Zimmer Biomet Holdings (ZBH) 10-K risk factor changes: FY2019 vs FY2018

In addition to the factors discussed elsewhere in this report, the following risks and uncertainties could materially harm our business, financial condition or results of operations, including causing our actual results to differ materially from those projected in any forward-looking [added: statements.]

We could also be subject to exclusion by OIG-HHS from participation in federal healthcare programs, including [added: Medicare,] Medicaid and [removed: Medicare.][added: Veterans Administration health programs.]

[removed: We] [added: We] may not be able to effectively integrate acquired businesses into our operations or achieve expected cost savings or profitability from our [removed: acquisitions.][added: acquisitions.]

| | • | unforeseen [added: risks and] liabilities associated with businesses [removed: acquired;] [added: acquired, including any unknown vulnerabilities in acquired technology or compromises of acquired data;] and |

As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated benefits of such [removed: acquisitions] [added: acquisitions,] and we may incur costs in excess of what we anticipate.

Damage to one or more of our facilities from weather or natural disaster-related events, [added: vulnerabilities in our technology, cyber-attacks against our information systems (such as ransomware attacks),] or issues in our manufacturing arising from failure to follow specific internal protocols and procedures, compliance concerns relating to the QSR and Good Manufacturing Practice requirements, equipment breakdown or malfunction or other factors could adversely affect our ability to manufacture our products.

Disruptions in the supply of the materials and components used in manufacturing our products [added: or the sterilization of our products by third-party suppliers] could adversely affect our business, financial condition and results of operations.

We purchase many of the materials and components used in manufacturing our products from third-party [removed: vendors] [added: suppliers] and we outsource some key manufacturing activities.

In certain cases, we may not be able to establish additional or replacement [removed: vendors] [added: suppliers] for such materials or components or outsourced activities in a timely or cost effective manner, largely as a result of FDA regulations that require validation of materials and components prior to their use in our products and the complex nature of our and many of our [removed: vendors'] [added: suppliers'] manufacturing processes.

We are subject to costly and complex laws and governmental regulations relating to the [added: development, design, product standards, packaging, advertising, promotion, postmarket surveillance,] manufacturing, labeling and marketing of our products, non-compliance with which could adversely affect our business, financial condition and results of operations.

The products we design, develop, manufacture and market are subject to rigorous regulation by the FDA and numerous other [added: supranational, national,] federal, [added: regional,] state and [removed: foreign] [added: local] governmental authorities.

The process of obtaining regulatory approvals [added: and clearances] to market these products can be costly and time consuming and approvals might not be granted for future products on a timely basis, if at all.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations and other [removed: local,] [added: supranational, national, federal, regional,] state and [removed: foreign requirements.][added: local requirements globally.]

The FDA or other regulators may also impose operating restrictions, including a ceasing of operations at one or more facilities, enjoin and restrain certain violations of applicable law pertaining to our [added: products, seizure of] products and assess civil or criminal penalties against our officers, employees or us.

The FDA or other regulators could also issue a corporate warning [removed: letter,] [added: letter or] a recidivist warning [removed: letter,] [added: letter or negotiate the entry of] a consent decree of permanent [removed: injunction,] [added: injunction with us,] and/or recommend prosecution.

As of February [removed: 20, 2019,] [added: 14, 2020,] these warning letters remained pending.

Until the violations are corrected, we may become subject to additional regulatory action by the FDA as described above, the FDA may refuse to grant premarket approval applications and/or the FDA may refuse to grant export certificates, any of which could have a material adverse effect on our business, financial condition and results of [added: operations.]

Additional information regarding these and other FDA regulatory matters can be found in Note [removed: 19] [added: 20] to our consolidated financial statements.

Governmental regulations outside the U.S. [removed: have and may] continue to become increasingly stringent and complex.

In the EU, for example, [removed: a new Medical Device Regulation was published in 2017 which, when it enters into full force] [added: the MDR will become effective] in [removed: 2020,] [added: May 2020 and] will include significant additional premarket and post-market requirements.

Complying with the requirements of this regulation [removed: will require] [added: requires] us to incur significant expense.

[removed: Any such delays, or any failure to meet the] requirements of the new regulation, could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements.

Our industry is subject to various [removed: federal, state and foreign] laws and regulations pertaining to healthcare fraud and abuse, including the [removed: federal] False Claims Act, the [removed: federal] Anti-Kickback Statute, the [removed: federal] Stark law, the [removed: federal] Physician Payments Sunshine [added: Act, the Food, Drug, and Cosmetic] Act and similar [removed: state] [added: laws] and [removed: foreign laws.][added: regulations in the U.S. and around the world.]

In addition, we are subject to various [removed: federal and foreign] laws concerning anti-corruption and anti-bribery [removed: matters,] [added: matters (including the FCPA),] sales to countries or persons subject to economic sanctions and other matters affecting our international operations.

We are also subject to federal, state and international data privacy and security laws and regulations that govern the collection, use, [removed: disclosure] [added: disclosure, transfer, storage, disposal] and protection of health-related and other personal information.

The FDA [removed: also] has issued guidance to which we may be subject concerning data security for medical devices.

In addition, certain of our affiliates are subject to [removed: privacy and] [added: privacy,] security [added: and breach notification] regulations promulgated under HIPAA.

HIPAA governs the use, disclosure, and security of protected health information by HIPAA “covered entities” and their “business associates.” Covered entities are health [added: plans, health] care [added: clearinghouses and health care] providers that engage in specific types of electronic [removed: transactions, health plans, and health care clearinghouses.][added: transactions.]

In addition to the FDA guidance and HIPAA regulations described above, a number of U.S. states have also enacted data privacy and security laws and regulations that govern the [removed: confidentiality, security, use] [added: collection, use, disclosure, transfer, storage, disposal,] and [removed: disclosure] [added: protection] of [removed: sensitive] personal information, such as social security numbers, medical and financial information and other [removed: personal] information.

[removed: These] [added: Other] state laws include the CCPA, which was signed into law on June 28, 2018 and largely [removed: takes] [added: took] effect [added: on] January 1, 2020.

The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals [removed: new] [added: numerous] rights relating to their personal information that may affect our ability to use personal [removed: information.][added: information or share it with our business partners.]

We will continue to monitor and assess the impact of [removed: the CCPA,] [added: these state laws,] which [removed: has] [added: may impose] substantial penalties for [removed: non-compliance] [added: violations, impose significant costs for investigations] and [removed: carries] [added: compliance, allow private class-action litigation and carry] significant potential [removed: liability, on] [added: liability for] our business.

Outside of the U.S., data protection laws, including the [removed: GDPR,] [added: GDPR and LGPD,] also apply to some of our operations in the countries in which we provide services to our customers.

[removed: The GDPR imposes, among other] things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations [added: of up to the greater of 20 million Euros or 4% of total worldwide annual turnover of the preceding financial year).]

[removed: Other governmental] [added: Governmental] authorities around the world [removed: are considering] [added: have enacted] similar types of legislative and regulatory [removed: proposals] [added: requirements] concerning data [removed: protection.][added: protection, and additional governments are considering similar legal frameworks.]

Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could [removed: negatively affect] [added: have a material adverse impact on] our [removed: operating] [added: business, financial condition or] results [removed: and business.][added: of operations.]

We incurred substantial additional indebtedness in connection with previous mergers and acquisitions and may not be able to meet all of our debt [removed: obligations.][added: obligations, and the phase-out, replacement or unavailability of LIBOR and/or other interest rate benchmarks could adversely affect our indebtedness.]

At December 31, [removed: 2018,] [added: 2019,] our total indebtedness was [removed: $8.9] [added: $8.2] billion, as compared to $1.4 billion at December 31, 2014.

As of December 31, [removed: 2018,] [added: 2019,] our debt service obligations, comprised of principal and interest (excluding leases and equipment notes), during the next 12 months are expected to be [removed: $776.9 million.][added: $1.7 billion.]

We also have outsourced elements of our operations to third parties, and, as a result, we manage a number of third-party [removed: vendors] [added: suppliers] who may or could have access to our confidential [removed: information.][added: information, including, but not limited to, intellectual property, proprietary business information and personal information of patients, employees and customers (collectively “Confidential Information”).]

Our restructuring program may not be successful or we may not fully realize the expected cost savings and/or operating efficiencies from our restructuring initiatives.

In December 2019, our Board of Directors approved, and we initiated, a new global restructuring program that includes a restructuring of key businesses to better align our resources with our growth strategies, achieve operating efficiencies that we expect to reduce costs, simplify our organizational structure, accelerate decision-making and allow us to invest in higher priority growth opportunities.

Restructuring initiatives involve complex plans and actions that may include, or result in, workforce reductions, global plant closures and/or consolidations, product portfolio rationalizations and asset impairments.

Additionally, as a result of restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiencies during transitional periods.

Restructuring initiatives present significant risks that may impair our ability to achieve anticipated operating enhancements and/or cost reductions, or otherwise harm our business, including higher than anticipated costs in implementing our restructuring program, as well as management distraction.

For more information on our restructuring program, see Note 4 to our consolidated financial statements.

In addition, many of our products require sterilization prior to sale and we utilize a mix of internal resources and contract sterilizers to perform this service.

To the extent we or our contract sterilizers are unable to sterilize our products, whether due to capacity, availability of materials for sterilization, regulatory or other constraints, including federal and state regulations on the use of ethylene oxide, we may be unable to transition to other contract sterilizers,

sterilizer locations or sterilization methods in a timely or cost effective manner or at all, which could have a material impact on our results of operations and financial condition.

Our global regulatory environment is increasingly stringent, unpredictable and complex.

Additionally, the availability of EU notified body services certified to the new requirements is limited, which may delay the marketing approval for some of our products under the MDR.

Any such delays, or any failure to meet the

The sales, marketing and pricing of products and relationships that medical products companies have with healthcare providers are under increased scrutiny around the world.

The FDA and the DHS have also issued urgent safety communications regarding cybersecurity vulnerabilities of certain medical devices, which vulnerabilities may apply to some of our current or future devices.

For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information.

Regulations from the California Attorney General have not been finalized, and it is expected that additional amendments to the CCPA will be introduced.

Meanwhile, over fifteen other states have considered privacy laws like the CCPA, and in October 2019, Nevada enacted a similar but generally less restrictive privacy law.

The GDPR imposes, among other

In addition, the interest rates applicable to certain of our debt obligations are based on a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and/or Tokyo Interbank Offered Rate (“TIBOR”).

Any increase in interest rates applicable to our debt obligations would increase our cost of borrowing and could adversely affect our financial position, results of operations or cash flows.

Further, in July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.

In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify alternatives to LIBOR.

The ARRC has recommended a benchmark replacement waterfall to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation.

The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”).

At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement.

Additionally, it is uncertain if LIBOR will cease to exist after calendar year 2021, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR.

Further, other central banks have convened working groups to determine replacements or reforms of other interest rate benchmarks, such as EURIBOR, and it is expected, although not known, that a transition away from the use of certain of these other interest rate benchmarks will occur over the course of the next few years and alternative reference rates will be established.

Certain of our debt obligations that are based on LIBOR will mature before the end of 2021.

However, the revolving credit agreement that we entered into on November 1, 2019 (the “2019 Credit Agreement”) has an initial maturity date of November 1, 2024.

In anticipation of LIBOR’s phase out, the 2019 Credit Agreement provides for alternative base rates as well as a transition mechanism for selecting a benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed with the general administrative agent and our lenders.

There can be no assurance that we will be able to reach an agreement with our lenders on any such replacement benchmark before experiencing adverse effects due to changes in interest rates, if at all.

We will continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur.

