EX-99.1 2 bmet-53120132.htm EX 99.1 BMET-5.31.2013 (2)

Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of LVB Acquisition, Inc.
Warsaw, Indiana

We have audited the accompanying consolidated balance sheets of LVB Acquisition, Inc. and subsidiaries (the “Company”) as of May 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 2013. Our audits also included the financial statement schedules listed in the Index to Financial Statements. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements present fairly, in all material respects, the financial position of LVB Acquisition, Inc. and subsidiaries as of May 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 29, 2013
(March 6, 2014 as to the effects described in the Earnings Per Share section of Note 1)


1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of Biomet, Inc.
Warsaw, Indiana

We have audited the accompanying consolidated balance sheets of Biomet, Inc. and subsidiaries (the “Company”) as of May 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, shareholder's equity, and cash flows for each of the three years in the period ended May 31, 2013. Our audits also included the financial statement schedule of valuation and qualifying accounts listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of Biomet, Inc. and subsidiaries as of May 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 29, 2013

2




LVB Acquisition, Inc. and Subsidiaries Consolidated Balance Sheets
(in millions, except shares)
 
 
 
 
 
 
May 31, 2013
 
May 31, 2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
355.6

 
$
492.4

Accounts receivable, less allowance for doubtful accounts receivables of $33.5 ($36.5 at May 31, 2012)
531.8

 
491.6

Investments
—

 
2.5

Income tax receivable
6.9

 
5.0

Inventories
624.0

 
543.2

Deferred income taxes
119.9

 
52.5

Prepaid expenses and other
134.4

 
124.1

Total current assets
1,772.6

 
1,711.3

Property, plant and equipment, net
665.2

 
593.6

Investments
23.0

 
13.9

Intangible assets, net
3,630.2

 
3,930.4

Goodwill
3,600.9

 
4,114.4

Other assets
102.8

 
56.8

Total assets
$
9,794.7

 
$
10,420.4

Liabilities & Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
40.3

 
$
35.6

Accounts payable
111.5

 
116.2

Accrued interest
56.2

 
56.5

Accrued wages and commissions
150.1

 
122.0

Other accrued expenses
206.0

 
180.2

Total current liabilities
564.1

 
510.5

Long-term liabilities:
 
 
 
Long-term debt, net of current portion
5,926.1

 
5,792.2

Deferred income taxes
1,129.8

 
1,257.8

Other long-term liabilities
206.1

 
177.8

Total liabilities
7,826.1

 
7,738.3

Commitments and contingencies
 
 
 
Shareholders’ equity:
 
 
 
Common stock, par value $0.01 per share; 740,000,000 shares authorized; 552,359,416 and 552,308,376 shares issued and outstanding
5.5

 
5.5

Contributed and additional paid-in capital
5,662.0

 
5,623.3

Accumulated deficit
(3,693.0
)
 
(3,069.6
)
Accumulated other comprehensive income (loss)
(5.9
)
 
122.9

Total shareholders’ equity
1,968.6

 
2,682.1

Total liabilities and shareholders’ equity
$
9,794.7

 
$
10,420.4

The accompanying notes are an integral part of the consolidated financial statements.


3

LVB Acquisition, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss
(in millions)
 
 
For the Year Ended May 31,
 
2013(1)
 
2012(1)
 
2011(1)
Net sales
$
3,052.9

 
$
2,838.1

 
$
2,732.2

Cost of sales
873.4

 
775.5

 
724.2

Gross profit
2,179.5

 
2,062.6

 
2,008.0

Selling, general and administrative expense
1,312.5

 
1,172.2

 
1,156.2

Research and development expense
150.3

 
126.8

 
119.4

Amortization
313.8

 
327.2

 
367.9

Goodwill impairment charge
473.0

 
291.9

 
422.8

Intangible assets impairment charge
94.4

 
237.9

 
518.6

Operating income (loss)
(164.5
)
 
(93.4
)
 
(576.9
)
Interest expense
398.8

 
479.8

 
498.9

Other (income) expense
177.8

 
17.6

 
(11.2
)
Other expense, net
576.6

 
497.4

 
487.7

Loss before income taxes
(741.1
)
 
(590.8
)
 
(1,064.6
)
Benefit from income taxes
(117.7
)
 
(132.0
)
 
(214.8
)
Net loss
(623.4
)
 
(458.8
)
 
(849.8
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in unrealized holding value on available for sale securities
3.3

 
4.3

 
(6.0
)
Interest rate swap unrealized gain
13.1

 
13.1

 
19.5

Foreign currency related gains (losses)
(138.2
)
 
(62.1
)
 
264.4

Unrecognized actuarial gains (losses)
(7.0
)
 
(4.2
)
 
4.5

Total other comprehensive income (loss)
(128.8
)
 
(48.9
)
 
282.4

Comprehensive loss
$
(752.2
)
 
$
(507.7
)
 
$
(567.4
)
 
 
 
 
 
 
Earnings (loss) per share—basic
$
(1.13
)
 
$
(0.83
)
 
$
(1.54
)
Earnings (loss) per share—diluted
$
(1.13
)
 
$
(0.83
)
 
$
(1.54
)
Weighted average common shares outstanding
 
 
 
 
 
Basic
551.8

 
551.9

 
552.1

Diluted
551.8

 
551.9

 
552.1

(1) Certain amounts have been reclassified to conform to the current presentation. See Note 1 to the consolidated financial statements for a description of the reclassification.

The accompanying notes are an integral part of the consolidated financial statements.



4


LVB Acquisition, Inc. and Subsidiaries Consolidated Statements of Shareholders’ Equity
(in millions, except for share data)
 
 
 
Common
Shares
 
Common
Stock
 
Contributed
and
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
Balance at May 31, 2010
 
553,071,050

 
$
5.5

 
$
5,599.6

 
$
(1,761.0
)
 
$
(110.6
)
 
$
3,733.5

Net loss
 
 
 
—

 
—

 
(849.8
)
 
—

 
(849.8
)
Other comprehensive loss
 
 
 
—

 
—

 
—

 
282.4

 
282.4

Stock-based compensation expense
 
 
 
—

 
12.7

 
—

 
—

 
12.7

Repurchase of LVB Acquisition, Inc. shares
 
(539,734
)
 
—

 
(3.7
)
 
—

 
—

 
(3.7
)
Balance at May 31, 2011
 
552,531,316

 
5.5

 
5,608.6

 
(2,610.8
)
 
171.8

 
3,175.1

Net loss
 
 
 
—

 
—

 
(458.8
)
 
—

 
(458.8
)
Other comprehensive loss
 
 
 
—

 
—

 
—

 
(48.9
)
 
(48.9
)
Stock-based compensation expense
 
 
 
—

 
16.0

 
—

 
—

 
16.0

Repurchase of LVB Acquisition, Inc. shares
 
(222,940
)
 
—

 
(1.3
)
 
—

 
—

 
(1.3
)
Balance at May 31, 2012
 
552,308,376

 
5.5

 
5,623.3

 
(3,069.6
)
 
122.9

 
2,682.1

Net loss
 
 
 
—

 
—

 
(623.4
)
 
—

 
(623.4
)
Other comprehensive loss
 
 
 
—

 
—

 
—

 
(128.8
)
 
(128.8
)
Stock-based compensation expense
 
 
 
—

 
38.3

 
—

 
—

 
38.3

Repurchase of LVB Acquisition, Inc. shares
 
(12,501
)
 
—

 
(0.1
)
 
—

 
—

 
(0.1
)
Other
 
63,541

 
—

 
0.5

 
—

 
—

 
0.5

Balance at May 31, 2013
 
552,359,416

 
$
5.5

 
$
5,662.0

 
$
(3,693.0
)
 
$
(5.9
)
 
$
1,968.6

The accompanying notes are an integral part of the consolidated financial statements.



5

LVB Acquisition, Inc. and Subsidiaries Consolidated Statements of Cash Flows
(in millions)
 
For the Year Ended May 31,
 
2013
 
2012
 
2011
Cash flows provided by (used in) operating activities:
 
 
 
 
 
Net loss
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
495.4

 
509.4

 
549.0

Amortization and write off of deferred financing costs
31.0

 
11.1

 
11.2

Stock-based compensation expense
38.3

 
16.0

 
12.7

Loss on extinguishment of debt
155.2

 
—

 
1.2

Recovery of doubtful accounts receivable
(4.9
)
 
(5.3
)
 
(6.2
)
Realized gain on investments
(0.2
)
 
(2.0
)
 
(4.9
)
Loss on impairment of investments
—

 
20.1

 
—

Goodwill and intangible assets impairment charge
567.4

 
529.8

 
941.4

Property, plant and equipment impairment charge
—

 
0.4

 
17.0

Deferred income taxes
(215.5
)
 
(204.3
)
 
(271.3
)
Other
17.7

 
(4.5
)
 
(28.0
)
Changes in operating assets and liabilities, net of acquired assets:
 
 
 
 
 
Accounts receivable
(40.4
)
 
(36.6
)
 
14.5

Inventories
(36.0
)
 
13.4

 
(43.9
)
Prepaid expenses
30.5

 
(12.3
)
 
(4.5
)
Accounts payable
(3.4
)
 
28.9

 
(0.8
)
Income taxes
(38.4
)
 
(29.0
)
 
46.0

Accrued interest
(0.3
)
 
(7.6
)
 
(6.1
)
Accrued expenses and other
95.5

 
8.6

 
2.6

Net cash provided by operating activities
468.5

 
377.3

 
380.1

Cash flows provided by (used in) investing activities:
 
 
 
 
 
Proceeds from sales/maturities of investments
5.5

 
42.1

 
59.3

Purchases of investments
(6.4
)
 
(0.4
)
 
(78.7
)
Net proceeds from sale of assets
14.0

 
14.7

 
6.8

Capital expenditures
(204.0
)
 
(179.3
)
 
(174.0
)
Acquisitions, net of cash acquired - Trauma Acquisition
(280.0
)
 
—

 
—

Other acquisitions, net of cash acquired
(17.7
)
 
(21.1
)
 
(18.4
)
Net cash used in investing activities
(488.6
)
 
(144.0
)
 
(205.0
)
Cash flows provided by (used in) financing activities:
 
 
 
 
 
Debt:
 
 
 
 
 
Proceeds under European facilities
—

 
—

 
0.3

Payments under European facilities
(1.3
)
 
(1.4
)
 
(2.0
)
Payments under senior secured credit facilities
(33.5
)
 
(35.4
)
 
(34.8
)
Proceeds under revolvers/facility
86.6

 
—

 
—

Payments under revolvers/facility
(80.6
)
 
—

 
—

Proceeds from senior and senior subordinated notes due 2020 and term loans
3,396.2

 
—

 
—

Tender/retirement of senior notes due 2017 and term loans
(3,423.0
)
 
—

 
(11.2
)
Payment of fees related to refinancing activities
(79.0
)
 
—

 
—

Equity:
 
 
 
 
 
Repurchase of LVB Acquisition, Inc. shares
(0.1
)
 
(1.3
)
 
(3.7
)
Net cash used in financing activities
(134.7
)
 
(38.1
)
 
(51.4
)
Effect of exchange rate changes on cash
18.0

 
(30.6
)
 
15.0

Increase (decrease) in cash and cash equivalents
(136.8
)
 
164.6

 
138.7

Cash and cash equivalents, beginning of period
492.4

 
327.8

 
189.1

Cash and cash equivalents, end of period
$
355.6

 
$
492.4

 
$
327.8

Supplemental disclosures of cash flow information:
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest
$
388.6

 
$
477.1

 
$
494.1

Income taxes
$
81.5

 
$
95.0

 
$
42.3

The accompanying notes are an integral part of the consolidated financial statements.

6

Biomet, Inc. and Subsidiaries Consolidated Balance Sheets
(in millions, except shares)
 
May 31, 2013
 
May 31, 2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
355.6

 
$
492.4

Accounts receivable, less allowance for doubtful accounts receivables of $33.5 ($36.5 at May 31, 2012)
531.8

 
491.6

Investments
—

 
2.5

Income tax receivable
6.9

 
5.0

Inventories
624.0

 
543.2

Deferred income taxes
119.9

 
52.5

Prepaid expenses and other
134.4

 
124.1

Total current assets
1,772.6

 
1,711.3

Property, plant and equipment, net
665.2

 
593.6

Investments
23.0

 
13.9

Intangible assets, net
3,630.2

 
3,930.4

Goodwill
3,600.9

 
4,114.4

Other assets
102.8

 
56.8

Total assets
$
9,794.7

 
$
10,420.4

Liabilities & Shareholder’s Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
40.3

 
$
35.6

Accounts payable
111.5

 
116.2

Accrued interest
56.2

 
56.5

Accrued wages and commissions
150.1

 
122.0

Other accrued expenses
206.0

 
180.2

Total current liabilities
564.1

 
510.5

Long-term liabilities:
 
 
 
Long-term debt, net of current portion
5,926.1

 
5,792.2

Deferred income taxes
1,129.8

 
1,257.8

Other long-term liabilities
206.1

 
177.8

Total liabilities
7,826.1

 
7,738.3

Commitments and contingencies


 


Shareholder’s equity:
 
 
 
Common stock, par value $0.00 per share; 1,000 shares authorized; 1,000 shares issued and outstanding
—

 
—

Contributed and additional paid-in capital
5,667.5

 
5,628.8

Accumulated deficit
(3,693.0
)
 
(3,069.6
)
Accumulated other comprehensive income (loss)
(5.9
)
 
122.9

Total shareholder’s equity
1,968.6

 
2,682.1

Total liabilities and shareholder’s equity
$
9,794.7

 
$
10,420.4

The accompanying notes are an integral part of the consolidated financial statements.

7

Biomet, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss
(in millions)
 
For the Year Ended May 31,
 
2013(1)
 
2012(1)
 
2011(1)
Net sales
$
3,052.9

 
$
2,838.1

 
$
2,732.2

Cost of sales
873.4

 
775.5

 
724.2

Gross profit
2,179.5

 
2,062.6

 
2,008.0

Selling, general and administrative expense
1,312.5

 
1,172.2

 
1,156.2

Research and development expense
150.3

 
126.8

 
119.4

Amortization
313.8

 
327.2

 
367.9

Goodwill impairment charge
473.0

 
291.9

 
422.8

Intangible assets impairment charge
94.4

 
237.9

 
518.6

Operating income (loss)
(164.5
)
 
(93.4
)
 
(576.9
)
Interest expense
398.8

 
479.8

 
498.9

Other (income) expense
177.8

 
17.6

 
(11.2
)
Other expense, net
576.6

 
497.4

 
487.7

Loss before income taxes
(741.1
)
 
(590.8
)
 
(1,064.6
)
Benefit from income taxes
(117.7
)
 
(132.0
)
 
(214.8
)
Net loss
(623.4
)
 
(458.8
)
 
(849.8
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in unrealized holding value on available for sale securities
3.3

 
4.3

 
(6.0
)
Interest rate swap unrealized gain
13.1

 
13.1

 
19.5

Foreign currency related gains (losses)
(138.2
)
 
(62.1
)
 
264.4

Unrecognized actuarial gains (losses)
(7.0
)
 
(4.2
)
 
4.5

Total other comprehensive income (loss)
(128.8
)
 
(48.9
)
 
282.4

Comprehensive loss
$
(752.2
)
 
$
(507.7
)
 
$
(567.4
)
(1) Certain amounts have been reclassified to conform to the current presentation. See Note 1 to the consolidated financial statements for a description of the reclassification.

The accompanying notes are an integral part of the consolidated financial statements.

8

Biomet, Inc. and Subsidiaries Consolidated Statements of Shareholder’s Equity
(in millions, except for share data)
 
Common
Shares
 
Contributed
and Additional
Paid-in Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Shareholder’s
Equity
Balance at May 31, 2010
1,000
 
$
5,605.1

 
$
(1,761.0
)
 
$
(110.6
)
 
$
3,733.5

Net loss
 
 
—

 
(849.8)

 
—

 
(849.8)

Other comprehensive loss
 
 
—

 
—

 
282.4

 
282.4

Stock-based compensation expense
 
 
12.7

 
—

 
—

 
12.7

Repurchase of LVB Acquisition, Inc. shares
 
 
(3.7)

 
—

 
—

 
(3.7)

Balance at May 31, 2011
1,000
 
5,614.1

 
(2,610.8)

 
171.8

 
3,175.1

Net loss
 
 
—

 
(458.8)

 
—

 
(458.8)

Other comprehensive loss
 
 
—

 
—

 
(48.9)

 
(48.9)

Stock-based compensation expense
 
 
16.0

 
—

 
—

 
16.0

Repurchase of LVB Acquisition, Inc. shares
 
 
(1.3)

 
—

 
—

 
(1.3)

Balance at May 31, 2012
1,000
 
5,628.8

 
(3,069.6)

 
122.9

 
2,682.1

Net loss
 
 
—

 
(623.4)

 
—

 
(623.4)
Other comprehensive loss
 
 
—

 
—

 
(128.8)

 
(128.8)

Stock-based compensation expense
 
 
38.3

 
—

 
—

 
38.3

Repurchase of LVB Acquisition, Inc. shares
 
 
(0.1
)
 
—

 
—

 
(0.1)

Other
 
 
0.5

 
—

 
—

 
0.5

Balance at May 31, 2013
1,000
 
$
5,667.5

 
$
(3,693.0
)
 
$
(5.9
)
 
$
1,968.6

The accompanying notes are an integral part of the consolidated financial statements.

9

Biomet, Inc. and Subsidiaries Consolidated Statements of Cash Flows
(in millions)
 
For the Year Ended May 31,
 
2013
 
2012
 
2011
Cash flows provided by (used in) operating activities:
 
 
 
 
 
Net loss
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
495.4

 
509.4

 
549.0

Amortization and write off of deferred financing costs
31.0

 
11.1

 
11.2

Stock-based compensation expense
38.3

 
16.0

 
12.7

Loss on extinguishment of debt
155.2

 
—

 
1.2

Recovery of doubtful accounts receivable
(4.9
)
 
(5.3
)
 
(6.2
)
Realized gain on investments
(0.2
)
 
(2.0
)
 
(4.9
)
Loss on impairment of investments
—

 
20.1

 
—

Goodwill and intangible assets impairment charge
567.4

 
529.8

 
941.4

Property, plant and equipment impairment charge
—

 
0.4

 
17.0

Deferred income taxes
(215.5
)
 
(204.3
)
 
(271.3
)
Other
17.7

 
(4.5
)
 
(28.0
)
Changes in operating assets and liabilities, net of acquired assets:
 
 
 
 
 
Accounts receivable
(40.4
)
 
(36.6
)
 
14.5

Inventories
(36.0
)
 
13.4

 
(43.9
)
Prepaid expenses
30.5

 
(12.3
)
 
(4.5
)
Accounts payable
(3.4
)
 
28.9

 
(0.8
)
Income taxes
(38.4
)
 
(29.0
)
 
46.0

Accrued interest
(0.3
)
 
(7.6
)
 
(6.1
)
Accrued expenses and other
95.5

 
8.6

 
2.6

Net cash provided by operating activities
468.5

 
377.3

 
380.1

Cash flows provided by (used in) investing activities:
 
 
 
 
 
Proceeds from sales/maturities of investments
5.5

 
42.1

 
59.3

Purchases of investments
(6.4
)
 
(0.4
)
 
(78.7
)
Net proceeds from sale of assets
14.0

 
14.7

 
6.8

Capital expenditures
(204.0
)
 
(179.3
)
 
(174.0
)
Acquisitions, net of cash acquired - Trauma Acquisition
(280.0
)
 
—

 
—

Other acquisitions, net of cash acquired
(17.7
)
 
(21.1
)
 
(18.4
)
Net cash used in investing activities
(488.6
)
 
(144.0
)
 
(205.0
)
Cash flows provided by (used in) financing activities:
 
 
 
 
 
Debt:
 
 
 
 
 
Proceeds under European facilities
—

 
—

 
0.3

Payments under European facilities
(1.3
)
 
(1.4
)
 
(2.0
)
Payments under senior secured credit facilities
(33.5
)
 
(35.4
)
 
(34.8
)
Proceeds under revolvers/facility
86.6

 
—

 
—

Payments under revolvers/facility
(80.6
)
 
—

 
—

Proceeds from senior and senior subordinated notes due 2020 and term loans
3,396.2

 
—

 
—

Tender/retirement of senior notes due 2017 and term loans
(3,423.0
)
 
—

 
(11.2
)
Payment of fees related to refinancing activities
(79.0
)
 
—

 
—

Equity:
 
 
 
 
 
Repurchase of LVB Acquisition, Inc. shares
(0.1
)
 
(1.3
)
 
(3.7
)
Net cash used in financing activities
(134.7
)
 
(38.1
)
 
(51.4
)
Effect of exchange rate changes on cash
18.0

 
(30.6
)
 
15.0

Increase (decrease) in cash and cash equivalents
(136.8
)
 
164.6

 
138.7

Cash and cash equivalents, beginning of period
492.4

 
327.8

 
189.1

Cash and cash equivalents, end of period
$
355.6

 
$
492.4

 
$
327.8

Supplemental disclosures of cash flow information:
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest
$
388.6

 
$
477.1

 
$
494.1

Income taxes
$
81.5

 
$
95.0

 
$
42.3

The accompanying notes are an integral part of the consolidated financial statements.

