ZBH 10-Q
Zimmer Biomet Holdings, Inc. (ZBH)
`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2025
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
Telephone: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of April 24, 2025,
ZIMMER BIOMET HOLDINGS, INC.
INDEX TO FORM 10-Q
March 31, 2025
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Part I - Financial Information |
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Item 1. |
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3 |
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Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2025 and 2024 |
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4 |
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Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 |
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6 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 |
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Notes to Interim Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
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Item 3. |
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32 |
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Item 4. |
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32 |
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Part II - Other Information |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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34 |
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Item 3. |
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34 |
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Item 4. |
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34 |
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Item 5. |
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34 |
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Item 6. |
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36 |
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Signatures |
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2
Part I – Financial Information
Item 1. Financial Statements
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts, unaudited)
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Three Months Ended |
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March 31, |
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2025 |
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2024 |
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$ |
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$ |
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, excluding intangible asset amortization |
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Intangible asset amortization |
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Research and development |
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Selling, general and administrative |
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Restructuring and other cost reduction initiatives |
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Acquisition, integration, divestiture and related |
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Operating expenses |
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Operating Profit |
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Other income (expense), net |
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Interest expense, net |
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Earnings before income taxes |
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Provision for income taxes |
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Net Earnings |
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Less: Net earnings attributable to noncontrolling interest |
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Net Earnings of Zimmer Biomet Holdings, Inc. |
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$ |
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$ |
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Earnings Per Common Share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted Average Common Shares Outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, unaudited)
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Three Months Ended |
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March 31, |
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2025 |
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2024 |
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Net Earnings of Zimmer Biomet Holdings, Inc. |
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$ |
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$ |
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Other Comprehensive Income (Loss): |
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Foreign currency cumulative translation adjustments, net of tax |
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Unrealized cash flow hedge (losses) gains, net of tax |
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Reclassification adjustments on hedges, net of tax |
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Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax |
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Total Other Comprehensive Loss |
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Comprehensive Income Attributable to |
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Zimmer Biomet Holdings, Inc. |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts, unaudited)
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March 31, |
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December 31, |
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2025 |
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2024 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for credit losses |
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Inventories |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
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$ |
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Other current liabilities |
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Current portion of long-term debt |
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Total Current Liabilities |
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Other long-term liabilities |
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Long-term debt |
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Total Liabilities |
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(Note 15) |
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Stockholders' Equity: |
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Zimmer Biomet Holdings, Inc. Stockholders' Equity: |
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Common stock, $ |
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Paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Treasury stock, |
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Total Zimmer Biomet Holdings, Inc. stockholders' equity |
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Noncontrolling interest |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except per share amounts, unaudited)
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Zimmer Biomet Holdings, Inc. Stockholders |
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Accumulated |
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Other |
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Total |
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Common Shares |
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Paid-in |
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Retained |
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Comprehensive |
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Treasury Shares |
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Noncontrolling |
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Stockholders' |
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Number |
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Amount |
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Capital |
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Earnings |
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(Loss) Income |
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Number |
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Amount |
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Interest |
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Equity |
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Balance January 1, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net earnings |
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- |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Cash dividends declared |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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- |
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( |
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Stock compensation plans |
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- |
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( |
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- |
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- |
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- |
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Embody, Inc. acquisition consideration |
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- |
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- |
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- |
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- |
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- |
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- |
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Share repurchases |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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- |
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( |
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Balance March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
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( |
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$ |
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$ |
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Balance January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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( |
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$ |
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$ |
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$ |
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Net earnings |
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- |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Cash dividends declared |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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- |
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( |
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Stock compensation plans |
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- |
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- |
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- |
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- |
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Embody, Inc. acquisition consideration |
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- |
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- |
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- |
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- |
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- |
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- |
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Share repurchases |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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- |
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( |
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Balance March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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( |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Cash flows provided by (used in) operating activities: |
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Net earnings |
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$ |
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$ |
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Adjustments to reconcile net earnings to cash provided |
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Depreciation and amortization |
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Share-based compensation |
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Changes in operating assets and liabilities, net of acquired assets and liabilities |
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Income taxes |
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( |
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( |
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Receivables |
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( |
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( |
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Inventories |
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( |
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( |
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Accounts payable and accrued liabilities |
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( |
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( |
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Other assets and liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows provided by (used in) investing activities: |
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Additions to instruments |
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( |
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( |
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Additions to other property, plant and equipment |
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( |
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( |
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Net investment hedge settlements |
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Acquisition of intangible assets |
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( |
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( |
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Other investing activities |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows provided by (used in) financing activities: |
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Net proceeds from revolving facilities |
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Proceeds from senior notes |
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- |
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Redemption of senior notes |
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( |
) |
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- |
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Dividends paid to stockholders |
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( |
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( |
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Proceeds from employee stock compensation plans |
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Business combination contingent consideration payments |
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( |
) |
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( |
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Debt issuance costs |
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( |
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- |
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Deferred business combination payments |
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( |
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Repurchase of common stock |
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( |
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( |
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Other financing activities |
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( |
) |
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( |
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Net cash provided by (used in) financing activities |
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( |
) |
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Effect of exchange rates on cash and cash equivalents |
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( |
) |
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Change in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of year |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial data presented herein is unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2024.
In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2024 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Results for interim periods should not be considered indicative of results for the full year.
Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the actual amounts. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. In addition, certain columns and rows within tables may not sum to the totals due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.
The words “we,” “us,” “our” and similar words, “Zimmer Biomet” and “the Company” refer to Zimmer Biomet Holdings, Inc. and its subsidiaries. “Zimmer Biomet Holdings” refers to the parent company only.
We reclassified certain prior period amounts to conform to the current period presentation.
2. Significant Accounting Policies
Use of Estimates - The accompanying unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have made our best estimates, as appropriate under GAAP, in the recognition of our assets and liabilities. Actual results could differ materially from these estimates.
Accounting Pronouncements Not Yet Adopted - In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is an amendment to ASC Topic 740 - Income Taxes. The ASU improves the transparency of income tax disclosures by requiring greater disaggregated information about an entity’s effective tax rate reconciliation and requiring additional disclosures and disaggregation of income taxes, among other amendments to improve the effectiveness of income tax disclosures. The ASU is effective for fiscal years beginning after December 15, 2024. The guidance can be applied prospectively with an option to apply the guidance retrospectively. We will adopt this ASU for the fiscal year ending December 31, 2025. We are currently evaluating the impact this ASU will have on our financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which is an amendment to ASC Topic 220 - Comprehensive Income. The ASU improves financial reporting by requiring disclosure of additional information about specific expense categories included in the expense captions presented on the income statement as well as disclosures about selling expenses. The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods for fiscal years beginning after December 15, 2027. The guidance will be applied prospectively with an option to apply the guidance retrospectively. Early adoption of this ASU is permitted. We are currently evaluating the impact this ASU will have on our financial statements and disclosures.
8
3. Revenue
Net sales by geography are as follows (in millions):
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
United States |
|
$ |
|
|
$ |
|
|
||
International |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
||
Net sales by product category are as follows (in millions):
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
Knees |
|
$ |
|
|
$ |
|
|
||
Hips |
|
|
|
|
|
|
|
||
S.E.T. |
|
|
|
|
|
|
|
||
Technology & Data, Bone Cement and Surgical |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
||
S.E.T. includes sales from our Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic ("CMFT") product categories.
This net sales presentation differs from our reportable operating segments, which are based upon our senior management organizational structure and how we allocate resources toward achieving operating profit goals. Each of our reportable operating segments sells all the product categories noted above. Accordingly, the only difference from the presentation above and our reportable operating segments are the geographic groupings.
