10-K

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended May 31, 2004.

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from__________________to_______________________.

                          Commission file No. 0-12515.

                               [BIOMET INC LOGO]

             (Exact name of registrant as specified in its charter)

           INDIANA                                         35-1418342
 (State of incorporation)                      (IRS Employer Identification No.)

   56 EAST BELL DRIVE, WARSAW, INDIANA                          46582
(Address of principal executive offices)                     (Zip Code)

                                 (574) 267-6639
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

      COMMON SHARES                       RIGHTS TO PURCHASE COMMON SHARES
    (Title of class)                             (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

The aggregate market value of the Common Shares held by non-affiliates of the
registrant, based on the closing price of the Common Shares on November 28,
2003, as reported by The Nasdaq National Market, was approximately
$8,355,197,828. As of July 21, 2004, there were 254,012,785 Common Shares
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                           PARTS OF FORM 10-K
                                                           INTO WHICH DOCUMENT
IDENTITY OF DOCUMENT                                         IS INCORPORATED
Proxy Statement with respect to the 2004
Annual Meeting of Shareholders of the Registrant                Part III

================================================================================


                           FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of federal
securities laws. Those statements are often indicated by the use of words such
as "will," "intend," "anticipate," "estimate," "expect," "plan" and similar
expressions, and include, but are not limited to, statements related to the
timing and number of planned new product introductions; the effect of
anticipated changes in the size, health and activities of population on demand
for the Company's products; the Company's intent and ability to expand its
operations; assumptions and estimates regarding the size and growth of certain
market segments; the Company's ability and intent to expand in key international
markets; the timing and anticipated outcome of clinical studies; assumptions
concerning anticipated product developments and emerging technologies; the
future availability of raw materials; the anticipated adequacy of the Company's
capital resources to meet the needs of its business; the Company's intent and
ability to consummate acquisitions; the Company's continued investment in new
products and technologies; the ultimate success of the Company's strategic
alliances; the ultimate marketability of products currently being developed; the
ability to successfully implement new technology; future declarations of cash
dividends; the Company's ability to sustain sales and earnings growth; the
Company's goals for sales and earnings growth; the future value of the Company's
Common Stock; the ultimate effect of the Company's Share Repurchase Programs;
the Company's success in achieving timely approval or clearance of its products
with domestic and foreign regulatory entities; the stability of certain foreign
economic markets; the impact of anticipated changes in the musculoskeletal
industry and the ability of the Company to react to and capitalize on those
changes; the impact of the transfer of responsibility for the Company's internal
fixation products; the ability of the Company to integrate the operations of
acquired businesses; and the Company's ability to take advantage of
technological advancements. Readers of this report are cautioned that reliance
on any forward-looking statement involves risks and uncertainties. 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
nonoccurrence of future events. There can be no assurance that the
forward-looking statements contained in this report will prove to be accurate.
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.
Readers of this report should carefully read the factors set forth under the
caption "Business-Risk Factors" beginning on page 11 of this report for a
description of certain risks that could, among other things, cause actual
results to differ from those contained in forward-looking statements made in
this report and presented elsewhere by management from time to time. Such
factors, among others, may have a material adverse effect upon the Company's
business, financial condition and results of operations. 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 are made.

                                TABLE OF CONTENTS

                                                                                                         
                                                   PART I

ITEM 1.  BUSINESS......................................................................................      1
ITEM 2.  PROPERTIES....................................................................................     16
ITEM 3.  LEGAL PROCEEDINGS.............................................................................     17
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................     17

                                                   PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
          AND ISSUER PURCHASES OF EQUITY SECURITIES....................................................     18
ITEM 6.  SELECTED FINANCIAL DATA.......................................................................     19
ITEM 7.  MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS.............     20
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................     25
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................     26
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........     43
ITEM 9A. CONTROLS AND PROCEDURES.......................................................................     43

                                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................     44
ITEM 11. EXECUTIVE COMPENSATION........................................................................     44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS     44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................     45
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES........................................................     45

                                                   PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................     45





                                     PART I

ITEM 1. BUSINESS.

GENERAL

Biomet, Inc. ("Biomet" or the "Company"), an Indiana corporation incorporated in
1977, and its subsidiaries design, manufacture and market products used
primarily by musculoskeletal medical specialists in both surgical and
non-surgical therapy. The Company's product portfolio encompasses reconstructive
products, fixation devices, spinal products and other products. Biomet has
corporate headquarters in Warsaw, Indiana, and manufacturing and/or office
facilities in more than 50 locations worldwide.

The Company's principal subsidiaries include Biomet Orthopedics, Inc.; Biomet
Manufacturing Corp.; EBI, L.P.; Biomet Europe B.V.; Implant Innovations, Inc.;
Walter Lorenz Surgical, Inc. and Arthrotek, Inc. Unless the context requires
otherwise, the term "Company" as used herein refers to Biomet and all of its
subsidiaries.

On March 22, 2004, Biomet announced the completion of the acquisition of Merck
KGaA's 50% interest in the Biomet Merck joint venture for an aggregate purchase
price of $300 million in cash. The joint venture was established in 1998 and had
sales of approximately $366 million during fiscal year 2004.

On June 18, 2004, the Company completed the merger of Interpore International,
Inc., now known as Interpore Spine Ltd. ("Interpore"), with a wholly-owned
subsidiary of Biomet. As a result of the merger, Interpore shareholders were
entitled to receive $14.50 per share in cash, representing an aggregate purchase
price of approximately $280 million. Interpore's primary products include spinal
implants, orthobiologics and minimally-invasive surgery products used by
surgeons in a wide variety of applications.

The Company's annual reports on Form 10-K (for the four most recent fiscal
years), quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to these reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available free of charge on, or
may be accessed through, the Investors Section of the Company's Internet website
at www.biomet.com as soon as reasonably practicable after the Company files or
furnishes such material with or to the Securities and Exchange Commission.

PRODUCTS

The Company operates in one business segment, musculoskeletal products, which
includes the design, manufacture and marketing of four major market segments:
reconstructive products, fixation devices, spinal products and other products.
The Company has three reportable geographic markets: United States, Europe and
Rest of World. Reconstructive products include knee, hip and extremity joint
replacement systems, as well as dental reconstructive implants, bone cements and
accessories, the GPS(R) System and the procedure-specific instrumentation
required to implant the Company's reconstructive systems. Fixation devices
include internal and external fixation devices, craniomaxillofacial fixation
systems and electrical stimulation devices that do not address the spine. Spinal
products include electrical stimulation devices addressing the spine, spinal
fixation systems and orthobiologics. The other product sales category includes
softgoods and bracing products, arthroscopy products, casting materials, general
surgical instruments, operating room supplies, wound care products and other
surgical products. Depending on the intended application, the Company reports
sales of bone substitute materials in the reconstructive product, fixation
device or spinal product segment.

The following table shows the net sales and percentages of total net sales
contributed by each of the Company's product segments for each of the three most
recent fiscal years ended May 31, 2004.



                                                           YEARS ENDED MAY 31,
                                                     (DOLLAR AMOUNTS IN THOUSANDS)
                              ---------------------------------------------------------------------------
                                        2004                      2003                      2002
                                             PERCENT                   PERCENT                   PERCENT
                                  NET       OF TOTAL        NET       OF TOTAL        NET       OF TOTAL
                                 SALES      NET SALES      SALES      NET SALES      SALES      NET SALES
                              ----------    ---------   ----------    ---------   ----------    ---------
                                                                              
Reconstructive Products       $1,052,865       65%      $  867,602       63%      $  721,004       60%
Fixation Devices                 248,821       15%         237,117       17%         215,544       18%
Spinal Products                  159,927       10%         143,607       10%         125,119       11%
Other Products                   153,640       10%         141,974       10%         130,235       11%
                              ----------      ---       ----------      ---       ----------      ---
Total                         $1,615,253      100%      $1,390,300      100%      $1,191,902      100%
                              ----------      ---       ----------      ---       ----------      ---


                                        1


RECONSTRUCTIVE PRODUCTS

Orthopedic reconstructive implants are used to replace joints that have
deteriorated as a result of disease (principally osteoarthritis) or injury.
Reconstructive joint surgery involves the modification of the area surrounding
the affected joint and the implantation of one or more manufactured components,
and may involve the use of bone cement. The Company's primary orthopedic
reconstructive joints are knees, hips and extremities, but it produces other
joints as well. The Company also produces the associated instruments required by
orthopedic surgeons to implant the Company's reconstructive devices, as well as
bone cements and delivery systems. Additionally, dental reconstructive implants
and associated instrumentation are used for oral rehabilitation through the
replacement of teeth and repair of hard and soft tissues.

      KNEE SYSTEMS. A total knee replacement typically includes a femoral
component, a patellar component, a tibial component and an articulating surface.
Total knee replacement may occur as an initial joint replacement procedure, or
as a revision procedure, which may be required to replace, repair or enhance the
initial implant. Partial, or unicondylar, knee replacement is an option when
only a portion of the knee requires replacement.

The Company continues to be a market leader in addressing the increasing demand
from practitioners and patients for procedures and products accommodating
minimally-invasive knee techniques. The Repicci II(R) Unicondylar Knee System is
specifically designed to accommodate a minimally-invasive knee arthroplasty
procedure. This system incorporates self-aligning metal and polyethylene
components. This innovative procedure can often be performed on an outpatient
basis and requires a smaller incision and minimal bone removal, which may result
in shorter recovery time and reduced blood loss. The Oxford(TM) Unicompartmental
Knee, which is a mobile-bearing unicondylar knee that utilizes a
minimally-invasive technique, continues to experience strong sales outside the
United States. The Company has recently received approval from the U.S. Food and
Drug Administration ("FDA") to market the Oxford(TM) Knee in the United States
and the initial rollout of the Oxford(TM) Knee will begin in fiscal year 2005.
The Oxford(TM) Knee is currently the only free-floating meniscal
unicompartmental system approved for use in the United States. The Company's
offering of minimally-invasive knee systems also includes the Alpina(R)
Unicompartmental Knee, which is not currently available in the U.S., and the
Vanguard M(TM) Series Unicompartmental Knee System. The Vanguard(TM) System is
designed to accommodate surgeons who prefer a fully-instrumented,
minimally-invasive unicondylar system, and incorporates a fixed-bearing tibial
component to accompany the femoral component and instruments of the Oxford(TM)
Unicompartmental Knee System.

The Maxim(R) Complete Knee System incorporates cruciate retaining, posterior
stabilized and constrained components, and competes in both the primary and
revision knee market segments. The Maxim(R) System continues to be the Company's
largest-selling knee system.

The Ascent(TM) Total Knee System incorporates an open box posterior stabilized
femoral component with a swept-back anterior flange that can accept either a
posterior stabilized or constrained tibial bearing. This system is designed with
a deepened patella groove to enhance patellar tracking and contribute to reduced
lateral release rates. The Ascent(TM) System addresses the needs of both the
primary and revision markets. The Ascent(TM) Knee System also features an option
with a cruciate retaining primary series for those patients who do not require a
posterior stabilized femoral component.

The Biomet(R) Orthopaedic Salvage System (OSS(TM)) continues to gain market
acceptance. This system provides modular flexibility while reducing overall
inventory demands. The OSS(TM) System is used mainly in instances of severe bone
loss or significant soft tissue instability as a result of multiple revision
surgeries or oncological bone deficiencies.

During fiscal year 2004, the Company initiated the global launch of primary
components of Biomet's newest and most comprehensive knee system, the
Vanguard(TM) Complete Knee Replacement System. This launch was accomplished in
conjunction with Biomet's Microplasty(R) Minimally Invasive Total Knee
Instrumentation, and will continue throughout fiscal year 2005. The Company also
promotes the Microplasty(R) Total Knee Instruments as the instrument set of
choice for support of both the Maxim(R) and Ascent(TM) Knee Systems. The
Microplasty(R) Instrumentation is designed to reduce incision size and
surrounding soft tissue disruption, which may provide reduced blood loss, a
shortened hospital stay, reduced postoperative pain and less time spent in
rehabilitation, as compared to a conventional procedure.

During fiscal year 2005, the Company intends to continue to focus development
efforts on the completion of the mobile bearing and revision options of the
Vanguard(TM) Complete Knee System, as well as expansion of the instrument
platform to include less invasive posterior referencing, anterior referencing,
and image guided options.

      HIP SYSTEMS. A total hip replacement involves the replacement of the head
of the femur and the acetabulum, and may occur as an initial joint replacement
procedure, or as a revision procedure, which may be required to replace, repair
or enhance the initial implant. A femoral hip prosthesis consists of a femoral
head and stem, which can be cast, forged or wrought, depending on the design and
material used. Acetabular components include a prosthetic replacement of the
socket portion, or acetabulum, of the pelvic bone. Because of variations in
human anatomy and differing design preferences among surgeons,

                                       2



femoral and acetabular prostheses are manufactured by the Company in a variety
of sizes and configurations. The Company offers a broad array of total hip
systems, most of which utilize titanium or cobalt chromium alloy femoral
components and the Company's patented ArCom(R) polyethylene-lined or
metal-on-metal acetabular components. Many of the femoral prostheses utilize the
Company's proprietary porous plasma spray (PPS(TM)) coating, which enhances the
attachment of bone cement to the stem or enables cementless fixation.

The Alliance(R) family of hip systems is designed to address the demand from
hospitals and surgeon groups toward standardization of total hip systems. The
Alliance(R) hip family provides the largest selection in the marketplace of
primary and revision stems available for implantation with a single set of
instruments. The Alliance(R) family of hip systems includes the Answer(R),
Bi-Metric(R), Bio-Groove(R), Hip Fracture, Integral(R), Intrigue(TM), Osteocap
RS(R), Progressive(R), Reach(R), RX 90(R) and Vision(R) Hip Systems. The
Alliance(R) family was further augmented by introducing Exact(TM)
Instrumentation, an integrated instrument set developed to promote
intraoperative flexibility and increase the efficiency, simplicity and
consolidation of instrument use.

The Mallory/Head(R) Hip System is designed for both primary and revision total
hip arthroplasty procedures. The primary femoral components feature a specific
proximal geometry for cementless indications and a slightly different proximal
ribbed geometry for those patients requiring fixation with bone cement. The
Mallory/Head(R) Revision Calcar components provide innovative solutions for
difficult revision cases and have demonstrated excellent clinical results. The
Mallory/Head(R) Calcar replacement prosthesis is offered in both a one-piece and
modular geometry, which allows for individual customization at the time of
surgical intervention, even in cases of severe bone deficiency. The modular
version of the Mallory/Head(R) System incorporates the Company's patented roller
hardened technology, which dramatically increases the strength of the modular
connection.

The Company continues to explore the development of innovative articulation
technologies and materials. Biomet's M(2)a(TM) Metal-on-Metal Hip System
combines a cobalt chrome head with a cobalt chrome liner and has demonstrated a
20- to 100-fold reduction in volumetric wear in simulator studies compared to
traditional metal-polyethylene articulation systems. The M(2)a-Taper(TM)
Metal-on-Metal Articulation System may be utilized on most of Biomet's femoral
components and has continued to evolve with the introduction of the M(2)a-38(TM)
Hip Articulation System, which incorporates larger diameter metal-on-metal
components designed to offer increased range of motion and decrease the
likelihood of hip dislocation. The C(2)a(TM) RingLoc(R) Ceramic-on-Ceramic
Articulation System, being sold in markets outside the United States, is
currently in clinical studies within the United States. The Company is also
developing the C(2)a(TM)-Taper Ceramic-on-Ceramic Articulation System, which
may be introduced during calendar year 2005. In addition, the Company is
pursuing the development of a diamond-on-diamond hip articulation system through
its relationship with Diamicron, Inc., a global leader in the research,
development and manufacture of polycrystalline diamond composite technology for
biomedical applications. During fiscal year 2005, the Company also intends to
introduce ArCom(R) XL, a highly-crosslinked polyethylene.

The Taperloc(R) Hip System is marketed for non-cemented use in patients
undergoing primary hip replacement surgery as a result of noninflammatory
degenerative joint disease. The Taperloc(R) femoral component is a collarless,
flat, wedge-shaped implant that provides excellent durability and stability in a
design that is relatively simple and predictable to implant. The incorporation
of standard and lateralized offset options provides the surgeon with the ability
to reconstruct a stable joint with proper leg length in virtually all patient
anatomies.

The Company continues to enhance its commitment to minimally-invasive approaches
to surgical techniques through the development of the Microplasty(R) Minimally
Invasive Hip Instruments. Biomet's minimally-invasive hip development efforts
have been focused on four surgical approaches. Instruments relating to the
posterior and anterior lateral approaches were introduced during fiscal year
2004 and instruments relating to additional approaches are scheduled for
introduction during fiscal year 2005. The superior design of the Microplasty(R)
Minimally Invasive Hip Instruments helped to increase the demand for Biomet's
hip systems throughout the world during fiscal year 2004.

The Company has a complete line of constrained hip liners, which are indicated
for patients with a high risk of hip dislocation. While the percentage of
patients requiring a constrained liner is relatively small, surgeons often
prefer to utilize a primary and revision system that includes this option. The
Freedom(R) Constrained Liner, introduced during fiscal year 2004, offers an
enhanced range of motion of 110(degree) and a wide series of options.

The Company intends to introduce several new hip products during fiscal year
2005, including the M(2)a Magnum(TM) Metal-on-Metal Acetabular System and the
ReCap(R) Femoral Resurfacing System. The M(2)a Magnum(TM) System utilizes a
larger head design, ranging in size from 38mm to 60mm, designed to more closely
replicate natural anatomy. The M(2)a Magnum(TM) System is designed to provide
the surgeon with the ability to implant a larger femoral head in a patient with
a small acetabulum. The ReCap(R) Total Resurfacing System, scheduled for launch
in Europe in fiscal year 2005, is a bone-conserving system cleared for use with
patients in the early stages of degenerative joint disease, including
osteoarthritis, rheumatoid arthritis and avascular necrosis.

                                       3


      EXTREMITY Systems. The Company offers a variety of shoulder systems
including the Absolute(R) Bi-Polar, Bi-Angular(R), Bio-Modular(R), Copeland(TM),
Integrated(TM) and Mosaic(TM) Shoulder Systems, as well as uniquely-designed
elbow replacement systems.

The Copeland(TM) Humeral Resurfacing Head was developed to minimize bone
removal in shoulder procedures and has over 10 years of positive clinical
results in the United Kingdom. The modular Mosaic(TM) System is utilized to
create a shoulder implant in complex revision and salvage/oncology procedures.
The Discovery(TM) Elbow is a unique total elbow device that incorporates an
ArCom(R) polyethylene molded bearing and condylar hinge mechanism designed to
produce a more anatomic articulation than observed in simple hinged elbow
implants. The iBP(TM) (Instrumented Bone Preserving) Elbow System is marketed in
Europe and is designed to closely resemble the natural anatomy of the elbow to
allow for a more complex pattern of movement than simple hinged implants.

      DENTAL RECONSTRUCTIVE IMPLANTS. Through its subsidiary, Implant
Innovations, Inc.("3i"), the Company develops, manufactures and markets
products designed to enhance oral rehabilitation through the replacement of
teeth and the repair of hard and soft tissues. These products include dental
reconstructive implants and related instrumentation, bone substitute materials
and regenerative products and materials. A dental implant is a small screw or
cylinder, normally constructed of titanium, that is surgically placed in the
bone of the jaw to replace the root of a missing tooth and provide an anchor for
an artificial tooth. 3i's flagship product, the OSSEOTITE(R) product line,
features a patented micro-porous surface technology, which allows for earlier
loading and improved bone integration to the surface of the implant compared to
competitive dental implants. The OSSEOTITE(R) CERTAIN(TM) implant system,
introduced during fiscal year 2004, is an internally connected system that,
through the use of the QuickSeat(TM) connection, provides audible and tactile
feedback when abutments and copings are seated into the implant. In addition,
the 6/12 point connection design of the OSSEOTITE(R) CERTAIN(TM) implant system
offers enhanced flexibility in placing the implant and abutment. 3i also
introduced the DIEM(TM) Immediate Occlusal Loading(TM) Guidelines during fiscal
year 2004 as a reference for the use of specially-designed components and
surgical tools that allows clinicians to offer the convenience of one-visit
implant therapy to appropriate patients.

3i's offering of restorative treatment options also includes the GingiHue(TM)
Post and the ZiReal(TM) Post. The GingiHue(TM) Post is a gold-colored titanium
nitride coated abutment, which optimizes the projection of natural color to
approximate the appearance of natural teeth. The ZiReal(TM) Post offers a highly
aesthetic restorative option. This zirconia-based implant provides the natural
translucence of ceramic material, but with greater strength, durability and
resistance to cracking than conventional aluminum oxide ceramic abutments. Both
of these products may be used with conventional crown and bridge techniques.

      OTHER RECONSTRUCTIVE DEVICES. Biomet's Patient-Matched Implant ("PMI(R)")
services group expeditiously designs, manufactures and delivers one-of-a-kind
reconstructive devices to orthopedic specialists. The Company believes this
service continues to enhance Biomet's reconstructive sales by strengthening its
relationships with orthopedic surgeons and augmenting its reputation as a
responsive company committed to excellent product design. In order to assist
orthopedic surgeons and their surgical teams in preoperative planning, Biomet's
PMI(R) group utilizes a three-dimensional ("3-D") bone and soft tissue
reconstruction imaging system. The Company uses computed tomography ("CT") data
to produce 3-D reconstructions for the design and manufacture of patient-matched
implants. Biomet also provides anatomic physical models based on patient CT
data. With this imaging and model-making technology, Biomet's PMI(R) group is
able to assist the physician prior to surgery by creating 3-D models. Within
strict deadlines, the model is used by engineers to create a PMI(R) design for
the actual manufacturing of the custom implant for the patient.

The Company is involved in the ongoing development of bone cements and delivery
systems. The Company has successfully penetrated the domestic and European
cement markets with Palacos(R) Bone Cement, which is marketed primarily in
conjunction with the Optivac(R) Vacuum Mixing System. The Generation 4(R) Bone
Cement with VacPac(R) Delivery System is a proprietary, self-contained system
designed to promote consistency and integrity of the cement, eliminate exposure
to fumes during mixing, and reduce operating room time due to ease of the mixing
and delivery process. During fiscal year 2004, Biomet received 510(k) clearance
to market Palacos(R) G Bone Cement with gentamicin antibiotic in the United
States. Palacos(R) cement with gentamicin antibiotic has been the standard of
care in Europe for thirty-live years.

