ANNUAL MEETING 1:30 p.m., local time Saturday, September 21, 2002 Biomet, Inc. Airport Industrial Park 56 East Bell Drive Warsaw, Indiana 46582

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2 THE COMPANY Biomet, Inc. and its subsidiaries design, manufacture and market products used primarily by musculoskeletal medical specialists in both surgical and non-surgical therapy, including reconstructive and fixation devices, electrical bone growth stimulators, orthopedic support devices, operating room supplies, general surgical instruments, arthroscopy products, spinal implants, bone cements, bone substitutes, craniomaxillofacial implants and dental reconstructive implants and associated instrumentation. Headquartered in Warsaw, Indiana, Biomet and its subsidiaries currently distribute products in more than 100 countries. BIOMET FROM WARSAW TO THE WORLD Biomet From Warsaw to the World, , a narrative that highlights Biomet s 25-year history, is authored by Jeffrey Rodengen and Richard Hubbard of Write Stuff Enterprises, Inc. The 144-page hardcover book is available for $35.25 through Corporate Advertising & Apparel (book price is $28.00, 30% off the $39.95 cover price, plus shipping & handling of $7.25). To order a copy of the book, please contact: Corporate Advertising & Apparel by phone at or toll free at , or order online at Please allow business days for delivery. ANNUAL MEETING 1:30 p.m., local time Saturday, September 21, 2002 Biomet, Inc. Airport Industrial Park 56 East Bell Drive Warsaw, Indiana INVESTOR CONTACT Biomet, Inc. c/o Barbara A. Goslee Corporate Communications Manager P.O. Box 587 Warsaw, Indiana Phone or barb.goslee@biometmail.com TRANSFER AGENT American Stock Transfer & Trust Company Shareholder Relations 59 Maiden Lane New York, NY or info@amstock.com Internet Address: FORM 10-K A copy of the Company s most recent Form 10-K, as filed with the Securities and Exchange Commission (including consolidated financial statements and schedules thereto), will be provided to shareholders upon written request to the Company s Investor Contact. The Form 10-K is also available on the Internet by accessing Biomet s website at MAILING PROCEDURE One annual report is mailed to shareholders with the same last name residing in the same household. Shareholders may request additional copies by calling the Company s Investor Contact. With the popularity of the Internet as a means of accessing information, we have decided to discontinue the printing of quarterly reports in the brochure format. Biomet s annual and quarterly reports are available on the Internet via our corporate website at If you do not have access to the Internet and would like to receive a hard copy of the quarterly report, please notify the Investor Contact and we will forward one to you.

3 In just 25 years, Biomet has become a recognized leader in the musculoskeletal products market with one of the top 4 positions in 11 segments of the U.S. Musculoskeletal Products Market, as well as the #4 position in the European Musculoskeletal Products Market. #4 Knee Market #4 Hip Market #2 Shoulder Market #2 Bone Cements and Accessories Market #2 Dental Reconstructive Implant Market #2 Fixation Products Market #1 External Fixation Market #1 Electrical Stimulation Market #4 Spinal Products Market #2 Softgoods and Bracing Market #3 Craniomaxillofacial Fixation Market #4 European Musculoskeletal Market Biomet s four founders from left to right: M. Ray Harroff, Dane A. Miller, Ph.D., Jerry L. Ferguson and Niles L. Noblitt Twenty-five years ago, Biomet was founded upon the premise that an efficient and customer responsive team, dedicated to the integration of new technologies and advanced engineering principles, could create the highest quality orthopedic products, earning the trust and respect of orthopedic surgeons worldwide. In the early years, we encountered a great deal of skepticism regarding our ability to effectively compete in the orthopedic market...they said it couldn t be done. Today, Biomet s annual revenues approach $1.2 billion, we employ over 4,700 team members, and 1,850 sales representatives provide quality products and impeccable service to our tens of thousands of customers worldwide. We look forward to our next twenty-five years with the same vision, enthusiasm and goals as we did twenty-five years ago. If you were an early shareholder who invested $2,000 in Biomet s 1981 initial public offering and held these shares, your original investment was worth approximately $1 million as of May 31, We believe this success is a direct result of aligning the interests of Biomet Team Members with the interests of our fellow shareholders through vehicles such as Biomet s broad-based stock option, 401(k) profit sharing and employee stock bonus plans. As shareholders, Biomet Team Members appreciate the importance of being good stewards of the Company s resources. As the Company celebrates its silver anniversary, we are pleased to announce Biomet s twenty-fifth year of record financial results. 1

4 2 To Our Shareholders During fiscal year 2002, sales increased 16% to $1,191,902,000 from $1,030,663,000. Operating income increased 28% from $290,687,000 to $370,694,000; net income increased 21% from $197,546,000 to $239,740,000; and diluted earnings per share increased 21% from $.73 to $.88. Excluding certain non-recurring items,* operating income increased 17%, net income increased 14% from $214,746,000 to $245,640,000, and diluted earnings per share increased 15% from $.79 to $.91. On July 2, 2002, Biomet s Board of Directors announced a cash dividend of $.10 per share payable July 15, 2002 to shareholders of record at the close of business on July 8, The Board s decision to approve the dividend is a reflection of its continued confidence in the Company s operational objectives and strategic goals. Additionally, the Board authorized the purchase of up to an additional $100 million of the outstanding Common Shares of the Company. This share repurchase program follows the programs previously announced in December 2001 and March Biomet has purchased $210 million of the $224 million authorized in these programs. We view the Company s share repurchase programs as an excellent use of Biomet s positive cash flow, especially in light of today s poor investment return environment. As a result of these programs, Biomet s outstanding shares decreased by approximately 7,345,000 shares during fiscal year The Company s balance sheet remains strong with $386,517,000 in cash and investments, no long-term debt and a working capital ratio of 4 to 1. During fiscal year 2002, Biomet s cash flow from operations amounted to $184,237,000. Biomet s solid balance sheet and positive cash flow from operations continue to offer opportunities for external growth through investments in, and acquisitions of, new product lines, technologies and companies. Excluding the impact of foreign currency