4. Restructuring
In February 2025, our management approved a new global restructuring program (the "2025 Restructuring Plan") intended to reduce costs and transform the way we operate. The 2025 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
Balance, December 31, 2024 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Expenses incurred in the three months ended March 31, 2025 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Balance, March 31, 2025 |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense incurred since the start of the 2025 Restructuring Plan |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense estimated to be recognized for the 2025 Restructuring Plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
In December 2023, our management approved a global restructuring program (the “2023 Restructuring Plan”) intended to optimize our cost structure and drive greater efficiencies throughout the company. The 2023 Restructuring Plan concluded in the first quarter of 2025 and resulted in total pre-tax restructuring charges of approximately $
9
expenses incurred under our 2023 Restructuring Plan are reported in our “Restructuring and other cost reduction initiatives” financial statement line item.
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
Balance, December 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses incurred in the three months ended March 31, 2025 |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign currency exchange rate changes |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Balance, March 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense incurred since the start of the 2023 Restructuring Plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
In December 2019, our Board of Directors approved, and we initiated, a global restructuring program (the “2019 Restructuring Plan”) with an objective of reducing structural costs to allow us to further invest in higher priority growth opportunities. The 2019 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $
The following table summarizes the location on our condensed consolidated statement of earnings and type of cost for our 2019 Restructuring Plan (in millions):
|
|
Three Months Ended March 31, 2025 |
|
|||||||||||||
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
sold, excluding intangible asset amortization |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Restructuring and other cost reduction initiatives |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
The following table summarizes the liabilities recognized related to the 2019 Restructuring Plan (in millions):
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
Balance, December 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses incurred in the three months ended March 31, 2025 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign currency exchange rate changes |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Balance, March 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense incurred since the start of the 2019 Restructuring Plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense estimated to be recognized for the 2019 Restructuring Plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
We do not include restructuring charges in the operating profit of our reportable segments. We report the expenses for other cost reduction and optimization initiatives in our “Restructuring and other cost reduction initiatives” financial statement line item because these activities also have the goal of reducing costs across the organization. However, since the cost reduction initiative expenses are not considered restructuring, they have been excluded from the amounts presented in this note.
10
5. Inventories
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in millions) |
|
|||||
Finished goods |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
6. Property, Plant and Equipment
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in millions) |
|
|||||
Land |
|
$ |
|
|
$ |
|
||
Buildings and equipment |
|
|
|
|
|
|
||
Capitalized software costs |
|
|
|
|
|
|
||
Instruments |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
We had $
7. Acquisitions
On
On
On
On
These four acquisitions are collectively referred to in this report as the “2024 acquisitions”. Initial consideration related to the 2024 acquisitions was $
The goodwill related to the 2024 acquisitions represents the excess of the consideration transferred over the fair value of the net assets acquired. The goodwill related to these acquisitions is generated from the operational synergies, cross-selling opportunities and future development we expect to achieve from the technologies acquired.
11
translation adjustments were the only significant activity related to our consolidated goodwill balance in the three-month period ended March 31, 2025.
The purchase price allocations for the acquisitions which occurred in April of 2024 were final as of March 31, 2025. The purchase price allocations for the August acquisition and the OrthoGrid acquisition are preliminary as of March 31, 2025. We need additional time to evaluate the tax attributes of those transactions, which may change the recognized tax assets and liabilities. There may be differences between the preliminary estimates of fair value and the final acquisition accounting. The final estimates of fair value are expected to be completed as soon as possible, but no later than one year after the respective acquisition dates.
The following table summarizes the estimates of fair value of the assets acquired and liabilities assumed related to the 2024 acquisitions (in millions):
Current assets |
|
$ |
|
|
Intangible assets subject to amortization: |
|
|
|
|
Technology |
|
|
|
|
Trademarks and trade names |
|
|
|
|
Customer relationships |
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
In-process research and development (IPR&D) |
|
|
|
|
Goodwill |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Current liabilities |
|
|
|
|
Deferred income taxes |
|
|
|
|
Other long-term liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Net assets acquired |
|
$ |
|
|
The weighted average amortization periods selected for technology, customer relationships and trademarks and trade names were
We have not included pro forma information and certain other information under GAAP for any of the acquisitions described in this Note because they did not have a material impact on our financial position or results of operations.
In the three-month period ended March 31, 2024, we recognized intangible assets of $
12
8. Debt
Our debt consisted of the following (in millions):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
- |
|
||
Total current portion of long-term debt |
|
$ |
|
|
$ |
|
||
Long-term debt |
|
|
|
|
|
|
||
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
- |
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
- |
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
- |
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
Adjustment related to interest rate swaps |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
In the three-month period ended March 31, 2025, we redeemed the $
On February 19, 2025, we completed the offering of $
On June 28, 2024, we entered into a new five-year revolving credit agreement (the “2024 Five-Year Credit Agreement”) and a new 364-day revolving credit agreement (the “2024 364-Day Revolving Credit Agreement”), as described below. Borrowings under these credit agreements will be used for general corporate purposes.
The 2024 Five-Year Credit Agreement contains a
The 2024 Five-Year Credit Agreement will mature on
Borrowings under the 2024 Five-Year Credit Agreement bear interest at floating rates, based upon either an adjusted term secured overnight financing rate (“Term SOFR”) for the applicable interest period or an alternate base rate, in each case, plus an applicable margin determined by reference to our senior unsecured long-term debt credit rating. We pay a facility fee on the aggregate amount of the 2024 Five-Year Revolving Facility at a rate determined by reference to our senior unsecured long-term debt credit rating.
13
The 2024 Five-Year Credit Agreement contains customary affirmative and negative covenants and events of default for unsecured financing arrangements, including, among other things, limitations on consolidations, mergers, and sales of assets. The 2024 Five-Year Credit Agreement also requires us to maintain a consolidated indebtedness to consolidated EBITDA ratio of no greater than
The 2024 364-Day Revolving Credit Agreement is an unsecured revolving credit facility in the principal amount of $
The 2024 364-Day Revolving Facility will mature on
The 2024 364-Day Revolving Credit Agreement contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement including, among other things, limitations on consolidations, mergers, and sales of assets. The 2024 364-Day Revolving Credit Agreement also requires us to maintain a consolidated indebtedness to consolidated EBITDA ratio of no greater than
On August 28, 2023, we entered into an uncommitted facility letter (the "Uncommitted Credit Facility"), which provides that from time to time, we may request, and the lender in its absolute and sole discretion may provide, short-term loans. Borrowings under the Uncommitted Credit Facility may be used only for general corporate and working capital purposes. The Uncommitted Credit Facility provides that the aggregate principal amount of outstanding borrowings at any time shall not exceed $
Borrowings under our revolving credit facilities have been executed with underlying notes that have maturities of three months or less. At maturity of the underlying note, we elect to either repay the note, borrow the same amount, or some combination thereof. On our condensed consolidated statements of cash flows, we present the borrowings and repayments of these underlying notes as net cash inflows or outflows due to their short-term nature.
9. Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) (“AOCI”) refers to certain gains and losses that under GAAP are included in comprehensive income but are excluded from net earnings as these amounts are initially recorded as an adjustment to stockholders’ equity. Amounts in AOCI may be reclassified to net earnings upon the occurrence of certain events.
Our AOCI is comprised of foreign currency translation adjustments, unrealized gains and losses on cash flow hedges and unrecognized prior service costs and gains and losses in actuarial assumptions related to our defined benefit plans. Foreign currency translation adjustments are reclassified to net earnings upon sale or upon a complete or substantially complete liquidation of an investment in a foreign entity. Unrealized gains and losses on cash flow hedges are reclassified to net earnings when the hedged item
14
affects net earnings. Amounts related to defined benefit plans that are in AOCI are reclassified over the service periods of employees in the plan.
