美國
證券交易委員會
華盛頓特區20549
表單
證券交易所法案(1934年)
截至2021年6月30日的季度報告
委員會文件號
(根據其章程規定的註冊人準確名稱)
（國家或其他管轄區的 公司成立或組織） |
（美國國內國稅局僱主 唯一識別號碼） |
（主要行政辦公室地址）
電話:(
在法案第12(b)條的規定下注冊的證券：
每一類的名稱 |
交易標誌 |
在其上註冊的交易所的名稱 |
請在檢查標記處註明註冊人（1）是否已在證券交易法第13或15（d）條所規定的過去12個月（或註冊人需要提交此類報告的較短期間）內提交了所有必須提交的報告，並且（2）自過去90天以來一直受到此類提交要求的限制。
在檢查標記中表明註冊人是否已經在過去的12個月內（或者爲註冊人需要提交這些文件的較短期間）根據S-T法規405規定，遞交了每個互動數據文件。
請勾選是否註冊人是大型加速報告人、加速報告人、非加速報告人、小型報告公司或新興成長公司。請參考交易所法案120億.2中「大型加速報告人」、「加速報告人」、「小型報告公司」和「新興成長公司」的定義。
☒ |
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加速文件提交人 |
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非加速文件提交人 |
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較小的報告公司 |
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新興成長公司 |
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如果是新興成長型公司，請在複選框中打勾，以確定註冊人是否選擇不使用在1934年證券交易法第13(a)條項下提供的任何新的或修訂的財務會計準準則的延長過渡期。 ☐
請在複選標誌處註明公司是否爲殼公司（根據交易所法令第12b-2條的定義）。 是 ☐ 不
截至2024年10月25日，
齊默巴奧米特控股公司
10-Q表格索引
2024年9月30日
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第 1 項。 |
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第 2 項。 |
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第 3 項。 |
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第 1 項。 |
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第 1A 項。 |
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第 2 項。 |
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第 3 項。 |
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第 4 項。 |
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第 5 項。 |
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第 6 項。 |
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2
第一部分– 財務信息財務信息
第 1 項。財務口頭聲明
齊默巴奧米特控股公司及其子公司
簡明合併 綜合損失表 收益報表
(以百萬計，除每股金額外，未經審計)
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三個月之內結束 |
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九個月結束 |
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2020年9月30日 |
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2020年9月30日 |
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2024 |
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2024 |
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2023 |
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，不包括無形資產攤銷 |
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無形資產攤銷 |
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研發 |
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銷售、一般及行政費用 |
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重組和其他成本削減措施 |
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收購、整合、出售和相關 |
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營業費用 |
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營業利潤 |
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其他收入，淨額 |
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利息費用，淨額 |
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所得稅前利潤 |
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所得稅（益）費用 |
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淨收益 |
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減：歸屬於非控股權益的淨收益 |
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齊默巴奧米特控股公司淨收益 |
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每股普通股收益 |
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基本 |
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$ |
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稀釋的 |
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$ |
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加權平均普通股數 |
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基本 |
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稀釋的 |
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隨附說明是這些簡明合併財務報表的一部分。
3
齊默巴奧米特控股公司及其子公司
綜合收益的壓縮綜合財務狀況表綜合收益的情況
(以百萬計，未經審計)
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三個月之內結束 |
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九個月結束 |
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2020年9月30日 |
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2020年9月30日 |
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2024 |
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2023 |
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2024 |
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2023 |
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齊默巴奧米特控股公司淨收益 |
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$ |
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$ |
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$ |
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其他全面收益（虧損）： |
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外幣累計翻譯調整，扣除稅後 |
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未實現現金流量套期交易（虧損）收益，扣除稅後 |
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避險重新分類調整，稅後淨額 |
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往期服務成本和未確認精算假設調整，稅後淨額 |
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其他綜合收益（稅後淨額）總額 |
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歸屬於的綜合收益 |
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齊默巴奧米特控股 |
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$ |
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$ |
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隨附說明是這些簡明合併財務報表的一部分。
4
齊默巴奧米特控股公司及其子公司
壓縮的綜合資產負債表TED資產負債表
(以百萬爲單位，除每股金額外，未經審計)
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2020年9月30日 |
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12月31日 |
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2024 |
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2023 |
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資產 |
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流動資產： |
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現金及現金等價物 |
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$ |
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$ |
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應收帳款，減信用損失準備金 |
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存貨 |
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預付費用和其他流動資產 |
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流動資產合計 |
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物業、廠房和設備，淨值 |
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商譽 |
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無形資產, 淨額 |
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其他 |
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總資產 |
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$ |
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負債和股東權益 |
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流動負債: |
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應付賬款 |
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$ |
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$ |
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其他流動負債 |
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開多次數 |
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總流動負債 |
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其他長期負債 |
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長期債務 |
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總負債 |
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(注15) |
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股東權益： |
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齊默巴奧米特控股股東權益： |
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普通股，每股面值爲 $0.0001； |
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實收資本 |
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保留盈餘 |
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累計其他綜合損失 |
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庫存股票， |
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齊默巴奧米特控股公司股東權益總額 |
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非控股權益 |
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股東權益總計 |
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負債和股東權益總計 |
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$ |
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$ |
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隨附說明是這些簡明合併財務報表的一部分。
5