fluctuations and discontinued products, which reduced sales by $7 million and $12 million, respectively, net sales increased 18% during fiscal year United States and international sales increased 19% and 16%, respectively. Excluding the positive impact of acquisitions, net sales increased 15% during fiscal year The discontinued products, which were distributed through our Biomet Merck joint venture, were associated with general surgery products in Portugal and spinal products in Belgium. We do not currently believe that the Company will be affected by discontinued products during fiscal year Unless otherwise noted, all of the following percentages are quoted on a constant-currency basis and are adjusted for discontinued products as previously discussed. During fiscal year 2002, reconstructive device sales grew 18% to $721,004,000; fixation sales increased 7% to $215,544,000; spinal product sales increased 42% to $125,119,000; and other product sales increased 14% to $130,235,000. During fiscal year 2002, the Company expanded its international presence by further developing its direct sales organization in Japan. Biomet continues to receive approvals to market additional products in Japan including a broad range of key product lines representing the reconstructive, fixation and arthroscopy segments of the musculoskeletal products market. The musculoskeletal products market in Japan currently exceeds $1 billion, offering significant growth opportunities for Biomet. Biomet also continues to form important strategic alliances to further develop products and technologies to enhance musculoskeletal treatment options for surgeons and patients. During fiscal year 2002, separate agreements with two organizations, Organogenesis and Z-KAT, opened new doors of technological opportunity for the Company. In August of 2001, Biomet and Organogenesis, Inc., of Canton, Massachusetts, established a collaboration whereby Biomet received an exclusive worldwide license to market orthopedic and periodontal products from Organogenesis FortaFlex bio-engineered matrix technology. In March of 2002, the Food and Drug Administration granted 510(k) marketing clearance for *For fiscal year 2001, the $26.1 million non-recurring charge relates to the appellate court s decision in the Tronzo litigation (see Note K to the Consolidated Financial Statements). For fiscal year 2002, the $9 million non-recurring charge relates to a write-down of equity investments in Selective Genetics, Inc. and other marketable securities.

5 CONSOLIDATED FINANCIAL HIGHLIGHTS Biomet, Inc. & Subsidiaries (dollars in thousands, except per share amounts) Percent Years ended May 31: Change Net sales $1,191,902 $1,030, % Gross profit 859, , Operating income 370, , Net income 239, , Basic earnings per share Working capital 715, ,557-1 Total assets 1,521,723 1,489,311 2 Cash and investments 386, , Shareholders equity 1,176,479 1,146,186 3 Book value per share Net profit margin 20.1% 19.2% Return on equity 20.6% 18.9% the CuffPatch rotator cuff repair product, which incorporates Organogenesis FortaFlex technology. Marketed by Biomet through its Arthrotek subsidiary, which specializes in procedure-specific arthroscopy products and associated instrumentation, the CuffPatch product can be cut to size and sutured into place providing reinforcement material for repairing tendons and ligaments of the shoulder. The market for tendon and ligament repair is currently estimated to be approximately $100 million. In February of 2002, Biomet and Z-KAT, Inc. of Hollywood, Florida, entered into a partnership to co-develop and distribute image-guided software and intelligent instrumentation for musculoskeletal applications and techniques, including minimally-invasive procedures. Biomet is the pioneering leader in minimally-invasive knee procedures and Z-KAT s technology should aid in further advancing the Company s solid leadership position. Additionally, Biomet will continue to explore the application of this technology in minimally-invasive hip, spine, trauma, arthroscopy and craniomaxillofacial procedures. Z-KAT currently owns over 100 patents covering digital surgery and instrumentation. Throughout the years, we have successfully built Biomet primarily through internal growth, augmented by strategic acquisitions. Additionally, we have expanded our salesforces to sustain Biomet s excellent customer service to clinicians worldwide. Biomet s 1,850 person worldwide salesforce is one of the largest and most responsive selling organizations in the orthopedic industry. The breadth and depth of our musculoskeletal product offerings are unsurpassed and the continuous flow of new products and technologies keeps Biomet at the leading edge of the worldwide musculoskeletal marketplace. We are proud of the contributions each individual has made to the Biomet team and we appreciate the confidence that our shareholders have placed in us. Foremost, we are ever mindful of our ongoing commitment to the delivery of excellent products designed to improve the quality of life for patients around the world. We look forward to the Company s continued consistent growth borne out of our determination to carry on Biomet s tradition of successful innovation. Respectfully, Dane A. Miller, Ph.D. President and Chief Executive Officer Niles L. Noblitt Chairman of the Board United States $856,375 $1,191,902 Reconstructive $721,004 Fixation $215,544 Net Sales (in thousands) 2002 $1,191,902 Operating Income (in thousands) 2002 $370,694 Net Sales (in thousands) $1,191,902 72% Net Sales (in thousands) 60% 18% Fiscal Years % Compound Annual Growth Rate Basic Earnings Per Share (before non-recurring items) 2002 $.92 28% 19% Increase* United States 16% Increase* International 11% Fiscal Years % Compound Annual Growth Rate Fiscal Years International $335,527 11% 18% Increase* Reconstructive 7% Increase* Fixation 42% Increase* Spinal Products 14% Increase* Other Other $130,235 Spinal Products $125,119 * Percentages are quoted on a constant-currency basis and adjusted for discontinued products. 27% Compound Annual Growth Rate $1,200,000 1,000,000 $400, , , , , , ,000 $ , , , , ,