10

LVB Acquisition, Inc.
Biomet, Inc.
Notes to Consolidated Financial Statements

Note 1—Summary of Significant Accounting Policies and Nature of Operations.
The accompanying consolidated financial statements include the accounts of LVB Acquisition, Inc. and its subsidiaries (individually and collectively with its subsidiaries referred to as “Biomet”, the “Company”, “we”, “us”, or “our”). Biomet is a wholly-owned subsidiary of LVB Acquisition, Inc. (“LVB” or “Parent”). LVB has no other operations beyond its ownership of Biomet. Intercompany accounts and transactions have been eliminated in consolidation.
Transactions with the Sponsor Group
On December 18, 2006, Biomet, Inc. entered into an Agreement and Plan of Merger with LVB Acquisition, LLC, a Delaware limited liability company, which was subsequently converted to a corporation, LVB Acquisition, Inc., and LVB Acquisition Merger Sub, Inc., an Indiana corporation and a wholly-owned subsidiary of Parent (“Purchaser”), which agreement was amended and restated as of June 7, 2007 and which we refer to as the “Merger Agreement.” Pursuant to the Merger Agreement, on June 13, 2007, Purchaser commenced a cash tender offer (the “Offer”) to purchase all of Biomet, Inc.’s outstanding common shares, without par value (the “Shares”) at a price of $46.00 per Share (the “Offer Price”) without interest and less any required withholding taxes. The Offer was made pursuant to Purchaser’s offer to purchase dated June 13, 2007 and the related letter of transmittal, each of which was filed with the SEC on June 13, 2007. In connection with the Offer, Purchaser entered into a credit agreement dated as of July 11, 2007 for a $6,165.0 million senior secured term loan facility (the “Tender Facility”), maturing on June 6, 2008, and pursuant to which it borrowed approximately $4,181.0 million to finance a portion of the Offer and pay related fees and expenses. The Offer expired at midnight, New York City time, on July 11, 2007, with approximately 82% of the outstanding Shares having been tendered to Purchaser. At Biomet, Inc.’s special meeting of shareholders held on September 5, 2007, more than 91% of Biomet, Inc.’s shareholders voted to approve the proposed merger, and Parent acquired Biomet, Inc. on September 25, 2007 through a reverse subsidiary merger with Biomet, Inc. being the surviving company (the “Merger”). Subsequent to the acquisition, Biomet, Inc. became a subsidiary of Parent, which is controlled by LVB Acquisition Holding, LLC, or “Holding”, an entity controlled by a consortium of private equity funds affiliated with The Blackstone Group, Goldman, Sachs & Co., Kohlberg Kravis Roberts & Co., and TPG Global, LLC (each a “Sponsor” and collectively, the “Sponsors”), and certain investors who agreed to co-invest with the Sponsors (the “Co-Investors”). These transactions, including the Merger and the Company’s payment of any fees and expenses related to these transactions, are referred to collectively as the “Transactions.”
General—Biomet, Inc. is the wholly owned subsidiary of LVB. LVB has no other operations beyond its ownership of Biomet. The Company is one of the largest orthopedic medical device companies in the United States and worldwide with operations in over 50 locations throughout the world and distribution in approximately 90 countries. The Company designs, manufactures and markets a comprehensive range of both surgical and non-surgical products used primarily by orthopedic surgeons and other musculoskeletal medical specialists. For over 30 years, the Company has applied advanced engineering and manufacturing technology to the development of highly durable joint replacement systems.
Basis of Presentation—The accompanying consolidated financial statements include the accounts of LVB and its subsidiaries (individually and collectively referred to as “Biomet” or the “Company”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Products—The Company operates in one reportable business segment, musculoskeletal products, which includes the design, manufacture and marketing of products in six major categories: Knees, Hips, Sports, Extremities, Trauma (“S.E.T.”), Spine, Bone Healing and Microfixation, Dental and Cement, Biologics and Other Products. The Company has three geographic markets: United States, Europe and International.
Knees and Hips—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.

S.E.T.—The Company manufactures and distributes a number of sports medicine products (used in minimally-invasive orthopedic surgical procedures). Extremity reconstructive implants are used to replace joints

11

other than hips and knees that have deteriorated as a result of disease or injury. Our key reconstructive joint in this product category is the shoulder, but the Company produces other joints as well. Trauma devices are used for setting and stabilizing bone fractures to support and/or augment the body’s natural healing process. Trauma products include plates, screws, nails, pins and wires designed to internally stabilize fractures; devices utilized to externally stabilize fractures when alternative methods of fixation are not suitable; and implantable bone growth stimulation devices for trauma.

Spine, Bone Healing and Microfixation Products—The Company’s spine products include spinal fixation systems for cervical, thoracolumbar, deformity correction and spacer applications; implantable bone growth stimulation devices for spine applications; and osteobiologics, including bone substitute materials, as well as allograft services for spinal applications. Bone healing products include non-invasive bone growth stimulation devices used for spine and trauma indications. Microfixation includes products for patients in the neurosurgical and craniomaxillofacial reconstruction markets, as well as thoracic solutions for fixation and stabilization of the bones of the chest.

Dental Products—Dental reconstructive devices and associated instrumentation are used for oral rehabilitation through the replacement of teeth and repair of hard and soft tissues. The Company also offers crown and bridge products.

Cement, Biologics and Other Products—The Company manufactures and distributes bone cements and cement delivery systems, autologous therapies and other products, including operating room supplies, casting materials, general surgical instruments, wound care products and other miscellaneous surgical products.

Effect of Foreign Currency—Assets and liabilities of foreign subsidiaries are translated at rates of exchange in effect at the close of their calendar month end. Revenues and expenses are translated at the average exchange rates during the period. Translation gains and losses are accumulated within accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. Foreign currency transaction gains and losses are included in other (income) expense.
Cash and Cash Equivalents—The Company considers all investments that are highly liquid at the date acquired and have original maturities of three months or less to be cash equivalents.
Investments—The Company invests the majority of its excess cash in money market funds. The Company also holds Greek bonds, time deposits and corporate securities. The Company accounts for its investments in equity securities in accordance with guidance issued by the Financial Accounting Standards Board (“FASB”), which requires certain securities to be categorized as trading, available-for-sale or held-to-maturity. The Company also accounts for its investments under guidance for fair value measurements, which establishes a framework for measuring fair value, clarifies the definition of fair value within that framework, and expands disclosures about fair value measurements. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of tax, recorded within accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. The Company has no held-to-maturity investments. Trading securities are carried at fair value with the realized gains and losses, recorded within other (income) expense. 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 fair 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) expense, by writing that investment down to fair value. Investments are classified as short-term for those expected to mature or be sold within twelve months and the remaining portion is classified in long-term investments.
Interest Rate Instruments—The Company uses interest rate swap agreements (cash flow hedges) in both U.S. dollars and euros as a means of fixing the interest rate on portions of its floating-rate debt instruments. As of May 31, 2013, the Company had swap liabilities of $54.1 million, which consisted of $19.9 million short-term, and $34.8 million long-term, partially offset by a $0.6 million credit valuation adjustment. As of May 31, 2012, the Company had swap liabilities of $76.2 million, which consisted of $36.0 million short-term, and $41.0 million long-term, partially offset by a $0.8 million credit valuation adjustment.
Other Comprehensive Income (Loss)—Other comprehensive income (loss) includes currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments, and actuarial gains (losses) from pension plans. The Company generally deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from translating the investment in a foreign currency to U.S. dollars. When the Company determines that a foreign investment is no longer permanent in

12

nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments. As of May 31, 2013, foreign investments were all permanent in nature.
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, dental practices and laboratories, and physicians. The Company maintains an allowance for doubtful receivables based on estimated collection rates and charges actual losses to the allowance when incurred. The determination of estimated collection rates requires management judgment.
Other Loss Contingencies—In accordance with guidance issued by the FASB for contingencies, the Company accrues anticipated costs of settlement, damages, and loss of product liability claims based on historical experience or to the extent specific losses are probable and estimable. If the estimate of a probable loss is in a range and no amount within the range is more likely, the Company accrues the minimum amount of the range. Such estimates and any subsequent changes in estimates may result in adjustments to the Company’s operating results in the future. The Company has self-insured reserves against product liability claims with insurance coverage above the retention limits. There are various other claims, lawsuits and disputes with third parties, investigations and pending actions involving various allegations against it. Product liability claims are routinely reviewed by the Company’s insurance carriers and management routinely reviews all claims for purposes of establishing ultimate loss estimates.
Revenue Recognition—The Company sells product through four principal channels: (1) direct to healthcare institutions, referred to as direct channel accounts, (2) through stocking distributors and healthcare dealers, (3) indirectly through insurance companies and (4) directly to dental practices and dental laboratories. Sales through the direct and distributor/dealer channels account for a majority of net sales. Through these channels, inventory is consigned to sales agents or customers so that products are available when needed for surgical procedures. Revenue is not recognized upon the placement of inventory into consignment as the Company retains title and maintains the inventory on the balance sheet; rather, it is recognized upon implantation and receipt of proper purchase order and/or purchase requisition documentation. Pricing for products is predetermined by contracts with customers, agents acting on behalf of customer groups or by government regulatory bodies, depending on the market. Price discounts under group purchasing contracts are linked to volume of implant purchases by customer healthcare institutions within a specified group. At negotiated thresholds within a contract buying period, price discounts may increase. The Company presents on a net basis and excludes from revenue the taxes collected from customers and remitted to governmental authorities.
At certain locations, the Company records a contractual allowance that is offset against revenue for each sale to a non-contracted payor so that revenue is recorded at the estimated determinable price at the time of the sale. Those non-contracted payors and insurance companies in some cases do not have contracted rates for products sold, but may have pricing available for certain products through their respective web sites. The Company will invoice at its list price and establish the contractual allowance to estimate what the non-contracted payor will settle the claim for based on the information available as noted above. At certain locations, revenue is recognized on sales to stocking distributors, healthcare dealers, dental practices and dental laboratories when title to product passes to them, generally upon shipment. Certain subsidiaries allow customers to return product in the event that the Company terminates the relationship. Under those circumstances, the Company records an estimated sales return in the period in which constructive notice of termination is given to a distributor. Product returns were not significant for any period presented.
The Company also maintains a separate allowance for doubtful accounts for estimated losses based on its assessment of the collectability of specific customer accounts and the aging of the accounts receivable. The Company analyzes accounts receivable and historical bad debts, customer concentrations, customer solvency, current economic and geographic trends, and changes in customer payment terms and practices when evaluating the adequacy of its current and future allowance. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for bad debt is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. The Company monitors and analyzes the accuracy of the allowance for doubtful accounts estimate by reviewing past collectability and adjusts it for future expectations to determine the adequacy of the Company’s current and future allowance. The Company’s reserve levels have generally been sufficient to cover credit losses.
Accounting for Shipping and Handling Revenue, Fees and Costs—The Company classifies amounts billed for shipping and handling as a component of net sales. The related shipping and handling fees and costs as well as other distribution costs are included in cost of sales.

13

Instruments—The Company provides instruments to surgeons to use during surgical procedures. Instruments are classified as non-current assets and are recorded as property, plant and equipment. Instruments are carried at cost, until they are placed into service and are held at book value (cost less accumulated depreciation). Depreciation is calculated using the straight-line method using a four year useful life. Instrument depreciation was reclassified from cost of sales to selling, general and administrative expense, as instruments are currently used as selling tools since the instrumentation is used in conjunction with implantation of the Company’s products. This reclassification was also made to conform the Company’s classification of instrument depreciation to industry practice. The Company reclassified $123.1 million, $118.9 million and $114.5 million for the years ended May 31, 2013, 2012 and 2011, respectively.
Excess and Obsolete Inventory—In the Company’s 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 make those products currently on the market obsolete. The Company makes estimates regarding the future use of these products which are used to adjust inventory to the lower of cost or market. 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.
Research and Development—Research and development costs are charged to expense as incurred.
Legal Fees—Legal fees are charged to expense and are not accrued based on specific cases.
Income Taxes—There are inherent risks that could create uncertainties related to the Company's income tax estimates. The Company adjusts estimates based on normal operating circumstances and conclusions related to tax audits. While the Company does not believe any audit finding could materially affect its financial position, there could be a material impact on its consolidated results of operations and cash flows of a given period.
The Company's operations are subject to the tax laws, regulations and administrative practices of the United States, U.S. state jurisdictions and other countries in which it does business. The Company must make estimates and judgments in determining the provision for taxes for financial reporting purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to the Company's tax provision in a subsequent period.
The calculation of the Company's tax liabilities involves accounting for uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions (“UTPs”) based on a two-step process. The Company recognizes the tax benefit from an UTP only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The amount of UTPs is measured as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company believes its estimates for UTPs are appropriate and sufficient for any assessments that may result from examinations of its tax returns. The Company recognizes both accrued interest and penalties, where appropriate, related to UTPs as a component of income tax expense.
Certain items are included in the Company's tax return at different times than they are reflected in its financial statements. Such timing differences create deferred tax assets and liabilities. Deferred tax assets are generally items that can be used as a tax deduction or credit in the tax return in future years but for which the Company has already recorded the tax benefit in the financial statements. The Company has recorded valuation allowances against certain of its deferred tax assets, primarily those that have been generated from net operating losses and tax credit carryforwards in certain taxing jurisdictions. In evaluating whether the Company would more likely than not recover these deferred tax assets, it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carryforwards where history does not support such an assumption. Implementation of tax planning strategies to recover these deferred tax assets or future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense. Deferred tax liabilities are either: (i) a tax expense recognized in the financial statements for which payment has been deferred; or (ii) an expense for which the Company has already taken a deduction on the tax return, but have not yet recognized the expense in the financial statements.

14


Goodwill and Other Intangible Assets—The Company operates in one reportable segment and evaluates goodwill for impairment at the reporting unit level. The reporting units are based on the Company’s current administrative organizational structure and the availability of discrete financial information.
The Company tests its goodwill and indefinite lived intangible asset balances as of March 31 of each fiscal year for impairment. The Company tests these balances more frequently if indicators are present or changes in circumstances suggest that impairment may exist. In performing the test on goodwill, the Company utilizes the two-step approach prescribed under guidance issued by the FASB for goodwill and other intangible assets. The first step under this guidance requires a comparison of the carrying value of the reporting units, of which the Company has identified six in total, to the fair value of these units. The Company generally uses the income approach to determine the fair value of each reporting unit. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. To derive the carrying value of the Company’s reporting units, the Company assigns assets and liabilities, including goodwill, to the reporting units. These would include corporate assets, which relate to a reporting unit’s operations, and would be considered in determining fair value. The Company allocates assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit. If the carrying value of a reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value of a reporting unit’s goodwill to its carrying value. If the Company is unable to complete the second step of the test prior to the issuance of its financial statements and an impairment loss is probable and could be reasonably estimated, the Company recognizes its best estimate of the loss in its current period financial statements and discloses that amount as an estimate. The Company then recognizes any adjustment to that estimate in subsequent reporting periods, once the Company has finalized the second step of the impairment test.
The Company determines the fair value of intangible assets using an income based approach to determine the fair value. The approach calculates fair value by estimating the after-tax cash flows attributable to the asset and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. The calculated fair value is compared to the carrying value to determine if any impairment exists.
If events or circumstances change, a determination is made by management to ascertain whether property and equipment and finite-lived intangibles have been impaired based on the sum of expected future undiscounted cash flows from operating activities. If the estimated undiscounted net cash flows are less than the carrying amount of such assets, an impairment loss is recognized in an amount necessary to write-down the assets to fair value as determined from expected future discounted cash flows.
Earnings Per Share—Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options and restricted stock units granted under stock-based compensation plans.


15

The table below sets forth the computation of basic and diluted earnings per share:
 
Fiscal Year Ended May 31,
(in millions, except per share data)
2013
 
2012
 
2011
Numerator:
 
 
 
 
 
Net income (loss)
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)
Denominator:
 
 
 
 
 
Basic—weighted average shares outstanding
551.8

 
551.9

 
552.1

Effect of dilutive securities:
 
 
 
 
 
Stock options
—

 
—

 
—

Restricted stock units
—

 
—

 
—

Diluted—weighted average shares outstanding
551.8

 
551.9

 
552.1

Earnings (loss) per share—basic
$
(1.13
)
 
$
(0.83
)
 
$
(1.54
)
Earnings (loss) per share—diluted
$
(1.13
)
 
$
(0.83
)
 
$
(1.54
)
The calculation of weighted average diluted shares outstanding excludes options of 36.0 million, 34.8 million, and 35.0 million for the fiscal year ended May 31, 2013, 2012, and 2011, respectively, because their effect would be anti-dilutive on the Company’s earnings per share. The calculation also excludes all restricted stock units as all restricted stock units under the 2012 Restricted Stock Unit Plan require a liquidity event condition.

Management’s Estimates and Assumptions—In preparing the financial statements in accordance with accounting principles generally accepted in the United States of America, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex. Consequently, actual results could differ from those estimates.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that the Company has not yet adopted that are expected to have a material effect on its financial position, results of operations or cash flows.

Note 2—Acquisition.
Trauma Acquisition
On May 24, 2012, DePuy Orthopaedics, Inc. accepted the Company’s binding offer to purchase certain assets representing substantially all of DePuy’s worldwide trauma business (the “Trauma Acquisition”), which involves researching, developing, manufacturing, marketing, distributing and selling products to treat certain bone fractures or deformities in the human body, including certain intellectual property assets, and to assume certain liabilities, for approximately $280.0 million in cash. The Company acquired the DePuy worldwide trauma business to strengthen its trauma business and to continue to build a stronger presence in the global trauma market. On June 15, 2012, the Company announced the initial closing of the transaction. During the first and second quarters of fiscal year 2013, subsequent closings in various foreign countries occurred on a staggered basis, with the final closing occurring on December 7, 2012.
The Trauma Acquisition net sales for the year ended May 31, 2013 were $205.6 million.
The acquisition has been accounted for as a business combination. The purchase price was allocated to the acquired assets and liabilities based on the estimated fair value of the acquired assets at the date of acquisition.
 
