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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

     (Mark One)
     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
               EXCHANGE ACT OF 1934
          For the fiscal year ended May 31, 1999.

                                       OR

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

          For the transition period from _____________ to _______________.

                          Commission file No. 0-12515.

                            [ LOGO OF BIOMET, INC. ]

             (Exact name of registrant as specified in its charter)

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

  AIRPORT INDUSTRIAL PARK, P.O. BOX 587, WARSAW, INDIANA        46581-0587
         (Address of principal executive offices)               (Zip Code)

                                 (219) 267-6639
              (Registrant's telephone number, including area code)

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

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

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

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

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

The aggregate market value of the Common Shares held by non-affiliates of the
registrant, based on the average bid and asked prices of the Common Shares on
July 9, 1999, as reported by the Nasdaq Stock Market, was approximately
$4,418,200,000. As of July 9, 1999, there were 112,744,907 Common Shares
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                                         PARTS OF FORM 10-K
                                                      INTO WHICH DOCUMENT
IDENTITY OF DOCUMENT                                         IS INCORPORATED
Proxy Statement with respect to the 1999
Annual Meeting of Shareholders of the Registrant               Part III

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This report contains certain statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. Those statements include,
but are not limited to, statements related to the timing and number of planned
new product introductions, anticipated outcome of clinical studies, the future
availability of raw materials, the anticipated adequacy of the Company's capital
resources to meet the needs of its business, the Company's continued investment
in new products and technologies, the ultimate marketability of products
currently being developed and the Company's ability to become year 2000
compliant. Readers of this report are cautioned that reliance on any
forward-looking statement involves risks and uncertainties. Although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate given the inherent uncertainties as to the occurrence or
nonoccurrence of future events. There can be no assurance that the
forward-looking statements contained in this report will prove to be accurate.
The inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's objectives will be achieved.

                                     PART I
ITEM 1.  BUSINESS.

GENERAL

Biomet, Inc., an Indiana corporation incorporated in 1977 ("Biomet"), and its
subsidiaries design, manufacture and market products used primarily by
orthopedic medical specialists in both surgical and non-surgical therapy,
including reconstructive and fixation devices, electrical bone growth
stimulators, orthopedic support devices, operating room supplies, general
surgical instruments, arthroscopy products, bone cements, bone substitutes,
spinal implants and craniomaxillofacial implants and instruments. Biomet has
corporate headquarters in Warsaw, Indiana, and manufacturing and/or office
facilities in more than 25 locations worldwide. Biomet markets its products in
the United States, Australia and Canada through independent, commissioned sales
representatives; in Austria, Belgium, Chile, the Czech Republic, France,
Germany, Greece, Holland, Italy, Mexico, New Zealand, Norway, Poland, Portugal,
Spain, Switzerland and the United Kingdom primarily through direct sales
representatives; and in other international markets through independent sales
representatives and specialty medical product dealers. EBI, L.P., a subsidiary
of the Company, sells electrical stimulation, external fixation devices, spinal
products and softgoods primarily through direct factory sales representatives in
the United States and the United Kingdom and through specialty medical product
dealers in the remainder of its markets. Biomet and its subsidiaries currently
distribute products in more than 100 countries.

On January 1, 1998, the Company formed a joint venture with Merck KGaA,
Darmstadt, Germany (Merck KGaA).  The Company and Merck KGaA contributed their
European orthopedic and biomaterials operations to a limited partnership named
BioMer C.V. BioMer C.V. is the parent of a holding company, Biomet Merck B.V.
("Biomet Merck"), which holds the operating entities of this joint venture. The
Company controls the partnership and, accordingly, consolidates its financial
statements for financial reporting and reflects Merck KGaA's 50 percent interest
as a minority interest. This joint venture has significantly expanded the
Company's presence in the European marketplace and provides the Company with
exclusive rights to Merck KGaA's current and future biomaterials-based products.

Unless the context requires otherwise, the term "Company" as used herein refers
to Biomet and all of its subsidiaries.

PRODUCTS

The Company has one reportable segment, orthopedic products, which includes the
design, manufacture and marketing of four major product groups: reconstructive
devices, fixation products, spinal products and other products. Reconstructive
devices include total knee, total hip and shoulder systems, as well as bone
cements and the procedure-specific instrumentation required to implant the
Company's reconstructive systems. Fixation product sales include internal and
external fixation devices, craniomaxillofacial fixation systems and EBI's
electrical stimulation devices that do not address the spine. Spinal product
sales include EBI's SpF(R) Spinal Fusion Stimulation System and the
SpineLink(TM), Omega 21(TM) and K2(TM) spinal fixation systems. The other
product sales category includes arthroscopy products, softgoods products,
casting materials, general surgical instruments, operating room supplies, wound
care products and other surgical products such as the Indiana Tome(TM) Carpal
Tunnel Release System. The following table shows the net sales and percentages
of net sales contributed by each of these product groups for each of the three
most recent fiscal years ended May 31, 1999.

<TABLE>
<CAPTION>
                                                  YEARS ENDED MAY 31,
                                                  -------------------
                                             (DOLLAR AMOUNTS IN THOUSANDS)
                                             -----------------------------

                                  1999                     1998                1997
                                     PERCENT                 PERCENT              PERCENT
                               NET    OF NET            NET   OF NET         NET   OF NET
                             SALES     SALES          SALES    SALES       SALES    SALES
                             -----     -----          -----    -----       -----    -----

<S>                       <C>           <C>       <C>           <C>    <C>           <C>
Reconstructive Devices    $450,877       60%       $389,483      60%    $347,762      60%

Fixation Products          162,825       21%        144,853      22%     132,875      23%

Spinal Products             45,125        6%         35,902       6%      31,426       5%

Other Products              98,587       13%         81,167      12%      68,284      12%
                          ---------------------------------------------------------------
Total                     $757,414      100%       $651,405     100%    $580,347     100%
                          ---------------------------------------------------------------
</TABLE>

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RECONSTRUCTIVE DEVICES

Reconstructive devices are used to replace joints that have deteriorated as a
result of disease (principally arthritis and osteoporosis) or injury.
Reconstructive joint surgery involves the modification of the area surrounding
the affected joint and the insertion of one or more manufactured components. The
Company's primary reconstructive joints are hips, knees and shoulders, but it
also produces other joints (including ankles and elbows). In addition, the
Company produces the associated instruments required by orthopedic surgeons to
implant the Company's reconstructive devices.

In July 1993, the Company received 510(k) clearance from the United States Food
and Drug Administration ("FDA") (see "Government Regulation" section for a
general discussion of the regulatory clearance and approval process) for hip,
knee and shoulder polyethylene components manufactured according to a patented
process and marketed under the trademark, ArCom(R). ArCom(R) components are
machined from uniform compression molded bar stock manufactured by Biomet, or
molded directly from high molecular weight polyethylene resin. The processes
used to mold devices and manufacture bar stock are designed to maximize the
mechanical and wear properties of the polyethylene-bearing material. In
addition, the finished components are packaged in argon, an inert gas, to avoid
oxidative degradation during and after sterilization.

         KNEE SYSTEMS. The Maxim(R) Total Knee System, the Company's largest
selling knee system, incorporates primary, posterior stabilized and revision
components, and competes in the revision constrained knee market segment,
addressing surgical situations where the surgeon is required to replace a knee
that has compromised soft tissue and instability. The Company also has developed
simplified instrumentation for the implantation of the Maxim(R) Total Knee
System components.

The Company's AGC(R) Total Knee System, with over 15 years of positive clinical
results, is one of the most clinically successful total knee systems in the
orthopedic industry. The AGC(R) Total Knee System consists of cobalt chromium
alloy femoral and tibial components and polyethylene patella components for
patellar resurfacing. AGC(R) components are available either with or without a
porous titanium alloy surface, which is designed to enhance the attachment of
bone cement to the implant surfaces. The Company, with surgeon collaboration,
also has developed surgical techniques and supporting implantation instruments
for the AGC(R) and its other knee systems. These instruments allow for accurate
implantation of the components and improved ligament and tendon balance in the
knee following the surgical procedure.

The Company's total knee product line includes the Finn(R) Knee Replacement
System. This system offers both resurfacing and segmental component options in a
wide range of sizes to address severe bone loss due to a previous total knee
failure or tumor resections.

The Ascent(TM) Total Knee System, released during fiscal year 1999, incorporates
an open box posterior stabilized femoral component with a swept anterior flange
that can accept either a posterior stabilized or constrained tibial bearing.
This system is designed with a deepened patella groove to enhance patella
tracking and reduce lateral release rates. All tibial bearing surfaces are made
from the Company's proprietary ArCom(R) polyethylene for optimum wear
resistance.

The T-1(TM) Ritter Revision Knee Instruments, released during fiscal year 1999,
provide the surgeon with the ability to reference the position of the patella
for establishment of the joint line prior to the resection of any bone in
revision knee surgery.

The Trac(R) Mobile Bearing Knee System, which has experienced a successful
launch in Europe and is currently involved in clinical studies in the United
States, is a unique knee system utilized primarily in total knee arthroplasty
for younger, more active patients. Its rotating platform design allows greater
anatomic flexibility of the knee.

The Company's offering of knee systems includes the Repicci II(TM) Unicondylar
Knee System, the first minimally-invasive knee arthroplasty procedure. This
system incorporates self-aligning metal and polyethylene components which can be
inserted via an extended arthroscopic approach. This innovative procedure, which
can often be performed on an outpatient basis, requires a smaller incision and
less bone removal, which may result in shorter recovery time and reduced blood
loss.

         HIP SYSTEMS. All femoral hip prostheses consist of a femoral head and
stem, which can be cast, forged or machined depending on the design and material
used. Because of variations in human anatomy and differing design preferences
among surgeons, femoral prostheses are manufactured by the Company in a variety
of sizes and configurations. The Company currently offers several total hip
systems, most of which utilize titanium or cobalt chromium alloy femoral
components and ultra-high molecular weight polyethylene-lined acetabular
components. Many of the femoral prostheses utilize a porous coating which
enhances the attachment of bone cement to the stem; or in a press-fit
configuration, allows the component's use without bone cement.

Biomet has received clearance under Section 510(k) of the Federal Food, Drug and
Cosmetic Act for many of its porous-coated hip components for cementless use.
These clearances are specifically for noncemented applications in skeletally
mature patients undergoing primary hip replacement surgery as a result of
noninflammatory degenerative joint diseases including osteoarthritis, avascular
necrosis, traumatic arthritis, slipped capital epiphysis, fused hip, fracture of
the pelvis and diastrophic variant.

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<PAGE>   4


One of Biomet's largest selling reconstructive systems is the Mallory-Head(R)
Hip Program, which is designed to meet surgeons' needs for both primary and
revision total hip arthroplasty. The primary femoral components feature a
specific proximal geometry for cementless indications and a slightly different
proximal ribbed geometry for those patients requiring fixation with bone cement.
The goal of each of these primary femoral stems is to ensure proximal loading of
the femur to recreate near-normal bone stresses.

The Mallory-Head(R) revision femoral components provide innovative solutions for
difficult revision cases. The long stem revision components feature the primary
proximal finned geometry with additional stem lengths to bridge cortical bone
defects and to provide increased stability. The head/neck porous revision
components feature multiple resection levels to compensate for proximal bone
deficiencies. An optional trochanteric bolt or grip provides additional
rotational stability and implant fixation. In May 1995, the FDA cleared the
Mallory-Head(R) Modular Calcar System for cemented use. This system provides the
surgeon with intraoperative flexibility to independently size the proximal and
distal femur with the appropriate implant size and shape, even in cases of
severe bone deficiency. This is accomplished by using interchangeable modular
subcomponents.

The Alliance(R) family of hip systems is designed to address the growing trend
among hospitals and surgeon groups toward standardization of total hip systems.
The Alliance(R) family provides the largest selection in the marketplace of
primary and revision stems available for implantation with a single set of
instrumentation. The Alliance family includes the Integral(R), Bi-Metric(R),
Answer(R), Hip Fracture(TM), Rx90(R), Osteocap rs(R), Vision(R) and
Progressive(TM) Hip Systems. During fiscal year 1999, the Company introduced an
improved instrumentation system for the Alliance(R) family.

The Company is currently involved in a clinical trial with a metal-on-metal
total hip system. This hip system combines a cobalt chrome head with a cobalt
chrome liner to produce a total hip system that could potentially demonstrate
less wear debris than conventional systems. The Company is also preparing a
clinical trial for a ceramic-on-ceramic total hip system, which is scheduled to
begin in early 2000.

         SHOULDER SYSTEMS. During fiscal year 1997, the Company received 510(k)
clearance for the Bi-Angular(R) Bi-Polar Shoulder System. The Bi-Polar humeral
head is marketed for use in primary cases of noninflammatory degenerative joint
disease, rheumatoid arthritis, correction of severe functional deformity and
fracture. The Bi-Angular(R) Bi-Polar Shoulder System was introduced in February
1997 and is the only FDA-cleared bi-polar shoulder in the United States.

The Integrated(TM) Shoulder System offers surgeons a wide variety of
reconstructive products. As part of the Integrated(TM) Shoulder System, the
Atlas(R) Modular shoulder prosthesis was introduced during fiscal year 1996 to
further augment the surgeon's ability to match the prosthesis to the individual
patient. This device incorporates a modular stem as well as a modular head to
reduce the inventory required to support a shoulder procedure. Since its
introduction in 1987, the Bio-Modular(R) Total Shoulder System has proven to be
clinically effective and versatile, and is the Company's largest selling
shoulder system. This system was designed to simplify the shoulder replacement
procedure and surpass the durability and clinical outcome requirements of
previous designs.

          OTHER RECONSTRUCTIVE DEVICES. Biomet's Patient-Matched Implant
("PMI(R)") services group expeditiously designs, manufactures and delivers
one-of-a-kind reconstructive devices to orthopedic specialists. The Company
believes this service continues to enhance Biomet's reconstructive sales. In
order to assist orthopedic surgeons and their surgical teams in preoperative
planning, Biomet's PMI(R) group utilizes a three-dimensional ("3-D") bone and
soft tissue reconstruction imaging system. A patented technology owned by the
Company allows the use of CT data to produce 3-D reconstructions for the design
and manufacture of patient-matched implants. Biomet also provides anatomic
physical models based on patient CT data. With this imaging and model-making
technology, Biomet's PMI(R) group is able to assist the physician prior to
surgery by creating 3-D models. Within strict deadlines, the model is used by
engineers to create a PMI(R) design for the actual manufacturing of the custom
implant for the patient. Biomet continues to advance the application of imaging
technology for the design and production of reconstructive devices for various
joints in the body.

The Company is involved in a variety of research projects involving bone cements
and delivery systems. Currently, the Company sells bone cements, primarily
Palacos Refobacin(R) and Palamed(R) G, principally in Europe. Additionally, the
Company is in the final stage of development of the Generation Four(TM) Bone
Cement System. The system provides acrylic bone cement in a pre-packaged,
vacuum-sealed pouch--known as the Vac Pac(TM)--for contained mixing and
delivery. This patented system is designed to offer the surgeon ease of use, a
lower incidence of waste, consistent cement preparation and reduced exposure to
irritating monomer vapors.

FIXATION PRODUCTS

Fixation products include external fixation devices, electrical stimulation
devices that do not address the spine, craniomaxillofacial fixation systems,
internal fixation devices and bone substitute materials.


                                       3

<PAGE>   5


         ELECTRICAL STIMULATION DEVICES. EBI is the market leader in the
electrical stimulation segment of the fixation market. The EBI(R) Bone Healing
System is a non-invasive device used in the treatment of recalcitrant bone
fractures (nonunions) which have not healed with conventional surgical and/or
non-surgical methods. In 1998, the U.S. Food and Drug Administration (FDA)
revised the definition of "nonunions," which are now defined as fractures with
no visibly progressive signs of healing. Previously, a nonunion could not be
established until nine months had elapsed with no signs of healing. The new
definition should allow patients to receive the benefits of electrical
stimulation technology on a more timely basis. The non-invasive devices sold by
EBI generally provide an alternative to surgical intervention in the treatment
of recalcitrant bone fractures, failed joint fusions and congenital
pseudoarthrosis.

The EBI(R) Bone Healing System produces low-energy pulsed electromagnetic field
("PEMF") signals that induce weak pulsing currents in living tissues that are
exposed to the signals. These pulses, when suitably configured in amplitude,
repetition rate and duration, affect bone cells. EBI's non-invasive stimulator
has two components: treatment heads and the control unit. The treatment heads
contain electrical coils and are connected to the control unit. The control unit
transforms household current or battery power into a predetermined sequence of
pulsed currents that are induced into the fracture site through the treatment
heads, which may be placed over a patient's cast, incorporated into the cast or
worn over the skin.

The EBI(R) Bone Healing System Model 1200 utilizes household current, or a
rechargeable power supply, and allows for complete patient ambulation during
treatment. This model usually incorporates the treatment coil into the patient's
cast, but the coil can be worn over the skin, if required. The coil design is
capable of treating the vast majority of nonunion fracture locations. The device
can be pre-programmed as to duration of daily treatment according to patient
compliance history. The Model 1200 is a small, lightweight, and easy-to-use
unit, which was designed to encourage patient compliance and enhance clinical
success. EBI introduced the EBI(R) Bone Healing System Model 2001, a newly
designed, compact, more patient-friendly model, during the fourth quarter of
fiscal year 1999.