6 4 U.S. Musculoskeletal Market Review Favorable demographics and a shift to technologically-advanced products are fueling the estimated 12% growth in the $7.62 billion U.S. musculoskeletal market. The demand for musculoskeletal products continues to grow with the aging of the baby boomer generation. According to the U. S. Census Bureau projections, the 55 to 75 year-old population group is expected to grow approximately 70% to 74.7 million people in 20 years. Furthermore, the traditional 55 to 75 year-old orthopedic implant patient population continues to expand below age 55 and above age 75. Procedures are now being recommended for patients at younger ages, as skilled engineering of new products and increasingly effective technology directly contribute to the greater probability of successful implant performance and longevity. In addition, the elderly are leading more active lifestyles than past generations, resulting in stronger, healthier individuals who are excellent candidates for reconstructive implant procedures, creating a greater need for products and services to treat musculoskeletal disorders. While 72% of Biomet s revenues are currently generated in the United States, the Company continues to expand its market share in the estimated $14 billion worldwide musculoskeletal products market. In less than five years of operations, Biomet Merck has become the fourth largest musculoskeletal market participant in Europe. In addition, Biomet Orthopedics International division is capitalizing on numerous growth opportunities in attractive markets outside the United States and Europe. In particular, the Company continues to focus its efforts on the further development of its newly created direct distribution channel in Japan, where the musculoskeletal products market is currently estimated to exceed $1 billion. ORTHOPEDIC RECONSTRUCTIVE DEVICE MARKET According to the Centers for Disease Control and Prevention, arthritis results in 750,000 hospitalizations and 44 million outpatient visits each year. Arthritis is the leading cause of disability among adults in the United States, limiting everyday activities for more than 7 million Americans. Arthritis is a more frequent cause of limitation of activity than heart disease, cancer or diabetes, according to The American Academy of Orthopaedic Surgeons. By 2020, an estimated 12 million Americans will be limited in some of their daily activities because of arthritis. In the United States, the orthopedic reconstructive device market comprises over 40% of the total domestic musculoskeletal products market and is estimated to be $3.085 billion in 2002, exhibiting 13 15% annual growth. The orthopedic reconstructive device market is dominated by the knee and hip market segments and Biomet Orthopedics is estimated to have the fourth largest market share position in each of these segments. The knee replacement market is estimated to be $1.625 billion and the hip replacement market is approximately $1.35 billion. Biomet Orthopedics is estimated to secure the second largest market share position in the shoulder market, which is estimated to be $75 million. SPINAL PRODUCTS MARKET According to the North American Spine Society, back pain is experienced by 80% of adult Americans and unresolved back pain can often lead to a recommendation of spinal fusion surgery. Fusion may be indicated for a variety of reasons: to treat a fractured vertebra, correct a spinal deformity, eliminate pain from motion and treat spinal instability. Spinal fusion may or may not require supportive spinal hardware products such as plates, rods, screws and cages. Most fusion procedures utilize the placement of a bone graft or bone substitute material between the vertebrae where fusion is indicated. To aid in fusing the bone, an electrical stimulation device can be implanted at the time of the fusion procedure or a non-invasive device may be prescribed following surgery. The spinal products market, which is the fastest growing segment of the domestic musculoskeletal products market, is estimated to be $1.425 billion in the United States. Biomet s EBI subsidiary

7 is estimated to have the fourth largest market share position in the spinal products market, which is increasing at an estimated annual rate of 18 20%. Over 40% of the spinal products market is comprised of the plate, rod and screw segment at $580 million; the allograft (cadaver bone) and bone substitute material segment is estimated to be $455 million; the fusion cage market is $215 million; while the electrical bone growth stimulation segment of the spinal products market is $175 million. FIXATION MARKET An estimated 10 million people sustain bone fractures each year in the United States as a result of activity, trauma or osteoporosis. In the vast majority of cases, fractures occur as a result of some type of activity-related injury or trauma. However, osteoporotic fractures account for over 1.5 million fractures in the United States each year. The most common fractures are to the spine, hip, wrist and ribs according to the National Osteoporosis Foundation. The $990 million fixation market for treating bone fractures in the United States is currently growing at 6 8% annually. Biomet s broad fixation product portfolio secures the estimated second largest market position in the domestic fixation products market. Biomet Orthopedics competes in the internal fixation market, which constitutes over 40% of the total domestic fixation market at an estimated $420 million. The remaining 60% of the fixation market is fairly evenly divided between the external fixation, electrical stimulation, allograft/bone substitute material and craniomaxillofacial fixation market segments. EBI is the leader in the external fixation and the electrical stimulation markets. The market for external fixation devices is $150 million, while the electrical stimulation device segment represents $145 million. The allograft/bone substitute materials segment is $140 million and the craniomaxillofacial fixation market is estimated to be $135 million. Biomet s Lorenz Surgical subsidiary competes in the fixation market primarily with a broad line of titanium plates and screws, as well as resorbable fixation products for craniomaxillofacial indications. SPORTS MEDICINE MARKET The increasingly active lifestyle of the general population continues to contribute to the growth of the domestic sports medicine market. Annually, more than 1 million medically-treated sports injuries are sustained by baby boomers alone, according to the United States Consumer Product Safety Commission. Biomet s Arthrotek subsidiary has a small, but rapidly growing presence in the $700 million domestic arthroscopy market, which is growing 10 12% annually. Included in the sports medicine market is the softgoods and bracing segment, which is experiencing 7 9% annual growth. EBI is estimated to be the second largest market share leader in this $485 million market. DENTAL RECONSTRUCTIVE IMPLANT MARKET According to the American Dental Association, more than 20 million people in the United States are missing all of their natural teeth, and more than 100 million are missing from 11 to 15 teeth. The 2002 domestic dental reconstructive implant market is estimated to be $285 million and growing at a current annual rate of 14 16%. Biomet competes in this market through 3i, the second largest market share leader in the United States. BONE CEMENTS & ACCESSORIES MARKET The 2002 bone cements and accessories market in the United States is growing at an estimated annual rate of 4 6% and totals approximately $170 million, of which $95 million represents bone cements. Biomet entered the domestic market on June 1, 2000 