The following table summarizes the purchase price allocation:
 

16

(in millions)
 
Inventory
$
93.7

Prepaid expenses and other
2.1

Instruments
29.2

Other property, plant and equipment
7.2

Liabilities assumed
(5.6
)
Intangible assets
141.5

Goodwill
11.9

Purchase price
$
280.0

The asset purchase agreement contains a provision requiring an adjustment to the purchase price if the amount of delivered inventory and/or instruments is more or less than the target amount of these items. No adjustment to the purchase price pursuant to this provision was required. The results of operations of the business have been included subsequent to the respective country closing dates in the accompanying consolidated financial statements. Acquisition-related costs for the year ended May 31, 2013 were $12.2 million and are recorded in cost of sales and selling, general and administrative expenses. The goodwill value is not tax deductible.
The pro forma information required under Accounting Standards Codification 805 is impracticable to include due to different fiscal year ends and individual country closings.

Note 3—Inventories.
Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method. The Company reviews inventory on hand and writes down excess and slow-moving inventory based on an assessment of future demand and historical experience. Inventories consisted of the following:
(in millions)
May 31, 2013
 
May 31, 2012
Raw materials
$
78.8

 
$
78.3

Work-in-process
44.7

 
42.4

Finished goods
500.5

 
422.5

Inventories
$
624.0

 
$
543.2


Note 4—Property, Plant and Equipment.
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Depreciation of instruments is included within selling, general and administrative expense. Related maintenance and repairs are expensed as incurred.
    
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 undiscounted future cash flows relating to the asset, or asset group, are less than its carrying value, with the amount of the loss equal to the excess of carrying value of the asset, or asset group, over the estimated fair value.

Useful lives by major product category consisted of the following:
 
Useful life
Land improvements
20 years
Buildings and leasehold improvements
30 years
Machinery and equipment
5-10 years
Instruments
4 years

17


Property, plant and equipment consisted of the following:
(in millions)
May 31, 2013
 
May 31, 2012
Land and land improvements
$
40.5

 
$
40.2

Buildings and leasehold improvements
106.3

 
89.9

Machinery and equipment
375.4

 
342.3

Instruments
710.5

 
633.3

Construction in progress
48.8

 
29.1

Total property, plant and equipment
1,281.5

 
1,134.8

Accumulated depreciation
(616.3)

 
(541.2)

Total property, plant and equipment, net
$
665.2

 
$
593.6


The Company recorded depreciation expense of $181.6 million, $182.2 million and $181.1 for the years ended May 31, 2013, 2012 and 2011, respectively.
The Company recorded a property, plant and equipment impairment charge of $17.0 million during the year ended May 31, 2011, relating to an administrative, manufacturing and distribution facility located in Parsippany, New Jersey. The amount of impairment charge recorded within cost of sales and selling, general and administrative expense was $6.5 million and $10.5 million, respectively. The impairment charge reflects the Company’s change in intended use of this facility.

Note 5—Investments.
At May 31, 2013, the Company’s investment securities were classified as follows:
 
 
 
Unrealized
 
 
(in millions)
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Available-for-sale:
 
 
 
 
 
 
 
Equity securities
$
0.2

 
$
0.2

 
$
—

 
$
0.4

Time deposit
15.9

 
0.1

 
—

 
16.0

Greek bonds
1.1

 
4.5

 
—

 
5.6

Total available-for-sale investments
$
17.2

 
$
4.8

 
$
—

 
$
22.0


 
 
 
Realized
 
 
(in millions)
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Trading:
 
 
 
 
 
 
 
Equity securities
$
0.8

 
$
0.2

 
$
—

 
$
1.0

Total trading investments
$
0.8

 
$
0.2

 
$
—

 
$
1.0



18

At May 31, 2012, the Company’s investment securities were classified as follows:
 
 
 
Unrealized
 
 
(in millions)
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Available-for-sale:
 
 
 
 
 
 
 
Equity securities
$
0.4

 
$
—

 
$
(0.2
)
 
$
0.2

Time deposit
9.5

 
—

 
—

 
9.5

Greek bonds
6.3

 
—

 
—

 
6.3

Total available-for-sale investments
$
16.2

 
$
—

 
$
(0.2
)
 
$
16.0


 
 
 
Realized
 
 
(in millions)
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Trading:
 
 
 
 
 
 
 
Equity securities
$
0.4

 
$
—

 
$
—

 
$
0.4

Total trading investments
$
0.4

 
$
—

 
$
—

 
$
0.4


The Company recorded proceeds on the sales/maturities of investments of $5.5 million, $42.1 million and $59.3 million for the years ended May 31, 2013, 2012 and 2011, respectively. The Company recorded realized gains of $0.2 million, $2.0 million and $4.9 million for the years ended May 31, 2013, 2012 and 2011, respectively, which was included in other (income) expense.
The Company received $45.5 million face value zero coupon bonds in December 2010 from the Greek government as payment for an outstanding accounts receivable balance from calendar years 2007-2009 related to certain government sponsored institutions in a non-cash transaction. Upon receipt, the bonds had a fair value of $33.8 million, with maturity dates of one to three years. The bonds are designated as available-for-sale securities. The Company recorded realized losses of $20.1 million on the Greek bonds related to other-than-temporary impairment for the year ended May 31, 2012, which is included in other (income) expense with no other-than-temporary impairment recorded for the years ended May 31, 2013 and 2011. On March 9, 2012 the Greek government finalized the private sector involvement in the Greek debt restructuring. All holders of Greek government bonds were required to exchange the existing bonds to new bonds. The new bonds have maturities ranging from 1 to 30 years.
The Company reviews impairments to investment securities quarterly to determine if the impairment is “temporary” or “other-than-temporary.” The Company reviews several factors to determine whether losses are other-than-temporary, including but not limited to (1) the length of time each security was in an unrealized loss position, (2) the extent to which fair value was less than cost, (3) the financial condition and near-term prospects of the issuer, and (4) the Company’s intent and ability to hold each security for a period of time sufficient to allow for any anticipated recovery in fair value.
Investment income on available-for-sale securities (included in other (income) expense) consists of the following:
(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
Interest income
$
0.1

 
$
0.4

 
$
0.6

Dividend income
0.2

 
0.2

 
0.1

Net realized gains
0.2

 
2.0

 
2.6

Total investment income
$
0.5

 
$
2.6

 
$
3.3



19

Note 6—Goodwill and Other Intangible Assets.
The Company operates in one reportable segment and evaluates goodwill for impairment at the reporting unit level. Effective September 1, 2011, in connection with the Company’s global reorganization, the Company made changes to its reporting unit structure. The reorganization eliminated three reporting units (U.S. Orthopedics, Sports Medicine and Biologics) and established a new reporting unit (U.S. Reconstructive). The Company formerly had eight, and now has six, identified reporting units for the purpose of testing goodwill for impairment. The reporting units are based on the Company’s current administrative organizational structure and the availability of discrete financial information.
Fiscal Year 2013 Impairment Charges
During the fourth quarter of fiscal year 2013, the Company recorded a $240.0 million goodwill asset
impairment charge related to its Europe reporting unit, primarily related to the impact of continued austerity measures on procedural volumes and pricing in certain European countries when compared to the Company’s prior projections used to establish the fair value of goodwill.
During the fourth quarter of fiscal year 2013, the Company finalized a $327.4 million goodwill and definite and indefinite-lived intangible assets impairment charge related to its dental reconstructive reporting unit, primarily due to declining industry market growth rates in certain European and Asia Pacific markets and corresponding unfavorable margin trends when compared to the Company’s prior projections used to establish the fair value of goodwill and intangible assets. The impairment charge was a result of the finalization of the Company’s preliminary impairment work as of November 30, 2012.
Fiscal Year 2012 Impairment Charges

During the fourth quarter of fiscal year 2012, the Company recorded a $529.8 million goodwill and definite and indefinite-lived intangible asset impairment charge primarily associated with its spine & bone healing and dental reconstructive reporting units. As of February 29, 2012, the Company concluded that certain indicators were present that suggested impairment may exist for its dental reconstructive reporting unit’s goodwill and intangible assets. The indicators of impairment in the Company’s dental reconstructive reporting unit included evidence of declining industry market growth rates in certain European and Asia Pacific markets and unfavorable margin trends resulting from change in product mix. The impact of these recent items resulted in management initiating an interim preliminary impairment test as of February 29, 2012. However, the preliminary result of this interim test of impairment for the dental reconstructive reporting unit’s goodwill and intangibles was inconclusive during the third quarter of fiscal year 2012. The Company finalized the impairment test during the fourth quarter of fiscal year 2012. During the annual impairment test, described below, the Company’s spine and bone healing reporting unit failed step one. The indicators were primarily due to growth rate declines as compared to prior assumptions.
Fiscal Year 2011 Impairment Charges

During the fourth quarter of fiscal year 2011, the Company recorded a $941.4 million goodwill and definite and indefinite-lived intangible asset impairment charge primarily associated with its Europe reporting unit. As of February 28, 2011, the Company concluded that certain indicators were present that suggested impairment may exist for its Europe reporting unit’s goodwill and intangibles. The indicators of impairment in the Company’s Europe reporting unit included:
•
recent reductions in revenue growth rates for the reporting unit’s knee and hip products;
•
recent market pressure resulting in reduced average selling prices of the reporting unit’s products;
•
evidence of declining industry market growth rates for many countries; and
•
certain European governments actively pursuing healthcare spend restructuring programs.
The impact of these recent items resulted in management initiating an interim preliminary impairment test as of February 28, 2011. However, the preliminary result of this interim test of impairment for the Europe reporting unit’s goodwill and intangibles was inconclusive during the third quarter of fiscal year 2011. The Company finalized the impairment tests during the fourth quarter of fiscal year 2011.

20

The Company used the income approach, specifically the discounted cash flow method, to determine the fair value of the dental reconstructive, spine & bone healing and Europe reporting units (“Impaired Reporting Units”) and the associated amount of the impairment charges. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. This methodology is consistent with how the Company estimates the fair value of its reporting units during its annual goodwill and indefinite lived intangible asset impairment tests. In applying the income approach to calculate the fair value of the Impaired Reporting Units, the Company used assumptions about future revenue contributions and cost structures. In addition, the application of the income approach for both goodwill and intangibles requires judgment in determining a risk-adjusted discount rate at the reporting unit level. The Company based this determination on estimates of the weighted-average costs of capital of market participants. The Company performed a peer company analysis and considered the industry the weighted-average return on debt and equity from a market participant perspective.
To calculate the amount of the impairment charge related to the Impaired Reporting Units, the Company allocated the reporting unit’s fair value to all of its assets and liabilities, including certain unrecognized intangible assets, in order to determine the implied fair value of goodwill. This allocation process required judgment and the use of additional valuation assumptions in deriving the individual fair values of the Company’s Impaired Reporting Unit’s assets and liabilities as if the reporting units had been acquired in a business combination.
The Company determines the fair value of intangible assets using an income based approach to determine the fair value. The approach calculates fair value by estimating the after-tax cash flows attributable to the asset and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. The calculated fair value is compared to the carrying value to determine if any impairment exists.
The Company also performed its annual assessment for impairment as of March 31, 2013 for all six reporting units. The Company utilized discount rates ranging from 9.3% to 11.1%. Based on the discount rate used in its most recent test for impairment, if the discount rate increased by 1% the fair value of the consolidated company could be lower by approximately $1.5 billion and a decrease in the discount rate of 1% results in an increase in fair value of $2.1 billion. The step one test also includes assumptions derived from competitor market capitalization and beta values as well as the twenty year Treasury bill rate as of March 31, 2013. The only reporting unit that failed step one and was required to complete a step two analysis was the Europe reporting unit.
The Company tested goodwill of the Europe reporting unit with a carrying value of $240.0 million and under step two recorded an impairment charge of $240.0 million to fully write off the goodwill. The Company tested the intangible assets of the Europe reporting unit and no impairment charges were necessary.
The Company tested goodwill of the dental reconstructive reporting unit with a carrying value of $299.2 million and under step two recorded an impairment charge of $233.0 million. The implied fair value of the goodwill of this reporting unit was $66.2 million. The Company tested definite-lived intangibles that failed step 1 with a carrying value of $180.0 million and under step two recorded an impairment charge of $82.9 million as the fair value of these definite-lived intangible assets was $97.1 million. The Company tested indefinite-lived intangibles with a carrying value of $39.7 million and under step two took an impairment charge of $11.5 million as the fair value of these indefinite-lived assets was $28.2 million. All of these fair values would be classified as Level 3 in the fair value hierarchy.
The estimates and assumptions underlying the fair value calculations used in the Company’s annual impairment tests are uncertain by their nature and can vary significantly from actual results. Factors that management must estimate include, but are not limited to, industry and market conditions, sales volume and pricing, raw material costs, capital expenditures, working capital changes, cost of capital, royalty rates and tax rates. These factors are especially difficult to predict when global financial markets are volatile. The estimates and assumptions used in its impairment tests are consistent with those the Company use in its internal planning. These estimates and assumptions may change from period to period. If the Company uses different estimates and assumptions in the future, future impairment charges may occur and could be material.
The Company has $66 million of goodwill at its dental reconstructive reporting unit that is at a higher risk of impairment as the difference between the carrying value and fair value of the reporting unit was estimated to be approximately 10% as of May 31, 2013. The Company uses the discounted cash flow model to value the reporting unit. The critical assumptions in the discounted cash flow model are revenues, operating margins and discount rate assumptions. These assumptions are developed by reporting unit management based on industry projections for the countries in which the reporting unit operates, as well as reporting unit specific facts. If the reporting unit were to

21

experience sales declines in the U.S. market or be exposed to enhanced and sustained pricing and volume pressures in its international markets, there would be an increased risk of impairment of goodwill for the dental reporting unit.
The Company uses an accelerated method for amortizing customer relationship intangibles, as the value for those relationships is greater at the beginning of their life. The accelerated method was calculated using historical customer attrition rates. The remaining finite-lived intangibles are amortized on a straight line basis. The decrease in the net intangible asset balance is primarily due to the impairment charge described below and amortization, partially offset by the intangibles recorded related to the Trauma Acquisition, which is described in Note 2 – Acquisition.

The following tables summarize the changes in the carrying amount of goodwill:
(in millions)
May 31, 2013
 
May 31, 2012
 
May 31, 2011
Beginning of period
$
4,114.4

 
$
4,470.1

 
$
4,707.5

Goodwill acquired
11.9

 
—

 
—

Currency translation
(52.4)

 
(63.8
)
 
185.4

Impairment charge
(473.0)

 
(291.9
)
 
(422.8
)
End of period
$
3,600.9

 
$
4,114.4

 
$
4,470.1


(in millions)
May 31, 2013
 
May 31, 2012
 
May 31, 2011
Gross carrying amount
$
5,284.2

 
$
5,324.7

 
$
5,388.5

Accumulated impairment losses
(1,683.3)

 
(1,210.3)

 
(918.4)

Net carrying amount
$
3,600.9

 
$
4,114.4

 
$
4,470.1


Intangible assets consist of the following at May 31, 2013 and 2012:
 
May 31, 2013
(in millions)
Gross
Carrying
Amount
 
Impairment Charge
 
New
Carrying
Amount
 
Accumulated Amortization
 
Impairment Charge
 
Net
Carrying
Amount
Core technology
$
1,772.6

 
$
(39.0
)
 
$
1,733.6

 
$
(481.1
)
 
$
4.1

 
$
1,256.6

Completed technology
628.8

 
(48.5
)
 
580.3

 
(254.9
)
 
36.7

 
362.1

Product trade names
204.2

 
—

 
204.2

 
(65.9
)
 
—

 
138.3

Customer relationships
2,429.5

 
(46.1)

 
2,383.4

 
(828.4
)
 
9.9

 
1,564.9

Non-compete contracts
4.6

 
—

 
4.6

 
(3.8
)
 
—

 
0.8

Sub-total
5,039.7

 
(133.6)

 
4,906.1

 
(1,634.1
)
 
50.7

 
3,322.7

Corporate trade names
319.0

 
(11.5)

 
307.5

 
—

 
—

 
307.5

Total
$
5,358.7

 
$
(145.1
)
 
$
5,213.6

 
$
(1,634.1
)
 
$
50.7

 
$
3,630.2


 
May 31, 2012
(in millions)
Gross
Carrying
Amount
 
Impairment Charge
 
New
Carrying
Amount
 
Accumulated Amortization
 
Impairment Charge
 
Net
Carrying
Amount
Core technology
$
1,909.5

 
$
(185.7
)
 
$
1,723.8

 
$
(469.0
)
 
$
74.3

 
$
1,329.1

Completed technology
610.6

 
—

 
610.6

 
(210.2)

 
—

 
400.4

Product trade names
189.9

 
—

 
189.9

 
(53.7)

 
—

 
136.2

Customer relationships
2,725.4

 
(306.8)

 
2,418.6

 
(871.9)

 
191.6

 
1,738.3

Non-compete contracts
4.6

 
—

 
4.6

 
(3.1)

 
—

 
1.5

Sub-total
5,440.0

 
(492.5)

 
4,947.5

 
(1,607.9)

 
265.9

 
3,605.5

Corporate trade names
336.2

 
(11.3)

 
324.9

 
—

 
—

 
324.9

Total
$
5,776.2

 
$
(503.8
)
 
$
5,272.4

 
$
(1,607.9
)
 
$
265.9

 
$
3,930.4



22

The weighted average useful life of the intangibles at May 31, 2013 is as follows:
 
Weighted Average
Useful Life
Core technology
16 Years
Completed technology
10 Years
Product trade names
14 Years
Customer relationships
15 Years
Non-compete contracts
2 Years
Corporate trade names
Indefinite life

Expected amortization expense, for the intangible assets stated above, for the years ending May 31, 2014 through 2018 is $295.8 million, $278.6 million, $270.5 million, $265.9 million, and $247.9 million, respectively.
Note 7—Debt.
The senior secured credit facilities and all of the notes are guaranteed by Biomet, Inc., and subject to certain exceptions, each of its existing and future wholly-owned domestic subsidiaries. The asset-based revolving credit facility is guaranteed by the Company and secured, subject to certain exceptions, by a first-priority security interest in substantially all of the Company’s assets and the assets of subsidiary borrowers that consist of all accounts receivable, inventory, cash, deposit accounts, and certain intangible assets. The facilities and notes bear interest at the rates set forth below. Interest is payable in cash. The terms and carrying value of each debt instrument at May 31, 2013 and 2012 are set forth below:
(U.S. dollars and euros in millions)
Maturity Date
 
Interest Rate
 
Currency
 
May 31, 2013
 
May 31, 2012
Debt Instruments
 
 
 
 
 
 
 
 
 
European facility
No Maturity Date
 
Interest Free
 
EUR
 
€
1.8

 
€
2.8



 
 
 
 
 
$
2.3

 
$
3.5

China facility
January 16, 2016
 
LIBOR + 2.10%
 
USD
 
$
6.0

 
$
—

Term loan facility
March 25, 2015
 
LIBOR + 3.00%
 
USD
 
$
104.3

 
$
2,234.7

Term loan facility
July 25, 2017
 
LIBOR + 3.75%
 
USD
 
$
2,116.8

 
$
—

Term loan facility
March 25, 2015
 
LIBOR + 3.00%
 
EUR
 
€
167.8

 
€
835.6



 
 
 
 
 
$
217.9

 
$
1,039.6

Term loan facility
July 25, 2017
 
LIBOR + 4.00%
 
EUR
 
€
659.4

 
€
—



 
 
 
 
 
$
856.4

 
$
—

Cash flow revolving credit facility
April 25, 2017
 
LIBOR + 3.50%
 
USD
 
$
—

 
$
—

Cash flow revolving credit facility
April 25, 2017
 
LIBOR + 3.50%
 
USD/EUR
 
$
—

 
$
—

Asset-based revolving credit facility
July 25, 2017
 
LIBOR + 1.75%
 
USD
 
$
—

 
$
—

Asset-based revolving credit facility
July 25, 2017
 
LIBOR + 1.75%
 
EUR
 
€
—

 
€
—

Senior cash pay notes
October 15, 2017
 
10%
 
USD
 
$
—

 
$
761.0

Senior PIK toggle notes
October 15, 2017
 
10.375% - 11.125%
 
USD
 
$
—

 
$
771.0

Senior subordinated notes
October 15, 2017
 
11.625%
 
USD
 
$
—

 
$
1,015.0

Senior notes
August 1, 2020
 
6.500%
 
USD
 
$
1,825.0

 
$
—

Senior subordinated notes
October 1, 2020
 
6.500%
 
USD
 
$
800.0

 
$
—

Premium on notes
 
 
 