The following table shows the changes in the components of AOCI gains (losses), net of tax (in millions):
|
|
Foreign |
|
|
Cash |
|
|
Defined |
|
|
|
|
||||
|
|
Currency |
|
|
Flow |
|
|
Benefit |
|
|
Total |
|
||||
|
|
Translation |
|
|
Hedges |
|
|
Plan Items |
|
|
AOCI |
|
||||
Balance at December 31, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
AOCI before reclassifications |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Reclassifications to statements of earnings |
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at March 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The following table shows the reclassification adjustments from AOCI (in millions):
|
|
Amount of Gain (Loss) |
|
|||||||
|
|
Reclassified from AOCI |
|
|||||||
|
|
Three Months Ended |
|
|
|
|||||
|
|
March 31, |
|
|
Location on |
|||||
Component of AOCI |
|
2025 |
|
|
2024 |
|
|
Statements of Earnings |
||
Cash flow hedges |
|
|
|
|
|
|
|
|
||
exchange forward contracts |
|
$ |
|
|
$ |
|
|
Cost of products sold |
||
Forward starting interest rate swaps |
|
|
( |
) |
|
|
( |
) |
|
Interest expense, net |
|
|
|
|
|
|
|
|
Total before tax |
||
|
|
|
|
|
|
|
|
Provision for income taxes |
||
|
|
$ |
|
|
$ |
|
|
Net of tax |
||
Defined benefit plans |
|
|
|
|
|
|
|
|
||
Prior service cost and unrecognized actuarial loss |
|
$ |
( |
) |
|
$ |
|
|
Other income (expense), net |
|
|
|
|
( |
) |
|
|
( |
) |
|
Provision for income taxes |
|
|
$ |
( |
) |
|
$ |
|
|
Net of tax |
|
Total reclassifications |
|
$ |
|
|
$ |
|
|
Net of tax |
||
The following table shows the tax effects on each component of AOCI recognized in our condensed consolidated statements of comprehensive income (in millions):
|
|
Three Months Ended March 31, 2025 |
|
|
|||||||||
|
|
Before Tax |
|
|
Tax |
|
|
Net of Tax |
|
|
|||
Foreign currency cumulative translation adjustments |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
||
Unrealized cash flow hedge gains |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Reclassification adjustments on cash flow hedges |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Adjustments to prior service cost and unrecognized actuarial assumptions |
|
|
|
|
|
|
|
|
|
|
|||
Total Other Comprehensive Income (Loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Three Months Ended March 31, 2024 |
|
|
|||||||||
|
|
Before Tax |
|
|
Tax |
|
|
Net of Tax |
|
|
|||
Foreign currency cumulative translation adjustments |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
Unrealized cash flow hedge gains |
|
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustments on cash flow hedges |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Adjustments to prior service cost and unrecognized actuarial assumptions |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
Total Other Comprehensive Income (Loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
||
15
10. Fair Value Measurement of Assets and Liabilities
The following financial assets and liabilities are recorded at fair value on a recurring basis (in millions):
|
|
As of March 31, 2025 |
|
|||||||||||||
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
||||||||||
Description |
|
Recorded |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Total Assets |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Contingent payments related to acquisitions |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
|
|
As of December 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
||||||||||
Description |
|
Recorded |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Derivatives not designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Total Assets |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Derivatives not designated as hedges, current and long-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Contingent payments related to acquisitions |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
We value our foreign currency forward contracts using a market approach based on foreign currency exchange rates obtained from active markets, and we perform ongoing assessments of counterparty credit risk.
16
We value our interest rate swaps using a market approach based on publicly available market yield curves and the terms of our swaps, and we perform ongoing assessments of counterparty credit risk. The valuation of our cross-currency interest rate swaps also includes consideration of foreign currency exchange rates.
Contingent payments related to acquisitions consist of sales-based payments and regulatory milestones, and are valued using discounted cash flow techniques. The fair value of sales-based payments is based upon significant unobservable inputs such as probability-weighted future revenue estimates and simulating the numerous potential outcomes, and changes as revenue estimates increase or decrease. The fair value of the regulatory milestones is based on the probability of success in obtaining the specified regulatory approval. The fair value of sales-based payments and regulatory milestones utilize significant unobservable inputs, which could reasonably change in future periods resulting in significantly higher or lower fair value measurements. If our estimates of future revenue or probability of achievement increase, the fair value measurements for these contingent payments will increase. Vice versa, if our estimates of future revenue or probability of achievement decrease, the fair value measurements for these contingent payments will decline.
Contingent payments related to our acquisition of Embody, Inc. ("Embody") are to be settled by issuance of our common stock and cash payments. During the three-month period ended March 31, 2025, we issued
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) (in millions):
|
|
Level 3 - Liabilities |
|
|
Contingent payments related to acquisitions |
|
|
|
|
Beginning balance December 31, 2024 |
|
$ |
|
|
|
|
|
||
Settlements |
|
|
( |
) |
Foreign currency impact |
|
|
|
|
Ending balance March 31, 2025 |
|
$ |
|
|
Changes in estimates for contingent payments related to acquisitions are recognized in the "Acquisition, integration, divestiture and related" line item on our condensed consolidated statements of earnings.
11. Derivative Instruments and Hedging Activities
We are exposed to certain market risks relating to our ongoing business operations, including foreign currency exchange rate risk, commodity price risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risks that we manage through the use of derivative instruments are interest rate risk and foreign currency exchange rate risk.
Interest Rate Risk
Derivatives Designated as Fair Value Hedges
We currently use fixed-to-variable interest rate swaps to manage our exposure to interest rate risk from our cash investments and debt portfolio. These derivative instruments are designated as fair value hedges under GAAP. Changes in the fair value of the derivative instrument are recorded in current earnings and are offset by gains or losses on the underlying debt instrument.
As of March 31, 2025 and December 31, 2024, the following amounts were recorded on our condensed consolidated balance sheets related to cumulative basis adjustments for fair value hedges (in millions):
|
|
Carrying Amount of the Hedged Liabilities |
|
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities |
|
||||||||||
Balance Sheet Line Item |
|
March 31, 2025 |
|
|
December 31, 2024 |
|
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||||
Long-term debt |
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Derivatives Designated as Cash Flow Hedges
17
In 2014, we entered into forward starting interest rate swaps that were designated as cash flow hedges of our
Foreign Currency Exchange Rate Risk
We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. We also designated our Euro notes as net investment hedges of investments in foreign subsidiaries. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Swiss Francs, Japanese Yen, British Pounds, Chinese Renminbi, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles, Indian Rupees, Turkish Lira, Polish Zloty, Danish Krone, and Norwegian Krone. We do not use derivative financial instruments for trading or speculative purposes.
Derivatives Designated as Net Investment Hedges
We are exposed to the impact of foreign exchange rate fluctuations in the investments in our wholly-owned foreign subsidiaries that are denominated in currencies other than the U.S. Dollar. In order to mitigate the volatility in foreign exchange rates, we issued Euro notes in December 2016, November 2019 and November 2024 and designated
At March 31, 2025, we had receive-fixed-rate, pay-fixed-rate cross-currency interest swaps with notional amounts outstanding of Japanese Yen
Derivatives Designated as Cash Flow Hedges
Our revenues are generated in various currencies throughout the world. However, a significant amount of our inventory is produced in U.S. Dollars. Therefore, movements in foreign currency exchange rates may have different proportional effects on our revenues compared to our cost of products sold. To minimize the effects of foreign currency exchange rate movements on cash flows, we hedge intercompany sales of inventory expected to occur within the next
We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and confirming that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default. For derivatives which qualify as hedges of future cash flows, the gains and losses are temporarily recorded in AOCI and then recognized in cost of products sold when the hedged item affects net earnings. On our condensed consolidated statements of cash flows, the settlements of these cash flow hedges are recognized in operating cash flows.