Additional products and services for reconstructive indications include bone
graft substitute materials and services related to allograft material.
Calcigen(R) S calcium sulfate bone graft substitute is a self-setting paste used
to fill bone voids. The Calcigen(R) PSI (Porous Synthetic Implant) Bone Graft
System is a porous, calcium phosphate bone substitute material used as a bone
void filler. The Company also provides services related to the supply of
allograft material procured through several tissue bank alliances. Biomet's
VacPac(R) System, initially designed for the vacuum mixing and delivery of bone
cement, is also being utilized to package freeze-dried allografts. The flexible
vacuum package allows rehydration with saline, blood or blood products inside
the

Palacos(R) is a registered trademark of Heraeus Kulzer GmbH.

                                       4



vacuum package. Markets being addressed by the Company's allograft services
include the orthopedic and dental reconstructive market segments, as well as the
spinal and arthroscopy segments.

The GPS(R) (Gravitational Platelet Separation) System, which is distributed by
the Company's Cell Factor Technologies subsidiary, is a unique device that
collects platelet concentrate from a small volume of the patient's blood using a
fast, single spin process. The GPS(R) System offers a high quality platelet
concentrate and has broad potential applications in the reconstructive and spine
markets. The GPS(R) System is marketed in conjunction with the Biomet(R) Rapid
Recovery Program, a comprehensive approach to patient education, a
minimally-invasive surgical approach and pain management that was developed in
conjunction with leading U.S. orthopedic surgeons.

During fiscal year 2004, Biomet began the introduction of the Acumen(TM)
Surgical Navigation System to the global market, enhancing visualization for
minimally-invasive and traditional procedures. Procedure-specific software
continues to be developed for reconstructive, fixation, spinal and arthroscopic
procedures. During fiscal year 2004, the Company received clearances from the
FDA for the Acumen(TM) Surgical Navigation System software for use with the
Maxim(R) Complete Knee System, the OptiROM(R) Elbow Fixator, the Quad 4(TM)
Intramedullary Nail System and the SpineLink(R)-II Spinal Fixation System. The
Company anticipates receiving clearances from the FDA during fiscal year 2005
for the Acumen(TM) Navigation System software for use with the Repicci II(R)
Unicondylar Knee System and the Taperloc(R) Hip System.

FIXATION DEVICES

The Company's fixation products include electrical stimulation devices (that do
not address the spine), external fixation devices, craniomaxillofacial fixation
systems, internal fixation devices and bone substitute materials utilized in
fracture fixation applications.

      ELECTRICAL STIMULATION SYSTEMS. The Company's subsidiary, EBI, L.P.
("EBI"), is the market leader in the electrical stimulation segment of the
fixation market. In fiscal year 2004, the FDA acknowledged EBI's extensive
preclinical research documenting the Mechanism of Action for its pulsed
electromagnetic field ("PEMF") technology. The Mechanism of Action for the PEMF
technology involves the stimulation of a cascade of bone morphogenic proteins
("BMPs").

The EBI Bone Healing System(R) unit is a non-invasive option for the treatment
of recalcitrant bone fractures (nonunions) which have not healed with
conventional surgical and/or non-surgical methods. The non-invasive treatments
sold by EBI generally provide an alternative to surgical intervention in the
treatment of recalcitrant bone fractures, failed joint fusions and congenital
pseudarthrosis. The EBI Bone Healing System(R) units produce low-energy PEMF
signals that induce weak pulsing currents in living tissues that are exposed to
the signals. These pulses, when suitably configured in amplitude, repetition and
duration, affect living bone cells. The Mechanism of Action behind the PEMF
technology involves the stimulation of growth factors involved in normal bone
healing. EBI's preclinical research demonstrates that PEMF signals increase a
number of growth factors, such as TGF-(beta), BMP-2 and BMP-4, which are normal
physiological regulators of the various stages of bone healing, including
angiogenesis, chondrogenesis and osteogenesis. The EBI Bone Healing System(R)
unit may be utilized over a patient's cast, incorporated into the cast or worn
over the skin.

The OrthoPak(R) Bone Growth Stimulation System offers a small, lightweight,
non-invasive bone growth stimulator using capacitive coupling technology. The
Mechanism of Action behind EBI's capacitive coupling stimulation technology
involves the stimulation of osteopromotive factors involved in normal bone
healing, such as TGF-B1 and PGE2. The OrthoPak(R) System provides greater ease
of use and enhances access to fracture sites.

EBI also offers an implantable option when bone growth stimulation is required
subsequent to surgical intervention. The EBI OsteoGen(R) Surgically Implanted
Bone Growth Stimulator is an adjunct treatment when bone grafting and surgical
intervention are required to treat a recalcitrant fracture. The Mechanism of
Action behind EBI's direct current stimulation technology involves the
stimulation of a number of osteoinductive growth factors including BMP-2, -6 and
- -7 and the BMP-2 receptor ALK2, which are normal physiological regulators of
various stages of bone healing, including chondrogenesis and osteogenesis. In
addition, electrochemical reactions at the cathode lower oxygen concentrations
and increase pH. These reactions result in enhanced osteoblastic activity and
decreased osteoclastic activity.

      EXTERNAL FIXATION DEVICES. External fixation is utilized for stabilization
of fractures when alternative methods of fixation are not suitable. The
Company's EBI subsidiary offers a complete line of systems that address the
various segments of the trauma and reconstructive external fixation marketplace.
The DynaFix(R) and DynaFix(R) Vision(TM) Systems are patented, modular external
fixation devices intended for use in complex trauma situations involving upper
extremities, the pelvis and lower extremities. EBI also has a full line of
external fixation products for certain reconstructive procedures involving limb
lengthening, fusion, articulated fixation and deformity correction applications.

                                       5



      INTERNAL FIXATION DEVICES. The Company's internal fixation devices include
products such as nails, plates, screws, pins and wires designed to temporarily
stabilize traumatic bone injuries. These devices are used by orthopedic surgeons
to provide an accurate means of setting and stabilizing fractures. They are
intended as aids to healing and may be removed when healing is complete; they
are not intended to replace normal body structures. During fiscal year 2004, the
Company transferred its internal fixation business from Biomet Orthopedics to
EBI, allowing the Company's full range of fixation products to be distributed by
EBI for a more dynamic selling approach. The full implementation of this
transition is expected to continue through fiscal year 2005.

The VHS(R) Vari-Angle Hip Fixation System, used primarily in the treatment of
hip fractures, is a growing product line for the Company. The components of the
VHS(R) Vari-Angle Hip Fixation System can be adjusted intraoperatively, allowing
the hospital to carry less inventory, while providing greater intraoperative
flexibility to achieve the optimum fixation angle. The Holland(TM) Nail System
is a single, universal trochanteric nail designed to treat all types of femoral
(hip or thigh) fractures. The Biomet(R) Low Profile Tibial Nail, used to treat
fractures between the knee and ankle, is primarily indicated in the treatment of
unstable or nonunion fractures. The Quad 4(TM) Intramedullary Nail System
requires approximately 50% less inventory than competitive systems and is
uniquely designed to address the widest possible variety of femoral fractures.
The Biomet(R) Ankle Arthrodesis Nail is designed for reconstructive procedures
where internal fixation is the desired fixation option to achieve solid fusion
of the ankle joint. During fiscal year 2004, the Company initiated several
development projects, including minimally-invasive plating systems and next
generation intramedullary nail products to enhance the Company's fixation
portfolio of products.

      CRANIOMAXILLOFACIAL FIXATION SYSTEMS. The Company manufactures and
distributes craniomaxillofacial and neurosurgical titanium and resorbable
implants, along with associated surgical instrumentation, principally marketed
to craniomaxillofacial, neurosurgical and craniofacial surgeons through its
subsidiary, Walter Lorenz Surgical, Inc. ("Lorenz Surgical"). Lorenz Surgical
also offers specialty craniomaxillofacial surgical instruments, HTR-PMI(R) Hard
Tissue Replacement material custom craniofacial implants and the Mimix(TM) Bone
Substitute Material for use in craniomaxillofacial and neurosurgical
applications.

Lorenz Surgical manufactures and markets the LactoSorb(R) Fixation System of
resorbable plates and screws comprised of a copolymer of poly-L-lactic acid and
polyglycolic acid. As a result of its innovative design, the LactoSorb(R) System
is comparable in strength to titanium plating systems at its initial placement
and is resorbed within 9 to 15 months after implantation. The LactoSorb(R)
System is especially beneficial in pediatric reconstruction cases by eliminating
the need for a second surgery to remove the plates and screws.

Mimix(TM) Bone Substitute Material is a synthetic tetra-calcium
phosphate/tri-calcium phosphate material. This material is most commonly used
for the repair of cranial defects and is currently offered in putty form.
Mimix(TM) QS, a quick-setting bone substitute material, provides surgeons with a
faster-setting formulation. The Company intends to introduce the Mimix(TM) MP
(malleable putty) during fiscal year 2005. This version of the Mimix(TM)
material in malleable putty form is designed to improve handling properties of
this self-setting bone void filling material.

      BONE SUBSTITUTE MATERIALS. When presented with a patient demonstrating a
bone defect, such as a fractured bone or bone loss due to removal of a tumor,
the treating surgeon may remove a portion of bone from the patient at a second
site to use as a graft to induce healing at the site of the defect. Bone
substitute materials can eliminate the pain created at the graft site, as well
as the costs associated with this additional surgical procedure. Depending on
the specific use of the bone substitute material, it can have reconstructive,
fixation or spinal applications.

SPINAL PRODUCTS

The Company's spinal products include electrical stimulation devices for spinal
applications, spinal fixation systems, bone substitute materials and allograft
services for spinal applications and artificial disc replacement products.

      SPINAL FUSION STIMULATION SYSTEMS. Spinal fusions are surgical procedures
undertaken to establish bony union between adjacent vertebrae. EBI distributes
both non-invasive and implantable electrical stimulation units that surgeons can
use as options to provide an appropriate adjunct to surgical intervention in the
treatment of spinal fusion applications. EBI has assembled extensive preclinical
research documenting the Mechanism of Action for the technology utilized in its
spinal fusion stimulation systems.

The EBI SpinalPak(R) Spine Fusion Stimulator utilizes capacitive coupling
technology to encourage fusion incorporation. The Mechanism of Action behind the
capacitive coupling stimulation technology involves the stimulation of
osteopromotive factors that modulate normal bone healing, such as TGF-B1 and
PGE2. The unit consists of a small, lightweight generator worn outside the body
that is connected to wafer-thin electrodes applied over the fusion site. The
SpinalPak(R) System is patient friendly, enhancing comfort whether the patient
is standing, sitting or reclining, and optimizes compliance with the treatment
regimen to achieve fusion success.

VHS(R) is a registered trademark of Implant Distribution Network, Ltd.

                                       6


EBI's surgically implanted SpF(R) Spinal Fusion Stimulator consists of a
generator that provides a constant direct current to titanium cathodes placed
where bone growth is required. The Mechanism of Action behind EBI's direct
current stimulation technology involves the stimulation of a number of
osteoinductive growth factors including BMP-2, -6 and -7 and the BMP-2 receptor
ALK2, which are normal physiological regulators of various stages of bone
healing, including chondrogenesis and osteogenesis. The SpF(R) System has
exhibited a 50% increase in fusion success rates over fusions with autograft
alone.

      SPINAL FIXATION SYSTEMS. The Company distributes a traditional rod and
plate system under the trademark EBI(R) Omega 21(TM) Spine System. EBI also
manufactures and markets the SpineLink(R)-II Spinal Fixation System, which
addresses many of the inherent limitations of traditional rod and plate systems
by linking each spine segment individually for intra-segmental control. Through
the use of a modular titanium link and polydirectional screw, this unique system
provides an intrasegmental solution to spine fixation, enabling the surgeon to
tailor the segmental construction to the patient's anatomy. EBI's VueLock(R)
Anterior Cervical Plate System offers surgeons several important benefits,
including a one-step locking mechanism featuring a pre-attached expansive ring
that eliminates the need for additional locking components, as well as a low
profile that minimizes interference with anatomical soft tissue structures. In
addition, the open design of the VueLock(R) System provides surgeons with
enhanced visualization of the bone graft both during the actual surgical
procedure and post-operatively on x-ray. EBI entered the top-loading pedicle
screw market in fiscal year 2004 with the Array(TM) Spinal System. The Array(TM)
System has a single, locking setscrew featuring V-Force(TM) Thread Technology
designed to enhance the intraoperative ease of use for the surgeon during system
locking. During fiscal year 2004, EBI continued the launch of the VuePASS(TM)
Portal Access Surgical System, which offers a minimally-invasive spinal fusion
procedure option. The Ionic(R)Spine Spacer System features an open design that
allows for optimal bone graft placement and bone ingrowth, along with the
additional benefit of excellent postoperative x-ray visualization.

      BONE SUBSTITUTE MATERIALS. Traditional spinal fixation surgery includes
the use of a spinal fixation device in conjunction with a bone substitute or
bone graft material to increase the likelihood of successful bone fusion. The
OsteoStim(R) Resorbable Bone Graft Substitute material is a granular form of
calcium phosphate that is resorbed and replaced with natural bone during the
healing process. The EBI(R) OsteoStim(R) DBM (Demineraiized Bone Matrix) Putty,
derived exclusively from human bone, can be used with a variety of substances,
such as bone substitute material, machined allograft, autograft and platelet
rich plasma, to enhance the surgeon's treatment options. EBI also markets the
OsteoStim(R) Skelite(R) Resorbable Bone Graft Substitute.

      PRECISION MACHINED ALLOGRAFT. Many spinal fusion procedures, in both the
lumbar and cervical spine, involve inter-body spinal fusion. Surgeons often
utilize precision machined allograft spacers to fuse the interbody space. EBI
distributes the OsteoStim(R) Cervical Allograft Spacer for anterior cervical
interbody fusions and the OsteoStim(R) ALIF Allograft Spacer for anterior lumbar
interbody fusions. In fiscal year 2004, EBI introduced the OsteoStim(R) PLIF
Allograft Spacer for posterior lumbar interbody fusions. All three systems are
lordotic in shape, have serrated teeth on the top and bottom for added
stability, are offered in various heights and have specific instrumentation to
facilitate implantation.

      ARTIFICIAL DISC REPLACEMENT PRODUCTS. The clinical study for the lumbar
version of EBI's Regain(TM) Artificial Disc, a one-piece pyrocarbon artificial
disc nucleus replacement, is scheduled to begin during fiscal year 2005. The
pyrocarbon material has a high level of strength, is biocompatible and extremely
resistant to wear. The clinical study for the cervical version of Regain(TM)
Artificial Disc is also scheduled to begin during fiscal year 2005. In addition,
EBI is developing lumbar and cervical versions of the Rescue(TM) Total Disc
Replacement product. Further, the Company's development efforts in the
artificial disc market will be augmented in fiscal year 2005 as a result of the
acquisition of Interpore International, Inc. and its Min T(TM) Artificial Disc.

OTHER PRODUCTS

The Company also manufactures and distributes several other products, including
orthopedic support products (also referred to as softgoods and bracing
products), arthroscopy products, operating room supplies, casting materials,
general surgical instruments, wound care products and other surgical products.
EBI manufactures and distributes an extensive line of orthopedic support
products under the EBI(R) Sports Medicine trade name. The Company manufactures
and markets a line of arthroscopy products through its Arthrotek, Inc.
("Arthrotek") subsidiary'.

      ORTHOPEDIC SUPPORT PRODUCTS. EBI distributes a line of orthopedic support
products under the EBI(R) Sports Medicine name, including traction framing
equipment, back supports, wrist and forearm splints, cervical collars, shoulder
immobilizers, slings, abdominal binders, knee braces and immobilizers, rib
belts, ankle supports and a variety of other orthopedic splints. Sales of these
softgoods and bracing products are assisted by the Support-on-Site (S.O.S.(SM))
stock and bill program, which efficiently handles the details of product
delivery for the healthcare provider. The MD (multi-dimensional) Elbow Brace,
with its dual-hinge adjustment to control range of motion, accommodates various
treatment and rehabilitation plans. During fiscal

Skelite is a registered trademark of Millenium Biologix, Inc.

                                       7



year 2004, EBI introduced the Alliance(TM) Functional Knee Brace, a lightweight
product, anatomically designed for each patient. EBI is committed to continuing
to expand its line of orthopedic support devices and intends to launch the
Alliance(TM) OTS (off the shelf) Brace during fiscal year 2005. EBI also intends
to create further line extensions during fiscal year 2005 related to the
following product groups: EBI/Aircast Cryo-Cuff(R) , Fracture Walker with
Gravity Cold Therapy Liner, Gravity Ankle System, Shoulder Wedge, Universal Hand
Splint, Ulnar Styloid Wrist Brace, and the Sports Back Brace.

      ARTHROSCOPY PRODUCTS. Arthroscopy is a minimally-invasive orthopedic
surgical procedure in which an arthroscope is inserted through a small incision
to allow the surgeon direct visualization of the joint. This market is comprised
of five product categories: power instruments, manual instruments, visualization
products, soft tissue anchors, and procedure-specific instruments and implants.
Arthrotek's principal products consist of the CurvTek(R) Bone Tunneling System
for the reattachment of soft tissue to bone, LactoSorb(R) resorbable
arthroscopic fixation products, MaxBraid(TM) PE high strength suture material
and the Bone Mulch(TM) Screw/WasherLoc(TM) Device for anterior cruciate ligament
repair.

PRODUCT DEVELOPMENT

The Company's research and development efforts are essentially divided into two
categories: innovative new technology and evolutionary developments. Most of the
innovative new technology development efforts are focused on biomaterial
products, and are managed at the corporate level and take place primarily in
Warsaw, Indiana and Darmstadt, Germany. Evolutionary developments are driven
primarily by the individual subsidiaries and include product line extensions and
improvements.

The Company continues to aggressively conduct internal research and development
efforts to generate new marketable products, technologies and materials. In
addition, the Company is well positioned to take advantage of external
acquisition and development opportunities. An important component of the
Company's strategy has been the formation of strategic alliances to enhance the
development of new musculoskeletal products, including the relationships forged
with Z-KAT, Inc. and Diamicron, Inc. The relationship with Z-Kat, Inc. has
resulted in the Acumen(TM) Surgical Navigation System.

For the years ended May 31, 2004, 2003 and 2002, the Company expended
approximately $64,886,000, $55,309,000 and $50,750,000, respectively, on
research and development. It is expected that ongoing research and development
expenses will continue to increase. The Company's principal research and
development efforts relate to its reconstructive devices, electrical stimulation
products, spinal fixation products, revision orthopedic reconstructive devices,
dental reconstructive implants, arthros-copy products, resorbable technology,
biomaterial products and image-guided software in the musculoskeletal products
field.

The Company's research and development efforts have produced more than 410 new
products and services during the last five fiscal years. During fiscal year
2005, the Company intends to release several new products, product line
extensions and improvements.

GOVERNMENT REGULATION

Most aspects of the Company's business are subject to some degree of government
regulation in the countries in which its operations are conducted. It has always
been the practice of the Company to comply with all regulatory requirements
governing its products and operations and to conduct its affairs in an ethical
manner. This practice is reflected in the Company's Code of Business Conduct and
Ethics and the responsibility of the Audit Committee of the Board of Directors
to review the Company's systems of internal control, its process for monitoring
compliance with laws and regulations and its process for monitoring compliance
with its Code of Business Conduct and Ethics. For some products, and in some
areas of the world such as the United States, Canada, Japan and Europe,
government regulation is significant, and, in general, there appears to be a
trend toward more stringent regulation throughout the world, as well as global
harmonization of various regulatory requirements. The Company devotes
significant time, effort and expense addressing the extensive government and
regulatory requirements applicable to its business. Governmental regulatory
actions can result in the recall or seizure of products, suspension or
revocation of the authority necessary for the production or sale of a product,
and other civil and criminal sanctions. The Company believes that it is no more
or less adversely affected by existing government regulations than are its
competitors.

In the United States, the development, testing, marketing and manufacturing of
medical devices are regulated under the Medical Device Amendments of 1976 to the
Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act of 1990, the
FDA Modernization Act of 1997, the Medical Device User Fee and Modernization Act
of 2002 and additional regulations promulgated by the FDA and various other
federal, state and local agencies. In general, these statutes and regulations
require that manufacturers adhere to certain standards designed to ensure the
safety and efficacy of medical devices and related medical products.

                                       8



The Company believes it is well positioned to face the changing international
regulatory environment. The International Standards Organization ("ISO") has an
internationally recognized set of standards aimed at ensuring the design and
manufacture of quality products. A company that has passed an ISO audit and
obtained ISO registration is internationally recognized as having quality
manufacturing processes. The European Union requires that medical products bear
a CE mark. The CE mark is an international symbol, which indicates that the
product adheres to European Medical Device Directives. Compliance with ISO
quality systems standards is one of the requirements for placing the CE mark on
the Company's products. Each of the Company's products sold in Europe bears the
CE mark.

In addition, governmental bodies in the United States and throughout the world
have expressed concern about the costs relating to health care and, in some
cases, have focused attention on the pricing of medical devices. Government
regulation regarding pricing of medical devices already exists in some countries
and may be expanded in the United States and other countries in the future. The
Company is subject to increasing pricing pressures worldwide as a result of
growing regulatory pressures, as well as the expanding predominance of managed
care groups and institutional and governmental purchasers. Under Title VI of the
Social Security Amendments of 1983, hospitals receive a predetermined amount of
Medicare reimbursement for treating a particular patient based upon the
patient's type of illness identified with reference to the patient's diagnosis
under one or more of several hundred diagnosis-related groups ("DRGs"). Other
factors affecting a specific hospital's reimbursement rate include the size of
the hospital, its teaching status and its geographic location. The Company's
orthopedic reconstructive products are primarily covered by DRG 209 (Major Joint
and Limb Reattachment Procedures-Lower Extremities), DRG 471 (Bilateral Major
Procedures of the Lower Extremity) and DRG 491 (Major Joint and Limb
Reattachment Procedures-Upper Extremities), and have also received approval for
pass-through coding under the Hospital Outpatient Prospective Payment System.
Effective October 1,2003, certain reimbursements for DRG payment were adjusted.
The payments for DRG 209,471 and 491 increased 1.6%, 2.3% and 4.0%,
respectively. The average DRG payments for spinal and trauma procedures
increased 4.5% and 4.7%, respectively. Revised DRG rates will go into effect for
certain DRG codes effective October 1,2004. The reimbursement rates for DRG
209,471 and 491 are scheduled to increase 2.7%, 2.5% and 2.5%, respectively. In
addition, the average reimbursement rates for spinal and trauma procedures are
proposed to increase 4.9% and 3.9%, respectively.