Accordingly, the potential effect of the phase-out, replacement or unavailability of LIBOR, or the unavailability of any other interest rate benchmark such as EURIBOR or TIBOR, on our cost of capital cannot yet be determined.

Further, the use of an alternative base rate or a benchmark replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business, financial condition or results of operations.

In addition, some of our products and services incorporate software or information technology that collects data regarding patients and patient therapy, and some products or software we provide to customers connect to our systems for maintenance and other purposes.

Like other large multi-national corporations, we have experienced instances of successful phishing attacks on our email systems and expect to be subject to similar attacks in the future.

We also are subject to other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and other malware, payment fraud or other cyber incidents.

Our incident response efforts, business continuity procedures and disaster recovery planning may not be sufficient for all eventualities.

| | • | suffer outages or disruptions in our operations or supply chain; |

| | • | be subject to issues with product functionality that may result in a loss of data, risk to patient safety, field actions and/or product recalls; |

statements.

In May 2016, we received a warning letter from the FDA related to observed non-conformities with current good manufacturing practice requirements of the QSR at our facility in Montreal, Quebec, Canada.

operations.

Additionally, the availability of industry notified body services certified to the new requirements is limited, which may cause delays in our receipt of CE certificate approvals and EU Medical Device Regulation submission approvals.

of up to 4% of total company revenue).

Cyber-attacks, such as those involving the deployment of malware, are increasing in their frequency, sophistication and intensity and have become increasingly difficult to detect.

| | • | pricing; |

| | • | customer service. |

| | • | political and economic instability. |

Although the U.S. Treasury has provided guidance on aspects of the 2017 Tax Act, there still remains further guidance to be provided in the future.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), expressing its views on the application of Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes, in the reporting period that includes December 22, 2017.

For the financial statements that include the reporting period in which the 2017 Tax Act was enacted, SAB 118 provides a provisional approach to reflect the income tax effects of the 2017 Tax Act.

We finalized our provisional amounts for the effects of the 2017 Tax Act in our 2018 Annual Report on Form 10-K.

If the medical device excise tax is not repealed or further suspended, our business, results of operations and cash flows may be adversely affected.

As part of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the Affordable Care Act or ACA), in January 2013 we began paying a 2.3 percent medical device excise tax on the vast majority of our U.S sales.

A two-year moratorium was placed on the tax effective January 1, 2016, and that moratorium was extended for an additional two years effective January 1, 2018.

Absent further legislative action, the tax will be automatically reinstated for U.S. medical device sales beginning January 1, 2020.

If the medical device excise tax is reinstated, we will again be forced to identify ways to reduce spending in other areas to offset the earnings impact due to the tax.

We do not expect to be able to pass along the cost of the tax to hospitals, which continue to face cuts to their Medicare reimbursement under the Affordable Care Act and other legislation.

Nor do we expect to be able to offset the cost of the tax through higher sales volumes resulting from any further expansion of health insurance coverage through ACA exchanges or Medicaid expansion because of the demographics of the current uninsured population.

The majority of the Durom Cup cases are pending in a federal Multidistrict Litigation (“MDL”) in the District of New Jersey (In Re: Zimmer Durom Hip Cup Products Liability Litigation); the majority of the M/L Taper and M/L Taper with Kinectiv Technology hip stem cases and Versys Femoral Head implant cases are pending in a federal MDL in 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); and the majority of the M2a-Magnum hip system cases are pending in a federal MDL in the Northern District of Indiana (In Re: Biomet M2a Magnum Hip Implant Products Liability Litigation).

Although we maintain third-party product liability insurance coverage, we have substantial self-insured retention amounts that we must pay in full before obtaining any insurance proceeds to pay for defense costs, or to satisfy a judgment or settlement.

Furthermore, even if any product liability loss is covered by our insurance, it is possible that claims against us may exceed the coverage limits of our insurance policies and we would have to pay the amount of any defense costs, settlement or judgment that is in excess of our policy limits.

Patents and other proprietary rights are essential to our business.

We rely on a combination of patents, trade secrets and non-disclosure and other agreements to protect our proprietary intellectual property, and we will continue to do so.

While we intend to defend against any threats to our intellectual property, these patents, trade secrets and other agreements may not adequately protect our intellectual property.

In addition, intellectual property rights may be unavailable or of limited effect in some foreign countries.

If we do not obtain sufficient international protection for our intellectual property, our competitiveness in international markets could be impaired, which could limit our growth and revenue.

We also attempt to protect our trade secrets, proprietary know-how and continuing technological innovation with security measures, including the use of non-disclosure and other agreements with our employees, consultants and collaborators.

We cannot be certain that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information, or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.

Our assets include intangible assets, including goodwill.

At December 31, 2018, we had $9.6 billion in goodwill.

In March 2017, the UK formally notified the EU of its intention to withdraw, which commenced a period of up to two years for negotiating the UK’s withdrawal terms.

The UK and the EU have been negotiating the terms of the UK’s exit from the EU, which is scheduled for March 29, 2019.

Although the UK and the EU agreed upon a draft withdrawal agreement in November 2018, the UK Parliament rejected the withdrawal agreement in January 2019, creating significant uncertainty as to the terms under which the UK will leave the EU.

Certain amounts in the [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] consolidated financial statements have been reclassified to conform to the [removed: 2018] [added: 2019] presentation.

We estimate [removed: the change in] sales [added: growth] in [removed: 2019] [added: 2020] compared to [removed: 2018] [added: 2019] will be in a range of [removed: negative 0.5] [added: 2.5] percent to [removed: positive 0.5] [added: 3.5] percent.

[removed: We anticipate that most of the negative effects of] [added: However, we estimate sales will be negatively affected by] foreign currency exchange rates [removed: will occur] in the first half of the [added: year, but that impact will be offset by positive effects in the second half of the] year.

[removed: Net] [added: Net] Sales by [removed: Geography][added: Geography]

| | | [removed: 2017] [added: 2019] | | | | [removed: 2016] [added: 2018] | | | | % [removed: Inc] [added: Inc/(Dec)] | | | | Mix | | | | Price | | | | Exchange | | | |

| | | [removed: 2017] [added: 2019] | | | | [removed: 2016] [added: 2018] | | | | % Inc/(Dec) | | | | Mix | | | | Price | | | | Exchange | | | |

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2018] [added: 2019] vs. [removed: 2017] [added: 2018] % Inc/(Dec) | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] % Inc/(Dec) | | | |

| Americas | | $ | [removed: 1,642.7] [added: 1,676.6] | | | $ | [removed: 1,656.5] [added: 1,642.7] | | | $ | [removed: 1,686.5] [added: 1,656.5] | | | | [removed: (0.8] [added: 2.1] | [removed: )] | % | | [removed: (1.8] [added: (0.8] | ) | % |

| EMEA | | | [removed: 672.3] [added: 654.1] | | | | [removed: 644.4] [added: 672.3] | | | | [removed: 638.1] [added: 644.4] | | | | [removed: 4.4] [added: (2.7] | [added: )] | | | [removed: 1.0] [added: 4.4] | | |

| Asia Pacific | | | [removed: 458.7] [added: 479.4] | | | | [removed: 433.1] [added: 458.7] | | | | [removed: 426.6] [added: 433.1] | | | | [removed: 5.9] [added: 4.5] | | | | [removed: 1.5] [added: 5.9] | | |

| Total | | $ | [removed: 2,773.7] [added: 2,810.1] | | | $ | [removed: 2,734.0] [added: 2,773.7] | | | $ | [removed: 2,751.2] [added: 2,734.0] | | | | [removed: 1.5] [added: 1.3] | | | | [removed: (0.6] [added: 1.5] | [removed: )] | |

| Americas | | $ | [removed: 996.3] [added: 1,016.3] | | | $ | [removed: 968.9] [added: 996.3] | | | $ | [removed: 982.1] [added: 968.9] | | | | [removed: 2.8] [added: 2.0] | | % | | [removed: (1.3] [added: 2.8] | [removed: )] | % |

| EMEA | | | [removed: 519.9] [added: 499.8] | | | | [removed: 518.4] [added: 519.9] | | | | [removed: 522.1] [added: 518.4] | | | | [removed: 0.3] [added: (3.9] | [added: )] | | | [removed: (0.7] [added: 0.3] | [removed: )] | |

| Asia Pacific | | | [removed: 405.2] [added: 419.0] | | | | [removed: 384.5] [added: 405.2] | | | | [removed: 357.6] [added: 384.5] | | | | [removed: 5.4] [added: 3.4] | | | | [removed: 7.5] [added: 5.4] | | |

| Total | | $ | [removed: 1,921.4] [added: 1,935.1] | | | $ | [removed: 1,871.8] [added: 1,921.4] | | | $ | [removed: 1,861.8] [added: 1,871.8] | | | | [removed: 2.6] [added: 0.7] | | | | [removed: 0.5] [added: 2.6] | | |

Increased volume and changes in the mix of product sales [removed: contributed 3.2 percentage points] [added: had a positive effect] of [added: 4.9 percent on] year-over-year sales [removed: growth] during [removed: 2018.][added: 2019.]

Volume/mix growth was driven by recent product introductions, [added: particularly in our Knees product category,] sales in key emerging markets and [removed: an aging population.][added: market growth.]

[removed: We believe long-term indicators point toward sustained] [added: Market] growth [removed: driven] [added: has generally been influenced] by an aging global population, [removed: growth in emerging markets,] obesity, [removed: proven clinical benefits,] new [removed: material] technologies, advances in surgical techniques and more active lifestyles, among other factors.

Global selling prices had a negative effect of [removed: 2.4 percentage points] [added: 2.7 percent] on year-over-year sales during [removed: 2018.][added: 2019.]

In [removed: 2018,] [added: 2019,] changes in foreign currency exchange rates had a [removed: positive] [added: negative] effect of [removed: 0.9] [added: 1.6] percent on [added: year-over-year] sales.

If foreign currency exchange rates remain at levels consistent with recent rates, we estimate [removed: 2019 sales] [added: they] will [removed: be negatively affected by 1.0 percent to 1.5 percent.][added: have a minimal effect on sales in 2020 for the full year.]

Knee sales [removed: volume/mix] growth was [removed: led] [added: principally driven] by [removed: Persona] [added: increased demand for Persona®] The Personalized Knee [removed: System and] [added: System,] the [removed: Oxford] [added: Oxford®] Partial [removed: Knee.][added: Knee and the ROSA® Knee System.]

Hip sales [removed: volume/mix] growth was [removed: led by] [added: primarily attributable to increased utilization of] our [removed: Taperloc Hip System, Arcos Modular] [added: Taperloc® Complete] Hip System and [removed: G7] [added: G7®] Acetabular System.