For foreign currency exchange forward contracts and options outstanding at March 31, 2025, we had obligations to purchase U.S. Dollars and sell Euros, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Indian Rupees, Polish Zloty, Danish Krone, and Norwegian Krone and obligations to purchase Swiss Francs and sell U.S. Dollars. These derivatives mature at dates ranging from April 2025 through September 2027. As of March 31, 2025, the notional amounts of outstanding forward contracts and options entered into with third
18
parties to purchase U.S. Dollars were $
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts with terms of one to three months to manage currency exposures for monetary assets and liabilities denominated in a currency other than an entity’s functional currency. As a result, any foreign currency remeasurement gains/losses recognized in earnings are generally offset with gains/losses on the foreign currency forward exchange contracts in the same reporting period. The net amount of these offsetting gains/losses is recorded in other income (expense), net. Any outstanding contracts are recorded on the balance sheet at fair value as of the end of the reporting period. The notional amounts of these contracts are generally in a range of $
Income Statement Presentation
Derivatives Designated as Cash Flow Hedges
Derivative instruments designated as cash flow hedges had the following effects, before taxes, on AOCI and net earnings on our condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income and condensed consolidated balance sheets (in millions):
|
|
Amount of Gain (Loss) |
|
|
Amount of Gain (Loss) |
||||||||||||||
|
|
Recognized in AOCI |
|
|
Reclassified from AOCI |
||||||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
||||||||||
|
|
March 31, |
|
|
Location on |
|
March 31, |
|
|
||||||||||
Derivative Instrument |
|
2025 |
|
|
2024 |
|
|
Statements of Earnings |
|
2025 |
|
|
2024 |
|
|
||||
Foreign exchange |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
Forward starting |
|
|
- |
|
|
|
- |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
|||
The fair value of outstanding derivative instruments designated as cash flow hedges and recorded on our condensed consolidated balance sheet at March 31, 2025, together with settled derivatives where the hedged item has not yet affected earnings, was a net unrealized gain of $
The following table presents the effect of fair value, cash flow and net investment hedge accounting on our condensed consolidated statements of earnings (in millions):
|
|
Location and Amount of Gain/(Loss) Recognized in Income on Fair Value, Cash Flow and Net Investment Hedging Relationships |
|||||||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
||||||||||
|
|
March 31, 2025 |
|
|
March 31, 2024 |
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Products |
|
|
Expense, |
|
|
Products |
|
|
Expense, |
|
|
||||
|
|
Sold |
|
|
Net |
|
|
Sold |
|
|
Net |
|
|
||||
Total amounts of income and expense line items presented in the statements of earnings in which the effects of fair value, cash flow and net investment hedges are recorded |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
||
The effects of fair value, cash flow and net investment hedging: |
|
|
|
|
|
|
|
|
|
|
|
||||||
Loss on fair value hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Gain (loss) on cash flow hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange forward contracts |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
||
Forward starting interest rate swaps |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Gain on net investment hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cross-currency interest rate swaps |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
||
19
Derivatives Not Designated as Hedging Instruments
The following gains (losses) from these derivative instruments were recognized on our condensed consolidated statements of earnings (in millions):
|
|
|
|
Three Months Ended |
|
|
|||||
|
|
Location on |
|
March 31, |
|
|
|||||
Derivative Instrument |
|
Statements of Earnings |
|
2025 |
|
|
2024 |
|
|
||
Foreign exchange forward contracts |
|
Other income (expense), net |
|
$ |
( |
) |
|
$ |
|
|
|
These gains (losses) do not reflect offsetting gains of $
Balance Sheet Presentation
As of March 31, 2025 and December 31, 2024, all derivatives designated as fair value hedges, cash flow hedges and net investment hedges are recorded at fair value on our condensed consolidated balance sheets. On our condensed consolidated balance sheets, we recognize individual forward contracts with the same counterparty on a net asset/liability basis if we have a master netting agreement with the counterparty. Under these master netting agreements, we are able to settle derivative instrument assets and liabilities with the same counterparty in a single transaction, instead of settling each derivative instrument separately. We have master netting agreements with substantially all of our counterparties.
|
|
As of March 31, 2025 |
|
|
As of December 31, 2024 |
|
||||||
|
|
Balance |
|
|
|
|
Balance |
|
|
|
||
|
|
Sheet |
|
Fair |
|
|
Sheet |
|
Fair |
|
||
|
|
Location |
|
Value |
|
|
Location |
|
Value |
|
||
Asset Derivatives Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange forward contracts |
|
Other current assets |
|
$ |
|
|
Other current assets |
|
$ |
|
||
Cross-currency interest rate swaps |
|
Other current assets |
|
|
- |
|
|
Other current assets |
|
|
|
|
Foreign exchange forward contracts |
|
Other assets |
|
|
|
|
Other assets |
|
|
|
||
Cross-currency interest rate swaps |
|
Other assets |
|
|
|
|
Other assets |
|
|
|
||
Total asset derivatives |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Asset Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange forward contracts |
|
Other current assets |
|
$ |
- |
|
|
Other current assets |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Liability Derivatives Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange forward contracts |
|
Other current liabilities |
|
$ |
|
|
Other current liabilities |
|
$ |
|
||
Cross-currency interest rate swaps |
|
Other current liabilities |
|
|
|
|
Other current liabilities |
|
|
|
||
Foreign exchange forward contracts |
|
Other long-term liabilities |
|
|
|
|
Other long-term liabilities |
|
|
|
||
Cross-currency interest rate swaps |
|
Other long-term liabilities |
|
|
- |
|
|
Other long-term liabilities |
|
|
|
|
Interest rate swaps |
|
Other long-term liabilities |
|
|
|
|
Other long-term liabilities |
|
|
|
||
Total liability derivatives |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Liability Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange forward contracts |
|
Other current liabilities |
|
$ |
- |
|
|
Other current liabilities |
|
$ |
|
|
20
The table below presents the effects of our master netting agreements on our condensed consolidated balance sheets (in millions):
|
|
|
|
As of March 31, 2025 |
|
|
As of December 31, 2024 |
|
||||||||||||||||||
Description |
|
Location |
|
Gross |
|
|
Offset |
|
|
Net Amount in |
|
|
Gross |
|
|
Offset |
|
|
Net Amount in |
|
||||||
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash flow hedges |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Derivatives Not Designated as Hedges |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Derivatives Not Designated as Hedges |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
||||
The following net investment hedge gains (losses) were recognized on our condensed consolidated statements of comprehensive income (in millions):
|
|
Amount of Gain (Loss) |
|||||||
|
|
Recognized in AOCI |
|||||||
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
Derivative Instrument |
|
2025 |
|
|
2024 |
|
|
||
Euro Notes |
|
$ |
( |
) |
|
$ |
|
|
|
Cross-currency interest rate swaps |
|
|
( |
) |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
12. Income Taxes
We operate on a global basis and are subject to numerous and complex tax laws and regulations. Additionally, tax laws continue to undergo rapid changes in both application and interpretation by various countries, including state aid interpretations and initiatives led by the Organisation for Economic Cooperation and Development ("OECD"). Our income tax filings are subject to examinations by taxing authorities throughout the world. Income tax audits may require an extended period of time to reach resolution and may result in significant income tax adjustments when interpretation of tax laws or allocation of company profits is disputed. Although ultimate timing is uncertain, the net amount of tax liability for unrecognized tax benefits may change due to changes in audit status, expiration of statutes of limitations, settlements of tax assessments and other events.
We are under continuous audit by the Internal Revenue Service ("IRS") and have disputes with the IRS and other foreign taxing authorities in the jurisdictions where we operate. In addition, some jurisdictions in which we operate require payment of disputed taxes to petition a court or taxing authority, or we may elect to make such payments prior to final resolution. We record any prepayments as income tax receivables when we believe our position is more likely than not to be upheld. We assess our position on these disputes at each reporting period. During the course of these audits and disputes, we receive proposed adjustments from taxing authorities that may be material. Therefore, there is a possibility that an adverse outcome in these audits or disputes could have a material effect on our results of operations and financial condition. Our U.S. federal income tax returns have been audited through 2019.
The IRS has proposed adjustments for tax years 2013-2015, primarily related to transfer pricing involving our cost sharing agreement between the U.S. and Switzerland affiliated companies and the reallocation of profits between certain of our U.S. and foreign subsidiaries. We intend to continue to vigorously contest the adjustment, and we will pursue all available administrative and, if necessary, judicial remedies. If we pursue judicial remedies in the U.S. Tax Court for years 2013-2015, a number of years will likely elapse before such matters are finally resolved. No payment of any amount related to this matter is required to be made, if at all, until all applicable proceedings have been completed.