While the Company is unable to predict the extent to which its business may be
affected by future regulatory developments, it believes that its substantial
experience in dealing with governmental regulatory requirements and restrictions
throughout the world, its emphasis on efficient means of distribution and its
ongoing development of new and technologically-advanced products should enable
it to continue to compete effectively within this increasingly regulated
environment.

SALES AND MARKETING

The Company believes that sales of its products are currently affected and will
continue to be positively affected by favorable demographic trends and a shift
toward a preference for technologically-advanced products. The demand for
musculoskeletal products continues to grow, in part, as a result of the aging of
the baby boomer population in the United States. The U.S. Census Bureau
projections indicate that the population aged 55 to 75 years is expected to grow
to approximately 64 million by the year 2014. Moreover, the age range of
potential patients is expanding outside the traditional 55 to 75 year range, as
procedures are now being recommended for younger patients and as elderly
patients are remaining healthier and more active than in past generations. The
Company has also observed a trend toward a demand for technologically-advanced
products that are simple to use and cost effective, while applying
state-of-the-art solutions to the demands of the increasingly active patient.
The Company believes it has firmly positioned itself as a surgeon advocate and
has worked to promote the right of the surgeon to prescribe the medical
treatment best suited to the needs of the individual patient.

The Company has diligently worked to attract and retain qualified, well-trained
and motivated sales representatives. The breadth of the Company's product
offering and the quality of its salesforces collaborate to create synergies that
uniquely position the Company to continue to efficiently penetrate the
musculoskeletal market. In the United States, the Company's products are
marketed by a combination of independent commissioned sales agents and direct
sales representatives, based on the specific product group being represented. In
Europe, the Company's products are promoted by a mixture of direct sales
representatives, independent third-party distributors, and some independent
commissioned sales agents, based primarily on the geographic location. In the
rest of the world, the Company maintains direct selling organizations in
approximately ten countries, as well as independent commissioned sales agents
and independent third-party distributors in other key markets. In aggregate, the
Company's products are marketed by more than 2,200 sales representatives
throughout the world.

Elective surgery-related products appear to be influenced to some degree by
seasonal factors, as the number of elective procedures decline during the summer
months and the holiday seasons.

                                       9



The Company's customers are the hospitals, surgeons, other physicians and
healthcare providers who use its products in the course of their practices. The
business of the Company is dependent upon the relationships maintained by its
distributors and salespersons with these customers, as well as the Company's
ability to design and manufacture products that meet the physicians' technical
requirements at a competitive price.

For the fiscal years ended May 31,2004, 2003 and 2002, the Company's foreign
sales aggregated $535,721,000, $423,662,000 and $335,527,000, respectively, or
33%, 30% and 28% of net sales, respectively. Major international markets for the
Company's products are Western Europe, Asia Pacific, Australia, Canada and Latin
America. The Company's business in these markets is subject to pricing pressures
and currency fluctuation risks. During fiscal year 2004, foreign sales were
positively impacted by $63.7 million due to foreign currency translations. As
the Company continues to expand in key international markets, it faces obstacles
created by competition, governmental regulations and regulatory requirements.
Additional data concerning net sales to customers, operating income, long-lived
assets, capital expenditures and depreciation and amortization by geographic
areas are set forth in Note L of the Notes to Consolidated Financial Statements
included in Item 8 of this report and are incorporated herein by reference.

The Company has inventory located throughout the world with its customers, its
distributors and direct salespersons for their use in marketing its products and
in filling customer orders. As of May 31,2004, inventory of approximately
$148,830,000 was located with these distributors, salespersons and customers.

COMPETITION

The business of the Company is highly competitive. Major competitors in the
orthopedic reconstructive device market include DePuy, Inc., a subsidiary of
Johnson & Johnson; Stryker Orthopaedics, a division of Stryker Corp.; Zimmer,
Inc., a subsidiary of Zimmer Holdings, Inc.; and Smith & Nephew plc. Management
believes these four companies, together with Biomet Orthopedics, have the
predominant share of the orthopedic reconstructive device market. Competition
within the industry is primarily based on service, clinical results, and product
design, although price competition is an important factor as healthcare
providers continue to be concerned with costs. The Company believes that its
prices for orthopedic reconstructive devices are competitive with those in the
industry. The Company believes its future success will depend upon its service
and responsiveness to its distributors and orthopedic specialists, the continued
superior clinical results of its products, and upon its ability to design and
market innovative and technologically-advanced products that meet the needs of
the marketplace.

EBI's spinal fixation systems compete with those of Medtronic/Sofamor Danek,
Inc., a subsidiary of Medtronic, Inc.; DePuy Spine, a Johnson & Johnson company;
Synthes, Inc.; Stryker Spine, a division of Stryker Corp.; Zimmer Spine, a
subsidiary of Zimmer Holdings, Inc.; and others.

EBI's external fixation devices compete with other external fixation devices
primarily on the basis of price, ease of application and clinical results. EBI's
principal competitors in the external fixation market are Smith & Nephew plc;
Stryker Trauma, a division of Stryker Corp.; Synthes, Inc.; and Orthofix, Inc.,
a subsidiary of Orthofix International N.V. The Company's internal fixation
product lines compete with those of DePuy, Inc., a Johnson & Johnson company;
Zimmer, Inc., a subsidiary of Zimmer Holdings, Inc.; Smith & Nephew pic; Stryker
Trauma, a division of Stryker Corp.; and Synthes, Inc.

EBI's electrical stimulation devices primarily compete with those offered by
Orthofix, Inc., a subsidiary of Orthofix International N.V.; dj Orthopedics,
LLC, a subsidiary of dj Orthopedics, Inc.; and Smith & Nephew plc. Competition
in the electrical stimulation market is on the basis of product design, service
and success rates of various treatment alternatives.

3i products compete in the areas of dental reconstructive implants and related
products. Its primary competitors in the dental implant market include Straumann
AG; Nobel Biocare AB; and Zimmer Dental, a subsidiary of Zimmer Holdings, Inc.

Lorenz Surgical primarily competes in the craniomaxillofacial fixation,
specialty surgical instrumentation and neurosurgical cranial flap fixation
markets. Its competitors include Synthes, Inc.; Stryker Leibinger Micro
Implants, a division of Stryker Corp.; KLS-Martin, L.P.; and Osteomed Corp.

Arthrotek products compete primarily in the areas of procedure-specific implants
and instruments, manual instruments and power instruments. Competitors include
Smith & Nephew Endoscopy, a division of Smith & Nephew plc; Stryker Corp;
Linvatec Corp., a subsidiary of CONMED Corporation; Mitek, a division of
Ethicon, a Johnson & Johnson Company; and Arthrex, Inc.

RAW MATERIALS AND SUPPLIES

The raw materials used in the manufacture of the Company's orthopedic
reconstructive devices are principally nonferrous metallic alloys, stainless
steel and polyethylene powder. With the exception of limitations on the supply
of polyethylene powder, none of the Company's raw material requirements are
limited to any material extent by critical supply or single origins. The demand
for certain raw materials used by the Company, such as cobalt alloy and titanium
may vary. The primary buyers of these metallic

                                       10



alloys are in the aerospace industry. If the demands of the aerospace industry
should increase dramatically, the Company could experience complications in
obtaining these raw materials. However, based on its current relationship with
its suppliers, the Company does not anticipate a material shortage in the
foreseeable future. Further, the Company believes that its inventory' of raw
materials is sufficient to meet any short-term supply shortages of metallic
alloys. The results of the Company's operations are. not materially dependent on
raw material costs.

EBI purchases all components of its electrical stimulators from approximately
120 outside suppliers, approximately 15 of whom are the single source of supply
for the particular product. In most cases, EBI believes that all components are
replaceable with similar components. In the event of a shortage, there are
alternative sources of supply available for all components, but some time would
likely elapse before EBI's orders could be filled.

3i purchases all materials to produce its products from approximately 82
suppliers, approximately 26 of whom are the single source of supply for the
particular product. 3i believes that, in the event of a shortage, there are
readily available alternative sources of supply for all products, and maintains
an inventory of materials sufficient to meet any short-term shortages of supply.

EMPLOYEES

As of May 31, 2004, the Company's domestic operations (including Puerto Rico)
employed approximately 3,620 persons, of whom approximately 1,860 were engaged
in production and approximately 1,760 in research and development, sales,
marketing, administrative and clerical efforts. The Company's international
subsidiaries employed approximately 1,710 persons, of whom approximately 825
were engaged in production and approximately 885 in research and development,
sales, marketing, administrative and clerical efforts. None of the Company's
principal domestic manufacturing employees is represented by a labor union. The
production employees at its Bridgend, South Wales facility are organized.
Employees working at the facilities in Darmstadt and Berlin, Germany; Valence,
France; and Valencia, Spain are represented by statutory Workers' Councils which
negotiate labor hours and termination rights. The Workers' Councils do not
directly represent such employees with regard to collective bargaining of wages
or benefits. The Company believes that its relationship with all of its
employees is satisfactory.

The establishment of Biomet's domestic reconstructive manufacturing operations
in north central Indiana, near other members of the orthopedic industry,
provides access to the highly skilled machine operators required for the
manufacture of Biomet products. The Company's European manufacturing locations
in South Wales, England, France, Spain, Sweden and Germany also provide good
sources for skilled manufacturing labor. EBI's Puerto Rican operations
principally involve the assembly of purchased components into finished products
using a skilled labor force.

PATENTS AND TRADEMARKS

The Company believes that patents and other intellectual property will continue
to be of importance in the musculoskeletal industry. Accordingly, management
continues to protect technology developed internally and to acquire intellectual
property rights associated with technology developed outside the Company.
Management enforces its intellectual property rights consistent with the
Company's strategic objectives. The Company does not believe that it has any
single patent or license (or series of patents or licenses) that is material to
its operations. The Company is not aware of any single patent, that if lost or
invalidated, would be material to its consolidated revenues or earnings.

BIOMET, EBI, W'. LORENZ, 3i and ARTHROTEK are the Company's principal registered
trademarks in the United States, and federal registration has been obtained or
is in process with respect to various other trademarks associated with the
Company's products. The Company holds or has applied for registrations of
various trademarks in its principal foreign markets. Unless otherwise noted in
this report, all trademarks contained herein are owned by Biomet, Inc. or one of
its affiliates.

RISK FACTORS

The following factors, among others, could cause the Company's future results to
differ from those contained in forward-looking statements made in this report
and presented elsewhere by management from time to time. Such factors, among
others, may have a material adverse effect on the Company's business, financial
condition and results of operations. The risks identified in this section are
not exhaustive. The Company operates in a dynamic and competitive environment.
New risk factors affecting the Company emerge from time to time and it is not
possible for management to predict all such risk factors. Further, it is not
possible to assess the impact of all risk factors on the Company's business or
the extent to which any single factor or combination of factors may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these inherent risks and uncertainties, investors are
cautioned not to place undue reliance on forward-looking statements as a
prediction of actual results. In addition, the Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. The following discussion of the
Company's risk factors speaks only as of the date on which they were made and
should be read in conjunction with the consolidated financial statements and
related notes included herein. Because of these and other factors, past
financial performance should not be considered an indication of future
performance.

                                       11


THE COMPANY'S FUTURE PROFITABILITY DEPENDS ON THE SUCCESS OF THE COMPANY'S
PRINCIPAL PRODUCT LINES.

Sales of the Company's reconstructive products accounted for approximately 65%
of the Company's net sales for the year ended May 31, 2004. The Company expects
sales of reconstructive products to continue to account for a significant
portion of the Company's aggregate sales. Any event adversely affecting the sale
of reconstructive products may, as a result, adversely affect the Company's
business, results of operations and financial condition.

IF THE COMPANY IS UNABLE TO CONTINUE TO DEVELOP AND MARKET NEW PRODUCTS AND
TECHNOLOGIES IN A TIMELY MANNER, THE DEMAND FOR THE COMPANY'S PRODUCTS MAY
DECREASE, OR THE COMPANY'S PRODUCTS COULD BECOME OBSOLETE, AND THE COMPANY'S
REVENUE AND PROFITABILITY MAY DECLINE.

The market for the Company's products is highly competitive and dominated by a
small number of large companies. The Company is continually engaged in product
development, research and improvement efforts, and new products and line
extensions of existing products represent a significant component of the
Company's growth rate. The Company's ability to continue to grow sales
effectively depends on its capacity to keep up with existing or new products and
technologies in the musculoskeletal products market. In addition, if the
Company's competitors' new products and technologies reach the market before the
Company's products, they may gain a competitive advantage or render the
Company's products obsolete. See "Competition" in Item 1 - "Business" of this
Form 10-K for more information about the Company's competitors. The ultimate
success of the Company's product development efforts will depend on many
factors, including, but not limited to, the Company's ability to create
innovative designs, materials and surgical techniques; accurately anticipate and
meet customers' needs; commercialize new products in a timely manner; and
manufacture and deliver products and instrumentation in sufficient volumes on
time.

Moreover, research and development efforts may require a substantial investment
of time and resources before the Company is adequately able to determine the
commercial viability of a new product, technology, material or other innovation.
Even in the event that the Company is able to successfully develop innovations,
they may not produce revenue in excess of the costs of development and may be
quickly rendered obsolete as a result of changing customer preferences or the
introduction by the Company's competitors of products embodying new technologies
or features.

THE COMPANY IS SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS.

Most aspects of the Company's business are subject to some degree of government
regulation in the countries in which its operations are conducted. As discussed
under the heading "Government Regulation" in Item 1 - "Business" of this Form
10-K, for some products and in some areas of the world, such as the United
States, Canada, Japan and Europe, government regulation is significant. Overall,
there appears to be a trend toward more stringent regulation throughout the
world. The Company does not anticipate this trend to dissipate in the near
future. In addition, the medical device industry is subject to a myriad of
complex laws governing Medicare and Medicaid reimbursements, and the U.S.
Department of Health and Human Services has become increasingly vigilant in
recent years with respect to investigations of various business practices.
Further, as a publicly-traded company, the Company is subject to increasingly
demanding corporate and financial legislation in the United States, such as the
Sarbanes-Oxley Act of 2002, which requires the time and attention of management
and creates additional costs and expenses. In general, the development, testing,
manufacture and marketing of the Company's products are subject to extensive
regulation and review by numerous governmental authorities both in the United
States and abroad. The regulatory process requires the expenditure of
significant time, effort and expense to bring new products to market. In
addition, the Company is required to implement and maintain stringent reporting,
labeling and record keeping procedures. The Company cannot assure that the
relevant authorities will approve any of its products. Furthermore, governmental
and regulatory actions against the Company can result in various actions that
could adversely impact the Company's operations, including:

      -     the recall or seizure of products;

      -     the suspension or revocation of the authority necessary for the
            production or sale of a product;

      -     the imposition of fines and penalties;

      -     the delay of the Company's ability to introduce new products into
            the market; and

      -     other civil or criminal sanctions against the Company.

THE COMPANY IS SUBJECT TO RISKS ARISING FROM CURRENCY EXCHANGE RATE
FLUCTUATIONS, WHICH COULD INCREASE THE COMPANY'S COSTS AND MAY CAUSE THE
COMPANY'S PROFITABILITY TO DECLINE.

During fiscal year 2004, sales of the Company's products in foreign markets
approximated $535,721,000, or 33% of the Company's total revenues. Accordingly,
the U.S. dollar value of the Company's foreign-generated revenues varies with
currency exchange rate fluctuations. Measured in local currency, the majority of
the Company's foreign-generated revenues was generated in Europe. Significant
increases in the value of the U.S. dollar relative to foreign currencies could
have an adverse effect on the Company's results of operations. The Company's
consolidated net sales were favorably affected by 4.6% and 3.2% during fiscal

                                       12


years 2004 and 2003, respectively, as a result of the impact of foreign currency
translations. At the present time, the Company does not engage in hedging
transactions to protect against uncertainty in future exchange rates between any
particular foreign currency and the U.S. dollar.

SALES MAY DECLINE IF THE COMPANY'S CUSTOMERS DO NOT RECEIVE ADEQUATE LEVELS OF
REIMBURSEMENT FROM THIRD-PARTY PAYORS FOR THE COMPANY'S PRODUCTS AND IF CERTAIN
TYPES OF HEALTH CARE PROGRAMS ARE ADOPTED IN THE COMPANY'S KEY MARKETS.

In the United States, health care providers that purchase the Company's products
generally rely on payments from third-party payors (principally federal
Medicare, state Medicaid and private health insurance plans) to cover all or a
portion of the cost of the Company's musculoskeletal products. In the event that
third-party payors deny coverage or reduce their current levels of
reimbursement, the Company may be unable to sell certain of its products on a
profitable basis, thus adversely impacting the Company's results of operations.
Further, third-party payors are continuing to carefully review their coverage
policies with respect to existing and new therapies and can, without notice,
deny coverage for treatments that may include the use of the Company's products.

In addition, some health care providers in the United States have adopted or are
considering the adoption of a managed care system in which the providers
contract to provide comprehensive health care for a fixed cost per person.
Health care providers in a managed care system may attempt to control costs by
authorizing fewer elective surgical procedures, including joint reconstructive
surgeries, or by requiring the use of the least expensive implant available. In
response to these, and other, pricing pressures, the Company's competitors may
lower the prices for their products. The Company may not be able to match the
prices offered by the Company's competitors, thus adversely impacting the
Company's results of operations and prospects. Further, in the event that the
United States considers the adoption of a national health care system in which
prices are controlled and patient care is managed by the government, such
regulation could have a material adverse effect on the Company's business,
results of operations and financial condition.

Outside the United States, reimbursement systems vary significantly from country
to country. In the majority of the international markets in which the company's
products are sold, government-managed health care systems mandate the
reimbursement rates and methods for medical devices and procedures. If adequate
levels of reimbursement from third-party payors outside of the United States are
not obtained, international sales of the Company's products may decline. Many
foreign markets, including Canada, and some European and Asian countries, have
tightened reimbursement rates. The ability of the Company to continue to sell
certain of its products profitably in these markets may diminish if the
government-managed health care systems continue to reduce reimbursement rates.

THE COMPANY'S BUSINESS MAY BE HARMED AS A RESULT OF LITIGATION.

The Company's involvement in the manufacture and sale of medical devices creates
exposure to significant risk of product liability claims, particularly in the
United States. In the past, the Company has received product liability claims
relating to the Company's products and anticipates that it will continue to
receive claims in the future, some of which could have a negative impact on the
Company's business. Additionally, the Company could experience a material design
or manufacturing failure in its products, a quality system failure, other safety
issues, or heightened regulatory scrutiny that would warrant a recall of some of
the Company's products. The Company's existing product liability insurance
coverage may be inadequate to satisfy liabilities the Company might incur. If a
product liability claim or series of claims is brought against the Company for
uninsured liabilities or in excess of the Company's insurance coverage limits,
the Company's business could suffer and its results could be materially
impacted.

In addition, the musculoskeletal products industry is highly litigious with
respect to the enforcement of patents and other intellectual property rights. In
some cases, intellectual property litigation may be used to gain a competitive
advantage. The Company has in the past and may in the future become a party to
lawsuits involving patents or other intellectual property. A legal proceeding,
regardless of the outcome, could put pressure on the Company's financial
resources and divert the time and effort of the Company's management.

A NATURAL OR MAN-MADE DISASTER COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S BUSINESS.

The Company has nearly twenty manufacturing operations located throughout the
world. However, a significant portion of the Company's products are produced at
and shipped from its facility in Warsaw, Indiana. In the event that this
facility were severely damaged or destroyed as a result of a natural or man-made
disaster, the Company would be forced to shift production to its other
facilities and/or rely on third-party manufacturers. Although the Company
believes that it is adequately insured, such an event could have a material
adverse effect on the Company's business, results of operations and financial
condition.

                                       13


                      EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, business background, positions held with the Company and tenure
as an executive officer of each of the Company's executive officers are set
forth below. No family relationship exists among any of the executive officers.
Except as otherwise stated, each executive officer has held the position
indicated during the last five years. Executive officers are elected annually
by the Board of Directors to serve for one year and until their successors are
elected, subject to resignation, retirement or removal.



                                                             Served as Executive   Current Position(s)
Name, Age and Business Experience                               Officer Since       with the Company
- ---------------------------------                            -------------------   -------------------
                                                                             
DANE A. MILLER, PH.D., 58
President and Chief Executive Officer of the Company.                 1977         President and Chief
Director of the Company since 1977.                                                Executive Officer and
                                                                                   Director of the Company.

NILES L. NOBLITT, 53
Chairman of the Board of the Company.                                 1978         Chairman of the Board
Director of the Company since 1977.                                                and Director of the Company.

CHARLES E. NIEMIER, 48
Senior Vice President - International Operations of the               1984         Senior Vice President -
Company.                                                                           International Operations
Director of the Company since 1987.                                                and Director of the Company.

GARRY L. ENGLAND, 50
Senior Vice President - Warsaw Operations of the Company.             1987         Senior Vice President -
                                                                                   Warsaw Operations of the Company.
DANIEL P. HANN, 49
Senior Vice President, General Counsel and Secretary of the           1989         Senior Vice President and
Company.                                                                           General Counsel, Secretary
Director of the Company since 1989.                                                and Director of the Company.

JOEL P. PRATT, 50
Senior Vice President of the Company since June 1999 and President    1990         Senior Vice President
of Walter Lorenz Surgical, Inc. since January 2002; prior thereto,                 of the Company and President
President of Arthrotek, Inc.                                                       of Walter Lorenz Surgical, Inc.

GREGORY D. HARTMAN, 47
Senior Vice President - Finance and Chief Financial Officer of        1991         Senior Vice President -
the Company.                                                                       Finance and Chief Financial
                                                                                   Officer of the Company.

JAMES W. HALLER, 47
Controller of the Company and Vice President - Finance                1991         Controller of the Company
of Biomet Orthopedics, Inc. since June 2001; prior thereto,                        and Vice President - Finance
Controller of the Company.                                                         of Biomet Orthopedics, Inc.

JERRY L. FERGUSON, 63
Vice Chairman of the Board of the Company.                            1994         Vice Chairman of the Board
Director of the Company since 1977.                                                and Director of the Company.

JAMES R. PASTENA, 53
Vice President of the Company and President                           1998         Vice President of the
of EBI, L.P.                                                                       Company and President
                                                                                   of EBI, L.P.


                                       14


                                                                             
BART J. DOEDENS, 45
Vice President of the Company since June 2002 and President           2002         Vice President of the Company
of Implant Innovations, Inc. since January 2001. Prior                             and President of Implant
thereto, Vice President International Marketing and Sales of                       Innovations, Inc.
Implant Innovations, Inc.