through products obtained via the Biomet Merck joint venture and rapidly moved into the second largest market share position within its first year of competition. Dental Reconstructive Implants $285 Arthroscopy $700 Bone Cements & Accessories $170 Allograft/Bone Substitute Material $ U.S. Musculoskeletal Products Market (Biomet estimates in millions) $7.62 Billion Spinal Products $1, U.S. Spinal Products Market (Biomet estimates in millions) Electrical Stimulation $175 O.R. Supplies $285 $1.425 Billion Plates, Rods, Screws $580 Machined Allograft $245 Reconstructive Devices $3,085 Softgoods & Bracing $485 Powered Surgical Equipment $195 Fixation $990 Fusion Cages $ U.S. Orthopedic Reconstructive Device Market Positions $3.085 Billion #1 J & J/DePuy #2 Stryker/Howmedica #3 Zimmer #4 Biomet #5 Smith & Nephew #6 Centerpulse (Sulzer Medica) 2002 U.S. Spinal Product Market Positions $1.425 Billion #1 Sofamor Danek #2 J & J/DePuy #3 Synthes #4 Biomet / EBI #5 Centerpulse (Sulzer Spine-Tech) 2002 U.S. Dental Reconstructive Implant Market Positions $285 Million #1 Nobel Biocare #2 Biomet / 3i #3 Centerpulse (Sulzer Dental) #4 Straumann 2002 U.S. Craniomaxillofacial Fixation Market Positions $135 Million #1 A-O Synthes #2 Stryker/Leibinger #3 Biomet / Lorenz Surgical 5

8 6 Product Review Biomet, Inc. competes in the worldwide musculoskeletal products market through its six strategic business units and currently reports sales results in four product markets: reconstructive, fixation, spinal, and other products. The six strategic business units include Biomet Orthopedics, Inc.; EBI, L.P.; Biomet Merck Joint Venture; Implant Innovations, Inc.; Walter Lorenz Surgical, Inc.; and Arthrotek, Inc. Biomet is recognized throughout the industry for its broad line of clinically successful products. Additionally, Biomet s market-leading research and development efforts produced 260 new product introductions during the last three years. RECONSTRUCTIVE Biomet s reconstructive category, which represented 60% of Biomet s total revenues during fiscal year 2002, is comprised of orthopedic reconstructive devices, bone cements and accessories, as well as dental reconstructive implants and associated instrumentation. The orthopedic reconstructive device products are marketed by Biomet Orthopedics, Inc. and Biomet Merck. Biomet Orthopedics is based at the Warsaw, Indiana, corporate headquarters and its products are distributed by over 500 sales representatives in the United States. The Biomet Merck Joint Venture maintains its central office in Zwijndrecht, The Netherlands, with a direct salesforce of more than 300 technical field specialists and over 100 independent service representatives. Dental reconstructive implants and instruments from Implant Innovations, Inc. ( 3i ), located in Palm Beach Gardens, Florida, are distributed through a salesforce of more than 200 representatives, comprised of over 100 worldwide direct sales representatives and an additional 100 independent sales representatives located outside the United States. The Company s broad line of knee products, primarily the Repicci II Unicondylar Knee System, the primary and revision Ascent Total Knee Systems, the Biomet Orthopaedic/Salvage System ( OSS ) and the Maxim Complete Knee System, continue to gain market share in the United States. The Repicci II System is the only minimally-invasive knee on the market that is implanted using a bone-conserving approach. The procedure allows for shorter recovery, a reduced need for physical therapy, and can often be performed on an outpatient basis. The Ascent Total Knee System is designed to offer increased range of motion and decreased incidence of dislocation. Additionally, the Ascent Revision Knee System addresses a host of bone defects common in revision procedures by offering numerous modular options. The OSS is an expansive modular system indicated for extremely difficult cases where options are limited due to deficient ligaments and/or significant bone loss as a result of multiple revision surgeries or bone tumors. The Maxim Complete Knee System offers a broad range of sizes with full interchangeability and is designed to consistently restore function, stability and durability to the knee. Additionally, Biomet is finalizing the development of the Maxim Accel Total Knee System, which will be the most comprehensive knee system in the industry. In Europe, a broad range of key knee products include the AGC Knee, the TRAC Mobile Bearing Knee, the Performance Knee, the Alpina Knee, the CKS Continuum Knee System and the Oxford Phase 3 Unicompartmental Knee. New knee products introduced in Europe during fiscal year 2002 were the Oxford TMK (Total Meniscal Knee) and the Performance Rotating Platform Knee. During the first half of fiscal year 2003, Biomet plans to launch the Vanguard M Series Minimally-Invasive Unicompartmental Knee System, for those surgeons who prefer a fullyinstrumented unicondylar system. The Vanguard M System incorporates a fixed-bearing tibial component to accompany the femoral component of the Oxford Phase 3 Unicompartmental Knee. The Oxford Phase 3 Knee is a mobile-bearing unicondylar knee that continues to experience strong sales outside the United States. The M 2 a - Taper Metal-on-Metal Articulation System introduced by Biomet Orthopedics in May of 2000 and Biomet s broad line of clinically-successful porous primary stems continue to drive sales growth in the hip sector. During fiscal year 2002, a larger diameter metal-on-metal cup, the M 2 a-38 was introduced and is designed to offer increased range of motion and limit hip dislocation. The advantage of Biomet s metal-on-metal articulating surface technology is the demonstrated 20- to 100-fold reduction in the amount of particulate generated in

9 simulator studies compared to traditional metal-polyethylene systems. While Biomet s ArCom polyethylene has demonstrated excellent long-term clinical results with a demonstrated 40% reduction in wear over standard polyethylene, Biomet continues to develop and market alternative-bearing technologies to provide surgeons with additional clinical options. Biomet s Ceramic-on-Ceramic Articulation System is currently being marketed outside the United States and is involved in clinical studies in the United States. Additionally, Biomet offers an extensive array of porous-coated plasma spray hip stems, as well as hip stems designed for cemented implantation. Biomet recently received clearance from the Food and Drug Administration to market the Taperloc and Mallory-Head Porous Primary Stems with hydroxyapatite coating in the United States. In Europe, numerous products are available with hydroxyapatite coating, including the Aura II Hip Stem and the Advantage Hip Cup. Biomet is a leader in the development of revision hip products with successful innovations such as the Mallory-Head Modular Calcar System and the PAR 5 Acetabular System. The