ZIMMER BIOMEt 持有INGS，INC. 及其子公司
簡明合併 綜合損失表 股東權益表
(以百萬計，除每股金額外，未經審計)
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齊默巴奧米特控股股東 |
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累積的 |
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其他 |
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總費用 |
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普通股份。 |
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實收資本 |
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留存收益 |
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綜合 |
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庫藏股 |
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非控制權益 |
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股東權益 |
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數量 |
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數量 |
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資本 |
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收益 |
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（損失）收益 |
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數量 |
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數量 |
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利息 |
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股權 |
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2024年7月1日餘額 |
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$ |
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淨收益 |
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其他綜合損失 |
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宣佈現金分紅派息 |
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股票補償計劃 |
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股份回購 |
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2024年9月30日的餘額 |
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2023年7月1日餘額 |
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淨收益 |
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其他綜合損失 |
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宣佈現金分紅派息 |
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股票補償計劃 |
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2023年9月30日結餘 |
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2024年1月1日的餘額爲 |
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淨收益 |
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- |
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|
|
- |
|
|
|
|
|
|
|
|||
其他綜合損失 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
宣佈現金分紅派息 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
股票補償計劃 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||||
Embody公司的收購考慮 |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
股份回購 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
2024年9月30日的餘額 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
2023年1月1日的餘額 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
淨收益 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
其他綜合損失 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
宣佈現金分紅派息 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
股票補償計劃 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||||
Embody公司的收購考慮 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
股份回購 |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
2023年9月30日結餘 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
隨附說明是這些簡明合併財務報表的一部分。
6
ZIMMER BioMet 控股有限公司和子公司
簡明合併財務報表現金流量表
(以百萬計，未經審計)
|
|
|
|
|||||
|
|
截至9月30日的九個月 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
來自經營活動的現金流量： |
|
|
|
|
|
|
||
淨收益 |
|
$ |
|
|
$ |
|
||
調整以協調淨收益與提供的現金 |
|
|
|
|
|
|
||
折舊和攤銷 |
|
|
|
|
|
|
||
股權酬金 |
|
|
|
|
|
|
||
經營性資產和負債的變化，已獲取資產和負債淨額 |
|
|
|
|
|
|
||
所得稅 |
|
|
( |
) |
|
|
|
|
應收賬款 |
|
|
( |
) |
|
|
|
|
存貨 |
|
|
( |
) |
|
|
( |
) |
應付賬款及應計費用 |
|
|
( |
) |
|
|
( |
) |
其他資產和負債 |
|
|
( |
) |
|
|
( |
) |
經營活動提供的淨現金 |
|
|
|
|
|
|
||
投資性活動提供的現金流量： |
|
|
|
|
|
|
||
添加到儀器 |
|
|
( |
) |
|
|
( |
) |
其他固定資產的追加 |
|
|
( |
) |
|
|
( |
) |
淨投資套期保值結算 |
|
|
|
|
|
|
||
業務組合投資，已獲取現金淨額 |
|
|
( |
) |
|
|
( |
) |
購置無形資產 |
|
|
( |
) |
|
|
( |
) |
其他投資活動 |
|
|
( |
) |
|
|
|
|
投資活動中使用的淨現金 |
|
|
( |
) |
|
|
( |
) |
籌資活動提供的現金流量： |
|
|
|
|
|
|
||
循環設施的淨支付 |
|
|
( |
) |
|
|
( |
) |
優先票據的收入 |
|
|
|
|
|
|
||
贖回高級票據 |
|
|
|
|
|
( |
) |
|
分期貸款支付 |
|
|
|
|
|
( |
) |
|
分紅派息給股東的款項 |
|
|
( |
) |
|
|
( |
) |
員工股票補償計劃的收益 |
|
|
|
|
|
|
||
業務組合的應計款項支付 |
|
|
( |
) |
|
|
( |
) |
業務組合中的遞延支付款項 |
|
|
( |
) |
|
|
( |
) |
回購普通股 |
|
|
( |
) |
|
|
( |
) |
其他融資活動 |
|
|
( |
) |
|
|
( |
) |
融資活動產生的淨現金流量 |
|
|
( |
) |
|
|
( |
) |
匯率對現金及現金等價物的影響 |
|
|
|
|
|
( |
) |
|
現金及現金等價物的變動 |
|
|
|
|
|
( |
) |
|
年初現金及現金等價物餘額 |
|
|
|
|
|
|
||
現金及現金等價物期末餘額 |
|
$ |
|
|
$ |
|
||
隨附說明是這些簡明合併財務報表的一部分。
7
齊默巴奧米特控股公司及其子公司
臨時簡短會議注意事項合併財務報表
(未經審計)
1. 報告基礎
此處呈現的財務數據未經審計，應與2024年8月7日提交的本公司第8-k表格文件中附帶的合併財務報表和附註一起閱讀。在2024年3月31日結束的季度，我們首席經營決策者審閱的業務部門營業利潤指標已經進行了修訂。這些修訂並未導致我們的營運部門或可報告部門發生變化。相反，某些成本在我們的業務單位之間被重新分配，導致我們的營運部門的營業利潤指標發生變化。以前屬於我們美洲營運部門的某些產品類別總部成本，主要是研發和市場營銷，現在已包含在公司項目中，而來自我們營運部門的某些支持功能成本現在已包含在公司項目中。公司項目既不視爲營運部門，也不視爲可報告部門。2024年8月7日提交的本公司第8-k表格文件僅用於重新整理我們在截至2023年12月31日的年度10-k表格文件中包含的財務信息和相關披露，以反映我們的營運部門的營業利潤指標的變化。
在我們看來，隨附的未經審計的簡明合併財務報表包括所有調整，僅包括正常循環調整，以便公平陳述所呈現的中期財務狀況、經營成果和現金流量。截至2023年12月31日的簡明合併資產負債表數據來源於審計財務報表，但未包括美國通用會計準則（「GAAP」）要求的所有披露內容。中期數據不應被視爲全年結果的指標。
本季度10-Q表格中報告的金額均以百萬計算。因此，各項元件的總和可能由於四捨五入而不等於報告的總金額。此外，表格內的某些列和行合計可能由於使用四捨五入的數字而不相等。所呈現的百分比是根據基礎未進行舍入的金額計算的。
「我們」、「我們的」和類似字詞，「齊默巴奧米特」和「公司」指的是齊默巴奧米特控股公司及其子公司。「齊默巴奧米特控股」僅指母公司。
我們將重新分類某些之前期間的金額以符合當前期間的展示。
2. 重要會計政策
使用估計 - 附帶的未經審計的簡明合併基本報表按照通用會計準則編制，根據該準則，我們需要進行可能影響資產和負債金額的估計和假設，並在基本報表日期報告資產和負債的金額以及附表資產和負債的金額和財務期間收入和費用的金額。我們已對我們的資產和負債的認定做出了最佳估計。實際結果可能與這些估計有實質性差異。
尚未採用的會計準則 - 2023年11月，財務會計準則委員會（「FASB」）發佈了《會計準則修訂（ASU）2023-07》，改進報告段披露，這是對ASC主題280 - 段報告的修正。ASU要求提供更詳細和細分的段信息，包括報告段費用類別和每個可報告段金額的披露。ASU還要求某些年度披露也在中間期進行。ASU於2023年12月15日後開始的財政年度有效，並於2024年12月15日後開始的財政年度的中間期適用。指導意見將進行回顧性應用，除非回顧性採納不切實際。我們目前正在評估這項ASU對我們披露的影響。我們將從2024年12月31日結束的年度10-k表開始執行這項ASU。
2023年12月，FASB發佈《ASU 2023-09》，改進所得稅披露，這是對ASC主題740 - 所得稅的修正。ASU通過要求提供有關實體有效稅率調和更詳細的細分信息以及要求提供有關所得稅的額外披露和細分，以及其他改進所得稅披露有效性的修正來提高所得稅披露的透明度。ASU於2024年12月15日後開始的財政年度有效。指導意見將前瞻性應用，並可以選擇回顧性應用指導意見。允許提前採納這項ASU。我們目前正在評估這項ASU對我們的基本報表和披露的影響。
8
3. 營業收入
按地區劃分的淨銷售額如下（單位：百萬美元）：
|
|
三個月之內結束 |
|
|
九個月結束 |
|
||||||||||
|
|
2020年9月30日 |
|
|
2020年9月30日 |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
美國 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
國際 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
總費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
按產品類別劃分的淨銷售額如下（單位：百萬美元）：
|
|
三個月之內結束 |
|
|
九個月結束 |
|
||||||||||
|
|
2020年9月30日 |
|
|
2020年9月30日 |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
膝蓋 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
臀部 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SEt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
其他 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
總費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
S.E.t.包括體育醫學、四肢、創傷、顱頜面和胸腔（「CMFT」）產品類別的銷售。其他包括來自我們的科技、外科和水泥產品類別的銷售。
這個淨銷售報告與我們的可報告營業部門有所不同，後者基於我們的高級管理組織結構以及我們如何分配資源以實現營業利潤目標。我們的每個可報告營業部門都銷售上述所有產品類別。因此，與上述報告和我們的可報告營業部門唯一的區別在於地理分組。
4. 重組
2023年12月，我們的管理層批准了一項旨在優化我們的成本結構並推動公司整體效率的新全球重組計劃（「2023重組計劃」）。預計2023重組計劃將導致總額約 $
|
|
員工 |
|
|
|
|
|
|
|
|
|
|
||||
|
|
終止 |
|
|
合同 |
|
|
|
|
|
|
|
||||
|
|
福利 |
|
|
終止協議 |
|
|
其他 |
|
|
總費用 |
|
||||
2024年9月30日結束的三個月發生的費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2023年12月31日的餘額 |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
2024年9月30日結束的九個月發生的費用 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
現金支付 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
外幣兌換率變動 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
非現金交易活動 |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
2024年9月30日餘額 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2023年重組計劃開始以來發生的費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
預計將在2023年重組計劃中確認的費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
In December 2021, our management approved a global restructuring program (the “2021 Restructuring Plan”) intended to further reduce costs and to reorganize our global operations in preparation for the spinoff of ZimVie. The 2021 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