[removed: Spine] [added: *Spine] & [removed: CMF][added: CMF*]

The following table presents estimated* [removed: 2018] [added: 2019] global market [removed: size and market share] information (dollars in billions):

| | | Global | | | | Global | | Zimmer Biomet | | | [removed: | Zimmer Biomet | | |]

| | | Market | | | | Market | | Market | | | [removed: | Market | | |]

| | | Size | | | | % Growth | | [removed: Share | | | |] Position | | |

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2018] [added: 2019] vs. [removed: 2017] [added: 2018] Inc/(Dec) | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] Inc/(Dec) | | | |

| Cost of products sold, excluding intangible asset amortization | | | [removed: 28.6] [added: 28.2] | [added: |] % | | [added: 28.6] | [removed: 27.3] | % | | [added: 27.3] | [removed: 31.1] | % | | [removed: | 1.3] [added: (0.4] | [added: )] | % | | [removed: (3.8] [added: 1.3] | [removed: )] | % |

| Intangible asset amortization | | | [removed: 7.5] [added: 7.3] | | | | [removed: 7.7] [added: 7.5] | | | | [removed: 7.4] [added: 7.7] | | | | (0.2 | ) | | | [removed: 0.3] [added: (0.2] | [added: )] | |

| Research and development | | | [removed: 4.9] [added: 5.6] | | | | [removed: 4.7] [added: 4.9] | | | | [removed: 4.8] [added: 4.7] | | | | [removed: 0.2] [added: 0.7] | | | | [removed: (0.1] [added: 0.2] | [removed: )] | |

| Selling, general and administrative | | | [removed: 42.6] [added: 41.9] | | | | [removed: 39.8] [added: 42.6] | | | | [removed: 38.4] [added: 39.8] | | | | [removed: 2.8] [added: (0.7] | [added: )] | | | [removed: 1.4] [added: 2.8] | | |

| Goodwill and intangible asset impairment | | | [removed: 12.3] [added: 0.9] | | | | [removed: 4.2] [added: 12.3] | | | | [removed: 0.4] [added: 4.2] | | | | [removed: 8.1] [added: (11.4] | [added: )] | | | [removed: 3.8] [added: 8.1] | | |

| Quality remediation | | | [removed: 1.9] [added: 1.0] | | | | [removed: 2.3] [added: 1.9] | | | | [removed: 0.7] [added: 2.3] | | | | [removed: (0.4] [added: (0.9] | ) | | | [removed: 1.6] [added: (0.4] | [added: )] | |

| Operating Profit | | | [removed: 0.4] [added: 14.2] | | | | [removed: 10.2] [added: 0.4] | | | | [removed: 10.7] [added: 10.2] | | | | [removed: (9.8] [added: 13.8] | [removed: )] | | | [removed: (0.5] [added: (9.8] | ) | |

[removed: Cost] [added: Cost] of Products Sold and Intangible Asset [removed: Amortization][added: Amortization]

The following table sets forth the factors that contributed to the gross margin changes in each of [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] compared to the prior year:

| | | [added: 2019 | | | |] 2018 | | | | 2017 | | |

| Prior year gross margin | | | [removed: 64.9] [added: 63.9] | % | | | [removed: 61.5] [added: 64.9] | % |

The following discussion, analysis and comparisons generally focus on the operating results for the years ended December 31, 2019 and 2018.

Discussion, analysis and comparisons of the years ended December 31, 2018 and 2017 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

2019 Financial Highlights

In 2019, our net sales increased by 0.6 percent compared to 2018.

We estimate changes in volume/mix of our products and pricing had a positive effect of 2.2 percent on our 2019 sales while changes in foreign currency exchange rates had a negative effect of 1.6 percent.

Notably, our sales growth was higher in the second half of the year compared to the first half of the year primarily due to various product launches in our Knees product category, which drove improved commercial execution.

The improved second half performance was present in all of our product categories and geographic regions.

Additionally, the negative impact of changes in foreign currency exchange rates was less in the second half of 2019 compared to the first half.

Our net earnings increased by more than $1.5 billion in 2019 from 2018.

We had significant goodwill and intangible asset impairments and litigation-related charges in 2018, which contributed to a net loss that year.

In 2019, expenses related to quality remediation, as well as acquisition and integration, declined due to the continued progress in completing those projects.

Higher sales, lower interest expense and the recognition of a deferred tax benefit related to Switzerland tax reform resulted in the significant increase in earnings in 2019 compared to 2018.

2020 Outlook

We believe that the improved sales performance in the second half of 2019 will continue into 2020.

We anticipate the impact from changes in foreign currency exchange rates will be minimal for 2020.

We expect to be able to leverage the sales growth into higher operating profits.

Additionally, we expect reductions in quality remediation costs, as well as other various project costs, as we complete these initiatives.

We have recently initiated restructuring activities designed to reduce our operating costs in the long-term.

These activities are expected to result in expenses of approximately $350 million to $400 million through the end of 2023, with slightly more than half of that expected to be incurred in 2020.

Further, we expect interest expense, net, will continue to decline in 2020 due to lower average outstanding debt balances.

Our 2020 outlook does not consider any impacts from the recent outbreak of the coronavirus.

While there could be a near-term effect on our operating results, it is difficult to assess or predict how material the impact will be and what long-term effects the outbreak may have.

| Americas | | $ | 4,875.8 | | | $ | 4,837.2 | | | | 0.8 | | % | | 4.0 | | % | | (3.0 | ) | % | | (0.2 | ) | % |

| EMEA | | | 1,746.9 | | | | 1,801.9 | | | | (3.1 | ) | | | 4.3 | | | | (2.1 | ) | | | (5.3 | ) | |

| Asia Pacific | | | 1,359.5 | | | | 1,293.8 | | | | 5.1 | | | | 9.1 | | | | (2.2 | ) | | | (1.8 | ) | |

| Total | | $ | 7,982.2 | | | $ | 7,932.9 | | | | 0.6 | | | | 4.9 | | | | (2.7 | ) | | | (1.6 | ) | |

| Knees | | $ | 2,810.1 | | | $ | 2,773.7 | | | | 1.3 | | % | | 6.2 | | % | | (3.0 | ) | % | | (1.9 | ) | % |

| Hips | | | 1,935.1 | | | | 1,921.4 | | | | 0.7 | | | | 5.5 | | | | (3.0 | ) | | | (1.8 | ) | |

| S.E.T. | | | 1,795.7 | | | | 1,751.8 | | | | 2.5 | | | | 5.4 | | | | (1.6 | ) | | | (1.3 | ) | |

| Spine & CMF | | | 747.3 | | | | 763.9 | | | | (2.2 | ) | | | 1.4 | | | | (2.6 | ) | | | (1.0 | ) | |

| Dental | | | 414.0 | | | | 411.2 | | | | 0.7 | | | | 3.2 | | | | (0.9 | ) | | | (1.6 | ) | |

| Other | | | 280.0 | | | | 310.9 | | | | (9.9 | ) | | | (2.1 | ) | | | (6.5 | ) | | | (1.3 | ) | |

| Total | | $ | 7,982.2 | | | $ | 7,932.9 | | | | 0.6 | | | | 4.9 | | | | (2.7 | ) | | | (1.6 | ) | |

Knee sales increased by 1.3 percent in 2019 compared to 2018.

Various product launches resulted in improved volume/mix growth in the knee product category, which was partially offset by price declines and changes in foreign currency exchange rates.

Hip sales increased by 0.7 percent in 2019 compared to 2018.

Volume/mix growth in this product category was partially offset by price declines and changes in foreign currency exchange rates.

S.E.T. sales increased by 2.5 percent in 2019 compared to 2018 primarily due to supply stability, salesforce specialization and new product launches, partially offset by price declines and changes in foreign currency exchange rates.

Spine and CMF sales decreased by 2.2 percent in 2019 compared to 2018 primarily due to ongoing sales channel consolidation in our Spine division, price declines and changes in foreign currency exchange rates.

Demand for our thoracic products continued to positively contribute to sales.

2018 Results

In December 2017, we announced the appointment of a new Chief Executive Officer (“CEO”).

After evaluating the state of our business, our CEO expects it will be a two-year (consisting of 2018 and 2019) effort to get the Company operating at market level or above in terms of sales growth rates.

One of his first priorities was to improve our supply chain.

Starting in 2016 and continuing into 2017, production delays at our Warsaw North Campus facility directly impacted our ability to fully meet demand in our Knees, Hips and S.E.T. product categories.

We successfully reduced backorders and increased safety stock levels in 2018 and no longer consider supply to be a barrier to delivering our financial commitments.

This resulted in improved sales growth in 2018 in our largest product categories of Knees and Hips.

Knees and Hips sales growth in 2018 was 1.5 percent and 2.6 percent, respectively, compared to a sales decline in Knees of 0.6 percent and sales growth of 0.5 percent in Hips in 2017.

Additionally, this sales growth improved in the second half of 2018 compared to the first half of 2018.

Overall, net sales increased by 1.7 percent in 2018 compared to 2017, primarily due to the improved product supply and completion of key research and development (“R&D”) projects in our Knees product category.

Our net earnings (loss) decreased significantly in 2018 compared to 2017 primarily due to $979.7 million of goodwill and intangible asset impairments and $186.0 million of litigation-related charges in 2018 compared to a $1,272.4 million income tax benefit recognized in 2017 related to the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”).

Net earnings (loss) also decreased in 2018 due to increased excess and obsolescence charges and continued investments in R&D and selling, general and administrative (“SG&A”).

2019 Outlook

2019 will mark the second year of our two-year turnaround effort.

In late 2018 and early 2019, we had various product launches in our Knees product category, which we anticipate will drive improving commercial momentum, especially in the second half of 2019.

This range includes estimated negative effects of changes in foreign currency exchange rates of 1.0 percent to 1.5 percent.

Assuming we have no significant goodwill and intangible asset impairments or litigation charges in 2019, we expect our net earnings to increase significantly compared to the net loss recognized in 2018.

We expect our costs of products sold will continue to reflect costs associated with our quality remediation efforts.

We anticipate continuing to make investments in operating expenses to support our new product launches.

However, we expect expenses related to our acquisition and integration activities and quality remediation will decline as we complete these projects during 2019.

We believe that our interest expense, net, will continue to decline throughout the year due to lower anticipated debt levels.

| Americas | | $ | 4,844.8 | | | $ | 4,786.7 | | | | 1.2 | | % | | 3.7 | | % | | (2.6 | ) | % | | 0.1 | | % |

| EMEA | | | 1,745.2 | | | | 1,730.4 | | | | 0.9 | | | | 2.1 | | | | (1.9 | ) | | | 0.7 | | |

| Asia Pacific | | | 1,213.3 | | | | 1,151.3 | | | | 5.4 | | | | 9.4 | | | | (3.1 | ) | | | (0.9 | ) | |

| Total | | $ | 7,803.3 | | | $ | 7,668.4 | | | | 1.8 | | | | 4.2 | | | | (2.5 | ) | | | 0.1 | | |

| Knees | | $ | 2,734.0 | | | $ | 2,751.2 | | | | (0.6 | ) | % | | 2.1 | | % | | (2.8 | ) | % | | 0.1 | | % |

| Hips | | | 1,871.8 | | | | 1,861.8 | | | | 0.5 | | | | 3.5 | | | | (3.0 | ) | | | \- | | |

| S.E.T. | | | 1,701.8 | | | | 1,639.1 | | | | 3.8 | | | | 5.9 | | | | (2.0 | ) | | | (0.1 | ) | |

| Dental | | | 418.6 | | | | 427.9 | | | | (2.2 | ) | | | (0.3 | ) | | | (2.3 | ) | | | 0.4 | | |

| Spine & CMF | | | 757.9 | | | | 660.7 | | | | 14.7 | | | | 15.8 | | | | (1.4 | ) | | | 0.3 | | |

| Other | | | 319.2 | | | | 327.7 | | | | (2.6 | ) | | | (0.9 | ) | | | (1.8 | ) | | | 0.1 | | |

2017 year-over-year volume/mix growth of 4.2 percent benefited from acquisitions made in 2016 that resulted in a full year of the sales of acquired companies reflected in the 2017 results.

In addition, demand for clinically proven premium products and patient specific devices are expected to continue to positively affect sales growth in markets that recognize the value of these advanced technologies.

We address currency risk through regular operating and financing activities and through the use of forward contracts solely to manage foreign currency volatility and risk.

Changes in foreign currency exchange rates affect sales growth, but due to offsetting gains/losses on hedge contracts, which are recorded in cost of products sold, the effect on net earnings in the near term is reduced.

Knee sales increased in 2018 compared to a year-over-year decline in 2017.

Knee sales have improved due to recent product launches and improved supply.

Hip sales continued to experience year-over-year sales growth driven primarily by volume/mix growth, which principally resulted from strong performance in our Asia Pacific and Americas operating segments.

