Biomet reports second quarter financial results for fiscal 2010

Biomet, Inc. announced today financial results for its second fiscal quarter ended November 30, 2009.

• Net sales increased 8% (5% constant currency) to $696 million worldwide and increased 8% in the U.S.
• Reconstructive sales, excluding dental, increased 12% (9% constant currency) worldwide, with 10% U.S. growth
• Knee sales increased 15% (12% constant currency) worldwide, with U.S. growth of 11%
• Reported net loss of $7 million improved from a net loss of $40 million for the second quarter of fiscal 2009
• Adjusted net income increased 120% to $75 million compared to $34 million for the second quarter of fiscal 2009
• Adjusted EBITDA increased 7% to $265 million, or 38.2% of sales

Net sales increased 8% during the second fiscal quarter ended November 30, 2009, to $695.6 million from $642.8 million during the second quarter of fiscal year 2009. On a constant currency basis, net sales increased 5% during the second quarter of fiscal 2010.

U.S. sales increased 8% during the quarter to $408.2 million; Europe sales increased 6% (flat at constant currency) to $206.2 million; and International (primarily Canada, South America, Mexico and the Pacific Rim) sales increased 20% (10% constant currency) to $81.2 million. Excluding dental and the effect of foreign currency, net sales increased 7% worldwide, 9% in the U.S., 2% in Europe, and 12% for International during the second quarter of fiscal 2010.

Reported operating income totaled $94.1 million during the second quarter of fiscal year 2010 compared to $80.0 million for the second quarter of fiscal year 2009. Excluding special items, which included stock compensation expense in both periods, adjusted operating income for the second quarter of fiscal 2010 increased 5% to $221.1 million or 31.8% of net sales compared to $211.4 million for the same period in the prior fiscal year.

The Company recorded a net loss of $7.2 million, on a reported basis, during the second quarter of fiscal 2010 compared to a reported net loss of $39.7 million for the second quarter of fiscal 2009. Excluding special items, which included stock compensation expense in both periods, adjusted net income totaled $74.8 million during the second quarter of fiscal 2010 compared to adjusted net income of $34.0 million for the same period in the prior fiscal year.

During the second quarter of fiscal year 2010, interest expense was $130.1 million compared to $139.2 million during the second quarter of fiscal year 2009, primarily due to lower interest rates on floating rate debt.

The Company reported $127.0 million of special items (pre-tax) during the second quarter of fiscal 2010, including $112.9 million of non-cash special items. Of the non-cash amount, purchase accounting charges relating to the merger referenced below totaled $98.7 million, primarily related to amortization expense for established intangible assets and depreciation expense as a result of the step-up of property to fair value. The remaining $14.2 million of non-cash special items and $14.1 million of cash special items consisted primarily of costs associated with our Operational Improvement Program and $4.3 million of stock compensation expense. A reconciliation of reported results to adjusted results is included in this press release, which is also posted on Biomet’s website: www.biomet.com

Excluding special items, which included stock compensation expense in both periods, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter of fiscal 2010 increased 7% to $265.4 million, or 38.2% of sales, compared to adjusted EBITDA of $247.1 million, or 38.4% of sales, for the same period in the prior fiscal year.

Free cash flow (operating cash flow minus capital expenditures) for the second quarter was a use of $26.5 million compared to a use of $70.2 million for the same period in the prior fiscal year. Unlevered free cash flow (cash flow before debt service) for the quarter totaled $165.1 million compared to unlevered free cash flow for the same period last year of $132.1 million.

The Company’s reported net debt balance at November 30, 2009, was $6.105 billion with cash on hand of $117.6 million. From the transaction closing date of September 25, 2007, to the quarter ended November 30, 2009, reported net debt decreased by $40 million due to debt repayments of $104 million and an increase in cash of $45 million, partly offset by a $109 million increase due to the unfavorable foreign currency translation on the Company’s Euro denominated debt.

At November 30, 2009, the Company’s senior secured leverage ratio was 3.66 times the last twelve month’s (“LTM”) adjusted EBITDA (including run rate cost savings as defined in the Company’s Credit Agreement dated September 25, 2007), compared to 4.7 times at the merger date. At the end of the second quarter of fiscal year 2010, the net debt leverage ratio was 6.14 times LTM adjusted EBITDA (including run rate cost savings) compared to 7.7 times at the merger date.