The IRS has proposed adjustments for tax years 2016-2019, primarily related to the U.S. taxation of foreign earnings and profits, which could result in additional material tax expense if we are unsuccessful in defending our position. This includes a proposed increase to our U.S. federal taxable income, which would result in additional tax expense of approximately $
21
Regulations. We intend to continue to vigorously contest the adjustment, and we will pursue all available administrative and, if necessary, judicial remedies. If we pursue judicial remedies in the U.S. Tax Court for years 2016-2019, a number of years will likely elapse before such matters are finally resolved. No payment of any amount related to this matter is required to be made, if at all, until all applicable proceedings have been completed.
In the three-month period ended March 31, 2025, our effective tax rate (“ETR”) was
13. Earnings Per Share
The following is a reconciliation of weighted average shares for the basic and diluted shares computations (in millions):
|
|
Three Months Ended |
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|||||
|
|
March 31, |
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|||||
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2025 |
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2024 |
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||
Weighted average shares outstanding for basic net earnings per share |
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Effect of dilutive stock options and other equity awards |
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Weighted average shares outstanding for diluted net earnings per share |
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|
||
During the three-month periods ended March 31, 2025 and 2024, an average of
14. Segment Information
We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; CMFT; surgical products; and a suite of integrated digital and robotic technologies that leverage data, data analytics and artificial intelligence. Our chief operating decision maker (“CODM”) is our . Our CODM allocates resources to achieve our operating profit goals through
Our Americas operating segment is comprised principally of the U.S. and includes other North, Central and South American markets. Our EMEA operating segment is comprised principally of Europe and includes the Middle East and African markets. Our Asia Pacific operating segment is comprised principally of Japan, China and Australia and includes other Asian and Pacific markets. The Americas, EMEA and Asia Pacific operating segments include the commercial operations as well as regional headquarter expenses to operate in those markets. Our operating segments do not include many centralized, product category expenses such as R&D and global marketing that benefit all regions.
We reclassified certain insignificant prior period expenses to conform to the current period presentation.
Segment operating profit measures
22
|
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Americas |
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EMEA |
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Asia Pacific |
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Total |
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||||||||||||||||||||
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Three Months Ended March 31, |
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Three Months Ended March 31, |
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Three Months Ended March 31, |
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Three Months Ended March 31, |
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2025 |
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2024 |
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2025 |
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2024 |
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2025 |
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2024 |
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2025 |
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2024 |
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||||||||
Net Sales |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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||||||||
Cost of products sold, excluding intangible asset amortization |
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||||||||
Selling, general and administrative |
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Research and development |
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Segment profit |
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$ |
|
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$ |
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$ |
|
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$ |
|
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$ |
|
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$ |
|
|
$ |
|
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$ |
|
||||||||
Corporate items |
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||||||||
Intangible asset amortization |
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||||||||
Other (income) expense, net |
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( |
) |
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|||||||
Interest expense, net |
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||||||||
Earnings before income taxes |
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$ |
|
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$ |
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||||||||
Other segment information is as follows (in millions):
|
|
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Depreciation and Amortization |
|
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Segment Assets |
|
||||||||||
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|
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Three Months Ended March 31, |
|
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As of |
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||||||||||
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|
|
2025 |
|
|
2024 |
|
|
March 31, 2025 |
|
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December 31, 2024 |
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||||
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|
||||
Americas |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
EMEA |
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||||
Asia Pacific |
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||||
Corporate items |
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||||
Intangible asset amortization |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Total |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15. Commitments and Contingencies
Litigation
From time to time, we are involved in various legal proceedings, including product liability, intellectual property, stockholder matters, tax disputes, commercial disputes, employment matters, whistleblower and qui tam claims and investigations, governmental proceedings and investigations, and other legal matters that arise in the normal course of our business. These include, among others, product liability claims relating to the Durom Cup, Zimmer M/L Taper, M/L Taper with Kinectiv Technology, Versys Femoral Head and the M2a-Magnum hip system. On a quarterly and annual basis, we review relevant information with respect to loss contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. We establish liabilities for loss contingencies on an undiscounted basis when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. For matters where a loss is believed to be reasonably possible, but not probable, or if no reasonable estimate of known or probable loss is available, no accrual has been made.
When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and other contingencies are inherently difficult to predict, particularly when the matters are in early procedural stages with incomplete facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, involve multidistrict litigation, involve multiple foreign jurisdictions and/or potentially involve penalties, fines or punitive damages. In addition to the matters described herein, we remain subject to the risk of future governmental, regulatory and legal actions. Governmental and regulatory actions may lead to product recalls, injunctions and other restrictions on our operations and monetary sanctions, which may include substantial civil or criminal penalties. Actions involving intellectual property could result in a loss of patent protection or the ability to market products, which could lead to significant sales reductions or cost increases, or otherwise materially affect the results of our operations.
We recognize litigation-related charges and gains in Selling, general and administrative expense on our condensed consolidated statement of earnings. During the three-month periods ended March 31, 2025 and 2024, we recognized $
23
Other Contingencies
Contractual obligations: We have entered into development, distribution and other contractual arrangements that may result in future payments dependent upon various events such as the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. Since there is uncertainty on the timing or whether such payments will have to be made, they have not been recognized on our condensed consolidated balance sheets. These estimated payments could range from $
16. Subsequent Event
On April 21, 2025, (the "Closing Date") we completed the acquisition of all outstanding shares of Paragon 28, Inc. ("Paragon 28"). At the effective time of the acquisition, each outstanding common share of Paragon 28 was automatically cancelled and retired and converted into the right to receive (i) $
Paragon 28 is a leading medical device company focused exclusively on the foot and ankle orthopedic segment. The acquisition increases our market share in the foot and ankle space, which has been growing faster than some of the other spaces in which we compete. We paid approximately $
Paragon 28-Related Contingencies
Paragon 28 Securities Class Action Litigation. In September 2024, a putative class action lawsuit was filed against Paragon 28, Inc. (“Paragon 28”), its former CEO Albert DaCosta, its former CFO Stephen M. Deitsch, and its former interim CFO Kristina Wright, in the U.S. District Court for the District of Colorado (the “District of Colorado”), captioned Ellington v. Paragon 28, Inc. et al., (the “Ellington Action”). In October 2024, a second putative class action lawsuit was filed against the same parties also in the District of Colorado, captioned Tiedt v. Paragon 28, Inc., (the “Tiedt Action” and, together with the Ellington Action, the “Paragon Actions”). The Paragon Actions generally allege that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to Paragon 28’s financial statements and the effectiveness of Paragon 28’s internal financial controls. On April 4, 2025, the District of Colorado consolidated the Paragon Actions and appointed Nicholas Tiedt as lead plaintiff under the Private Securities Litigation Reform Act of 1995.
SEC Subpoena to Paragon 28. In September 2024, Paragon 28 received a subpoena from the U.S. Securities and Exchange Commission (“SEC”) for documents related to Paragon 28’s SEC Form 8-K, published on July 30, 2024, which stated that certain previously issued financial statements should no longer be relied upon due to errors in such financial statements and that a restatement of those prior financial statements was required. Paragon 28 was, and now Zimmer Biomet is, cooperating with the SEC's investigation, which is ongoing.
We are in the process of evaluating these contingencies as part of the Paragon 28 purchase price allocation as of the Closing Date.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements and corresponding notes included elsewhere in this Form 10-Q. Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the actual amounts. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. In addition, certain columns and rows within tables may not sum to the totals due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.
Executive Level Overview
Results for the Three-Month Period ended March 31, 2025
In the three-month period ended March 31, 2025, our net sales increased 1.1 percent when compared to the same prior year period. Net sales growth was driven by a combination of market growth, new product introductions and commercial execution across the organization. Our net sales experienced a negative effect of 1.2 percent from changes in foreign currency exchange rates in the three-month period ended March 31, 2025.