ROGER P. VAN BROECK, 56
Vice President of the Company since July 2004 and President           2004         Vice President of the Company
of Biomet Europe B.V. since March 2004. Prior thereto                              and President of Biomet
Chief Executive Officer of BioMer C.V. and Biomet Merck B.V.                       Europe B.V.



                                       15


ITEM 2. PROPERTIES.

The following are the principal properties of the Company:



                                                                                         SQUARE                 OWNED/
FACILITY                                                           LOCATION               FEET                  LEASED
- --------                                                           --------              -------                ------
                                                                                                       
Corporate headquarters of Biomet, Inc.;                 Warsaw, Indiana                  434,600                 Owned
manufacturing, storage and research and development
facility of Biomet Manufacturing Corp.; and
distribution center and offices of Biomet
Orthopedics, Inc.

Administrative, manufacturing and distribution          (1) Parsippany, New Jersey(1)     63,000                 Owned
facility of EBI, L.P. and administrative offices of     (2) Parsippany, New Jersey       209,700                 Owned
Electro-Biology, Inc.

Manufacturing facility of EBI, L.P.                     Allendale, New Jersey             30,000                Leased

Manufacturing facility of EBI, L.P.                     Marlow, Oklahoma                  51,500                 Owned

Administrative, manufacturing and                       Jacksonville, Florida             82,500                 Owned
distribution facility of Lorenz Surgical

Office, manufacturing and distribution                  (1) Palm Beach Gardens, FL        67,000                 Owned
facility of Implant Innovations, Inc.                   (2) Palm Beach Gardens, FL(2)     69,000                 Owned

Office and manufacturing facilities of Arthrotek,       (1) Ontario, California           35,400                 Owned
Inc.                                                    (2) Redding, California           14,400                Leased

Manufacturing facility of Biomet Fair Lawn L.P.         Fair Lawn, New Jersey             40,000                 Owned

Office and manufacturing facility of Electro-Biology,   Guaynabo, Puerto Rico             34,700                 Owned
Inc.

Office, manufacturing and distribution                  (1) Irvine, California            36,800
facilities of Interpore Spine Ltd.                      (2) Irvine, California            27,700                Leased
                                                                                                                Leased

Office, manufacturing and warehouse                     Valence, France                   86,100                 Owned
facility of Biomet France Sarl

Office, manufacturing and warehouse                     Berlin, Germany                   49,900                 Owned
facilities of Biomet Deutschland GmbH

Office and research and development facility            Darmstadt, Germany                29,200                Leased
of Biomet Merck Biomaterials GmbH

Administrative offices of Biomet Europe B.V.            Dordrecht,                        37,700                 Owned
and office and warehouse facility of Biomet             The Netherlands
Nederland BV

Office and manufacturing facility of IQL                Valencia, Spain                   69,600                 Owned

Office, manufacturing and warehouse facilities          Sjobo, Sweden                     24,200                 Owned
of Biomet Cementing Technologies AB

Manufacturing and administrative                        (1) Bridgend, South Wales        105,200                 Owned
facilities of Biomet UK Ltd.                            (2) Swindon, England              53,400                 Owned


In addition, the Company maintains more than 30 offices and warehouse facilities
in various countries, including Canada, Europe, Asia Pacific and Latin America.
The Company believes that all of its facilities are adequate, well-maintained
and suitable for the development, manufacture, distribution and marketing of all
its products.

(1)   Includes 42,000 square feet of space in this facility that is leased to
      other parties.

(2)   Includes 46,000 square feet of space in this facility that is leased to
      other parties.

                                       16



ITEM 3. LEGAL PROCEEDINGS.

On October 3, 2002, a complaint was filed against the Company by Spinal
Concepts, Inc. ("Spinal Concepts") alleging that certain U.S. patents owned by
Spinal Concepts are infringed by the VueLock(R) Anterior Cervical Plate System
manufactured by EBI, L.P. The Company has received an opinion of counsel that
the patents cited by Spinal Concepts are not infringed by the VueLock(R) plate
system manufactured by EBI. The complaint seeks, among other things,
consequential and treble damages, a reasonable royalty and costs. The parties
continue to engage in discovery. The Company continues to manufacture and sell
the VueLock(R) Plate System. On June 28, 2004, the Company's subsidiary, Cross
Medical Products Inc., filed suit against Spinal Concepts alleging that Spinal
Concepts' InCompass(R), Pathfinder(TM) and SpeedLink(TM) products infringe U.S.
Patent Nos. 5,466,237, 5,474,555 and 5,624,442, all of which are owned by Cross
Medical. On July 14, 2004, the Company's subsidiary, EBI, L.P., also filed suit
against Spinal Concepts alleging that an instrument sold with Spinal Concepts'
AcuFix(TM) cervical plate infringes U.S. Patent No. 6,599,290 owned by EBI.
Management intends to vigorously defend and prosecute this matter. We are unable
to determine the likelihood of a favorable outcome or the range of any potential
loss. The Company has no insurance coverage for any potential loss in this
matter.

There are various other claims, lawsuits, disputes with third parties,
investigations and pending actions involving various allegations against the
Company incident to the operation of its business, principally product liability
and intellectual property cases. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company does not anticipate that the adverse
outcome of these matters will result in a material loss. The Company establishes
accruals for losses that are deemed to be probable and subject to reasonable
estimate. Based on the advice of counsel to the Company in these matters,
management believes that the ultimate outcome of these matters and any
liabilities in excess of amounts provided will not have a material adverse
impact on the Company's consolidated financial position or on its future
business operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

                                       17



                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table shows the quarterly range of high and low sales prices for
the Company's Common Shares as reported by The Nasdaq National Market for each
of the three most recent fiscal years ended May 31. The Approximate number of
shareholders of record as of July 21, 2004 was 6,319.



                                       High                   Low
                                                      
2004
         Fourth                       $41.67                $37.05
         Third                         41.25                 34.50
         Second                        36.25                 29.56
         First                         30.95                 27.26
2003
         Fourth                       $33.50                $26.74
         Third                         30.50                 26.42
         Second                        32.00                 25.69
         First                         29.28                 21.75
2002
         Fourth                       $32.68                $25.18
         Third                         33.26                 26.77
         Second                        33.74                 24.33
         First                         34.36                 25.06


The Company paid cash dividends of $0.15, $0.10 and $0.09 per share for fiscal
years ending May 31, 2004, 2003 and 2002, respectively.

On July 1, 2004, the Company announced a cash dividend of $0.20, payable July
23, 2004, to shareholders of record at the close of business on July 16, 2004.

All market prices and dividend information have been adjusted to give
retroactive effect to the three-for-two stock split announced July 9, 2001.

                     ISSUER PURCHASES OF EQUITY SECURITIES

As of May 31, 2004, the Company had two publicly-announced share repurchase
programs outstanding. The first, announced July 2, 2003, approved the purchase
of 2,000,000 shares to be automatically purchased in equal installments over a
twelve-month period expiring July 1, 2004. The second, also announced July 2,
2003, approved the purchase of shares up to $100 million in open market or
privately negotiated transactions. The second program expired on March 1, 2004
when the total dollar amount approved was purchased. The shares repurchased in
the last quarter of fiscal 2004 and average price paid are as follow:



                                               TOTAL NUMBER OF
                                                   SHARES
             TOTAL NUMBER     AVERAGE             PURCHASED           MAXIMUM NUMBER OF
                  OF           PRICE             AS PART OF            SHARES THAT MAY
                SHARES        PAID PER            PUBLICLY            YET BE PURCHASED
  PERIOD       PURCHASED       SHARE           ANNOUNCED PLANS         UNDER THE Plans
- ----------   ------------    ---------        ----------------        -----------------
                                                          
MARCH 1-31      200,639       $ 38.34              200,639                 504,000
APRIL 1-30      168,000         40.37              168,000                 336,000
MAY 1-31        160,000         38.92              160,000                 176,000
                -------       -------              -------                 -------
TOTAL           528,639       $ 39.16              528,639                 176,000


                                       18

ITEM 6.  SELECTED FINANCIAL DATA.

Income Statement Data
Years ended May 31,
(in thousands, except per share amounts)




                                                            2004          2003           2002           2001          2000
                                                                                                   
Net sales ...........................................   $ 1,615,253   $ 1,390,300    $ 1,191,902     $1,030,663   $   923,551
Cost of sales .......................................       461,502       407,295        332,727        296,063       281,351
                                                        -----------   -----------    -----------     ----------   -----------
Gross profit ........................................     1,153,751       983,005        859,175        734,600       642,200

Selling, general and administrative expenses ........       595,234       495,391        437,731        374,793       326,618
Research and development expense ....................        64,886        55,309         50,750         43,020        40,208
Other charges/(credits) .............................             -        (5,800)             -         26,100        11,700
                                                        -----------   -----------    -----------     ----------   -----------
 Operating income ...................................       493,631       438,105        370,694        290,687       263,674

Other income net ....................................        15,165        13,638          5,421*        19,989        17,018
                                                        -----------   -----------    -----------     ----------   -----------
 Income before income taxes and minority  interest...       508,796       451,743        376,115        310,676       280,692
Provision for income taxes ..........................       176,098       156,961        127,665        105,906        99,738
                                                        -----------   -----------    -----------     ----------   -----------
 Income before minority interest ....................       332,698       294,782        248,450        204,770       180,954
Minority interest ...................................         7,071         8,081          8,710          7,224         7,183
                                                        -----------   -----------    -----------     ----------   -----------
 Net income .........................................   $   325,627   $   286,701    $   239,740     $  197,546   $   173,771
                                                        -----------   -----------    -----------     ----------   -----------
Earnings per share:
 Basic ..............................................          1.27   $      1.10    $       .89     $      .74   $       .66
 Diluted ............................................          1.27          1.10            .88            .73           .65
                                                        -----------   -----------    -----------     ----------   -----------
Shares used in the computation of earnings per share:
 Basic ..............................................       255,512       259,493        268,475        267,915       264,294
 Diluted ............................................       257,204       261,394        271,245        270,746       267,242
                                                        -----------   -----------    -----------     ----------   -----------
Cash dividends paid per common share ................   $       .15   $       .10    $       .09     $      .07   $       .06


Balance Sheet Data
At May 31,
(in thousands)



                                                            2004          2003           2002           2001          2000
                                                                                                   
Working capital .....................................   $   802,467   $   845,101    $   715,245     $  726,557    $  608,185
Total assets ........................................     1,787,697     1,672,169      1,521,723      1,489,311     1,218,448
Shareholders' equity.................................     1,448,210     1,286,134      1,176,479      1,146,186       943,323


- -     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,
      2000.

*     Other income, net for fiscal 2002 was adversely by a $9 million charge as
      a result write-downs in marketable securities and other investments.

                                       19


ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS.

Overview

This discussion should be read in conjunction with the Company's consolidated
financial statements and the corresponding notes contained herein. The
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that are subject to certain risk
factors, as discussed earlier in this report under the caption Forward-Looking
Statements and under the caption Business-Risk Factors on pp.12-14 of this
report. 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 products, fixation devices,
spinal products and other products. The Company has operations in over 30
countries and distributes its products in over 100 countries throughout the
world. The solid growth experienced by the Company during fiscal year 2004 in
both domestic and international markets is attributable to the Company's
emphasis on technological advances through product line extensions and new
product introductions. In addition, growth in the patient population (as a
result of increases in both the size of the elderly population and the expansion
of the traditional age bracket of musculoskeletal patients) has contributed to
this growth.

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)
                                                                                    2004       2003
                                                        2004      2003      2002  vs. 2003   vs. 2002
                                                                              
Net sales..........................................    100.0%    100.0%    100.0%    16%        17%
Cost of sales......................................     28.5      29.3      27.9     13         22
                                                       -----     -----     -----
Gross profit.......................................     71.5      70.7      72.1     17         14
Selling, general and administrative expenses ......     36.9      35.6      36.7     20         13
Research and development expense...................      4.0       4.0       4.3     17          9
Other charges/(credits)............................        -      (0.4)        -    n/m        n/m
                                                       -----     -----     -----
Operating income ..................................     30.6      31.5      31.1     13         18
Other income, net..................................      0.9       1.0       0.5     11        152
                                                       -----     -----     -----
Income before income taxes and minority interest...     31.5      32.5      31.6     13         20
Provision for income taxes.........................     10.9      11.3      10.8     12         23
                                                       -----     -----     -----
Income before minority interest....................     20.6      21 2      20.8     13         19
Minority interest..................................      0.4       0.6       0.7    (12)        (7)
                                                       -----     -----     -----
Net income.........................................     20.2%     20.6%     20.1%    14%        20%
                                                       -----     -----     -----


n/m - Not Meaningful

Fiscal 2004 Compared to Fiscal 2003*

Net Sales - Net sales increased 16% during the current fiscal year to
$1,615,253,000 from $1,390,300,000 in 2003. Excluding the positive impact of
foreign currency translations (4.6%), net sales increased 12%. Worldwide sales
of reconstructive devices increased 21% to $1,052,865,000 in fiscal year 2004
compared to $867,602,000 in 2003. Factors contributing to this increase include
currency translation (6%), pricing increases (3%) and incremental volume and
product mix (12%). During the current year, worldwide bone cement sales
increased 34%, extremities sales increased 28%, dental reconstructive product
sales increased 24%, knee sales increased 20% and hip sales increased 15%.

Fixation sales increased 5% during fiscal 2004 to $248,821,000 from $237,117,000
in 2003. Factors contributing to this increase included currency translation
(1%), pricing increases (1%) and incremental volume and product mix (3%).
Worldwide sales of craniomaxillofacial products including bone substitutes
increased 14%, electrical stimulation devices increased 5% and internal and
external fixation devices each decreased 1%.

Spinal sales increased 11% to $159,927,000 in fiscal 2004 compared to
$143,607,000 in 2003. Factors contributing to this increase included currency
translation (1%), pricing increases (2%) and incremental volume and product mix
(8%). Worldwide sales of spinal hardware including orthobiologics increased 24%,
while spinal stimulation products increased 5%.

Sales of the Company's other products increased 8% to $153,640,000 in fiscal
2004 from $141,974,000 in 2003. Factors contributing to this increase included
currency translation (2%), pricing increases (1%) and incremental volume and
product mix (5%). Worldwide sales of arthroscopy products increased 10%,
softgoods and bracing products increased 8% and general surgical instrumentation
decreased 1 %.

Sales in the United States increased 12% to $1,079,532,000 during the current
fiscal year compared to $966,638,000 last year. Components of this increase were
incremental volume and product mix (8%) and positive pricing environment (4%).
European sales increased 26% to

* For purposes of this Management's Discussion and Analysis, the fiscal period
is June 1 - May 31.

                                       20

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (CONTINUED)

$418,328,000 during the current fiscal year from $332,053,000 in 2003.
Components of this increase were positive currency translation (16%),
incremental volume and product mix (9%) and positive pricing environment (1%).
The Company anticipates foreign currency translations to positively influence
sales during fiscal 2005, although at the current exchange rates, at a more
moderate level compared to fiscal year 2004. Sales in Rest of World increased
28% to $117,393,000 this year from $91,609,000 last year. Components of this
increase were positive currency translation (10%), incremental volume and
product mix (17%) and positive pricing environment (1%). The Company commenced
direct sales of its products in Japan during fiscal 2002 and continues to
experience good product acceptance with growth at approximately 90% for the
current fiscal year in local currency.

Gross Profit - The Company's gross profit increased 17% to $1,153,751,000 in
fiscal 2004 from $983,005,000 in 2003. The gross profit margin increased to
71.5% of sales in fiscal 2004 compared to 70.7% in 2003. This improvement was
realized through a 2% increase in selling prices and improved manufacturing
efficiencies, offset by $2.5 million of additional expense as a result of an
inventory step-up charge recognized in connection with the purchase of Merck's
50% interest in the Biomet Merck joint venture. This inventory step-up charge
will continue to be recognized through the next four fiscal quarters.

Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased 20% in fiscal 2004 to $595,234,000 compared to
$495,391,000 last year. This increase results from increased commission expense
on higher sales (5%), a $25 million increase in bad debt expense (5%) and an
increase in marketing and general and administrative expenses (10%). As a
percent of sales, selling, general and administrative expenses were 36.9% in
fiscal 2004 compared to 35.6% in 2003. During the fourth quarter, the Company
reviewed its underlying assumptions in calculating reserves for uncollectible
insurance receivables at its EBI subsidiary. As a result of this review, the
Company revised its estimates of future collections of these insurance
receivables and increased the balance in the reserves for uncollectible
insurance receivables by $25 million. The additional reserve, which is based on
historical analysis as well as management's best estimates of future
collections, takes into account insurance underpayments, denial of payments and
difficulties with billing and collecting co-payments from patients. Excluding
this $25 million expense, selling, general and administrative expenses were
35.3% of sales in fiscal 2004. The main factor contributing to this decreased
percentage is an overall slower growth rate for expenditures than for sales.

Research and Development Expense - Research and development expense increased
17% during the current year to $64,886,000 compared to $55,309,000 in 2003. This
increase reflects the $1.25 million in-process research and development
write-off recognized during the fourth quarter related to the purchase of
Merck's 50% interest in the Biomet Merck joint venture. The remaining increase
reflects the Company's continued emphasis on new product development and
enhancements and additions to its existing product lines and technologies. As a
percent of sales, research and development expenses were 4.0% in both years.

Other charges/(credits) - On February 12,2003, the United States Court of
Appeals for the Federal Circuit ruled that the Company did not owe post-judgment
interest in connection with the damage award paid in the Tronzo case. As a
result of this favorable ruling, the Company recorded a pre-tax gain of
approximately $5.8 million during the third quarter of fiscal 2003. (See Note M
in the Notes to Consolidated Financial Statements).

Operating Income - Operating income increased 13% during fiscal 2004 to
$493,631,000 from $438,105,000 in 2003. U.S. operating income increased 12% to
$443,862,000 from $394,641,000, reflecting solid sales growth for higher-margin
product lines. European operating income increased 9% to $45,528,000 compared to
$41,924,000 in 2003. This growth reflects solid sales growth in Europe, lower
gross margins, higher selling expenses and improved foreign currency
translation. Rest of World operating income increased 175% to $4,241,000 in
fiscal 2004 from $1,540,000 in 2003. This increase is primarily a result of the
Company's direct operations in Japan, which began in fiscal 2002, becoming
profitable during the current year.

Other Income, Net - Other income, net increased during the current year to
$15,165,000 from $13,638,000 in 2003. Other income increased 4% to $18,702,000
from $18,035,000, while interest expense decreased 20% to $3,537,000 from
$4,397,000. During the fourth quarter of the year, the Company recorded a
$3,362,000 gain on the disposition of an equity investment. Excluding this gain,
other income decreased 15% mainly due to lower investment yields. To reduce the
risk of exchange rate gains and losses on transfer of inventory from domestic
sites to international sites, the Company has set up lines of credit in both
Europe and Japan in local currencies. (See Note G in the Notes to Consolidated
Financial Statements). These lines of credit are used solely to fund inventory
purchases and acquisitions in those local currencies. Interest expense
represents less than 1% of operating income. The decrease in interest expense in
fiscal 2004 compared to 2003 was caused by a decrease in the balance outstanding
and in interest rates. Other income for next year will be lower as a result of
the cash used to fund the acquisition of Merck's 50% interest in the Biomet
Merck joint venture. In addition, interest expense will be higher due to the
line of credit the Company put in place and drew upon to fund the Interpore
acquisition in June 2004. (See Note N in the Notes to Consolidated Financial
Statements).

Provision for Income Taxes - The provision for income taxes increased to
$176,098,000, or 34.6% of income before income taxes for fiscal 2004 compared to
$156,961,000 or 34.7% of income before income taxes last year.

Net Income - The factors mentioned above resulted in a 14% increase in net
income to $325,627,000 for fiscal 2004 from $286,701,000 in 2003. These factors
and the reduction in the shares used in the computation of earnings per share
through the Company's share repurchase programs resulted in a 15% increase in
basic earnings per share for 2004 to $1.27 compared to $1.10 in 2003. The
purchase of Merck's 50% interest in the Biomet Merck joint venture did not have
a significant impact on net income, as the expense associated with the
amortization of intangibles and reduced investment income were offset by a
reduction in minority interest expense.

                                       21



MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (CONTINUED)

Fiscal 2003 Compared to Fiscal 2002

Net Sales - Net sales increased 17% during fiscal 2003 to $1,390,300,000 from
$1,191,902,000 in 2002. Excluding the positive impact of foreign currency
translation adjustments (3.2%), net sales increased 14%. Worldwide sales of
reconstructive devices increased 20% to $867,602,000 in fiscal year 2003
compared to $721,004,000 in 2002. Contributing to this increase was
approximately 4% due to currency translation, 3% from pricing and 13% from
incremental volume and product mix. Worldwide hip and bone cement sales
increased 23% during fiscal 2003, while knee sales increased 18%, extremities
sales increased 16% and dental reconstructive product sales increased 19%.

Fixation sales increased 10% during fiscal 2003 to $237,117,000 from
$215,544,000 in 2002. Contributing to this increase was approximately 1% due to
currency translation, 1% from pricing and 8% from incremental volume and product
mix. Worldwide sales of internal fixation devices increased 13%, external
fixation devices increased 7%, electrical stimulation devices increased 6% and
craniomaxillofacial products including bone substitutes increased 21%.

Spinal sales increased 15% to $143,607,000 in fiscal 2003 compared to
$125,119,000 in 2002. Contributing to this increase was approximately 1 % due to
currency translation, 2% from pricing and 12% from incremental volume and
product mix. Worldwide sales of spinal stimulation products increased 13%, while
spinal hardware including orthobiologics increased 18%.

Sales of the Company's other products increased 9% to $141,974,000 in fiscal
2003 from $130,235,000 in 2002. Contributing to this increase was approximately
2% due to currency translation, 1% from pricing and 6% from incremental volume
and product mix. Worldwide sales of arthroscopy products increased 16%,
softgoods and bracing products increased 8% and general surgical instrumentation
increased 12%.

Sales in the United States increased 13% to $966,638,000 during fiscal 2003
compared to $856,375,000 in 2002. Components of this increase were incremental
volume and product mix (9%) and positive pricing environment (4%). European
sales increased 28% to $332,053,000 during fiscal 2003 from $260,420,000 in
2002. Components of this increase were positive currency translation (13%),
incremental volume and product mix (13%) and positive pricing environment (2%).
Sales in Rest of World increased 22% to $91,609,000 in fiscal 2003 from
$75,107,000 in 2002. Components of this increase were incremental volume and
product mix (18%) and positive pricing environment (4%). The Company commenced
direct sales of its products in Japan during fiscal 2002 which accounted for
about half of this increased product demand.