 
 
 
$
37.7

 
$
3.0

Total debt
 
 
 
 
 
 
$
5,966.4

 
$
5,827.8

The Company has the option to choose the frequency with which it resets and pays interest on its term loans. The Company currently pays interest on the majority of its term loans and interest rate swaps each month. The remaining term loan and swap interest is paid quarterly. Interest on the 6.500% senior notes due 2020 is paid

23

semiannually in February and August. Interest on the 6.500% senior subordinated notes due 2020 is paid semiannually in April and October.
The Company currently elects to use 1-month LIBOR for setting the interest rates on 77% of its U.S. dollar-denominated and 100% of its euro-denominated term loans. The 1-month LIBOR rate for the majority of the U.S. dollar-denominated term loan as of May 31, 2013 was 0.19%. The majority of the euro-denominated term loan had a 1-month LIBOR rate of 0.06% as of May 31, 2013. The 3-month LIBOR rate for the U.S. dollar-denominated term loan was 0.28% as of May 31, 2013. The Company’s term loan facilities require payments each year in an amount equal to (x) 0.25% of the product of (i) the aggregate principal amount of all euro-denominated term loans and dollar-denominated term loans outstanding under the original credit agreement on the closing date multiplied by (ii) a fraction, the numerator of which is the aggregate principal amount of euro-denominated term B loans and dollar-denominated term B loans outstanding on August 2, 2012 (after giving effect to certain conversions to occur on or after August 2, 2012 pursuant to the amended and restated credit agreement) and the denominator of which is the aggregate principal amount of all outstanding term loans on August 2, 2012 and (y) 0.25% of the aggregate principal amount of all outstanding euro-denominated term B-1 loans and dollar-denominated term B-1 loans, in each case in equal calendar quarterly installments until maturity of the loan and after giving effect to the application of any prepayments. Through May 31, 2013, the total amount of required payments under the Company’s term loan facilities was $33.5 million. The cash flow and asset-based revolving credit facilities and the notes do not have terms for mandatory principal paydowns. To calculate the U.S. dollar equivalent on outstanding balances, the Company used a currency conversion rate of 1 euro to $1.2988 and $1.2441, which represents the currency exchange rate from euros to U.S. dollars on May 31, 2013 and May 31, 2012, respectively.
The Company’s revolving borrowing base available under all debt facilities at May 31, 2013 was $787.0 million, which is net of the borrowing base limitations relating to the asset-based revolving credit facility.
As of May 31, 2013, $11.6 million of financing fees related to the Company’s credit agreement remain in long-term assets and continue to be amortized through interest expense over the remaining life of the credit agreement. Additionally, $68.9 million of new financing fees related to the refinancing referenced below are also in long-term assets and will be amortized through interest expense over the remaining lives of the new debt instruments.
 
Each of Biomet, Inc.’s existing wholly owned domestic subsidiaries fully, unconditionally, jointly, and severally guarantee the 6.500% senior notes due 2020 on a senior unsecured basis and the 6.500% senior subordinated notes due 2020 on a senior subordinated unsecured basis, in each case to the extent such subsidiaries guarantee Biomet, Inc.’s senior secured credit facilities. LVB Acquisition, Inc. is neither an issuer nor guarantor of the notes described within this footnote.
Notes Offerings and Concurrent Tender Offers
On August 8, 2012, Biomet completed its offering of $1,000.0 million aggregate principal amount of new 6.500% senior notes due 2020. Biomet used the net proceeds of that offering to fund a tender offer for any and all of its outstanding 103/8% / 111/8% senior PIK toggle notes due 2017 (“Senior Toggle Notes”) including related fees and expenses, to redeem the remaining Senior Toggle Notes not tendered in the tender offer and to redeem $140.0 million aggregate principal amount of the 115/8% senior subordinated notes due 2017 (“115/8% Senior Subordinated Notes”). Approximately 70% of the Senior Toggle Notes were tendered in August 2012. The remaining Senior Toggle Notes and $140.0 million aggregate principal amount of the 115/8% Senior Subordinated Notes were redeemed in September 2012.
On October 2, 2012, Biomet, Inc. completed its offering of $825.0 million aggregate principal amount of 6.500% senior notes due 2020 as part of a further issuance of 6.500% senior notes due 2020. The Company used the net proceeds of this offering to fund a tender offer for any and all of its 10% senior notes due 2017 (“10% Senior Notes”), including related fees and expenses and to redeem 10% Senior Notes not accepted for purchase in such tender offer. Concurrently with this offering, Biomet also completed an offering of $800.0 million aggregate principal amount of 6.500% senior subordinated notes due 2020. Biomet used the net proceeds of the subordinated notes offering together with cash on hand, to fund a tender offer for up to $800.0 million aggregate principal amount of its 115/8% Senior Subordinated Notes, including related fees and expenses and to redeem 115/8% Senior Subordinated Notes not accepted for purchase in such tender offer, $343.4 million in aggregate principal amount, or approximately 45.12% of the 10% Senior Notes outstanding, were validly tendered and not withdrawn, and $384.2 million aggregate principal amount, or approximately 43.91% of the 115/8% Senior Subordinated Notes outstanding, were validly tendered and not withdrawn, in each case as of the early tender deadline of October 1, 2012. On

24

November 1, 2012, Biomet retired all outstanding 10% Senior Notes and 115/8% Senior Subordinated Notes not accepted for purchase in the tender offer using cash on hand and asset-based revolver proceeds.
The Company recorded a loss on the retirement of bonds of $155.2 million during the year ended May 31, 2013 in other (income) expense, related to the tender/retirement of the Senior Toggle Notes, 10% Senior Notes and 115/8% Senior Subordinated Notes. The Company wrote off deferred financing fees related to the tender/retirement of the Senior Toggle Notes, 10% Senior Notes and 115/8% Senior Subordinated Notes described above and the replacement of the existing cash flow revolvers, asset-based revolver and term loans described below of $17.1 million during the year ended May 31, 2013, in other (income) expense.
Amendment and Restatement Agreement-Senior Secured Credit Facilities
On August 2, 2012, Biomet entered into an amendment and restatement agreement that amended its existing senior secured credit facilities. The amendment (i) extended the maturing of approximately $1,007.2 million of its U.S. dollar-denominated term loans and approximately €631.3 million of its euro-denominated term loans under the credit facility to July 25, 2017 and (ii) refinanced and replaced the then-existing alternative currency revolving credit commitments under the credit facility with a new class of alternative currency revolving credit commitments in an aggregate amount of $165.0 million and refinanced and replaced the then-existing U.S. dollar revolving credit commitments under the credit facility with a new class of U.S. dollar-denominated revolving credit commitments in an aggregate amount of $165.0 million. The new revolving credit commitments will mature on April 25, 2017, except that if as of December 23, 2014, there is an outstanding aggregate principal amount of non-extended U.S. dollar and euro term loans in excess of $200.0 million, then such revolving credit commitments will mature on December 24, 2014. The remaining term loans of the lenders under the senior secured credit facilities who did not elect to extend such loans will continue to mature on March 25, 2015.
Joinder Agreement
On October 4, 2012, LVB, Biomet and certain subsidiaries of Biomet entered into a joinder agreement (the “Joinder”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, each lender from time to time party thereto and each of the other parties identified as an “Extending Term Lender.” The Joinder was entered into pursuant to that certain Credit Agreement, dated as of September 25, 2007, as amended and restated by that certain Amendment and Restatement Agreement dated as of August 2, 2012 (the “Amendment”), by and among Biomet, LVB, certain subsidiaries of Biomet, Bank of America, N.A. and each lender from time to time party thereto. The Amendment, among other things, provides Biomet with the ability to request an extension of the scheduled maturity dates of its existing term loans in one or more series of tranches.

By entering into the Joinder, the joining lenders have agreed to extend the maturity of (i) approximately $392.7 million of Biomet’s U.S. dollar-denominated term loans and (ii) approximately €32.9 million of Biomet’s euro-denominated term loans, to July 25, 2017. The term loans extended pursuant to the Joinder are on terms identical to the terms loans that were extended pursuant to the Amendment. The remaining term loans of the lenders who have not elected to extend their loans will continue to mature on March 25, 2015.
Refinancing of Asset-Based Revolving Credit Facility
On November 14, 2012, Biomet replaced and refinanced its asset-based revolving credit facility with a new asset-based revolving credit facility that has a U.S. tranche of up to $400.0 million and a European borrower tranche denominated in euros of up to the euro-equivalent of $100.0 million. The European borrower tranche is secured by certain foreign assets of European subsidiary borrowers and the U.S. borrowers under the U.S. tranche guarantee the obligations of any such European subsidiary borrowers (and such guarantees are secured by the current assets collateral that secures the direct obligations of such U.S. borrowers under such U.S. tranche).
Refinancing of U.S. dollar-denominated Term Loan
On December 27, 2012, Biomet completed a $730.0 million add-on to the extended U.S. dollar-denominated term loan. The proceeds from the add-on were used to refinance the non-extended U.S. dollar-denominated term B loan, which was net of fees associated with the add-on closing. The terms of the add-on are consistent with the terms in the Amendment and Restatement Agreement-Senior Secured Credit Facilities explanation above.


25

As of May 31, 2013 and 2012, short-term borrowings consisted of the following:
(in millions)
May 31, 2013
 
May 31, 2012
Senior secured credit facilities
$
33.3

 
$
34.3

Non-U.S. facilities
7.0

 
1.3

Total
$
40.3

 
$
35.6


Summarized in the table below are the Company’s long-term obligations as of May 31, 2013:
(in millions)
Total
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
Long-term debt (including current maturities)
$
5,966.4

 
$
40.3

 
$
348.7

 
$
29.9

 
$
29.9

 
$
2,853.6

 
$
2,664.0


The Company currently is restricted in its ability to pay dividends under various covenants of its debt agreements, including its credit facilities and the indentures governing its notes. The Company does not expect for the foreseeable future to pay dividends on its common stock, and did not during fiscal 2013 or fiscal 2012. Any future determination to pay dividends will depend upon, among other factors, its results of operations, financial condition, cash flows, capital requirements, any contractual restrictions and any other considerations the Company’s Board of Directors deems relevant.
Note 8—Fair Value Measurements.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value measurements are principally applied to (1) financial assets and liabilities such as marketable equity securities and debt securities, (2) investments in equity and other securities, and (3) derivative instruments consisting of interest rate swaps. These items are marked-to-market at each reporting period to fair value. The information in the following paragraphs and tables primarily addresses matters relative to these financial assets and liabilities.
•
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include money market investments and marketable equity securities.
•
Level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. The Company’s Level 2 assets and liabilities primarily include Greek bonds, time deposits, interest rate swaps, pension plan assets (equity securities, debt securities and other) and foreign currency exchange contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
•
Level 3 – Inputs are unobservable for the asset or liability. The Company’s Level 3 assets include other equity investments. See the section below titled Level 3 Valuation Techniques for further discussion of how the Company determines fair value for investments classified as Level 3.


26

The following table provides information by level for assets and liabilities that are measured at fair value on a recurring basis at May 31, 2013 and 2012:
 
Fair Value at
 
Fair Value Measurement
Using Inputs Considered as
(in millions)
May 31, 2013
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Money market funds
$
93.1

 
$
93.1

 
$
—

 
$
—

Time deposits
31.5

 
—

 
31.5

 
—

Greek bonds
5.6

 
—

 
5.6

 
—

Pension plan assets
137.6

 
—

 
137.6

 
—

Foreign currency exchange contracts
0.5

 
—

 
0.5

 
—

Equity securities
1.4

 
1.3

 
—

 
0.1

Total assets
$
269.7

 
$
94.4

 
$
175.2

 
$
0.1

Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
54.1

 
$
—

 
$
54.1

 
$
—

Foreign currency exchange contracts
0.6

 
—

 
0.6

 
—

Total liabilities
$
54.7

 
$
—

 
$
54.7

 
$
—


 
Fair Value at
 
Fair Value Measurement
Using Inputs Considered as
(in millions)
May 31, 2012
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Money market funds
$
303.1

 
$
303.1

 
$
—

 
$
—

Time deposit
36.3

 
—

 
36.3

 
—

Greek bonds
6.3

 
—

 
6.3

 
—

Pension plan assets
108.7

 
—

 
108.7

 
—

Foreign currency exchange contracts
0.2

 
—

 
0.2

 
—

Other
0.2

 
—

 
—

 
0.2

Total assets
$
454.8

 
$
303.1

 
$
151.5

 
$
0.2

Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
76.2

 
$
—

 
$
76.2

 
$
—

Foreign currency exchange contracts
0.2

 
—

 
0.2

 
—

Total liabilities
$
76.4

 
$
—

 
$
76.4

 
$
—


Level 3 Valuation Techniques
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial assets also include certain investment securities for which there is limited market activity where the determination of fair value requires significant judgment or estimation. Level 3 investment securities primarily include other equity investments for which there was a decrease in the observation of market pricing. As of May 31, 2013 and 2012, these securities were valued primarily using internal cash flow valuation that incorporates transaction details such as contractual terms, maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants.

The estimated fair value of the Company’s long-term debt, including the current portion, at May 31, 2013 and 2012 was $6,090.4 million and $5,978.4 million, respectively, compared to carrying values of $5,966.4 million. and $5,827.8 million, respectively. The fair value of the Company’s traded debt was estimated using quoted market prices for the same or similar instruments. The fair value of the Company’s variable rate term debt was estimated using Bloomberg composite quotes. In determining the fair values and carrying values, the Company considers the terms of the related debt and excludes the impacts of debt discounts and interest rate swaps.

27

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
During the years ended May 31, 2013, 2012 and 2011, the Company measured nonfinancial long-lived assets and liabilities at fair value in conjunction with the impairments of the spine & bone healing, dental and Europe reporting units. The Company used the income approach to measure the fair value of the reporting unit and related intangible assets. See Note 6 for a full description of key assumptions. The inputs used in the impairment fair value analysis fall within Level 3 due to the significant unobservable inputs used to determine fair value.

The Company is exposed to certain market risks relating to its ongoing business operations, including foreign currency risk, interest rate risk and commodity price risk. The Company currently manages foreign currency risk and interest rate risk through the use of derivatives.

Note 9—Derivative Instruments and Hedging Activities.
The Company is exposed to certain market risks relating to its ongoing business operations, including foreign currency risk, interest rate risk and commodity price risk. The Company currently manages foreign currency risk and interest rate risk through the use of derivatives.
Derivatives Designated as Hedging Instruments
Foreign Currency Instruments—Certain assets, liabilities and forecasted transactions are exposed to foreign currency risk, primarily the fluctuation of the U.S. dollar against the euro. The Company has hedged a portion of its net investment in its European subsidiaries with the issuance of a €875.0 million (approximately $1,207.4 million at September 25, 2007) principal amount euro term loan on September 25, 2007. The Company’s net investment in its European subsidiaries at the hedging date of September 25, 2007 was €1,238.0 million ($1,690.0 million). As of May 31, 2013, the Company’s net investment in European subsidiaries totaled €1,757.4 million ($2,282.6 million) and the outstanding principal balance of the euro term loan was €827.2 million ($1,074.3 million) of which €760.7 million ($988.0 million) was designated as a net investment hedge. The difference of €996.7 million ($1,294.6 million) is unhedged as of May 31, 2013. Hedge effectiveness is tested quarterly to determine whether hedge treatment is still appropriate. The Company tests effectiveness on this net investment hedge by determining if the net investment in its European subsidiaries is greater than the outstanding euro-denominated debt balance. Any amount of a derivative instrument designated as a hedge determined to be ineffective is recorded as other (income) expense.
The table below summarizes existing swap agreements at May 31, 2013 and 2012:
 
(U.S. dollars and euros in millions)
 
 
 
 
 
Fair Value at
 
Fair Value at
 
 
 
 
Notional
 
 
 
 
 
May 31, 2013
 
May 31, 2012
Structure
 
Currency
 
Amount   
 
Effective Date
 
Termination Date
 
Asset (Liability)
 
Asset (Liability)
5 years
 
EUR
 
€
230.0

 
September 25, 2007
 
September 25, 2012
 
$
—

 
$
(3.5
)
5 years
 
EUR
 
40.0

 
March 25, 2008
 
March 25, 2013
 
—

 
(1.4
)
5 years
 
EUR
 
200.0

 
September 25, 2012
 
September 25, 2017
 
(11.3
)
 
(9.5
)
5 years
 
EUR
 
200.0

 
September 25, 2012
 
September 25, 2017
 
(11.1
)
 
(9.3
)
5 years
 
USD
 
$
585.0

 
September 25, 2007
 
September 25, 2012
 
—

 
(8.9
)
5 years
 
USD
 
190.0

 
March 25, 2008
 
March 25, 2013
 
—

 
(4.2
)
5 years
 
USD
 
325.0

 
December 26, 2008
 
December 25, 2013
 
(3.8
)
 
(9.0
)
5 years
 
USD
 
195.0

 
September 25, 2009
 
September 25, 2014
 
(6.7
)
 
(10.5
)
2 years
 
USD
 
190.0

 
March 25, 2013
 
March 25, 2015
 
(1.7
)
 
(1.0
)
3 years
 
USD
 
270.0

 
December 27, 2013
 
September 25, 2016
 
(5.2
)
 
(3.8
)
5 years
 
USD
 
350.0

 
September 25, 2012
 
September 25, 2017
 
(7.5
)
 
(8.0
)
5 years
 
USD
 
350.0

 
September 25, 2012
 
September 25, 2017
 
(7.4
)
 
(7.9
)
Credit valuation adjustment
 
 
 
0.6

 
0.8

Total interest rate instruments
 
 
 
$
(54.1
)
 
$
(76.2
)

The interest rate swaps are recorded in other accrued expenses and other long-term liabilities. As a result of cash flow hedge treatment being applied, all unrealized gains and losses related to the derivative instruments are

28

recorded in accumulated other comprehensive income (loss). Hedge effectiveness is tested quarterly to determine if hedge treatment is still appropriate. The amount of ineffectiveness was not material for any period presented. The tables below summarize the effective portion and ineffective portion of the Company’s interest rate swaps for the years ended May 31, 2013, 2012 and 2011:
 
(in millions)
 
 
 
 
Derivatives in cash flow hedging relationship
 
May 31, 2013
 
May 31, 2012
 
May 31, 2011
Interest rate swaps:
 
 
 
 
 
 
Amount of (gain) loss recognized in OCI
 
$
22.0

 
$
20.5

 
$
33.1

Amount of (gain) loss reclassified from accumulated OCI into interest expense (effective portion)(1)
 
49.5

 
69.0

 
87.9

Amount (gain) loss recognized in other income (expense) (ineffective portion and amount excluded from effectiveness testing)
 
—

 
—

 
—

(1) Amounts herein have been adjusted to reflect the corrected gross losses reclassified from accumulated other comprehensive income into interest expense for the years ended May 31, 2013, 2012, and 2011, respectively.
As of May 31, 2013, the effective interest rate, including the applicable lending margin, on 63.48% ($1,410.0 million) of the outstanding principal of the Company’s U.S. dollar term loan was fixed at 5.51% through the use of interest rate swaps. The effective interest rate on 48.36% (€400.0 million) of the outstanding principal of the Company’s euro term loan was fixed at 5.55% through the use of interest rate swaps. The remaining unhedged balances of the U.S. dollar and euro term loans had effective interest rates of 3.85% and 3.67%, respectively. As of May 31, 2013 and 2012, the Company’s effective weighted average interest rate on all outstanding debt, including the interest rate swaps, was 6.29% and 7.80%, respectively.
 