EBI also manufactures the FLX(R) Flexible Treatment Coils for use with the
EBI(R) Bone Healing System. The FLX(R) Flexible Treatment Coils are lightweight
and provide a slim profile that enhances patient comfort and compliance during
bone healing treatment regimens. When used conjunctively with the EBI(R) Bone
Healing System, the FLX(R) Flexible Treatment Coils afford higher bone healing
success rates. Additionally, EBI offers a series of coils to address shoulder,
foot, ankle, clavicle and metatarsal site applications and an elliptical coil to
be used with external fixation systems.

EBI's Osteogen(R) Totally Implantable Bone Growth Stimulator is an adjunct
treatment when bone grafting and surgical intervention are required to treat a
recalcitrant fracture. During fiscal year 2000, EBI plans to launch the
Osteogen(R) Mesh Cathode, which is designed to provide a scaffold for bone
growth in bone grafting procedures.

         EXTERNAL FIXATION DEVICES. During fiscal year 1996, EBI launched a
proprietary external fixation system, the DynaFix(R) External Fixation System.
Market acceptance of the DynaFix(R) System has been extremely positive, and it
is currently the leading external fixation system in the United States. The
DynaFix(R) System is a patented device for use in complicated trauma situations
and in certain limb-lengthening and deformity correction applications.

The DynaFix(R) Hybrid Ring Fixator, introduced during fiscal year 1998, is
designed for use in fractures surrounding joints that require small fragment
fixation. This product is EBI's introductory development of a ring fixation
product for use close to the joint. During fiscal year 2000, the following
products will be added to the Dynafix(R) line: the Opti-rom(TM) Elbow Fixator,
the Access Pelvic Fixator and the Dimension(TM) Wrist Fixator.

         CRANIOMAXILLOFACIAL FIXATION SYSTEMS. The Company manufactures and
distributes craniomaxillofacial and neurosurgical titanium implants, along with
associated surgical instrumentation, principally marketed to
craniomaxillofacial, neurosurgical and craniofacial surgeons through its
subsidiary, Walter Lorenz Surgical, Inc. ("Lorenz Surgical"). Lorenz Surgical
offers specialty craniomaxillofacial surgical instruments, hard tissue
replacement (HTR) custom craniofacial implants, as well as electric-powered
surgical drills and saws for use in craniomaxillofacial and small bone surgery.

Lorenz Surgical also manufactures and markets resorbable plate and screw systems
for craniomaxillofacial surgery in the United States, the European community,
the Pacific Rim, Canada, South America and South Africa. The LactoSorb(R)
Craniomaxillofacial Fixation System is a copolymer of poly-L-lactic acid and
polyglycolic acid. As a result of its innovative design, the LactoSorb(R) System
is comparable in strength to titanium plating systems and is completely resorbed
within 9 to 15 months after implantation. Market response for the LactoSorb(R)
System has been positive, especially in pediatric and craniofacial
reconstruction cases.

Lorenz Surgical is in the process of developing a comprehensive dental implant
system with a proprietary design. Lorenz Surgical expects to introduce its
dental implant system by the end of fiscal year 2000. Dental implants are
comprised of small titanium screws


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<PAGE>   6

or cylinders that are surgically placed directly into the jaw and serve as a
foundation for replacement teeth. Dental implants permit patients to regain most
of the functionality of their natural teeth.

During fiscal year 2000, Lorenz Surgical intends to introduce a product line
incorporating distraction osteogenesis technologies for the face. These titanium
devices are designed to be utilized in lengthening procedures for pediatric
congenital defects. In addition, the Company intends to launch the Rapid
FLAP(TM) line, a unique system designed to enhance cranial-flap closure.

         INTERNAL FIXATION DEVICES. The Company's internal fixation devices
include devices such as nails, plates, screws, pins and wires designed to
temporarily stabilize traumatic bone injuries. These devices are used by
orthopedic surgeons to provide an accurate means of setting and stabilizing
fractures. They are intended as aids to healing and may be removed when healing
is completed; they are not intended to replace normal body structures.

The Uniflex(R) Nailing System, which is the Company's largest selling internal
fixation system, addresses a wide range of fractures utilizing one product
system. The Uniflex(R) Femoral Nailing System is used for internal fixation of
femoral fractures. The flexibility of the system enhances the load transfer to
the bone to further aid in the healing of the fracture. The Uniflex(R) Nailing
System also includes tibial and humeral nailing systems. In addition, the
S.S.T.(R) Small Bone Locking Nail and the Vector(R) Intertrochanteric Nail, a
compression nailing system, enhance the Company's intramedullary fracture
fixation family. The Biomet(R) Retrograde Femoral Nail is another clinical
option for femoral fractures. The Retrograde Humeral Nail, provides an option
for humeral fractures without violating the rotator cuff.

The Compression Hip Screw System was designed to provide strong and stable
internal fixation for a variety of intertrochanteric, subtrochanteric and
basilar neck fractures. The Company introduced the Vari-Angle Hip Fixation
System (VHS(TM)) during fiscal year 1999. This unique compression hip screw
allows the hospital to carry less inventory, while providing greater
intraoperative selection of optimum fixation angle. The BMP(TM) Cable and Cable
Plate System are used intraoperatively, often as part of revision hip surgery,
to reduce the risk of fracture or to repair existing femoral fractures. System
specific instrumentation for the BMP(TM) Cable System is precise and allows
reproducible results.

         BONE SUBSTITUTE MATERIALS. The Company, principally through the Biomet
Merck joint venture, is engaged in several bone substitute material projects.
The first, Endobon(TM), is a bovine-derived material with interconnecting
porosity available in indication-specific shapes. This material is free of
organic components due to the sintering process, which converts it into a
non-resorbable ceramic material that is stable long-term after implantation. The
Endobon(TM) material has regulatory approval in Europe and was recently approved
for certain dental indications in the United States. The second, Biobon(TM), is
a totally synthetic calcium phosphate material with a composition similar to the
mineral phase of bone. This compound sets by an endothermic reaction at
37(degree) Celcius in moist surroundings to form a solid material which is
gradually resorbed and replaced by natural bone. The Biobon(TM) compound was
recently launched in Europe.

The Company is also developing a resorbable calcium-deficient hydroxyapatite
bone substitute material, currently referred to as Biocement D(TM). This
material exhibits a slower resorption profile and offers higher strength in
comparison to the faster-resorbing Biobon(R) compound. In addition, the Company
is developing a series of calcium-based bone substitute materials, more
specifically calcium sulfate, calcium sodium phosphate and
tetracalcium/tricalcium phosphate. These materials offer different physical and
resorption properties to accommodate a variety of indications. The Company is
conducting pre-clinical studies in Europe and the United States to evaluate
these materials in both paste and granular forms.

SPINAL PRODUCTS

Spinal products include EBI's SpF(R) Spinal Fusion Stimulation System and the
SpineLink(TM) and Omega 21(TM) Spinal Fixation Systems.

         SPINAL FUSION STIMULATION SYSTEM. Implantable, direct current
electrical stimulation devices provide an adjunct to surgical intervention in
the treatment of nonunions and spinal fusions. Spinal fusions are surgical
procedures undertaken to establish bony union between adjacent vertebrae. EBI's
SpF(R) Implantable Spinal Fusion Stimulators are used in conjunction with bone
grafting to increase the probability of fusion success. EBI's SpF(R)-2, a
two-lead implantable spinal fusion stimulator, offers orthopedic surgeons the
SpF(R) spinal fusion technology. Another SpF product, the SpF(R)-T Implantable
Spinal Fusion Stimulator, incorporates a telemetry device which emits a signal
to allow device monitoring after implantation. The compact design of the
SpF(R)-T stimulator provides easier surgical implantation and explantation while
increasing patient comfort. EBI's SpF(R)-XL stimulator is designed to address
multilevel fusions of 3 to 5 levels. The XL model has longer leads and delivers
40 micro amps of output. In fiscal year 1996, the XL line was expanded to
include the SpF(R)-XLII Spinal Fusion Stimulator, which provides the same
benefits as the XL model, in a two-lead configuration. The implantable devices
consist of a generator that provides a constant direct current to a titanium
cathode placed where bone growth is required. During fiscal year 1998, EBI
introduced the SpF(R)-XLIIB Spinal Fusion Stimulator, a miniature version of the
SpF(R)-XLII stimulator. In fiscal year 2000, EBI plans to launch the SpF(R) Mesh
Cathode, which is designed to increase the contact area between the bone graft
site and the host bone. More than 80,000 SpF(R) spinal fusion stimulation
systems have been used successfully since the product was introduced in 1987.

*VHS(TM) is a trademark of Implant Distribution Network Ltd.

                                       5

<PAGE>   7


         SPINAL FIXATION SYSTEMS. During fiscal year 1998, EBI introduced the
SpineLink(TM) Spinal Fixation System, which addresses many of the inherent
drawbacks of traditional rod and plate systems. With the SpineLink(TM) System,
each spine segment is addressed individually for intrasegmental control. Through
the use of a modular titanium link and polydirectional screw, this unique system
provides an intrasegmental solution to spine fixation, enabling the surgeon to
tailor the segmental construction to the patient's anatomy. The SpineLink(TM)
System optimizes accessibility to the bone graft site while increasing the
volume of graft that can be used in spinal fusion surgery. During fiscal year
1998, EBI received 510(k) clearance from the FDA to market the SpineLink(TM)
Cervical Fixation System addressing the cervical region of the spine. This
system is scheduled for full release during fiscal year 2000.

Full release of the Omega 21(TM) Spinal Fixation System in the United States is
scheduled during fiscal year 2000. This system rounds out EBI's domestic spinal
fixation product line by offering its customers a traditional rod and screw
system. EBI intends to continue to expand its spinal fixation system offerings.

Certain of the Company's foreign subsidiaries distribute spinal fixation
products manufactured by other companies.

OTHER PRODUCTS

The Company also manufactures and distributes several other products including
orthopedic support devices (also referred to as softgoods); arthroscopy
products; operating room supplies; casting materials; general surgical
instruments; wound care products such as Septopal(R), and an antibiotic bead
delivery system used to combat soft tissue infections; and other surgical
products such as the Indiana Tome(TM) Carpal Tunnel Release System. AOA, a
division of EBI, manufactures and distributes through EBI an extensive line of
orthopedic support products under the EBI(R) Sports Medicine name. The Company
manufactures and markets a line of arthroscopy products through its Arthrotek,
Inc. ("Arthrotek") subsidiary.

The Indiana Tome(TM) Carpal Tunnel Release System is an innovation in carpal
tunnel surgery. This patented system combines aspects of both the minimally
invasive endoscopic approach and the traditional open procedure. Biomet's
offering of hand products was expanded during fiscal year 1999 with the
introduction of the Trigger Finger Release Knife. This advancement enables the
procedure to be performed under local anesthesia through a 2 mm incision.

         ARTHROSCOPY PRODUCTS. Arthroscopy is a less-invasive orthopedic
surgical procedure in which an arthroscope is inserted through a small incision
to allow the surgeon direct visualization of the joint. This market is comprised
of five product categories: power instruments, manual instruments, visualization
products, soft tissue anchors, and procedure-specific instruments and implants.
Arthrotek's principal products consist of the Harpoon(R) Soft Tissue Anchor
System, the IES(R) 1000 System, the PowerPump(R) 800, the Tunneloc(R) ACL
Fixation System and manual instruments, including the BackBiter(R) forceps
instrument. The IES(R) 1000 System is a fully-integrated arthroscopy system
consisting of a camera, light source, shaver, pump, monitor, printer and VCR
contained in a pre-wired cart. The PowerPump(R) 800 provides surgeons with the
ability to independently control flow and pressure and to use the pump in
conjunction with other arthroscopy shaver systems. The Tunneloc(R) System
includes the Bone Mulch(TM) Screw and the Washerloc(TM) Tibial Fixation System.
During fiscal year 2000, Arthrotek plans to launch a broad line of resorbable
arthroscopy products including suture anchors, meniscal repair devices and soft
tissue plates and screws.

         ORTHOPEDIC SUPPORT DEVICES. EBI distributes a line of orthopedic
support devices under the EBI(R) Sports Medicine name, including traction
framing equipment, back supports, wrist and forearm splints, cervical collars,
shoulder immobilizers, slings, abdominal binders, knee braces and immobilizers,
rib belts, ankle supports and a variety of other orthopedic splints. Sales of
these softgoods products are assisted by the Support-on-Site (SOS(TM)) stock and
bill program, which efficiently handles the details of softgood delivery for the
healthcare provider.

         OPERATING ROOM SUPPLIES. The Company's principal products in the
operating room supplies category are surgical suction devices, filters, glove
liners and drapes. The Redi-Vacette(R) Closed Wound Suction System provides
post-operative wound suction drainage following orthopedic and nonorthopedic
surgical procedures. The Redi-Flow(R) Filter automatically strains the flow of
body liquids during surgery. The filter collects fine bone chips and tissue for
subsequent pathological evaluation and saves operating room time by reducing
suction clogs in surgical procedures. The Redi-Drape(R) protects the sterile
operating field from contamination, and provides a drainage bag and built-in
instrument pouches to assist the surgeon.

         CASTING MATERIALS. EBI introduced the SynthoCast(R) HP high performance
casting tape during fiscal year 1998. This casting material is lighter, stronger
and more comfortable than conventional plaster products. The SynthoCast(R) tape
offers pre-cut splints on a roll, which saves time, controls waste and improves
convenience for the patient and physician. During fiscal year 2000, EBI plans to
introduce an improved version of the SynthoCast(R) HP casting tape, which is
uniquely designed to provide improved conformability and faster setting
capabilities.


                                       6

<PAGE>   8


PRODUCT DEVELOPMENT

For the years ended May 31, 1999, 1998 and 1997, the Company expended
approximately $35,472,000, $36,120,000 and $23,201,000, respectively, on
research and development. As more fully described in Note C of the Notes to
Consolidated Financial Statements, the research and development expense for
fiscal year 1998 includes a one-time $9.8 million charge for acquired in-process
research and development. It is expected that on-going research and development
expenses will continue to increase. The Company's principal research and
development efforts relate to its reconstructive devices, electrical stimulation
products, spinal fixation products, revision products, arthroscopy products,
resorbable technology, biomaterials products and gene therapy technologies in
the orthopedic field. The Company's primary research and development facilities
are located in Warsaw, Indiana; Parsippany, New Jersey; and Darmstadt, Germany.

The Company's research and development efforts contributed to the introduction
in fiscal year 1999 of the following products: the Ascent(TM) Total Knee System,
the Silhouette(R) Cemented Hip System, the EBI(R) Bone Healing System Model
2001, improved instrumentation for the Alliance(R) family of hip systems,
T-1(TM) Ritter Revision Knee Instruments, the iBP(TM) Elbow System, the Kudo(R)
Elbow, the Recovery(R) Protrusio Cage, the Bi-Metric(R) Modular Revision Hip
System, the Vari-Angle Hip Fixation System (VHS(TM)), the SpF(R) Mesh Cathode
and Palamed(R) G bone cement. During fiscal year 2000, the Company intends to
release the following products: the Opti-rom(TM) Elbow Fixator, the Access
Pelvic Fixator, the Rapid FLAP(R) line, Lorenz Surgical's Dental Implant System,
Arthrotek's resorbable fixation products, the SpineLink(TM) Cervical Fixation
System and the Omega 21(TM) Spinal Fixation Systems.

EBI conducts a program of research and development intended to maintain its
proprietary position and to expand the range of conditions treatable with its
electrical stimulation products. This program includes clinical investigations
and funding of basic research to study cells and simple biological systems.
Typically, EBI receives proprietary rights with respect to the data developed as
the result of research it sponsors. EBI also conducts similar research programs
for all of its products.

During the fourth quarter of fiscal year 1999, the Company formed an alliance
with Selective Genetics, Inc. ("Selective Genetics") to develop gene therapy
products for the musculoskeletal market. Selective Genetics specializes in
tissue repair and regeneration by utilizing technologies for local gene transfer
in any type of wound repair environment. This alliance will provide the Company
with an exclusive, worldwide license covering the application of Selective
Genetics' Gene Activated Matrix (GAM(TM)) for orthopedic indications; such as
spinal fusion, fracture repair, bone void filling, tendon repair and
ligament repair. Also, the Company has made a minority equity investment in
Selective Genetics, as more fully described in Note C of the Notes to
Consolidated Financial Statements.

GOVERNMENT REGULATION

The development, testing, marketing and manufacturing of medical devices - such
as arthroscopy, reconstructive, electrical stimulation and internal fixation
devices - are regulated under the Medical Device Amendments of 1976 to the
Federal Food, Drug and Cosmetic Act (the "1976 Amendments") and additional
regulations promulgated by the FDA. In general, these statutes and regulations
require that manufacturers adhere to certain standards designed to ensure the
safety and effectiveness of medical devices.

Under the 1976 Amendments, each medical device manufacturer must be a
"registered device manufacturer" and must comply with regulations generally
applicable to labeling, quality assurance, manufacturing practices and clinical
investigations involving humans. The FDA is authorized to obtain and inspect
devices, their labeling and advertising, and the facilities in which they are
manufactured in order to assure that a device is not improperly manufactured or
labeled. Biomet, EBI, Lorenz Surgical and Arthrotek are registered with the FDA.

In addition, the sale and marketing of medical devices are regulated by the FDA
under the 1976 Amendments, which classify medical devices based upon the degree
of regulation deemed appropriate and necessary. A device is classified as a
Class I, II or III device based on recommendations of advisory panels appointed
by the FDA. Class I devices are subject only to general controls. Class II
devices, in addition to general controls, are subject to additional controls.
Class III devices require FDA premarket approval before they may be distributed
other than in clinical trials.