Biomet’s President and Chief Executive Officer Jeffrey R. Binder remarked, “The Biomet team continued to deliver strong sales growth in orthopaedic reconstructive devices during the second quarter, driven by an 11% growth rate for U.S. knee sales and an increase of 7% for U.S. hip sales. Our extremity reconstructive sales continued to ramp at a rate of 44% in the U.S. during the quarter and we posted double-digit sales growth for our biologics franchise, which is also reported in reconstructive sales. Additional product categories contributing to our second quarter consolidated sales growth were spine hardware, sports medicine, and craniomaxillofacial fixation.”

On a constant currency basis, the Company’s knee sales increased 12% worldwide during the second quarter of fiscal year 2010. Products that principally contributed to the strong growth were the primary and revision components of the Vanguard^® Complete Knee System, E1^™ antioxidant infused tibial bearings, the Signature^™ Personalized Patient Care program, and Regenerex^® primary tibial trays.

Biomet’s hip sales increased 4% at constant currency during the second quarter, driven by 7% growth in the U.S. from sales of a broad range of acetabular products, including Ringloc^® and Regenerex^® Ringloc^®+ Cups, E1^™ antioxidant infused bearings, Biolox delta^™ Ceramic Femoral Heads¹, and M²a-Magnum^™ Tri-Spike^™ Cups. The Exceed ABT^™ Advanced Bearing Technologies System² experienced strong growth in Europe during the quarter. Hip stems that contributed to sales growth during the second quarter were the conventional and Microplasty^® versions of the Taperloc^® Hip Stem and the Echo^® Hip System.

Global extremity sales increased 27% on a constant currency basis due to continued strong demand for the Comprehensive^® Primary and Reverse Shoulder Systems, the Comprehensive^® Fracture Shoulder System, the Copeland^™ Shoulder and the Discovery^® Elbow. The anatomical and reverse versions of the T.E.S.S. Shoulder System³ are also driving extremity sales in Europe.

Dental reconstructive device sales decreased 8% during the second quarter of fiscal 2010, excluding the impact of currency, as a result of the continued impact from the global economic downturn. The Encode Complete System was launched in Europe during the second quarter and experienced strong market acceptance on a global basis.

During the second quarter, fixation sales decreased 3% at constant currency. Positive growth for craniomaxillofacial fixation sales was more than offset by the decreased sales of internal fixation, external fixation and electrical stimulation devices. The TraumaOne^™ Fixation System continued to be a primary contributor to the second quarter fixation sales growth.

Spine sales increased 6% during the second quarter on a constant currency basis as a result of strong growth of thoracolumbar and spacer products. Products contributing to sales growth included the Polaris^™ Deformity System; several spacer devices including the Solitaire™ PEEK-OPTIMA^®4 Anterior Spine System; and the MaxAn^™ Anterior Cervical Plate System⁵; as well as the Synergy^™ and Array^® Spinal Systems in Europe.

Sales of “other” products increased 8% during the second quarter at constant currency. Double-digit sales growth for sports medicine products was partially offset by decreased sales of softgoods and bracing products. Sports medicine products driving growth during the quarter included the ToggleLoc^™ Femoral Fixation Device with ZipLoop^™ Technology, the ZipTight^™ Fixation System, the ComposiTCP^™ Interference Screw and the MicroMax^™ Flex Suture Anchors.

¹Biolox delta^™ is a trademark of CeramTec AG.

²The Exceed ABT^™ Advanced Bearing Technologies System is not available for sale in the United States.

³The T.E.S.S. Shoulder System is not available for sale in the United States.

⁴PEEK-OPTIMA^® is a registered trademark of Invibio^® Biomaterial Solutions.

⁵The MaxAn^™ Cervical Plate System incorporates technology developed by Gary K. Michelson, M.D.

All trademarks herein are the property of Biomet, Inc. or its subsidiaries unless otherwise indicated.

Financial Schedule Presentation

The Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended November 30, 2009 and 2008 and other financial data included in this press release have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the United States (except with respect to certain non-GAAP financial measures discussed below) and reflects purchase accounting adjustments related to the merger referenced below.