Gross Profit - The Company's gross profit increased 14% to $983,005,000 in
fiscal 2003 from $859,175,000 in 2002. The gross profit margin decreased to
70.7% of sales in fiscal 2003 compared to 72.1 % in 2002. On a
country-by-country basis, the Company improved gross margins in fiscal 2003
through a 3.6% increase in selling prices and improved manufacturing
efficiencies, but due to the lower margins received on international sales and
the higher growth rate on international sales compared to domestic sales, the
consolidated gross margin decreased.

Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased 13% in fiscal 2003 to $495,391,000 compared to
$437,731,000 in 2002. This increase is primarily a result of increased
commission expense on higher sales compared to 2002. As a percent of sales,
selling, general and administrative expenses were 35.6% in fiscal 2003 compared
to 36.7% in 2002. Factors contributing to this decrease include eliminating the
amortization of goodwill (0.6%) and an overall slower growth rate for
expenditures (0.2%) partially offset by increased liability insurance premiums
(0.1%).

Other charges/(credits) - On February 12, 2003, the United States Court of
Appeals for the Federal Circuit ruled that the Company did not owe post-judgment
interest in connection with the damage award paid in the Tronzo case. As a
result of this favorable ruling, the Company recorded a pre-tax gain of
approximately $5.8 million during the third quarter (See Note M in the Notes to
Consolidated Financial Statements).

Research and Development Expense - Research and development expense increased 9%
during fiscal 2003 to $55,309,000 compared to $50,750,000 in 2002. This increase
reflects the Company's continued emphasis on new product development and
enhancements and additions to existing product lines and technologies. As a
percent of sales, research and development expenses were 4.0% in fiscal 2003
compared to 4.3% in 2002.

Operating Income - Operating income increased 18% during fiscal 2003 to
$438,105,000 from $370,694,000 in 2002. U.S. operating income increased 21 % to
$394,641,000 from $326,906,000, reflecting solid sales growth for higher-margin
product lines. European operating income increased 7% during fiscal 2003 to
$41,924,000 compared to $39,152,000 in 2002. This growth reflects solid sales
growth in Europe, lower gross margins, higher selling expenses and improved
foreign currency translation. Rest of World operating income decreased to
$1,540,000 in fiscal 2003 from $4,636,000 in 2002 due to start up expenses
associated with establishing direct operations in Japan and Brazil for the
orthopedic and dental reconstructive businesses, respectively.

Other Income, Net - Other income, net increased during fiscal 2003 to
$13,638,000 from $5,421,000 in 2002. During the fourth quarter of 2002, the
Company recorded a 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 was considered other than temporary.
Excluding these write-downs, other income, net increased 35% as a result of
higher cash and investment balances, partially offset by lower investment
yields. To reduce the risk of exchange rate gains and losses on transfer of
inventory from domestic sites to international sites, the Company has set up
lines of credit in both Europe and Japan in local currencies. (See Note G in the
Notes to Consolidated Financial Statements). These lines of credit are used
solely to fund inventory purchases and acquisitions in those local currencies.
Interest expense increased 30% to $4,397,000 in fiscal 2003 compared to
$3,380,000 in 2002 and represents approximately 1% of operating income. The
increase in interest expense in fiscal 2003 compared to 2002 was primarily
caused by an increase in the balance outstanding.

                                       22



MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (CONTINUED)

Provision for Income Taxes - The provision for income taxes increased to
$156,961,000, or 34.7% of income before income taxes for fiscal 2003 compared to
$127,665,000 or 33.9% of income before income taxes in 2002. This increase was
due to income growing faster in countries with higher tax rates, changes in the
U.S. tax code which, over time, reduce the historical U.S. tax benefits from
operating in Puerto Rico and various state tax rate increases.

Net Income - The factors mentioned above resulted in a 20% increase in net
income to $286,701,000 for fiscal 2003 from $239,740,000 in 2002. These factors
and the reduction in the shares used in the computation of earnings per share
through the Company's share repurchase programs resulted in a 24% increase in
basic earnings per share for 2003 to $1.10 compared to $0.89 in 2002.

Liquidity & Capital Resources

The Company's cash and investments decreased to $235,612,000 at May 31, 2004,
from $418,594,000 at May 31, 2003. Net cash from operating activities was
$386,089,000 in fiscal 2004 compared to $310,277,000 in 2003. The principal
sources of cash from operating activities were net income of $325,627,000 and
non-cash charges of depreciation and amortization of $59,468,000. The principal
uses of cash include increases in accounts and notes receivable of $29,955,000.
Accounts receivable balances continue to increase as the Company continues to
expand its direct selling operations in countries where it traditionally sold to
distributors, and as it experiences sales growth.

Cash flows used in investing activities were $253,481,000 in fiscal 2004
compared to $19,697,000 in 2003. The primary uses of cash for investing
activities were purchases of investments and the acquisition of Merck's 50%
interest in the Biomel Merck joint venture, offset by sales and maturities of
investments, and capital expenditures. Major capital expenditures for the year
were expansion of manufacturing facilities in New Jersey and Europe.

Cash flows used in financing activities were $194,607,000 in fiscal 2004
compared to $222,808,000 in 2003. The primary uses of funds during the current
year were the share repurchase programs, in which $172,724,000 was used to
purchase 5,148,000 Common Shares of the Company and a cash dividend of $0.15 per
share paid on July 18, 2003 to shareholders of record on July 11, 2003. The
source of funds from financing activities was proceeds on the exercise of stock
options. On July 1, 2004, the Company's Board of Directors announced a cash
dividend of $0.20 per share payable on July 23, 2004 to shareholders of record
at the close of business on July 16, 2004. Additionally, the Board of Directors
authorized the purchase of up to an additional $100 million and 2,500,000 shares
of the outstanding Common Shares of the Company in two separate repurchase
programs. In connection with the Interpore acquisition in June 2004 (See Note N
of the Notes to Consolidated Financial Statements) the Company entered into a 36
month revolving credit facility in the amount of $200 million.

The Company maintains its cash and investments in money market funds,
certificates of deposit, corporate bonds, debt instruments, mortgage-backed
securities and equity securities. The Company's investments are generally liquid
and investment grade. The Company is exposed to interest rate risk on its
corporate bonds, debt instruments, fixed rate preferred equity securities and
mortgage-backed securities. The Company anticipates that its use of cash for
capital expenditures in fiscal 2005 will be at least as high as fiscal years
2004 and 2003. The Company is currently expanding its EBI manufacturing site, as
well as its Japanese and European operations. The Company intends to continue to
pursue strategic acquisition candidates. The Company is confident about the
growth prospects in its markets and intends to invest in an effort to improve
its worldwide market position. The Company expects to spend in excess of $250
million over the next two fiscal years for capital expenditures and research and
development costs in an effort to develop products and technologies that further
enhance musculoskeletal procedures. Funding of these and other activities is
expected to come from currently available funds and cash flows generated from
future operations. The Company has no off-balance sheet financial arrangements
and no material long-term contractual financial obligations.

Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. The Company's significant accounting policies are
discussed in Note B of the Notes to Consolidated Financial Statements. In
management's opinion, the Company's critical accounting policies include revenue
recognition, excess and obsolete inventories, goodwill and intangible assets and
accrued insurance.

Revenue Recognition - For the majority of the Company's products in a country
where the Company has a direct distribution operation, revenue is recognized
upon notification to the Company that the product has been implanted in or
applied to the patient. For other products or services, and in countries where
the Company does not have a direct distribution operation, the Company
recognizes revenue when title passes to the customer and there are no remaining
obligations that will affect the customer's final acceptance of the sale. For
its insurance billings in the United States, the Company records anticipated
price adjustments, which can occur subsequent to invoicing, based on estimates
derived from past experience, as a reduction of net sales in the same period
that revenue is recognized. The Company also records estimated sales returns and
other adjustments as a reduction of net sales in the same period that revenue is
recognized. In addition, the Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. In the fourth quarter of fiscal 2004, the Company
reviewed its underlying assumptions in calculating its allowance for
uncollectible insurance receivables at its EBI subsidiary. As a result of this
review, the Company revised its estimates of future collections of insurance
receivables at its EBI subsidiary and increased the balance in the reserves for
uncollectible insurance receivables by $25 million. If the assumptions used in
estimating pricing adjustments or the financial condition of our customers were
to deteriorate, resulting in an impairment of the Company's ability to collect
its net receivables, additional allowances may be required which would affect
our future operating results.

                                       23



MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (CONCLUDED)

Excess and Obsolete Inventory - In our industry, inventory is routinely placed
at hospitals to provide the healthcare provider with the appropriate product
when needed. Because product usage tends to follow a bell curve, larger and
smaller sizes of inventory are provided but infrequently used. In addition, the
musculoskeletal market is highly competitive with new products, raw materials
and procedures being introduced continually, which may obsolete products
currently on the market. The Company must make estimates regarding the future
use of these products and provides a provision for excess and obsolete
inventories. If actual product life-cycles, product demand or market conditions
are less favorable than those projected by management, additional inventory
write-downs may be required which would affect future operating results.

Goodwill and Other Intangible Assets - In assessing the recoverability of the
Company's intangibles, the Company must make assumptions regarding estimated
future cash flows and other factors to determine the fair value of the
respective assets. If these estimates or their related assumptions change in the
future, the Company may be required to record impairment charges for these
assets.

Accrued Insurance - As noted in Note M of the Notes to Consolidated Financial
Statements, the Company has a self-insured retention against product liability
claims with insurance coverage over and above the retention. There are various
other claims, lawsuits, disputes with third parties, investigations and pending
actions involving various allegations against the Company. Product liability
claims are routinely reviewed by the Company's insurance carrier and management
routinely reviews other claims for purposes of establishing ultimate loss
estimates. In addition, management must determine estimated liability for claims
incurred but not reported. Such estimates and any subsequent changes in
estimates may result in adjustments to our operating results in the future.

Recent Accounting Pronouncements - Information about recent accounting
pronouncements and their effect on the Company can be found in Note B in the
Notes to Consolidated Financial Statements.

QUARTERLY RESULTS.

(in thousands, except earnings per share)



                                        1ST QTR.     2ND QTR.     3RD QTR.     4TH QTR.        YEAR
                                                                            
2004
Net sales...........................   $  370,319   $  387,561   $  410,185   $  447,188   $  1,615,253
Gross profit........................      264,701      278,771      294,193      316,086      1,153,751
Net income..........................       76,478       82,692       86,600       79,857        325,627
Earnings per share:
 Basic .............................          .30          .32          .34          .31           1.27
 Diluted............................          .30          .32          .34          .31           1.27

2003
Net sales...........................   $  317,600   $  341,448   $  354,042   $  377,210   $  1,390,300
Gross profit........................      227,463      242,843      246,406      266,293        983,005
Net income..........................       66,006       70,354       72,594       77,747        286,701
Earnings per share:
 Basic..............................          .25          .27          .28          .30           1.10
 Diluted............................          .25          .27          .28          .30           1.10

2002
Net sales...........................   $  272,022   $  289,387   $  304,609   $  325,884   $  1,191,902
Gross profit........................      194,630      210,353      219,371      234,821        859,175
Net income..........................       56,013       61,452       61,674       60,601        239,740
Earnings per share:
 Basic..............................          .21          .23          .23          .23            .89
 Diluted ...........................          .21          .23          .23          .23            .88


- -     Per share data may not cross-foot due to the share repurchase program
      affecting the weighted share calculation differently by quarter compared
      to the full fiscal year.

- -     Net income for the fourth quarter of fiscal 2004 was adversely impacted by
      a $25 million pre-tax charge as a result of a change in the Company's
      estimate for bad debt allowance on its domestic insurance receivables.

- -     Net income for the third quarter of fiscal 2003 was positively impacted by
      a $5.8 million pre-tax credit as a result of the favorable ruling of the
      Federal Circuit on the post-judgment interest in the Tronzo litigation.

- -     Net income for the fourth quarter of fiscal 2002 was adversely impacted by
      a $9 million pre-tax charge as a result of equity write-downs in
      marketable securities and other investments.

- -     All per share data have been adjusted to give retroactive effect to the
      three-for-two stock split declared on July 9, 2001.

                                       24


ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In the normal course of business, operations of the Company are exposed to
fluctuations in interest rates and foreign currencies. These fluctuations can
vary the cost of financing, investment yields and operations of the Company.

The Company maintains unsecured lines of credit in countries in which it has
significant intercompany transactions in an effort to minimize currency rate
risks. At May 31,2004 and 2003, the Company had lines of credit of EUR 100
million ($120 million) and EUR 105 million ($117 million), respectively, in
Europe and YEN 3.5 billion ($32 million) and YEN 2 billion ($20 million),
respectively, in Japan. Outstanding borrowings under the lines of credit bear
interest at a variable rate of the lender's interbank rate plus 0.6% and,
accordingly, changes in interest rates would impact the Company's cost of
financing.

The Company does not have any investments that would be classified as trading
securities under generally accepted accounting principles. The Company's
non-trading investments, excluding cash and cash equivalents, consist of
certificates of deposit, debt securities, equity securities and mortgage-backed
securities. The debt securities include municipal bonds, with fixed rates, and
preferred stocks, which pay quarterly fixed rate dividends. These financial
instruments are subject to market risk in that changes in interest rates would
impact the market value of such investments. The Company generally does not
utilize derivatives to hedge against increases in interest rates which decrease
market values, except for one of its investment managers who utilizes U.S.
Treasury bond futures options ("futures options") as a protection against the
impact of increases in interest rates on the fair value of preferred stocks
managed by that investment manager. The Company marks any outstanding futures
options to market and market value changes are recognized in current earnings.
The futures options generally have terms ranging from 90 to 180 days. Net
realized gains (losses) on sales of futures options aggregated $249,000 and
($404,000) for the years ended May 31,2004 and 2003, respectively, and
unrealized gains (losses) on outstanding futures options at May 31, 2004 and
2003, aggregated ($15,000) and $0, respectively.

Based on the Company's overall interest rate exposure at May 31, 2004, including
variable rate debt and fixed rate preferred stocks, a hypothetical 10 percent
change in interest rates applied to the fair value of the financial instruments
as of May 31, 2004, would have no material impact on earnings, cash flows or
fair values of interest rate risk sensitive instruments over a one-year period.

The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the U.S. dollar against the European currencies. The
Company faces transactional currency exposures that arise when its foreign
subsidiaries (or the Company itself) enter into transactions, generally on an
intercompany basis, denominated in currencies other than their local currency.
The Company also faces currency exposure that arises from translating the
results of its global operations to the U.S. dollar at exchange rates that have
fluctuated from the beginning of the period. The Company has not used financial
derivatives to hedge against fluctuations in currency exchange rates. Based on
the Company's overall exposure for foreign currency at May 31, 2004, a
hypothetical 10 percent change in foreign currency rates would not have a
material impact on the Company's balance sheet, net sales, net income or cash
flows over a one-year period.

                                       25



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

BIOMET, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE.

                                                                                                       
1. FINANCIAL STATEMENTS:
   Report of Independent Registered Public Accounting Firm...........................................     27
   Consolidated Balance Sheets as of May 31,2004 and 2003............................................     28
   Consolidated Statements of Income for the years ended May 31, 2004, 2003 and 2002.................     29
   Consolidated Statements of Shareholders' Equity for the years ended May 31, 2004, 2003 and 2002        30
   Consolidated Statements of Cash Flows for the years ended May 31, 2004, 2003 and 2002.............     31
   Notes to Consolidated Financial Statements........................................................     32

2. FINANCIAL STATEMENT SCHEDULE:
   Schedule II - Valuation and Qualifying Accounts for the years ended May 31,
   2004, 2003 and 2002 ..............................................................................     42
   Schedules others than those listed above are omitted because they are not applicable
   or the required information is shown in the financial statements or notes thereto.



                                       26



BIOMET, INC. & SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

To the Board of Directors and Stockholders of Biomet, Inc.:

We have audited the accompanying consolidated balance sheets of Biomet, Inc. and
subsidiaries as of May 31, 2004 and 2003 and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended May 31, 2004. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Biomet, Inc. and
subsidiaries at May 31, 2004 and 2003 and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended May 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                                     Ernst & Young LLP

Fort Wayne, Indiana
June 30, 2004

                                       27



BIOMET, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS.

At May 31,
(in thousands, except par value)



                                                                                  2004            2003
                                                                                         
ASSETS
Current assets:
  Cash and cash equivalents ..............................................     $   159,243     $   225,650
  Investments ............................................................          10,030          37,337
  Accounts and notes receivable, less allowance for doubtful receivables
    (2004-$43,384 and 2003-$18,742) ......................................         465,949         418,095
  Inventories ............................................................         389,391         356,270
  Deferred income taxes ..................................................          69,379          54,262
  Prepaid expenses and other .............................................          21,877          20,141
                                                                               -----------     -----------
    Total current assets .................................................       1,115,869       1,111,755
                                                                               -----------     -----------
Property, plant and equipment:
  Land and improvements ..................................................          23,173          22,285
  Buildings and improvements .............................................         132,998         127,030
  Machinery and equipment ................................................         310,289         319,650
                                                                               -----------     -----------
                                                                                   466,460         468,965
  Less, Accumulated depreciation .........................................         197,634         215,519
                                                                               -----------     -----------
    Property, plant and equipment, net ...................................         268,826         253,446
                                                                               -----------     -----------
Investments ..............................................................          66,339         155,607
Goodwill .................................................................         266,860         126,706
Other intangible assets ..................................................          53,571          10,874
Other assets .............................................................          16,232          13,781
                                                                               -----------     -----------
    Total assets .........................................................     $ 1,787,697     $ 1,672,169
                                                                               -----------     -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings ..................................................     $   109,654     $   114,120
  Accounts payable .......................................................          55,365          42,106
  Accrued income taxes ...................................................          18,940          12,453
  Accrued wages and commissions ..........................................          51,288          43,715
  Other accrued expenses .................................................          78,155          54,260
                                                                               -----------     -----------
    Total current liabilities ............................................         313,402         266,654

Deferred federal income taxes ............................................          26,085           7,031
Other liabilities ........................................................               -             462
                                                                               -----------     -----------
    Total liabilities ....................................................         339,487         274,147
                                                                               -----------     -----------
Minority interest ........................................................               -         111,888
                                                                               -----------     -----------

Commitments and contingencies (Note M)

Shareholders'equity:
  Preferred shares, $100 par value: Authorized 5 shares; none issued .....               -               -
  Common shares, without par value: Authorized 500,000 shares;
    issued and outstanding 2004 - 254,262 shares and 2003 - 257,489 shares         167,301         141,931
  Additional paid-in capital .............................................          60,344          54,081
  Retained earnings ......................................................       1,218,682       1,100,462
  Accumulated other comprehensive income (loss) ..........................           1,883         (10,340)
                                                                               -----------     -----------
    Total shareholders'equity ............................................       1,448,210       1,286,134
                                                                               -----------     -----------
    Total liabilities and shareholders' equity ...........................     $ 1,787,697     $ 1,672,169
                                                                               -----------     -----------


The accompanying notes are a part of the consolidated financial statements.

                                       28



BIOMET, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME.

For the years ended May 31,
(in thousands, except per share amounts)



                                                             2004             2003             2002
                                                                                   
Net sales ...........................................     $ 1,615,253      $ 1,390,300      $ 1,191,902
Cost of sales .......................................         461,502          407,295          332,727
                                                          -----------      -----------      -----------
  Gross profit ......................................       1,153,751          983,005          859,175
Selling, general and administrative expenses ........         595,234          495,391          437,731
Research and development expense ....................          64,886           55,309           50,750
Other charges/(credits) .............................               -           (5,800)               -
                                                          -----------      -----------      -----------
  Operating income ..................................         493,631          438,105          370,694
Other income, net ...................................          18,702           18,035            8,801
Interest expense ....................................          (3,537)          (4,397)          (3,380)
                                                          -----------      -----------      -----------
  Income before income taxes and minority interest ..         508,796          451,743          376,115
Provision for income taxes ..........................         176,098          156,961          127,665
                                                          -----------      -----------      -----------
  Income before minority interest ...................         332,698          294,782          248,450
Minority interest ...................................           7,071            8,081            8,710
                                                          -----------      -----------      -----------
  Net income ........................................     $   325,627      $   286,701      $   239,740
                                                          -----------      -----------      -----------
Earnings per share:
  Basic .............................................     $      1.27      $      1.10      $       .89
  Diluted ...........................................            1.27             1.10              .88
                                                          -----------      -----------      -----------
Shares used in the computation of earnings per share:
  Basic .............................................         255,512          259,493          268,475
  Diluted ...........................................         257,204          261,394          271,245
                                                          -----------      -----------      -----------


The accompanying notes are a part of the consolidated financial statements.

                                       29



BIOMET, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.