The Company's reconstructive and fixation products are regulated as Class II or
Class III medical devices. The Company's spinal fixation systems are regulated
as Class II medical devices. The Company's electrical stimulation products are
regulated as Class III medical devices. The procedure for obtaining approval to
commercially market a device involves the submission of a premarket notification
under Section 510(k) of the 1976 Amendments. If the FDA determines that the
device is substantially equivalent to a pre-enactment device or to a device
subsequently classified in Class I or Class II, it will grant clearance to
commercially market the device. If the FDA determines the device is not
substantially equivalent to a pre-enactment device, it is automatically placed
into Class III, and will either require reclassification or the submission of
valid scientific evidence to prove the device is safe and effective for human
use. For Class III medical devices, in order to conduct clinical trials the
manufacturer must submit to the FDA an application for an Investigational Device
Exemption ("IDE"). An approved IDE exempts the manufacturer from certain
otherwise applicable FDA regulations, and grants approval for a clinical
investigation, or human study, to generate clinical data to prove safety and
efficacy. When a manufacturer believes that sufficient clinical data has been
generated to prove the safety and efficacy of the device, it may submit a
premarket approval application ("PMA") to the FDA. The FDA reviews the PMA and
determines whether it is in fileable form and all key elements have been
included. Following acceptance of the PMA, the FDA continues its review process,
which includes submission of the PMA to a panel of experts appointed by the FDA
to review the PMA and to recommend appropriate action. The panel then recommends
that the PMA be approved, not

* GAM(TM) is a trademark of Selective Genetics, Inc.

                                       7

<PAGE>   9


approved or approved subject to conditions. The FDA may act according to the
panel's recommendations, or it may overrule the panel. In approving a PMA, the
FDA may require some form of post-market surveillance whereby the manufacturer
follows certain patient groups for two or more years, making periodic reports to
the FDA.

In addition, the possibility exists that certain devices marketed prior to 1976,
or devices substantially equivalent thereto, may require premarket approval if
the FDA requests. In this event, the manufacturer will be required to submit
proof of safety and efficacy for these devices within 90 days of the call for a
PMA.

The Safe Medical Device Act of 1990 (the "1990 Act") affects medical device
manufacturers in several areas, including post-market surveillance and device
tracking procedures. The 1990 Act was the first major change to the Federal
Food, Drug and Cosmetic Act since the 1976 Amendments. The 1990 Act gave the FDA
expanded emergency recall authority, required that a summary be made available
of the safety and effectiveness in the 510(k) process, and added design controls
as a requirement of Good Manufacturing Practices. The 1990 Act also granted the
FDA the authority to require manufacturers to conduct post-market surveillance
on most permanent implants and devices that potentially present a serious risk
to human health. Management does not believe the 1990 Act has had a material
adverse effect on the Company or its operations.

On November 21, 1997 the FDA Modernization Act (the "Modernization Act") was
signed into law. The Modernization Act amended the Food, Drug and Cosmetic Act
in an effort to streamline the process of bringing safe and effective drugs,
medical devices and other therapies to the United States market. With respect to
medical devices, the Modernization Act requires the FDA to focus its resources
on the regulation of those devices that pose the greatest risk to the public and
offer the most significant benefits. The FDA must base its decisions on clearly
defined criteria and provide for appropriate interaction with the regulated
industry. The Modernization Act assumes an enhanced collaboration between the
FDA and the regulated industry will accelerate the introduction of safe and
effective devices to the United States marketplace.

The Company is well-positioned to face the changing international regulatory
environment. The ISO 9000 series of standards are an internationally recognized
set of standards aimed at ensuring the design and manufacture of quality
products. A company that has passed an ISO audit and obtained ISO registration
is internationally recognized as having quality manufacturing processes. The
European Union requires that medical products bear a CE mark. The CE mark is an
international symbol which indicates that the product adheres to European
Medical Device Regulations. ISO 9000 certification is a requirement for
obtaining the CE mark on most of the Company's products. The Company's
facilities in Warsaw, Indiana; Indianapolis, Indiana; Fairlawn, New Jersey;
Parsippany, New Jersey; Jacksonville, Florida; Guaynabo, Puerto Rico; and
Ontario and Redding, California, in the United States, as well as the facilities
in Germany, Spain, France and the United Kingdom are authorized to place the CE
mark on their products.

SALES AND MARKETING

Reconstructive devices are distributed in the United States by a salesforce of
approximately 410 persons, encompassing approximately 90 independent
commissioned sales representatives ("distributors") and 320 sales associates
engaged principally in the business of supplying orthopedic products to
hospitals in their geographic areas. A few of these distributors have formal
contractual arrangements with Biomet which limit Biomet's right to terminate the
distributor and provide certain long-term benefits to the distributor upon
termination.

EBI and AOA products are distributed in the United States through EBI's
wholly-owned subsidiary, EBI L.P., an Indiana limited partnership with offices
in Parsippany, New Jersey. EBI L.P. maintains a predominately direct salesforce
of approximately 260 people in assigned territories throughout the United
States. EBI and AOA products are also distributed through a growing distribution
network in Central and South America, Canada, Asia and Europe.

Lorenz Surgical products are distributed in the United States through
approximately 80 independent, commissioned sales representatives and sales
associates engaged principally in the business of supplying craniomaxillofacial
products and surgical instruments to hospitals and surgeons in their geographic
areas. Additionally, Lorenz Surgical supplies a full line of hand-held
orthopedic surgical instruments for sale through the Biomet distributor network.
Lorenz Surgical products are marketed internationally through a growing network
of distributors and sales representatives throughout Europe, Asia, Africa,
Canada, and Central and South America; and through direct operations in
Australia and Germany.

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


                                       8

<PAGE>   10


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

The Company's products are marketed through independent commissioned sales
representatives in Australia and Canada; primarily through direct sales
representatives in Austria, Belgium, Chile, the Czech Republic, France, Germany,
Greece, Holland, Italy, Mexico, New Zealand, Norway, Poland, Portugal, Spain,
Switzerland and the United Kingdom; and through independent sales
representatives and specialty medical product dealers in other international
markets. The Company's products are distributed in approximately 100 countries
worldwide.

For the fiscal years ended May 31, 1999, 1998 and 1997, the Company's foreign
sales were approximately $246,339,000, $187,378,000 and $154,825,000,
respectively, or 33%, 29%, and 27% of net sales, respectively. Additional data
concerning net sales to customers, operating income and long-lived assets by
geographic areas are set forth in Note K of the Notes to Consolidated Financial
Statements included in Item 8 of this Report and incorporated herein by
reference.

The Company consigns inventory to its United States distributors and direct
salespersons for their use in marketing its products and in filling customer
orders. The Company also consigns inventory to hospitals in Australia, Austria,
Belgium, the Czech Republic, France, Germany, Greece, Holland, Italy, Mexico,
New Zealand, Norway, Poland, Portugal, Spain, Switzerland and the United
Kingdom. As of May 31, 1999, inventory of approximately $67,283,000 was
consigned to these distributors, salespersons and hospitals.

Under Title VI of the Social Security Amendments of 1983 (the "1983
Amendments"), hospitals receive a predetermined amount of Medicare reimbursement
for treating a particular patient based upon the patient's type of illness
identified with reference to the patient's diagnosis under one or more of
several hundred diagnosis-related groups ("DRGs"). Other factors which affect a
specific hospital's reimbursement rate include the size of the hospital, its
teaching status and its geographic location. The Prospective Payment Assessment
Commission acts for Congress in evaluating, redefining and adjusting DRGs to
encompass technology changes and efficiencies experienced by hospitals. Biomet
products are primarily covered by DRG 209 (Major Joint and Limb Reattachment
Procedures) and DRG 210 (Hip and Femur Procedures). To date, the 1983 Amendments
have not adversely affected the Company's reconstructive device or electrical
stimulation business; however, the future impact of these amendments can not be
estimated at the present time.

COMPETITION

The business of the Company is highly competitive. Approximately five other
manufacturers offer reconstructive devices which compete with the Company's
products. Major companies in this industry include DePuy, Inc., a subsidiary of
Johnson & Johnson; Styker Howmedica Osteonics, Inc., a subsidiary of Stryker
Corporation; Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company;
Intermedics Orthopedics, Inc., a division of Sulzermedica; and Smith & Nephew,
Inc. Management believes these five companies, together with Biomet, have the
predominant share of the orthopedic implant market. Competition within the
orthopedic implant industry is primarily based on service and product design;
although price competition has become increasingly important in recent years as
the orthopedic industry matures and as providers have become more concerned with
health care costs. At the present time, price is an important factor in the sale
of generic internal fixation devices, orthopedic support devices and operating
room supplies. In addition, health care providers increasingly limit the use of
higher-cost reconstructive devices to younger, more active patients. Biomet's
prices are at approximately the same or slightly lower levels as those of its
major competitors. In recent years the Company has experienced pricing pressure
for its products, however, the Company believes that the pricing environment is
beginning to stabilize and we foresee an environment that will once again focus
on quality of care. The Company believes its future success will depend upon its
service and responsiveness to distributors and orthopedic specialists, and upon
its ability to design and market innovative products which meet the needs of the
marketplace.

EBI's spinal fixation systems compete with those of: the Medtronic/Sofamor Danek
Group, Inc.; AcroMed Corporation, a subsidiary of Johnson & Johnson; Synthes,
Inc.; Surgical Dynamics, Inc., a subsidiary of Tyco International, Ltd.; and
SpineTech, a subsidiary of Sulzermedica.

EBI's external fixation devices compete with other external fixation devices
primarily on the basis of ease of application and clinical results. EBI's
principal competitors in the external fixation market are: Smith & Nephew Inc.;
Styrker Howmedica Osteonics, Inc., a subsidiary of Stryker Corporation; and
Orthofix, Inc. a subsidiary of Orthofix International N.V. (see Item 3. - Legal
Proceedings). The Company's internal fixation product lines compete with those
of: ACE Orthopedics, a division of Johnson & Johnson; Zimmer, Inc., a subsidiary
of Bristol-Myers Squibb Company; Smith & Nephew Inc.; and Synthes USA.

Lorenz Surgical primarily competes in the craniomaxillofacial fixation and
specialty surgical instrumentation and neurosurgical cranial flap fixation
markets. Its competitors include: Synthes USA; Stryker-Leibinger, a subsidiary
of Stryker Corp.; Bionx Implants, Inc.; Aesculap AG & Co.; ACE Surgical Supply
Company, Inc.; KLS-Martin, L.P.; and Hu-Friedy Dental.


                                       9

<PAGE>   11


EBI's electrical stimulation products compete with conventional surgical
procedures and non-invasive electrical stimulation devices manufactured by
others. EBI has the predominant share of the bone growth stimulation market.
Other companies offering products in the electrical stimulation market include:
Orthofix, Inc. a subsidiary of Orthofix International N.V.; Biolectron, Inc.;
OrthoLogic Corp.; and Exogen, Inc. Competition in the electrical stimulation
market is on the basis of product design, service and success rates of various
treatment alternatives. EBI's non-invasive stimulators offer advantages over
conventional surgery or invasive products in that their use eliminates hospital,
surgeon and operating room costs, and these products can be used in the presence
of infection without creating a risk of additional infection. EBI's invasive
stimulators offer the advantage of conformance to surgical practice and do not
require patient compliance.

Arthrotek products compete in the areas of power instruments, visualization
products, accessories and manual instruments. Competitors include Linvatec
Corp., a subsidiary of CONMED Corporation; Stryker Corporation; Smith & Nephew
Endoscopy, a division of Smith & Nephew Inc.; Arthrex, Inc.; Olympus; Richard
Wolf; and Karl Storz.

RAW MATERIALS AND SUPPLIES

The raw materials used in the manufacture of Biomet products are principally
nonferrous metallic alloys, stainless steel, polyethylene powder and fabrics.
With the exception of cobalt alloy and polyethylene powder, none of Biomet's raw
material requirements are limited to any material extent by critical supply or
single origins. Biomet purchases its cobalt alloy from two outside suppliers and
is aware of at least three additional suppliers of cobalt alloy. With respect to
polyethylene powder, suppliers of this material have become increasingly
concerned due to perceived product liability exposures in the medical device
industry. However, based upon Biomet's present relationship with such suppliers,
a material shortage of polyethylene powder is not anticipated in the foreseeable
future. EBI purchases all components of its electrical stimulators from
approximately 250 outside suppliers, approximately 15 of whom are the single
source of supply for the particular product. In most cases, EBI believes that
all components are replaceable with similar components. In the event of a
shortage, there are alternative sources of supply available for all components,
but some time would likely elapse before EBI's orders could be filled. The
results of the Company's operations are not materially dependent on raw material
costs.

EMPLOYEES

As of May 31, 1999, the Company's domestic operations (including Puerto Rico)
employed approximately 2,150 persons, of whom approximately 1,200 are engaged in
production and approximately 950 in sales, marketing, administrative and
clerical efforts. The Company's international subsidiaries employs approximately
1,150 persons, of whom approximately 500 are engaged in production and
approximately 650 in sales, marketing, administrative and clerical efforts. None
of the Company's principal domestic manufacturing employees are represented by a
labor union. The production employees at its Bridgend, South Wales, facility are
organized. Employees working at the facilities in Darmstadt and Berlin, Germany;
Valence, France; and Valencia, Spain are represented by statutory Workers'
Councils which negotiate labor hours and termination rights. The Workers'
Councils do not directly represent such employees with regard to collective
bargaining of wages or benefits. The Company believes that its relationship with
all of its employees is satisfactory. The establishment of Biomet's domestic
operations in north central Indiana, near other members of the orthopedic
industry, provides access to the highly skilled machine operators required for
the manufacture of Biomet products. The Company's European manufacturing
locations in South Wales, England, France, Spain and Germany also provide good
sources for skilled manufacturing labor. EBI's Puerto Rican operations
principally involve the assembly of purchased components into finished products
using skilled labor.

PATENTS AND TRADEMARKS

Patents and other forms of intellectual property are taking on increased
importance in the orthopedic industry. Accordingly, management has placed
greater significance on patents and is taking steps to increase its acquisition
and protection of intellectual property rights. In addition, management is
actively enforcing its intellectual property rights consistent with strategic
objectives.

BIOMET, EBI, W'. LORENZ, AOA and ARTHROTEK are the Company's principal
registered trademarks in the United States, and federal registration has been
obtained or is in process with respect to various other trademarks associated
with the Company's products. The Company holds or has applied for registrations
of various trademarks in its principal foreign markets.








                                       10

<PAGE>   12


ITEM 2.  PROPERTIES.

The Company has the following properties:

<TABLE>
<CAPTION>
FACILITY                                                              LOCATION                        SQUARE FEET OWNED/
                                                                                                                  LEASED

<S>                                                                   <C>                             <C>         <C>
Principal manufacturing and research and development facility         Warsaw, Indiana                  340,000     Owned
of Biomet Manufacturing Corp.; distribution center and offices
of Biomet Orthopedics, Inc.; and executive offices of Biomet, Inc.

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

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

Marketing and sales operations and administrative offices             (1) Parsippany, New Jersey*       63,000     Owned
of EBI, L.P. and administrative offices of Electro-Biology, Inc.      (2) Parsippany, New Jersey       126,000     Owned

Manufacturing facilities of EBI, L.P.                                 (1) Parsippany, New Jersey        45,000     Owned
                                                                      (2) Marlow, Oklahoma              30,000     Owned

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

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

Office manufacturing and warehouse facility of                        Indianapolis, Indiana             16,000    Leased
Catheter Research, Inc.

Office and warehouse facility of Biomet                               North Ryde, New South             11,000    Leased
Australia Pty. Ltd.                                                   Wales, Australia

Office and warehouse facility of Biomet Merck Austria GmbH            Mondsee, Austria                   4,800    Leased

Office and warehouse facility of Biomet Merck Belgium BVBA            Wilrijk, Belgium                  11,000     Owned

Office and warehouse facility of Biomet Canada, Inc.                  Oakville, Ontario, Canada          3,600    Leased

Office and warehouse facility of Biomet Chile, S.A.                   Santiago, Chile                    1,400    Leased

Office and warehouse facility of Biomet Merck CZ, s.r.o.              Prague, Czechoslovakia             1,200    Leased

Office and research and development facility of Polymers              Farum, Denmark                       900    Leased

Office and warehouse facilities of Biomet Merck S.A.                  (1) Chauteaurenard, France*       31,800     Owned
                                                                      (2) Les Pennes Mirabeau, France   10,100    Leased
                                                                      (3) Levallois, France*            18,000    Leased
                                                                      (4) Annecy-le-Vieux, France        1,100    Leased

Office and manufacturing facility of                                  Valence, France                   86,100     Owned
Biomet Merck S.A.

Office, manufacturing and warehouse facilities                        (1) Berlin, Germany               45,200     Owned
of Biomet Merck Deutschland GmbH                                      (2) Berlin, Germany               16,900     Owned

Office and research and development facility                          Darmstadt, Germany                29,200    Leased
of Merck Biomaterial GmbH
</TABLE>


                                       11
<PAGE>   13


<TABLE>
<CAPTION>
FACILITY                                                              LOCATION                        SQUARE FEET OWNED/
                                                                                                                  LEASED

<S>                                                                   <C>                             <C>         <C>
Office and warehouse facility of                                      Athens, Greece                     4,100     Owned
Biomet Merck Hellas

Office and warehouse facility of Biomet Merck S.r.l.                  Milan, Italy                      10,800     Owned

Office and warehouse facility of Biomet Mexico S.A. de C.V.           Mexico City, Mexico                4,100    Leased

Office and warehouse facility of Ortomed BV and Biomet Merck          Zwijndrecht, The Netherlands      38,400     Owned

Office and warehouse facility of Biomet Orthopedic Ltd.               Auckland, New Zealand             10,900    Leased

Office and warehouse facility of Biomet Merck (Norge) A.S.            Eiksmarka, Norway                  2,200    Leased

Office and warehouse facility of Biomet Merck Polska Ltd.             Warsaw, Poland                     1,200    Leased

Office and warehouse facility of                                      Lisbon, Portugal                   9,100    Leased
Sociedade Comercial Multiradix S.A.