Expenses incurred in the three months ended September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses incurred in the nine months ended September 30, 2024 |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense incurred since the start of the 2021 Restructuring Plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expense estimated to be recognized for the 2021 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 tables summarize the location on our condensed consolidated statement of earnings and type of cost for our 2019 Restructuring Plan (in millions):
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
sold, excluding intangible asset amortization |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Restructuring and other cost reduction initiatives |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||
|
|
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):
10
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Termination |
|
|
Contract |
|
|
|
|
|
|
|
||||
|
|
Benefits |
|
|
Terminations |
|
|
Other |
|
|
Total |
|
||||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses incurred in the nine months ended September 30, 2024 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign currency exchange rate changes |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Balance, September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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.
5. Inventories
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Finished goods |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
6. Property, Plant and Equipment
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(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
11
On
Initial consideration related to these three acquisitions was $
The goodwill related to these 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.
The purchase price allocations for the three acquisitions described above are preliminary as of September 30, 2024. We need additional time to evaluate the technology and tax attributes of those transactions, which may change the recognized intangible assets and 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 three acquisitions described above (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, trademarks and trade names and customer relationships were
On
On
12
On
On
These four acquisitions are collectively referred to in this report as the “2023 acquisitions”. Refer to Note 10 for information regarding the issuance of common stock and cash payments related to the contingent consideration liabilities that have occurred subsequent to the acquisition dates.
The goodwill related to the 2023 acquisitions represents the excess of the consideration transferred over the fair value of the net assets acquired. The goodwill related to the 2023 acquisitions is generated from the operational synergies and cross-selling opportunities we expect to achieve from the technologies acquired. A portion of the goodwill is expected to be deductible for U.S. income tax purposes. The goodwill related to the Embody, the October 2023 and the November 2023 acquisitions is included in the Americas operating segment and the Americas Orthopedics reporting unit. The goodwill related to the April 2023 acquisition is included in the Asia Pacific operating segment and reporting unit. The goodwill related to the first two of the 2023 acquisition was the only significant activity related to our consolidated goodwill balance in the three and nine-month periods ended September 30, 2023, other than changes related to foreign currency exchange rate translation adjustments.
The purchase price allocations for the Embody acquisition, the October 2023 acquisition and the April 2023 acquisition were final as of September 30, 2024. The purchase price allocation for the November 2023 acquisition is preliminary as of September 30, 2024. We need additional time to evaluate the tax attributes of the transaction, 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 acquisition date.
The following table summarizes the estimates of fair value of the assets acquired and liabilities assumed related to the 2023 acquisitions (in millions):
Current assets |
|
$ |
|
|
Intangible assets subject to amortization: |
|
|
|
|
Technology |
|
|
|
|
Trademarks and trade names |
|
|
|
|
Customer relationships |
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
IPR&D |
|
|
|
|
Goodwill |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Current liabilities |
|
|
|
|
Deferred income taxes |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Net assets acquired |
|
$ |
|
|
The weighted average amortization periods selected for technology, customer relationships and trademarks and trade names were
13
In the three and nine-month periods ended September 30, 2024, there were no material adjustments to the preliminary values of any of the acquisitions.
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 nine-month period ended September 30, 2024, we recognized intangible assets of $
In the nine-month period ended September 30, 2023, we entered into agreements to acquire intellectual property rights through the buyout of certain licensing arrangements. These new agreements and the related payments replace the variable royalty payments that otherwise would have been due under the terms of previous licensing arrangements through 2030. These new agreements benefit us by expanding our ownership of intellectual property that we may use in the future. We recognized intangible assets of $
8. Debt
Our debt consisted of the following (in millions):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Uncommitted Credit Facility |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
- |
|
||
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 |
|
$ |
|
|
$ |
|
||
On August 15, 2024, we completed the offering of $
In the nine-month period ended September 30, 2023, we redeemed $
14
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.
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 $
15
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 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, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
AOCI before reclassifications |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Reclassifications to statements of earnings |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The following table shows the reclassification adjustments from AOCI (in millions):
|
|
Amount of Gain (Loss) |
|
|
|
|||||||||||||
|
|
Reclassified from AOCI |
|
|
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
Location on |
||||||||||
Component of AOCI |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
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, net |
||||
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
Provision for income taxes |
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net of tax |
||||
Total reclassifications |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net of tax |
||||
16
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 September 30, 2024 |
|
|
Nine Months Ended September 30, 2024 |
|
||||||||||||||||||
|
|
Before Tax |
|
|
Tax |
|
|
Net of Tax |
|
|
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 September 30, 2023 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Before Tax |
|
|
Tax |
|
|
Net of Tax |
|
|
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) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
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 September 30, 2024 |
|
|||||||||||||
|
|
|
|
|
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 consideration related to acquisitions |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||
17
|
|
As of December 31, 2023 |
|
|||||||||||||
|
|
|
|
|
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 consideration 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.