Mallory-Head Modular Calcar System offers surgeons a myriad of interchangeable components for excellent anatomical fit of the implant to the patient s anatomy in complex and difficult surgical situations involving significant bone deficiency. The PAR 5 System incorporates a RingLoc liner with a cementless shell, providing intra-operative flexibility not available with traditional cemented protrusio cup designs. During the first fiscal quarter of 2003, Biomet Orthopedics will launch the Max-Ti Protrusio Cage, the first protrusio cage to offer modular augments to fit the product to the patient and achieve desired anatomic positioning. Biomet continues to expand its line of extremity products, primarily for shoulder and elbow reconstruction. The Copeland Humeral Resurfacing Head, released to the domestic salesforce during fiscal year 2002, is designed to resurface the shoulder with minimal bone removal. The Copeland Head continues to experience success in Europe, where ten-year positive Left photo: Key orthopedic reconstructive products for Biomet Orthopedics include (clockwise from top right) the Ascent Total Knee and Repicci II Unicondylar Knee Systems and the M 2 a-38 Hip Articulation System. Also shown, the Mallory-Head Porous Hip Stem with hydroxyapatite coating was recently approved for the domestic market. Top right photo: A variety of products providing growth for Biomet Merck are (left to right) the Performance Total Knee, Holland Nail System, Aura II Hip Stem with hydroxyapatite coating, ibp Elbow and the Oxford Unicompartmental Knee. Bottom right photo: Driving growth for 3i are (clockwise from top) the OSSEOTITE Dental Reconstructive Implant, the GingiHue Post, Ossix Resorbable Collagen Membrane, OSSEOTITE XP, TG OSSEOTITE and OSSEOTITE NT Dental Reconstructive Implants, and the ZiReal Post. 7

10 Product Review clinical results have been reported in the United Kingdom. The Discovery Elbow is a unique total elbow device, which incorporates an ArCom polyethylene molded bearing. The ibp (Instrumented Bone Preserving) Elbow System, marketed in Europe through Biomet Merck, is designed to closely resemble the natural anatomy of the elbow and allow for a more complex pattern of movement, unlike a simple-hinged implant. In June of 2000, Biomet began selling Palacos Bone Cement in the United States, which Biomet markets with its patented Optivac Vacuum Mixing System. The Optivac System continues to experience phenomenal market acceptance. New bone cement systems introduced in Europe during fiscal year 2002 include the Optimix Closed Bone Cementing System and Cemento Vertebroplasty Cement Delivery System. Worldwide dental reconstructive implant sales remain robust primarily as a result of the success of 3i s key OSSEOTITE product line. The microtexture surface of the OSSEOTITE Dental Reconstructive Implant promotes bone integration onto the implant. A dental implant is a small titanium screw or cylinder surgically placed in the bone of the upper or lower jaw, to replace the root of a missing tooth and provide an anchor for an artificial tooth. The OSSEOTITE XP Implant has an expanded platform design and a narrow-diameter body that can be utilized in cases that would otherwise require ridge expansion and/or bone grafting. New products introduced during fiscal year 2002 for 3i include the OSSEOTITE NT Natural-Taper Implant and OSSIX Resorbable Collagen Membrane. The OSSEOTITE NT Implant incorporates a naturally-tapered design indicated for immediate placement in extraction sockets, narrow ridges and converging root situations. The OSSIX Membrane provides a barrier for guided bone regeneration for six months and then completely resorbs within eight to ten months. FIXATION Biomet s fixation sales comprise 18% of the Company s revenues and include products for the internal fixation, external fixation, electrical stimulation, craniomaxillofacial fixation and bone substitute material market segments. Internal fixation products are distributed through the Biomet Orthopedics and Biomet Merck salesforces. EBI, located in Parsippany, New Jersey, primarily employs a direct salesforce of approximately 485 representatives servicing customers with external fixation and electrical stimulation products. Craniomaxillofacial fixation products are distributed through Lorenz Surgical located in Jacksonville, Florida, by its independent domestic salesforce of approximately 80 representatives. Bone substitute materials are positioned through various distribution channels based on each product s indication for use. 8 A key internal fixation product line for Biomet is the VHS family of fixation products. Both the VHS Vari-Angle Hip Fixation System and the VHS Supracondylar Cable Plate can be adjusted intraoperatively providing an 80% reduction in inventory, while allowing for optimal fit of the plate to the patient s femur. The Biomet Ankle Arthrodesis Nail is indicated to relieve ankle pain and to correct deformity by creating a solid ankle fusion, and has been very well received in the worldwide market. During the first half of fiscal year 2003, the Quad 4 Intramedullary Nail System will be introduced to the domestic salesforce. The Quad 4 System requires approximately 50% less inventory than competitive systems and is uniquely designed to address the widest possible variety of femoral fractures. External fixation devices are used to immobilize the fracture site when traditional casting is not viable, such as when associated soft tissue injuries are present. EBI s expansive and market-leading external fixation product line is the DynaFix External Fixation System, a completely modular system for treating complex fractures. The recently introduced Vision Pin-to-Bar System is lightweight, provides unobstructed radiographic visualization and allows for independent bone screw placement. Electrical stimulation devices are designed to produce electrical impulses at the site of a fracture to promote bone growth in nonunion fractures, failed fusions and congenital pseudarthroses. EBI offers a multitude of solutions with its full line of bone healing devices. Key non-invasive