Derivatives Not Designated as Hedging Instruments
Foreign Currency Instruments—The Company faces transactional currency exposures that arise when it or its foreign subsidiaries enter into transactions, primarily on an intercompany basis, denominated in currencies other than their functional currency. The Company enters into short-term forward currency exchange contracts in order to mitigate the currency exposure related to these intercompany payables and receivables arising from intercompany trade. The Company does not designate these contracts as hedges; therefore, all forward currency exchange contracts are recorded at their fair value each period, with the resulting gains and losses recorded in other (income) expense. Any foreign currency remeasurement gains or losses recognized in a period are generally offset with gains or losses on the forward currency exchange contracts. As of May 31, 2013, the fair value of the Company’s derivatives not designated as hedging instruments on a gross basis were assets of $0.5 million recorded in prepaid expenses and other, and liabilities of $0.6 million recorded in other accrued expenses.

Note 10—Retirement and Pension Plans.
The Company has a defined contribution profit sharing plan which covers substantially all of the employees, or 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 currently matches 100% of the team member’s contribution, up to a maximum amount equal to 6% of the team member’s compensation. The amounts expensed under this profit sharing plan for the years ended May 31, 2013, 2012 and 2011 were $12.7 million, $11.6 million and $10.9 million, respectively.
The Company’s European executive officers in certain countries were eligible to participate in Europe’s defined contribution plan. Each year, in the Company’s sole discretion, the Company may contribute a percentage of employees’ pensionable salaries based on their age at January 1. The amounts expensed under this profit sharing plan for the years ended May 31, 2013, 2012 and 2011 were $8.0 million, $7.2 million and $6.9 million, respectively.
The Company sponsors various retirement and pension plans, including defined benefit plans, for some of its foreign operations. Many foreign employees are covered by government sponsored programs for which the direct cost to the Company is not significant. Retirement plan benefits are primarily based on the employee’s compensation during the last several years before retirement and the employee’s number of years of service for the Company.

29

Some foreign subsidiaries have plans under which funds are deposited with trustees, annuities are purchased under group contracts or reserves are provided. The Company used May 31, 2013, 2012 and 2011 as the measurement date for the foreign pension plans.
Net periodic benefit costs for the Company’s defined benefit plans include the following components:
(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
Net periodic benefit costs:
 
 
 
 
 
Service costs
$
2.9

 
$
0.6

 
$
0.8

Interest costs
6.1

 
6.3

 
6.8

Expected return on plan assets
(5.1
)
 
(5.6
)
 
(5.1
)
Recognized actuarial losses
2.7

 
1.6

 
1.1

Net periodic benefit costs:
$
6.6

 
$
2.9

 
$
3.6


The following table sets forth information related to the benefit obligation and the fair value of plan assets at May 31, 2013 and 2012 for the Company’s defined benefit retirement plans. The Company maintains no post-retirement medical or other post-retirement plans in the United States.
(in millions)
May 31, 2013
 
May 31, 2012
Change in Benefit Obligation
 
 
 
Projected benefit obligation—beginning of year
$
128.1

 
$
125.3

Service costs
2.9

 
0.6

Interest costs
6.1

 
6.3

Plan participant contribution
0.4

 
—

Actuarial (gains)/losses
20.1

 
10.2

Benefits paid from plan
(4.2
)
 
(5.2
)
Net transfer in
16.6

 
—

Effect of exchange rates
(2.5
)
 
(9.1
)
Projected benefit obligation—end of year
$
167.5

 
$
128.1

Accumulated benefit obligation
$
165.1

 
$
127.2

Change in Plan Assets
 
 
 
Plan assets at fair value—beginning of year
$
108.7

 
$
104.1

Actual return on plan assets
15.5

 
10.2

Company contribution
7.6

 
6.3

Plan participant contribution
0.4

 
—

Benefits paid from plan
(4.0
)
 
(5.0
)
Net transfer in
12.1

 
—

Effect of exchange rates
(2.7
)
 
(6.9
)
Plan assets at fair value—end of year
$
137.6

 
$
108.7

Unfunded status at end of year
$
29.9

 
$
19.4


Amounts recognized in the Company’s consolidated balance sheets consist of the following:
(in millions)
May 31, 2013
 
May 31, 2012
Deferred income tax asset
$
9.5

 
$
6.3

Employee related obligations
29.9

 
19.4

Other comprehensive income (loss)
(10.0)

 
(3.0)



30

 
Year Ended
May 31, 2014
Amounts expected to be recognized in Net Periodic Cost in the coming year for the Company’s defined benefit retirement plans (in millions)
 
Amortization of net actuarial losses
$
4.6


The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for periods presented and also the net periodic benefit cost for the following years.
 
Year Ended
May 31, 2013
 
Year Ended
May 31, 2012
 
Year Ended
May 31, 2011
Discount rate
4.00
%
 
4.57
%
 
5.50
%
Expected long-term rate of return on plan assets
4.20
%
 
4.51
%
 
5.57
%
Rate increase in compensation levels
2.70
%
 
2.58
%
 
2.89
%

The projected future benefit payments from the Company’s defined benefit retirement plans are $3.9 million for fiscal 2014, $4.6 million for fiscal 2015, $4.3 million for fiscal 2016, $4.5 million for fiscal 2017, $4.7 million for fiscal 2018 and $29.6 million for fiscal 2019 to 2023. The Company expects to pay $3.9 million into the plans during fiscal 2014. In certain countries, the funding of pension plans is not a common practice. Consequently, the Company has several pension plans which are not funded.
The Company’s retirement plan asset allocation at May 31, 2013 was 45% to debt securities, 31% to equity securities, and 24% to other. The Company’s retirement plan asset allocation at May 31, 2012 was 48% to debt securities, 40% to equity securities, and 12% to other.
Strategic asset allocations are determined by country, based on the nature of the liabilities and considering demographic composition of the plan participants (average age, years of service and active versus retiree status). The Company’s plans are considered non-mature plans and the long-term strategic asset allocations are consistent with these types of plans. Emphasis is placed on diversifying on a broad basis combined with currency matching the fixed income assets.
Note 11—Accumulated Other Comprehensive Income (Loss).
Accumulated other comprehensive income (loss) includes currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments and changes in pension assets. The Company generally deems its foreign investments to be essentially permanent in nature and does not provide for taxes on currency translation adjustments arising from translating the investment in a foreign currency to U.S. dollars. When the Company determines that a foreign investment is no longer permanent in nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.

Accumulated other comprehensive income (loss) and the related components, net of tax, are included in the table below:
(in millions)
Unrecognized actuarial gains (losses)
 
Foreign currency translation adjustments
 
Unrealized gain (loss) on interest rate swaps
 
Unrealized gain (loss) on available-for-sale securities
 
Accumulated other comprehensive income
May 31, 2011
$
1.2

 
$
235.8

 
$
(60.4
)
 
$
(4.8
)
 
$
171.8

OCI before reclassifications
(4.2
)
 
(62.1
)
 
(30.4
)
 
4.3

 
(92.4
)
Reclassifications
—

 
—

 
43.5

 
—

 
43.5

May 31, 2012
$
(3.0
)
 
$
173.7

 
$
(47.3
)
 
$
(0.5
)
 
$
122.9

OCI before reclassifications
(7.0
)
 
(138.2
)
 
(18.1
)
 
3.3

 
(160.0
)
Reclassifications
—

 
—

 
31.2

 
—

 
31.2

May 31, 2013
$
(10.0
)
 
$
35.5

 
$
(34.2
)
 
$
2.8

 
$
(5.9
)

Reclassifications adjustments from OCI are included in the table below:

31

(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
 
Location on Statement of Operations
Interest rate swaps
$
49.5

 
$
69.0

 
$
87.9

 
Interest expense

The tax effects in other comprehensive income are included in the tables below:
 
Year Ended May 31, 2013
(in millions)
Before Tax
 
Tax
 
Net of Tax
Unrecognized actuarial gains (losses)
$
(7.1
)
 
$
0.1

 
$
(7.0
)
Foreign currency translation adjustments
(142.5
)
 
4.3

 
(138.2
)
Unrealized gain (loss) on interest rate swaps
(27.6
)
 
9.5

 
(18.1
)
Reclassifications on interest rate swaps
49.5

 
(18.3
)
 
31.2

Unrealized gain (loss) on available-for-sale securities
3.4

 
(0.1
)
 
3.3

Accumulated other comprehensive income
$
(124.3
)
 
$
(4.5
)
 
$
(128.8
)
 
 
 
 
 
 
 
Year Ended May 31, 2012
(in millions)
Before Tax
 
Tax
 
Net of Tax
Unrecognized actuarial gains (losses)
$
(3.4
)
 
$
(0.8
)
 
$
(4.2
)
Foreign currency translation adjustments
(79.9
)
 
17.8

 
(62.1
)
Unrealized gain (loss) on interest rate swaps
(48.1
)
 
17.7

 
(30.4
)
Reclassifications on interest rate swaps
69.0

 
(25.5
)
 
43.5

Unrealized gain (loss) on available-for-sale securities
4.3

 
—

 
4.3

Accumulated other comprehensive income
$
(58.1
)
 
$
9.2

 
$
(48.9
)
 
 
 
 
 
 
 
Year Ended May 31, 2011
(in millions)
Before Tax
 
Tax
 
Net of Tax
Unrecognized actuarial gains (losses)
$
4.7

 
$
(0.2
)
 
$
4.5

Foreign currency translation adjustments
330.3

 
(65.9
)
 
264.4

Unrealized gain (loss) on interest rate swaps
(54.8
)
 
18.8

 
(36.0
)
Reclassifications on interest rate swaps
87.9

 
(32.4
)
 
55.5

Unrealized gain (loss) on available-for-sale securities
(6.9
)
 
0.9

 
(6.0
)
Accumulated other comprehensive income
$
361.2

 
$
(78.8
)
 
$
282.4


The tables above have been modified to reflect the retrospective application of ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income for all periods presented.


Note 12—Share-based Compensation and Stock Plans.
The Company expenses all share-based payments to employees and non-employee distributors, including stock options, leveraged share awards and restricted stock units, based on the grant date fair value over the required award service period using the graded vesting attribution method. For awards with a performance vesting condition, the Company recognizes expense when the performance condition is considered probable to occur. Share-based compensation expense recognized for the years ended May 31, 2013, 2012 and 2011 was $38.3 million, $16.0 million and $12.7 million, respectively. The increase in the expense was related to the modification that is described below.
On July 2, 2012, LVB launched a tender offer to eligible employees to exchange all of the stock options and restricted stock units held by such employees for new stock options and restricted stock units. Following the expiration of the tender offer on July 30, 2012, LVB accepted for exchange eligible options to purchase an aggregate

32

of 29,821,500 shares of common stock of LVB and eligible restricted stock units underlying an aggregate of 3,665,000 shares of common stock of LVB. In accordance with the terms and conditions of the tender offer, on July 31, 2012, LVB granted 29,821,500 new options and 10,795,000 new restricted stock units in exchange for the cancellation of such tendered options and restricted stock units.
The objective of the tender offer was to provide employees who elected to participate with new options and new restricted stock units, the terms of which preserve the original incentive effect of the Company’s equity incentive programs in light of market and industry-wide economic conditions. The terms of the new stock options differed in respect to the tendered options principally with respect to:

•
Exercise Price—The exercise price for the new stock options was lowered to the current fair value of $7.88 per share.
•
Vesting Periods—All prior options that were vested as of the completion date of the tender offer remain vested. All time-vesting options which were unvested as of the completion date of the tender offer will continue to vest on the same schedule on which they were originally granted. All unvested replacement extended time vesting options and modified performance options will vest on a schedule which is generally two years longer than the original vesting schedule, but in no case past 2017.
•
Performance Vesting Threshold—The new modified performance options will vest over the new vesting period if, as of the end of the Company’s most recent fiscal year ending on or prior to such vesting date, Biomet, Inc. has achieved the EBITDA target for such fiscal year determined by the Compensation Committee of the Board of Directors of the Company on or before the ninetieth (90th) day of such fiscal year and consistent with the Company’s business plan.
The terms of the new restricted stock units are different from the tendered restricted stock units with respect to the vesting schedule, performance conditions and settlement. The new restricted stock units are granted subject to either a time-based vesting or a performance-based vesting requirement. Unlike the exchanged restricted stock units, the new restricted stock units do not vest in full on May 31, 2016 regardless of satisfaction of the vesting conditions. In addition, following the termination of employment with the Company, new restricted stock units, whether vested or unvested, will be forfeited if such employee provides services to any competitor of the Company. In addition, participants holding new restricted stock units will also receive new awards called management dividend awards representing the right to receive a cash payment. Management dividend awards vest on a one-to-one basis with each new time-based restricted stock unit. Vested management dividend awards will be paid by cash distributions promptly following each anniversary of the grant date until the earlier of an initial public offering of the Company or the fifth anniversary of the grant date, subject to withholding taxes. Upon termination of employment for any reason, management dividend awards will be forfeited. The new restricted stock units were granted under the Company’s 2012 Restricted Stock Unit Plan, which was adopted by LVB on July 31, 2012. The maximum number of shares of common stock, par value $0.01 per share, that may be issued under the Company’s 2012 Restricted Stock Unit Plan is 14,000,000, subject to adjustment as described in the Plan. The management dividend awards are accounted for as liabilities.
On March 27, 2013, the Compensation Committee of LVB approved and adopted an Amended LVB Acquisition, Inc. 2012 Restricted Stock Unit Plan. The amendment permits certain participants in the Plan to be eligible to elect to receive a cash award with respect to their vested time-based restricted stock units subject to certain conditions, including the satisfaction of certain Company performance thresholds with respect to adjusted EBITDA and unlevered free cash flow. To the extent the Company performance conditions have been satisfied for the applicable fiscal year, eligible participants will be entitled to elect to receive a cash award based on the fair market value of the Parent's common stock on the first day of the applicable election period, payable in three installments over a two-year period, with respect to their vested time-based restricted stock units and such vested time-based restricted stock unit will be forfeited upon such election. Payment of the cash award is subject to the participants' continued employment through the payment date (other than with respect to a termination by the Company without cause).
During the second quarter of fiscal year 2013, the distributor options were modified to lower the exercise price to the current fair value of $7.88 per share.
Stock Options
The Company grants stock option awards under the LVB Acquisition, Inc. 2007 Management Equity Incentive Plan (the “2007 LVB Plan”), with the modifications described above. When the 2007 LVB Plan became effective, there were 37,520,000 shares of LVB common stock reserved for issuance in connection with LVB Awards to be granted thereunder. Effective December 31, 2010, the 2007 LVB Plan was amended to increase the authorized share pool by 1,000,000 shares. During the year ended May 31, 2013, stock options were granted with an exercise

33

price of $7.88 and a fair value of the underlying stock of $7.88 on the date of the grant and have 10-year terms. The fair value is determined by taking the average value assigned to the Company on a quarterly basis by its Sponsors, three of which have SEC periodic reporting requirements. Vesting of employee stock options are split into two categories: 1) time based options-75% of option grants generally vesting ratably over 5 years and 2) performance based options-25% of stock option grants generally vesting over 5 years, contingent upon the Company achieving certain Adjusted EBITDA targets in each of those years. As of May 31, 2013, there were 2,552,711 shares available for issuance under the 2007 LVB Plan.

In 2008, the Board of Directors of LVB adopted an addendum to the 2007 LVB Plan, which provides for the grant of leveraged equity awards in LVB under the 2007 LVB Plan (the “LVB Leveraged Awards,” and together with the LVB Options, the “LVB Awards”) to certain of the Company’s European employees. LVB Leveraged Awards permit participants to purchase shares of LVB common stock using the proceeds of non-recourse loans from LVB, which shares remain subject to forfeiture and other restrictions prior to the participant’s repayment of the loan. LVB leveraged award shares outstanding were 504,500 shares, 504,500 shares and 504,500 shares as of May 31, 2013, 2012 and 2011, respectively.
Upon termination of a participant’s employment, the 2007 LVB Plan provides that any unvested portion of a participant’s LVB Award will be forfeited, and that the vested portion of his or her LVB Award will expire on the earliest of (1) the date the participant’s employment is terminated for cause, (2) 30 days following the date the participant resigns without good reason, (3) 90 days after the date the participant’s employment is terminated either by us for any reason other than cause, death or disability or by the participant with good reason, (4) one year after the date the participant’s employment is terminated by reason of death or disability, or (5) the tenth anniversary of the grant date of the LVB Award.
Prior to receiving shares of LVB common stock (whether pursuant to the exercise of LVB Options, purchased pursuant to an LVB Leveraged Award or otherwise), participants must execute a Management Stockholders’ Agreement, which provides that the shares are subject to certain transfer restrictions, put and call rights, and tag along and drag along rights (and, with respect to certain senior members of management, limited re-offer registration and preemptive rights).

34

The following table summarizes stock option activity for the years ended May 31, 2013, 2012 and 2011:
 
Stock Options
 
Weighted Average Exercise Price
Outstanding, May 31, 2010
35,286,500
 
$
10.00

Granted
2,274,000
 
10.00

Forfeitures
(2,535,875)
 
10.00

Outstanding, May 31, 2011
35,024,625
 
$
10.00

Granted
2,594,500
 
10.00

Forfeitures
(2,867,417)
 
10.00

Outstanding, May 31, 2012
34,751,708
 
$
10.00

Granted
3,564,600
 
7.88

Forfeitures
(2,349,019)
 
7.88

Outstanding, May 31, 2013
35,967,289
 
$
7.88


The weighted average fair value of options granted during the years ended May 31, 2013, 2012 and 2011, was $2.23, $1.76 and $3.21, respectively. The Company estimates the fair value of each option primarily using the Black-Scholes option pricing model. Expected volatilities for grants are generally based on historical volatility of the Company’s competitors’ stock. The risk-free rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect at the time of grant. As of May 31, 2013, there was approximately $23.1 million of unrecognized share-based compensation expense related to nonvested employee stock options granted under the Company’s plan and is expected to be recognized over a weighted average period of 3.1 years.
The fair value estimates are based on the following weighted average assumptions:
 
May 31, 2013
 
May 31, 2012
Risk-free interest rate
0.69
%
 
0.87
%
Dividend yield
—

 
—

Expected volatility
30.91
%
 
30.55
%
Expected life in years
6.0

 
6.0


The following table summarizes information about outstanding stock options, as of May 31, 2013 and 2012, that were (a) vested and (b) exercisable:
 
Outstanding Stock Options Already Vested and Expected to Vest
 
Options that are Exercisable
 
2013
 
2012
 
2013
 
2012
Number of outstanding options
35,967,289

 
34,751,708

 
24,620,247

 
21,266,528

Weighted average remaining contractual life
6.8 years

 
6.1 years

 
6.4 years

 
5.7 years

Weighted average exercise price per share
$
7.88

 
$
10.00

 
$
7.88

 
$
10.00

Intrinsic value
—

 
—

 
—

 
—


Restricted Stock Units
Effective February 10, 2011, the Board of Directors of LVB adopted and approved a Restricted Stock Unit Plan (the “Prior RSU Plan”). Following the expiration of the tender offer with respect to the restricted stock units described above, the Board of Directors of LVB adopted and approved the LVB Acquisition, Inc. 2012 Restricted Stock Unit Plan (the “New RSU Plan” and, together with the Prior RSU Plan, the “RSU Plans”). The new restricted stock units issued pursuant to the tender offer were issued under the New RSU Plan. All of the outstanding restricted stock units issued under the Prior RSU Plan were tendered for exchange pursuant to the tender offer and no restricted stock units issued under the Prior RSU Plan remain outstanding. The aggregate number of shares available for issuance pursuant to the terms of the New RSU Plan is 14,000,000, up to 10,000,000 of which may be time-

35

based restricted stock units and up to 4,000,000 of which may be performance-based restricted stock units. As of May 31, 2013, there were 946,500 shares available for issuance under the New RSU Plan. The purpose of the RSU Plans is to provide executives and certain key employees with the opportunity to receive stock-based performance incentives to retain qualified individuals and to align their interests with the interests of the stockholders. Under the terms of the RSU Plans, the Compensation Committee of the Board of Directors may grant participants restricted stock units each of which represents the right to receive one share of common stock, subject to certain vesting restrictions and risk of forfeiture. Once granted, restricted stock units are generally expensed over the required service period.  The Company continues to record expense for the Prior RSU Plan. The New RSU Plan requires a liquidity event condition and the incremental expense for the New RSU Plan will be expensed once that condition is met.
The following table summarizes RSU activity for the years ended May 31, 2013, 2012 and 2011:
 
RSUs
 
Weighted Average Grant Date Fair Value
Outstanding at May 31, 2010
—

 
$
—

Granted
3,835,000

 
10.00

Vested
—

 
—

Forfeited
—

 
—

Outstanding at May 31, 2011
3,835,000

 
10.00

Granted
30,000

 
10.00

Vested
—

 
—

Forfeited
(200,000)

 
10.00

Outstanding at May 31, 2012
3,665,000

 
10.00

Modification impact
(3,665,000
)
 
10.00

Granted
13,631,500

 
7.88

Vested
—

 
—

Forfeited
(578,000)

 
7.88

Outstanding at May 31, 2013
13,053,500

 
$
7.88


The restricted stock units are measured at their grant date fair value. The expense is recognized for the restricted stock units ultimately expected to vest, using the straight line method over the service period, which is estimated at approximately five years from the initial grant date. As of May 31, 2013, there was approximately $18.7 million of unrecognized share-based compensation expense related to nonvested restricted stock units granted under the RSU Plan and is expected to be recognized over a weighted average period of 3.0 years, additionally $102.9 million of expense will be recognized if certain liquidity events occur as detailed in the RSU Plan Agreement.

