Biomet Announces Second Quarter of Fiscal Year 2011 Financial Results

WARSAW, Ind.--(BUSINESS WIRE)-- Biomet, Inc. announced today financial results for its second fiscal quarter ended November 30, 2010.

• Reconstructive sales increased 1% (3% constant currency) worldwide and increased 3% in the U.S.
• Knee sales increased 2% (3% constant currency) worldwide, with U.S. growth of 3%
• Extremity sales grew 21% (23% constant currency) worldwide and increased at a rate of 36% in the U.S.
• Sports medicine sales increased 16% (17% constant currency) worldwide, with 17% U.S. growth

Second Quarter Financial Results

Net sales during the second quarter of fiscal year 2011 were flat at $698.3 million compared to net sales during the second quarter of fiscal year 2010 of $695.6 million. Excluding the effect of foreign currency, net sales increased 2% during the second quarter. U.S. net sales increased 2% to $416.9 million during the second quarter of fiscal 2011, while Europe net sales decreased 8% (decreased 1% at constant currency) to $188.8 million and International (primarily Canada, South America, Mexico and the Pacific Rim) net sales increased 12% (7% constant currency) to $92.6 million.

Special items (pre-tax) totaled $115.3 million during the second quarter, which included $96.9 million of non-cash amortization and depreciation expense related to the Merger and $18.4 million of non-Merger related special items.

On a reported basis, operating income was $105.8 million for the second quarter of fiscal year 2011 compared to operating income of $94.1 million for the second quarter of fiscal year 2010. Excluding special items in both periods, adjusted operating income was flat at $221.1 million.

Reported net loss for the second quarter of fiscal year 2011 was $7.6 million compared to a net loss of $7.2 million for the second quarter of fiscal year 2010. Excluding special items in both periods, adjusted net income for the second quarter totaled $66.0 million compared to adjusted net income of $74.8 million in the prior year period.

Excluding special items, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter was $263.7 million, or 37.8% of net sales, compared to adjusted EBITDA for the second quarter of fiscal year 2010 of $265.4 million.

Interest expense was $122.9 million during the second quarter of fiscal year 2011 compared to $130.1 million during the second quarter of the prior year, principally due to lower interest rates on floating rate debt.

Reported cash flow from operations was $20.1 million during the second quarter of fiscal year 2011, while free cash flow (operating cash flow of $20.1 million minus capital expenditures of $52.3 million) was a use of cash of $32.2 million, reflecting $195 million of cash interest paid in the quarter. Unlevered free cash flow (cash flow before debt service) totaled $168.3 million for the second quarter of fiscal year 2011 compared to $165.1 million in the prior year period.

Reported gross debt was $5.946 billion as of November 30, 2010, and cash on hand was approximately $229 million, which resulted in net debt of $5.717 billion. From May 31, 2008, the first fiscal year-end after the Merger, to November 30, 2010, net debt decreased by $456 million as a result of an increase in cash of $101 million and a $355 million reduction of gross debt, including a $202 million decrease due to favorable foreign currency translation on the Company’s Euro-denominated debt.

The Company’s senior secured leverage ratio at November 30, 2010 was 3.41 times the last twelve months (“LTM”) adjusted EBITDA (as defined in the Company’s Credit Agreement dated September 25, 2007) compared to 4.16 times at May 31, 2008. The net debt leverage ratio at November 30, 2010 was 5.74 times LTM adjusted EBITDA compared to 6.97 times at May 31, 2008.

Biomet’s President and Chief Executive Officer Jeffrey R. Binder stated, “While consolidated net sales increased 2% at constant currency during our second fiscal quarter, we delivered a strong adjusted EBITDA margin of 37.8% of net sales. Additionally, I’m pleased with our operating cash flow for the first half of the year. We believe that market growth rates for orthopaedic reconstructive products continued to be depressed in the quarter. However, an improving economy, favorable demographics and product innovation should stimulate long-term market growth and we continue to make significant research and development investments to address unmet clinical needs across our business.”

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

The following table provides second quarter net sales performance by product segment:

Reconstructive product sales increased 1% (3% constant currency) worldwide, with growth of 3% in the United States during the second quarter of fiscal year 2011. Knee sales increased 2% (3% constant currency) worldwide during the second quarter and increased 3% in the U.S. Sales of the Vanguard® Complete Knee System, E1™ antioxidant infused tibial bearings and Regenerex® porous titanium components were the key contributors to the Company’s second quarter knee sales.

Hip sales decreased 1% (flat at constant currency) worldwide during the second quarter and were flat in the U.S. Extremity sales increased 21% (23% constant currency) worldwide and grew at a rate of 36% in the U.S. during the second quarter. The Comprehensive® Primary and Reverse Shoulder Systems continued to drive strong growth for the extremity product category.

Dental reconstructive device sales increased 1% worldwide (3% constant currency) during the second quarter of fiscal year 2011 and decreased 2% in the U.S.

Fixation sales decreased 3% (decreased 2% constant currency) worldwide and decreased 1% in the U.S. during the second quarter. Craniomaxillofacial fixation sales growth was more than offset by decreased sales of internal fixation, external fixation, and electrical stimulation devices.

Spine sales decreased 3% (decreased 3% constant currency) worldwide and were flat in the U.S. during the second quarter. Sales growth of spinal stimulation devices during the quarter was more than offset by decreased sales of spine hardware and orthobiologics.