Improved supply contributed positively to our results in the Hips product category.

Our S.E.T. sales continued to increase in 2018, driven primarily by strong performance in key surgical and upper extremity brands.

For contracts outstanding at December 31, [removed: 2018,] [added: 2019,] 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, Russian Rubles, Indian Rupees, Turkish Lira, Polish Zloty, Danish Krone, and Norwegian Krone and purchase Swiss Francs and sell U.S. Dollars at set maturity dates ranging from January [removed: 2019] [added: 2020] through June [removed: 2021.][added: 2022.]

The notional amounts of outstanding forward contracts entered into with third parties to purchase U.S. Dollars at December 31, [removed: 2018] [added: 2019] were [removed: $1,547.7] [added: $1,496.3] million.

The notional amounts of outstanding forward contracts entered into with third parties to purchase Swiss Francs at December 31, [removed: 2018] [added: 2019] were [removed: $267.6] [added: $276.0] million.

The weighted average contract rates outstanding at December 31, [removed: 2018] [added: 2019] were Euro:USD [removed: 1.23,] [added: 1.21,] USD:Swiss Franc [removed: 0.93,] [added: 0.94,] USD:Japanese Yen [removed: 105.55,] [added: 104.34,] British Pound:USD [removed: 1.35,] [added: 1.37,] USD:Canadian Dollar [removed: 1.28,] [added: 1.30,] Australian Dollar:USD [removed: 0.76,] [added: 0.73,] USD:Korean Won [removed: 1,096,] [added: 1,138,] USD:Swedish Krona [removed: 8.26,] [added: 8.80,] USD:Czech Koruna [removed: 21.61,] [added: 22.11,] USD:Thai Baht [removed: 33.21,] [added: 31.17,] USD:Taiwan Dollar [removed: 29.36,] [added: 29.60,] USD:South African Rand [removed: 13.82,] [added: 15.40,] USD:Russian Ruble [removed: 64.53,] [added: 68.81,] USD:Indian Ruppee [removed: 71.64, USD:Turkish Lira 5.11,] [added: 74.26,] USD:Polish Zloty [removed: 3.64,] [added: 3.72,] USD:Danish Krone [removed: 6.09,] [added: 6.15,] and USD:Norwegian Krone [removed: 7.99.][added: 8.36.]

A sensitivity analysis of changes in the fair value of foreign currency exchange forward contracts outstanding at December 31, [removed: 2018] [added: 2019] indicated that, if the U.S. Dollar uniformly changed in value by 10 percent relative to the various currencies, with no change in the interest [added: differentials, the fair value of those contracts would increase or decrease earnings before income taxes in periods through June 2022, depending on the direction of the change, by the following average approximate amounts (in millions):]

| Swiss Franc | | | [removed: 7.8] [added: 28.5] | |

| Japanese Yen | | | [removed: 3.9] [added: 54.0] | |

| British Pound | | | [removed: 1.5] [added: 1.6] | |

| Canadian Dollar | | | [removed: 7.1] [added: 14.3] | |

| Australian Dollar | | | [removed: 10.8] [added: 13.3] | |

| Korean Won | | | [removed: 0.2] [added: 2.6] | |

| Swedish Krona | | | [removed: 0.9] [added: 2.4] | |

| Czech Koruna | | | [removed: 0.4] [added: 1.7] | |

| Thai Baht | | | [removed: 0.2] [added: 0.9] | |

| Taiwan Dollars | | | [removed: 0.7] [added: 4.1] | |

| South African Rand | | | [removed: 0.7] [added: 1.1] | |

| Russian Rubles | | | [removed: 1.7] [added: 2.3] | |

| Indian Rupees | | | [removed: \-] [added: 0.8] | |

| Polish Zloty | | | [removed: 0.7] [added: 3.4] | |

| Danish Krone | | | [removed: 1.2] [added: 3.0] | |

| Norwegian Krone | | | [removed: 1.2] [added: 1.8] | |

We had net assets, excluding goodwill and intangible assets, in legal entities with non-U.S. Dollar functional currencies of [removed: $1,138.5] [added: $1,193.5] million at December 31, [removed: 2018,] [added: 2019,] primarily in Euros, Japanese Yen and Australian Dollars.

For details about these and other financial instruments, including fair value methodologies, see Note [removed: 13] [added: 14] to our consolidated financial statements.

[removed: COMMODITY] [added: COMMODITY] PRICE [removed: RISK][added: RISK]

Based upon our overall interest rate exposure as of December 31, [removed: 2018,] [added: 2019,] a change of 10 percent in interest rates, assuming the principal amount outstanding remains constant, would not have a material effect on interest expense, net.

| Euro | | $ | 43.5 | |

differentials, the fair value of those contracts would increase or decrease earnings before income taxes in periods through June 2021, depending on the direction of the change, by the following average approximate amounts (in millions):

| Euro | | $ | 22.3 | |

| Turkish Lira | | | \- | |

[removed: On June 24, 2015 (the “Closing Date”),] [added: In 2015,] we acquired LVB Acquisition, Inc. (“LVB”), the parent company of Biomet, Inc. (“Biomet”), and LVB and Biomet became our wholly-owned subsidiaries (sometimes hereinafter referred to as the “Biomet merger” or the “merger”).

With direct channel [removed: accounts,] [added: accounts and some healthcare dealers,] inventory is generally consigned to sales agents or customers.

Consignment sales represented approximately 80 percent of our net sales in [removed: 2018.][added: 2019.]

No individual [removed: direct channel account, stocking distributor, healthcare dealer, dental practice or dental laboratory] [added: customer] accounted for more than 1 percent of our net sales for [removed: 2018.][added: 2019.]

Our product category operating segments generally have distribution channels focused specifically on those product categories, whereas our geographic operating segments have [removed: distribution channels that sell multiple product categories.]

See Note [removed: 17] [added: 18] to our consolidated financial statements for more information regarding our segments.

France, Germany, Italy, Spain and the United Kingdom collectively account for [removed: 56] [added: 55] percent of net sales in the region.

Japan is the largest market within this segment, accounting for [removed: 46] [added: 47] percent of the region’s sales.

[added: The U.S. sales] force consists of a combination of employees and independent sales agents.

We have extensive research and development activities to develop new surgical techniques, [added: including robotic techniques,] materials, biologics and product designs.

As of December 31, [removed: 2018,] [added: 2019,] we employed approximately [removed: 2,000] [added: 2,100] research and development employees worldwide.

These include, among others, the Federal Food, Drug and Cosmetic Act [added: (“FDCA”)] and regulations issued or promulgated thereunder.

All of our devices marketed in the U.S. have been cleared or approved by the FDA, with the exception of some devices which are [added: classified by FDA regulation as] exempt [added: from premarket clearance and approval] or were in commercial distribution prior to May 28, 1976.

We are also subject to periodic inspection by the FDA for compliance with its Quality System Regulation (21 CFR Part 820) (“QSR”), among other FDA requirements, such as [removed: restrictions on] [added: requirements for] advertising and [removed: promotion.][added: promotion of our devices.]

[removed: QSR] compliance is necessary to receive and maintain FDA clearance or approval to market new and existing [removed: products.][added: products and is also necessary for distributing in the U.S. certain devices exempt from FDA clearance and approval requirements.]

If in connection with these inspections the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, it may issue inspectional observations on Form [removed: 483] [added: FDA-483 (“Form 483”)] that would necessitate prompt corrective action.

If FDA inspectional observations are not addressed and/or corrective action is not taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action, including the imposition of operating restrictions, including a ceasing of operations, on one or more facilities, enjoining and restraining certain violations of applicable law pertaining to [removed: medical devices] [added: products, seizure of products,] and assessing civil or criminal penalties against our officers, employees or us.

The FDA could also issue a corporate warning [removed: letter,] [added: letter or] a recidivist warning letter or [added: negotiate the entry of] a consent decree of permanent [removed: injunction.][added: injunction with us.]

For information regarding certain warning letters and [removed: FDA] Form 483 inspectional observations that we are addressing, see Note [removed: 19] [added: 20] to our consolidated financial statements.

The [removed: FDA, in cooperation with U.S. Customs and Border Protection (“CBP”), administers controls over the import of medical devices into the U.S. The] CBP imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance.

There are also requirements of [removed: state, local] [added: state] and [removed: foreign] [added: local] governments that we must comply with in the manufacture and marketing of our products.

In many of the [removed: foreign] countries in which [removed: we market] our [removed: products,] [added: products are sold,] we are subject to [added: supranational, national, regional and] local regulations affecting, among other things, [removed: design and] [added: the development, design, manufacturing,] product standards, [removed: packaging requirements] [added: packaging, advertising, promotion, labeling, marketing] and [removed: labeling requirements.][added: postmarket surveillance of medical products, including medical devices.]

The member countries of the European Union (the “EU”) have adopted the European Medical Device [removed: Directive,] [added: Directive (the “MDD”),] which creates a single set of medical device regulations for products marketed in all member countries.

Compliance with the [removed: Medical Device Directive] [added: MDD] and certification to a quality system (e.g., ISO 13485 certification) enable the manufacturer to place a CE mark on its products.

To obtain authorization to affix the CE mark to a product, a recognized European Notified Body must assess a manufacturer’s quality system and the product’s conformity to the requirements of the [removed: Medical Device Directive.][added: MDD.]

In May 2017, a new EU Medical Device Regulation [added: (“MDR”)] was published that will [added: replace the MDD and will] impose significant additional premarket and postmarket [removed: requirements.][added: requirements beginning in May 2020.]

Further, we are subject to other [added: supranational, national, regional,] federal, state and [removed: foreign] [added: local] laws concerning healthcare fraud and abuse, including false claims and anti-kickback laws, as well as the U.S. Physician Payments Sunshine Act and similar state and foreign healthcare professional payment transparency laws.

Many of these agencies have increased their enforcement activities with respect to medical [removed: device] [added: products] manufacturers in recent years.

[removed: Violations of] these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the U.S., exclusion from participation in government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs.

For information regarding the DPA, see Note [removed: 19] [added: 20] to our consolidated financial statements.

In addition, we are subject to federal, state and international data privacy and security laws and regulations that govern the collection, use, [removed: disclosure] [added: disclosure, transfer, storage, disposal] and protection of health-related and other personal information.

In addition, certain of our affiliates are subject to [removed: privacy and] [added: privacy,] security [added: and breach notification] regulations promulgated under the Health Insurance Portability and Accountability Act of 1996 and the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”).

HIPAA governs the use, disclosure, and security of protected health information by HIPAA “covered entities” and their “business associates.” Covered entities are health [added: plans, health] care [added: clearinghouses and health care] providers that engage in specific types of electronic [removed: transactions, health plans, and health care clearinghouses.][added: transactions.]

In addition to the FDA guidance and HIPAA regulations described above, a number of U.S. states have also enacted data privacy and security laws and regulations that govern the [removed: confidentiality, security, use] [added: collection, use, disclosure, transfer, storage, disposal] and [removed: disclosure] [added: protection] of [removed: sensitive] personal information, such as social security numbers, medical and financial information and other [removed: personal] information.

[removed: These] [added: Other] state laws include the California Consumer Privacy Act (“CCPA”), which was signed into law on June 28, 2018 and largely [removed: takes] [added: took] effect [added: on] January 1, 2020.

The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals [removed: new] [added: numerous] rights relating to their personal information that may affect our ability to use personal [removed: information.][added: information or share it with our business partners.]

We will continue to monitor and assess the impact of [removed: the CCPA,] [added: these state laws,] which [removed: has] [added: may impose] substantial penalties for [removed: non-compliance] [added: violations, impose significant costs for investigation] and [removed: carries] [added: compliance, allow private class-action litigation, and carry] significant potential [removed: liability, on] [added: liability for] our business.