Note 13—Income Taxes.
The components of loss before income taxes are as follows:
(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
Domestic
$
(747.4
)
 
$
(796.1
)
 
$
(238.2
)
Foreign
6.3

 
205.3

 
(826.4
)
Total
$
(741.1
)
 
$
(590.8
)
 
$
(1,064.6
)

36


The income tax benefit is summarized as follows:
(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
Current:
 
 
 
 
 
Federal
$
13.7

 
$
(9.5
)
 
$
(13.3
)
State
6.8

 
3.0

 
11.1

Foreign
35.5

 
42.6

 
53.9

Sub-total
56.0

 
36.1

 
51.7

Deferred:
 
 
 
 
 
Federal
(169.3
)
 
(83.6
)
 
(43.1
)
State
11.9

 
(0.9
)
 
(51.2
)
Foreign
(16.3
)
 
(83.6
)
 
(172.2
)
Sub-total
(173.7
)
 
(168.1
)
 
(266.5
)
Total income tax benefit
$
(117.7
)
 
$
(132.0
)
 
$
(214.8
)

A reconciliation of the statutory federal income tax rate to the Company’s U.S. effective tax rate is as follows:
 
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
U.S. statutory income tax rate
(35.0
)%
 
(35.0
)%
 
(35.0
)%
State taxes, net of federal deduction
(1.8
)
 
(0.5
)
 
(0.6
)
Effect of foreign taxes
(1.6
)
 
(1.1
)
 
(2.8
)
Change in liability for uncertain tax positions
2.6

 
(3.7
)
 
1.7

Goodwill impairment
22.4

 
17.3

 
13.9

Change in tax laws and rates
2.0

 
(2.6
)
 
(4.4
)
Tax on foreign earnings, net of foreign tax credits
(5.9
)
 
8.9

 
0.5

Other
1.4

 
(5.6
)
 
6.5

Effective tax rate
(15.9
)%
 
(22.3
)%
 
(20.2
)%

The components of the net deferred income tax assets and liabilities at May 31, 2013 and 2012 are as follows:
(in millions)
May 31, 2013
 
May 31, 2012
Deferred income tax assets:
 
 
 
Accounts receivable
$
14.1

 
$
22.5

Inventories
68.8

 
62.8

Accrued expenses
85.7

 
48.9

Tax benefit of net operating losses, tax credits and other carryforwards
106.3

 
74.9

Future benefit of uncertain tax positions
13.0

 
12.1

Stock-based compensation
55.7

 
39.1

Unrealized mark-to-mark and currency gains and losses
33.9

 
29.0

Other
11.5

 
0.7

Deferred income tax assets
389.0

 
290.0

Less: Valuation allowance
(68.8
)
 
(45.7
)
Total deferred income tax assets
320.2

 
244.3

Deferred income tax liabilities:
 
 
 
Property, plant, equipment and Intangibles
(1,316.2
)
 
(1,390.4
)
Unremitted foreign earnings
(4.4
)
 
(36.6
)
Other
(9.5
)
 
(22.6
)
Total deferred income tax liabilities
(1,330.1
)
 
(1,449.6
)
Total net deferred income tax liabilities
$
(1,009.9
)
 
$
(1,205.3
)

37


The Company’s deferred tax assets include federal, state, and foreign net operating loss carryforwards of $6.1 million, $62.5 million ($40.6 million, net of federal benefit) and $22.4 million, respectively. Federal net operating loss carryforwards available are $17.6 million, which begin to expire in 2029. The Company believes it is more likely than not that it will be able to utilize the federal net operating loss carryforwards. The state and foreign net operating loss carryforwards are from various jurisdictions with various carryforward periods.
Deferred tax assets related to tax credits and other carryforwards total $15.3 million as of May 31, 2013. This includes a deferred tax asset for foreign tax credit carryforwards in the amount of $7.6 million, which begin to expire in 2018. The Company believes it is more likely than not that it will be able to utilize the foreign tax credit carryforwards.
As of May 31, 2013, the Company has a $68.8 million valuation allowance against deferred tax assets. This valuation allowance consists of $5.0 million relating to net deferred tax assets for unrealized losses on investments and $63.8 million for net deferred tax assets related to state and foreign net operating losses that management believes, more likely than not, will not be realized.
The Company has not historically provided for U.S. or additional foreign taxes on the excess of the amount of financial reporting over the tax basis of investments in non-U.S. subsidiaries. A company is not required to recognize a deferred tax liability for the outside basis difference of an investment in a non-U.S. subsidiary or a non-U.S. corporate joint venture that is essentially permanent in duration, unless it becomes apparent that such difference will reverse in the foreseeable future. The excess of financial reporting basis over tax basis of investments in non-U.S. subsidiaries is primarily attributable to the financial restatement of the carrying amount of these investments due to the Merger, adjusted for subsequent accumulation of earnings and losses. It is the Company’s practice and intention to continue to permanently reinvest a substantial portion of the reported earnings of its non-U.S. subsidiaries in non-U.S. operations. It is also the Company’s practice and intention to continue to permanently reinvest a substantial portion of the excess cash generated by its non-U.S. subsidiaries. Currently, there are no plans to divest any of the Company’s investments in non-U.S. subsidiaries. As of May 31, 2013, the Company has an accumulated GAAP loss in its Non-US subsidiaries. Therefore, there are no undistributed earnings to disclose. To the extent it is determined that the book tax basis difference could reverse in the foreseeable future, other than related to undistributed earnings, the Company will record a deferred tax liability reflecting the estimated amount of tax that will be payable due to such reversal. If future events, including material changes in estimates of cash, working capital and long-term investment requirements necessitate repatriation of portions of the earnings currently treated as permanently reinvested, under current tax laws an additional tax provision may be required which could have a material effect on our financial results.

During the fiscal years ended May 31, 2013 and 2012, the Company accumulated additional cash of $52.9 million and $136.7 million at its non-U.S. subsidiaries for which it has no specific plans for permanent reinvestment. This cash is expected to be repatriated to the United States in the form of a taxable distribution. Accordingly, the Company recorded a deferred tax liability of $4.4 million and $36.6 million at May 31, 2013 and 2012, respectively. As of May 31, 2013 and 2012, all other undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested. It is not practicable to estimate the amount of deferred tax liability related to these permanently reinvested earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in millions)
Year Ended May 31, 2013

 
Year Ended May 31, 2012

 
Year Ended May 31, 2011

Unrecognized tax benefits, beginning of period
$
63.0

 
$
90.9

 
$
73.8

Addition based on tax positions related to the current year
14.1

 
10.9

 
20.0

Addition (reduction) for tax positions of prior periods
1.3

 
(14.8
)
 
5.2

Reduction related to settlements with tax authorities
—

 
(0.1
)
 
—

Reduction related to lapse of statute of limitations
—

 
(23.9
)
 
(8.1
)
Unrecognized tax benefits, end of period
$
78.4

 
$
63.0

 
$
90.9


Included in the amount of unrecognized tax benefits at May 31, 2013 and 2012 are $78.4 million and $61.5 million, respectively, of tax benefits that would impact the Company’s effective tax rate, if recognized.

38

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to unrecognized tax benefits noted above, the Company accrued interest of $3.8 million and $(1.7) million during the years ended May 31, 2013 and 2012, respectively. The interest benefit for the year ended May 31, 2012 is primarily due to the reduction in accrued interest from the decrease in unrecognized tax benefits due to the lapse of statute of limitations. As of May 31, 2013 and 2012, the Company has recognized a liability for interest of $14.4 million and $10.6 million, respectively. The Company accrued and recognized an immaterial amount of penalties for the years disclosed.
The Company conducts business globally and, as a result, certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examinations by taxing authorities throughout the world, including major jurisdictions such as Australia, Canada, France, Germany, Japan, Netherlands, Spain, the United Kingdom and the United States. In addition, certain state and foreign tax returns are under examination by various regulatory authorities. The Company is no longer subject to U.S. federal income tax examinations for the fiscal years prior to and including the year ended May 31, 2009.

The Company regularly reviews issues that are raised from ongoing examinations and open tax years to evaluate the adequacy of its liabilities. As the various taxing authorities continue with their audit/examination programs, the Company will adjust its reserves accordingly to reflect these settlements. As of May 31, 2013, the Company does not anticipate a significant change in its worldwide gross liabilities for unrecognized tax benefits within the succeeding twelve months.
Note 14—Segment Reporting.
The Company operates in one reportable segment, musculoskeletal products, which includes the designing, manufacturing and marketing of large joint reconstructive; sports, extremities and trauma (“S.E.T.”); spine & bone healing; dental and other products. Other products consist primarily of microfixation products, autologous therapies, general instruments and operating room supplies. The Company operates in various geographies. These geographic markets are comprised of the United States, Europe and International. Major markets included in the International geographic market are Canada, Latin America and the Asia Pacific region.
Net sales by product category for the years ended May 31, 2013, 2012 and 2011 were as follows:
(in millions)
Year Ended
May 31, 2013(1)
 
Year Ended
May 31, 2012(1)
 
Year Ended
May 31, 2011(1)
Net sales by product:
 
 
 
 
 
Knees
$
940.0

 
$
941.8

 
$
914.4

Hips
632.7

 
633.0

 
598.0

Sports, Extremities, Trauma (S.E.T.)
600.1

 
361.6

 
319.8

Spine, Bone Healing and Microfixation
408.8

 
411.5

 
413.7

Dental
257.0

 
267.7

 
269.5

Cement, Biologics and Other
214.3

 
222.5

 
216.8

Total
$
3,052.9

 
$
2,838.1

 
$
2,732.2

(1)
Certain amounts have been adjusted to conform to the current presentation. The current presentation aligns with how the Company presently manages and markets its products.
Net sales by geography for the years ended May 31, 2013, 2012 and 2011 were as follows:
(in millions)
Year Ended May 31, 2013
 
Year Ended May 31, 2012
 
Year Ended May 31, 2011
Net sales by geography:
 
 
 
 
 
United States
$
1,862.2

 
$
1,713.3

 
$
1,659.2

Europe
710.2

 
702.7

 
697.8

International(1)   
480.5

 
422.1

 
375.2

Total
$
3,052.9

 
$
2,838.1

 
$
2,732.2


39

(1)
International primarily includes Canada, Latin America and the Asia Pacific region.
Long-term assets by geography as of May 31, 2013 and 2012 were as follows:
(in millions)
May 31, 2013
 
May 31, 2012(2)
Long-term assets(1) by geography:
 
 
 
United States
$
336.8

 
$
306.8

Europe
255.7

 
224.3

International
72.7

 
62.5

Total
$
665.2

 
$
593.6

(1)
Defined as property, plant and equipment.
(2)
Prior year amounts have been corrected to remove balances related to goodwill and intangible assets to conform to the current presentation.

Note 15—Guarantor and Non-guarantor Financial Statements.
Each of Biomet’s existing wholly owned domestic subsidiaries fully, unconditionally, jointly, and severally guarantee the senior notes on a senior unsecured basis and the senior subordinated notes on a senior subordinated unsecured basis, in each case to the extent such subsidiaries guarantee Biomet’s senior secured cash flow facilities. Certain amounts reported in the prior year have been corrected to more accurately reflect the allocation of intercompany items between the guarantor and the non-guarantor subsidiaries and to conform to the current period presentation. The Company believes such amounts are immaterial. LVB is neither an issuer nor guarantor of the notes described in Note 7.
 
    

40

The following financial information presents the composition of the combined guarantor subsidiaries:

CONDENSED CONSOLIDATING BALANCE SHEETS
 
May 31, 2013
(in millions)
Biomet, Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
35.3

 
$
320.3

 
$
—

 
$
355.6

Accounts receivable, net
—

 
254.1

 
277.7

 
—

 
531.8

Investments
—

 
—

 
—

 
—

 
—

Income tax receivable
—

 
0.9

 
6.0

 
—

 
6.9

Inventories
—

 
286.9

 
337.1

 
—

 
624.0

Deferred income taxes
—

 
78.3

 
41.6

 
—

 
119.9

Prepaid expenses and other
—

 
72.8

 
61.6

 
—

 
134.4

Total current assets
—

 
728.3

 
1,044.3

 
—

 
1,772.6

Property, plant and equipment, net
—

 
350.1

 
315.1

 
—

 
665.2

Investments
—

 
10.9

 
12.1

 
—

 
23.0

Investment in subsidiaries
7,982.8

 
—

 
—

 
(7,982.8
)
 
—

Intangible assets, net
—

 
2,890.4

 
739.8

 
—

 
3,630.2

Goodwill
—

 
3,104.0

 
496.9

 
—

 
3,600.9

Other assets
—

 
88.9

 
13.9

 
—

 
102.8

Total assets
$
7,982.8

 
$
7,172.6

 
$
2,622.1

 
$
(7,982.8
)
 
$
9,794.7

 
 
 
 
 
 
 
 
 
 
Liabilities & Shareholder’s Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
33.3

 
$
—

 
$
7.0

 
$
—

 
$
40.3

Accounts payable
—

 
63.8

 
47.7

 
—

 
111.5

Accrued interest
56.1

 
—

 
0.1

 
—

 
56.2

Accrued wages and commissions
—

 
82.1

 
68.0

 
—

 
150.1

Other accrued expenses
—

 
141.7

 
64.3

 
—

 
206.0

Total current liabilities
89.4

 
287.6

 
187.1

 
—

 
564.1

Long-term debt
5,924.8

 
—

 
1.3

 
—

 
5,926.1

Deferred income taxes
—

 
942.0

 
187.8

 
—

 
1,129.8

Other long-term liabilities
—

 
142.9

 
63.2

 
—

 
206.1

Total liabilities
6,014.2

 
1,372.5

 
439.4

 
—

 
7,826.1

Shareholder’s equity
1,968.6

 
5,800.1

 
2,182.7

 
(7,982.8
)
 
1,968.6

Total liabilities and shareholder’s equity
$
7,982.8

 
$
7,172.6

 
$
2,622.1

 
$
(7,982.8
)
 
$
9,794.7



41

 
May 31, 2012
(in millions)
Biomet, Inc.  
 
Guarantors  
 
Non-Guarantors  
 
Eliminations  
 
Total  
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
190.1

 
$
302.3

 
$
—

 
$
492.4

Accounts receivable, net
—

 
227.6

 
264.0

 
—

 
491.6

Investments
—

 
0.0

 
2.5

 
—

 
2.5

Income tax receivable
—

 
2.1

 
2.9

 
—

 
5.0

Inventories
—

 
288.7

 
254.5

 
—

 
543.2

Deferred income taxes
—

 
42.3

 
10.2

 
—

 
52.5

Prepaid expenses and other
—

 
48.8

 
75.3

 
—

 
124.1

Total current assets
—

 
799.6

 
911.7

 
—

 
1,711.3

Property, plant and equipment, net
—

 
320.1

 
273.5

 
—

 
593.6

Investments
—

 
10.1

 
3.8

 
—

 
13.9

Investment in subsidiaries
8,562.9

 
—

 
—

 
(8,562.9
)
 
—

Intangible assets, net
—

 
3,239.3

 
691.1

 
—

 
3,930.4

Goodwill
—

 
3,271.4

 
843.0

 
—

 
4,114.4

Other assets
—

 
45.6

 
11.2

 
—

 
56.8

Total assets
$
8,562.9

 
$
7,686.1

 
$
2,734.3

 
$
(8,562.9
)
 
$
10,420.4

 
 
 
 
 
 
 
 
 
 
Liabilities & Shareholder’s Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
34.3

 
$
—

 
$
1.3

 
$
—

 
$
35.6

Accounts payable
—

 
71.5

 
44.7

 
—

 
116.2

Accrued interest
56.5

 
—

 
—

 
—

 
56.5

Accrued wages and commissions
—

 
69.5

 
52.5

 
—

 
122.0

Other accrued expenses
—

 
106.1

 
74.1

 
—

 
180.2

Total current liabilities
90.8

 
247.1

 
172.6

 
—

 
510.5

Long-term debt
5,790.0

 
—

 
2.2

 
—

 
5,792.2

Deferred income taxes
—

 
1,065.7

 
192.1

 
—

 
1,257.8

Other long-term liabilities
—

 
131.6

 
46.2

 
—

 
177.8

Total liabilities
5,880.8

 
1,444.4

 
413.1

 
—

 
7,738.3

Shareholder’s equity
2,682.1

 
6,241.7

 
2,321.2

 
(8,562.9
)
 
2,682.1

Total liabilities and shareholder’s equity
$
8,562.9

 
$
7,686.1

 
$
2,734.3

 
$
(8,562.9
)
 
$
10,420.4

 










42

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 
Year Ended May 31, 2013
(in millions)
Biomet, Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,922.3

 
$
1,130.6

 
$
—

 
$
3,052.9

Cost of sales
—

 
689.8

 
183.6

 
—

 
873.4

Gross profit
—

 
1,232.5

 
947.0

 
—

 
2,179.5

Selling, general and administrative expense
—

 
820.6

 
491.9

 
—

 
1,312.5

Research and development expense
—

 
112.8

 
37.5

 
—

 
150.3

Amortization
—

 
260.6

 
53.2

 
—

 
313.8

Goodwill impairment charge
—

 
167.9

 
305.1

 
—

 
473.0

Intangible assets impairment charge
—

 
94.4

 
0.0

 
—

 
94.4

Operating income (loss)
—

 
(223.8
)
 
59.3

 
—

 
(164.5
)
Other (income) expense, net
572.8

 
6.1

 
(2.3
)
 
—

 
576.6

Income (loss) before income taxes
(572.8
)
 
(229.9
)
 
61.6

 
—

 
(741.1
)
Tax expense (benefit)
(217.7
)
 
(87.4
)
 
187.4

 
—

 
(117.7
)
Equity in earnings of subsidiaries
(268.3
)
 