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

Office facility of IQL                                                Madrid, Spain                      4,500     Owned

Office and warehouse facility of Biomet                               (1) Altdorf, Switzerland           3,200    Leased
Merck GmbH                                                            (2) Oberengstringen, Switzerland   1,400    Leased

Manufacturing and administrative                                      (1) Bridgend, South Wales         83,800     Owned
facilities of Biomet Merck Ltd.                                       (2) Swindon, England              52,900     Owned
</TABLE>



*Operations at these facilities have ceased and the facilities are being leased
to other parties.

The Company believes that its facilities are adequate, well maintained and
suitable for the development, manufacture and marketing of all its products.










                                       12

<PAGE>   14

ITEM 3. LEGAL PROCEEDINGS.

Litigation - In January 1996, a jury returned a verdict in favor of Raymond G.
Tronzo ("Tronzo") awarding him approximately $55 million in damages on his
patent and state law claims. On October 29, 1996, the United States District
Court for the Southern District of Florida entered a judgment, which implemented
and reduced the jury verdict, awarding $30.2 million to Tronzo on his state law
claims, including compensatory damages of approximately $7.1 million, punitive
damages of $20 million and prejudgment interest. The trial court denied the
Company's motion challenging the validity of Tronzo's patent. Tronzo was awarded
an additional $6.3 million judgment for patent infringement, including a
fifty-percent enhancement based upon willfulness. The trial court also granted
an injunction prohibiting future manufacture, use, promotion or sale, in the
United States, of the finned version of the Mallory-Head acetabular cup, the
device found to have infringed the Tronzo patent. In August 1998, the U.S. Court
of Appeals of the Federal Circuit (the "Federal Circuit") struck down the jury
award. The Federal Circuit accepted the Company's position on all patent issues
and found that the patent claims asserted by Tronzo were invalid and, therefore,
could not have been infringed by the Company. The Federal Circuit upheld the
District Court's findings of liability on Tronzo's state law claims; however,
the Federal Circuit vacated the entire damage award on the state law claims and
remanded the case to the District Court for further consideration on the state
law claims only, narrowly limiting Tronzo's ability to recover any damages. As a
result of the Federal Circuit's decision, the injunction previously entered
against the Company on the Mallory-Head finned acetabular cup no longer stands
and all damages assessed against the Company have been vacated. The Company's
motion requesting that its $36.6 million of investments (included in the
Company's investments at May 31, 1999) be released from escrow was granted on
July 23, 1999.

On June 2, 1997, the Company announced the entry of a jury verdict against it in
the United States District Court of New Jersey in an action brought by Orthofix
SRL ("Orthofix") against the Company and its wholly owned subsidiaries,
Electro-Biology, Inc. ("EBI") and EBI Medical Systems, Inc. ("EBIMS"), (the
"Biomet Group") related to the events surrounding the expiration of a
distribution agreement under which EBIMS distributed Orthofix's external
fixation devices in the United States. The jury found that, notwithstanding
Orthofix's refusal to renew the distribution agreement, EBIMS's commencement of
development activities of a new external fixation system prior to the expiration
of the contract, constituted a breach of the distribution agreement. The jury
awarded compensatory damages against the Biomet Group for breach of contract and
related claims of approximately $49 million and punitive damages of $100
million. The jury also concluded that Orthofix breached the distribution
agreement and tortiously interfered with EBIMS's economic relations, but awarded
only nominal damages to the Biomet Group. With respect to certain non-jury
issues, the trial court entered an order denying Orthofix's motions for enhanced
and/or treble damages and attorney's fees. The trial court also granted
Orthofix's motion for prejudgment interest, but only on the compensatory portion
of the damages commencing from November 29, 1995. On September 2, 1997, the
trial court entered an amended judgment reducing to $50 million, the $100
million in punitive damages awarded to Orthofix by the jury. The Company
appealed the final amended judgment entered against the Biomet Group to the
United States Court of Appeals for the Third Circuit (the "Third Circuit"). On
June 30, 1999, the Third Circuit significantly reduced the judgment previously
entered against the Biomet Group and in favor of Orthofix. The Third Circuit
upheld the District Court's award of compensatory damages to Orthofix in the
amount of $48,875,397; however, it virtually eliminated the $50 million punitive
damage award, reducing it to $1 million. Both parties filed petitions for
rehearing with the Third Circuit, which were denied on July 23, 1999. The
Company is currently considering whether to file an appeal with the Supreme
Court of the United States. As a result of the Third Circuit's decision, and
consultation with outside legal counsel, the Company recorded a special charge
of $55 million, including interest of $5.1 million for the year ended May 31,
1999. At May 31, 1999, the Company's investments on the consolidated balance
sheet include $108.0 million of investment securities which have been delivered
to an escrow agent pursuant to an order of the District Court and related to the
District Court's judgment in the Orthofix case.

In October, 1997 the Company received a subpoena from the United States
Department of Health and Human Services, Office of Inspector General
("HHS/OIG"), in conjunction with the possible fraudulent submission of claims
for Medicare reimbursement. The subpoena seeks the production of documents
referring or relating to any of Pennsylvania Hospital and Thomas Jefferson
Hospital, two of the Company's major hospital customers in Philadelphia; a
physician group practicing under the name Orthopaedic Reconstructive Associates;
and the Rothman Institute. The Company also is aware that its distributor
servicing the hospitals has received a similar subpoena. The Company does not
itself submit claims to or receive reimbursements from Medicare, but the laws
with respect to Medicare reimbursement prohibit any person from paying or
offering to pay any direct or indirect remuneration intended to induce the
purchase of products or services. Those laws are complex and can be broadly
construed to cover a wide range of financial and business activities. The
Company has not been advised of the precise subject matter of the HHS/OIG
investigation, but it has long-standing research, product development, physician
training, clinical follow-up and data collection relationships with the
physician group. The Company is fully cooperating with HHS/OIG in this matter,
and is unable to predict what action, if any, might be taken in the future by
HHS/OIG as a result of its investigation or what impact, if any, the outcome of
this matter might have on its financial position or business operations.


                                       13

<PAGE>   15


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

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

     Not Applicable.























                                       14

<PAGE>   16


EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, business background, positions held with the Company and tenure
as an executive officer of each of the Company's executive officers are set
forth below. No family relationship exists among any of the executive officers.
Except as otherwise stated, each executive officer has held the position
indicated during the last five years.


<TABLE>
<CAPTION>
                                                                        Served as Executive         Current Position(s)
Name, Age and Business Experience                                          Officer Since             with the Company
---------------------------------                                          -------------             ----------------
<S>                                                                             <C>                 <C>
DANE A. MILLER, PH.D., 53
-------------------------
President and Chief Executive Officer of the                                    1977                President and Chief
Company. Director of the Company since 1977.                                                        Executive Officer and
                  Director of the Company.

NILES L. NOBLITT, 48
--------------------
Chairman of the Board of the Company.                                           1978                Chairman of the Board
Director of the Company since 1977.                                                                 and Director of the Company.

CHARLES E. NIEMIER, 43
----------------------
Senior Vice President - International Operations of                             1984                Senior Vice President -
the Company. Director of the Company since 1987.                                                    International Operations
                                                                                                    and Director of the Company.

GARRY L. ENGLAND, 45
--------------------
Senior Vice President - Warsaw Operations of the Company.                       1987                Senior Vice President -
                                                                                                    Warsaw Operations of the
                                                                                                    Company.

DANIEL P. HANN, 44
------------------
Senior Vice President, General Counsel, and Secretary of the Company            1989                Senior Vice President and
since June 1999; prior thereto, Vice President, General Counsel, and                                General Counsel, Secretary
Secretary of the Company. Director of the Company since 1989.                                       and Director of the Company.

JOEL P. PRATT, 45
-----------------
Senior Vice President of the Company since June 1999 and President of           1990                Senior Vice President
Arthrotek, Inc. since June 1996; Vice President of the Company                                      of the Company and President
from June 1996 to June 1999; prior thereto, Vice President of the Company                           of Arthrotek, Inc.
and General Manager of Biomet Medical Products.

GREGORY D. HARTMAN, 42
----------------------
Senior Vice President - Finance and Chief Financial Officer of the Company      1991                Senior Vice President
since June 1999; prior thereto, Vice President - Finance and Chief                                  Finance and Chief Financial
Financial Officer of the Company.                                                                   Officer of the Company.

JAMES W. HALLER, 42
-------------------
Controller of the Company.                                                      1991                Controller of the Company.

JERRY L. FERGUSON, 58
---------------------
Vice Chairman of the Board of the Company since December 1997;                  1994                Vice Chairman of the Board
prior thereto, Senior Vice President of the Company.                                                and Director of the Company.

JAMES R. PASTENA, 48
--------------------
Vice President of the Company since September 1998 and President of             1998                Vice President of the Company
Electro-Biology, Inc.                                                                               and President of Electro-
                                                                                                    Biology, Inc.

KENT E. WILLIAMS, 41
--------------------
Vice President of the Company since September 1998 and President of Walter      1998                Vice President of the Company
Lorenz Surgical, Inc. since June 1995; prior thereto, Executive Vice                                and President of Walter Lorenz
President of Walter Lorenz Surgical, Inc.                                                           Surgical, Inc.


</TABLE>

                                       15

<PAGE>   17


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

The following table shows the quarterly range of high and low sales prices for
the Company's Common Shares as reported by the Nasdaq Stock Market for each of
the three most recent fiscal years ended May 31, 1999. The approximate number of
shareholders of record as of May 31, 1999 was 7,455.

                           High                 Low

1999
         Fourth            $45 3/4              $35 1/16
         Third              40 7/16              32 5/16
         Second             38 1/2               26
         First              34 1/4               28

1998
         Fourth             33 1/2               27 1/4
         Third              30 11/16             23 1/4
         Second             25 5/8               20 1/4
         First              22 1/2               17 1/4

1997
         Fourth             19 3/4               14 7/8
         Third              16 5/8               14 1/4
         Second             17 1/8               15
         First              17 1/4               12 7/8


The Company paid cash dividends of twelve cents ($.12) per share on August 7,
1998, eleven cents ($.11) per share on August 8, 1997, and ten cents ($.10) per
share on November 22, 1996.

On July 6, 1999, the Company's board of directors declared a cash dividend of
fourteen cents ($.14) per share, payable August 6, 1999, to shareholders of
record at the close of business on July 9, 1999.
















                                       16

<PAGE>   18


ITEM 6. SELECTED FINANCIAL DATA.
--------------------------------------------------------------------------------

INCOME STATEMENT DATA
Years ended May 31,
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                   ------------------------------------------------------
                                                                         1999       1998       1997       1996       1995
                                                                   ------------------------------------------------------
              <S>                                                  <C>          <C>        <C>        <C>        <C>
              Net sales........................................... $  757,414   $651,405   $580,347   $535,159   $452,272
              Cost of sales.......................................    229,727    202,235    185,795    174,364    142,143
                                                                   ------------------------------------------------------
                Gross profit......................................    527,687    449,170    394,552    360,795    310,129

              Selling, general and administrative expenses........    265,565    232,944    211,540    199,461    169,332
              Research and development expense....................     35,472     36,120     23,201     24,054     21,770
              Special charge......................................     55,000          -          -          -          -
                                                                   ------------------------------------------------------
                Operating income..................................    171,650    180,106    159,811    137,280    119,027

              Other income, net...................................     14,696     23,835      9,321     12,389      5,915
                                                                   ------------------------------------------------------
                Income before income taxes and minority interest..    186,346    203,941    169,132    149,669    124,942

              Provision for income taxes..........................     62,527     79,071     62,678     55,563     45,742
                                                                   ------------------------------------------------------
                Income before minority interest...................    123,819    124,870    106,454     94,106     79,200
              Minority interest...................................      7,458        144          -          -          -
                                                                   ------------------------------------------------------
                Net income........................................ $  116,361   $124,726   $106,454   $ 94,106   $ 79,200
                                                                   ------------------------------------------------------

              Earnings per share:
                Basic.............................................      $1.04      $1.12       $.94       $.82       $.69
                Diluted...........................................       1.03       1.11        .93        .81        .68
                                                                   ------------------------------------------------------

              Shares used in the computation of earnings per share:
                Basic.............................................    112,309    111,717    113,765    115,461    115,459
                Diluted...........................................    113,382    112,852    114,617    116,750    116,798
                                                                   ------------------------------------------------------

              Cash dividends paid per common share................      $ .12      $ .11       $.10       $  -       $  -
</TABLE>


BALANCE SHEET DATA
At May 31,
(in thousands)

<TABLE>
<CAPTION>
                                                                   ------------------------------------------------------
                                                                         1999       1998       1997       1996       1995
                                                                   ------------------------------------------------------
              <S>                                                  <C>          <C>        <C>        <C>        <C>
              Working capital..................................... $  480,278   $472,733   $391,326   $400,817   $302,752
              Total assets........................................  1,067,956    848,739    628,356    598,469    539,084
              Shareholders' equity................................    775,947    667,418    552,828    534,070    444,617
</TABLE>

* Amounts after January 1, 1998 include the impact of Biomet Merck. Other
  acquisitions during the five-year period individually and in the aggregate
  have not been material to the Company's operating results or financial
  position.








                                       17

<PAGE>   19


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

The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Income and the percentage change
from year to year.

<TABLE>
<CAPTION>
                                                                       ---------------------------------------------------
                                                                                                           Percentage
                                                                         Percentage of Net Sales       Increase (Decrease)

                                                                                                         1999        1998
                                                                        1999       1998       1997   vs. 1998    vs. 1997
                                                                       ---------------------------------------------------

         <S>                                                           <C>        <C>        <C>         <C>         <C>
         Net sales ...............................................     100.0%     100.0%     100.0%       16%         12%
         Cost of sales ...........................................      30.3       31.0       32.0        14           9
                                                                       ------------------------------
         Gross profit  ...........................................      69.7       69.0       68.0        17          14
         Selling, general and administrative expenses ............      35.1       35.8       36.5        14          10
         Research and development expense.........................       4.7        5.5        4.0        (2)         56
         Special charge...........................................       7.3          -          -       n/m           -
                                                                       ------------------------------
         Operating income.........................................      22.6       27.7       27.5        (5)         13
         Other income, net........................................       2.0        3.6        1.6       (39)        154
                                                                       ------------------------------
         Income before income taxes and minority interest.........      24.6       31.3       29.1        (9)         20
         Provision for income taxes...............................       8.2       12.1       10.8       (21)         26
                                                                       ------------------------------
         Income before minority interest..........................      16.4       19.2       18.3        (1)         17
         Minority interest........................................       1.0          -          -       n/m           -
                                                                       ------------------------------
         Net income...............................................      15.4%      19.2%      18.3%       (7)%        17%
                                                                       ------------------------------

         * n/m - Not Meaningful
</TABLE>


1999 COMPARED TO 1998
The Company's formation of BioMer C.V. ("Biomet Merck") in January 1998 (see
Note C of Notes to Consolidated Financial Statements) expanded and enhanced its
presence in the foreign orthopedic market. This formation created new challenges
for the Company during fiscal 1999 and going forward. The Company responded
positively to these challenges by posting record net sales and net income
(excluding the impact of a $55 million special charge for litigation).

On June 30, 1999, the U.S. Court of Appeals for the Third Circuit ("Third
Circuit") significantly reduced the judgment previously entered against the
Company and in favor of Orthofix SRL. Total damages, including interest, will
approximate $55 million. Although both parties have filed petitions for
rehearing with the Third Circuit, a $55 million special charge against pre-tax
earnings was recorded for the quarter and year ended May 31, 1999.

Net Sales - Net sales increased 16% from $651,405,000 in 1998 to $757,414,000 in
1999. This increase is the result of increased market penetration in the
reconstructive device, arthroscopy, softgoods, and spinal hardware segments and
the inclusion of a full year of sales from Biomet Merck. The Company's United
States sales increased 10% to $511,075,000 from $464,027,000 in 1998. The
Company's EBI and Arthrotek product lines, as well as reconstructive revision
products, experienced strong U.S. growth during fiscal year 1999. Foreign sales
increased 31% from $187,378,000 last year to $246,339,000 in 1999. Biomaterials
products and the inclusion of Biomet Merck for the full year are the major
contributors to this increase. The Company's worldwide reconstructive device
sales increased 16% in 1999 from $389,483,000 in 1998 to $450,877,000 in 1999.
This increase was led by sales of revision products, bone cement, the Ascent(TM)
Total Knee System and the inclusion of Biomet Merck for a full year. Fixation
device sales increased 12% to $162,825,000 in 1999 from $144,853,000 in 1998.
EBI's DynaFix(R) External Fixation System and EBI(R) Bone Healing System Model
1200, and Lorenz Surgical's LactoSorb(R) Resorbable Craniomaxillofacial System
experienced strong sales growth during the year. Spinal product sales increased
26% during the current year from $35,902,000 in 1998 to $45,125,000 led by EBI's
SpineLink(TM) Spinal Fixation System. With the introduction of the Omega 21(TM)
in the first quarter of fiscal 2000, the Company expects to see continued growth
in this product segment. The Company's "other products" sales increased 21% to
$98,587,000 from $81,167,000 in 1998, primarily from the inclusion of a full
year of sales from Biomet Merck. In addition, Arthrotek experienced strong
growth for its arthroscopy products, while AOA's line of softgoods products
continued to benefit from the Support-on-Site (SOS(TM)) program.