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.
Contingent payments related to the Embody acquisition are to be settled by issuance of our common stock and cash payments. The Embody acquisition is discussed in Note 7. During the nine-month period ended September 30, 2024, 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, 2023 |
|
$ |
|
|
New contingent consideration related to acquisitions |
|
|
|
|
|
|
|
||
Settlements |
|
|
( |
) |
Foreign currency impact |
|
|
|
|
Ending balance September 30, 2024 |
|
$ |
|
|
18
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 September 30, 2024 and December 31, 2023, 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 |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||
Long-term debt |
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Derivatives Designated as Cash Flow Hedges
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 and November 2019 and designated
At September 30, 2024, we had receive-fixed-rate, pay-fixed-rate cross-currency interest swaps with notional amounts outstanding of Euro
19
net cash received or paid related to the receive-fixed-rate, pay-fixed-rate component of the cross-currency interest rate swaps is reflected in investing cash flows in our condensed consolidated statements of cash flows. In the nine-month period ended September 30, 2024, Euro
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 September 30, 2024, 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 October 2024 through February 2027. As of September 30, 2024, the notional amounts of outstanding forward contracts and options entered into with third 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, 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 |
|
|
Nine Months Ended |
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
Location on |
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||
Derivative Instrument |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
Statements of Earnings |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||
Foreign exchange |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Forward starting |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
20
The fair value of outstanding derivative instruments designated as cash flow hedges and recorded on our condensed consolidated balance sheet at September 30, 2024, 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 |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
|
|
|||||||||||||||
|
|
Products |
|
|
Expense, |
|
|
Products |
|
|
Expense, |
|
|
Products |
|
|
Expense, |
|
|
Products |
|
|
Expense, |
|
||||||||
|
|
Sold |
|
|
Net |
|
|
Sold |
|
|
Net |
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gain (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 |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||||
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
Location on |
|
September 30, |
|
|
September 30, |
|
||||||||||
Derivative Instrument |
|
Statements of Earnings |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Foreign exchange forward contracts |
|
Other income, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
These gains/(losses) do not reflect offsetting gains of $
21
Balance Sheet Presentation
As of September 30, 2024 and December 31, 2023, 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 September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||
|
|
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 |
|
$ |
|
||
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 |
|
$ |
|
|
The table below presents the effects of our master netting agreements on our condensed consolidated balance sheets (in millions):
|
|
|
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||||||||||
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 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
||||
22
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
Derivative Instrument |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
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 within the next twelve months due to changes in audit status, expiration of statutes of limitations, settlements of tax assessments and other events. Management’s best estimate of such change is within the range of a $
We are under continuous audit by the 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.
In September 2024, we reached agreement with the IRS for tax years 2010-2012 primarily related to the reallocation of profits between certain U.S. and foreign subsidiaries. All issues related to these years are considered effectively settled.
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. This includes a proposed increase to our U.S. federal taxable income, which would result in additional tax expense related to 2013 of approximately $
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 $
In the three and nine-month periods ended September 30, 2024, our effective tax rate (“ETR”) was negative
23
changes in tax rates, tax laws or their interpretation, including the European Union adoption of Pillar Two proposals which began to take effect in 2024; 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.
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Weighted average shares outstanding for basic net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive stock options and other equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding for diluted net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the three and nine-month periods ended September 30, 2024, an average of
14. Segment Information
We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; craniomaxillofacial and thoracic 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”) allocates resources to achieve our operating profit goals through
Our CODM evaluates performance based upon segment operating profit exclusive of operating expenses and income pertaining to intangible asset amortization, certain inventory and manufacturing-related charges, restructuring and other cost reduction initiatives, acquisition, integration, divestiture and related, litigation, certain European Union Medical Device Regulation (“EU MDR”) expenses, other charges and corporate functions (collectively referred to as “Corporate items”). Corporate functions include finance, corporate legal, information technology, human resources and other corporate departments as well as stock-based compensation and certain operations, distribution, quality assurance, regulatory assurance, research and development ("R&D") and marketing expenses. Intercompany transactions have been eliminated from segment operating profit.
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.
In the three-month period ended March 31, 2024, the segment operating profit measures our CODM reviews were revised. Certain product category headquarter costs, primarily R&D and marketing, that were previously in our Americas operating segment are now included in Corporate items. In addition, certain support function costs from our operating segments are now included in Corporate items. We have reclassified these product category headquarter and support function expenses in the prior periods to conform to the current period presentation.
24
Net sales and operating profit by segment are as follows (in millions):
|
|
Net Sales |
|
|
Operating Profit |
|
||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Corporate items |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Intangible asset amortization |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Operating profit |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
Net Sales |
|
|
Operating Profit |
|
||||||||||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Corporate items |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Intangible asset amortization |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Operating profit |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
15. Commitments and Contingencies
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, including those described below. 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, 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 and nine-month periods ended September 30, 2024, we recognized $
25
Litigation
Durom Cup-related claims: On July 22, 2008, we temporarily suspended marketing and distribution of the Durom Cup in the U.S. Subsequently, a number of product liability lawsuits were filed against us in various U.S. and foreign jurisdictions. The plaintiffs seek damages for personal injury, and they generally allege that the Durom Cup contains defects that result in complications and revision of the device. We have settled the majority of these claims in the U.S., but other lawsuits are pending in various foreign jurisdictions and additional claims may be asserted in the future. The majority of claims outside the U.S. are pending in Germany, Netherlands and Italy.
We rely on significant estimates in determining the provisions for Durom Cup-related claims, including our estimate of the number of claims that we will receive and the average amount we will pay per claim. The actual number of claims and the actual amount we pay per claim may differ from our estimates. For various reasons, we cannot reasonably estimate the possible loss or range of loss that may result from Durom Cup-related claims in excess of the losses we have accrued. Although we are vigorously defending these lawsuits, their ultimate resolution is uncertain. We accrued a litigation-related charge in this matter based on an estimate of the reasonably possible loss, as discussed above.
Zimmer M/L Taper, M/L Taper with Kinectiv Technology, and Versys Femoral Head-related claims (“Metal Reaction” claims): We are a defendant in a number of product liability lawsuits relating to our M/L Taper and M/L Taper with Kinectiv Technology hip stems, and Versys Femoral Head implants. The plaintiffs seek damages for personal injury, alleging that defects in the products lead to corrosion at the head/stem junction resulting in, among other things, pain, inflammation and revision surgery.