11 electrical stimulation devices include the EBI Bone Healing System Model 2001 with Ultra Soft FLX flexible treatment coil; the Model 1026 for treating large fracture sites; and the lightweight OrthoPak Stimulation System. Additionally, the EBI OsteoGen implantable electrical stimulation device is available to ensure total patient compliance. Lorenz Surgical s craniomaxillofacial products include its standard line of titanium plates and screws, the LactoSorb Resorbable Fixation System, a line of synthetic bone substitute materials and HTR -PMI Hard Tissue Replacement Material. The LactoSorb System retains its strength for the healing period of approximately two months and resorbs in approximately one year, eliminating the need for a second surgery to remove the plating system after healing. Mimix synthetic bone substitute material was introduced for cranial defect repair in putty form during fiscal year 2000 and is scheduled to be launched in an injectable form during fiscal year The HTR -PMI Hard Tissue Replacement Material is formed from a non-resorbable, biocompatible polymer that is used to create a custom implant to repair unique skeletal defects. Also included in the fixation category are several additional bone substitute materials. Biomet recently received clearance from the Food and Drug Administration to market Calcigen S (calcium sulfate) bone substitute in the United States for orthopedic use as a bone void filler. Calcigen S bone substitute will be offered in granular form and as a self-setting cement. SPINAL Spinal product sales have accelerated to represent 11% of Biomet s total revenues. EBI s salesforce distributes the Company s spinal products, which include spinal hardware, spinal stimulation, bone substitute materials and allograft products. Additionally, EBI is developing products in other segments of the spinal market including an artificial disc and a second-generation interbody fusion cage. The cervical spine market is one of the fastest-growing segments of the Left photo: Products from EBI include (top to bottom) the SpinalPak Fusion Stimulation System, EBI OsteoStim Resorbable Bone Graft Substitute, SpineLink -II Spinal Fixation System components and the EBI OsteoStim Anterior Cervical Allograft Spacer. Top center photo: Biomet Orthopedics broad product base encompasses extremity products such as the Copeland Humeral Resurfacing Head (top left) and Discovery Elbow (top right) and internal fixation products including the new Quad 4 Intramedullary Nail System (bottom left) and the flagship VHS Vari-Angle Hip Fixation System (bottom right). Top right photo: HTR -PMI Hard Tissue Replacement Material (top left and right), Injectable Mimix Bone Substitute Material (bottom left and center) and LactoSorb Resorbable Fixation System components (bottom right) are key products for Lorenz Surgical. Bottom right photo: Arthrotek s procedure-specific products include (clockwise from top) the Ti Screw Anchor, LactoSorb Resorbable Cross Pin, CuffPatch Collagen Membrane, WasherLoc Device, CurvTek Bone Tunneling System, LactoScrew Suture Anchor and Bone Mulch Screw. Bottom center photo: Biomet s biomaterials products include Calcigen S Bone Substitute and the ReUnite Resorbable Fixation System. 9

12 Product Review spinal products market. The EBI VueLock Anterior Cervical Plate System is making significant contributions to the growth in the Company s spinal hardware sales. The VueLock System is comprised of pre-contoured titanium plates featuring an open design for better visualization of the bone graft during surgery and on x-ray films following the procedure. The new SpineLink -II Spinal Fixation System is a second generation SpineLink product to be launched during the first quarter of fiscal year The SpineLink -II System utilizes the independent, intrasegmental concept with a low-profile design that simplifies point-to-point fixation for the surgeon. Spinal stimulation products include the non-invasive SpinalPak Fusion Stimulation System for use following a fusion procedure and the SpF Spine Fusion Stimulation System, which is implanted during fusion surgery. These products are designed to assist the body in the stimulation of bone production for successful fusion. Demand for the non-invasive SpinalPak System is providing exceptionally strong growth for EBI s spinal stimulation sales. The SpinalPak System is the most lightweight, lowest profile non-invasive system on the market, which facilitates patient compliance. The SpinalPak System is used as an adjunct treatment to primary lumbar spinal fusion surgery for one or two levels and offers a spinal stimulation solution when the SpF System is not an option. The SpF System, with over 100,000 implantations, has a long history of demonstrating consistently high fusion rates. In the original PMA (pre-market approval) study submitted to the Food and Drug Administration, the SpF System was shown to increase fusion success rates by 27% versus autograft alone. The SpF System is an advantageous adjunctive treatment to enhance fusion utilizing various types of bone grafting techniques. OsteoStim Resorbable Bone Graft Substitute, launched during the third quarter of fiscal year 2002, is a granular form of calcium phosphate for filling bone defects. During the healing process, OsteoStim granules resorb and are replaced with natural bone. The OsteoStim Anterior Cervical Allograft Spacer is EBI s first product entry into the $245 million precisionmachined allograft (cadaver bone) market. It is estimated that allograft is used in 50% of cervical cases. 10 OTHER PRODUCTS The other products category represents 11% of Biomet s revenues and primarily includes sports medicine products such as arthroscopy products, as well as softgoods and bracing products. The Company s arthroscopy products are distributed through Arthrotek s salesforce. Arthrotek s management team is located at Biomet s headquarters in Warsaw, Indiana, with manufacturing and office sites located in Ontario and Redding, California. Arthrotek s focus on procedure-specific arthroscopy products is led by its key product, the combination Bone Mulch Screw/WasherLoc Device for reconstruction of torn anterior cruciate ligaments. The CurvTek Bone Tunneling System creates curved tunnels in bone for suture tie-down to reattach soft tissue to bone. New products introduced by Arthrotek during fiscal year 2002 are the Ti Screw Titanium Anchor and LactoSorb products including the Arthrotek Resorbable Orthopedic Fixation System, the LactoScrew Suture Anchor, the LactoSorb Hammertoe Implant and the LactoSorb Resorbable Cross Pin. Softgoods and bracing products distributed by EBI s direct salesforce are also represented in the other products category. Distribution is enhanced through EBI s Support-On-Site ( S.O.S. ) stock and bill program designed to handle the details of product delivery, stocking, billing and follow-up, allowing the sales representative to concentrate on delivery and reimbursement and the physician to focus on the patient. Products recently introduced include the Alliance ACL Knee Brace and the EBI Sport Back Brace. As a result of the Company s commitment to its research and development of new products and technologies, the breadth and depth of Biomet s product lines are greater than that of its peers. The Company continues to search for innovative solutions to fulfill the needs of clinicians and their patients. Biomet s large and dynamic salesforces are significantly expanding the Company s presence in the worldwide musculoskeletal products market. Most importantly, the success of Biomet s clinically-proven products is directly contributing to the high level of patient care provided by Biomet s customers.