Gross Profit - The Company's gross profit increased 17% to $527,687,000 in
fiscal 1999 from $449,170,000 in fiscal 1998. This increase was a result of
increased sales of higher margin reconstructive products, including revision
products, bone cements, and EBI's fixation products. As a percentage of sales,
gross profit was 69.7% in 1999 compared to 69.0% in 1998. Cost of sales
increased 14% during the current year which is in line with the increase in net
sales. The Company continues to improve its manufacturing efficiencies by
monitoring labor and overhead costs as well as managing its inventory levels.
Although net sales increased 16% during the year, inventories grew by only 10%.

Selling, General and Administrative Expenses - Selling, general and
administrative expenses were $265,565,000 in 1999 compared to $232,944,000 in
1998. This represents an increase of 14% over the prior year. As a percentage of
sales, selling, general and administrative expenses were 35.1% in 1999 and 35.8%
in 1998. The current year's increase is primarily due to an increase in
commissions on product sales.


                                       18

<PAGE>   20


Research and Development Expense - Research and development expense decreased in
fiscal 1999 to $35,472,000 from $36,120,000 in fiscal 1998. This decrease
results from the purchase accounting for the acquisition of Biomet Merck whereby
$9.8 million of the purchase price was allocated to acquired in-process research
and development and expensed in fiscal 1998. Excluding this charge in 1998,
research and development expense increased 29% in fiscal 1999 compared with
fiscal 1998, due to increased expenditures of Biomet Merck in the development of
biomaterials products. The Company also experienced an increase in domestic
research and development, including initial expenses related to the Company's
investment in gene therapy technologies in the orthopedic field. The Company
will continue to invest heavily in research and development activities through
Biomet Merck, the expansion of its product base both domestically and
internationally, and with its commitment to fund research and development
efforts of Selective Genetics (see Note C of Notes to Consolidated Financial
Statements).

Special Charge - As mentioned previously, the Company recorded a special charge
of $55 million in connection with the Orthofix litigation (see Note L of Notes
to Consolidated Financial Statements).

Other Income, Net - Other income decreased to $14,696,000 in 1999 compared to
$23,835,000 in 1998. Fiscal 1998 included a $15.2 million pre-tax gain on the
deemed sale of the Company's European orthopedic operations in the formation of
Biomet Merck. Excluding this gain, other income increased 66% due primarily to
increased investment income on cash and investments.

Provision for Income Taxes - Provision for income taxes decreased to $62,527,000
for fiscal 1999, representing 33.6% of income before income taxes, compared to
$79,071,000 in fiscal 1998, or 38.8% of income before income taxes. The decrease
in the effective rate is due to the fiscal 1998 expensing of the purchased
in-process research and development in the formation of Biomet Merck which
generated no tax benefit. In addition, Biomet Merck benefited from a one-time $3
million tax credit in the fourth quarter of fiscal 1999. The Company will
continue to be adversely affected by changes in the Puerto Rican local tax
structure which reduces the historical U.S. tax benefits from operating in
Puerto Rico.

Net Income - As a result of the $55 million special charge, the Company
experienced a decrease in net income and basic earnings per share for fiscal
1999 as compared to fiscal 1998. Net income decreased to $116,361,000 from
$124,726,000 and basic earnings per share decreased to $1.04 from $1.12.

1998 COMPARED TO 1997
Net Sales - Net sales increased 12%, from $580,347,000 in 1997 to $651,405,000
in 1998. The increase in net sales of $71,058,000 was the result of continued
penetration of the reconstructive device market, continued growth of EBI's
electrical stimulation system and SpineLink(TM) Spinal Fixation System and the
formation of Biomet Merck. The Company's AOA(R) line of softgoods and
Arthrotek's arthroscopy products also experienced improved sales growth. The
Company's worldwide reconstructive device sales increased 12% in 1998 to
$389,483,000 compared to $347,762,000 in 1997. This increase was positively
influenced by a significant increase in sales of revision products, the
formation of Biomet Merck and incremental sales increases resulting from the
acquisition of two (2) foreign distributors in late fiscal 1997 and early fiscal
1998. In fiscal 1998, fixation sales increased 9% to $144,853,000 due to strong
sales of the EBI(R) Model 1200 Bone Healing System and the DynaFix(R) External
Fixation System, and of Lorenz Surgical's LactoSorb(R) Resorbable
Craniomaxillofacial Fixation System. Spinal product sales increased 14% to
$35,902,000 due to strong sales of EBI's SpineLink(TM) Spinal Fixation System.
The Company's "other products" sales increased 19% in fiscal 1998 to
$81,167,000, primarily as a result of increased sales of Arthrotek's arthroscopy
products, AOA's line of softgoods and the Indiana Tome(TM) Carpal Tunnel Release
System. Foreign currency translation adjustments negatively influenced the
Company's net sales by approximately $9.5 million and $3.0 million during the
years ended May 31, 1998 and 1997, respectively.

Gross Profit - The Company's gross profit increased 14% to $449,170,000 in
fiscal 1998 from $394,552,000 in fiscal 1997, primarily as a result of increased
sales of higher margin reconstructive products, including revision products, and
EBI's bone healing product line. As a percentage of net sales, gross profit was
69% in 1998 compared to 68% in 1997. Cost of sales increased to $202,235,000 in
fiscal 1998 from $185,795,000 in fiscal 1997, which is consistent with the
increase in net sales.

Selling, General and Administrative Expenses - Selling, general and
administrative expenses were $232,944,000 in 1998, or 35.8% of net sales, and
$211,540,000 in 1997, or 36.5% of net sales. This increase is primarily due to
increased commissions on product sales, partially offset by a decrease in legal
expenditures.

Research and Development Expense - Research and development expense increased
$12.9 million from $23,201,000 in fiscal 1997 to $36,120,000 in fiscal 1998. A
significant part of this increase results from the purchase accounting for the
formation of Biomet Merck whereby $9.8 million of the purchase price was
allocated to acquired in-process research and development and expensed at the
acquisition date. Excluding this one-time charge, research and development
expense increased 13% in fiscal 1998 compared with fiscal 1997, due to increased
expenditures of Biomet Merck in the development of biomaterials products.

Other Income, Net - Other income amounted to $23,691,000 in fiscal 1998 compared
to $9,321,000 in fiscal 1997. Fiscal 1998 includes a $15.2 million pre-tax gain
on the deemed sale of the Company's European orthopedic operations in the
formation of Biomet Merck. Excluding this gain, other income decreased 9% due
primarily to exchange losses realized on foreign currency transactions,
partially offset by increased investment income earned on cash and investments.

Provision for Income Taxes - Provision for income taxes increased to $79,071,000
in fiscal 1998, representing 38.8% of income before taxes, compared to
$62,678,000 in fiscal 1997, or 37.1% of income before taxes. This increase is a
result of increased income before taxes and the expensing of the purchased
in-process research and development in connection with the formation of BioMer,
which generates no tax benefit.

Net Income - The factors mentioned above resulted in a 17% and 19% increase in
net income and basic earnings per share, respectively, for fiscal 1998 as
compared to fiscal 1997, increasing to $124,726,000 from $106,454,000 and to
$1.12 from $.94, respectively.


                                       19

<PAGE>   21


LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $148,538,000 in
fiscal 1999 compared to $121,843,000 in fiscal 1998. The increase in net cash
from operating activities was principally due to increases in accrued litigation
of $55,000,000, minority interest of $7,458,000 and noncash charges for
depreciation of $21,127,000. These increases were offset by increases in
accounts and notes receivable of $24,235,000, refundable income taxes of
$31,308,000, inventories of $20,056,000 and a decrease in net income. Included
in the aforementioned changes were decreases in accounts and notes receivable
and inventories attributable to the decrease from May 31, 1998 to May 31, 1999,
in the exchange rates used to convert the financial statements of Biomet's
foreign subsidiaries from their functional local currency to the U.S. dollar.
These decreases were immaterial and did not affect the Company's earnings during
the year because foreign currency translation adjustments to balance sheet items
are recognized as a component of shareholders' equity in the Company's
consolidated balance sheet. These adjustments are included in comprehensive
income in the Company's consolidated statements of shareholders' equity. The
Company will continue to be exposed to the effects of foreign currency
translation adjustments. The Company expects that operating cash flows in the
near future will be primarily determined by levels of net income, working
capital requirements and, payments, if any, on outstanding litigaton matters as
discussed in Note L of Notes to Consolidated Financial Statements.

Cash flows used in investing activities were $167,243,000 in fiscal 1999
compared to $77,350,000 in fiscal 1998. The primary use for investing activities
were purchases of investments and capital equipment, partially offset by
proceeds from sales and maturities of investments. Included in capital
expenditures are continued manufacturing and research and development facility
expansions in Parsippany, New Jersey and various Biomet Merck locations
overseas.

Cash flows from financing activities were $28,681,000 in fiscal 1999. The
primary source of cash from financing activities was Biomet Merck's use of an
unsecured line of credit from a major European bank partially offset by a $.12
cash dividend paid to shareholders on August 7, 1998. On July 6, 1999, the
Company announced a cash dividend of $.14 per share, payable August 6, 1999, to
shareholders of record at the close of business on July 9, 1999. The Company
maintains its funds in money market funds, certificates of deposits, commercial
paper, debt instruments and equity securities. The Company's investment policy
is to preserve principal and avoid significant risk. The Company is exposed to
interest rate risk on its debt instruments.

The Company expects that capital spending for the foreseeable future will
continue to be at levels at least as high as 1999 and 1998. The Company plans to
continue expansion of its research and development facilities worldwide, and add
to and improve its state-of-the-art manufacturing equipment. The Company
understands the importance of utilizing technologically advanced equipment and
its ability to produce superior quality products. The Company expects to spend
in excess of $125 million over the next two fiscal years for capital
expenditures and research and development activities, including a commitment to
Selective Genetics, Inc. to fund research and development efforts over a
ten-year period. The Company will continue to expand its research and
development activities overseas in the biomaterials field. Funding is expected
to come from currently available funds and cash flows generated from future
operations.

YEAR 2000 (Y2K) DATE CONVERSION
The Y2K issue exists because of the way dates are recorded in many
computer-dependent products and software programs. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as the year 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process financial and operations information incorrectly.

The Company recognized this challenge early and started work in 1997. The
Company's Y2K strategy to make systems Y2K compliant includes a common
Company-wide focus on policies, methods and correction tools, and coordination
with customers and suppliers. This focus has been on all systems potentially
impacted by the Y2K issue, including information technology ("IT") systems and
non-IT systems, such as embedded systems, facilities and factory floor systems.
Each operating unit has responsibility for its own conversion, in line with
overall guidance and oversight provided by a corporate-level task force.

The majority of the most vital information systems of the Company are now Y2K
compliant. Three of the Company's European subsidiaries are undergoing computer
hardware and software upgrades to ensure Y2K compliance. These upgrades will be
completed by September 1999. The Company is presently completing compliancy
testing and finalizing contingency plans.

A Company-wide process to assess key supplier readiness is ongoing. The Company
is unable to definitively determine that all key suppliers will reach a Y2K
compliant status that will ensure no production disruption from suppliers.

The Company's Y2K conversion efforts have not been budgeted and tracked as
separate projects, but have occurred in conjunction with normal sustaining
activities. These costs are expensed as incurred and are being funded through
operating cash flows. These costs have not had, and are not expected to have, an
adverse impact on operating results.

The Company believes there is low risk of any internal critical system, embedded
system, or other critical asset not being Y2K compliant by the end of calendar
1999. The Company continues to assess its risk exposure attributable to external
factors, such as suppliers, both domestic and international. Although the
Company has no reason to conclude that any specific supplier poses a risk, there
does exist the possibility of production disruption due to inability of
suppliers to deliver critical materials or processes. The Company is unable to
quantify such a scenario, but it could result in a material adverse impact on
results of operations or financial position of the Company. Contingency plans
for suppliers and critical systems are being developed to lessen the impact of
such a worst-case Y2K scenario.





                                       20

<PAGE>   22


OTHER MATTERS
As more fully described in Note L of Notes to Consolidated Financial Statements,
the Company was involved in appeals of adverse jury awards in two separate cases
(Tronzo and Orthofix). In August 1998, the U.S. Court of Appeals of the Federal
Circuit struck down the $36.6 million jury award in the Tronzo case. In the
Orthofix case, on June 30, 1999, the U.S. Court of Appeals of the Third Circuit
upheld the District Court's $48.9 million compensatory damage award and reduced
the punitive damage award from $50 million to $1 million. The Company has
recorded a $55 million special charge in its fiscal 1999 consolidated financial
statements to recognize this adverse judgment.

Effective January 1, 1999, 11 of the 15 member countries of the European Union
adopted the Euro as their common legal currency. The Company has evaluated the
impact of the Euro conversion on its businesses. Significant areas of potential
business impact were identified and appropriate strategies developed. The
Company does not believe the costs of the Euro conversion will have a material
adverse impact on future results. However, the Euro conversion may have
competitive implications on the Company's pricing and marketing strategies, the
total impact of which is not known at this time.

The impact of pending accounting pronouncements on the Company's financial
statements is discussed in Note B of the Notes to Consolidated Financial
Statements.


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

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

During fiscal year 1999, BioMer C.V. (through its wholly owned financing
subsidiary, Biomet Merck B.V.) obtained a $75 million unsecured line of credit
at a major European bank for Biomet Merck's European operations. Outstanding
borrowings under the line of credit bear interest at a variable rate of the
lender's interbank rate plus .4% and, accordingly, changes in interest rates
would impact the Company's cost of financing.

The Company does not have any investments that would be classified as trading
securities under generally accepted accounting principles The Company's
non-trading investments, excluding cash and cash equivalents, consist of
certificates of deposit, debt securities, equity securities and mortgage-backed
securities. The debt securities include municipal bonds, with fixed rates, and
preferred stocks, which pay quarterly fixed rate dividends. These financial
instruments are subject to market risk in that changes in interest rates would
impact the market value of such investments. The Company generally does not
utilize derivatives to hedge against increases in interest rates which would
decrease market values, except for one of its investment managers who utilizes
U.S. Treasury bond futures options ("futures options") as a protection against
the impact of increases in interest rates on the fair value of preferred stocks
managed by that investment manager. The Company marks any outstanding futures
options to market and market value changes are recognized in current earnings.
The futures options generally have terms ranging from 90 to 180 days. Realized
gains on sales of futures options aggregated $145,267 for the year ended May 31,
1999, and unrealized losses on outstanding futures options at May 31, 1999,
aggregated $12,314.

Based on the Company's overall interest rate exposure at May 31, 1999, including
variable rate debt and derivatives used to hedge the fair value of fixed rate
preferred stocks, a hypothetical 10 percent change in interest rates applied to
the fair value of the financial instruments as of May 31, 1999, would have no
material impact on earnings, cash flows or fair values of interest rate risk
sensitive instruments over a one-year period.

The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the U.S. dollar against the European currencies. The
Company faces transactional currency exposures that arise when its foreign
subsidiaries (or the Company itself) enter into transactions, generally on an
intercompany basis, denominated in currencies other than their local currency.
The Company also faces currency exposure that arises from translating the
results of its global operations to the U.S. dollar at exchange rates that have
fluctuated from the beginning of the period. Historically, the Company has not
used financial derivatives to hedge against fluctuations in currency exchange
rates. Based on the Company's overall exposure for foreign currency at May 31,
1999, a hypothetical 10 percent change in foreign currency rates would not have
a material impact on the Company's balance sheet, net sales, net income or cash
flows over a one-year period.













                                       21
<PAGE>   23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

<TABLE>
<S>                                                                                                    <C>
1. FINANCIAL STATEMENTS:
   Report of Independent Accountants....................................................................22
   Consolidated Balance Sheets as of May 31, 1999 and 1998..............................................23
   Consolidated Statements of Income for the years ended May 31, 1999, 1998 and 1997....................24
   Consolidated Statements of Shareholders' Equity for the years ended May 31, 1999, 1998 and 1997......25
   Consolidated Statements of Cash Flows for the years ended May 31, 1999, 1998 and 1997................26
   Notes to Consolidated Financial Statements....................................................... 27-37

2. FINANCIAL STATEMENT SCHEDULE:
   Schedule II - Valuation and Qualifying Accounts for the years ended May 31, 1999, 1998 and 1997......37
   Schedules others than those listed above are omitted because they are not applicable or the
   required information is shown in the financial statements or notes thereto.

3. SUPPLEMENTARY DATA:
   Quarterly Results....................................................................................38
</TABLE>


REPORT OF INDEPENDENT ACCOUNTANTS


[PRICEWATERHOUSECOOPERS LOGO]


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

In our opinion, the accompanying consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Biomet, Inc. and its subsidiaries at May 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1999, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.