                                                                                                          Accumulated
                                                                               Additional                    Other        Total
                                                             Common Shares       Paid-In     Retained    Comprehensive Shareholders'
(in thousands, except per share  amounts)                 Number     Amount      Capital     Earnings     Income(Loss)    Equity
                                                          -------   ---------  ----------   -----------  ------------- -------------
                                                                                                     
Balance at May 31, 2001 ............................      269,124   $ 108,918   $  48,732   $ 1,044,564    $ (56,028)   $ 1,146,186
                                                                                                                        -----------
  Net income .......................................            -           -           -       239,740            -        239,740
  Change in unrealized holding value on investments,
    net of $374 tax effect .........................            -           -           -             -          692            692
  Reclassification adjustment for gains included
    in net income, net of $63 tax expense ..........            -           -           -             -          118            118
  Currency translation adjustments .................            -           -           -             -        4,392          4,392
                                                                                                                        -----------
    Comprehensive income ...........................            -           -           -             -            -        244,942
                                                                                                                        -----------
  Exercise of stock options ........................        1,872      18,351           -             -            -         18,351
  Tax benefit from exercise of stock options .......            -           -       1,268             -            -          1,268
  Purchase of shares ...............................       (7,345)     (2,852)     (1,132)     (206,016)           -       (210,000)
  Cash dividends ($.09 per common share) ...........            -           -           -       (24,268)           -        (24,268)
                                                          -------   ---------   ---------   -----------    ---------    -----------
Balance at May 31, 2002 ............................      263,651     124,417      48,868     1,054,020      (50,826)     1,176,479
                                                                                                                        -----------
  Net income .......................................            -           -           -       286,701            -        286,701
  Change in unrealized holding value on investments,
    net of $923 tax effect .........................            -           -           -             -        1,716          1,716
  Reclassification adjustment for gains included
    in net income, net of $34 tax expense ..........            -           -           -             -           63             63
  Currency translation adjustments .................            -           -           -             -       38,707         38,707
                                                                                                                        -----------
    Comprehensive income ...........................            -           -           -             -            -        327,187
                                                                                                                        -----------
  Exercise of stock options ........................        1,965      21,349           -             -            -         21,349
  Tax benefit from exercise of stock options .......            -           -       5,579             -            -          5,579
  Purchase of shares ...............................       (8,127)     (3,835)     (1,506)     (213,843)           -       (219,184)
  Cash dividends ($ 10 per common share) ...........            -           -           -       (26,416)           -        (26,416)
  Other ............................................            -           -       1,140             -            -          1,140
                                                          -------   ---------   ---------   -----------    ---------    -----------
Balance at May 31, 2003 ............................      257,489     141,931      54,081     1,100,462      (10,340)     1,286,134
                                                                                                                        -----------
  Net income .......................................            -           -           -       325,627            -        325,627
  Change in unrealized holding value on investments,
    net of $71 tax effect ..........................            -           -           -             -          133            133
  Reclassification adjustment for losses included
    in net income, net of $158 tax effect ..........            -           -           -             -         (294)          (294)
  Currency translation adjustments .................            -           -           -             -       12,384         12,384
                                                                                                                        -----------
    Comprehensive income ...........................            -           -           -             -            -        337,850
                                                                                                                        -----------
  Exercise of stock options ........................        1,921      28,208           -             -            -         28,208
  Tax benefit from exercise of stock options .......            -           -       5,953             -            -          5,953
  Purchase of shares ...............................       (5,148)     (2,838)     (1,083)     (168,803)           -       (172,724)
  Cash dividends ($ 15 per common share) ...........            -           -           -       (38,604)           -        (38,604)
  Other ............................................            -           -       1,393             -            -          1,393
                                                          -------   ---------   ---------   -----------    ---------    -----------
Balance at May 31, 2004 ............................      254,262   $ 167,301   $  60,344   $ 1,218,682    $   1,883    $ 1,448,210
                                                          -------   ---------   ---------   -----------    ---------    -----------


The accompanying notes are a part of the consolidated financial statements.

                                                   30



BIOMET, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS.

For the years ended May 31,
(in thousands)



                                                                  2004        2003        2002
                                                                               
Cash flows from (used in) operating activities:
 Net income ..................................................  $ 325,627   $ 286,701   $ 239,740
  Adjustments to reconcile net income to net cash from
   operating activities:
  Depreciation ...............................................     52,461      42,174      35,410
  Amortization ...............................................      7,007       3,485      12,417
  Write-down of investments ..................................          -           -       9,000
  Minority interest ..........................................      7,071       8,081       8,710
  Other ......................................................       (214)     (1,926)       (916)
  Deferred income taxes ......................................    (13,686)     (1,364)     (2,992)
  Tax benefit from exercise of stock options .................      5,953       5,579       1,268
  Changes in current assets and liabilities, excluding effects
   of acquisition and dispositions:
    Accounts and notes receivable ............................    (29,955)    (35,144)    (38,537)
    Inventories ..............................................      2,888       7,591     (48,903)
    Accounts payable .........................................     10,949       3,738       9,488
    Accrued litigation .......................................          -      (5,864)    (20,236)
    Other ....................................................     17,988      (2,774)    (20,212)
                                                                ---------   ---------   ---------
      Net cash from operating activities .....................    386,089     310,277     184,237
                                                                ---------   ---------   ---------
Cash flows from (used in) investing activities:
  Proceeds from sales and maturities of investments ..........    236,360     175,655     116,189
  Purchases of investments ...................................   (119,819)   (131,633)   (121,619)
  Capital expenditures .......................................    (61,342)    (59,770)    (62,275)
  Acquisitions, net of cash acquired .........................   (307,475)          -      (6,735)
  Other ......................................................     (1,205)     (3,949)     (2,979)
                                                                ---------   ---------   ---------
      Net cash used in investing activities ..................   (253,481)    (19,697)    (77,419)
                                                                ---------   ---------   ---------
Cash flows from (used in) financing activities:
  Increase (decrease) in short-term borrowings ...............    (11,487)      1,443      26,994
  Issuance of shares .........................................     28,208      21,349      18,351
  Cash dividends .............................................    (38,604)    (26,416)    (24,268)
  Purchase of common shares ..................................   (172,724)   (219,184)   (210,000)
                                                                ---------   ---------   ---------
      Net cash used in financing activities ..................   (194,607)   (222,808)   (188,923)
                                                                ---------   ---------   ---------
Effect of exchange rate changes on cash ......................     (4,408)      3,581       1,311
                                                                ---------   ---------   ---------
      Increase (decrease) in cash and cash equivalents .......    (66,407)     71,353     (80,794)
Cash and cash equivalents, beginning of year .................    225,650     154,297     235,091
                                                                ---------   ---------   ---------
Cash and cash equivalents, end of year .......................  $ 159,243   $ 225,650   $ 154,297
                                                                =========   =========   =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
  Interest ...................................................  $   3,657   $   4,667   $   3,639
  Income taxes ...............................................    176,374     156,570     140,228


The accompanying notes are a part of the consolidated financial statements.

                                       31



BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Note A: Nature of Operations.

Biomet, Inc. and its subsidiaries design, manufacture and market products used
primarily by musculoskeletal medical specialists in both surgical and
nonsurgical therapy, including reconstructive products, fixation devices, spinal
products and other products. Headquartered in Warsaw, Indiana, the Company and
its subsidiaries currently distribute products in more than 100 countries. The
Company operates in one business segment, but has three reportable geographic
segments.

Note B: Accounting Policies.

The following is a summary of the accounting policies adopted by Biomet, Inc.
that have a significant effect on the consolidated financial statements.

Basis of Presentation - The consolidated financial statements include the
accounts of Biomet, Inc. and its subsidiaries (individually and collectively,
the "Company"). All foreign subsidiaries are consolidated on the basis of an
April 30 fiscal year. All significant intercompany accounts and transactions are
eliminated. Investments in affiliates in which the Company does not have the
ability to significantly influence the operations are accounted for on the cost
method, the carrying amount of which approximates market. Investments in
affiliates in which the Company does have the ability to significantly influence
the operations, but does not control, are accounted for on the equity method.

Use of Estimates - The consolidated financial statements are prepared in
conformity with U.S. generally accepted accounting principles and, accordingly,
include amounts that are based on management's best estimates and judgments.

Translation of Foreign Currency - Assets and liabilities of foreign subsidiaries
are translated at rates of exchange in effect at the close of their fiscal year.
Revenues and expenses are translated at the weighted average exchange rates
during the year. Translation gains and losses are accumulated within other
comprehensive income (loss) as a separate component of shareholders' equity.
Foreign currency transaction gains and losses resulting from product transfer
between subsidiaries is recorded in cost of goods sold. Other foreign currency
exchange gains and losses, which are not material, are included in other income,
net.

Cash and Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.

Investments - Highly liquid investments with original maturities of three months
or less are classified as cash and cash equivalents. Certificates of deposit
with maturities greater than three months and less than one year are classified
as short-term investments. Certificates of deposit with maturities greater than
one year are classified as long-term investments. The Company accounts for its
investments in debt and equity securities under Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain securities to be categorized
as either trading, available-for-sale or held-to-maturity. Available-for-sale
securities are carried at fair value with unrealized gains and losses recorded
within other comprehensive income (loss) as a separate component of
shareholders' equity. Held-to-maturity securities are carried at amortized cost.
The Company has no trading securities. The cost of investment securities sold is
determined by the specific identification method. Dividend and interest income
are accrued as earned. The Company reviews its investments quarterly for
declines in market value that are other than temporary. Investments that have
declined in market value that are determined to be other than temporary, are
charged to other income by writing that investment down to market value.

Concentrations of Credit Risk and Allowance for Doubtful Receivables - The
Company provides credit, in the normal course of business, to hospitals, private
and governmental institutions and healthcare agencies, insurance providers and
physicians. The Company maintains an allowance for doubtful receivables and
charges actual losses to the allowance when incurred. The Company invests the
majority of its excess cash in certificates of deposit with financial
institutions, money market securities, municipal, corporate and mortgaged-backed
securities and common stocks. The Company does not believe it is exposed to any
significant credit risk on its cash and cash equivalents or investments. At May
31, 2004 and 2003, cash and cash equivalents and investments included $44
million and $58 million, respectively, of cash deposits and certificates of
deposit with financial institutions in Puerto Rico. Also, at May 31, 2004 and
2003, investments included $9 million and $11 million, respectively, of
municipal bonds issued by state and local subdivisions in Puerto Rico.

Inventories - Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out method.

Property, Plant and Equipment - Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed by the
straight-line method over the estimated useful lives of 5 to 30 years for
buildings and improvements and 3 to 10 years for machinery and equipment. Gains
or losses on the disposition of property, plant and equipment are included in
income. Maintenance and repairs are expensed as incurred. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," the Company reviews property,
plant and equipment for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows relating to
the asset are less than its carrying amount.

                                       32



BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note B: Accounting Policies, Continued.

Goodwill - The Company accounts for goodwill in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets." SEAS No. 142, among other things,
requires that goodwill not be amortized but should be tested for impairment at
least annually. The Company adopted this statement during the first quarter of
fiscal 2003 by discontinuing the amortization of goodwill totaling $1.8 million
per quarter ($1.6 million net of tax). In addition, the Company reviews goodwill
for possible impairment by comparing the fair value of each reporting unit to
its carrying amount annually. Based on the Company's reviews, no impairment
charges have been recorded. The following tables show the reported net income
and earnings per share for fiscal year ended May 31, 2002, reconciles it to the
adjusted net income and earnings per share had the nonamortization provisions of
Statement 142 been applied beginning June 1, 2001, and compares it to the fiscal
years ended May 31, 2004 and 2003:

(in thousands, except per share data)



                                                      2004         2003         2002
                                                                    
Reported net income ........................       $   325,627  $   286,701  $   239,740
Effect of goodwill amortization ............                 -            -        6,400
                                                   -----------  -----------  -----------
As adjusted ................................       $   325,627  $   286,701  $   246,140
                                                   -----------  -----------  -----------
Reported earnings per share ................       $      1.27  $      1.10  $      0.89
Effect of goodwill amortization ............                 -            -         0.03
                                                   -----------  -----------  -----------
As adjusted ................................       $      1.27  $      1.10  $      0.92
                                                   -----------  -----------  -----------
Reported diluted earnings per share ........       $      1.27  $      1.10  $      0.88
Effect of goodwill amortization ............                 -            -         0.03
                                                   -----------  -----------  -----------
As adjusted ................................       $      1.27  $      1.10  $      0.91
                                                   -----------  -----------  -----------


Other Intangible Assets - Intangible assets consist primarily of developed
technology and patents, trademarks and trade names, customer relationships and
covenants not to compete and are carried at cost less accumulated amortization.
Intangible assets with an indefinite life, including certain trademarks and
trade names, are not amortized. The useful life of indefinite life intangible
assets is assessed annually to determine whether events and circumstances
continue to support an indefinite life. Amortization of intangibles with a
finite life is computed based on the straight-line method over periods ranging
from 3 to 15 years. In addition, the Company reviews other intangible assets for
possible impairment annually or whenever events or circumstances indicate that
the carrying amount may not be recoverable.

Income Taxes - Deferred income taxes are determined using the liability method.
No provision has been made for U.S. and state income taxes or foreign
withholding taxes on the undistributed earnings (approximately $197 million at
May 31, 2004) of foreign subsidiaries because it is expected that such earnings
will be reinvested overseas indefinitely. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to U.S. income
taxes (subject to an adjustment for foreign tax credits), state income taxes and
withholding taxes payable to the various foreign countries. Determination of the
amount of any unrecognized deferred income tax liability on these undistributed
earnings is not practical.

Fair Value of Financial Instruments - The carrying amounts of cash and cash
equivalents, receivables, short-term borrowings, accounts payable and accruals
that meet the definition of a financial instrument approximate fair value. The
fair value of investments is disclosed in Note D.

Revenue Recognition - For the majority of the Company's products in a country
where the Company has a direct distribution operation, revenue is recognized
upon notification to the Company that the product has been implanted in or
applied to the patient. For other products or services, and in countries where
the Company does not have a direct distribution operation, the Company
recognizes revenue when title passes to the customer and there are no remaining
obligations that will affect the customer's final acceptance of the sale. For
its insurance billings in the United States, the Company records anticipated
price adjustments, which can occur subsequent to invoicing, based on estimates
derived from past experience, as a reduction of net sales in the same period
that revenue is recognized. The Company also records estimated sales returns and
other adjustments as a reduction of net sales in the same period that revenue is
recognized. Shipping and handling fees billed to customers are recorded as
revenue, while related costs are included in cost of goods sold.

Comprehensive Income - Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but are excluded from net income as these
amounts are recorded directly as an adjustment to shareholders' equity. The
Company's other comprehensive income is comprised of unrealized gains (losses)
on available-for-sale securities, net of tax, and foreign currency translation
adjustments.

The components of accumulated other comprehensive income (loss) at May 31, 2004
and 2003 are as follows:

(in thousands)



                                                       2004          2003
                                                             
Net unrealized holding loss on investments........   $ (2,752)     $ (2,591)
Cumulative translation adjustment.................      4,635        (7,749)
                                                     --------      --------
                                                     $  1,883      $(10,340)
                                                     --------      --------


                                       33


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note B: Accounting Policies, Concluded.

Stock-Based Compensation - As permitted by SFAS No. 123, the Company accounts
for its employee stock options using the intrinsic value method. Accordingly, no
compensation expense is recognized for the employee stock-based compensation
plans. If compensation expense for the Company's employee stock options had been
determined based on the fair value method of accounting in fiscal years 2004,
2003 and 2002, pro forma net income and diluted earnings per share would have
been as follows:



                                                                                  2004          2003          2002
                                                                                                  
Net income as reported (in thousands) .......................................  $   325,627   $   286,701   $   239,740
Deduct: Total stock-based employee compensation expense determined under fair
 value based method for all awards net of related tax effects (in  thousands)       (5,823)       (5,528)       (5,263)
                                                                               -----------   -----------   -----------
Pro forma net income (in thousands) .........................................  $   319,804   $   281,173   $   234,477
                                                                               -----------   -----------   -----------
Earnings per share:
  Basic, as reported ........................................................  $      1.27   $      1.10   $       .89
                                                                               -----------   -----------   -----------
  Basic, pro forma ..........................................................         1.25          1.08           .87
                                                                               -----------   -----------   -----------
  Diluted, as reported ......................................................         1.27          1.10           .88
                                                                               -----------   -----------   -----------
  Diluted, pro forma ........................................................         1.24          1.08           .86
                                                                               -----------   -----------   -----------


Under SFAS No. 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 2004, 2003 and 2002: (1) expected life of
option of 5.25, 4.8 and 4.8 years; (2) dividend yield of .51%, .38% and .40%;
(3) expected volatility of 34%, 35% and 35%; and (4) risk-free interest rate of
3.91%, 1,15% and 2.43%, respectively.

Other Charges/(Credits) - Other credits of $5.8 million for the year ended May
31, 2003 resulted from the Court of Appeals for the Federal Circuit's favorable
ruling that the Company did not owe post-judgment interest in the Tronzo
litigation (see Note M).

Accounting Pronouncements - Effective June 1, 2003, the Company adopted the
provisions of SFAS No. 143, "Accounting for Asset Retirement Obligations,"
without any material impact on its financial position, results of operations or
cash flows. In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46 addresses the requirements
for business enterprises to consolidate related entities, in which they do not
have controlling interests through voting or other rights, if they are
determined to be the primary beneficiary of these entities as a result of
variable economic interests. FIN 46 became effective for the Company beginning
in the third quarter of fiscal year 2004. The Company does not have any material
investments in variable interest entities, therefore, the adoption of this
interpretation has not and is not expected to have a material effect on the
Company's financial position, results of operations or cash flows.

Note C: Business Combinations.

On March 19, 2004, the Company acquired Merck KGaA's 50% interest in the Biomet
Merck joint venture for $300 million in cash. The Company accounted for this
acquisition as a purchase. Since the Company has had operating control of the
joint venture since its formation, the operations of the joint venture have been
consolidated since its formation and a minority interest deducted on the income
statement and shown on the balance sheet to account for Merck KGaA's 50% limited
partnership interest. From the date of acquisition, the minority interest has
been eliminated and 50% of the respective assets and liabilities have been
stepped up to their estimated fair values in the Company's consolidated
financial statements, with the excess purchase price being allocated to
goodwill.

The Company completed its initial purchase price allocation in accordance with
U.S. generally accepted accounting principles. The process included interviews
with Biomet Merck management, review of the economics and competitive
environment in which Biomet Merck operates and examination of assets, including
historical performance and future prospects. The purchase price allocation was
based on information currently available to the Company, and expectations and
assumptions deemed reasonable to the Company's management. No assurances can be
given, however, that the underlying assumptions used to estimate expected
technology based product revenues, development costs or profitability, or the
events associated with such technology, will occur as projected.

                                       34


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

Note C: Business Combinations, Concluded.

The following table summarizes the estimated step-up of the assets acquired and
liabilities assumed in the acquisition:
(in thousands)



                                                     As of
                                                 March 19, 2004
                                                 --------------
                                              
Inventories ..................................      $  19,600
Intangible assets not subject to amortization:
  Trademarks and trade names .................         27,500
Intangible assets subject to amortization:
  Covenant not to compete ....................          3,100
  Developed technology .......................         12,500
  Trademarks and trade names .................          1,100
  Customer relationships .....................          1,650
In-process research and development ..........          1,250
Other assets .................................          3,362
Goodwill .....................................        125,497
                                                    ---------
    Total asset step-up ......................      $ 195,559
                                                    ---------
Deferred taxes ...............................         17,622
Pension liabilities ..........................          7,109
Other ........................................        (10,214)
Elimination of minority interest .............       (118,958)
                                                    ---------
    Total liability step-up or elimination ...       (104,441)
                                                    ---------
Net assets acquired ..........................      $ 300,000
                                                    =========


The $1,250,000 assigned to in-process research and development was written off
as of the acquisition date. The weighted average amortization period for
amortizable intangibles is 9 years. No amount of goodwill is expected to be
deductible for tax purposes.

Other Acquisitions - During fiscal years 2004 and 2002, the Company completed
several acquisitions of foreign distributors and/or businesses for $7,475,000
and $6,735,000 respectively. The acquisitions were accounted for using the
purchase method of accounting with the operating results of the acquired
businesses included in the Company's consolidated financial statements from the
date of acquisition. Goodwill recognized in connection with these acquisitions
aggregated $12.9 million and $0, respectively. Pro forma financial information
reflecting all acquisitions accounted for as purchases has not been presented as
it is not materially different from the Company's historical results.

Investment in Affiliate - In April 1999, the Company entered into an agreement
with Selective Genetics, Inc. ("Selective Genetics"). Under the terms of the
agreement, the Company has paid approximately $6 million for preferred stock of
Selective Genetics. During the fourth quarter of fiscal 2002, the Company
determined that its equity investment in Selective Genetics had been permanently
impaired. Therefore, a charge of $5.5 million was included in other income.
Under the agreement, the Company will fund as incurred certain defined research
and development efforts of Selective Genetics in exchange for license rights to
market certain products to be manufactured by Selective Genetics. Amounts funded
under the agreement are charged to research and development expense.

Note D: Investments.

At May 31, 2004, the Company's investment securities were classified as follows:
(in thousands)



                              Amortized       Unrealized
                                Cost       Gains     Losses   Fair value
                                                  
Available-for-sale:
Debt securities .............  $10,368    $     -    $  (721)   $ 9,647
Equity securities ...........   21,602        904     (2,153)    20,353
Mortgage-backed securities...   37,175          -     (2,263)    34,912
                               -------    -------    -------    -------
  Total available-for-sale ..   69,145        904     (5,137)    64,912
                               -------    -------    -------    -------
Held-to-maturity:
Debt securities .............    6,958         61          -      7,019
Mortgage-backed obligations..    1,399          -          -      1,399
                               -------    -------    -------    -------
  Total held-to-maturity ....    8,357         61          -      8,418
                               -------    -------    -------    -------
Certificates of deposit .....    3,100          -          -      3,100
                               -------    -------    -------    -------
Total .......................  $80,602    $   965    $(5,137)   $76,430
                               -------    -------    -------    -------


                                       35




BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

Note D: Investments, Concluded.

At May 31, 2003, the Company's Investment securities were classified as follows:
(in thousands)



                                Amortized      Unrealized
                                   Cost     Gains     Losses    Fair value
                                ---------  --------  --------   ----------
                                                    
Available-for-sale:
Debt securities ...............  $ 89,940  $    862  $   (566)   $ 90,236
Equity securities .............    21,065        54    (4,180)     16,939
Mortgage-backed securities.....    72,163       227      (382)     72,008
                                 --------  --------  --------    --------
  Total available-for-sale.....   183,168     1,143    (5,128)    179,183
                                 --------  --------  --------    --------
Held-to-maturity:
Debt securities ...............     8,020       697         -       8,717
Mortgage-backed obligations....     2,641         -         -       2,641
                                 --------  --------  --------    --------
  Total held-to-maturity ......    10,661       697         -      11,358
                                 --------  --------  --------    --------
Certificates of deposit .......     3,100         -         -       3,100
                                 --------  --------  --------    --------
Total .........................  $196,929  $  1,840  $ (5,128)   $193,641
                                 --------  --------  --------    --------


Proceeds from sales of available-for-sale securities were $178,165,000,
$71,361,000 and $35,730,000 for the years ended May 31, 2004, 2003 and 2002,
respectively. There were no sales of held-to-maturity securities for the years
ended May 31, 2004, 2003 and 2002. The cost of marketable securities sold is
determined by the specific identification method. For the year ended May
31, 2004, gross realized gains and (losses) on sales of available-for-sale
securities were $1,669,000 and $(1,455,000), respectively. For the year ended
May 31, 2003, gross realized gains and (losses) on sales of available-for-sale
securities were $2,414,000 and $(488,000), respectively. Gross realized gains
and (losses) for the year ended May 31, 2002 were $1,313,000 and $(397,000),
respectively. The Company's investment securities at May 31, 2004 include
$9,030,000 of debt securities and $1,000,000 of certificates of deposits all
maturing within one year, and $2,100,000 of certificates of deposit, $7,575,000
of debt securities and $36,311,000 of mortgage-backed securities all maturing
past one year.