—

 
—

 
268.3

 
—

Net income (loss)
(623.4
)
 
(142.5
)
 
(125.8
)
 
268.3

 
(623.4
)
Other comprehensive income (loss)
13.1

 
—

 
(141.9
)
 
—

 
(128.8
)
Total comprehensive income (loss)
$
(610.3
)
 
$
(142.5
)
 
$
(267.7
)
 
$
268.3

 
$
(752.2
)
 
Year Ended May 31, 2012
(in millions)
Biomet, Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,769.8

 
$
1,068.3

 
$
—

 
$
2,838.1

Cost of sales
—

 
437.2

 
338.3

 
—

 
775.5

Gross profit
—

 
1,332.6

 
730.0

 
—

 
2,062.6

Selling, general and administrative expense
—

 
724.9

 
447.3

 
—

 
1,172.2

Research and development expense
—

 
94.7

 
32.1

 
—

 
126.8

Amortization
—

 
258.8

 
68.4

 
—

 
327.2

Goodwill impairment charge
—

 
189.4

 
102.5

 
—

 
291.9

Intangible assets impairment charge
—

 
74.9

 
163.0

 
—

 
237.9

Operating income (loss)
—

 
(10.1
)
 
(83.3
)
 
—

 
(93.4
)
Other (income) expense, net
477.1

 
3.1

 
17.2

 
—

 
497.4

Income (loss) before income taxes
(477.1
)
 
(13.2
)
 
(100.5
)
 
—

 
(590.8
)
Tax expense (benefit)
(181.3
)
 
86.8

 
(37.5
)
 
—

 
(132.0
)
Equity in earnings of subsidiaries
(163.0
)
 
—

 
—

 
163.0

 
—

Net income (loss)
(458.8
)
 
(100.0
)
 
(63.0
)
 
163.0

 
(458.8
)
Other comprehensive income (loss)
13.1

 
—

 
(62.0
)
 
—

 
(48.9
)
Total comprehensive income (loss)
$
(445.7
)
 
$
(100.0
)
 
$
(125.0
)
 
$
163.0

 
$
(507.7
)


43

 
Year Ended May 31, 2011
(in millions)
Biomet, Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,716.5

 
$
1,015.7

 
$
—

 
$
2,732.2

Cost of sales
—

 
338.3

 
385.9

 
—

 
724.2

Gross profit
—

 
1,378.2

 
629.8

 
—

 
2,008.0

Selling, general and administrative expense
—

 
717.4

 
438.8

 
—

 
1,156.2

Research and development expense
—

 
88.7

 
30.7

 
—

 
119.4

Amortization
—

 
257.6

 
110.3

 
—

 
367.9

Goodwill impairment charge
—

 
—

 
422.8

 
—

 
422.8

Intangible assets impairment charge
—

 
—

 
518.6

 
—

 
518.6

Operating income (loss)
—

 
314.5

 
(891.4
)
 
—

 
(576.9
)
Other (income) expense, net
493.9

 
(9.8
)
 
3.6

 
—

 
487.7

Income (loss) before income taxes
(493.9
)
 
324.3

 
(895.0
)
 
—

 
(1,064.6
)
Tax expense (benefit)
(187.2
)
 
101.0

 
(128.6
)
 
—

 
(214.8
)
Equity in earnings of subsidiaries
(543.1
)
 
—

 
—

 
543.1

 
—

Net income (loss)
(849.8
)
 
223.3

 
(766.4
)
 
543.1

 
(849.8
)
Other comprehensive income (loss)
19.5

 
(4.0
)
 
266.9

 
—

 
282.4

Total comprehensive income (loss)
$
(830.3
)
 
$
219.3

 
$
(499.5
)
 
$
543.1

 
$
(567.4
)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Year Ended May 31, 2013
(in millions)
Biomet, Inc.
 
Guarantor
 
Non-Guarantors
 
Eliminations
 
Total
Cash flows provided by (used in) operating activities
$
128.6

 
$
228.2

 
$
111.7

 
$
—

 
$
468.5

Capital expenditures
—

 
(102.9
)
 
(101.1
)
 
—

 
(204.0
)
Acquisitions, net of cash acquired - Trauma Acquisition
—

 
(277.5
)
 
(2.5
)
 
—

 
(280.0
)
Other
—

 
(2.5
)
 
(2.1
)
 
—

 
(4.6
)
Cash flows provided by (used in) investing activities
—

 
(382.9
)
 
(105.7
)
 
—

 
(488.6
)
Proceeds under revolvers/facility
80.0

 
—

 
6.6

 
—

 
86.6

Payments under revolvers/facility
(80.0
)
 
—

 
(0.6
)
 
—

 
(80.6
)
Proceeds from senior and senior subordinated notes due 2020 and term loans
3,396.2

 
—

 
—

 
—

 
3,396.2

Tender/retirement of senior notes due 2017 and term loans
(3,423.0
)
 
—

 
—

 
—

 
(3,423.0
)
Payment of fees related to refinancing activities
(79.0
)
 
—

 
—

 
—

 
(79.0
)
Other
(22.8
)
 
(0.1
)
 
(12.0
)
 
—

 
(34.9
)
Cash flows used in financing activities
(128.6
)
 
(0.1
)
 
(6.0
)
 
—

 
(134.7
)
Effect of exchange rate changes on
cash
—

 
—

 
18.0

 
—

 
18.0

Increase (decrease) in cash and cash equivalents
—

 
(154.8
)
 
18.0

 
—

 
(136.8
)
Cash and cash equivalents, beginning of period
—

 
190.1

 
302.3

 
—

 
492.4

Cash and cash equivalents, end of period
$
—

 
$
35.3

 
$
320.3

 
$
—

 
$
355.6



44

 
Year Ended May 31, 2012
(in millions)
Biomet, Inc.
 
Guarantor
 
Non-Guarantors
 
Eliminations
 
Total
Cash flows provided by (used in) operating activities
$
36.7

 
$
63.0

 
$
277.6

 
$
—

 
$
377.3

Proceeds from sales/maturities of investments
—

 
42.1

 
—

 
—

 
42.1

Capital expenditures
—

 
(89.9
)
 
(89.4
)
 
—

 
(179.3
)
Other
—

 
(1.5
)
 
(5.3
)
 
—

 
(6.8
)
Cash flows provided by (used in) investing activities
—

 
(49.3
)
 
(94.7
)
 
—

 
(144.0
)
Payments under senior secured credit facilities
(35.4
)
 
—

 
—

 
—

 
(35.4
)
Other
(1.3
)
 
—

 
(1.4
)
 
—

 
(2.7
)
Cash flows used in financing activities
(36.7
)
 
—

 
(1.4
)
 
—

 
(38.1
)
Effect of exchange rate changes on
cash
—

 
—

 
(30.6
)
 
—

 
(30.6
)
Increase in cash and cash equivalents
—

 
13.7

 
150.9

 
—

 
164.6

Cash and cash equivalents, beginning
of period
—

 
176.4

 
151.4

 
—

 
327.8

Cash and cash equivalents, end of
period
$
—

 
$
190.1

 
$
302.3

 
$
—

 
$
492.4



 
Year Ended May 31, 2011
(in millions)
Biomet, Inc.
 
Guarantor
 
Non-Guarantors
 
Eliminations
 
Total
Cash flows provided by (used in) operating activities
$
49.7

 
$
182.5

 
$
147.9

 
$
—

 
$
380.1

Proceeds from sales/maturities of investments
—

 
59.3

 
—

 
—

 
59.3

Purchases of investments
—

 
(78.7
)
 
—

 
 
 
(78.7
)
Capital expenditures
—

 
(81.4
)
 
(92.6
)
 
—

 
(174.0
)
Other
—

 
(8.8
)
 
(2.8
)
 
—

 
(11.6
)
Cash flows provided by (used in) investing activities
—

 
(109.6
)
 
(95.4
)
 
—

 
(205.0
)
Payments under senior secured credit facilities
(34.8
)
 
—

 
—

 
—

 
(34.8
)
Other
(14.9
)
 
—

 
(1.7
)
 
—

 
(16.6
)
Cash flows used in financing activities
(49.7
)
 
—

 
(1.7
)
 
—

 
(51.4
)
Effect of exchange rate changes on
cash
—

 
—

 
15.0

 
—

 
15.0

Increase in cash and cash equivalents
—

 
72.9

 
65.8

 
—

 
138.7

Cash and cash equivalents, beginning
of period
—

 
103.5

 
85.6

 
—

 
189.1

Cash and cash equivalents, end of
period
$
—

 
$
176.4

 
$
151.4

 
$
—

 
$
327.8



45

Note 16—Contingencies.
The Company is involved in various proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product liability, governmental investigations, intellectual property, commercial litigation and other matters. The outcomes of these matters will generally not be known for an extended period of time. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory relief, which could result in the payment of significant claims and settlements. For legal matters for which management has sufficient information to reasonably estimate the Company’s future obligations, a liability representing management’s best estimate of the probable cost, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. The Company’s accrual for contingencies at May 31, 2013 and May 31, 2012 of $63.5 million and $25.5 million, respectively, primarily relate to certain product liability claims and the Massachusetts U.S. Department of Justice EBI products investigation described below.
Other than the Massachusetts U.S. Department of Justice EBI products investigation and certain product liability claims, for which the estimated loss is included in the accrual referenced above, given the relatively early stages of the other governmental investigations and other product liability claims described below, and the complexities involved in these matters, the Company is unable to estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.
U.S. Department of Justice Consulting Agreement Investigation
On September 27, 2007, Biomet entered into a Deferred Prosecution Agreement with the U.S. Attorney’s Office for the District of New Jersey. The agreement concluded the government’s investigation into whether consulting agreements between the largest orthopedic manufacturers and orthopedic surgeons who use joint reconstruction and replacement products may have violated the federal Anti-Kickback Statute.
Through the agreement, the U.S. Attorney’s Office agreed not to prosecute Biomet in connection with this matter, provided that Biomet satisfied its obligations under the agreement over the 18 months following the date of the Deferred Prosecution Agreement. The agreement called for the appointment of an independent monitor to review Biomet’s compliance with the agreement, particularly in relation to its consulting agreements. On March 27, 2009, the Deferred Prosecution Agreement expired and the complaint was dismissed with prejudice.
As part of the resolution of this matter, Biomet also entered into a Corporate Integrity Agreement with the Office of the Inspector General of the U.S. Department of Health and Human Services. The agreement requires the Company for five years subsequent to September 27, 2007 to continue to adhere to its Code of Business Conduct and Ethics and certain other provisions, including reporting requirements. Biomet submitted its final report under the Corporate Integrity Agreement with the Office of the Inspector General (“OIG-HHS”) and received confirmation in January 2013 from OIG-HHS that its obligations under the agreement have terminated.
U.S. Department of Justice EBI Products Investigations and Other Matters
In June 2013, Biomet received a subpoena from the U.S. Attorney's Office for the District of New Jersey requesting various documents relating to the fitting of custom-fabricated or custom-fitted orthoses, or bracing, to patients in New Jersey, Texas and Washington. The Company is currently in the process of evaluating the scope of the subpoena and intends to fully cooperate with the request of the U.S. Attorney's Office. The Company can make no assurances as to the time or resources that will be needed to devote to this inquiry or its final outcome.
In February 2010, Biomet received a subpoena from the Office of the Inspector General of the U.S. Department of Health and Human Services requesting various documents relating to agreements or arrangements between physicians and the Company’s Interpore Cross subsidiary for the period from 1999 through the present and the marketing and sales activities associated with Interpore Cross’ spinal products. Biomet is cooperating with the request of the Office of the Inspector General. The Company can make no assurances as to the time or resources that will be needed to devote to this inquiry or its final outcome.
In April 2009, Biomet received an administrative subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting various documents relating primarily to the Medicare reimbursement of and certain business practices related to the Company’s EBI subsidiary’s non-invasive bone growth stimulators. It is the Company’s understanding that competitors in the non-invasive bone growth stimulation market received similar

46

subpoenas. The Company received subsequent subpoenas in connection with the investigation in September 2009, June 2010, February 2011 and March 2012 along with several informal requests for information. Biomet has produced responsive documents and is fully cooperating in the investigation.
 
In April 2009, the Company became aware of a qui tam complaint alleging violations of the federal and various state False Claims Acts filed in the United States District Court for the District of Massachusetts, where it is currently pending. Biomet, Parent, and several of the Company’s competitors in the non-invasive bone growth stimulation market were named as defendants in this action. The allegations in the complaint are similar in nature to certain categories of requested documents in the above-referenced administrative subpoenas. The U.S. government has not intervened in the action. The Company is vigorously defending this matter and intends to continue to do so. The Company can make no assurances as to the time or resources that will be needed to devote to this investigation or its final outcome.
U.S. Department of Justice Civil Division Investigation
In September 2010, Biomet received a Civil Investigative Demand (“CID”) issued by the U.S. Department of Justice—Civil Division pursuant to the False Claims Act. The CID requests that the Company provide documents and testimony related to allegations that Biomet, OtisMed Corp. and Stryker Corp. have violated the False Claims Act relating to the marketing of, and payment submissions for, OtisMed’s OtisKnee™ (a registered trademark of OtisMed) knee replacement system. The Company has produced responsive documents and is fully cooperating in the investigation.
U.S. Securities and Exchange Commission (“SEC”) Informal Investigation
On September 25, 2007, Biomet received a letter from the SEC informing the Company that it was conducting an informal investigation regarding possible violations of the Foreign Corrupt Practices Act in the sale of medical devices in certain foreign countries by companies in the medical devices industry. The Foreign Corrupt Practices Act prohibits U.S. companies and their officers, directors, employees, or shareholders acting on their behalf and agents from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment and this law requires companies to maintain records which fairly and accurately reflect transactions and to maintain internal accounting controls. In many countries, hospitals and clinics are government-owned and healthcare professionals employed by such hospitals and clinics, with whom the Company regularly interacts, may meet the definition of a foreign official for purposes of the Foreign Corrupt Practices Act. On November 9, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC also be provided to the Department of Justice on a voluntary basis.
On March 26, 2012, Biomet entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Department of Justice (“DOJ”) and a Consent to Final Judgment (“Consent Agreement”) with the SEC related to these investigations by the DOJ and the SEC. Pursuant to the DPA, the DOJ has agreed not to prosecute the Company in connection with this matter, provided that the Company satisfies its obligations under the agreement over the next three years. In addition, pursuant to the terms of the DPA, an independent external compliance monitor has been appointed to review the Company’s compliance with the DPA, particularly in relation to the Company’s international sales practices, for at least the first 18 months of the three year term of the DPA. The monitor has divided his review into three phases. The first phase consisted of the monitor familiarizing himself with the Company's global compliance program and assessed the effectiveness of the program. The second phase provides for a period of time in which the Company is allowed the opportunity to implement the monitor's various recommendations based upon the monitor's assessment of the effectiveness of the program. The third phase commenced in June 2013 and consists of the monitor performing transactional testing on the effectiveness of the Company's global compliance program, including transactional testing of enhanced compliance programs that were implemented in response to the monitor's recommendations. The Company also agreed to pay a monetary penalty of $17.3 million to resolve the charges brought by the DOJ, which was paid in the fourth quarter of fiscal year 2012. The terms of the DPA and the associated monetary penalty reflect the Company’s full cooperation throughout the investigation.
The Company contemporaneously reached a Consent Agreement with the SEC to settle civil claims related to this matter. As part of the Consent Agreement, Biomet agreed to the SEC’s entry of a Final Judgment requiring Biomet to disgorge profits and pay prejudgment interest in the aggregate amount of $5.6 million, which was paid in the fourth quarter of fiscal year 2012.

47

Product Liability
The Company has received claims for personal injury associated with its metal-on-metal hip products. The pre-trial management of certain of these claims has been consolidated in a federal court in South Bend, Indiana. Certain other claims are pending in various state courts. The Company believes the number of claims continues to increase incrementally due to the negative publicity regarding metal-on-metal hip products generally. The Company believes it has data that supports the efficacy and safety of its metal-on-metal hip products, and the Company intends to vigorously defend itself in these matters. The Company currently accounts for these claims in accordance with its standard product liability accrual methodology on a case by case basis. Given the substantial or indeterminate amounts sought in these matters, and the inherent unpredictability of such matters, an adverse outcome in these matters in excess of the amounts included in the Company’s accrual for contingencies could have a material adverse effect on our financial condition, results of operations and cash flow.
Future revisions in the Company’s estimates of these provisions could materially impact its results of operations and financial position. The Company uses the best information available to determine the level of accrued product liabilities, and the Company believes its accruals are adequate. The Company has maintained product liability insurance coverage for a number of years on a claims-made basis. All such insurers have been placed on notice of these claims. To date, the insurance companies have neither accepted nor denied coverage, and an issue may arise as to which policy or policies are to respond. The amounts incurred to date in connection with these claims have not exceeded the Company’s self-insured retention(s).
 
Intellectual Property Litigation
On May 3, 2013, Bonutti Skeletal Innovations LLC, a company formed to hold certain patents acquired from Dr. Peter M. Bonutti and an affiliate of patent licensing firm Acacia Research Group LLC, filed suit against us in the U.S. District Court for the Eastern District of Texas, alleging a failure to pay royalties due under a license agreement with Dr. Bonutti, misuse of confidential information and infringement of U.S. Patent Nos. 5,921,986; 6,099,531; 6,423,063; 6,638,279; 6,702,821; 7,070,557; 7,087,073; 7,104,996; 7,708,740; 7,806,896; 7,806,897; 7,828,852; 7,931,690; 8,133,229; and 8,147,514. The lawsuit seeks damages in an amount yet to be determined and injunctive relief. Prior to the filing of this lawsuit, on March 8, 2013, we had filed a complaint for declaratory judgment with the U.S. District Court for the Northern District of Indiana seeking a judgment of non-infringement and invalidity of the patents at issue. We are vigorously defending this matter and believe that our defenses against infringement are valid and meritorious. We can make no assurances as to the time or resources that will be needed to devote to this litigation or its final outcome.    
In January 2009, Heraeus Kulzer GmbH initiated legal proceedings in Germany against Biomet, Biomet Europe BV and certain other subsidiaries, alleging that the Company and Biomet Europe BV misappropriated Heraeus Kulzer trade secrets when developing its current lines of European bone cements, which were first marketed in 2005. The lawsuit seeks damages in excess of €30 million and injunctive relief to preclude the Company from producing its current line of European bone cements. On December 20, 2012, the trial court ruled that Biomet did not misappropriate trade secrets and consequently dismissed Biomet, Biomet Europe BV, Biomet Deutschland GmbH and other defendants from the lawsuit. Biomet Orthopaedics Switzerland GmbH (“Biomet Switzerland”) remains as the only defendant in the lawsuit and the trial court has ruled that Heraeus Kulzer will not be permitted to review certification materials of Biomet Switzerland for purposes of determining whether there is any evidence that would support a claim of trade secret misappropriation by that entity. The trial court’s decision remains subject to appeal by Heraeus Kulzer and the Company is continuing to vigorously defend this matter.

Other Matters    
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 accrues for losses that are deemed to be probable and subject to reasonable estimate.
Based on the advice of the Company’s counsel in these matters, it is unlikely that the resolution of any of these matters and any liabilities in excess of amounts provided will be material to the Company’s financial position, results of operations or cash flows.