Our net earnings were $182.0 million in the three-month period ended March 31, 2025, compared to $172.4 million in the same prior year period. The increase in earnings was primarily due to lower charges from our restructuring plans, and the net sales increase. These favorable items were partially offset by higher cost of products sold due to sales volumes increases and higher manufacturing costs; investments made to direct-to-patient marketing, information technology and medical education events; and higher interest costs due to higher borrowings in anticipation of the Paragon 28 acquisition.
2025 Outlook
We expect year-over-year revenue growth of 5.7 percent to 8.2 percent in 2025 to be driven by a combination of Paragon 28 net sales, market growth, new product introductions and commercial execution. Based on recent foreign currency exchange rates, we expect foreign currency to positively affect year-over-year net sales by up to 0.5 percent. We estimate net earnings will decrease in 2025 when compared to 2024 due to higher acquisition and integration costs, operating expenses and intangible asset amortization related to the Paragon 28 acquisition, higher manufacturing costs caused by inflation, tariffs, higher net interest expense due to higher interest rates and increased borrowings and a higher estimated effective tax rate due to favorable 2024 adjustments that are not expected to recur. These unfavorable items are expected to be partially offset by higher net sales, leverage from fixed operating expenses, ongoing savings from our restructuring plans and lower employee termination and other charges from our restructuring plans.
The ultimate impact that tariffs will have on our net earnings is difficult to predict due to their fluid nature. We account for tariffs as part of the cost of our inventory or instruments and recognize the expense in cost of products sold when the related inventory is sold to a customer, or depreciate the additional cost of the instrument in selling, general and administrative expense. Based upon current administration proposals, we anticipate recognizing $60 million to $80 million of additional expenses related to tariffs in 2025. This estimate contemplates our best view of mitigation efforts currently underway and that the announced European reciprocal tariffs will go into effect after the ninety-day stay period. Since we capitalize tariffs as part of the cost of our inventory and instruments, the impact in 2025 will be more significant in the second half of the year.
Results of Operations
We review sales by two geographies, the United States and International, and by the following product categories: Knees; Hips; S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic); and Technology & Data, Bone Cement and Surgical. This sales analysis differs from our reportable operating segments, which are based upon our senior management organizational structure and how we allocate resources toward achieving operating profit goals. We review sales by these geographies because the underlying market trends in any particular geography tend to be similar across product categories, because we primarily sell the same products in all geographies and many of our competitors publicly report in this manner. Our business is seasonal in nature to some extent, as many of our products are used in elective surgical procedures, which typically decline during the summer months and can increase at the end of the year once annual deductibles have been met on health insurance plans.
25
Net Sales by Geography
The following table presents our net sales by geography and the percentage changes (dollars in millions):
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
% Inc |
|
|
|||
United States |
|
$ |
1,113.6 |
|
|
$ |
1,099.2 |
|
|
|
1.3 |
|
% |
International |
|
|
795.5 |
|
|
|
790.0 |
|
|
|
0.7 |
|
|
Total |
|
$ |
1,909.1 |
|
|
$ |
1,889.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Net Sales by Product Category
The following table presents our net sales by product category and the percentage changes (dollars in millions):
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
% Inc / (Dec) |
|
|
|||
Knees |
|
$ |
792.9 |
|
|
$ |
788.1 |
|
|
|
0.6 |
|
% |
Hips |
|
|
495.8 |
|
|
|
491.2 |
|
|
|
0.9 |
|
|
S.E.T. |
|
|
470.5 |
|
|
|
452.6 |
|
|
|
3.9 |
|
|
Technology & Data, Bone Cement and Surgical |
|
|
149.9 |
|
|
|
157.3 |
|
|
|
(4.7 |
) |
|
Total |
|
$ |
1,909.1 |
|
|
$ |
1,889.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
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|
|
|
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|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
The following table presents our net sales by geography for our Knees and Hips product categories (dollars in millions):
|
|
Three Months Ended March 31, |
|
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
% Inc / (Dec) |
|
|
|||
Knees |
|
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
459.0 |
|
|
$ |
458.0 |
|
|
|
0.2 |
|
% |
International |
|
|
333.9 |
|
|
|
330.1 |
|
|
|
1.2 |
|
|
Total |
|
$ |
792.9 |
|
|
$ |
788.1 |
|
|
|
0.6 |
|
|
Hips |
|
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
264.3 |
|
|
$ |
254.9 |
|
|
|
3.7 |
|
% |
International |
|
|
231.5 |
|
|
|
236.3 |
|
|
|
(2.0 |
) |
|
Total |
|
$ |
495.8 |
|
|
$ |
491.2 |
|
|
|
0.9 |
|
|
Demand (Volume and Mix) Trends
Changes in volume and mix of product sales had a positive effect of 2.2 percent on year-over-year sales during the three-month period ended March 31, 2025. Market growth and new product introductions contributed positively to volume and mix trends.
Pricing Trends
Global selling prices had a positive effect of 0.1 percent on year-over-year sales during the three-month period ended March 31, 2025. The majority of countries in which we operate continue to experience pricing pressure from local hospitals, health systems, and governmental healthcare cost containment efforts. However, we have had success in offsetting negative effects of pricing pressure due to internal initiatives and being able to pass some inflationary impacts on to customers.
26
Foreign Currency Exchange Rates
For the three-month period ended March 31, 2025, changes in foreign currency exchange rates had a negative effect of 1.2 percent on year-over-year sales. If foreign currency exchange rates remain at levels consistent with recent rates, we estimate there will be a positive impact of up to 0.5 percent on full-year 2025 sales.
Geography
The 1.3 percent net sales growth in the U.S. in the three-month period ended March 31, 2025, was driven by market growth in our Knees, Hips and S.E.T. product categories. Internationally, net sales increased by 0.7 percent during the three-month period ended March 31, 2025, when compared to the same prior year period. This increase was similarly driven by market growth in most of our international markets. Our International sales were negatively affected by 3.0 percent due to changes in foreign currency exchange rates in the three-month period ended March 31, 2025.
Product Categories
Knees and Hips net sales benefited from market growth and new product introductions in the three-month period ended March 31, 2025. Changes in foreign currency exchange rates had negative effects of 1.3 percent and 1.5 percent on Knees and Hips net sales, respectively, in the three-month period ended March 31, 2025. The S.E.T. net sales increase in the three-month period ended March 31, 2025, was primarily the result of growth in our sports medicine, upper extremities, and craniomaxillofacial and thoracic products. Technology & Data, Bone Cement and Surgical net sales declined in the three-month period ended March 31, 2025, due to lower net sales of our ROSA® Robot.
Expenses as a Percentage of Net Sales
|
|
Three Months Ended |
|
|
|
|
|
|
|||||||
|
|
March 31, |
|
|
|
% Inc / |
|
|
|||||||
|
|
2025 |
|
|
|
2024 |
|
|
|
(Dec) |
|
|
|||
Cost of products sold, excluding intangible asset amortization |
|
|
28.8 |
|
% |
|
|
27.1 |
|
% |
|
|
1.7 |
|
% |
Intangible asset amortization |
|
|
7.9 |
|
|
|
|
7.5 |
|
|
|
|
0.4 |
|
|
Research and development |
|
|
5.8 |
|
|
|
|
5.7 |
|
|
|
|
0.1 |
|
|
Selling, general and administrative |
|
|
39.7 |
|
|
|
|
39.0 |
|
|
|
|
0.7 |
|
|
Restructuring and other cost reduction initiatives |
|
|
1.9 |
|
|
|
|
6.6 |
|
|
|
|
(4.7 |
) |
|
Acquisition, integration, divestiture and related |
|
|
0.6 |
|
|
|
|
- |
|
|
|
|
0.6 |
|
|
Operating profit |
|
|
15.3 |
|
|
|
|
14.1 |
|
|
|
|
1.2 |
|
|
Cost of products sold, excluding intangible asset amortization, increased in both amount and as a percentage of net sales in the three-month period ended March 31, 2025, when compared to the same prior year period. The increases were primarily due to higher manufacturing costs caused by inflation.