The majority of the cases are consolidated in an MDL that was created on October 3, 2018 in the U.S. District Court for the Southern District of New York (In Re: Zimmer M/L Taper Hip Prosthesis or M/L Taper Hip Prosthesis with Kinectiv Technology and Versys Femoral Head Products Liability Litigation). Most of the cases in the MDL have been resolved. Other related cases are pending in various state and federal courts and in courts in Canada, and additional claims may be asserted in the future. Although we are vigorously defending these lawsuits, their ultimate resolution is uncertain. We accrued a litigation-related charge in this matter based on an estimate of the reasonably possible loss, as discussed above.
Biomet metal-on-metal hip implant claims: Biomet is a defendant in a number of product liability lawsuits relating to metal-on-metal hip implants, most of which involve the M2a-Magnum hip system. Cases were originally consolidated in an MDL in the U.S. District Court for the Northern District of Indiana (In Re: Biomet M2a Magnum Hip Implant Product Liability Litigation), but the majority of the claims in the U.S. have been settled. Trials may still occur in the future, and although each case will be tried on its particular facts, a verdict and subsequent final judgment for the plaintiff in one or more of these cases could have a substantial impact on our potential liability. Lawsuits are pending in various foreign jurisdictions and additional claims are expected to be asserted. We continue to refine our estimates of the potential liability to resolve the remaining claims and lawsuits. Although we are vigorously defending these lawsuits, their ultimate resolution is uncertain. We accrued a litigation-related charge in this matter based on an estimate of the reasonably possible loss, as discussed above.
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
Subsequent to September 30, 2024, we acquired
26
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 and Nine-Month Periods ended September 30, 2024
In the three and nine-month periods ended September 30, 2024, our net sales increased 4.0 percent and 3.7 percent, respectively, when compared to the same prior year periods. Net sales growth in both periods was driven by a combination of market growth, new product introductions and commercial execution across the organization. These favorable items were negatively impacted by our transition in July 2024 to a new enterprise resource planning ("ERP") software system for a significant portion of our U.S. and Canada sales and commercial operations. As a result of this ERP implementation, we experienced operational challenges which affected our ability to fulfill certain customer orders. This disruption mostly affected our U.S. net sales, but our International net sales were also impacted as shipments to our international affiliates were delayed. Through the quarter we saw improvement in our shipping levels to our end customers. We expect our shipping levels to return to similar levels that existed prior to the implementation by the end of the year. For the full year 2024, we estimate this ERP implementation will have less than a one percent impact to our net sales. In addition, our net sales experienced negative effects of 0.1 percent and 1.1 percent from changes in foreign currency exchange rates in the three and nine-month periods ended September 30, 2024, respectively.
Our net earnings were $249.1 million and $664.3 million in the three and nine-month periods ended September 30, 2024, respectively, compared to $162.7 million and $604.8 million in the same prior year periods, respectively. The increase in earnings in the three and nine-month periods was primarily due to a tax benefit recognized resulting from an agreement with the IRS for tax years 2010-2012, the net sales increase, lower expenses due to our 2023 Restructuring Plan and cost savings initiatives, and lower research and development ("R&D") spending on the European Union Medical Device Regulation ("EU MDR"). These favorable items were partially offset by charges from our 2023 Restructuring Plan which was instituted at the end of 2023 and continued into 2024, including $83.2 million in employee termination benefits-related charges recognized in the nine-month period ended September 30, 2024, and from additional expenses related to our U.S. and Canada ERP implementation.
2024 Outlook
We expect year-over-year revenue growth of mid-single digits in 2024 to be driven by a combination of market growth, new product introductions and commercial execution. Based on recent foreign currency exchange rates, we expect foreign currency to negatively affect year-over-year net sales by approximately 0.75 percent. We estimate operating profit will increase in 2024 when compared to 2023 due to higher net sales, leverage from fixed operating expenses and lower expenses due to our restructuring plans. However, we estimate these favorable items may be partially offset by higher intangible asset amortization and increased restructuring-related costs to implement our plans. We estimate our net interest expense will increase slightly due to higher interest rates. We expect our provision for income taxes will increase in 2024 when compared to 2023 due to larger favorable tax settlements in 2023.
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 Other. 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.
27
Net Sales by Geography
The following tables present our net sales by geography and the percentage changes (dollars in millions):
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
September 30, |
|
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc |
|
|
|||
United States |
|
$ |
1,052.3 |
|
|
$ |
1,031.4 |
|
|
|
2.0 |
|
% |
International |
|
|
771.9 |
|
|
|
722.2 |
|
|
|
6.9 |
|
|
Total |
|
$ |
1,824.2 |
|
|
$ |
1,753.6 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Nine Months Ended |
|
|
|
|
|
||||||
|
|
September 30, |
|
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc |
|
|
|||
United States |
|
$ |
3,257.7 |
|
|
$ |
3,160.6 |
|
|
|
3.1 |
|
% |
International |
|
|
2,397.7 |
|
|
|
2,293.5 |
|
|
|
4.5 |
|
|
Total |
|
$ |
5,655.4 |
|
|
$ |
5,454.1 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net Sales by Product Category
The following tables present our net sales by product category and the percentage changes (dollars in millions):
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
September 30, |
|
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc / (Dec) |
|
|
|||
Knees |
|
$ |
745.1 |
|
|
$ |
706.3 |
|
|
|
5.5 |
|
% |
Hips |
|
|
481.5 |
|
|
|
465.3 |
|
|
|
3.5 |
|
|
S.E.T. |
|
|
454.2 |
|
|
|
423.2 |
|
|
|
7.3 |
|
|
Other |
|
|
143.4 |
|
|
|
158.8 |
|
|
|
(9.7 |
) |
|
Total |
|
$ |
1,824.2 |
|
|
$ |
1,753.6 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Nine Months Ended |
|
|
|
|
|
||||||
|
|
September 30, |
|
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc |
|
|
|||
Knees |
|
$ |
2,334.3 |
|
|
$ |
2,240.1 |
|
|
|
4.2 |
|
% |
Hips |
|
|
1,479.1 |
|
|
|
1,462.5 |
|
|
|
1.1 |
|
|
S.E.T. |
|
|
1,376.4 |
|
|
|
1,299.3 |
|
|
|
5.9 |
|
|
Other |
|
|
465.6 |
|
|
|
452.2 |
|
|
|
3.0 |
|
|
Total |
|
$ |
5,655.4 |
|
|
$ |
5,454.1 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
The following tables present our net sales by geography for our Knees and Hips product categories, which represent our most significant product categories (dollars in millions):
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc |
|
|
|
2024 |
|
|
2023 |
|
|
% Inc / (Dec) |
|
|
||||||
Knees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States |
|
$ |
425.4 |
|
|
$ |
413.3 |
|
|
|
2.9 |
|
% |
|
$ |
1,324.6 |
|
|
$ |
1,299.1 |
|
|
|
2.0 |
|
% |
International |
|
|
319.7 |
|
|
|
293.0 |
|
|
|
9.1 |
|
|
|
|
1,009.7 |
|
|
|
941.0 |
|
|
|
7.3 |
|
|
Total |
|
$ |
745.1 |
|
|
$ |
706.3 |
|
|
|
5.5 |
|
|
|
$ |
2,334.3 |
|
|
$ |
2,240.1 |
|
|
|
4.2 |
|
|
Hips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
United States |
|
$ |
254.5 |
|
|
$ |
242.5 |
|
|
|
4.9 |
|
% |
|
$ |
768.3 |
|
|
$ |
749.2 |
|
|
|
2.6 |
|
% |
International |
|
|
227.0 |
|
|
|
222.8 |
|
|
|
1.9 |
|
|
|
|
710.8 |
|
|
|
713.3 |
|
|
|
(0.4 |
) |
|
Total |
|
$ |
481.5 |
|
|
$ |
465.3 |
|
|
|
3.5 |
|
|
|
$ |
1,479.1 |
|
|
$ |
1,462.5 |
|
|
|
1.1 |
|
|
28
Demand (Volume and Mix) Trends
Changes in volume and mix of product sales had positive effects of 3.4 percent and 4.2 percent on year-over-year sales during the three and nine-month periods ended September 30, 2024, respectively. Market growth and new product introductions contributed positively to volume and mix trends, but were partially offset by the operational challenges resulting from our ERP implementation.