Outside of the U.S., data protection laws, including the EU General Data Protection Regulation [added: (the “GDPR”)] and member state implementing legislation, [added: and the Brazil Lei Geral de Proteção de Dados (the “LGPD”),] also apply to some of our operations in the countries in which we provide services to our customers.

[removed: The EU General Data Protection Regulation, which became effective on May 25, 2018 (the “GDPR”), imposes, among other things, data protection requirements that include] strict obligations and restrictions on the ability to collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to [added: the greater of 20 million Euros or] 4% of total [removed: company revenue).][added: worldwide annual turnover of the preceding financial year).]

In the global markets for our knees, hips, and S.E.T. products, our major competitors [removed: include:] [added: include] the DePuy Synthes Companies of Johnson & [removed: Johnson;] [added: Johnson,] Stryker [removed: Corporation;] [added: Corporation] and Smith & Nephew plc.

distribution channels that sell multiple product categories.

Spine, less Asia Pacific (“Spine”).

Craniomaxillofacial and Thoracic (“CMF”).

Additionally, with sales to customers where title to product passes upon

shipment, these customers may purchase items in large quantities if incentives are offered or if there are new product offerings in a market, which could cause period-to-period differences in sales.

A developing trend in knee replacement surgeries is the use of robotic technologies to assist a surgeon with implant positioning.

In 2019, we entered the robotic assistance market with our ROSA® Knee System.

In the future, we plan to expand the use of our ROSA® Robot to other product categories.

Our operations, products and customers are subject to extensive government regulation by numerous government agencies, both within and outside the U.S. Our global regulatory environment is increasingly stringent, unpredictable and complex.

There is a global trend toward increased regulatory activity related to medical products.

QSR

The FDA, in cooperation with U.S. Customs and Border Protection (“CBP”), administers controls over the import of medical devices into the U.S. and can prevent the importation of products the FDA deems to violate the FDCA or its implementing regulations.

In addition, exported medical products are subject to the regulatory requirements of each country to which the medical product is exported.

Under a corrigendum to the MDR finalized in December 2019, some low-risk medical devices being up-classified as a result of the MDR, including low-risk instruments, may now receive a four-year transitional period to comply.

Our quality management system is based upon the requirements of ISO 13485, the QSR, the MDD and other applicable regulations for the markets in which we sell.

Our principal manufacturing sites are certified to ISO 13485 and audited at regular intervals.

Additionally, our principal sites are certified under the Medical Device Single Audit Program (“MDSAP”), which is a voluntary audit program developed by regulatory authorities in five countries (i.e., Australia, Brazil, Canada, Japan, and the United States) to assess compliance with the quality management system regulatory requirements of those countries.

MDSAP audits are conducted by an MDSAP-recognized auditing organization and can fulfill the needs of the participating regulatory jurisdictions, replacing standard surveillance audits by the regulatory authorities in those countries.

Violations of

The FDA and the Department of Homeland Security (“DHS”) have issued urgent safety communications regarding cybersecurity vulnerabilities of certain medical devices.

For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information.

Regulations from the California Attorney General have not been finalized, and it is expected that additional amendments to the CCPA will be introduced.

Meanwhile, a number of other states have considered privacy laws like the CCPA, and in October 2019, Nevada enacted a similar but generally less restrictive privacy law.

The GDPR, which became effective on May 25, 2018, imposes, among other things, data protection requirements that include

We own or control through licensing arrangements over 9,000 issued

| Carrie Nichol | | 40 | | Vice President, Controller and Chief Accounting Officer |

Ms. Nichol was appointed Vice President, Controller and Chief Accounting Officer in October 2019.

Prior to joining Zimmer Biomet, Ms. Nichol served as Senior Vice President, Controller and Chief Accounting Officer of Endo International plc (“Endo International”) from April 2018 to September 2019.

Ms. Nichol joined Endo International in March 2015 as Director of Consolidations and Financial Systems and was promoted to Assistant Controller in September 2015.

Prior to her tenure at Endo International, Ms. Nichol served as Senior Vice President and Controller of Haas Group Inc. (now part of Wesco Aircraft Holdings, Inc.), where she led the global accounting and finance teams from June 2011 until March 2015.

Prior to her employment with Haas Group Inc., Ms. Nichol was with IKON Office Solutions (now part of Ricoh Company, Ltd.) for a total of five years from June 2008 until June 2011 and from June 2003 until July 2005, having served most recently as the Director of Financial Reporting and Corporate Accounting with responsibility for all public filings and technical and corporate accounting.

From December 2005 until June 2008, Ms. Nichol was with Advanced Metallurgical Group NV serving as Assistant Controller.

Ms. Nichol began her career in public accounting with KPMG.

Prior to joining Zimmer Biomet, Mr. Upadhyay served as Senior Vice President, Global Financial Operations at Bristol-Myers Squibb from November 2016 until June 2019.

Before joining Bristol-Myers Squibb, he served as Executive Vice President and Chief Financial Officer of Endo International from September 2013 to November 2016.

Prior to his tenure at Endo International, Mr. Upadhyay served as Interim Chief Financial Officer as well as Senior Vice President of Finance, Corporate Controller and Principal Accounting Officer of BD.

Prior to his role as BD’s Interim Chief Financial Officer and Corporate Controller, Mr. Upadhyay was the Senior Vice President of Global Financial Planning and Analysis and also held the role of Vice President and Chief Financial Officer of BD’s international business.

Before joining BD in 2010, Mr. Upadhyay held a number of leadership roles across AstraZeneca and Johnson & Johnson.

Mr. Upadhyay spent the early part of his career in public accounting with KPMG.

We have operations throughout the world.

We manage our operations through three major geographic operating segments and four product category operating segments.

Our three major geographic operating segments are the Americas, which is comprised principally of the U.S. and includes other North, Central and South American markets; EMEA, which is comprised principally of Europe and includes the Middle East and African markets; and Asia Pacific, which is comprised primarily of Japan, China and Australia and includes other Asian and Pacific markets.

Our four product category operating segments, which are individually not as significant as our geographic operating segments, are as follows: 1) Spine, less Asia Pacific (“Spine”); 2) Office Based Technologies; 3) Craniomaxillofacial and Thoracic (“CMF”); and 4) Dental.

We have a research and development center in Beijing, China, which focuses on products and technologies designed to meet the unique needs of Asian patients and their healthcare providers.

Spine.

CMF.

The U.S. sales

Our knee portfolio also includes early intervention and joint preservation products, which seek to preserve the joint by repairing or regenerating damaged tissues and by treating osteoarthritis.

| --- | --- | --- |

| | • | Intellicart® System |

We are subject to government regulation in the countries in which we conduct business.

The FDA has grandfathered these devices, so new FDA submissions are not required.

Many of the regulations applicable to our products in these countries are similar to those of the FDA.

The regulation has a three-year implementation period, and after that time all products marketed in the EU will require certification according to these new requirements.

In addition, many countries, including Canada and Japan, have very specific additional regulatory requirements for quality assurance and manufacturing with which we must comply.

Our Warsaw North Campus facility is in the process of implementing many of these manufacturing process improvements.

These process improvements are an integral part of our quality remediation plans.

| Aure Bruneau | | 44 | | Group President, Spine, CMF, Thoracic and Surgery Assisting Technology |

Mr. Bruneau was appointed Group President with responsibility for the Company’s, Spine, Craniomaxillofacial, Thoracic and Surgery Assisting Technology businesses in December 2017.

Prior to that, Mr. Bruneau served as Vice President and General Manager with global responsibility for the Company’s Craniomaxillofacial and Thoracic businesses beginning in June 2015.

He also led the integration of the Robotics business until assuming his current role.

Previously, Mr. Bruneau served in Vice President roles of increasing responsibility in marketing, business development and general management at Biomet from September 2008 until June 2015.

Prior to joining Biomet, Mr. Bruneau held numerous positions with Sofamor Danek Group and Medtronic over a 12-year period.

Prior to that appointment, he served as Senior Vice President and Chief Financial Officer from June 2015 to February 2018.

In addition, he served as Interim Chief Executive Officer from July 2017 to December 2017.

Prior to the Biomet merger, Mr. Florin served as Senior Vice President and Chief Financial Officer of Biomet from June 2007 to June 2015.

Before joining Biomet, he served as Vice President and Corporate Controller of Boston Scientific Corporation from 2001 through May 2007.

Prior to that, Mr. Florin served in financial leadership positions within Boston Scientific Corporation and its various business units.

Before joining Boston Scientific Corporation, Mr. Florin worked for C.R. Bard from October 1990 through June 1995.

From August 1986 until October 1990, Mr. Florin worked in the Audit Practice of Deloitte Haskins & Sells.

Information pertaining to certain legal proceedings in which we are involved can be found in Note [removed: 19] [added: 20] to our consolidated financial statements included in Part II, Item 8 of this report and is incorporated herein by reference.

For year ended December 31, [removed: 2018][added: 2019]

| Delaware | | [removed: 13‑4151777] [added: 13-4151777] |

| Title of each class | [added: Trading Symbol(s)] | Name of each exchange on which registered |

| Common Stock, [removed: $.01] [added: $0.01] par value | [added: ZBH] | New York Stock Exchange |

| 1.414% Notes due 2022 | [added: ZBH 22A] | New York Stock Exchange |

| 2.425% Notes due 2026 [added: 1.164% Notes due 2027] | [added: ZBH 26 ZBH 27] | New York Stock Exchange [added: New York Stock Exchange] |

See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting [removed: company”] [added: company,”] and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined [removed: Exchange Act] [added: in] Rule [removed: 12b-2).][added: 12b-2 of the Act).]

The aggregate market value of shares held by non-affiliates was [removed: $22,648,282,177] [added: $24,106,325,697] (based on the closing price of these shares on the New York Stock Exchange on June [removed: 29, 2018] [added: 28, 2019] and assuming solely for the purpose of this calculation that all directors and executive officers of the registrant are “affiliates”).

As of February [removed: 15, 2019, 204,433,342] [added: 7, 2020, 206,403,646] shares of the registrant’s $.01 par value common stock were outstanding.

| Portions of the Proxy Statement with respect to the [removed: 2019] [added: 2020] Annual Meeting of Stockholders | | Part III |

[removed: 2018 FORM 10-K] ANNUAL REPORT

Cautionary Note [removed: About] [added: Regarding] Forward-Looking Statements

This Annual Report [removed: on Form 10-K includes “forward-looking”] [added: contains forward-looking] statements within the meaning of federal securities laws, including, among others, statements [added: regarding sales and earnings guidance and any statements] about our expectations, plans, strategies or prospects.

Such statements are based upon the current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual [added: outcomes and] results to differ materially from the forward-looking statements.

