Biomet Announces Third Quarter of Fiscal Year 2013 Financial Results

Biomet Announces Third Quarter of Fiscal Year 2013 Financial Results

WARSAW, Ind.--(BUSINESS WIRE)-- Biomet, Inc. announced today financial results for its third fiscal quarter ended February 28, 2013.

• Net sales increased 9% (9% constant currency) worldwide to approximately $772 million

• Net sales, excluding the Trauma Acquisition, were flat (increased 1% constant currency) worldwide

• S.E.T. sales increased 71% (73% constant currency) worldwide to $161 million and increased 62% in the U.S.

• Excluding the Trauma Acquisition, S.E.T. sales increased 8% (9% constant currency) worldwide and grew 11% in the U.S.

• Extremity sales grew 18% (19% constant currency) worldwide, with 26% U.S. growth

Third Quarter Financial Results

Net sales during the third quarter of fiscal year 2013 increased 9% to $771.5 million, compared to net sales of $708.9 million during the third quarter of fiscal year 2012. Excluding the effect of foreign currency, net sales increased 9% during the third quarter. U.S. net sales increased 9% to $472.9 million during the third quarter, while Europe net sales increased 5% (4% constant currency) to $184.7 million and International (primarily Canada, South America, Mexico and the Pacific Rim) net sales increased 15% (20% constant currency) to $113.9 million. There were two fewer selling days during the quarter compared to the prior year quarter.

Special items (pre-tax) totaled $462.7 million during the third quarter, including a $334.1 million non-cash goodwill and intangible asset impairment charge related to our dental reconstructive reporting unit due to evidence of continued declining industry market growth rates in certain European and Asia Pacific markets and corresponding unfavorable margin trends, $70.5 million of non-cash amortization expense related to the 2007 Merger, $23.0 million of legal expenses and $5.8 million of stock compensation expense. The remaining $29.3 million of special items were primarily associated with the Trauma Acquisition and the Company's ongoing operational improvement program.

Reported operating loss during the third quarter of fiscal year 2013 was $237.4 million, compared to operating income of $108.1 million during the third quarter of fiscal year 2012. Excluding special items, adjusted operating income totaled $225.0 million during the third quarter of fiscal year 2013, compared to $216.1 million for the third quarter of fiscal year 2012.

Reported net loss during the third quarter of fiscal year 2013 was $304.5 million, compared to a net loss of $16.5 million during the third quarter of fiscal year 2012. Excluding special items, adjusted net income totaled $80.4 million during the third quarter of fiscal year 2013, compared to $55.1 million for the third quarter of fiscal year 2012.

Excluding special items, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") was $275.4 million, or 35.7% of net sales, during the third quarter of fiscal year 2013, compared to $260.5 million, or 36.7% of net sales, for the third quarter of fiscal year 2012.

Interest expense decreased to $88.8 million during the third quarter of fiscal year 2013, compared to $117.2 million during the third quarter of the prior year, primarily due to lower average interest rates on our term loans and lower bond interest as a result of refinancing activities.

Reported cash flow from operations was $145.2 million during the third quarter of fiscal year 2013, compared to reported cash flow from operations of $157.5 million for the third quarter of fiscal year 2012. Free cash flow (operating cash flow minus capital expenditures) was $102.4 million, which reflected $97.5 million of cash interest paid in the quarter, compared to free cash flow of $116.0 million during the third quarter of fiscal year 2012, which reflected $47.3 million of cash interest paid.

At February 28, 2013, reported gross debt was $5,978.4 million, and cash and cash equivalents, as defined in the Company's Amended and Restated Credit Agreement dated August 2, 2012, totaled $217.4 million, resulting in net debt of $5,761.0 million, compared to $5,335.4 million at May 31, 2012, reflecting the impact of the Trauma Acquisition, our debt refinancing activities and foreign currency translation on our Euro-denominated debt.

Biomet's senior secured leverage ratio as of February 28, 2013 was 2.87 times the last twelve months ("LTM") adjusted EBITDA, as defined by our credit agreement, compared to 4.01 times at May 31, 2008, the first fiscal year-end following the Merger. The total (net debt) leverage ratio was 5.34 times LTM adjusted EBITDA at February 28, 2013, compared to 6.97 times at May 31, 2008.

Biomet's President and Chief Executive Officer Jeffrey R. Binder commented, "We performed very well during our fiscal third quarter, with 9% net sales growth on both a reported and a constant currency basis, and 6% Adjusted EBITDA growth. Despite two fewer selling days in our fiscal third quarter compared to our prior year quarter, our Large Joint Reconstructive sales increased 1% on a constant currency basis, while our Sports, Extremities and Trauma (S.E.T.) sales, excluding our trauma acquisition, grew at a constant currency rate of 9%."

The following table provides third quarter net sales performance by product category:

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 large joint reconstructive products, including orthopedic joint replacement devices, and bone cements and accessories; sports medicine, extremities and trauma products, including internal and external orthopedic fixation devices; spine and bone healing products, including spine hardware, spinal stimulation devices, and orthobiologics, as well as electrical bone growth stimulators; dental reconstructive products; and other products, including microfixation products and autologous therapies. Headquartered in Warsaw, Indiana, Biomet and its subsidiaries currently distribute products in approximately 90 countries.

Contacts

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

Financial Schedule Presentation

The Company's unaudited condensed consolidated financial statements as of and for the three and nine months ended February 28, 2013 and February 29, 2012 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 and the Trauma Acquisition.

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 the ongoing investigation by the United States Department of Justice; 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 Deferred Prosecution 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 ability of the Company to successfully integrate the Trauma Acquisition; 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; the impact of product liability litigation losses; 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 reports 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 the Trauma Acquisition, foreign currency (constant currency), operating income as adjusted, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as adjusted, net income as adjusted, gross profit as adjusted, selling, general and administrative expense as adjusted, research and development expense as adjusted, cash and cash equivalents (as defined by our credit agreement), net debt, senior secured leverage ratio, total leverage ratio, free cash flow, and unlevered free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included elsewhere in the press release.

The term "adjusted" or "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, other (income) expense, 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, loss on extinguishment of debt, certain non-cash charges, advisory fees paid to the Company's private equity owners, certain severance charges, purchase accounting costs, stock-based compensation, litigation costs, and other related charges.

These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP in the United States. Biomet management believes that these non-GAAP financial 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.

Non-GAAP Reconciliation

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation. The current presentation aligns with how the Company presently reports sales and markets its products.

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 Global.

Trauma Acquisition

On May 24, 2012, DePuy Orthopaedics, Inc. accepted the Company's binding offer to purchase certain assets representing substantially all of DePuy's worldwide trauma business ("Trauma Acquisition"), which involves researching, developing, manufacturing, marketing, distributing and selling products to treat certain bone fractures or deformities in the human body, including certain intellectual property assets, and to assume certain liabilities, for approximately $280.0 million in cash. On June 15, 2012, the Company announced the initial closing of the transaction. During the first and second quarters of fiscal year 2013 subsequent closings in various foreign countries occurred on a staggered basis, with the final closing occurring on December 7, 2012. The Company acquired the DePuy worldwide trauma business to strengthen its trauma business and to continue to build a stronger presence in the global trauma market.