                                                  /s/ PricewaterhouseCoopers LLP



South Bend, Indiana
July 3, 1999


                                       22
<PAGE>   24


BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
At May 31,
(in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                                         1999           1998
                                                                                                  --------------------------
<S>                                                                                               <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents .................................................................   $   129,359    $   117,089
    Investments ...............................................................................        60,078         31,618
    Accounts and notes receivable, less allowance for doubtful receivables
      (1999 - $4,883 and 1998 - $5,957) .......................................................       215,034        188,800
    Refundable income taxes ...................................................................        31,308           --
    Inventories ...............................................................................       205,238        186,535
    Prepaid expenses and other ................................................................        40,691         46,750
                                                                                                  --------------------------
      Total current assets ....................................................................       681,708        570,792
                                                                                                  --------------------------

Property, plant and equipment:
    Land and improvements .....................................................................        13,544         13,244
    Buildings and improvements ................................................................        92,396         80,371
    Machinery and equipment ...................................................................       159,070        133,441
                                                                                                  --------------------------
                                                                                                      265,010        227,056
Less, Accumulated depreciation ................................................................        96,137         87,284
                                                                                                  --------------------------
      Property, plant and equipment, net ......................................................       168,873        139,772
                                                                                                  --------------------------
Investments ...................................................................................       146,859         73,175
Intangible assets, net of accumulated amortization (1999 - $18,096 and 1998 - $14,427) ........         7,665          9,012
Excess acquisition costs over fair value of acquired net assets, net of
    accumulated amortization (1999 - $15,816 and 1998 - $11,102) ..............................        47,861         52,248
Other assets ..................................................................................        14,990          3,740
                                                                                                  --------------------------
      Total assets ............................................................................   $ 1,067,956    $   848,739
                                                                                                  --------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Short-term borrowings .....................................................................   $    45,137    $     6,345
    Accounts payable ..........................................................................        27,676         16,581
    Accrued income taxes ......................................................................        17,088          5,873
    Accrued wages and commissions .............................................................        19,596         16,393
    Accrued insurance .........................................................................         9,197         11,388
    Accrued litigation ........................................................................        55,000           --
    Other accrued expenses ....................................................................        27,736         41,479
                                                                                                  --------------------------
Total current liabilities .....................................................................       201,430         98,059
Deferred federal income taxes .................................................................         9,565          9,345
Other liabilities .............................................................................           324            685
                                                                                                  --------------------------
      Total liabilities .......................................................................       211,319        108,089
                                                                                                  --------------------------
Minority interest .............................................................................        80,690         73,232
                                                                                                  --------------------------
Commitments and contingencies (Note L)

Shareholders' equity:
    Preferred shares, $100 par value: Authorized 5 shares; none issued ........................          --             --
    Common shares, without par value:  Authorized 500,000 shares;
      issued and outstanding 1999 - 112,578 shares and 1998 - 112,043 shares ..................        77,843         75,712
    Additional paid-in capital ................................................................        26,920         19,209
    Retained earnings .........................................................................       687,828        584,920
    Accumulated other comprehensive loss ......................................................       (16,644)       (12,423)
                                                                                                  --------------------------
      Total shareholders' equity ..............................................................       775,947        667,418
                                                                                                  --------------------------
      Total liabilities and shareholders' equity...............................................   $ 1,067,956    $   848,739
                                                                                                  --------------------------
</TABLE>


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


                                       23
<PAGE>   25

                                                   BIOMET, INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------

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


<TABLE>
<CAPTION>
                                                                                  1999         1998         1997
                                                                             -----------------------------------
<S>                                                                          <C>          <C>          <C>
Net sales ................................................................   $ 757,414    $ 651,405    $ 580,347
Cost of sales ............................................................     229,727      202,235      185,795
                                                                             -----------------------------------
    Gross profit..........................................................     527,687      449,170      394,552
Selling, general and administrative expenses .............................     265,565      232,944      211,540
Research and development expense .........................................      35,472       36,120       23,201
Special charge ...........................................................      55,000         --           --
                                                                             -----------------------------------
    Operating income .....................................................     171,650      180,106      159,811
Other income, net ........................................................      15,810       24,176        9,972
Interest expense .........................................................      (1,114)        (341)        (651)
                                                                             -----------------------------------
    Income before income taxes and minority interest .....................     186,346      203,941      169,132
Provision for income taxes ...............................................      62,527       79,071       62,678
                                                                             -----------------------------------
    Income before minority interest ......................................     123,819      124,870      106,454
Minority interest ........................................................       7,458          144         --
                                                                             -----------------------------------
    Net income ...........................................................   $ 116,361    $ 124,726    $ 106,454
                                                                             -----------------------------------
Earnings per share:
    Basic ................................................................   $    1.04    $    1.12    $     .94
    Diluted ..............................................................        1.03         1.11          .93
                                                                             -----------------------------------
Shares used in the computation of earnings per share:
    Basic ................................................................     112,309      111,717      113,765
    Diluted ..............................................................     113,382      112,852      114,617
                                                                             -----------------------------------
</TABLE>


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


                                       24
<PAGE>   26


                                                   BIOMET, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              OTHER
                                                                              ADDITIONAL              COMPREHENSIVE          TOTAL
                                                           COMMON SHARES         PAID-IN    RETAINED         INCOME   SHAREHOLDERS'
                                                          NUMBER     AMOUNT      CAPITAL    EARNINGS         (LOSS)         EQUITY
                                                         -------------------------------------------------------------------------
<S>                                                      <C>       <C>          <C>         <C>        <C>              <C>
Balance at June 1, 1996 ...............................  115,826   $  68,376    $  14,410   $ 458,193    $  (6,909)     $ 534,070
                                                                                                                        ---------
    Net income ........................................     --          --           --       106,454         --          106,454
    Unrealized holding gains on investments,
      net of $237 tax expense .........................     --          --           --          --            355            355
    Reclassification adjustment for gains included
      in net income, net of $67 tax expense ...........     --          --           --          --            101            101
    Currency translation adjustments ..................     --          --           --          --         (2,757)        (2,757)
                                                                                                                        ---------
      Comprehensive income ............................     --          --           --          --           --          104,153
                                                                                                                        ---------
    Exercise of stock options .........................      612       5,292         --          --           --            5,292
    Purchase of shares ................................   (5,424)     (3,202)        (675)    (80,723)        --          (84,600)
    Acquisitions ......................................      200       3,121         --          --           --            3,121
    Tax benefit from exercise of stock options ........     --          --          1,315        --           --            1,315
    Other .............................................     --          --            951        --           --              951
    Cash dividends ....................................     --          --           --       (11,474)        --          (11,474)
                                                         ------------------------------------------------------------------------
Balance at May 31, 1997 ...............................  111,214      73,587       16,001     472,450       (9,210)       552,828
                                                                                                                        ---------
    Net income ........................................     --          --           --       124,726         --          124,726
    Unrealized holding gains on investments,
      net of $166 tax expense .........................     --          --           --          --            248            248
    Reclassification adjustment for gains included
      in net income, net of $302 tax expense ..........     --          --           --          --            454            454
    Currency translation adjustments ..................     --          --           --          --         (3,915)        (3,915)
                                                                                                                        ---------
      Comprehensive income ............................     --          --           --          --           --          121,513
                                                                                                                        ---------
    Exercise of stock options .........................      829       2,125         --          --           --            2,125
    Tax benefit from exercise of stock options ........     --          --          3,208        --           --            3,208
    Cash dividends ....................................     --          --           --       (12,256)        --          (12,256)
                                                         ------------------------------------------------------------------------
Balance at May 31, 1998 ...............................  112,043      75,712       19,209     584,920      (12,423)       667,418
                                                                                                                        ---------
    Net income ........................................     --          --           --       116,361         --          116,361
    Unrealized holding gains on investments,
      net of $914 tax benefit .........................     --          --           --          --         (1,257)        (1,257)
    Reclassification adjustment for gains included
      in net income, net of $82 tax expense ...........     --          --           --          --            123            123
    Currency translation adjustments ..................     --          --           --          --         (3,087)        (3,087)
                                                                                                                        ---------
      Comprehensive income ............................     --          --           --          --           --          112,140
                                                                                                                        ---------
    Exercise of stock options .........................      535       2,131        6,500        --           --            8,631
    Tax benefit from exercise of stock options ........     --          --          1,211        --           --            1,211
    Cash dividends ....................................     --          --           --       (13,453)        --          (13,453)
                                                         ------------------------------------------------------------------------
Balance at May 31, 1999 ...............................  112,578   $  77,843    $  26,920   $ 687,828    $ (16,644)     $ 775,947
                                                         ------------------------------------------------------------------------
</TABLE>

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


                                       25
<PAGE>   27

BIOMET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

For the years ended May 31,
(in thousands)


<TABLE>
<CAPTION>
                                                                                             1999         1998         1997
                                                                                        -----------------------------------
<S>                                                                                     <C>          <C>          <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
    Net income ......................................................................   $ 116,361    $ 124,726    $ 106,454
      Adjustments to reconcile net income to net cash from operating activities:
      Depreciation ..................................................................      21,127       16,801       12,578
      Amortization ..................................................................       8,385        6,728        5,962
      Minority interest .............................................................       7,458          144         --
      Other .........................................................................       5,482       (1,673)        (471)
      Write-off of purchased in-process research and development ....................        --          9,764         --
      Deemed gain on sale of European operations ....................................        --        (15,222)        --
      Deferred federal income taxes .................................................      (1,725)       9,366       (4,527)
      Changes in current assets and liabilities, excluding effects of
       acquisitions and dispositions:
         Accounts and notes receivable ..............................................     (24,235)     (22,920)      (5,766)
         Refundable income taxes ....................................................     (31,308)        --           --
         Inventories ................................................................     (20,056)      (9,431)       4,189
         Accounts payable ...........................................................       5,377       (2,014)      (1,332)
         Accrued litigation .........................................................      55,000         --           --
         Other ......................................................................       6,672        5,574        4,596
                                                                                        -----------------------------------
            Net cash from operating activities ......................................     148,538      121,843      121,683
                                                                                        -----------------------------------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
    Proceeds from sales and maturities of investments ...............................      33,008       51,934       25,212
    Purchases of investments ........................................................    (135,891)     (68,206)     (47,272)
    Capital expenditures ............................................................     (51,109)     (44,143)     (21,380)
    Acquisitions, net of cash acquired ..............................................      (1,025)     (15,444)     (10,670)
    Other ...........................................................................     (12,226)      (1,491)      (2,041)
                                                                                        -----------------------------------
            Net cash (used in) investing activities .................................    (167,243)     (77,350)     (56,151)
                                                                                        -----------------------------------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
    Increase (decrease) in short-term borrowings ....................................      38,792         (689)       2,884
    Issuance of shares ..............................................................       2,131        2,125        5,292
    Tax benefit from exercise of stock options ......................................       1,211        3,208        1,315
    Cash dividends ..................................................................     (13,453)     (12,256)     (11,474)
    Purchase of common shares .......................................................        --           --        (84,600)
                                                                                        -----------------------------------
            Net cash from (used in) financing activities ............................      28,681       (7,612)     (86,583)
                                                                                        -----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .............................................       2,294       (1,826)      (2,983)
                                                                                        -----------------------------------
            Increase (decrease) in cash and cash equivalents ........................      12,270       35,055      (24,034)
Cash and cash equivalents, beginning of year ........................................     117,089       82,034      106,068
                                                                                        -----------------------------------
Cash and cash equivalents, end of year ..............................................   $ 129,359    $ 117,089    $  82,034
                                                                                        -----------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the year for:
        Interest ....................................................................   $   1,367    $     380    $     666
        Income taxes ................................................................      84,675       68,548       64,447

NONCASH INVESTING AND FINANCING ACTIVITIES:
    Acquisitions and dispositions:
         Deemed sale of 50% of the net assets of the Company's European business
            in the formation of Biomet Merck ........................................        --         48,000         --
    Liabilities assumed .............................................................       6,400       12,439        3,775
    Common shares issued ............................................................        --           --          3,121

</TABLE>

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



                                       26
<PAGE>   28
                                                   BIOMET, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A: NATURE OF OPERATIONS.
Biomet, Inc. and its subsidiaries design, manufacture and market products used
primarily by orthopedic medical specialists in both surgical and nonsurgical
therapy, including reconstructive and fixation devices, electrical bone growth
stimulators, orthopedic support devices, operating room supplies, general
surgical instruments, arthroscopy products, spinal implants, bone cements, bone
substitutes, and craniomaxillofacial implants and instruments. Biomet has
corporate headquarters in Warsaw, Indiana, and manufacturing and/or office
facilities in more than 25 locations worldwide. The Company currently
distributes its products in more than 100 countries.

NOTE B: ACCOUNTING POLICIES.
The following is a summary of the accounting policies adopted by Biomet, Inc.
and subsidiaries which have a significant effect on the consolidated financial
statements.

Principles of Consolidation - The consolidated financial statements include the
accounts of Biomet, Inc. and its subsidiaries (individually and collectively,
the "Company"). All foreign subsidiaries are consolidated on the basis of an
April 30 fiscal year. Investments in less than 20% owned affiliates are
accounted for on the cost method, the carrying amount of which approximates
market. Investments in 20% to 50% owned affiliates are accounted for on the
equity method. The financial statements of BioMer C.V. (see Note C) are
consolidated because the Company has the ability to exercise significant
influence and control over this entity. The minority shareholder's 50% interest
in BioMer C.V. is reflected as minority interest.

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

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

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

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

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

Property, Plant and Equipment - Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed based on the
estimated useful lives using the straight-line method. Gains or losses on the
disposition of property, plant and equipment are included in income. Maintenance
and repairs are expensed as incurred.

Intangible Assets - Intangible assets consist primarily of patents, trademarks,
product technology, acquired license agreements and other identifiable
intangible assets and are carried at cost less accumulated amortization.
Amortization of intangibles is computed based on the straight-line method over
periods ranging from eight to fifteen years.

Excess Acquisition Costs Over Fair Value of Acquired Net Assets - Excess
acquisition costs over fair value of acquired net assets (goodwill) are
amortized using the straight-line method over periods ranging from eight to
fifteen years. The carrying value of goodwill is reviewed as circumstances
warrant by the Company based on the expected future undiscounted operating cash
flows of the related business unit. The Company believes no material impairment
of goodwill exists at May 31, 1999.


                                       27


<PAGE>   29



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

NOTE B: ACCOUNTING POLICIES, CONCLUDED.
Income Taxes - Deferred income taxes are determined using the liability method.
No provision has been made for U.S. and state income taxes or foreign
withholding taxes on the undistributed earnings ($78 million at May 31, 1999) of
foreign subsidiaries because it is expected that such earnings will be
reinvested overseas indefinitely. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to U.S. income
taxes (subject to an adjustment for foreign tax credits), state income taxes and
withholding taxes payable to the various foreign countries. Determination of the
amount of any unrecognized deferred income tax liability on these undistributed
earnings is not practical.

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

Earnings Per Share - Earnings per common share amounts ("basic EPS") are
computed by dividing net income by the weighted average number of common shares
outstanding and excludes any potential dilution. Earnings per common share
amounts assuming dilution ("diluted EPS") are computed by reflecting potential
dilution from the exercise of stock options.

Revenue Recognition, Concentrations of Credit Risk and Allowance for Doubtful
Receivables - Revenue is recognized when the product is shipped to the
healthcare provider. The Company provides credit, in the normal course of
business, to hospitals, private and governmental institutions and healthcare
agencies, insurance providers and physicians. The Company maintains an allowance
for doubtful receivables and charges actual losses to the allowance when
incurred. The Company invests the majority of its excess cash in certificates of
deposit with financial institutions, money market securities, short-term
municipal securities and common stocks. The Company does not believe it is
exposed to any significant credit risk on its cash and cash equivalents and
investments. At May 31,1999 and 1998, cash and cash equivalents and investments
included $48 million and $42 million, respectively, of cash deposits and
certificates of deposit with financial institutions in Puerto Rico. Also, at May
31, 1999 and 1998, investments included $27 and $28 million, respectively, of
municipal bonds issued by state and local subdivisions in Puerto Rico.

Stock-Based Compensation - The Company has not adopted the measurement
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," for
stock option grants to Team Members and, accordingly, has made all of the
required pro forma disclosures for the years ended May 31, 1999, 1998 and 1997.

Comprehensive Income - In fiscal year 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement established rules for the
reporting of comprehensive income and its components. Other comprehensive income
refers to revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded from
net income as these amounts are recorded directly as an adjustment to
shareholders' equity. The Company's other comprehensive income is comprised of
unrealized gains (losses) on available-for-sale securities, net of tax, and
foreign currency translation adjustments.

The components of accumulated other comprehensive income (loss) at May 31, 1999
and 1998 are as follows:
(in thousands)

<TABLE>
<CAPTION>
                                                              1999        1998
                                                          --------------------
<S>                                                       <C>         <C>
Net unrealized holding gain on investments..............  $    608    $  1,742
Cumulative translation adjustment......................    (17,252)    (14,165)
                                                          --------------------
                                                          $(16,644)   $(12,423)
                                                          --------------------
</TABLE>

Recent Pronouncements - In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for fiscal periods beginning after June
15, 2000. SFAS No. 133 requires all derivatives to be measured at fair value and
recognized as assets or liabilities on the balance sheet. Changes in the fair
value of derivatives should be recognized in either net income or other
comprehensive income, depending on the designated purpose of the derivative. In
February 1998, Statement of Position (SOP) 98-1-"Accounting for Costs of
Computer Software Developed or Purchased for Internal Use" was issued and is
effective for fiscal years beginning after December 15, 1998. Neither of these
pronouncements are expected to have a material impact on the Company's financial
position or results of operations.



                                       28


<PAGE>   30


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

NOTE C: ACQUISITIONS.
Biomet Merck Joint Venture - Effective January 1, 1998, the Company and Merck
KGaA, Darmstadt, Germany ("Merck KGaA") entered into a Joint Venture Agreement
(the "Agreement") to manufacture and sell orthopedic and biomaterial products in
Europe. Under the terms of the Agreement, the Company and Merck KGaA each
contributed its European orthopedic and biomaterials business operations to a
new partnership entity and its wholly owned holding company. Both the
partnership and holding company (collectively "Biomet Merck") are organized
under the laws of The Netherlands. The Company is the general partner with a 50%
interest and Merck KGaA is a limited partner with a 50% interest. The Company
has control of Biomet Merck through its voting control of the board of directors
and, accordingly, the Company has consolidated the financial statements of
Biomet Merck for financial reporting beginning January 1, 1998, and has shown a
minority interest for Merck KGaA's 50% interest. The Agreement required certain
levels of assets and limits on liabilities to be contributed to the joint
venture, and at May 31, 1998, prepaid expenses and other included a receivable
of $10,766,000, from Merck KGaA to meet that requirement.