These risks, uncertainties and changes in circumstances include, but are not limited to: the possibility that the anticipated synergies and other benefits from mergers and acquisitions will not be realized, or will not be realized within the expected time periods; the risks and uncertainties related to our ability to successfully integrate the operations, products, employees and distributors of acquired companies; the [added: risks and uncertainties related to our ability to successfully execute our restructuring plans; the] effect of the potential disruption of management’s attention from ongoing business operations due to integration matters related to mergers and acquisitions; the effect of mergers and acquisitions on our relationships with customers, [removed: vendors] [added: suppliers] and lenders and on our operating results and businesses generally; compliance with the Deferred Prosecution Agreement [added: (“DPA”)] entered into in January 2017; the success of our quality and operational excellence initiatives, including ongoing quality remediation efforts at our Warsaw North Campus facility; challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration [added: (“FDA”)] and foreign government regulators, such as more stringent requirements for regulatory clearance of products; the ability to remediate matters identified in any inspectional observations or warning letters issued by the [removed: U.S. Food and Drug Administration,] [added: FDA,] while continuing to satisfy the demand for our products; the outcome of government investigations; competition; pricing pressures; changes in customer demand for our products and services caused by demographic changes or other factors; the impact of healthcare reform [removed: measures, including the impact of the U.S. excise tax on medical devices if such tax is not further suspended or repealed;] [added: measures;] reductions in reimbursement levels by third-party payors and cost containment efforts of healthcare purchasing organizations; dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; control of costs and expenses; the ability to obtain and maintain adequate intellectual property protection; [added: breaches or failures of our information technology systems or products, including by cyberattack, unauthorized access or theft;] the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including European Union rules on state aid, or examinations by tax authorities; product [removed: liability and] [added: liability,] intellectual property [added: and commercial] litigation losses; the ability to retain the independent agents and distributors who market our products; dependence on a limited number of suppliers for key raw materials and outsourced activities; [added: the impact of substantial indebtedness on our ability to service our debt obligations and/or refinance amounts outstanding under our debt obligations at maturity on terms favorable to us, or at all;] changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations; and the impact of the ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected countries.

[removed: We] [added: Forward-looking statements speak only as of the date they are made, and we] expressly disclaim any [added: 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 [removed: 10‑Q] [added: 10-Q] and Current Reports on Form 8-K.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| Item 1A. | [Risk Factors](#ITEM_1A_RISK_FACTORS) | | [removed: 13] [added: 14] |

| Item 1B. | [Unresolved Staff Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS) | | [removed: 24] [added: 26] |

| Item 2. | [Properties](#ITEM_2_PROPERTIES) | | [removed: 25] [added: 27] |

| Item 3. | [Legal Proceedings](#ITEM_3_LEGAL_PROCEEDINGS) | | [removed: 25] [added: 27] |

| Item 4. | [Mine Safety Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES) | | [removed: 25] [added: 27] |

| [PART II](#PART_II) | | | [removed: 26] [added: 28] |

| Item 5. | [Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQU) | | [removed: 26] [added: 28] |

| Item 6. | [Selected Financial Data](#ITEM_6_SELECTED_FINANCIAL_DATA) | | [removed: 27] [added: 29] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F) | | [removed: 28] [added: 30] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOS) | | [removed: 41] [added: 43] |

| Item 8. | [Financial Statements and Supplementary Data](#ITEM_8_FINANCIAL_STATEMENTS_SUPPLEMENTAR) | | [removed: 44] [added: 46] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM_9_CHANGES_IN_DISAGREEMENTS_WITH_ACC) | | [removed: 92] [added: 96] |

| Item 9A. | [Controls and Procedures](#ITEM_9A_CONTROLS_PROCEDURES) | | [removed: 92] [added: 96] |

| Item 9B. | [Other Information](#ITEM_9B_OR_INFORMATION) | | [removed: 93] [added: 97] |

| [PART III](#PART_III) | | | [removed: 94] [added: 98] |

| Item 10. | [Directors, Executive Officers and Corporate Governance](#ITEM_10_DIRECTORS_EXECUTIVE_FICERS_CORPO) | | [removed: 94] [added: 98] |

| Item 11. | [Executive Compensation](#ITEM_11_EXECUTIVE_COMPENSATION) | | [removed: 94] [added: 98] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#ITEM_12_SECURITY_OWNERSHIP_CERTAIN_BENEF) | | [removed: 94] [added: 98] |

| Item 13. | [Certain Relationships and Related Transactions and Director Independence](#ITEM_13_CERTAIN_RELATIONSHIPS_RELATED_TR) | | [removed: 94] [added: 98] |

| Item 14. | [Principal Accountant Fees and Services](#ITEM_14_PRINCIPAL_ACCOUNTING_FEES_SERVIC) | | [removed: 94] [added: 98] |

| [PART IV](#PART_IV) | | | [removed: 95] [added: 99] |

| | | |

We generally use the words “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “assumes,” “guides,” “targets,” “forecasts,” “sees,” “seeks,” “should,” “could,” “would,” “predicts,” “potential,” “strategy,” “future,” “opportunity,” “work toward,” “intends,” “guidance,” “confidence,” “positioned,” “design,” “strive,” “continue,” “look forward to” and similar expressions to identify forward-looking statements.

This cautionary note is applicable to all forward-looking statements contained in this report.

10-K 1 zbh-10k_20181231.htm 10-K

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

We generally use the words “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “estimate,” “project,” “assume,” “guide,” “target,” “forecast,” “see,” “seek,” “can,” “should,” “could,” “would,” “intend” “predict,” “potential,” “strategy,” “is confident that,” “future,” “opportunity,” “work toward,” and similar expressions to identify forward-looking statements.

[removed: In addition to the above, we] [added: We] maintain sales and administrative offices and warehouse and distribution facilities in more than 40 countries around the world.

We believe the current facilities, including manufacturing, warehousing, [removed: research and development] [added: R&D] and office space, provide sufficient capacity to meet ongoing demands.

We own or lease approximately 340 different facilities around the world, of which approximately half are in the U.S. Our corporate headquarters is in Warsaw, Indiana.

Warsaw, Indiana is also home to our most significant manufacturing, research and development (“R&D”), and other business activities for our Knees, Hips and S.E.T. product categories.

Our Spine, CMF, Office Based Technologies and Dental product categories also have business unit headquarters located in the U.S. that are the primary facilities for these product categories’ manufacturing, R&D and other business activities.

Internationally, our EMEA regional headquarters is in Switzerland and our Asia Pacific regional headquarters is in Singapore.

We have approximately 30 manufacturing locations in the U.S. and internationally.

Our most significant locations outside of the U.S. are in Switzerland, Ireland, the U.K., China, and Puerto Rico.

We primarily own our manufacturing facilities in the U.S.; internationally, we occupy both owned and leased manufacturing facilities.

These local market facilities are primarily leased due to common businesses practices and to allow us to be more adaptable to changing needs in the market.

We distribute our products both through large, centralized warehouses and through smaller, market specific facilities, depending on the needs of the market.

We maintain large, centralized warehouses in the U.S. and the Netherlands to be able to efficiently distribute our products to customers in the U.S. and EMEA.

The following are our principal properties:

| | | | | Owned / | | Square | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Location | | Use | | Leased | | Feet | | |

| Warsaw, Indiana | | Research & Development, Manufacturing, Warehousing, Marketing & Administration | | Owned | | | 1,900,000 | |

| Warsaw, Indiana | | Corporate Headquarters & The Zimmer Institute | | Owned | | | 115,000 | |

| Warsaw, Indiana | | Manufacturing & Warehousing | | Leased | | | 170,000 | |

| Westminster, Colorado | | Spine Business Unit Headquarters | | Leased | | | 105,000 | |

| Jacksonville, Florida | | CMF Business Unit Headquarters & Manufacturing | | Owned | | | 85,000 | |

| Palm Beach Gardens, Florida | | Dental Business Unit Headquarters & Manufacturing | | Owned | | | 190,000 | |

| Palm Beach Gardens, Florida | | Manufacturing | | Leased | | | 45,000 | |

| Braintree, Massachusetts | | Office, Manufacturing, Warehousing, Laboratory | | Leased | | | 50,000 | |

| Southaven, Mississippi | | Distribution Center | | Leased | | | 190,000 | |

| Parsippany, New Jersey | | Office, Research & Development, Manufacturing, Warehousing & The Zimmer Institute | | Leased | | | 235,000 | |

| Dover, Ohio | | Manufacturing | | Owned | | | 140,000 | |

| Dover, Ohio | | Manufacturing | | Leased | | | 60,000 | |

| Austin, Texas | | Offices & Manufacturing | | Leased | | | 90,000 | |

| Beijing, China | | Manufacturing | | Leased | | | 95,000 | |

| Changzhou, China | | Manufacturing | | Owned | | | 160,000 | |

| Jinhua, China | | Manufacturing | | Owned | | | 125,000 | |

| Valence, France | | Manufacturing | | Owned | | | 120,000 | |

| Berlin, Germany | | Manufacturing | | Owned | | | 50,000 | |

| Eschbach, Germany | | Distribution Center | | Owned | | | 100,000 | |

| Galway, Ireland | | Manufacturing | | Owned | | | 125,000 | |

| Shannon, Ireland | | Offices & Manufacturing | | Owned | | | 125,000 | |

| Tokyo, Japan | | Distribution Center | | Leased | | | 180,000 | |

| Hazeldonk, The Netherlands | | Distribution Center | | Leased | | | 295,000 | |

| Ponce, Puerto Rico | | Offices, Manufacturing & Warehousing | | Owned | | | 225,000 | |

| Singapore | | Regional Headquarters | | Leased | | | 30,000 | |

| Bridgend, South Wales | | Manufacturing | | Owned | | | 185,000 | |

| Bridgend, South Wales | | Manufacturing & Warehousing | | Leased | | | 100,000 | |

| Valencia, Spain | | Manufacturing | | Owned | | | 70,000 | |

| Valencia, Spain | | Manufacturing | | Leased | | | 10,000 | |

| Winterthur, Switzerland | | Regional Headquarters, Offices, Research & Development & Manufacturing | | Leased | | | 420,000 | |

Our common stock is traded on the New York Stock Exchange and the SIX Swiss Exchange under the symbol “ZBH.” As of February [removed: 15, 2019,] [added: 7, 2020,] there were approximately [removed: 20,000] [added: 17,900] holders of record of our common stock.

As further discussed in Note 11 to our consolidated financial statements, our debt facilities restrict the payment of dividends in certain circumstances.

| | | [added: 2019 | | | |] 2018 | | | | 2017 | | | | 2016 | | | | 2015 (1)(2) | | | [removed: | 2014 (1) | | |]

| Net sales | | $ | [removed: 7,932.9] [added: 7,982.2] | | | $ | [removed: 7,803.3] [added: 7,932.9] | | | $ | [removed: 7,668.4] [added: 7,803.3] | | | $ | [removed: 5,997.8] [added: 7,668.4] | | | $ | [removed: 4,673.3] [added: 5,997.8] | |

| Net [removed: (loss)] earnings [added: (loss)] of Zimmer Biomet Holdings, Inc. | | | [added: 1,131.6 | | | |] (379.2 | ) | | | 1,813.8 | | | | 305.9 | | | | 147.0 | | [removed: | | 720.3 | |]

| [removed: (Loss) earnings] [added: Earnings (loss)] per common share | | | | | | | | | | | | | | | | | | | | |

| Basic | | $ | [removed: (1.86] [added: 5.52] | [removed: )] | | $ | [removed: 8.98] [added: (1.86] | [added: )] | | $ | [removed: 1.53] [added: 8.98] | | | $ | [removed: 0.78] [added: 1.53] | | | $ | [removed: 4.26] [added: 0.78] | |

| Diluted | | | [added: 5.47 | | | |] (1.86 | ) | | | 8.90 | | | | 1.51 | | | | 0.77 | | [removed: | | 4.20 | |]

| Dividends declared per share of common stock | | $ | [removed: \-] [added: 0.96] | | | $ | [removed: \-] [added: 0.96] | | | $ | [removed: \-] [added: 0.96] | | | $ | [removed: 0.88] [added: 0.96] | | | $ | 0.88 | |

| Basic | | | [removed: 203.5] [added: 205.1] | | | | [removed: 201.9] [added: 203.5] | | | | [removed: 200.0] [added: 201.9] | | | | [removed: 187.4] [added: 200.0] | | | | [removed: 169.0] [added: 187.4] | |

| Diluted | | | [removed: 203.5] [added: 206.7] | | | | [removed: 203.7] [added: 203.5] | | | | [removed: 202.4] [added: 203.7] | | | | [removed: 189.8] [added: 202.4] | | | | [removed: 171.7] [added: 189.8] | |