13 Selected Financial Data Income Statement Data Years ended May 31, (in thousands, except per share amounts) Net sales... $1,191,902 $1,030,663 $923,551 $830,835 $708,678 Cost of sales , , , , ,829 Gross profit , , , , ,849 Selling, general and administrative expenses , , , , ,509 Research and development expense... 50,750 43,020 40,208 38,723 39,731 Special charges... 26,100 11,700 48,447 Operating income , , , , ,609 Other income, net... 5,421* 19,989 17,018 13,899 23,452 Income before income taxes and minority interest , , , , ,061 Provision for income taxes , ,906 99,738 67,317 81,058 Income before minority interest , , , , ,003 Minority interest... 8,710 7,224 7,183 7, Net income... $ 239,740 $ 197,546 $173,771 $125,026 $127,859 Earnings per share: Basic... $.89 $.74 $.66 $.48 $.49 Diluted Shares used in the computation of earnings per share: Basic , , , , ,330 Diluted , , , , ,630 Cash dividends paid per common share... $.09 $.07 $.06 $.05 $.05 Balance Sheet Data At May 31, (in thousands) Working capital... $ 715,245 $ 726,557 $ 608,185 $ 497,010 $483,025 Total assets... 1,521,723 1,489,311 1,218,448 1,110, ,382 Long-term obligations, including redeemable preferred stock... 8,074 7,330 Shareholders equity... 1,176,479 1,146, , , ,311 All share and per share data have been adjusted to give retroactive effect to the three-for-two stock splits declared on July 9, 2001 and July 6, Amounts after January 1, 1998 include the impact of Biomet Merck. Other acquisitions during the five year period individually and in the aggregate have not been material to the Company s operating results or financial position. * Other income, net for fiscal 2002 was adversely impacted by a $9 million charge as a result of equity write-downs in marketable securities and other investments.

14 Management s Discussion & Analysis of Financial Condition & Results of Operations The following table shows the percentage relationship to net sales of items derived from the Consolidated Statements of Income and the percentage change from year to year. Percentage Percentage of Net Sales Increase (Decrease) vs vs Net sales % 100.0% 100.0% 16% 12% Cost of sales Gross profit Selling, general and administrative expenses Research and development expense Special charges n/m n/m Operating income Other income, net (73) 17 Income before income taxes and minority interest Provision for income taxes Income before minority interest Minority interest Net income % 19.2% 18.8% 21% 14% 12 n/m Not Meaningful Fiscal 2002 Compared to Fiscal 2001 * The Company is engaged in the research, development, manufacturing and marketing of products used primarily by musculoskeletal medical specialists. The Company s primary products include reconstructive devices, dental reconstructive implants, bone cements and accessories, fixation devices, electrical bone growth stimulators, craniomaxillofacial implants, bone substitute materials, spinal products, arthroscopy products, operating room supplies and instruments. The solid growth experienced by the Company in both domestic and international markets is attributable to the Company s emphasis on technological advances through line extensions and new product introductions. In addition, growth in the patient population from both growth in the elderly population and the expansion of the traditional age bracket of musculoskeletal patients have contributed to this growth. Net Sales Net sales increased 16% during the current fiscal year to $1,191,902,000 from $1,030,663,000 in Excluding the negative impact of foreign currency translation adjustments (0.7%) and discontinued products (1.3%) and the positive impact of acquisitions (2.6%), net sales increased 15% during the year. Worldwide sales of reconstructive devices increased 17% to $721,004,000 in fiscal 2002 compared to $614,308,000 in 2001 (16% excluding acquisitions). Worldwide hip sales increased 16% during the current year. The products contributing to this increase include the Bi-Metric, Taperloc and Mallory-Head Cementless Total Hip Systems and the M 2 a-taper Metal-on-Metal Hip System. Worldwide knee sales increased 18% in fiscal year Products contributing to this increase include the Repicci II Unicondylar Knee System and the Ascent Total Knee System. The Company s 3i division experienced a 17% increase in dental reconstructive implant sales. This solid growth was fueled by sales of its OSSEOTITE Dental Reconstructive Implant System and the OSSIX Resorbable Collagen Membrane. Other products contributing to the reconstructive sales growth include the Optivac Vacuum Mixing System and the Company s portfolio of bone cement products. Fixation sales increased 7% during fiscal 2002 to $215,544,000 from $202,152,000 in Fixation sales growth was positively influenced by 2% from the inclusion of Biolectron s OrthoPak Stimulation System for the whole fiscal year compared to eight months for fiscal Worldwide sales of internal fixation devices increased 8% and external fixation devices increased 6% in fiscal Worldwide sales of electrical stimulation systems increased 14%. Biolectron s OrthoPak System was the primary contributor to this sales increase. Sales of Lorenz Surgical s craniomaxillofacial products experienced a 14% decrease compared to last year. Products showing a decrease in sales include plating systems and screws and the Pectus bar. Lorenz Surgical did experience solid sales growth for its Mimix Bone Substitute Material and HTR products. The Company completed reorganization plans for the Lorenz Surgical subsidiary during the year and anticipates that such efforts will result in improved performance during the next fiscal year. Spinal sales increased to $125,119,000 in fiscal 2002 compared to $91,103,000 in fiscal 2001, an increase of 37%. Spinal sales growth was positively influenced by 13% from the inclusion of Biolectron s SpinalPak Fusion Stimulation System for the full fiscal year compared to eight months for fiscal In addition, Biomet Merck discontinued distributing a spinal product line that resulted in a 3% decrease in spinal sales. Excluding the effect of these events, spinal product sales increased 27% for the current fiscal year. Spinal products experiencing the strongest sales growth include EBI s VueLock Anterior Cervical Plate System and Biolectron s non-invasive SpinalPak Fusion Stimulation System. EBI s SpF Spine Fusion Stimulation System also demonstrated modest sales growth. * For purposes of this Management s Discussion and Analysis, the fiscal period is June 1 May 31.