The fair value of 50% of the Company's European orthopedic operations, which
were deemed to have been sold to Merck KGaA in the formation of Biomet Merck,
aggregated $48 million and resulted in a $15.2 million pre-tax gain which was
reported in fiscal 1998. Deferred tax expense of $5.3 million was recognized in
conjunction with recording this gain.

The formation of Biomet Merck was accounted for as a purchase and the operating
results of Biomet Merck have been consolidated from the date of acquisition.
Based on the fair value of the acquired net assets of Biomet Merck, the excess
acquisition cost over fair value for the net tangible assets aggregated $21.7
million. This excess was allocated as follows: $9.8 million to purchased
in-process research and development ("R&D") and $11.9 million to other
identified intangible assets and goodwill to be amortized over 8 to 15 years
using the straight-line method. Purchased in-process R&D included the value of
products that were in the development stage for which the technological
feasibility had not yet been established and the technology had no alternative
use. In accordance with applicable accounting rules, purchased in-process R&D
was expensed and, accordingly, $9.8 million of the acquisition cost was expensed
in fiscal 1998.

Unaudited pro forma net sales for the years ended May 31, 1998 and 1997, as if
Biomet Merck had been acquired at the beginning of each of the periods, were
$698 million and $652 million, respectively. Pro forma net income and earnings
per share for the years ended May 31, 1998 and 1997, is not presented as it
would not be materially different from the Company's historical results.

Other Acquisitions - On June 1, 1997, the Company completed the acquisition of
one of its foreign distributors. The purchase price consisted of $13.2 million
cash. The excess acquisition cost over fair value of acquired net assets at the
acquisition date approximated $8.5 million. On April 1, 1997, the Company
completed the acquisition of another one of its foreign distributors. The
purchase price consisted of $6.0 million cash. The excess acquisition cost over
fair value of acquired net assets at the acquisition date approximated $3.1
million. On August 1, 1996, the Company completed the acquisition of one of its
foreign distributors. The purchase price consisted of 200,385 Common Shares of
the Company, $4.7 million cash and $3.8 million of assumed liabilities. The
excess acquisition cost over fair value of acquired net assets at the
acquisition date approximated $4.8 million. These acquisitions were accounted
for using the purchase method of accounting with the operating results of the
acquired businesses included in the Company's consolidated financial statements
from the dates of acquisition. Pro forma financial information reflecting these
acquisitions has not been presented as it is not materially different from the
Company's historical results.

Investment in Affiliate - In April 1999, the Company entered into a Stock
Purchase Agreement and a License and R & D Agreement with Selective Genetics,
Inc. ("Selective Genetics"). Under the terms of the Stock Purchase Agreement,
the Company paid $5 million cash for Series C preferred stock of Selective
Genetics. The Company accounts for this investment on the cost method. Under the
License and R & D Agreement, the Company agreed to fund as incurred certain
defined research and development efforts of Selective Genetics over a ten-year
period. This investment provides the Company with a worldwide, exclusive license
to market certain products to be manufactured by Selective Genetics.


                                       29


<PAGE>   31
BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------


NOTE D: INVESTMENTS.
At May 31, 1999, the Company's investment securities were classified as follows:

<TABLE>
<CAPTION>


                                               AMORTIZED         UNREALIZED
(in thousands)                                      COST      GAINS     LOSSES  FAIR VALUE
                                               -------------------------------------------
<S>                                             <C>         <C>       <C>         <C>
Available-for-sale:
    Debt securities..........................   $113,823    $   350   $ (1,860)   $112,313
    Equity securities........................      6,057      2,998       (544)      8,511
    Mortgage-backed securities...............     20,389        200       (207)     20,382
                                                ------------------------------------------
        Total available-for-sale.............    140,269      3,548     (2,611)    141,206
                                                ------------------------------------------

Held-to-maturity:
    Debt securities..........................     19,569        324        (21)     19,872
    Mortgage-backed obligations..............      6,962          7       (526)      6,443
                                                ------------------------------------------
        Total held-to-maturity...............     26,531        331       (547)     26,315
                                                ------------------------------------------
Certificates of deposit......................     39,200          -          -      39,200
                                                ------------------------------------------
    Total....................................   $206,000    $ 3,879   $ (3,158)   $206,721
                                                ------------------------------------------
</TABLE>

At May 31, 1998, the Company's investment securities were classified as follows:

<TABLE>
<CAPTION>
                                               AMORTIZED         UNREALIZED
(in thousands)                                      COST      GAINS     LOSSES  FAIR VALUE
                                               -------------------------------------------
<S>                                             <C>         <C>       <C>         <C>
Available-for-sale:
    Debt securities                             $ 41,001    $   253   $   (131)   $ 41,123
    Equity securities........................      5,101      2,982       (201)      7,882
                                                ------------------------------------------
        Total available-for-sale.............     46,102      3,235       (332)     49,005
                                                ------------------------------------------

Held-to-maturity:
    Debt securities..........................     20,360        344        (77)     20,627
    Mortgage-backed obligations..............     10,828         15       (710)     10,133
                                                ------------------------------------------
        Total held-to-maturity...............     31,188        359       (787)     30,760
                                                ------------------------------------------
Certificates of deposit......................     24,600          -          -      24,600
                                                ------------------------------------------
    Total....................................   $101,890    $ 3,594   $ (1,119)   $104,365
                                                ------------------------------------------
</TABLE>

Proceeds from sales of available-for-sale securities were $17,618,000 and
$14,476,00 for the years ended May 31, 1999, 1998 and 1997, respectively. There
were no sales of held-to-maturity securities for the years ended May 31, 1999,
1998 and 1997. The cost of marketable securities sold is determined by the
specific identification method. For the year ended May 31, 1999, gross realized
gains and (losses) on sales of available-for-sale securities were $1,635,000 and
$(384,000), respectively. Gross realized gains and (losses) for the year ended
May 31, 1998 were $1,609,000 and $(80,000), respectively. Gross realized gains
(losses) for the year ended May 31, 1997 were $563,000 and $(92,000),
respectively. Dividend and interest income are accrued as earned. The Company's
investment securities at May 31, 1999 include $36,100,000 of certificates of
deposit, $23,878,000 of debt securities and $100,000 of mortgage-backed
obligations all maturing within one year, and $3,100,000 of certificates of
deposit, $108,004,000 of debt securities, $8,511,000 of equity securities and
$27,244,000 of mortgage-backed securities all maturing past one year.

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


<TABLE>
<CAPTION>
                                                               1999       1998        1997
                                                            ------------------------------
<S>                                                         <C>       <C>         <C>
Interest income..............................               $10,451   $  6,384    $  6,782
Dividend income..............................                 4,361      2,701       1,480
Net realized gains...........................                 1,251      1,529         471
                                                            ------------------------------
    Total....................................               $16,063   $ 10,614    $  8,733
                                                            ------------------------------
</TABLE>

                                       30
<PAGE>   32



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


NOTE E: INVENTORIES.
Inventories at May 31, 1999 and 1998 consist of the following:
(in thousands)
                                                          1999             1998
                                                     --------------------------
Raw materials...........................             $  26,372        $  26,172
Work-in-progress........................                24,221           24,036
Finished goods..........................                87,362           78,552
Consigned distributor...................                67,283           57,775
                                                     --------------------------
    Total...............................             $ 205,238        $ 186,535
                                                     --------------------------

NOTE F: SHORT-TERM BORROWINGS.
During fiscal year 1999, BioMer C.V. (through its wholly owned financing
subsidiary, Biomet Merck B.V.) obtained a $75,000,000 unsecured line of credit
at a major European bank for Biomet Merck's European operations. At May 31,
1999, the Company had $45,137,000 outstanding under this line of credit. The
interest rate is at the lender's interbank rate plus .4% (effective rate of
3.53% at May 31, 1999).

NOTE G: TEAM MEMBER BENEFIT PLANS.
The Company has an Employee Stock Bonus Plan for eligible Team Members of the
Company and certain subsidiaries. The amounts expensed under this plan for the
years ended May 31, 1999, 1998 and 1997 were $2,652,000, $2,280,000, and
$2,461,000, respectively.

The Company also has a defined contribution profit sharing plan which covers
substantially all of the Team Members within the continental U.S. and allows
participants to make contributions by salary reduction pursuant to Section
401(k) of the Internal Revenue Code. The Company may match up to 75% of the Team
Member's contribution up to a maximum of 5% of the Team Member's compensation.
The amounts expensed under this profit sharing plan for the years ended May 31,
1999, 1998 and 1997 were $1,982,000, $1,609,000, and 1,484,000, respectively.

Biomet Merck has a defined benefit pension plan covering employees in certain
countries. Pension expense and related pension obligations are immaterial to the
consolidated financial statements.

NOTE H: STOCK OPTION PLANS.
The Company has various stock option plans: the 1984 Employee Stock Option Plan,
as amended, the 1992 Employee and Non-Employee Director Stock Option Plan, the
1992 Distributor Stock Option Plan and the 1998 Qualified and Non-Qualified
Stock Option Plan. At May 31, 1999, the only plan with shares available for
grant is the 1998 Qualified and Non-Qualified Stock Option Plan.

Under the stock option plans, options may be granted to key employees, directors
and distributors, at the discretion of the Stock Option Committee, and generally
become exercisable in annual increments beginning one year after the date of
grant in the case of employee options and in annual increments beginning at the
date of grant for distributor options. In the case of options granted to an
employee of the Company who is a 10% or more shareholder, the option price is an
amount per share not less than 110% of the fair market value per share on the
date of granting the option, as determined by the Stock Option Committee. No
options have been granted to employees who are 10% or more shareholders. The
option price for options granted to all other employees and directors is an
amount per share not less than the fair market value per share on the date of
granting the option. The term of each option granted expires within the period
prescribed by the Stock Option Committee, but shall not be more than five years
from the date the option is granted if the optionee is a 10% or more
shareholder, and not more than ten years for all other optionees. All rights
under the distributor options terminate upon the termination of an optionee's
distributorship with the Company unless such termination results from
retirement, disability or death. For the years ended May 31, 1999, 1998 and
1997, the amount of compensation expense applicable to options granted to
distributors was not material to the consolidated financial statements.




                                       31


<PAGE>   33

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

NOTE H: STOCK OPTION PLANS, CONCLUDED.

The following table summaries stock option activity:

<TABLE>
<CAPTION>
                                                   NUMBER     WEIGHTED-AVERAGE
                                                 OF SHARES     EXERCISE PRICE
                                                 -----------------------------
<S>                                              <C>              <C>
Outstanding, June 1, 1996..................      2,850,031        $   9.75
    Granted................................      1,240,006           14.03
    Exercised..............................       (763,720)           8.72
    Terminated.............................       (201,924)          10.96
                                                 ---------
Outstanding, May 31, 1997..................      3,124,393           11.66
    Granted................................      1,124,284           21.80
    Exercised..............................       (814,360)          10.19
    Terminated.............................       (259,987)           9.99
                                                 ---------
Outstanding, May 31, 1998..................      3,174,330           15.57
    Granted................................      1,280,784           31.45
    Exercised..............................       (671,789)          12.54
    Terminated.............................       (244,522)          14.08
                                                 ---------
Outstanding, May 31, 1999..................      3,538,803        $  21.01
                                                 ---------
</TABLE>

Options outstanding at May 31, 1999, are exercisable at prices ranging from
$5.06 to $40.44 and have a weighted-average remaining contractual life of 4.7
years. The following table summarizes information about stock options
outstanding at May 31, 1999.


<TABLE>
<CAPTION>
                                     OUTSTANDING
                                       WEIGHTED        WEIGHTED
                      NUMBER           AVERAGE         AVERAGE        NUMBER          WEIGHTED
   RANGE OF      OUTSTANDING AT      REMAINING        EXERCISE    EXERCISABLE AT      AVERAGE
EXERCISE PRICE    MAY 31, 1999     CONTRACTUAL LIFE     PRICE       MAY 31, 1999    EXERCISE PRICE
--------------------------------------------------------------------------------------------------
<S>              <C>               <C>                <C>         <C>               <C>
$ 5.06 - 10.00        322,703          2.2 years       $  8.54        208,985          $  8.11
 10.01 - 20.00      1,531,580          3.9 years         14.76        442,086            14.43
 20.01 - 30.00        692,870          5.3 years         25.41        126,577            25.76
 30.01 - 40.44        991,650          6.3 years         31.85         13,500            39.08
                    ---------                                        --------
                    3,538,803                                         791,148
                    ---------                                        --------
</TABLE>


At May 31, 1998 and 1997, there were exercisable options outstanding to purchase
533,000 and 767,000 shares at weighted-average exercise prices of $10.81 and
$9.82, respectively.

As permitted by SFAS No. 123, the Company accounts for its employee stock
options using the intrinsic value method. Accordingly, no compensation expense
is recognized for the employee stock-based compensation plans, except for $6.5
million in fiscal year 1999 which related to certain team members who were
allowed to surrender shares obtained through the exercise of an option to
satisfy the exercise value. If compensation expense for the Company's employee
stock options issued in fiscal years 1999, 1998 and 1997 had been determined
based on the fair value method of accounting, pro forma net income and diluted
earnings per share would have been as follows:

                                                    1999       1998       1997
                                                ------------------------------
(in thousands, except per share data)
 Pro forma net income.....................      $114,150   $123,563   $105,998
 Pro forma diluted earnings per share.....          1.01       1.10        .92
 The weighted-average fair value
   of options granted during the year.....          9.95       6.68       4.57

Under SFAS No. 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997: (1)
expected life of option of 3.6 years; (2) dividend yield of .36%, .53% and 73%;
(3) expected volatility of 33%, 33% and 36%; and (4) risk-free interest rate of
5.62%, 5.69% and 6.50%, respectively.



                                       32


<PAGE>   34



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

NOTE I: SHAREHOLDERS' EQUITY.
On July 6, 1999, the Company announced a cash dividend of $.14 per share,
payable August 6, 1999, to shareholders of record on July 9, 1999.

On December 2, 1989, the Board of Directors of the Company approved the adoption
of a Shareholder Rights Plan (the "Plan") under which the Company declared a
dividend of one common share purchase right for each common share outstanding to
shareholders of record on December 26, 1989 (the "Right"). Each Right entitles
the shareholder to purchase from the Company one common share at a price of
$37.50 per common share, subject to adjustment. The Rights will not be
exercisable or separable from the common shares until ten business days after a
person or group acquires 15% or more or tenders for 30% or more of the Company's
outstanding common shares. The Plan also provides that if any person or group
becomes an "Acquiring Person," each Right, other than Rights beneficially owned
by the Acquiring Person (which will thereafter be void), will entitle its holder
to receive upon exercise that number of common shares having a market value of
two times the exercise price of the Right. In the event the Company is acquired
in a merger or other business combination transaction, each Right will entitle
its holder to receive upon exercise of the Right, at the Right's then current
exercise price, that number of the acquiring company's common shares having a
market value of two times the exercise price of the Right. The Company is
entitled to redeem the Rights at a price of one cent per Right at any time prior
to them becoming exercisable, and the Rights expire on December 2, 1999. The
Plan was designed to protect the interests of the Company's shareholders against
certain coercive tactics sometimes employed in takeover attempts.


NOTE J: INCOME TAXES.

The components of income before income taxes are as follows:
(in thousands)
                                                   1999       1998       1997
                                               ------------------------------
United States operations...................    $163,764   $181,208   $154,827
Foreign operations.........................      22,582     22,733     14,305
                                               ------------------------------
    Total..................................    $186,346   $203,941   $169,132
                                               ------------------------------

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

Current:                                           1999       1998       1997
                                               ------------------------------
    Federal................................    $ 49,596   $ 47,864   $ 49,945
    State, including Puerto Rico...........      11,358     13,356     11,439
    Foreign................................       3,298      8,485      5,821
                                               ------------------------------
 ...........................................      64,252     69,705     67,205
Deferred...................................      (1,725)     9,366     (4,527)
                                               ------------------------------
    Total..................................    $ 62,527   $ 79,071   $ 62,678
                                               ------------------------------
Effective tax rate.........................        33.6%      38.8%      37.1%
                                               ------------------------------


                                       33


<PAGE>   35



BIOMET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
--------------------------------------------------------------------------------

NOTE J: INCOME TAXES, CONCLUDED.
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:

<TABLE>
<CAPTION>
                                                     1999      1998      1997
                                                   --------------------------
<S>                                                <C>       <C>       <C>
U.S. statutory income tax rate................       35.0%     35.0%     35.0%
Add (deduct):
    State taxes, less effect of
      federal reduction.......................        3.2       3.6       3.9
    Foreign income taxes at rates different
      from the U.S. statutory rate............       (2.4)       .3        .5
    Tax benefit relating to operations in
      Puerto Rico.............................        (.6)     (1.3)     (1.7)
    Tax credits...............................        (.7)      (.3)      (.2)
    Earnings of Foreign Sales Corporation.....        (.7)      (.5)      (.5)
    Financial accounting basis of net assets
      of acquired companies different
      than tax basis..........................         .1       2.1         -
    Other.....................................        (.3)      (.1)       .1
                                                   --------------------------
 Effective tax rate...........................       33.6%     38.8%     37.1%
                                                   --------------------------
</TABLE>

The components of the net deferred tax asset and liability at May 31, 1999
and 1998 are as follows:
(in thousands)

<TABLE>
<CAPTION>
                                                               1999      1998
Current deferred tax asset:                                 -----------------
<S>                                                         <C>       <C>
    Accounts and notes receivable.......................    $ 4,550   $ 1,203
    Inventories.........................................      8,824     6,523
    Accrued expenses....................................      5,068     7,938
                                                            -----------------
        Current deferred tax asset......................    $18,442   $15,664
                                                            -----------------
Long-term deferred tax (liability):
    Depreciation........................................    $(2,511)  $(2,488)
    Financial accounting basis of net assets
      of acquired companies different
      than tax basis....................................     (4,883)   (5,366)
    Other...............................................     (2,171)   (1,491)
                                                            -----------------
      Long-term deferred tax liability..................    $(9,565)  $(9,345)
                                                            -----------------
</TABLE>


                                       34


<PAGE>   36



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

NOTE K: SEGMENT DATA.
Effective June 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which revises reporting and
disclosure requirements for operating segments. The following information is
provided in accordance with this Statement.