| Total assets | | $ | [removed: 24,126.8] [added: 24,638.7] | | | $ | [removed: 26,014.0] [added: 24,126.8] | | | $ | [removed: 26,684.4] [added: 26,014.0] | | | $ | [removed: 27,160.6] [added: 26,684.4] | | | $ | [removed: 9,658.0] [added: 27,160.6] | |

| Long-term debt | | | [removed: 8,413.7] [added: 6,721.4] | | | | [removed: 8,917.5] [added: 8,413.7] | | | | [removed: 10,665.8] [added: 8,917.5] | | | | [removed: 11,497.4] [added: 10,665.8] | | | | [removed: 1,425.5] [added: 11,497.4] | |

| Other long-term obligations | | | [removed: 2,015.7] [added: 2,083.0] | | | | [removed: 2,291.3] [added: 2,015.7] | | | | [removed: 3,967.2] [added: 2,291.3] | | | | [removed: 4,155.9] [added: 3,967.2] | | | | [removed: 656.8] [added: 4,155.9] | |

| Stockholders' equity | | | [removed: 11,276.1] [added: 12,392.8] | | | | [removed: 11,735.5] [added: 11,276.1] | | | | [removed: 9,669.9] [added: 11,735.5] | | | | [removed: 9,889.4] [added: 9,669.9] | | | | [removed: 6,551.7] [added: 9,889.4] | |

| (1) | Effective January 1, 2018 we adopted Accounting Standards Update 2014-09 – Revenue from Contracts with Customers (Topic 606). We adopted this new standard using the retrospective method, which resulted in us restating the 2017 and 2016 periods. The 2015 [removed: and 2014 periods have] [added: period has] not been restated. [removed: See Note 2 to our consolidated financial statements for additional information.] |

| (2) | On June 24, 2015 we acquired LVB Acquisition, Inc. Accordingly, the results of this significant acquisition have only been reflected in 2015 starting on that date. |

| (2) | Includes the results of Biomet starting on June 24, 2015 and Biomet balance sheet data as of December 31, 2015. |

| [Report of Independent Registered Public Accounting Firm](#REPORT_INDEPENDENT_REGISTERED_PUBLIC_ACC) | | [removed: 45] [added: 47] |

| [Consolidated Statements of Earnings for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#CONSOLIDATED_STATEMENTS_EARNINGS)] [added: 2017](#CONSOLIDATED_STATEMENTS_EARNINGS)] | | [removed: 47] [added: 50] |

| [Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN)] [added: 2017](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN)] | | [removed: 48] [added: 51] |

| [Consolidated Balance Sheets as of December 31, [removed: 2018] [added: 2019] and [removed: 2017](#CONSOLIDATED_BALANCE_SHEETS)] [added: 2018](#CONSOLIDATED_BALANCE_SHEETS)] | | [removed: 49] [added: 52] |

| [Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#CONSOLIDATED_STATEMENTS_STOCKHOLDERS_EQU)] [added: 2017](#CONSOLIDATED_STATEMENTS_STOCKHOLDERS_EQU)] | | [removed: 50] [added: 53] |

| [Consolidated Statements of Cash Flows for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#CONSOLIDATED_STATEMENTS_CASH_FLOWS)] [added: 2017](#CONSOLIDATED_STATEMENTS_CASH_FLOWS)] | | [removed: 51] [added: 54] |

| [Notes to Consolidated Financial Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN) | | [removed: 52] [added: 55] |

We have audited the accompanying consolidated balance sheets of Zimmer Biomet Holdings, Inc. and its subsidiaries (the [removed: “Company”)] [added: “Company)] as of December 31, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018,] and the related consolidated statements of earnings, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] including the related notes and [removed: financial statement] schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, [removed: 2018] [added: 2019] appearing under [removed: item] [added: Item] 15(a)(2), (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: Framework*] (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018] [added: 2019] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: Framework*] (2013) issued by the COSO.

[removed: ZIMMER] [added: ZIMMER] BIOMET HOLDINGS, INC. AND [removed: SUBSIDIARIES][added: SUBSIDIARIES]

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Net Sales | | $ | [removed: 7,932.9] [added: 7,982.2] | | | $ | [removed: 7,803.3] [added: 7,932.9] | | | $ | [removed: 7,668.4] [added: 7,803.3] | |

| Cost of products sold, excluding intangible asset amortization | | | [removed: 2,271.9] [added: 2,252.6] | | | | [removed: 2,132.9] [added: 2,271.9] | | | | [removed: 2,381.8] [added: 2,132.9] | |

| Intangible asset amortization | | | [removed: 595.9] [added: 584.3] | | | | [removed: 603.9] [added: 595.9] | | | | [removed: 565.9] [added: 603.9] | |

| Research and development | | | [removed: 391.7] [added: 449.3] | | | | [removed: 369.9] [added: 391.7] | | | | [removed: 365.6] [added: 369.9] | |

| Selling, general and administrative | | | [removed: 3,379.3] [added: 3,343.8] | | | | [removed: 3,104.7] [added: 3,379.3] | | | | [removed: 2,944.6] [added: 3,104.7] | |

| Goodwill and intangible asset impairment | | | [removed: 979.7] [added: 70.1] | | | | [removed: 331.5] [added: 979.7] | | | | [removed: 31.1] [added: 331.5] | |

| Acquisition, integration and related | | | [removed: 133.7] | | | | [removed: 279.8] | | | | [removed: 504.9] | | [added: | | | | | | | | | | (12.2 | ) |]

| Quality remediation | | | [removed: 146.9] [added: 82.4] | | | | [removed: 181.3] [added: 146.9] | | | | [removed: 53.4] [added: 181.3] | |

| Operating expenses | | | [removed: 7,899.1] [added: 6,844.7] | | | | [removed: 7,004.0] [added: 7,899.1] | | | | [removed: 6,847.3] [added: 7,004.0] | |

| Operating Profit | | | [removed: 33.8] [added: 1,137.5] | | | | [removed: 799.3] [added: 33.8] | | | | [removed: 821.1] [added: 799.3] | |

| Other expense, net | | | [removed: (15.6] [added: (4.8] | ) | | | [removed: (9.4] [added: (15.6] | ) | | | [removed: (66.5] [added: (9.4] | ) |

| Interest expense, net | | | [removed: (289.3] [added: (226.9] | ) | | | [removed: (325.3] [added: (289.3] | ) | | | [removed: (355.0] [added: (325.3] | ) |

| [removed: (Loss) earnings] [added: Earnings (loss)] before income taxes | | | [removed: (271.1] [added: 905.8] | [removed: )] | | | [removed: 464.6] [added: (271.1] | [added: )] | | | [removed: 399.6] [added: 464.6] | |

| [removed: Provision (benefit)] [added: (Benefit) provision] for income taxes | | | [removed: 108.2] [added: (225.7] | [added: )] | | | [removed: (1,348.8] [added: 108.2] | [removed: )] | | | [removed: 95.0] [added: (1,348.8] | [added: )] |

| Net [removed: (Loss)] Earnings [added: (Loss)] | | | [removed: (379.3] [added: 1,131.5] | [removed: )] | | | [removed: 1,813.4] [added: (379.3] | [added: )] | | | [removed: 304.6] [added: 1,813.4] | |

| Less: Net loss attributable to noncontrolling interest | | | (0.1 | ) | | | [removed: (0.4] [added: (0.1] | ) | | | [removed: (1.3] [added: (0.4] | ) |

| Net [removed: (Loss)] Earnings [added: (Loss)] of Zimmer Biomet Holdings, Inc. | | $ | [removed: (379.2] [added: 1,131.6] | [removed: )] | | $ | [removed: 1,813.8] [added: (379.2] | [added: )] | | $ | [removed: 305.9] [added: 1,813.8] | |

| [removed: (Loss)] Earnings [added: (Loss)] Per Common Share - Basic | | $ | [removed: (1.86] [added: 5.52] | [removed: )] | | $ | [removed: 8.98] [added: (1.86] | [added: )] | | $ | [removed: 1.53] [added: 8.98] | |

| [removed: (Loss)] Earnings [added: (Loss)] Per Common Share - Diluted | | $ | [removed: (1.86] [added: 5.47] | [removed: )] | | $ | [removed: 8.90] [added: (1.86] | [added: )] | | $ | [removed: 1.51] [added: 8.90] | |

| Basic | | | [removed: 203.5] [added: 205.1] | | | | [removed: 201.9] [added: 203.5] | | | | [removed: 200.0] [added: 201.9] | |

| Diluted | | | [removed: 203.5] [added: 206.7] | | | | [removed: 203.7] [added: 203.5] | | | | [removed: 202.4] [added: 203.7] | |

| Net [removed: (Loss)] Earnings [added: (Loss)] | | $ | [removed: (379.3] [added: 1,131.5] | [removed: )] | | $ | [removed: 1,813.4] [added: (379.3] | [added: )] | | $ | [removed: 304.6] [added: 1,813.4] | |

| Foreign currency cumulative translation adjustments, net of tax | | | [removed: (135.4] [added: (1.5] | ) | | | [removed: 445.0] [added: (135.4] | [added: )] | | | [removed: (130.0] [added: 445.0] | [removed: )] |

| Unrealized cash flow hedge gains/(losses), net of tax | | | [removed: 68.2] [added: 30.6] | | | | [removed: (95.0] [added: 68.2] | [removed: )] | | | [removed: 28.3] [added: (95.0] | [added: )] |

| Reclassification adjustments on cash flow hedges, net of tax | | | [removed: 23.6] [added: (35.1] | [added: )] | | | [removed: (3.8] [added: 23.6] | [removed: )] | | | [removed: (25.8] [added: (3.8] | ) |

| Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax | | | [removed: (17.7] [added: (48.5] | ) | | | [removed: 4.6] [added: (17.7] | [added: )] | | | [removed: 22.0] [added: 4.6] | |

| Total Other Comprehensive (Loss) Income | | | [removed: (61.3] [added: (54.5] | ) | | | [removed: 350.8] [added: (61.3] | [added: )] | | | [removed: (105.0] [added: 350.8] | [removed: )] |

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment – EMEA and Dental Reporting Units

As described in Notes 2 and 10 to the consolidated financial statements, the Company’s consolidated goodwill balance was $9,599.7 million as of December 31, 2019, and the goodwill associated with the EMEA reporting unit and the Dental reporting unit was $749.8 million and $397.7 million, respectively.

Management conducts an impairment test in the fourth quarter of each year or whenever events or changes in circumstances indicate that the carrying value of the reporting unit’s assets may not be recoverable.

Potential impairment of a reporting unit is identified by comparing the reporting unit’s estimated fair value to its carrying amount.

Significant assumptions are incorporated into the discounted cash flow analysis such as estimated growth rates and risk-adjusted discount rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the EMEA and Dental reporting units is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the reporting units.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s discounted cash flow analysis and significant assumptions, including estimated growth rates and risk-adjusted discount rates.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimate, (ii) evaluating the appropriateness of management’s fair value approaches, (iii) testing the completeness, accuracy and relevance of the underlying data used in the approaches, and (iv) evaluating significant assumptions used by management in the discounted cash flow analysis, including the revenue growth rates and the risk-adjusted discount rate.

Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering the past performance of the reporting units, the consistency with external data from other sources, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analysis and certain significant assumptions, including the risk-adjusted discount rate.

Tax Liabilities for Unrecognized Tax Benefits

As described in Notes 2 and 16 to the consolidated financial statements, the Company has recorded tax liabilities for unrecognized tax benefits of $741.8 million as of December 31, 2019.

The calculation of the Company’s estimated tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a

multitude of jurisdictions across the Company’s global operations.

The Company’s income tax filings are regularly under audit in multiple federal, state and foreign jurisdictions.