Investment income (included in other income, net) consists of the following:
(in thousands)



                          2004    2003     2002
                                 
Interest income ......  $ 8,271  $10,399  $17,562
Dividend income ......    2,150    3,067    3,195
Net realized gains....    3,576    1,926      916
                        -------  -------  -------
  Total ..............  $13,997  $15,392  $21,673
                        -------  -------  -------


Note E: Inventories.

Inventories at May 31, 2004 and 2003 consist of the following:
(in thousands)



                             2004      2003
                               
Raw materials ..........   $ 34,075  $ 37,685
Work-in-progress .......     43,187    38,110
Finished goods .........    163,299   142,483
Consigned distributor...    148,830   137,992
                           --------  --------
Total ..................   $389,391  $356,270
                           --------  --------


Reserves for excess and slow-moving inventory at May 31, 2004 and 2003 were
$81,655,000 and $80,467,000, respectively.

                                       36


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

Note F: Goodwill and Other Intangible Assets.

The following table summarizes the changes in the carrying amount of goodwill
for the year ended May 31, 2004:

(in thousands)


                                                         United             Rest of
                                                         States    Europe    World      Total
                                                         ------    ------    -----      -----
                                                                           
Balance at June 1, 2003 ..............................  $ 76,403  $ 45,213  $  5,090   $126,706
  Goodwill acquired:
    Merck's 50% interest in Biomet Merck joint
      venture.........................................         -   125,497         -    125,497
    Other ............................................         -    14,443         -     14,443
  Currency translation ...............................         -     1,217    (1,003)       214
                                                        --------  --------  --------   --------
Balance at May 31, 2004 ..............................  $ 76,403  $186,370  $  4,087   $266,860
                                                        --------  --------  --------   --------


The components of identifiable intangible assets are as follows as of May 31:
(in thousands)


                                                       2004                   2003
                                                 Gross                Gross
                                               Carrying Accumulated  Carrying Accumulated
                                                Amount  Amortization  Amount  Amortization
                                               -------- ------------ -------- ------------
                                                                  
Intangible assets subject to amortization:
 Developed technology and patents ............  $26,786    $ 7,110    $15,642    $ 7,127
 Trademarks and trade names ..................    1,329        149        255        119
 Customer relationships ......................    1,650         15          -          -
 Covenants not to compete ....................    3,100         78          -          -
 Other .......................................      723        165      2,223          -
                                                -------    -------    -------    -------
                                                 33,588      7,517     18,120      7,246
                                                -------    -------    -------    -------
Intangible assets not subject to amortization:
 Trademarks and trade names ..................   27,500          -          -          -
                                                -------    -------    -------    -------
Total identifiable intangible assets .........  $61,088    $ 7,517    $18,120    $ 7,246
                                                -------    -------    -------    -------


Total amortization expense for finite-lived intangible assets was $7,007,000,
$3,485,000 and $12,417,000 in 2004, 2003 and 2002, respectively and was recorded
as part of selling, general and administrative expense. The weighted average
amortization lives for the covenants not to compete, developed technology and
patents, trademarks and trade names, and customer relationships are 5 years, 10
years, 10 years and 15 years, respectively. The weighted average amortization
life of these intangible assets on a combined basis is 9 years. Estimated annual
amortization expense for the years ended May 31, 2005 through 2009 is $6.1
million.

Note G: Debt.

At May 31, 2004 and 2003, short-term borrowings consist of the following:
(in thousands)


                                         2004       2004
                                            
Bank line of credit-Biomet Europe...   $ 81,516   $ 97,634
Bank line of credit-Biomet Japan....     28,138     16,486
                                       --------   --------
  Total.............................   $109,654   $114,120
                                       --------   --------


Biomet Europe has a EUR 100 million ($120 million at May 31, 2004) unsecured
line of credit with a major European bank. This line of credit is used to
finance its operations and interest on outstanding borrowings is payable monthly
at the lender's interbank rate plus 0.6% (effective rate of 2.66% and 3.18% at
May 31, 2004 and 2003, respectively). Biomet Japan has a YEN 3.5 billion ($32
million at May 31, 2004) unsecured line of credit with major Japanese banks.
This line of credit is used to finance its operations and interest on
outstanding borrowings is payable monthly at the lender's interbank rate plus
0.6% (effective rate of 1.02% and 1.00% at May 31, 2004 and 2003).

Note H: Team Member Benefit Plans.

The Company has an Employee Stock Bonus Plan for eligible Team Members of the
Company and certain subsidiaries. The Company may contribute up to 3% of an
eligible Team Member's compensation. The amounts expensed under this plan for
the years ended May 31, 2004, 2003 and 2002 were $5,759,000, $5,792,000 and
$4,290,000, respectively. The Company makes cash contributions to the plan and
issues no Common Shares in connection with the plan.

The Company also has a defined contribution profit sharing plan which covers
substantially all of the Team Members within the continental U.S. and allows
participants to make contributions by salary reduction pursuant to Section 401
(k) of the Internal Revenue Code. The Company may match up to 75% of the Team
Member's contribution up to a maximum of 5% of the Team Member's compensation.
The amounts expensed under this profit sharing plan for the years ended May 31,
2004, 2003 and 2002 were $4,586,000, $4,916,000 and $4,953,000, respectively.

                                       37


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note I: Stock Option Plans.

The Company has various stock option plans: the 1992 Employee and Non-Employee
Director Stock Option Plan; the 1992 Distributor Stock Option Plan and the
Biomet, Inc. 1998 Qualified and Non-Qualified Stock Option Plan. At May 31,
2004, the only plan with shares available for grant is the 1998 Qualified and
Non-Qualified Stock Option Plan.

Under the stock option plans, options may be granted to key employees,
non-employee directors and distributors, at the discretion of the Compensation
and Stock Option Committee, and generally become exercisable in annual or
biannual increments beginning one or two years after the date of grant in the
case of employee options and in annual increments beginning at the date of grant
for distributor options. In the case of options granted to an employee of the
Company who is a 10% or more shareholder, the option price is an amount per
share not less than 110% of the fair market value per share on the date of
granting the option, as determined by the Compensation and Stock Option
Committee. No options have been granted to employees who are 10% or more
shareholders. The option price for options granted to all other employees,
distributors and non-employee directors is an amount per share not less than the
fair market value per share on the date of granting the option. The term of each
option granted expires within the period prescribed by the Compensation and
Stock Option Committee, but shall not be more than five years from the date the
option is granted if the optionee is a 10% or more shareholder, and not more
than ten years for all other optionees. All rights under the options
automatically terminate upon the optionee's separation from service with the
Company, unless such separation results from retirement, disability or death.
For the years ended May 31, 2004, 2003 and 2002, the amount of compensation
expense applicable to options granted to distributors was not material to the
consolidated financial statements.

The following table summarizes stock option activity:



                                                                 Number   Weighted Average of
                                                                 Shares     Exercise Price
                                                                 ------   -------------------
                                                                    
Outstanding, May 31, 2001 .................................    8,710,417        $13.81
  Granted .................................................    1,721,171         26.82
  Exercised................................................   (1,665,194)        12.29
  Terminated ..............................................     (379,573)        14.21
                                                               ---------
Outstanding, May 31, 2002 .................................    8,386,821         15.07
  Granted .................................................    1,826,475         27.73
  Exercised ...............................................   (2,026,034)        11.84
  Terminated ..............................................     (395,121)        16.25
                                                               ---------
Outstanding, May 31, 2003..................................    7,792,141         20.93
  Granted..................................................    1,892,270         34.45
  Exercised................................................   (1,982,116)        15.45
  Terminated...............................................     (344,926)        20.75
                                                               ---------
Outstanding, May 31, 2004..................................    7,357,369        $25.89
                                                               ---------


Options outstanding at May 31, 2004, are exercisable at prices ranging from
$6.72 to $40.69 and have a weighted average remaining contractual life of 6.2
years. At May 31, 2004 there were 3,939,375 shares available for future option
grants. The following table summarizes information about stock options
outstanding at May 31, 2004.



                                      Outstanding
                                       Weighted        Weighted
                      Number            Average        Average      Number         Weighted
   Range of       Outstanding at       Remaining       Exercise  Exercisable at     Average
Exercise Price     May 31, 2004     Contractual Life    Price     May 31, 2004   Exercise Price
- --------------    --------------    ----------------   --------  --------------  --------------
                                                                  
  $6.72-15.00          956,695         1.9 YEARS        $11.95       632,868         $12.17
  15.01-25.00        1,334,144         5.0 YEARS         20.06       471,843          19.47
  25.01-35.00        4,162,334         7.2 YEARS         28.08       624,247          27.44
  35.01-40.69          904,196         8.4 YEARS         39.11        52,425          39.81
                     ---------                                     ---------
                     7,357,369                                     1,781,383
                     ---------                                     ---------


At May 31, 2003 and 2002, there were exercisable options outstanding to purchase
2,172,070 and 2,606,065 shares, respectively, at weighted average exercise
prices of $15.90 and $12.87, respectively. The weighted average fair value of
options granted during the fiscal years ended May 31, 2004, 2003, and 2002 was
$11.03, $8.56, and $9.32 respectively.

                                       38


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

Note J: Shareholders' Equity & Earnings Per Share.

The Company announced a cash dividend of twenty cents ($0.20) per share, payable
July 23, 2004 to shareholders of record at the close of business on July
16, 2004.

Shares used in computation of diluted earnings per share reflect the dilutive
effect of stock options.

In December 1999, the Board of Directors of the Company adopted a new
Shareholder Rights Plan (the "Plan") to replace a 1989 rights plan that expired
on December 2, 1999. Under the Plan, rights have attached to the outstanding
common shares at the rate of one right for each share held by shareholders of
record at the close of business on December 28, 1999. The rights will become
exercisable only if a person or group of affiliated persons (an "Acquiring
Person") acquires 15% or more of the Company's common shares or announces a
tender offer or exchange offer that would result in the acquisition of 30% or
more of the outstanding common shares. At that time, the rights may be redeemed
at the election of the Board of Directors of the Company. If not redeemed, then
prior to the acquisition by the Acquiring Person of 50% or more of the
outstanding common shares of the Company, the Company may exchange the rights
(other than rights owned by the Acquiring Person, which would have become void)
for common shares (or other securities) of the Company on a one-for-one basis.
If not exchanged, the rights may be exercised and the holders may acquire
preferred share units or common shares of the Company having a value of two
times the exercise price of $117.00. Each preferred share unit carries the same
voting rights as one common share. If the Acquiring Person engages in a merger
or other business combination with the Company, the rights would entitle the
holders to acquire shares of the Acquiring Person having a market value equal to
twice the exercise price of the rights. The Plan will expire in December 2009.
The Plan is intended to protect the interests of the Company's shareholders
against certain coercive tactics sometimes employed in takeover attempts.

Note K: Income Taxes.

The components of income before income taxes are as follows:
(in thousands)



                                                                  2004            2003            2002
                                                                                       
United States operations..................................      $468,701        $417,315        $336,523
Foreign operations........................................        40,095          34,428          39,592
                                                                --------        --------        --------
  Total...................................................      $508,796        $451,743        $376,115
                                                                --------        --------        --------


The provision for income taxes is summarized as follows:
(in thousands)



                                                                  2004            2003            2002
                                                                                       
Current:
  Federal ................................................      $156,925        $128,319        $100,599
  State, including Puerto Rico ...........................        20,865          18,606          16,354
  Foreign ................................................        11,994          11,400          13,704
                                                                --------        --------        --------
                                                                 189,784         158,325         130,657
Deferred .................................................       (13,686)         (1,364)         (2,992)
                                                                --------        --------        --------
  Total ..................................................      $176,098        $156,961        $127,665
                                                                --------        --------        --------
Effective tax rate .......................................          34.6%           34.7%           33.9%
                                                                --------        --------        --------


A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:



                                                                  2004            2003            2002
                                                                                       
U.S. statutory income tax rate............................          35.0%           35.0%           35.0%
Add (deduct):
  State taxes, less effect of federal reduction...........           2.1             2.3             2.6
  Foreign income taxes at rates different from the U.S.
   statutory rate ........... ............................           (.4)            (.1)             .4
  Tax benefit relating to operations in Puerto Rico.......           (.2)            (.3)            (.1)
  Tax credits ..... ......................................           (.7)            (.4)            (.7)
  Earnings of Foreign Sales Corporation ..................           (.5)            (.6)            (.6)
  Other ..................................................           (.7)           (1.2)           (2.7)
                                                                --------        --------        --------
Effective tax rate .......................................          34.6%           34.7%           33.9%
                                                                --------        --------        --------


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

Note K: Income Taxes, Concluded.

The components of the net deferred tax asset and liability at May 31, 2004 and
2003 are as follows:

(in thousands)


                                                             2004         2003
                                                           --------    --------
                                                                 
Current deferred tax asset:
  Accounts and notes receivable .........................  $ 31,033    $ 19,283
  Inventories ...........................................    32,301      27,040
  Accrued expenses ......................................     6,045       7,939
                                                           --------    --------
    Current deferred tax asset ..........................   $69,379    $ 54,262
                                                           --------    --------
Long-term deferred tax asset (liability):
  Depreciation ..........................................  $(10,657)   $ (8,165)
  Financial accounting basis of net assets of acquired
  companies different than tax basis ....................   (19,362)     (3,433)
  Other .................................................     3,934    $  4,567
                                                           --------    --------
    Long-term deferred tax liability ....................  $(26,085)   $ (7,031)
                                                           --------    --------


Note L: Segment Data.

The Company operates in one business segment, musculoskeletal products, which
includes the designing, manufacturing and marketing of reconstructive products,
fixation devices, spinal products and other products. Other products consist
primarily of EBI's softgoods and bracing products, Arthrotek's arthroscopy
products, general instruments and operating room supplies. The Company manages
its business segment primarily on a geographic basis. These geographic markets
are comprised of the United States, Europe and the Rest of World. Major markets
included in the Rest of World geographic market are Australia, Japan and Canada.
The Company evaluates performance based on operating income of each geographic
segment. Identifiable assets are those assets used exclusively in the operations
of each geographic segment. Revenues attributable to each geographic segment are
based on the location of the customer.

Net sales of musculoskeletal products by product category and reportable
geographic segment results are as follows:

(in thousands)


                                    2004         2003         2002
                                 ----------   ----------   ----------
                                                  
Reconstructive products ......   $1,052,865   $  867,602   $  721,004
Fixation devices .............      248,821      237,117      215,544
Spinal products ..............      159,927      143,607      125,119
Other products ...............      153,640      141,974      130,235
                                 ----------   ----------   ----------
                                 $1,615,253   $1,390,300   $1,191,902
                                 ----------   ----------   ----------
Net sales to customers:
  United States ..............  $ 1,079,532   $  966,638   $  856,375
  Europe .....................      418,328      332,053      260,420
  Rest of World ..............      117,393       91,609       75,107
                                 ----------   ----------   ----------
                                 $1,615,253   $1,390,300   $1,191,902
                                 ----------   ----------   ----------
Operating income:
  United  States .............   $  443,862   $  394,641   $  326,906
  Europe .....................       45,528       41,924       39,152
  Rest of World ..............        4,241        1,540        4,636
                                 ----------   ----------   ----------
                                 $  493,631   $  438,105   $  370,694
                                 ----------   ----------   ----------
Long-lived assets:
  United States ..............   $  241,035   $  238,249   $  226,406
  Europe .....................      334,177      141,950      121,253
  Rest of World ..............       19,814       13,742       10,061
                                 ----------   ----------   ----------
                                 $  595,026   $  393,941   $  357,720
                                 ----------   ----------   ----------
Capital expenditures:
  United States ..............   $   26,833   $   31,780   $   36,795
  Europe .....................       26,068       21,868       22,923
  Rest of World ..............        8,441        6,122        2,557
                                 ----------   ----------   ----------
                                 $   61,342   $   59,770   $   62,275
                                 ----------   ----------   ----------
Depreciation and amortization:
  United States ..............   $   22,309   $   20,535   $   25,031
  Europe .....................       31,996       22,352       21,609
  Rest of World ..............        5,163        2,772        1,187
                                 ----------   ----------   ----------
                                 $   59,468   $   45,659   $   47,827
                                 ----------   ----------   ----------

                                       40


BIOMET, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONCLUDED)

Note M: Commitments & Contingencies.

Medical Insurance Plan - The Company maintains a self-insurance program for
covered medical expenses for all Team Members within the continental U.S. The
Company is liable for claims up to $150,000 per insured annually, as well as an
additional annual aggregate of $60,000. Self-insurance costs are accrued based
upon the aggregate of the liability for reported claims and a
management-determined estimated liability for claims incurred but not reported.

Liability Insurance - Since 1989, the Company has self-insured against product
liability claims, and at May 31, 2004 the Company's self-insurance limits were
$3,000,000 per occurrence and $6,000,000 aggregate per year. Liabilities in
excess of these amounts are the responsibility of the Company's insurance
carrier. Self-insurance costs are accrued based on reserves set in consultation
with the insurance carrier for reported claims and a management-determined
estimated liability for claims incurred but not reported. Based on historical
experience, management does not anticipate that incurred but unreported claims
would have a material impact on the Company's consolidated financial position.

Litigation - In January 1996, a jury returned a verdict in a patent infringement
matter against the Company and in favor of Raymond G. Tronzo ("Tronzo"), which
in August 1998 was subsequently reversed and vacated by the United States Court
of Appeals for the Federal Circuit (the "Federal Circuit"). The Federal Circuit
then remanded the case to the District Court for the Southern District of
Florida (the "District Court") for further consideration on state law claims
only. On August 27, 1999, the District Court entered a final judgment of $53,520
against the Company. Tronzo then appealed the District Court's final judgment
with the Federal Circuit and in January 2001 the Federal Circuit reinstated a
$20 million punitive damage award against the Company while affirming the
compensatory damage award of $520. The Federal Circuit's decision was based
principally on procedural grounds, and in March 2001 it denied the Company's
combined petition for panel rehearing petition and petition for rehearing en
banc. On November 13, 2001, the United States Supreme Court denied the Company's
petition to review the $20 million punitive damage award against the Company
given to Tronzo. The Company had previously recorded a charge during the third
quarter of fiscal 2001 of $26.1 million, which represented the total damage
award plus the maximum amount of interest that, as calculated by the Company,
could have been due under the award and related expenses. The Company paid
$20,236,000 out of escrow. On February 12, 2003, the Federal Circuit ruled that
the Company did not owe post-judgment interest in connection with the damage
award paid in this case. As a result of this favorable ruling, the Company
recorded a pre-tax gain of approximately $5.8 million in the third quarter of
fiscal 2003, and management considers this matter fully concluded.

On October 3, 2002, a complaint was filed against the Company by Spinal
Concepts, Inc. ("Spinal Concepts") alleging that certain U.S. patents owned by
Spinal Concepts are infringed by the VueLock(R) Anterior Cervical Plate System
manufactured by EBI, L.P. The Company has received an opinion of counsel that
the patents cited by Spinal Concepts are not infringed by the VueLock(R) plate
system manufactured by EBI. The complaint seeks, among other things,
consequential and treble damages, a reasonable royalty and costs. The parties
continue to engage in discovery. The Company continues to manufacture and sell
the VueLock(R) Plate System. On June 28, 2004, the Company's subsidiary, Cross
Medical Products Inc., filed suit against Spinal Concepts alleging that Spinal
Concepts' InCompass(R) PathFinder,(TM) and SpeedLink(TM) products infringe U.S.
Patent Nos. 5,466,237, 5,474,555, and 5,624,442, all of which are owned by Cross
Medical. On July 14, 2004, the Company's subsidiary, EBI, L.P., also filed suit
against Spinal Concepts alleging that an instrument sold with Spinal Concepts'
AcuFix(TM) cervical plate infringes US Patent No. 6,599,290 owned by EBI.
Management intends to vigorously defend and prosecute this matter. We are unable
to determine the likelihood of a favorable outcome or the range of any potential
loss. The Company has no insurance coverage for any potential loss in this
matter.

There are various other claims, lawsuits, disputes with third parties,
investigations and pending actions involving various allegations against the
Company incident to the operation of its business, principally product liability
and intellectual property cases. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company establishes accruals for losses that are
deemed to be probable and subject to reasonable estimate. Based on the advice of
counsel to the Company in these matters, management believes that the ultimate
outcome of these matters and any liabilities in excess of amounts provided will
not have a material adverse impact on the Company's consolidated financial
statements taken as a whole.

Note N: Subsequent Event.

On June 18, 2004, the Company completed the acquisition of Interpore
International, Inc. Based in Irvine, California, Interpore is focused on
providing innovative products for spinal surgery. Its three major product groups
include spinal implants, orthobiologic products and minimally-invasive surgery
products which are used by orthopedic surgeons and neurosurgeons in a wide range
of applications. The Company purchased 100% of the outstanding shares for $14.50
per share in cash, representing a total equity value of approximately $280
million. The acquisition will be accounted for under the purchase method of
accounting pursuant to SFAS No. 141, "Business Combinations." Interpore's net
sales in 2003 were approximately $67.5 million. In conjunction with the
acquisition, the Company entered into a 36-month revolving credit facility in
the amount of $200 million.

                                       41


BIOMET, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS.

for the years ended May 31, 2004, 2003 and 2002(in thousands)



Col.A                            Col. B                Col. C                 Col. D           Col. E

                                                     Additions

                                                (1)           (2)
                                                           Charged to
Description                     Balance       Charged to     other                            Balance
                              beginning of    costs and    accounts-       Deductions        at end of
                                 period       expenses      describe        describe           period
                                -------        -------       ------          -------         ---------
                                                                              
Allowance for
doubtful receivables:

For the year ended
May 31,2004                     $18,742        $41,341       $1,195(B)       $14,562(A)       $43,384
                                                                223(C)
                                                             (3,555)(D)
                                =======        =======       ======          =======          =======
For the year ended
May 31, 2003                    $13,175        $17,981       $1,256(B)       $14,215(A)       $18,742
                                                                545(C)
                                =======        =======       ======          =======          =======
For the year ended
May 31, 2002                    $13,420        $15,400       $1,375(B)       $17,061(A)       $13,175
                                                                 41(C)
                                =======        =======       ======          =======          =======
Excess and obsolete
inventory reserves:

For the year ended
May 31, 2004                    $80,467        $37,338       $2,259(C)       $22,239(E)       $81,655
                                                            (16,170)(D)
                                =======        =======       ======          =======          =======
For the year ended
May 31, 2003                    $73,586        $24,446       $5,630(C)       $23,195(E)       $80,467
                                =======        =======       ======          =======          =======
For the year ended
May 31, 2002                    $53,992        $22,758         $270(C)       $15,297(E)       $73,586
                                                             11,863(D)
                                =======        =======       ======          =======          =======


Notes:

        (A) Uncollectible accounts written off
        (B) Collection of previously written off accounts
        (C) Effect of foreign currency translation
        (D) Acquisitions
        (E) Inventory written off

                                       42


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, the Company carried out an evaluation, under the
supervision and with the participation of its management, including the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on
this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective in timely notifying them of information the Company is required to
disclose in its periodic SEC filings and in ensuring that this information is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and regulations.

