July 9 (Bloomberg) -- Biomet Inc., the orthopedic-device maker to be taken private by an investor group, reported a 59 percent drop in fourth-quarter net income because of charges related to new distribution agreements and inventory writedowns.

Excluding special charges, the company earned 39 cents a share, Biomet said in a statement today, missing the average estimate of 48 cents in a Bloomberg survey of five analysts. Separately, the company disclosed settlement talks with U.S. prosecutors investigating the implant industry's agreements with surgeons.

Sales of electrical-stimulation devices, including those used to stimulate bone growth in the spine, fell by almost half in the quarter ended May 31, the company said. Internal stimulation of the spine is becoming a ``dying business,'' largely due to increasing use of Medtronic Inc.'s InFuse bone graft, said Jason Wittes, an analyst at Leerink Swann & Co.

``The business is clearly being driven down by spinal stimulation, which has been on the defense for a couple of years now,'' Wittes, in New York, said by phone today. He doesn't own any Biomet shares.

The shares of Warsaw, Indiana-based Biomet were unchanged at $45.78 at 4:30 p.m. New York time in Nasdaq Stock Market Composite trading. The stock climbed 46 percent in the past year. The buyout offer to take the company private is $46 a share.

Settlement Talks

Biomet's settlement talks with U.S. prosecutors are ``still in preliminary stages,'' the company said in a filing today with the Securities and Exchange Commission. An investigation by the U.S. Justice Department began more than two years ago when Biomet received subpoenas for documents on consulting and professional- service agreements between the company and surgeons using Biomet products, the company said. Competitors also have been subpoenaed, Biomet said, and the probe of Biomet has broadened to include other arrangements and corporate activities.

An agreement in the investigation could result in monetary payments and a change in corporate practices, the company said.

``The relationship between salespeople and doctors may dramatically change,'' analyst Wittes said.

Barbara Goslee, a spokeswoman at Biomet, didn't immediately return a phone call seeking comment today.

Net Income, Revenue

Biomet's fourth-quarter net income dropped to $41.5 million, or 17 cents a share, from $100.4 million, or 41 cents, a year earlier.

Revenue increased 1.8 percent to $549.4 million, hindered by a 10 percent drop in worldwide sales of products for the spine. Sales of the devices dropped 17 percent domestically. Sales of spinal stimulation devices fell 36 percent in the U.S. and 34 percent globally, Biomet said.

Special charges included $29.9 million to renew distribution agreements and $46.3 million in inventory writedowns related to trauma and spine operations, Biomet said.

The company had $2 million in legal and accounting fees to conduct an internal investigation into improper accounting of stock-option grants. Biomet restated past financial statements as a result, and former Chief Financial Officer Gregory Hartman and Daniel P. Hann, an executive vice president and former interim chief executive officer, resigned in March.

The company said it had $8.2 million in expenses related to the proposed merger agreement. Biomet agreed in June to the sweetened buyout offer of $11.4 billion from the private-equity firms Blackstone Group LP, Kohlberg Kravis Roberts & Co. and TPG, and the private-equity arm of Goldman Sachs Group Inc. A previous bid was criticized by one of the biggest shareholders and an investor advisory firm.

The transaction is set to close by Oct. 31, according to a Dec. 18 filing with the SEC.

Biomet makes orthopedic devices to protect, repair or replace damaged bones and joints, including replacement systems for knees, hips, shoulders and elbows, according to the company's Web site.

To contact the reporter on this story: Emily Brown in Washington at ebrown18@bloomberg.net.

Last Updated: July 9, 2007 16:49 EDT