Intangible asset amortization expense increased in amount and as a percentage of net sales in the three-month period ended March 31, 2025 compared to the same prior year period due to acquisitions and other technology-based asset purchases we made in 2024.
R&D expenses increased in amount and as a percentage of net sales in the three-month period ended March 31, 2025, when compared to the same prior year period. The increases were driven by higher spending on certain technology-based projects.
Selling, general and administrative (“SG&A”) expenses increased in amount and as a percentage of net sales in the three-month period ended March 31, 2025, when compared to the same prior year period. The increases were driven by higher bad debt expenses related to various customers in multiple countries and investments made to direct-to-patient marketing, information technology and medical education events.
In February 2025 and December of each of 2023, 2021 and 2019, we initiated global restructuring programs. We also have other cost reduction and optimization initiatives that have the goal of reducing costs across the organization. We recognized expenses of $36.0 million and $124.4 million in the three-month periods ended March 31, 2025 and 2024, respectively, related to these programs and initiatives. These expenses were primarily related to employee termination benefits, sales agent contract terminations, and consulting and project management expenses associated with these programs, as well as expenses related to other optimization initiatives. The expenses were higher in the 2024 period when compared to the 2025 period primarily due to expenses related to the
27
2023 Restructuring Plan that had just been initiated at the end of 2023 and was larger in scope than the 2025 Restructuring Plan, and lower expenses related to our U.S. and Canada ERP implementation and other initiatives as those are completed. For more information regarding these expenses, see Note 4 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
Acquisition, integration, divestiture and related expenses increased in amount and as a percentage of net sales in the three-month period ended March 31, 2025, when compared to the same prior year period, primarily due to acquisitions that occurred in 2024. We expect that acquisition and integration expenses will increase significantly in 2025 due to the acquisition of Paragon 28.
Other Income (Expense), Net, Interest Expense, Net, and Income Taxes
In the three-month periods ended March 31, 2025 and 2024, we recognized income of $2.9 million and expense of $0.1 million, respectively, in our other income (expense), net financial statement line item. The increased income was primarily due to lower losses on the remeasurement of monetary assets and liabilities denominated in a currency other than a subsidiary's functional currency and the related derivative instruments that are not designated as hedging instruments that we use to manage the currency exposures of these assets and liabilities.
Interest expense, net, increased in the three-month period ended March 31, 2025, when compared to the same prior year period. The increased interest expense was due to higher average debt balances outstanding in anticipation of the Paragon 28 acquisition and new borrowings in 2024 that replaced debt with lower interest rates.
In the three-month period ended March 31, 2025, our effective tax rate (“ETR”) was 20.3 percent compared to 19.7 percent for the three-month period ended March 31, 2024. The 20.3 percent and the 19.7 percent ETR in the three-month periods ended March 31, 2025 and 2024, respectively, were primarily driven by our mix of earnings between U.S. and foreign locations. Absent discrete tax events, we expect our future ETR will be lower than the U.S. corporate income tax rate of 21.0 percent due to our mix of earnings between U.S. and foreign locations, which generally have lower corporate income tax rates. Our ETR in future periods could also potentially be impacted by: changes in our mix of pre-tax earnings; changes in tax rates, tax laws or their interpretation; the outcome of various federal, state and foreign audits, appeals, and litigation; and the expiration of certain statutes of limitations. Currently, we cannot reasonably estimate the impact of these items on our financial results.
Segment Operating Profit
|
|
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|
|
|
|
|
|
|
|
|
|
|
Operating Profit as a |
|
|
|||||||||
|
|
Net Sales |
|
|
Operating Profit |
|
|
Percentage of Net Sales |
|
|
|||||||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
|||||||||||||||
(dollars in millions) |
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
|
||||||
Americas |
|
$ |
1,204.3 |
|
|
$ |
1,186.5 |
|
|
$ |
623.6 |
|
|
$ |
639.2 |
|
|
|
51.8 |
|
% |
|
53.9 |
|
% |
EMEA |
|
|
443.1 |
|
|
|
444.8 |
|
|
|
148.6 |
|
|
|
154.8 |
|
|
|
33.5 |
|
|
|
34.8 |
|
|
Asia Pacific |
|
|
261.7 |
|
|
|
258.0 |
|
|
|
89.2 |
|
|
|
94.4 |
|
|
|
34.1 |
|
|
|
36.6 |
|
|
Americas
In the Americas, operating profit and operating profit as a percentage of net sales decreased in the three-month period ended March 31, 2025, when compared to the same prior year period. The decrease was primarily due to higher manufacturing costs and higher bad debt-related charges in the current year period.
EMEA
In EMEA, operating profit and operating profit as a percentage of net sales decreased in the three-month period ended March 31, 2025, when compared to the same prior year period. The decrease was primarily due to higher manufacturing costs, which were partially offset by savings from our restructuring plans.
Asia Pacific
In Asia Pacific, operating profit and operating profit as a percentage of net sales decreased in the three-month period ended March 31, 2025, when compared to the same prior year period. The decrease was primarily due to higher manufacturing costs and higher bad debt-related charges in the current year period.
28
Liquidity and Capital Resources
As of March 31, 2025, we had $1,384.5 million in cash and cash equivalents. In addition, we had $1.0 billion available to borrow under our 2024 364-Day Credit Agreement, and $1.5 billion available under our 2024 Five-Year Revolving Facility. The terms of the 2024 364-Day Credit Agreement and the 2024 Five-Year Revolving Facility are described further in Note 8 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our revolving credit facilities will be sufficient to meet our ongoing liquidity requirements for at least the next twelve months. However, it is possible our needs may change. Further, there can be no assurance that, if needed, we will be able to secure additional financing on terms favorable to us, if at all.
Sources of Liquidity
Cash flows provided by operating activities were $382.8 million in the three-month period ended March 31, 2025, compared to $228.0 million in the same prior year period. The 2025 period featured lower investments in inventory, lower bonus payments and favorable timing of accounts payable payments relative to 2024.
Cash flows used in investing activities were $106.0 million in the three-month period ended March 31, 2025, compared to $195.0 million in the same prior year period. Instrument and property, plant and equipment additions reflected ongoing investments in our product portfolio, including new product introductions and optimization of our manufacturing and logistics networks. The decline in property, plant and equipment additions was driven by lower enterprise resource planning software spend as that project was implemented in the second half of 2024. In addition, in the three-month period ended March 31, 2024, we entered into agreements to acquire the ownership rights or gain access to various technologies that were recognized as intangible assets and invested in a debt security.
Cash flows provided by financing activities were $575.4 million in the three-month period ended March 31, 2025, compared to cash flows used in financing activities of $50.1 million in the same prior year period. In the 2025 period, we issued senior notes for proceeds of $1,748.1 million and used the proceeds, along with cash on hand, to redeem $863.0 million of senior notes that were to mature on April 1, 2025, and to repurchase $229.8 million of our common stock. In the 2024 period, we borrowed a net $70.0 million under our Uncommitted Credit Facility and used those proceeds, along with cash on hand, to repurchase $113.6 million of our common stock.
We place our cash and cash equivalents in highly-rated financial institutions and limit the amount of credit exposure to any one entity. We invest only in high-quality financial instruments in accordance with our internal investment policy.
As of March 31, 2025, $466.5 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $88.8 million is denominated in U.S. Dollars and, therefore, bears no foreign currency translation risk. The remaining amount is denominated in currencies of the various countries where we operate. We generally intend to limit distributions from foreign subsidiaries earnings that were previously taxed in the U.S., as a result of the transition tax or tax on Global Intangible Low-Taxed Income (“GILTI”). These previously taxed earnings would not be subject to further U.S. federal tax.