Pricing Trends
Global selling prices had positive effects of 0.7 percent and 0.6 percent on year-over-year sales during the three and nine-month periods ended September 30, 2024, respectively. 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.
Foreign Currency Exchange Rates
For the three and nine-month periods ended September 30, 2024, changes in foreign currency exchange rates had negative effects of 0.1 percent and 1.1 percent on year-over-year sales, respectively. If foreign currency exchange rates remain at levels consistent with recent rates, we estimate there will be a negative impact of approximately 0.75 percent on full-year 2024 sales.
Geography
The 2.0 percent and 3.1 percent net sales growth in the U.S. in the three and nine-month periods ended September 30, 2024, respectively, were driven by market growth in our Knees, Hips and S.E.T. product categories. However, net sales in the U.S. were negatively impacted by the implementation of a new ERP system which caused operational challenges in fulfilling customer orders. Internationally, net sales increased by 6.9 percent and 4.5 percent during the three and nine-month periods ended September 30, 2024, respectively, when compared to the same prior year periods. These increases were similarly driven by market growth in most of our international markets. Our International sales were negatively affected by 0.2 percent and 2.6 percent due to changes in foreign currency exchange rates in the three and nine-month periods ended September 30, 2024, respectively.
Product Categories
Knees and Hips net sales benefited from market growth and new product introductions in the three and nine-month periods ended September 30, 2024. Changes in foreign currency exchange rates had a minimal impact and a negative effect of 0.9 percent on Knees net sales in the three-month and nine-month periods ended September 30, 2024, respectively. Hips net sales were negatively affected by 0.2 percent and 1.6 percent in the three and nine-month periods ended September 30, 2024, respectively, due to changes in foreign currency exchange rates. S.E.T. net sales increases in the three and nine-month periods ended September 30, 2024 were primarily the result of growth in our sports medicine, upper extremities, and craniomaxillofacial and thoracic products. Other net sales declined in the three-month period ended September 30, 2024 due to the operational challenges from our ERP system implementation and from lower net sales of our ROSA® Robot. Other net sales grew in the nine-month period ended September 30, 2024, driven by net sales of our ROSA Robot in the first half of the year.
Expenses as a Percentage of Net Sales
|
|
Three Months Ended |
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
% Inc / |
|
|
|
September 30, |
|
|
|
% Inc / |
|
|
||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
(Dec) |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(Dec) |
|
|
||||||
Cost of products sold, excluding intangible asset amortization |
|
|
29.5 |
|
% |
|
|
29.6 |
|
% |
|
|
(0.1 |
) |
% |
|
|
28.4 |
|
% |
|
|
28.3 |
|
% |
|
|
0.1 |
|
% |
Intangible asset amortization |
|
|
8.1 |
|
|
|
|
8.3 |
|
|
|
|
(0.2 |
) |
|
|
|
7.7 |
|
|
|
|
7.6 |
|
|
|
|
0.1 |
|
|
Research and development |
|
|
6.1 |
|
|
|
|
6.7 |
|
|
|
|
(0.6 |
) |
|
|
|
5.8 |
|
|
|
|
6.3 |
|
|
|
|
(0.5 |
) |
|
Selling, general and administrative |
|
|
38.9 |
|
|
|
|
38.5 |
|
|
|
|
0.4 |
|
|
|
|
38.6 |
|
|
|
|
38.8 |
|
|
|
|
(0.2 |
) |
|
Restructuring and other cost reduction initiatives |
|
|
1.8 |
|
|
|
|
1.4 |
|
|
|
|
0.4 |
|
|
|
|
3.5 |
|
|
|
|
1.7 |
|
|
|
|
1.8 |
|
|
Acquisition, integration, divestiture and related |
|
|
0.2 |
|
|
|
|
0.4 |
|
|
|
|
(0.2 |
) |
|
|
|
0.2 |
|
|
|
|
0.3 |
|
|
|
|
(0.1 |
) |
|
Operating profit |
|
|
15.3 |
|
|
|
|
15.2 |
|
|
|
|
0.1 |
|
|
|
|
15.9 |
|
|
|
|
16.9 |
|
|
|
|
(1.0 |
) |
|
29
Cost of products sold, excluding intangible asset amortization as a percentage of net sales decreased in the three-month period ended September 30, 2024 and increased in the nine-month period ended September 30, 2024, when compared to the same prior year periods. The decrease in the three-month period was primarily due to lower excess and obsolete inventory charges which was partially offset by higher manufacturing costs. The increase in the nine-month period was primarily due to higher manufacturing costs which were partially offset by lower royalty expense. The reduction in royalty expense was partially the result of agreements we entered into in 2023 to acquire intellectual property through the buyout of certain licensing arrangements, which are recognized as intangible assets and result in additional intangible asset amortization expense instead of royalty expense.
Intangible asset amortization expense increased in amount in the three and nine-month periods ended September 30, 2024 compared to the same prior year periods due to the 2023 acquisitions, the buyout of certain royalty-related licensing agreements as described above and other technology-based asset purchases.
R&D expenses decreased in amount and as a percentage of net sales in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. The decreases were driven by lower spending on our initial compliance with the EU MDR as we continue to make progress on the approvals of our products, and savings from our 2023 Restructuring Plan.