(b) Changes in Internal Control. During the fourth quarter of fiscal year 2004,
there have been no significant changes in our internal control over financial
reporting that have materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.

                                       43



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information included under the captions "Election of Directors" and "Section
16(e) Beneficial Ownership Reporting Compliance" in the Company's definitive
Proxy Statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A in connection with its 2004 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference in response to this item.

Information regarding executive officers of the Company is included in Part I of
this Report under the caption "Executive Officers of the Registrant."

The Company has adopted a Code of Business Conduct and Ethics (the "Code") that
applies to all of its employees, officers, and directors, including its Chief
Executive Officer, Chief Financial Officer, and Controller, as well as certain
other personnel associated with the Company. A copy of the Code is posted on the
Company's website at www.biomet.com in the Corporate Governance section. A free
copy of the Code may also be requested by contacting Biomet's Investor Relations
Department at P.O. Box 587, Warsaw, IN 46581-0587 or at 574-372-1514.

The Company has also adopted written charters for its Audit Committee and
Nominating and Corporate Governance Committee, each of which is posted on the
Company's website www.biomet.com in the Corporate Governance section. A free
copy of the charters may also be requested by contacting Biomet's Investor
Relations Department at P.O. Box 587, Warsaw, IN 46581-0587 or at 574-372-1514.

ITEM 11. EXECUTIVE COMPENSATION.

The information included under the captions "Election of Directors -
Compensation of Directors" and "Executive Compensation" in the Proxy Statement
is incorporated herein by reference in response to this item. The "Report of the
Compensation and Stock Option Committee" is not incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The information contained under the captions "Stock Ownership" in the Proxy
Statement is incorporated herein by reference in response to this item.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth information regarding the securities to be issued
and the securities remaining available for issuance under the Company's
stock-based incentive plans as of May 31, 2004 (in thousands, except exercise
price per share):



                                                                                             NUMBER OF SECURITIES REMAINING
                                           NUMBER OF SECURITIES TO    WEIGHTED-AVERAGE       AVAILABLE FOR FUTURE ISSUANCE
                                           BE ISSUED UPON EXERCISE    EXERCISE PRICE OF        UNDER EQUITY COMPENSATION
                                           OF OUTSTANDING OPTIONS,   OUTSTANDING OPTIONS,      PLANS (EXCLUDING SECURITIES
                                             WARRANTS AND RIGHTS     WARRANTS AND RIGHTS       REFLECTED IN FIRST COLUMN)
                                           -----------------------   -------------------       --------------------------
                                                                                    
Equity compensation plans approved
  by security holders ................             7,357                    $25.89                        3,939

Equity compensation plans not approved
  by security holders ................                 -                         -                            -
                                                   -----                    ------                        -----
Total ................................             7,357                    $25.89                        3,939


Further information about the Company's stock-based incentive plans can be found
in Note I to the financial statements contained in Item 8 of this report. The
Company does not have any plans not approved by its shareholders.

                                       44


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information contained under the caption "Certain Transactions" in the Proxy
Statement is incorporated herein by reference in response to this item.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Information relating to the Company's auditors and the Audit Committee's
pre-approval policies can be found under the caption "Matters Relating to
Auditors" in the Proxy Statement which is incorporated herein by reference. The
"Audit Committee Report" is not incorporated herein by reference.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a) THE FOLLOWING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
             ARE INCLUDED IN ITEM 8 HEREIN.

             (1) FINANCIAL STATEMENTS:

                 Report of Independent Registered Public Accounting Firm
                 Consolidated Balance Sheets as of May 31, 2004 and 2003
                 Consolidated Statements of Income for the years ended May 31,
                  2004, 2003 and 2002
                 Consolidated Statements of Shareholders' Equity for the years
                  ended May 31, 2004, 2003 and 2002
                 Consolidated Statements of Cash Flows for the years ended May
                  31, 2004, 2003 and 2002
                 Notes to Consolidated Financial Statements

             (2) FINANCIAL STATEMENT SCHEDULE:

                 Schedule II - Valuation and Qualifying Accounts

             (3) Exhibits:

                 Refer to the Index to Exhibits immediately following the
                 signature page of this report, which is incorporated herein by
                 reference.

         (b) REPORTS ON FORM 8-K.

                 On March 9,2004, the Company filed a current report on Form 8-K
                 under Item 5 announcing that it had entered into an Agreement
                 and Plan of Merger dated March 7, 2004 to acquire all of the
                 outstanding common stock of Interpore International, Inc. at a
                 price of $ 14.50 cash per share.

                 On March 24, 2004, the Company filed a current report on Form
                 8-K under Item 2 announcing the successful completion of its
                 agreement with Merck KGaA of Darmstadt, Germany ("Merck") to
                 acquire for $300 million in cash Merck's 50% limited partner
                 interest in BioMer C.V., the Dutch limited partnership joint
                 venture formed by Biomet and Merck in January 1988.

                 Subsequent Form 8-K Filings

                 On June 18, 2004, the Company filed a current report on Form
                 8-K under Item 2 announcing that the holders of a majority of
                 the common stock of Interpore International, Inc. ("Interpore")
                 approved the proposed merger of a wholly-owned subsidiary of
                 the Company with and into Interpore and, immediatly
                 thereafter, the merger was consummated. As a result of the
                 merger, Interpore shareholders were entitled to receive $14.50
                 per share in cash.

                                       45


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on August 11, 2004.

                                  BIOMET, INC.

               By: /s/  DANE A. MILLER
                   --------------------------------------------
                   Dane A. Miller, Ph.D.
                   President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on August 11, 2004.

               By: /s/ NILES L. NOBLITT
                   ---------------------------------------------
                   Niles L. Noblitt, Director

               By: /s/ DANE A. MILLER
                   --------------------------------------------
                   Dane A. Miller, Director
                   (Principal Executive Officer)

               By: /s/  JERRY L. FERGUSON
                   --------------------------------------------
                   Jerry L. Ferguson, Director

               By: /s/ M. RAY HARROFF
                   --------------------------------------------
                   M. Ray Harroff, Director

               By: /s/ KENNETH V. MILLER
                   --------------------------------------------
                   Kenneth V. Miller, Director

               By: /s/ JERRY L. MILLER
                   --------------------------------------------
                   Jerry L. Miller, Director

               By: /s/ L. GENE TANNER
                   --------------------------------------------
                   L. Gene Tanner, Director

                                       46



               By: /s/ THOMAS F. KEARNS, JR.
                   --------------------------------------------
                   Thomas F. Kearns, Jr., Director

               By: /s/ CHARLES E. NIEMIER
                   --------------------------------------------
                   Charles E. Niemier, Director

               By: /s/ DANIEL P. HANN
                   --------------------------------------------
                   Daniel P. Hann, Director

               By: /s/ MARILYN TUCKER QUAYLE
                   --------------------------------------------
                   Marilyn Tucker Quayle, Director

               By: /s/ C. SCOTT HARRISON
                   --------------------------------------------
                   C. Scott Harrison, Director

               By: /s/ GREGORY D. HARTMAN
                   --------------------------------------------
                   Gregory D. Hartman, Senior Vice President - Finance
                   (Principal Financial Officer)

               By: /s/ JAMES W. HALLER
                   --------------------------------------------
                   James W. Haller, Controller
                   (Principal Accounting Officer)

                                       47



                                INDEX TO EXHIBITS

EXHIBIT NUMBER ASSIGNED
IN REGULATION S-K, ITEM 601                  TITLE OF EXHIBITS

      (2)         No exhibit

      (3) 3.1     Amended Articles of Incorporation filed July 23, 1982.
                  (Incorporated by reference to Exhibit 3(a) to Biomet, Inc.
                  Form S-18 Registration Statement, File No. 2-78589C).

          3.2     Articles of Amendment to Amended Articles of Incorporation
                  filed July 11, 1983. (Incorporated by reference to Exhibit 3.2
                  to Biomet, Inc. Form 10-K Report for year ended May 31, 1983,
                  File No. 0-12515).

          3.3     Articles of Amendment to Amended Articles of Incorporation
                  filed August 22, 1987. (Incorporated by reference to Exhibit
                  3.3 to Biomet, Inc. Form 10-K Report for year ended May 31,
                  1987, File No. 0-12515).

          3.4     Articles of Amendment to the Amended Articles of Incorporation
                  filed September 18, 1989. (Incorporated by reference to
                  Exhibit 3.4 to Biomet, Inc. Form 10-K Report for year ended
                  May 31,1990, File No. 0-12515).

          3.5     Amended and Restated Bylaws as Amended December 13, 1997.
                  (Incorporated by reference to Exhibit 3.6 to Biomet, Inc. Form
                  10-K Report for year ended May 31, 1998, File No. 0-12515).

      (4) 4.1     Specimen certificate for Common Shares. (Incorporated by
                  reference to Exhibit 4.1 to Biomet, Inc. Form 10-K Report for
                  year ended May 31, 1985, File No. 0-12515).

          4.2     Rights Agreement between Biomet, Inc. and Lake City Bank as
                  Rights Agent, dated as of December 16, 1999. (Incorporated by
                  reference to Exhibit 4 to Biomet, Inc. Form 8-K Report dated
                  December 16,1999, File No. 0-12515), as amended September 1,
                  2002 to change rights agent to American Stock Transfer and
                  Trust Company. (Incorporated by reference to Exhibit 4.2 to
                  Biomet, Inc. Form 10-Q Quarterly Report dated January 13,
                  2003, File No. 0-12515).

      (9)         No exhibit.

     (10)10.1     Employee and Non-Employee Director Stock Option Plan, dated
                  September 18, 1992. (Incorporated by reference to Exhibit 19.1
                  to Biomet, Inc. Form 10-K Report for year ended May 31, 1993,
                  File No. 0-12515).

         10.2     Form of Stock Option Agreement under the Employee and
                  Non-Employee Stock Option Plan dated September 18, 1992.
                  (Incorporated by reference to Exhibit 4.03 to Biomet, Inc.
                  Form S-8 Registration Statement, File No. 33-65700).

         10.3     401(k) Profit Sharing Plan filed January 19,1996.
                  (Incorporated by reference to Form S-8 Registration Statement,
                  File No. 333-00331).

         10.4     Biomet, Inc. 1998 Qualified and Non-Qualified Stock Option
                  Plan adopted August 3, 1998. (Incorporated by reference to
                  Exhibit 10.6 to Biomet, Inc. Form 10-K Report for year ended
                  May 31, 1998, File No. 0-12515).

         10.5     Joint Venture Agreement between Biomet, Inc. and Merck KGaA
                  dated as of November 24, 1997 (Incorporated by reference to
                  Exhibit 2.01 to Biomet, Inc. Form 8-K Current Report dated
                  February 17, 1998, File No. 0-12515).

         10.6     Purchase and Substitution Agreement dated March 19, 2004 by
                  and among Merck KGaA, Biomet, Inc., BioHoldings UK Ltd. and
                  Biomet Europe Ltd. (Incorporated by reference to Exhibit 10.1
                  to Biomet, Inc. Form 8-K current Report dated March 19, 2004,
                  File No. 0-12515).

         10.7     Agreement and Plan of Merger dated March 7, 2004 among Biomet,
                  Inc., Laker Acquisition Corp. I and Interpore International,
                  Inc. (Incorporated by reference to Exhibit 1 to Biomet, Inc.
                  Form SC 13D General Statement of Acquisition of Beneficial
                  Ownership dated March 17, 2004, File No. 0-12515)

                                                   48



         10.8     Credit Agreement dated as of June 18, 2004, by and among
                  Biomet, Inc., Bank of America, N.A. and UBS Securities LLC
                  (Incorporated by reference to Exhibit 10.1 to Biomet, Inc.
                  Form 8-K Current Report dated June 18, 2004, File No.
                  0-12515).

     (11)         No exhibit.

     (12)         No exhibit.

     (13)         No exhibit.

     (14)         No exhibit.

     (16)         No exhibit.

     (18)         No exhibit.

     (21)21.1     Subsidiaries of the Registrant*

     (22)         No exhibit.

     (23)23.1     Consent of Independent Registered Public Accounting Firm.*

     (24)         No exhibit.

     (31)31.1     Certification of Chief Executive Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.*

         31.2     Certification of Chief Financial Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.*

     (32)32.1     Written Statement of Chief Executive Officer and Chief
                  Financial Officer Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.*

      *Filed herewith

EX-21.1

                                  EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT

                            (as the date of filing)

Biomet, Inc.(the Registrant; Indiana corporation)

Domestic subsidiaries:
      American OsteoMedix Corp. (California corporation)
      Arthrotek, Inc. (Indiana corporation)
      Biolectron, Inc. (Delaware corporation)
      Biomet Europe Ltd. (Delaware corporation)
      Biomet Fair Lawn, L.P. (Indiana limited partnership)
      Biomet Holdings Ltd. (Delaware corporation)
      Biomet International Ltd. (Delaware corporation)
      Biomet Investment Corp. (Delaware corporation)
      Biomet Leasing, Inc. (Indiana corporation)
      Biomet Manufacturing Corp. (Indiana corporation)
      Biomet Orthopedics, Inc. (Indiana corporation)
      Biomet Travel, Inc. (Indiana corporation)
      Blue Moon Diagnostics, Inc. (Indiana corporation)
      Cell Factor Technologies, Inc. (Indiana corporation)
      Cross Medical Products, Inc. (Delaware corporation)
      EBI, L.P. (Indiana limited partnership)
      EBI Holdings, Inc. (Delaware corporation)
      EBI Medical Systems, Inc. (Delaware corporation)
      EBI Patient Care, Inc. (Puerto Rican corporation)
      Electro-Biology, Inc. (Delaware corporation)
      Implant Innovations Holding Corporation (Indiana corporation)
      Implant Innovations, Inc. (Florida corporation)
      Interpore Cross International, Inc. (California corporation)
      Interpore Orthopaedics Inc. (Delaware corporation)
      Interpore Spine Ltd. (Delaware corporation)
      Kirschner Medical Corporation (Delaware corporation)
      Meridew Medical, Inc. (Indiana corporation)
      Poly-Medics, Inc. (Indiana corporation)
      Thoramet, Inc. (Indiana corporation)
      Vascu-Med, Inc. (Indiana corporation)
      Walter Lorenz Surgical, Inc. (Florida corporation)

Foreign subsidiaries:
      Arthrovision Sport GmbH (German corporation)
      BioMer C.V. (Dutch partnership)
      Biomet B.V. (Dutch corporation)
      Biomet C Z S.r.o. (Czech corporation)
      Biomet Medikal Urunler Dadytym Pazarlama
       Ythalat Yhracat ve Dys Ticaret Ltd. Sti (Turkish company)
      Biomet Acquisitions Limited (U.K. corporation)
      Biomet Argentina S.A. (Argentine corporation)
      Biomet Australia Pty. Ltd. (Australian corporation)
      Biomet Austria GmbH (Austrian corporation)
      Biomet Belgium BVBA (Belgian corporation)
      Biomet Bridgend B.V. (Dutch corporation)
      Biomet Canada, Inc. (Canadian corporation)
      Biomet Cementing Technologies AB (Swedish corporation)
      Biomet Chile, S.A. de C.V. (Chilean corporation)


      Biomet Danmark ApS (Danish corporation)
      Biomet Deutschland GmbH (German corporation)
      Biomet Europe B.V. (Dutch corporation)
      Biomet Finland Oy (Finnish corporation)
      Biomet France S.a r.l. (French corporation)
      Biomet Hellas Commercial and Industrial Company of Medical
       and Pharmaceutical Products S.A. (Greek corporation)
      Biomet Holdings B.V. (Dutch corporation)
      Biomet Immobiliare Sarl (Italian corporation)
      Biomet Insurance Ltd. (Bermuda Captive insurance company)
      Biomet Italia s.r.l. (Italian company)
      Biomet Japan, Inc. (Japanese corporation)
      Biomet Korea Co. Ltd. (Korean corporation)
      Biomet Luxembourg S.a r.l. (Luxembourg company)
      Biomet Magyarorszag Kft. (a/k/a Biomet Hungary Kft) (Hungarian company)
      Biomet Merck Biomaterials GmbH (German corporation)
      Biomet Merck European Distribution Center B.V. (Dutch corporation)
      Biomet Merck Manufacturing Polska Sp. z o.o.
      Biomet Norge A.S. (Norwegian corporation)
      Biomet Portugal, Unipessoal Lda. (Portuguese corporation)
      Biomet Merck Onroerend Goed BV (Dutch corporation)
      Biomet Merck Polska Sp. z o.o. (Polish corporation)
      Biomet Mexico S.A. de C.V. (Mexican corporation)
      Biomet Orthopaedic Ltd. (New Zealand corporation)
      Biomet Orthopaedics Switzerland GmbH (Swiss corporation)
      Biomet Orthopedics Puerto Rico, Inc. (Puerto Rican corporation)
      Biomet Sales Italia S.r.l. (Italian corporation)
      Biomet Swindon B.V. (Dutch corporation)
      Biomet Taiwan Ltd. (Taiwan corporation)
      Biomet UK Ltd. (U.K. corporation)
      Biomet UK Real Estate Holdings B.V. (Dutch corporation)
      Biomet Vermogensverwaltungs GmbH (German corporation)
      Coral Medical B.V. (Dutch corporation)
      EBI Medical Systems Ltd. (U.K. corporation)
      Implant Innovations GmbH (Swiss corporation)
      Implant Innovations Australia Pty. Ltd. (Australian corporation)
      Implant Innovations Benelux N.V. (Belgium company)
      Implant Innovations do Brasil Ltda. (Brazilian corporation)
      Implant Innovations Canada, Inc. (Canadian corporation)
      Implant Innovations Deutschland, GmbH (German corporation)
      Implant Innovations France S.A. (French corporation)
      Implant Innovations Iberica, SL (Spanish corporation)
      Implant Innovations de Mexico S.A. de C.V. (Mexican corporation)
      Implant Innovations Nordic AB (Swedish corporation)
      Implant Innovations U.K., Ltd. (U.K. corporation)
      Industrias Quirurgicas de Levante S.L. (IQL) (Spanish corporation)
      Ortopedica Biomet Costa Rica S.A. (Costa Rican corporation)
      Ortra Holdings, S.A. (Swiss corporation)
      Rewi Holding BV (Dutch corporation)
      Scandimed Holding AB (Swedish corporation)
      Suministros Levantinos Ortopedicos, S.L. (Spanish corporation)
      Walter Lorenz Surgical, GmbH (German corporation)
      Zhejiang Biomet Medical Products Co., Ltd. (Chinese corporation)

Each subsidiary is wholly-owned by its immediate parent, except for the
following: Biomet Chile, S.A. de C.V. of which Biomet International Ltd. owns
51% of the outstanding shares; Biomet Merck Hellas S A of which Biomet Europe
B.V. owns approximately 94% of the outstanding shares; and Zhejiang Biomet
Medical Products Co., Ltd. of which Biomet International Ltd. owns 75% of the
outstanding shares.

EX-23.1

                                        EXHIBIT 23.1

                              CONSENT OF INDEPENDENT REGISTERED
                                   PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements of
Biomet, Inc. on Forms S-8 (File Nos. 333-65139, 333-00331, 33-75618, 33-65700,
33-50268, 33-37561, 33-26826 and 33-7361), on Form S-4 (File No. 333-88905) and
on Forms S-3 (File Nos. 33-50420, 33-27008 and 333-94959) and in the related
prospectus of our report dated June 30, 2004, with respect to the consolidated
financial statements and schedule of Biomet, Inc. and its subsidiaries included
in this Annual Report (Form 10-K) for the year ended May 31, 2004.

                                Ernst & Young LLP

Fort Wayne, Indiana
August 11, 2004

EX-31.1

                                  EXHIBIT 31.1

                      CERTIFICATION PURSUANT TO SECTION 302
                       OF THE SARBANES-OXLEY ACT OF 2002

I, Dane A. Miller, certify that:

1.    I have reviewed this annual report on Form 10-K of Biomet, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have;

            a)    designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this annual report is being
                  prepared;

            c)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report, based on such evaluation; and

            d)    disclosed in this report any changes in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

            a)    all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

August 12, 2004

                                          /s/ Dane A. Miller

                                          Dane A. Miller, Ph.D.
                                          President and Chief Executive Officer

EX-31.2

                                  EXHIBIT 31.2

                     CERTIFICATION PURSUANT TO SECTION 302
                       OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory D. Hartman, certify that:

1.    I have reviewed this annual report on Form 10-K of Biomet, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have;

            a)    designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this annual report is being
                  prepared;

            c)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report, based on such evaluation; and

            d)    disclosed in this report any changes in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

            a)    all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

August 12, 2004

                                          /s/ Gregory D. Hartman

                                          Gregory D. Hartman
                                          Senior Vice President - Finance,
                                          Chief Financial Officer and Treasurer

EX-32.1

                                  EXHIBIT 32.1

                 SECTION 1350 CERTIFICATIONS OF CHIEF EXECUTIVE
                      OFFICER AND CHIEF FINANCIAL OFFICER

The undersigned, the Chief Executive Officer and the Chief Financial Officer of
Biomet, Inc. (the "Company"), each hereby certifies pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to his knowledge on the date hereof:

(a)   The Annual Report on Form 10-K of the Company for the Fiscal Year Ended
      May 31, 2004 filed on the date hereof with the Securities and Exchange
      Commission (the "Report") fully complies with the requirements of Section
      13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b)   Information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Company.

                                          /s/ Dane A. Miller
                                          Dane A. Miller, Ph.D.
                                          President and Chief Executive Officer
                                          August 12, 2004

                                          /s/ Gregory D. Hartman
                                          Gregory D. Hartman
                                          Senior Vice President - Finance,
                                          Chief Financial Officer and Treasurer
                                          August 12, 2004

The foregoing certification is being furnished to the Securities and Exchange
Commission as an exhibit to the Form 10-K and shall not be deemed to be
considered filed as part of the Form 10-K.