260 15,947 3,570 9,145 Income before income taxes and minority interest 386, , , ,006 Provision for income taxes 134, ,307 47,430 39,169 Income before minority interest 252, ,964 88,729 73,837 Minority interest 6,273 5,010 2,129 1,243 Net Income 245, ,954 86,600 72,594 Earnings per share: Basic $.96 $.80 $.34 $.28 Diluted $.95 $.80 $.34 $.28 Shares used in the computation of earnings per share: Basic 255, , , ,929 Diluted 257, , , ,824 Cash dividends per common share $.15 $ Quarterly Reports - Sales Analysis Fiscal Year rd Quarter Quarter Ended February 29, 2004 For the three months ended February 29, 2004 and 2003 (in thousands) Domestic/Foreign Sales U.S. sales $ 271,520 $ 244,838 Foreign sales 138, ,204 Segment Sales Reconstructive $ 270,203 $ 222,253 Fixation 62,460 59,061 Spinal products 39,322 36,157 Other 38,200 36,571 Quarterly Reports - Market Value of Common Shares Fiscal Year rd Quarter Quarter Ended February 29, 2004 The following table shows the quarterly range of high and low sale prices for the Company s Common Shares as reported by Nasdaq Stock Market (Biomet s fiscal year commences on June 1 and ends on May 31.) Stock Symbol: BMET. The amount reflects inter-dealer prices, without retail mark-up, mark-down or commission. Record holders of outstanding Common Shares February 29, st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

7 2004 High Low High Low High Low Quarterly Reports - Consolidated Balance Sheets and Consolidated Statements of Cash Flow Fiscal Year rd Quarter Quarter Ended February 29, 2004 Assets 02/29/ /31/2003 Current assets: Cash and cash equivalents $376,923 $225,650 Investments 13,945 37,337 Accounts and notes receivable, net 468, ,095 Inventories 383, ,270 Deferred income taxes 56,642 54,262 Prepaid expenses and other 24,987 20,141 Total current assets 1,322,194 1,111,755 Property, plant and equipment, at cost 525, ,965 Less, Accumulated depreciation 258, ,519 Property, plant and equipment, net 267, ,446 Investments 72, ,607 Goodwill, net 130, ,706 Intangible assets, net 10,033 10,874 Other assets 15,089 13,781 Total assets $1,817,925 $1,672,169 Liabilities and Shareholders Equity Current liabilities: Short-term borrowings $122,465 $114,120 Accounts payable 38,769 42,106 Accrued income taxes 17,746 12,453 Accrued wages and commissions 45,964 12,453 Other accrued expenses 63,598 54,260 Total current liabilities 288, ,654 Long-term liabilities: Deferred federal income taxes 7,455 7,031

8 Other liabilities Total liabilities 295, ,147 Minority interest 118, ,888 Contingencies (Note 0) Shareholders equity: Common shares 161, ,931 Additional paid-in capital 54,155 54,081 Retained earnings 1,159,125 1,100,462 Accumulated other comprehensive loss 29,328 (10,340) Total shareholders equity 1,403,767 1,286,134 Total liabilities and $1,817,925 $1,672,169 shareholders equity Consolidated Statements of Cash Flow For the nine months ended February 29, 2004 and 2003 (in thousands) Cash flows from (used in) investing activities: Proceeds from sales and maturities 215, ,717 of investments Purchases of investments (106,694) ( 43,899) Capital expenditures ( 42,594) ( 41,766) Other ( 1,587) ( 4,178) Net cash from (used in) investing activities 64,411 14,874 Cash flows from (used in) financing activities: Increase (decrease) in short-term (2,254) 6,655 borrowings, net Issuance of common shares 21,874 13,897 Cash dividends (38,604) (26,431) Purchase of common shares (152,020) (187,115) Net cash used in financing activities (171,004) (192,994) Effect of exchange rate changes on cash 3,773 7,222 Increase in cash and cash equivalents 151,273 13,480 Cash and cash equivalents, beginning 225, ,297 of year Cash and cash equivalents, end of period $376,923 $167,777 Quarterly Reports - Quarterly Graphs Fiscal Year rd Quarter - Quarter Ended February 29, 2004

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