Selling, general and administrative (“SG&A”) expenses increased in amount in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. SG&A as a percentage of net sales increased in the three-month period, but decreased in the nine-month period ended September 30, 2024 when compared to the same prior year periods. The increase in amounts in both periods was due to selling and distribution costs that are variable expenses which increase as net sales increase. Additionally, we recognized higher share-based compensation expense in the 2024 periods as the 2023 periods included a benefit from the forfeiture of awards related to employee departures. Also in the 2024 periods, bad debt-related charges were higher driven by a bankruptcy at a significant U.S. healthcare system, instrument-related costs were higher due to new product introductions, and we recognized higher charges on various strategic initiatives. These higher costs were partially offset by lower expenses due to our 2023 Restructuring Plan, lower expenses from our cost savings initiatives and lower estimated annual bonus expenses.
In December 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 $32.2 million and $198.1 million in the three and nine-month periods ended September 30, 2024, respectively, and $24.3 million and $90.6 million in the three and nine-month periods ended September 30, 2023, respectively, 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 periods when compared to the 2023 periods primarily due to additional expenses related to the 2023 Restructuring Plan that had just been initiated at the end of 2023 and additional expenses related to our U.S. and Canada ERP implementation. 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 decreased in amount and as a percentage of net sales in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods, primarily due to changes in fair value estimates of contingent consideration.
Other Income, Net, Interest Expense, Net, and Income Taxes
In the three and nine-month periods ended September 30, 2024, we recognized gains of $5.1 million and $7.0 million, respectively, in our other income, net financial statement line item compared to gains of $3.8 million and $10.3 million in the same prior year periods, respectively. The changes in the three and nine-month periods were primarily driven by the timing of gains and losses recognized on our equity investments. In the three-month period ended September 30, 2024, we recognized higher gains from our investments when compared to the same prior year period while in the nine-month period ended September 30, 2024, we recognized losses compared to gains in the same prior year period.
Interest expense, net, increased in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. The increased interest expense was due to higher average debt balances outstanding and losses incurred on our fixed-to-variable interest rate swaps in the current year periods.
In the three and nine-month periods ended September 30, 2024, our effective tax rate (“ETR”) was negative 8.2 percent and positive 11.0 percent, respectively, compared to positive 25.7 percent and positive 22.7 percent in the three and nine-month periods ended September 30, 2023, respectively. The negative 8.2 percent ETR and positive 11.0 percent in the three and nine-month periods ended September 30, 2024, respectively, were primarily driven by a net favorable impact of changes to unrecognized tax benefits. The positive 25.7 percent and positive 22.7 percent ETR in the three and nine-month periods ended September 30, 2023, respectively, was primarily driven by discrete tax effects of certain tax returns and the reorganization of the ownership structure of certain
30
wholly-owned subsidiaries in the second quarter of 2023. 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, including the European Union adoption of Pillar Two proposals which began to take effect in 2024; 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit as a |
|
|
|||||||||
|
|
Net Sales |
|
|
Operating Profit |
|
|
Percentage of Net Sales |
|
|
|||||||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|||||||||||||||
(dollars in millions) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||||
Americas |
|
$ |
1,135.9 |
|
|
$ |
1,113.6 |
|
|
$ |
605.5 |
|
|
$ |
594.2 |
|
|
|
53.3 |
|
% |
|
53.4 |
|
% |
EMEA |
|
|
376.2 |
|
|
|
337.9 |
|
|
|
121.7 |
|
|
|
101.0 |
|
|
|
32.3 |
|
|
|
29.9 |
|
|
Asia Pacific |
|
|
312.0 |
|
|
|
302.1 |
|
|
|
122.3 |
|
|
|
112.5 |
|
|
|
39.2 |
|
|
|
37.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit as a |
|
|
|||||||||
|
|
Net Sales |
|
|
Operating Profit |
|
|
Percentage of Net Sales |
|
|
|||||||||||||||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|||||||||||||||
(dollars in millions) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||||
Americas |
|
$ |
3,521.7 |
|
|
$ |
3,411.0 |
|
|
$ |
1,881.7 |
|
|
$ |
1,823.0 |
|
|
|
53.4 |
|
% |
|
53.4 |
|
% |
EMEA |
|
|
1,253.4 |
|
|
|
1,166.4 |
|
|
|
424.4 |
|
|
|
382.5 |
|
|
|
33.9 |
|
|
|
32.8 |
|
|
Asia Pacific |
|
|
880.3 |
|
|
|
876.7 |
|
|
|
336.7 |
|
|
|
318.0 |
|
|
|
38.2 |
|
|
|
36.3 |
|
|
Americas
In the Americas, operating profit increased in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. Operating profit as a percentage of net sales was relatively consistent in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. The increases in operating profit were primarily due to higher net sales driven by market growth and new product introductions, coupled with lower royalty expense as a result of agreements we entered into in 2023 to acquire intellectual property through the buyout of certain licensing arrangements. However, operating profit as a percentage of net sales did not similarly increase and remained relatively consistent due to investments in instruments to support new product introductions and higher bad debt-related charges in the current year periods.
EMEA
In EMEA, operating profit and operating profit as a percentage of net sales increased in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. The increases were due to higher net sales driven by market growth and improved pricing, lower excess and obsolete inventory charges, reduced royalty expense as a result of agreements we entered into in 2023 to acquire intellectual property through the buyout of certain licensing arrangements, and lower expenses driven by our 2023 Restructuring Plan and cost savings initiatives.
Asia Pacific
In Asia Pacific, operating profit and operating profit as a percentage of net sales increased in the three and nine-month periods ended September 30, 2024 when compared to the same prior year periods. The increases were due to higher net sales driven by market growth and improved pricing, reduced royalty expense as a result of agreements we entered into in 2023 to acquire intellectual property through the buyout of certain licensing arrangements, and lower expenses driven by our 2023 Restructuring Plan and cost savings initiatives.
31
Liquidity and Capital Resources
As of September 30, 2024, we had $569.0 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 $993.1 million in the nine-month period ended September 30, 2024, compared to $993.2 million in the same prior year period. The 2024 period featured higher bonus, income tax and restructuring-related payments as well as lower accounts receivable collections due to delayed invoicing from our U.S. and Canada ERP implementation. These unfavorable items were partially offset by lower inventory investments in the 2024 period when compared to the 2023 period.
Cash flows used in investing activities were $596.9 million in the nine-month period ended September 30, 2024, compared to $558.1 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, optimization of our manufacturing and logistics networks, and investments in enterprise resource planning software. The decline in property, plant and equipment additions was driven by lower enterprise resource planning software spend as that project is getting implemented, in addition to the prior year period including investment in a corporate aircraft which did not recur in the current year period. In addition, in the nine-month period ended September 30, 2024, we entered into agreements to acquire the ownership rights or gain access to various technologies that were recognized as intangible assets, acquired three businesses and invested in a debt security.