48

Note 17—Related Parties.
Management Services Agreement
Upon completion of the Transactions, Biomet entered into a management services agreement with certain affiliates of the Sponsors, pursuant to which such affiliates of the Sponsors or their successors assigns, affiliates, officers, employees, and/or representatives and third parties (collectively, the “Managers”) provide management, advisory, and consulting services to the Company. Pursuant to such agreement, the Managers received a transaction fee equal to 1% of total enterprise value of the Transactions for the services rendered by such entities related to the Transactions upon entering into the agreement, and the Sponsors receive an annual monitoring fee equal to 1% of the Company’s annual Adjusted EBITDA (as defined in the credit agreement) as compensation for the services rendered and reimbursement for out-of-pocket expenses incurred by the Managers in connection with the agreement and the Transactions. The Company is required to pay the Sponsors the monitoring fee on a quarterly basis in arrears. The total amount of Sponsor fees was $11.0 million, $10.3 million and $10.1 million for the years ended May 31, 2013, 2012 and 2011, respectively. The Company may also pay certain subsequent fees to the Managers for advice rendered in connection with financings or refinancings (equity or debt), acquisitions, dispositions, spin-offs, split-offs, dividends, recapitalizations, an initial underwritten public offering and change of control transactions involving the Company or any of its subsidiaries. The management services agreement includes customary exculpation and indemnification provisions in favor of the Managers and their affiliates.
 
Amended and Restated Limited Liability Company Operating Agreement of Holding
On September 27, 2007, certain investment funds associated with or designated by the Sponsors (the “Sponsor Funds”) entered into an amended and restated limited liability company operating agreement, or the “LLC Agreement,” in respect of Holding. The LLC Agreement contains agreements among the parties with respect to the election of the Company’s directors and the directors of its parent companies, restrictions on the issuance or transfer of interests in the Company and other corporate governance provisions (including the right to approve various corporate actions).
Pursuant to the LLC Agreement, each of the Sponsors has the right to nominate, and has nominated, two directors to Biomet’s and LVB’s Board of Directors and also is entitled to appoint one non-voting observer to the Board of Directors for so long as such Sponsor remains a member of Holding. In addition to their right to appoint non-voting observers to the Board of Directors, certain of the Sponsor Funds have certain other management rights to the extent that any such Sponsor Fund is required to operate as a “venture capital operating company” as defined in the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations. Each Sponsor’s right to nominate directors is freely assignable to funds affiliated with such Sponsor, and is assignable to non-affiliates of such Sponsor only if the assigning Sponsor transfers its entire interest in Holding not previously transferred and only with the prior written consent of the Sponsors holding at least 70% of the membership interests in Holding, or “requisite Sponsor consent”. In addition to their rights under the LLC Agreement, the Sponsors may also appoint one or more persons unaffiliated with any of the Sponsors to the Board of Directors. Following Purchaser’s purchase of the Shares tendered in the Offer, the Sponsors jointly appointed Dane A. Miller, Ph.D. and Jeffrey R. Binder to the Board of Directors in addition to the two directors appointed by each of the Sponsors.
Pursuant to the LLC Agreement, each director has one vote for purposes of any Board of Directors action, and all decisions of the Board of Directors require the approval of a majority of the directors designated by the Sponsors. In addition, the LLC Agreement provides that certain major decisions regarding the Company or its parent companies require the requisite Sponsor consent.
The LLC Agreement includes certain customary agreements with respect to restrictions on the issuance or transfer of interests in Biomet and LVB, including preemptive rights, tag-along rights and drag-along rights.
The Co-Investors have also been admitted as members of Holding, both directly and through Sponsor-controlled investment vehicles. Although the Co-Investors are therefore parties to the LLC Agreement, they have no rights with respect to the election of Biomet’s or LVB’s directors or the approval of its corporate actions.
The Sponsors have also caused Holding and Parent to enter into an agreement with the Company obligating the Company and Parent to take all actions necessary to give effect to the corporate governance, preemptive rights, transfer restriction and certain other provisions of the LLC Agreement, and prohibiting the Company and Parent from taking any actions that would be inconsistent with such provisions of the LLC Agreement.

49

Registration Rights Agreement
The Sponsor Funds and the Co-Investors also entered into a registration rights agreement with Holding, LVB and Biomet upon the closing of the Transactions. Pursuant to this agreement, the Sponsor Funds have the power to cause Holding, LVB and Biomet to register their, the Co-Investors’ and certain other persons’ equity interests under the Securities Act and to maintain a shelf registration statement effective with respect to such interests. The agreement also entitles the Sponsor Funds and the Co-Investors to participate in any future registration of equity interests under the Securities Act that Holding, LVB or Biomet may undertake.
On August 8, 2012 and October 2, 2012, Goldman, Sachs & Co. and the other initial purchasers of the new senior notes and new senior subordinated notes entered into registration rights agreements with Biomet. Pursuant to these agreements, Biomet is obligated, for the sole benefit of Goldman, Sachs & Co. in connection with its market-making activities with respect to the new senior notes and new senior subordinated notes, to file a registration statement under the Securities Act in a form approved by Goldman, Sachs & Co. and to keep such registration statement continually effective for so long as Goldman, Sachs & Co. may be required to deliver a prospectus in connection with transactions in senior and senior subordinated notes due 2020 and to supplement or make amendments to such registration statement as when required by the rules and regulations applicable to such registration statement.
 
Management Stockholders’ Agreements
On September 13, 2007 and November 6, 2007, Holding, LVB and the Sponsor Funds entered into stockholders agreements with certain of the Company’s senior executives and other management stockholders. Pursuant to the terms of the LVB Acquisition, Inc. Management Equity Incentive Plan, LVB Acquisition, Inc. Restricted Stock Unit Plan and LVB Acquisition, Inc. 2012 Restricted Stock Unit Plan, participants who exercise their vested options or settle their vested restricted stock units are required to become parties to the agreement dated November 6, 2007. The stockholder agreements contain agreements among the parties with respect to restrictions on the transfer and issuance of shares, including preemptive, drag-along, tag-along, and call/put rights.
Consulting Agreements
On January 14, 2010, Biomet entered into a consulting agreement with Dr. Dane A. Miller, Ph.D., pursuant to which it will pay Dr. Miller a consulting fee of $0.25 million per fiscal year for Dr. Miller’s consulting services and will reimburse Dr. Miller for out-of-pocket fees and expenses relating to an off-site office and administrative support in an amount of $0.1 million per year. The term of the agreement extends through the earlier of September 1, 2011, an initial public offering or a change of control. The agreement also contains certain restrictive covenants prohibiting Dr. Miller from competing with the Company and soliciting employees of the Company during the term of the agreement and for a period of one year following such term. On September 6, 2011, the Company entered into an amendment to the consulting agreement with Dr. Miller, pursuant to which it agreed to increase the expenses relating to an off-site office and administrative support from $0.1 million per year to $0.15 million per year and extend the term of the agreement through the earlier of September 1, 2013, an initial public offering or a change of control. Dr. Miller received payments under the consulting agreement of $0.4 million, $0.4 million and $0.3 million for the years ended May 31, 2013, 2012 and 2011, respectively.
Indemnification Priority Agreement
On January 11, 2010, Biomet and LVB entered into an indemnification priority agreement with the Sponsors (or certain affiliates designated by the Sponsors) pursuant to which Biomet and LVB clarified certain matters regarding the existing indemnification and advancement of expenses rights provided by Biomet and LVB pursuant to their respective charters and the management services agreement described above. In particular, pursuant to the terms of the indemnification agreement, Biomet acknowledged that as among Biomet, LVB and the Sponsors and their respective affiliates, the obligation to indemnify or advance expenses to any director appointed by any of the Sponsors will be payable in the following priority: Biomet will be the primary source of indemnification and advancement; LVB will be the secondary source of indemnification and advancement; and any obligation of a Sponsor-affiliated indemnitor to indemnify or advance expenses to such director will be tertiary to Biomet’s and, then, LVB obligations. In the event that either Biomet or LVB fails to indemnify or advance expenses to any such director in contravention of its obligations, and any Sponsor-affiliated indemnitor makes any indemnification payment or advancement of expenses to such director on account of such unpaid liability, such Sponsor-affiliated indemnitor will be subrogated to the rights of such director under any such Biomet or LVB indemnification agreement.

50

Equity Healthcare
Effective January 1, 2009, Biomet entered into an employer health program agreement with Equity Healthcare LLC (“Equity Healthcare”). Equity Healthcare negotiates with providers of standard administrative services for health benefit plans as well as other related services for cost discounts and quality of service monitoring capability by Equity Healthcare. Because of the combined purchasing power of its client participants, Equity Healthcare is able to negotiate pricing terms for providers that are believed to be more favorable than the companies could obtain for themselves on an individual basis.
In consideration for Equity Healthcare’s provision of access to these favorable arrangements and its monitoring of the contracted third parties’ delivery of contracted services to the Company, the Company pays Equity Healthcare a fee of $2 per participating employee per month (“PEPM Fee”). As of May 31, 2013, the Company had approximately 3,200 employees enrolled in its health benefit plans in the United States.
Equity Healthcare may also receive a fee (“Health Plan Fees”) from one or more of the health plans with whom Equity Healthcare has contractual arrangements if the total number of employees joining such health plans from participating companies exceeds specified thresholds. If and when Equity Healthcare reaches the point at which the aggregate of its receipts from the PEPM Fee and the Health Plan Fees have covered all of its allocated costs, it will apply the incremental revenues derived from all such fees to (a) reduce the PEPM Fee otherwise payable by the Company; (b) avoid or reduce an increase in the PEPM Fee that might otherwise have occurred on contract renewal; or (c) arrange for additional services to the Company at no cost or reduced cost.
Equity Healthcare is an affiliate of Blackstone, with whom Timur Akazhanov and Chinh Chu, members of the Company’s Board of Directors, are affiliated and in which they may have an indirect pecuniary interest.
 
There were payments of $0.1 million made during each of the years ended May 31, 2013, 2012 and 2011.
Core Trust Purchasing Group Participation Agreement
Effective May 1, 2007, Biomet entered into a 5-year participation agreement (“Participation Agreement”) with Core Trust Purchasing Group, a division of HealthTrust Purchasing Corporation (“CPG”), designating CPG as the Company’s exclusive “group purchasing organization” for the purchase of certain products and services from third party vendors. Effective June 1, 2012, Biomet entered into an amendment to extend the term of the Participation Agreement with CPG. CPG secures from vendors pricing terms for goods and services that are believed to be more favorable than participants in the group purchasing organization could obtain for themselves on an individual basis. Under the participation agreement, the Company must purchase 80% of the requirements of its participating locations for core categories of specified products and services, from vendors participating in the group purchasing arrangement with CPG or CPG may terminate the contract. In connection with purchases by its participants (including the Company), CPG receives a commission from the vendors in respect of such purchases. The total amount of fees paid to CPG was $0.8 million, $0.5 million and $0.2 million for the years ended May 31, 2013, 2012 and 2011, respectively.
Although CPG is not affiliated with Blackstone, in consideration for Blackstone’s facilitating Biomet’s participation in CPG and monitoring the services CPG provides to the Company, CPG remits a portion of the commissions received from vendors in respect of the Company’s purchases under the Participation Agreement to an affiliate of Blackstone, with whom Timur Akazhanov and Chinh Chu, members of the Company’s Board of Directors, are affiliated and in which they may have an indirect pecuniary interest.
Refinancing Activities
Goldman Sachs served as a dealer manager and arranger for the refinancing activities explained in Note 7 – Debt and received fees of $1.3 million during the year ended May 31, 2013 for their services. Goldman Sachs also received an underwriting discount of $2.3 million during the first quarter of fiscal year 2013 as one of the initial purchasers of the $1.0 billion aggregate principal amount note offering of 6.50% senior notes due 2020, an underwriting discount of $2.6 million during the second quarter of fiscal year 2013 as of one the initial purchasers of the $825.0 million aggregate principal amount note add-on offering to the 6.50% senior notes due 2020 and an underwriting discount of $2.5 million during the second quarter of fiscal year 2013 as one of the initial purchasers of the $800.0 million aggregate principal amount note offering of the 6.50% senior subordinated notes due 2020 described in Note 7 — Debt.

51

Other
Biomet currently holds interest rate swaps with Goldman Sachs. As part of this relationship, the Company receives information from Goldman Sachs that allows it to perform effectiveness testing on a monthly basis.
Biomet may from time to time, depending upon market conditions, seek to purchase debt securities issued by Biomet or its subsidiaries in open market or privately negotiated transactions or by other means. Biomet understands that its indirect controlling stockholders may from time to time also seek to purchase debt securities issued by the Company or its subsidiaries in open market or privately negotiated transactions or by other means.
The Company engaged Capstone Consulting LLC, a consulting company that works exclusively with KKR and its portfolio companies, to provide analysis for certain restructuring initiatives. The Company or its affiliates paid Capstone $2.2 million, $1.9 million and $0.7 million during the years ended May 31, 2013, 2012 and 2011, respectively.
Capital Contributions and Share Repurchases
At the direction of LVB, Biomet funded the repurchase of common shares of its parent company of $0.1 million, $1.3 million and $3.7 million for the years ended May 31, 2013, 2012 and 2011, respectively, from former employees pursuant to the LVB Acquisition, Inc. Management Stockholders’ Agreement. There were no additional contributions for the years ended May 31, 2013, 2012 and 2011.
Note 18—Subsequent Events.
Le Locle Facility closure
    
On July 16, 2013, Biomet, Inc. issued a press release announcing that the Company will close its manufacturing facility in Le Locle, Switzerland. The facility will cease a majority of its production by June 2014.

52

Financial Statement Schedules
LVB Acquisition, Inc. Schedule I—Condensed Financial Information

LVB Acquisition, Inc. Parent Only Condensed Balance Sheets
(in millions, except shares)
May 31, 2013
 
May 31, 2012
Assets
 
 
 
Investment in wholly owned subsidiary
1,968.6

 
2,682.1

Total assets
$
1,968.6

 
$
2,682.1

Liabilities & Shareholders’ Equity
 
 
 
Total liabilities
—

 
—

Shareholders’ equity:
 
 
 
Common stock, par value $0.01 per share; 740,000,000 shares authorized; 552,359,416 and 552,308,376 shares issued and outstanding
5.5

 
5.5

Contributed and additional paid-in capital
5,662.0

 
5,623.3

Accumulated deficit
(3,693.0
)
 
(3,069.6
)
Accumulated other comprehensive income (loss)
(5.9
)
 
122.9

Total shareholders’ equity
1,968.6

 
2,682.1

Total liabilities and shareholders’ equity
$
1,968.6

 
$
2,682.1


LVB Acquisition, Inc. Parent Only Condensed Statements of Operations and Comprehensive Loss
 
For the Year-Ended May 31,
(in millions)
2013
 
2012
 
2011
Equity in net loss of subsidiary
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)
Net loss
(623.4
)
 
(458.8
)
 
(849.8
)
Other comprehensive income (loss)
—

 
—

 
—

Comprehensive loss
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)

LVB Acquisition, Inc. Parent Only Condensed Statements of Cash Flows
 
For the Year-Ended May 31,
(in millions)
2013
 
2012
 
2011
Cash flows provided by (used in) operating activities:
 
 
 
 
 
Net loss
$
(623.4
)
 
$
(458.8
)
 
$
(849.8
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Equity in net loss of subsidiary
623.4

 
458.8

 
849.8

Net cash provided by operating activities
—

 
—

 
—

Cash flows provided by (used in) investing activities:
 
 
 
 
 
Net cash used in investing activities
—

 
—

 
—

Cash flows provided by (used in) financing activities:
 
 
 
 
 
Equity:
 
 
 
 
 
Option exercise
—

 
—

 
—

Cash dividend from Biomet, Inc.
0.1

 
1.3

 
3.7

Repurchase of LVB Acquisition, Inc. shares
(0.1
)
 
(1.3
)
 
(3.7
)
Net cash used in financing activities
—

 
—

 
—

Increase (decrease) in cash and cash equivalents
—

 
—

 
—

Cash and cash equivalents, beginning of period
—

 
—

 
—

Cash and cash equivalents, end of period
$
—

 
$
—

 
$
—



53

Notes to Condensed Parent Company Only Financial Statements

Note 1—Summary of Significant Accounting Policies and Nature of Operations.

LVB Acquisition, Inc. (“Parent”) was incorporated as part of the 2007 Acquisition. Parent has no other operations beyond its ownership of Biomet, Inc. and its subsidiaries (“Biomet”). The condensed parent company financial information includes the activity of the Parent and its investment in Biomet using the equity method only. The consolidated activity of Parent and its subsidiaries are not included and are meant to be read in conjunction with the LVB Acquisition, Inc. consolidated financial statements included elsewhere in this prospectus.

Note 2—Guarantees

Parent fully and unconditionally guarantees the senior secured credit facilities, the cash flow revolving credit facilities and asset-based revolving credit facilities.

Note 3—Dividends from Subsidiaries

Parent received dividends of $0.1 million, $1.3 million and $3.7 million for the years ended May 31, 2013, 2012 and 2011, respectively. The cash was used to call purchased shares for certain former employees.


54

Financial Statement Schedules
LVB Acquisition, Inc. and Subsidiaries Schedule II—Valuation and Qualifying Accounts
For the years ended May 31, 2013, 2012 and 2011:
(in millions)
 
 
Additions
 
 
 
 
Description
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
 
Deductions
 
Balance at
End of Year
Allowance for doubtful receivables:
 
 
 
 
 
 
 
 
 
For the year ended
 
 
 
 
 
 
 
 
 
May 31, 2013
$
36.5

 
$
17.7

 
$ (0.5)(B)
 
$ (20.2)(A)(C)
 
$
33.5

For the year ended
 
 
 
 
 
 
 
 
 
May 31, 2012
$
38.2

 
$
15.7

 
$ (16.2)(B)
 
$ (1.2)(A)
 
$
36.5

For the year ended
 
 
 
 
 
 
 
 
 
May 31, 2011
$
40.6

 
$
13.8

 
$ (12.3)(B)
 
$ (3.9)(A)
 
$
38.2

(A)
Uncollectible accounts written off.
(B)
Primarily effect of foreign currency translation.
(C)
Includes $5.1 million related to the bracing divestiture.


Quarterly Results (Unaudited)
Fiscal 2013
•
Net loss for the third and fourth quarters of fiscal 2013 were impacted by goodwill and intangible asset impairment charges of $567.4 million of which $334.1 million was recorded during the third quarter, primarily due to the impact of continued austerity measures on procedural volumes and pricing in certain European countries when compared to the Company’s prior projections used to establish the fair value of goodwill for our Europe reporting unit and primarily due to declining industry market growth rates in certain European and Asia Pacific markets and corresponding unfavorable margin trends when compared to the Company’s prior projections used to establish the fair value of goodwill and intangible assets for our dental reconstructive reporting unit.
 
Quarter ended
 
 
(in millions)
August 31, 2012
 
November 30, 2012
 
February 28, 2013
 
May 31, 2013
 
Fiscal year ended
May 31, 2013
Fiscal 2013
 
 
 
 
 
 
 
 
 
Net sales
$
707.4

 
$
790.1

 
$
771.5

 
$
783.9

 
$
3,052.9

Gross profit
507.0

 
582.4

 
533.0

 
557.1

 
2,179.5

Net loss
(31.5
)
 
(66.2
)
 
(304.5
)
 
(221.2
)
 
(623.4
)


55


Fiscal 2012
•
Net loss for the fourth quarter of fiscal 2012 was impacted by a goodwill and intangible asset impairment charge of $529.8 million primarily related to evidence of declining industry market growth rates in certain European and Asia Pacific markets and unfavorable margin trends resulting from change in product mix in our dental reconstructive reporting unit and declining growth rates as compared to the original merger assumptions for our spine & bone healing reporting unit.
 
Quarter ended
 
 
(in millions)
August 31, 2011
 
November 30, 2011
 
February 29, 2012
 
May 31, 2012
 
May 31, 2012
Fiscal 2012
 
 
 
 
 
 
 
 
 
Net sales
$
664.6

 
$
725.1

 
$
708.9

 
$
739.5

 
$
2,838.1

Gross profit
478.8

 
519.8

 
518.3

 
545.7

 
2,062.6

Net loss
(39.2
)
 
(14.0
)
 
(16.5
)
 
(389.1
)
 
(458.8
)


56