15 Management s Discussion & Analysis of Financial Condition & Results of Operations (continued) Sales of the Company s other products increased 6% to $130,235,000 in fiscal 2002 from $123,100,000 in These results include discontinued general surgery products distributed in Portugal through Biomet Merck. Excluding the effects of this discontinuation, other product sales increased 14% during the year. Products posting sales growth include EBI s softgoods and bracing products, Arthrotek s procedure-specific products and the CurvTek Bone Tunneling System. Products experiencing sales decreases include Lorenz Surgical s surgical instrumentation. Sales in the United States increased 19% to $856,375,000 during the current year compared to $722,372,000 last year. This is due largely to increased product demand and continued market penetration (14%) and positive pricing environment (5%). Foreign sales increased 9% to $335,527,000 in fiscal 2002 from $308,291,000 in fiscal Excluding the effect of currency translation adjustments, foreign sales increased 11%. The Company anticipates foreign currency adjustments to positively influence sales during fiscal year Foreign sales continued to be negatively influenced by the expiration and non-renewal of the distribution agreement with the Company s Japanese distributor of Biomet products during fiscal However, the Company commenced direct sales of product in Japan during the current year and expects continued market acceptance and sales growth in fiscal Gross Profit The Company s gross profit increased 17% to $859,175,000 in 2002 from $734,600,000 in The gross profit margin increased to 72.1% of sales in 2002 compared to 71.3% in The improved gross margin is attributable to increased sales of higher margin reconstructive and spinal products worldwide and improved manufacturing efficiencies and general cost controls at the Company s European operations. Selling, General and Administrative Expenses Selling, general and administrative expenses increased 17% in 2002 to $437,731,000 compared to $374,793,000. This increase is a result of increased commission expense on higher sales compared to last year. As a percent of sales, selling, general and administrative expenses were 36.7% in 2002 compared to 36.3% in Factors contributing to this increase include reorganization costs at the Lorenz Surgical operations (approximately $2 million); costs associated with a direct selling operation and expanded marketing presence in Japan (approximately $3 million); a year inclusion of Biolectron operations, including amortization of goodwill (approximately $1.5 million); and continued expansion of the Company s salesforce worldwide. Due to tighter insurance markets, the Company anticipates its cost for umbrella liability insurance coverage to increase during fiscal year Research and Development Expense Research and development expense increased 18% during the current year to $50,750,000 compared to $43,020,000 in As a percent of sales, research and development expenses were 4.3% in 2002 compared to 4.2% in This increase reflects the Company s continued emphasis on new product development, enhancements and additions to existing product lines and technologies, and clinical outcomes research related to the safety, efficacy and clinical performance of the Company s products. Operating Income Operating income increased 28% during fiscal 2002 to $370,694,000 from $290,687,000 in fiscal Excluding the $26.1 million special charge in 2001, operating income increased 17%. U.S. operating income increased 30% to $326,906,000 from $251,927,000, reflecting solid sales growth for higher margin product lines. Non-U.S. operating income increased 13% to $43,788,000 compared to $38,760,000 in This growth reflects solid sales growth overseas, effective cost controls and improved foreign currency translation. Other Income, Net Other income, net decreased 73% during the current year to $5,421,000 from $19,989,000 in During the fourth quarter, the Company recorded a one-time, pre-tax charge of $9 million as a result of equity write-downs in Selective Genetics, Inc. and other marketable securities. The loss in value of these investments were considered other than temporary. Excluding these write-downs, other income, net declined 28% as a result of lower interest rates on lower cash balances during the year. Provision for Income Taxes The provision for income taxes increased to $127,665,000, or 33.9% of income before income taxes compared to $105,906,000 or 34.1% of income before income taxes. This percentage decrease is due to income growing faster in countries with a lower tax rate. These benefits are partially offset by changes in the Puerto Rican local tax structure, which, over time reduce the historical U.S. tax benefits from operating in Puerto Rico. As a result of various state tax law changes, the Company expects its effective rate to increase to approximately 34.6% in future years. Net Income The factors mentioned above resulted in a 21% and 20% increase in net income and basic earnings per share, respectively, for 2002 compared to Net income increased to $239,740,000 from $197,546,000 and basic earnings per share increased to $.89 from $ Fiscal 2001 Compared to Fiscal 2000 On September 25, 2000, the Company through its EBI subsidiary acquired Biolectron, Inc. for $90 million in cash. The Company accounted for this acquisition as a purchase and the operating results have been consolidated from the date of acquisition. Biolectron s sales are principally included in the fixation and spinal product categories. Net Sales Net sales increased 12% in 2001 to $1,030,663,000 from $923,551,000 in Excluding the effect of foreign currency translation adjustments, net sales increased 15%. During the fourth quarter of 2001, the Company adopted Emerging Issues Task Force ( EITF ) Accounting for Shipping and Handling Fees and Costs. This EITF requires certain shipping and handling fees billed to customers to be recorded as revenue instead of as a reduction of shipping expense. Accordingly, the Company has reclassified amounts billed to customers from