The principal considerations for our determination that performing procedures relating to tax liabilities for unrecognized tax benefits is a critical audit matter are that there was significant judgment by management when determining the tax liabilities, including a high degree of estimation uncertainty relative to the numerous and complex tax laws and regulations, frequency of income tax audits, and potential for significant adjustments as a result of such audits.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate the timely identification and accurate measurement of tax liabilities for unrecognized tax benefits.

Also, the evaluation of audit evidence available to support the estimates is complex and required significant auditor judgment as the nature of the evidence is often highly subjective, and the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the identification, accurate measurement, and recognition of tax liabilities for unrecognized tax benefits, including controls addressing completeness of the tax liabilities.

These procedures also included, among others, (i) testing certain information used in the calculation of tax liabilities for unrecognized tax benefits by jurisdiction on a sample basis, (ii) assessing the completeness of the Company’s identification of tax liabilities for unrecognized tax benefits and possible outcomes for each unrecognized tax benefit, and (iii) evaluating the status and results of income tax audits with the relevant tax authorities.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s interpretation and application of relevant tax laws and regulations in various jurisdictions and assessing the reasonableness of the Company’s tax positions.

February 21, 2020

| Restructuring and other cost reduction initiatives | | | 50.0 | | | | 34.2 | | | | 17.6 | |

| | | 2019 | | | | 2018 | | |

| Net earnings | | | \- | | | | \- | | | | \- | | | | 1,131.6 | | | | \- | | | | \- | | | | \- | | | | (0.1 | ) | | | 1,131.5 | |

| Stock compensation plans | | | 2.0 | | | | \- | | | | 234.0 | | | | 1.7 | | | | \- | | | | \- | | | | 1.2 | | | | \- | | | | 236.9 | |

| Balance December 31, 2019 | | | 309.9 | | | $ | 3.1 | | | $ | 8,920.1 | | | $ | 10,427.3 | | | $ | (241.9 | ) | | | (103.9 | ) | | $ | (6,720.5 | ) | | $ | 4.7 | | | $ | 12,392.8 | |

| Net earnings (loss) | | $ | 1,131.5 | | | $ | (379.3 | ) | | $ | 1,813.4 | |

Restructuring and other cost reduction initiatives - A restructuring is defined as a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity, or the manner in which that business is conducted.

Restructuring charges include (i) termination benefits related to employee terminations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities.

In December 2019, our Board of Directors approved, and we initiated, a new global restructuring program with an objective of reducing costs to allow us to further invest in higher priority growth opportunities.

We have reclassified $34.2 million and $17.6 million in the years ended December 31, 2018 and 2017, respectively, from the “Acquisition, integration and related” line item to the “Restructuring and other cost reduction initiatives” line item, which amounts were primarily attributable to project costs related to our supply chain optimization initiative.

We have reclassified $34.2 million and $17.6 million in the years ended December 31, 2018 and 2017, respectively, from the “Acquisition, integration and related” line item to the “Restructuring and other cost reduction initiatives” line item, which amounts were primarily attributable to project costs related to our supply chain optimization initiative.

February 26, 2019

| Unrealized gains on securities, net of tax | | | \- | | | | \- | | | | 0.5 | |

| Balance January 1, 2016 | | | 302.7 | | | $ | 3.0 | | | $ | 8,195.3 | | | $ | 8,347.7 | | | $ | (329.0 | ) | | | (100.0 | ) | | $ | (6,329.1 | ) | | $ | 1.5 | | | $ | 9,889.4 | |

| Net earnings | | | \- | | | | \- | | | | \- | | | | 305.9 | | | | \- | | | | \- | | | | \- | | | | (1.3 | ) | | | 304.6 | |

| Stock compensation plans | | | 2.0 | | | | 0.1 | | | | 173.2 | | | | 5.4 | | | | \- | | | | 0.1 | | | | 8.8 | | | | \- | | | | 187.5 | |

| Share repurchases | | | \- | | | | \- | | | | \- | | | | \- | | | | \- | | | | (4.2 | ) | | | (415.5 | ) | | | \- | | | | (415.5 | ) |

| Debt extinguishment | | | \- | | | | \- | | | | 53.3 | |

| Purchases of investments | | | \- | | | | \- | | | | (1.5 | ) |

| Sales of investments | | | \- | | | | \- | | | | 286.2 | |

| LDR acquisition, net of acquired cash | | | \- | | | | \- | | | | (1,021.1 | ) |

| Repurchase of common stock | | | \- | | | | \- | | | | (415.5 | ) |

We have reclassified expenses that were previously recognized in a financial statement line item labeled “Acquisition, quality remediation and other” (and prior to that, labeled “Special items”) to the financial statement line items of “Research and development,” “Selling, general and administrative,” “Goodwill and intangible asset impairment,” “Acquisition, integration and related” and “Quality remediation”.

Prior periods have been reclassified to conform to the current year presentation.

Please refer to Note 2 for additional details on the reclassified items, “Acquisition, integration and related” and “Quality remediation”.

We made this change to provide additional transparency and better reflect the nature of these expenses.

In 2016, we acquired LDR Holding Corporation (“LDR”) and other individually immaterial companies.

Foreign currency transaction gains and losses included in net earnings for the years ended December 31, 2018, 2017 and 2016 were not significant.

Capitalized

This ASU amends the hedge accounting guidance to simplify the application of hedge accounting, makes more financial and nonfinancial hedging strategies eligible for hedge accounting treatment, changes how companies assess effectiveness and updates presentation and disclosure requirements.

We early adopted this ASU in the first quarter of 2018.

Based upon our hedging portfolio that existed prior to adoption, the adoption of this ASU did not have any impact on our financial position, results of operations or cash flows.

Under this ASU, we have made a policy election for changes in the fair value of the cross-currency component of the cross-currency interest rate swaps to be recorded in AOCI.

is sold or substantially liquidated.

Under previous guidance, the fair value change related to the cross-currency component was recognized in earnings.

In February 2018, the FASB issued ASU 2018-02 – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

Under GAAP, when there is a change in tax rates, it requires remeasurement of deferred tax assets and liabilities to be recognized as part of income, even if the deferred tax asset or liability had been recorded and recognized in AOCI.

As a result, a portion of the amount recognized in AOCI at the previous tax rate would remain stranded in AOCI permanently.

ASU 2018-02 allows the stranded tax effects in AOCI related only to the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) to be reclassified from AOCI to retained earnings.

The only stranded tax effects in AOCI we had related to the 2017 Tax Act were due to changes in the U.S. federal corporate income tax rate.

We early adopted this ASU in the first quarter of 2018 and elected to use the beginning of period transition method, which means we recognized the reclassification as of January 1, 2018.

As a result, we reclassified $42.9 million from AOCI to retained earnings.

In March 2017, the FASB issued ASU 2017-07 – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

This ASU requires us to report the service cost component of pensions in the same location as other compensation costs arising from services rendered by the pertinent employees during the period.

We are required to report the other components of net benefit costs in other income (expense) in the statements of earnings.

This ASU must be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost in the statements of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost in assets.

This ASU provides a practical expedient that allows companies to use the amounts disclosed in prior financial statements as the basis for the retrospective application.

We elected to use this practical expedient.

The impacts of this ASU on our consolidated financial statements for the years ended December 31, 2017 and 2016 are included in the tables below.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (Topic 606).

This ASU provides a five-step model for revenue recognition that all industries will apply to recognize revenue when a customer obtains control of a good or service.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 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 [added: specified in the Securities and Exchange Commission’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.]

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, [removed: 2018,] [added: 2019,] the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2018.][added: 2019.]

In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in [removed: Internal] [added: *Internal] Control-Integrated [removed: Framework] [added: Framework*] (2013).

Based on their assessment, management has concluded that, as of December 31, [removed: 2018,] [added: 2019,] the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] as stated in its report which appears in Item 8 of this Annual Report on Form 10-K.

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, [removed: 2018] [added: 2019] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As previously reported, on January 1, 2019 we adopted ASU 2016-02 – Leases (Topic 842).

This ASU requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet.

As a result, we added additional internal controls to comply with the new standard in the first quarter of 2019.

specified in the Securities and Exchange Commission’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.

During the fourth quarter of [removed: 2018,] [added: 2019,] the Audit Committee of our Board of Directors [removed: was not asked to, and did not, approve] [added: approved] the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform [removed: any] [added: certain] non-audit services.

Information required by this item is incorporated by reference from our definitive Proxy Statement for the annual meeting of stockholders to be held on May [removed: 10, 2019] [added: 8, 2020] (the [removed: “2019] [added: “2020] Proxy Statement”).

The finance code of ethics is publicly available in the Investor Relations section of our website, which may be accessed from our homepage at www.zimmerbiomet.com or directly at [removed: http://investor.zimmerbiomet.com.][added: https://investor.zimmerbiomet.com.]

Information required by this item is incorporated by reference from our [removed: 2019] [added: 2020] Proxy Statement.

Information required by this item is incorporated by reference from our [removed: 2019] [added: 2020] Proxy Statement.

Information required by this item is incorporated by reference from our [removed: 2019] [added: 2020] Proxy Statement.

Information required by this item is incorporated by reference from [removed: of] our [removed: 2019] [added: 2020] Proxy Statement.

Consolidated Statements of Earnings for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

Consolidated Balance Sheets as of December 31, [removed: 2018] [added: 2019] and [removed: 2017][added: 2018]

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

Consolidated Statements of Cash Flows for the Years Ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

Valuation and Qualifying Accounts [added: (in millions):]

| Year Ended December 31, 2017 | | [added: $] | 51.6 | | | [added: $] | 13.6 | | | [added: $] | (5.1 | ) | | [added: $] | 0.1 | | | [added: $] | \- | | | [added: $] | 60.2 | |

| Year Ended December 31, 2017 | | [added: $] | 88.3 | | | [added: $] | 41.3 | | | [added: $] | (10.3 | ) | | [added: $] | 2.8 | | | [added: $] | 18.5 | | | [added: $] | 140.6 | |

[removed: INDEX] [added: INDEX] TO [removed: EXHIBITS][added: EXHIBITS]

| Exhibit No | | [removed: Description†] [added: Description] |

| 3.2 | | [Restated By-Laws of Zimmer Biomet Holdings, [removed: Inc., effective June 24, 2015] [added: Inc. dated October 11, 2019] (incorporated by reference to Exhibit [removed: 3.3] [added: 3.1] to the Registrant’s Current Report on Form 8-K filed [removed: June 26, 2015)](http://www.sec.gov/Archives/edgar/data/1136869/000119312515237276/d948441dex33.htm)] [added: October 11, 2019)](http://www.sec.gov/Archives/edgar/data/1136869/000156459019036854/zbh-ex31_15.htm)] |

| [removed: 4.1] [added: 4.2] | | [Specimen Common Stock [removed: certificate] [added: Certificate] (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed August [removed: 10, 2015)](http://www.sec.gov/Archives/edgar/data/1136869/000119312515285070/d50125dex41.htm)] [added: 5, 2019)](http://www.sec.gov/Archives/edgar/data/1136869/000156459019028842/zbh-ex41_93.htm)] |

| [removed: 4.2] [added: 4.3] | | [Indenture dated as of November 17, 2009 between Zimmer Holdings, Inc. (now known as Zimmer Biomet Holdings, Inc.) and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed December 13, 2016)](http://www.sec.gov/Archives/edgar/data/1136869/000119312516791951/d298678dex41.htm) |

| [removed: 4.3] [added: 4.4] | | [First Supplemental Indenture to the Indenture dated as of November 17, 2009 between Zimmer Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed November 17, 2009)](http://www.sec.gov/Archives/edgar/data/1136869/000095012309063461/c54692exv4w2.htm) |