Our concentrations of credit risks with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across a number of geographic areas and by frequent monitoring of the creditworthiness of the customers to whom credit is granted in the normal course of business. Substantially all of our trade receivables are concentrated in the public and private hospital and healthcare industry in the U.S. and internationally or with distributors or dealers who operate in international markets and, accordingly, are exposed to their respective business, economic and country-specific variables.
Material Cash Requirements from Known Contractual and Other Obligations
At March 31, 2025, we had outstanding debt of $7,176.3 million, of which $600.0 million was classified as current debt. Our current debt consists of $600.0 million of senior notes that mature on January 15, 2026. We believe we can satisfy these debt obligations with cash generated from our operations, by issuing new debt and/or by borrowing on our committed revolving credit facilities.
As discussed in Note 16 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, on April 21, 2025, we completed the acquisition of Paragon 28. We paid approximately $1.4 billion in initial consideration and acquisition-related costs to complete the transaction utilizing cash on hand and by borrowing $400.0 million on our 2024 Five-Year Credit Agreement and $150.0 million on our Uncommitted Credit Facility.
29
For additional information on our debt, including types of debt, maturity dates, interest rates, debt covenants and available revolving credit facilities, see Note 8 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
In February 2025, our Board of Directors declared a quarterly cash dividend of $0.24 per share. We expect to continue paying cash dividends on a quarterly basis; however, future dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.
In May 2024, our Board of Directors authorized a $2.0 billion share repurchase program with no expiration date. As of March 31, 2025, $1,020.2 million remained authorized under the program.
As discussed in Note 4 to our interim condensed consolidated financial statements in Part I, Item 1 of this report, we are executing on a 2025 Restructuring Plan, a 2023 Restructuring Plan and a 2019 Restructuring Plan. The 2025 Restructuring Plan is expected to result in total pre-tax charges of approximately $85 million by the end of 2027, of which approximately $23 million was incurred through March 31, 2025. We expect to reduce gross annual pre-tax operating expenses by approximately $95 million relative to the 2024 baseline expenses by the end of 2027 as program benefits under the 2025 Restructuring Plan are realized. The 2023 Restructuring Plan, which was completed as of March 31, 2025, resulted in total pre-tax charges of approximately $117 million. We expect to reduce gross annual pre-tax operating expenses by $175 million to $200 million relative to the 2023 baseline expenses by the end of 2025 as program benefits under the 2023 Restructuring Plan are realized. The 2019 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $400 million by the end of 2025, of which approximately $376 million was incurred through March 31, 2025. In our original estimates, we expected to reduce gross annual pre-tax operating expenses by approximately $180 million to $280 million relative to the 2019 baseline expenses by the end of 2023 as benefits under the 2019 Restructuring Plan were realized. Our latest estimates indicate that we will be near the low end of that range, and the full benefits will not be realized until we complete the closure of a manufacturing facility, which is expected to occur in 2025.
As discussed in Note 12 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, the IRS has issued proposed adjustments for years 2013 through 2015 and for years 2016 through 2019. We have disputed these proposed adjustments and intend to continue to vigorously defend our positions. Although the ultimate timing for resolution of the disputed tax issues is uncertain, future payments may be significant to our operating cash flows.
As discussed in Note 15 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, we are involved in various litigation matters. We estimate the total liabilities for all litigation matters was $135.4 million as of March 31, 2025. However, litigation is inherently uncertain, and upon resolution of any of these uncertainties, we may incur charges in excess of these estimates, and may in the future incur other material judgments or enter into other material settlements of claims. We expect to pay these liabilities over the next few years. Additionally, we have entered into development, distribution and other contractual arrangements that may result in future payments dependent upon various events such as the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. Since there is uncertainty on the timing or whether such payments will have to be made, they have not been recognized on our condensed consolidated balance sheets. These estimated payments could range from $0 to approximately $325 million.
Recent Accounting Pronouncements
Information pertaining to recent accounting pronouncements can be found in Note 2 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
Critical Accounting Estimates
The preparation of our financial statements is affected by the selection and application of accounting policies and methods, and also requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. There were no changes in the three-month period ended March 31, 2025 to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2024.
30
Cautionary Note Regarding Forward-Looking Statements and Factors That May Affect Future Results
This quarterly report contains certain statements that are forward-looking statements within the meaning of federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, the words “may,” “will,” “can,” “should,” “would,” “could,” “anticipate,” “expect,” “plan,” “seek,” “believe,” “are confident that,” “look forward to,” “predict,” “estimate,” “potential,” “project,” “target,” “forecast,” “see,” “intend,” “design,” “strive,” “strategy,” “future,” “opportunity,” “assume,” “guide,” “position,” “continue” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual results to differ materially from such forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to:
31
Our Annual Report on Form 10-K for the year ended December 31, 2024 contains detailed discussions of these and other important factors under the heading “Risk Factors.” You should understand that it is not possible to predict or identify all factors that could cause actual results to differ materially from forward-looking statements. Consequently, you should not consider any list or discussion of such factors to be a complete set of all potential risks or uncertainties.
Forward-looking statements speak only as of the date they are made and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Readers of this report are cautioned not to rely on these forward-looking statements since there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief
32
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
Part II – Other Information
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 15 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report and is incorporated herein by reference.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”), which could materially affect our business, financial condition and results of operations. The risks described in our 2024 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three-month period ended March 31, 2025, we issued 0.3 million shares of our common stock valued at $27.8 million upon the achievement of a commercial milestone related to the Embody acquisition. The shares were issued to the former Embody shareholders whom we reasonably believed to be accredited investors in a private transaction exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act.
Issuer Purchases of Equity Securities
The following table summarizes repurchases of common stock settled during the three-month period ended March 31, 2025:
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as a Part of Publicly Announced Program(1) |
|
|
Maximum Approximate Dollar Value of Shares that may yet be |
|
||||
January 2025 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
1,249,999,420 |
|
February 2025 |
|
|
837,755 |
|
|
|
103.27 |
|
|
|
837,755 |
|
|
|
1,163,483,012 |
|
March 2025 |
|
|
1,322,553 |
|
|
|
108.32 |
|
|
|
1,322,553 |
|
|
|
1,020,224,454 |
|
Total |
|
|
2,160,308 |
|
|
$ |
106.36 |
|
|
|
2,160,308 |
|
|
|
1,020,224,454 |
|
(1) In May 2024, our Board of Directors authorized a $2.0 billion share repurchase program with no expiration date.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
During the three-month period ended March 31, 2025, the Audit Committee of our Board of Directors approved the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform certain audit, audit-related and tax services. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act, as added by Section 202 of the Sarbanes-Oxley Act of 2002.
During the three-month period ended March 31, 2025, no members of our
34
securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement, as defined in rules of the Securities and Exchange Commission.
35
Item 6. Exhibits
The following exhibits are filed or furnished as part of this report:
2.1+ |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
Form of 4.700% Notes due 2027 (incorporated by reference to Exhibit 4.1 above) |
|
|
|
4.3 |
|
Form of 5.050% Notes due 2030 (incorporated by reference to Exhibit 4.1 above) |
|
|
|
4.4 |
|
Form of 5.500% Notes due 2035 (incorporated by reference to Exhibit 4.1 above) |
|
|
|
10.1* |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
10.4* |
|
|
|
|
|
21 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32 |
|
|
|
|
|
101 |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
+ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.
* Management contract or compensatory plan or arrangement.
36
SIGNATURES
Pursuant to the requirements 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.
|
|
ZIMMER BIOMET HOLDINGS, INC. |
||
|
|
(Registrant) |
||
|
|
|
|
|
Date: May 5, 2025 |
|
By: |
|
/s/ Suketu Upadhyay |
|
|
|
|
Suketu Upadhyay |
|
|
|
|
Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
Date: May 5, 2025 |
|
By: |
|
/s/ Paul Stellato |
|
|
|
|
Paul Stellato |
|
|
|
|
Vice President, Controller and Chief Accounting Officer |
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
37