The Company has one reportable segment, orthopedic products, which includes the
designing, manufacturing and marketing of reconstructive products, fixation
devices, spinal products and other. Other products consist primarily of
Arthrotek's arthroscopy products, AOA's softgoods products, general instruments
and operating room supplies. The Company manages its business segments primarily
on a geographic basis. These geographic segments are comprised of the United
States, Europe and other. Other geographic segments include Canada, South
America, Mexico, Japan and the Pacific Rim. The Company evaluates performance
based on operating income of each geographic segment. Identifiable assets are
those assets used exclusively in the operations of each business segment.
Revenues attributable to each geographic area are based on location in which
sale originated.

Net sales of orthopedic products by product category are as follows:
(in thousands)

<TABLE>
<CAPTION>
                                                    1999       1998       1997
                                                ------------------------------
<S>                                             <C>        <C>        <C>
Reconstructive...............................   $450,877   $389,483   $347,762
Fixation.....................................    162,825    144,853    132,875
Spinal products..............................     45,125     35,902     31,426
Other........................................     98,587     81,167     68,284
                                                ------------------------------
                                                $757,414   $651,405   $580,347
                                                ------------------------------

Information by geographic area is as follows:
(in thousands)

Net sales to customers:

     United States...........................   $535,835   $493,877   $465,148
     Europe..................................    204,783    143,615    110,039
     Other...................................     16,796     13,913      5,160
                                                ------------------------------
                                                $757,414   $651,405   $580,347
                                                ------------------------------
Operating income:
     United States...........................   $141,194   $166,699   $143,522
     Europe..................................     27,030      9,942     15,131
     Other...................................      3,426      3,465      1,158
                                                ------------------------------
                                                $171,650   $180,106   $159,811
                                                ------------------------------
Long-lived assets:
     United States...........................   $112,068   $ 97,839   $ 84,589
     Europe..................................    111,669    102,616     29,977
     Other...................................      4,204      2,973      3,940
                                                ------------------------------
                                                $227,941   $203,428   $118,506
                                                ------------------------------
</TABLE>


United States export sales, primarily to European countries, aggregated
$24,760,000, $29,850,000 and $39,626,000 for the years ended May 31, 1999, 1998
and 1997, respectively. These sales are included in United States sales to
customers above. The decrease in U.S. export sales for the year ended May 31,
1999 compared to the year ended May 31, 1998, is due to the formation of Biomet
Merck and the transfer of servicing European customers to Biomet Merck from the
U.S. The decrease in domestic export sales for the year ended May 31, 1998
compared to the year ended May 31, 1997, is attributable to the acquisition of
foreign distributors in mid to late fiscal 1997 and early fiscal 1998. Sales to
these entities were domestic export sales prior to acquisition and are now
classified as either Europe or Other net sales above.


                                       35

<PAGE>   37

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

NOTE L: COMMITMENTS AND CONTINGENCIES.
BioMer C.V. Put Option - Pursuant to the terms of the Joint Venture Agreement
with Merck KGaA (see Note C), the Company granted Merck KGaA a put option
whereby Merck KGaA has the right to elect to require the Company to purchase
all, but not less than all, of Merck KGaA's interest in BioMer C.V. Merck KGaA
may exercise the put option by giving notice to the Company at any time during
(a) the period beginning on May 1, 2002 and ending on May 10, 2008, or (b) a
period of 180 days following receipt by Merck KGaA of notice from the Company
that "a change of control" of the Company (as defined in the Joint Venture
Agreement) has occurred prior to May 1, 2023. The put exercise price, which is
payable in cash, is the greater of (i) a formula value based on earnings of
BioMer C.V. and multiples, as defined in the Joint Venture Agreement, or (ii)
the net book value of all the assets of BioMer C.V. less all liabilities of
BioMer C.V. multiplied by Merck KGaA's ownership percentage.

Medical Insurance Plan - The Company maintains a self-insurance program for
covered medical expenses for all Team Members within the continental U.S. The
Company is liable for claims up to $125,000 per Team Member annually.
Self-insurance costs are accrued based upon the aggregate of the liability for
reported claims and a management-determined estimated liability for claims
incurred but not reported.

Liability Insurance - Since 1989, the Company has self-insured against product
liability claims, and at May 31, 1999, the Company's self-insurance limits were
$3,000,000 per occurrence and $5,000,000 aggregate per year. Liabilities in
excess of these amounts are the responsibility of the Company's insurance
carrier. Self-insurance costs are accrued based on reserves set in consultation
with the insurance carrier for reported claims and a management-determined
estimated liability for claims incurred but not reported. Based on historical
experience, management does not anticipate that incurred but unreported claims
would have a material impact on the Company's consolidated financial position.

Litigation - In January 1996, a jury returned a verdict in favor of Raymond G.
Tronzo ("Tronzo") awarding him approximately $55 million in damages on his
patent and state law claims. On October 29, 1996, the United States District
Court for the Southern District of Florida entered a judgment, which implemented
and reduced the jury verdict, awarding $30.2 million to Tronzo on his state law
claims, including compensatory damages of approximately $7.1 million, punitive
damages of $20 million and prejudgment interest. The trial court denied the
Company's motion challenging the validity of Tronzo's patent. Tronzo was awarded
an additional $6.3 million judgment for patent infringement, including a
fifty-percent enhancement based upon willfulness. The trial court also granted
an injunction prohibiting future manufacture, use, promotion or sale, in the
United States, of the finned version of the Mallory-Head acetabular cup, the
device found to have infringed the Tronzo patent. In August 1998, the U.S. Court
of Appeals of the Federal Circuit (the "Federal Circuit") struck down the jury
award. The Federal Circuit accepted the Company's position on all patent issues
and found that the patent claims asserted by Tronzo were invalid and, therefore,
could not have been infringed by the Company. The Federal Circuit upheld the
District Court's findings of liability on Tronzo's state law claims; however,
the Federal Circuit vacated the entire damage award on the state law claims and
remanded the case to the District Court for further consideration on the state
law claims only, narrowly limiting Tronzo's ability to recover any damages. As a
result of the Federal Circuit's decision, the injunction previously entered
against the Company on the Mallory-Head finned acetabular cup no longer stands
and all damages assessed against the Company have been vacated. The Company has
filed a motion with the District Court requesting that its $36.6 million of
investments (included in the Company's investments at May 31, 1999) be released
from escrow. Tronzo did not object to the motion and the Company expects a
decision from the District Court in the near future on the escrow release.

On June 2, 1997, the Company announced the entry of a jury verdict against it in
the United States District Court of New Jersey in an action brought by Orthofix
SRL ("Orthofix") against the Company and its wholly owned subsidiaries,
Electro-Biology, Inc. ("EBI") and EBI Medical Systems, Inc. ("EBIMS"), (the
"Biomet Group") related to the events surrounding the expiration of a
distribution agreement under which EBIMS distributed Orthofix's external
fixation devices in the United States. The jury found that, notwithstanding
Orthofix's refusal to renew the distribution agreement, EBIMS's commencement of
development activities of a new external fixation system prior to the expiration
of the contract, constituted a breach of the distribution agreement. The jury
awarded compensatory damages against the Biomet Group for breach of contract and
related claims of approximately $49 million and punitive damages of $100
million. The jury also concluded that Orthofix breached the distribution
agreement and tortiously interfered with EBIMS's economic relations, but awarded
only nominal damages to the Biomet Group. With respect to certain non-jury
issues, the trial court entered an order denying Orthofix's motions for enhanced
and/or treble damages and attorney's fees. The trial court also granted
Orthofix's motion for prejudgment interest, but only on the compensatory portion
of the damages commencing from November 29, 1995. On September 2, 1997, the
trial court entered an amended judgment reducing to $50 million, the $100
million in punitive damages awarded to Orthofix by the jury. The Company
appealed the final amended judgment entered against the Biomet Group to the
United States Court of Appeals for the Third Circuit (the "Third Circuit"). On
June 30, 1999, the Third Circuit significantly reduced the judgement previously



                                       36


<PAGE>   38


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

NOTE L: COMMITMENTS AND CONTINGENCIES, CONCLUDED.
entered against the Biomet Group and in favor of Orthofix. The Third Circuit
upheld the District Court's award of compensatory damages to Orthofix in the
amount of $48,875,397; however, it virtually eliminated the $50 million punitive
damage award, reducing it to $1 million. Both parties have filed petitions for
rehearing with the Third Circuit. As a result of the Third Circuit's decision,
and consultation with outside legal counsel, the Company recorded a special
charge of $55 million, including interest of $5.1 million for the year ended May
31, 1999. At May 31, 1999, the Company's investments on the consolidated balance
sheet include $108.0 million of investment securities which have been delivered
to an escrow agent pursuant to an order of the District Court and related to the
District Court's judgment in the Orthofix case.

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

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

for the years ended May 31, 1998, 1997 and 1996
(in thousands)


<TABLE>
<CAPTION>
     Col. A                         Col. B                   Col. C                 Col. D         Col. E
                                                            Additions
                                                            ---------
                                                       (1)            (2)
                                                                  Charged to
Description                       Balance at       Charged to        other                        Balance at
----------                       beginning of      costs and       accounts -     Deductions -     end of
                                    period          expenses        describe       describe        period
                                 ------------      ---------      ----------      ---------       ----------
<S>                              <C>               <C>            <C>             <C>             <C>
Allowance for
doubtful receivables:

For the year ended
     May 31, 1999                   $5,957           $8,421         $130(B)       $9,567(A)        $4,883
                                                                                      58(C)
                                    ------           ======         ====          ======           ======

For the year ended
     May 31, 1998                   $6,175           $7,253         $519(B)       $7,976(A)        $5,957
                                                                                      14(C)
                                    ======           ======         ====          ======           ======

For the year ended
     May 31, 1997                   $6,889           $6,912         $528(B)       $8,142(A)        $6,175
                                                                                      12(C)
                                    ======           ======         ====          ======           ======
</TABLE>

Notes:
          (A) Uncollectible accounts written off
          (B) Collection of previously written off accounts
          (C) Effect of foreign currency translation adjustment


                                       37


<PAGE>   39



QUARTERLY
RESULTS
------------------------------------------------------------------------------
(in thousands, except earnings per share)

<TABLE>
<CAPTION>
                                                      1ST QTR.   2ND QTR.   3RD QTR.   4TH QTR.       YEAR
                                                      ----------------------------------------------------
<S>                                                   <C>        <C>        <C>        <C>        <C>
1999
Net sales............................................ $176,664   $183,340   $192,330   $205,080   $757,414
Gross profit.........................................  123,147    127,755    133,697    143,088    527,687
Net income...........................................   33,594     35,894     37,357      9,516*   116,361
Earnings per share:
    Basic ...........................................      .30        .32        .33        .09*      1.04
    Diluted..........................................      .30        .32        .33        .08*      1.03

1998
Net sales............................................ $149,529   $156,582   $160,968   $184,326   $651,405
Gross profit.........................................  102,907    107,971    111,057    127,235    449,170
Net income...........................................   29,261     30,762     31,257     33,446    124,726
Earnings per share:
    Basic ...........................................      .26        .28        .28        .30       1.12
    Diluted..........................................      .26        .27        .28        .30       1.11

1997
Net sales............................................ $137,178   $144,009   $146,164   $152,996   $580,347
Gross profit.........................................   92,750     97,604     99,305    104,893    394,552
Net income...........................................   24,087     26,185     27,279     28,903    106,454
Earnings per share:
    Basic ...........................................      .21        .23        .24        .26        .94
    Diluted..........................................      .21        .22        .24        .26        .93

</TABLE>

* The operating results for the fourth quarter of fiscal 1999 were adversely
  impacted by a $55 million special charge related to the appellate court's
  decision against the Company in the Orthofix litigation.


                                       38


<PAGE>   40



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

Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information included under the caption "Election of Directors" in the
Company's definitive Proxy Statement filed pursuant to Regulation 14A in
connection with its 1999 Annual Meeting of Shareholders (the "Proxy Statement")
is incorporated herein by reference in response to this item.

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

ITEM 11. EXECUTIVE COMPENSATION.

The information included under the captions "Election of Directors -
Compensation of Directors" and "Executive Compensation" in the Proxy Statement
is incorporated herein by reference in response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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



                                       39


<PAGE>   41
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) THE FOLLOWING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ARE
         INCLUDED IN ITEM 8 HEREIN.
         (1) FINANCIAL STATEMENTS:
             Report of Independent Accountants
             Consolidated Balance Sheets as of May 31, 1999 and 1998
             Consolidated Statements of Income for the years ended May 31,
             1999, 1998 and 1997
             Consolidated Statements of Shareholders' Equity for the years
             ended May 31, 1999, 1998 and 1997
             Consolidated Statements of Cash Flows for the years ended May 31,
             1999, 1998 and 1997
             Notes to Consolidated Financial Statements

         (2) FINANCIAL STATEMENT SCHEDULE:
             Schedule II - Valuation and Qualifying Accounts

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

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

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

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

             3.5 Amended and Restated Bylaws. (Incorporated by reference to
                 Exhibit 4.2 to Biomet, Inc. Form S-3 Registration Statement,
                 File No. 33-33376).

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

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

             4.2 Rights Agreement between Biomet, Inc. and Lake City Bank as
                 Rights Agent, dated as of December 2, 1989. (Incorporated by
                 reference to Exhibit 4 to Biomet, Inc. Form 8-K current
                 Report dated December 22, 1989, File No. 0-12515).

            10.1 Employee Stock Option Plan, as last amended December 14,
                 1991. (Incorporated by reference to Exhibit 10.1 to Biomet,
                 Inc. Form 10-K Report for year ended May 31, 1992,
                 File No. 0-12515).

            10.2 Form of Employee Stock Option Agreement. (Incorporated by
                 reference to Exhibit 10.2 to Biomet, Inc. Form 10-K Report
                 for year ended May 31, 1991, File No. 0-12515).

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

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

            10.5 401(k) Profit Sharing Plan filed January 19,1996.
                 (Incorporated by reference to Form S-8 Registration Statement,
                 File No. 333-00331).

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

            21.1 Subsidiaries of the Registrant.

            23.1 Consent of PricewaterhouseCoopers LLP.

            27.1 Financial Data Schedule.

       (b) REPORTS ON FORM 8-K.

            None.
                                      40

<PAGE>   42



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on July 29, 1999.

                                  BIOMET, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on July 29, 1999.


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



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



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



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



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



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



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


                                       41


<PAGE>   43
                  By:      /s/  THOMAS F. KEARNS, JR
                           ----------------------------------------------------
                           Thomas F. Kearns, Jr., Director



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



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



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



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



                  By:      /s/  PROF. DR. BERNHARD SCHEUBLE
                           ----------------------------------------------------
                           Prof. Dr. Bernhard Scheuble, Director



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



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



                                       42
<PAGE>   44

                                  BIOMET, INC.

                                   FORM 10-K

                                  MAY 31, 1998

                               INDEX TO EXHIBITS

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



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

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

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

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

              3.5 Amended and Restated Bylaws. (Incorporated by reference to
                  Exhibit 4.2 to Biomet, Inc. Form S-3 Registration Statement,
                  File No. 33-33376).

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

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

              4.2 Rights Agreement between Biomet, Inc. and Lake City Bank as
                  Rights Agent, dated as of December 2, 1989. (Incorporated by
                  reference to Exhibit 4 to Biomet, Inc. Form 8-K current
                  Report dated December 22, 1989, File No. 0-12515).

          (9)     No exhibit.

         (10)10.1 Employee Stock Option Plan, as last amended December 14,
                  1991. (Incorporated by reference to Exhibit 10.1 to Biomet,
                  Inc. Form 10-K Report for year ended May 31, 1992, File
                  No. 0-12515).

             10.2 Form of Employee Stock Option Agreement. (Incorporated by
                  reference to Exhibit 10.2 to Biomet, Inc.  Form 10-K Report
                  for year ended May 31, 1991, File No. 0-12515).

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

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

             10.5 401(k) Profit Sharing Plan filed January 19,1996.
                  (Incorporated by reference to Form S-8 Registration
                  Statement, File No. 333-00331).

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

         (12)     No exhibit.

         (13)     No exhibit.


                                       43


<PAGE>   45


         (16)     No exhibit.

         (18)     No exhibit.

         (21)21.1 Subsidiaries of the Registrant.

         (22)     No exhibit.

         (23)23.1 Consent of PricewaterhouseCoopers LLP

         (24)     No exhibit.

         (27)     27.1 Financial Data Schedule.

         (99)     No exhibit.


                                       44