Sales of “other” products were flat (increased 2% constant currency) worldwide and increased 2% in the U.S. during the second quarter. Sports medicine sales increased 16% (17% constant currency) worldwide and grew 17% in the U.S., while sales of softgoods and bracing products decreased during the second quarter. Continued strong sales of sports medicine products were primarily driven by increased demand for the JuggerKnot™ Soft Anchor, the ToggleLoc™ Femoral Fixation Device with ZipLoop™ Technology and the Maxfire™ MarXmen™ Meniscal Repair Device.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications were limited to net sales information by product and geographical category. Specifically, for the three and six months ended November 30, 2010, the Company reclassified $5.8 million and $11.6 million from Other product net sales to Reconstructive product net sales, respectively, and $1.1 million and $2.3 million from Spine product net sales to Fixation product net sales, respectively. For the three and six months ended November 30, 2010, the Company also reclassified $1.2 million and $2.2 million from Europe net sales to International net sales, respectively. The current presentation aligns with how the Company presently manages and markets its products.

Financial Schedule Presentation

The Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended November 30, 2010 and 2009 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.

About Biomet

Biomet, Inc. and its subsidiaries design, manufacture and market products used primarily by musculoskeletal medical specialists in both surgical and non-surgical therapy. Biomet’s product portfolio encompasses reconstructive products, including orthopedic joint replacement devices, bone cements and accessories, autologous therapies and dental reconstructive implants; fixation products, including electrical bone growth stimulators, internal and external orthopedic fixation devices, craniomaxillofacial implants and bone substitute materials; spinal products, including spinal stimulation devices, spinal hardware and orthobiologics; and other products, such as arthroscopy products and softgoods and bracing products. Headquartered in Warsaw, Indiana, Biomet and its subsidiaries currently distribute products in approximately 90 countries.

The Merger

Biomet, Inc. finalized the merger with LVB Acquisition Merger Sub, Inc., a wholly-owned subsidiary of LVB Acquisition, Inc., which we refer to in this press release as the “Merger”, on September 25, 2007. LVB Acquisition, Inc. is indirectly owned by investment partnerships directly or indirectly advised or managed by The Blackstone Group, Goldman Sachs & Co., Kohlberg Kravis Roberts & Co. and TPG Capital.

Contacts

For further information contact Daniel P. Florin, Senior Vice President and Chief Financial Officer, at (574) 372-1687 or Barbara Goslee, Director, Corporate Communications at (574) 372-1514.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements are often indicated by the use of words such as “will,” “intend,” “anticipate,” “estimate,” “expect,” “plan” and similar expressions. Forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from those contemplated by the forward looking statements due to, among others, the following factors: the success of the Company’s principal product lines; the results of ongoing investigations by the United States Department of Justice and the United States Securities and Exchange Commission; the ability to successfully implement new technologies; the Company’s ability to sustain sales and earnings growth; the Company’s success in achieving timely approval or clearance of its products with domestic and foreign regulatory entities; the impact to the business as a result of compliance with federal, state and foreign governmental regulations and with the Corporate Integrity Agreement; the impact to the business as a result of the economic downturn in both foreign and domestic markets; the impact of federal health care reform; the impact of anticipated changes in the musculoskeletal industry and the ability of the Company to react to and capitalize on those changes; the ability of the Company to successfully implement its desired organizational changes and cost-saving initiatives; the impact to the business as a result of the Company’s significant international operations, including, among others, with respect to foreign currency fluctuations and the success of the Company’s transition of certain manufacturing operations to China; the impact of the Company’s managerial changes; the ability of the Company’s customers to receive adequate levels of reimbursement from third-party payors; the Company’s ability to maintain its existing intellectual property rights and obtain future intellectual property rights; the impact to the business as a result of cost containment efforts of group purchasing organizations; the Company’s ability to retain existing independent sales agents for its products; and other factors set forth in the Company’s filings with the SEC, including the Company’s most recent annual report on Form 10-K and quarterly report on Form 10-Q. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or non-occurrence of future events. There can be no assurance as to the accuracy of forward-looking statements contained in this press release. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company’s objectives will be achieved. The Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements which speak only as of the date on which they were made.

*Non-GAAP Financial Measures:

Management uses non-GAAP financial measures, such as net sales excluding the impact of foreign currency (constant currency), operating income as adjusted, net income as adjusted, free cash flow, unlevered free cash flow, net debt, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA (as defined by our credit agreement, the method to calculate this is likely to be different from methods used by other companies), gross profit as adjusted, selling, general and administrative expense as adjusted, research and development expense as adjusted, senior secured leverage ratio, total leverage ratio and total leverage ratio (net debt) as important financial measures to review and assess financial and operating performance of its principal lines of business. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included elsewhere in this press release.

The term “as adjusted,” a non-GAAP financial measure, refers to financial performance measures that exclude certain income statement line items, such as interest, taxes, depreciation or amortization and/or exclude certain expenses as defined by our credit agreement, such as restructuring charges, non-cash impairment charges, integration and facilities opening costs or other business optimization expenses, new systems design and implementation costs, certain start-up costs and costs related to consolidation of facilities, certain non-cash charges, advisory fees paid to the private equity owners, certain severance charges, purchase accounting costs, stock-based compensation and payments, litigation costs, and other related charges.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Biomet management believes that these non-GAAP measures provide useful information to investors; however, this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP.

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