Cash flows used in financing activities were $243.9 million in the nine-month period ended September 30, 2024, compared to $512.1 million in the same prior year period. In the 2024 period, we issued senior notes for $700.0 million and used the proceeds, along with cash on hand, to repurchase $795.8 million of our common stock and repay a net $50.0 million under our Uncommitted Credit Facility. In the 2023 period, we used cash on hand to repurchase $281.9 million of our common stock. We also repaid a net $20.0 million on our various revolving credit facilities and $120.2 million of other debt obligations that were due in the first quarter of 2023.
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 September 30, 2024, $415.9 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $64.6 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 September 30, 2024, we had outstanding debt of $6,450.7 million, of which $1,713.0 million was classified as current debt. Of our current debt, $850.0 million of senior notes mature on November 22, 2024 and $863.0 million of senior notes mature on April 1, 2025. 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.
32
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, May and August 2024, 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 effective May 29, 2024, with no expiration date. As of September 30, 2024, $1,308.1 million remained authorized under the May 2024 program. Between October 1, 2024 and October 9, 2024, we repurchased an additional 0.6 million shares for $58.1 million, resulting in $1,250.0 million remaining authorized under the May 2024 program as of October 9, 2024. We used cash on hand to fund these repurchases.
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 2023 Restructuring Plan, a 2021 Restructuring Plan and a 2019 Restructuring Plan. The 2023 Restructuring Plan along with other related initiatives is expected to result in total pre-tax charges of $120 million to $135 million by the end of 2025, of which approximately $110 million was incurred through September 30, 2024. 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 2021 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $173 million by the end of 2024, of which approximately $171 million was incurred through September 30, 2024. We expect to reduce gross annual pre-tax operating expenses by approximately $190 million relative to the 2021 baseline expenses by the end of 2024 as program benefits under the 2021 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 $348 million was incurred through September 30, 2024. 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 $155.3 million as of September 30, 2024. 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 $320 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 September 30, 2024 to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2023.
33
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:
34
Our Annual Report on Form 10-K for the year ended December 31, 2023 and this Quarterly Report on Form 10-Q contain 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, 2023.
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 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.
35
Changes in Internal Control Over Financial Reporting. In July 2024 we transitioned to a new ERP software system for a significant portion of our U.S. and Canada sales and commercial operations (the "ERP implementation"). The new ERP replaced our existing order entry, fulfillment and financial systems, resulting in material changes to our business processes and internal controls. This ERP implementation included changes to certain financial and commercial processes impacting key controls related to our internal controls over financial reporting. We have implemented and/or enhanced our internal control activities, where applicable, for any changes that occurred and will continue to monitor the impact on our processes, procedures, and internal control over financial reporting going forward. Except as it relates to our ERP implementation, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
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, 2023 (“2023 Form 10-K”) and the factors discussed below, which could materially affect our business, financial condition and results of operations. The risks described in our 2023 Form 10-K and below 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.
The following risk factor is added to the "Risk Factors" section of our 2023 Form 10-K:
Challenges in the transition of certain of our enterprise resource planning ("ERP") systems have adversely affected our business and operations, and may have further adverse effects.
As a result of technology initiatives, changes in our system platforms and the ongoing integration of business acquisitions, we have been consolidating and integrating the ERP systems that we operate. At the beginning of our third quarter of fiscal 2024, we began transitioning certain distribution and sales systems in the Americas to a new ERP system, as part of this multi-year effort. We experienced challenges in the transition during the third quarter of 2024 which caused operational challenges in fulfilling customer orders. Some disruptions and delays associated with these ERP transition challenges may continue through the fourth quarter of 2024. Although we believe we have identified the root causes of the ERP-related challenges and have developed appropriate plans to remediate these challenges, there can be no assurance that we will remediate all of our ERP-related challenges successfully and in a timely manner, or that other challenges will not arise.
These ERP-related business interruptions caused several adverse consequences, including disruption to our ability to distribute product, difficulty in meeting customer demand, and delays in invoicing customers. These unanticipated ERP-related challenges have caused the transition to the new ERP system to be more expensive and time-consuming than we anticipated. In addition, some customers affected by these disruptions may have secured supply from alternative sources, and we must regain their trust and business. We have also experienced, and may continue to experience, decreases in productivity as our personnel continue to remediate issues in our new ERP system and related processes. Continuing disruptions, delays or deficiencies in the transition, design, and implementation of our ERP system, particularly any disruptions, delays or deficiencies that impact our operations, could have a material adverse effect on our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes repurchases of common stock settled during the three-month period ended September 30, 2024:
Period |
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Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
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Total Number of Shares Purchased as a Part of Publicly Announced Program(1) |
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Maximum Approximate Dollar Value of Shares that may yet be |
|
||||
July 2024 |
|
|
1,670,000 |
|
|
$ |
108.69 |
|
|
|
1,670,000 |
|
|
|
1,723,084,701 |
|
August 2024 |
|
|
1,961,000 |
|
|
|
111.16 |
|
|
|
1,961,000 |
|
|
|
1,505,105,711 |
|
September 2024 |
|
|
1,837,000 |
|
|
|
107.27 |
|
|
|
1,837,000 |
|
|
|
1,308,050,338 |
|
Total |
|
|
5,468,000 |
|
|
$ |
109.10 |
|
|
|
5,468,000 |
|
|
$ |
1,308,050,338 |
|
(1) In May 2024, our Board of Directors authorized a $2.0 billion share repurchase program effective May 29, 2024, with no expiration date. Subsequent to September 30, 2024 through October 9, 2024, we repurchased an additional 0.6 million shares for $58.1 million, resulting in $1,250.0 million remaining authorized under the May 2024 program as of October 9, 2024.
Item 3. Defaults Upon Senior Securities
None
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Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
During the three-month period ended September 30, 2024, no members of our Board of Directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
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Item 6. Exhibits
The following exhibits are filed or furnished as part of this report:
3.1 |
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3.2 |
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4.1 |
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4.2 |
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Form of 5.200% Notes due 2034 (incorporated by reference to Exhibit 4.1 above). |
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21 |
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31.1 |
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31.2 |
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32 |
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101 |
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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. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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39
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.
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ZIMMER BIOMET HOLDINGS, INC. |
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(Registrant) |
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Date: October 30, 2024 |
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By: |
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/s/ Suketu Upadhyay |
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Suketu Upadhyay |
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Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain |
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(Principal Financial Officer) |
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Date: October 30, 2024 |
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By: |
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/s/ Paul Stellato |
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Paul Stellato |
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Vice President, Controller and Chief Accounting Officer |
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(Principal Accounting Officer) |
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40