Zimmer Biomet Holdings 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2022

Commission File Number 001-16407

ZIMMER BIOMET HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-4151777
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

345 East Main Street, Warsaw, IN 46580

(Address of principal executive offices)

Telephone: (574) 267-6131

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ZBH	New York Stock Exchange
1.414% Notes due 2022	ZBH 22A	New York Stock Exchange
2.425% Notes due 2026	ZBH 26	New York Stock Exchange
1.164% Notes due 2027	ZBH 27	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒			Accelerated filer	☐
Non-accelerated filer	☐			Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 22, 2022, 209,577,347 shares of the registrant’s $.01 par value common stock were outstanding.

ZIMMER BIOMET HOLDINGS, INC.

INDEX TO FORM 10-Q

March 31, 2022

				Page
Part I - Financial Information
Item 1.		Financial Statements (unaudited)		3
		Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2022 and 2021		3
		Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021		4
		Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021		5
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021		6
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021		7
		Notes to Interim Condensed Consolidated Financial Statements		8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		34
Item 4.		Controls and Procedures		34
Part II - Other Information
Item 1.		Legal Proceedings		35
Item 1A.		Risk Factors		35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.		Defaults Upon Senior Securities		36
Item 4.		Mine Safety Disclosures		36
Item 5.		Other Information		36
Item 6.		Exhibits		37
Signatures				39

Part I – Financial Information

ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(in millions, except per share amounts, unaudited)

		Three Months Ended
		March 31,
		2022				2021
Net Sales		$	1,663.2			$	1,601.4
Cost of products sold, excluding intangible asset amortization			500.0				436.3
Intangible asset amortization			130.8				133.6
Research and development			96.9				81.0
Selling, general and administrative			684.5				657.0
Restructuring and other cost reduction initiatives			43.9				21.3
Quality remediation			6.5				10.1
Acquisition, integration, divestiture and related			2.2				3.4
Operating expenses, net			1,464.8				1,342.7
Operating Profit			198.4				258.7
Other (expense) income, net			(56.1	)			7.7
Interest expense, net			(41.1	)			(52.3	)
Earnings from continuing operations before income taxes			101.2				214.1
Provision for income taxes from continuing operations			28.0				21.1
Net Earnings from continuing operations			73.2				193.0
Less: Net earnings (loss) attributable to noncontrolling interest			0.2				(0.4	)
Net Earnings from Continuing Operations of Zimmer Biomet Holdings, Inc.			73.0				193.4
(Loss) earnings from discontinued operations, net of taxes			(58.8	)			4.7
Net Earnings of Zimmer Biomet Holdings, Inc.		$	14.2			$	198.1
Earnings Per Common Share - Basic
Earnings from continuing operations		$	0.35			$	0.93
(Loss) earnings from discontinued operations			(0.28	)			0.02
Net Earnings Per Common Share - Basic		$	0.07			$	0.95
Earnings Per Common Share - Diluted
Earnings from continuing operations		$	0.35			$	0.92
(Loss) earnings from discontinued operations			(0.28	)			0.02
Net Earnings Per Common Share - Diluted		$	0.07			$	0.94
Weighted Average Common Shares Outstanding
Basic			209.2				208.0
Diluted			210.1				210.2

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, unaudited)

		Three Months Ended
		March 31,
		2022				2021
Net Earnings from continuing operations		$	73.2			$	193.0
Other Comprehensive Income (Loss):
Foreign currency cumulative translation adjustments, net of tax			1.3				(19.1	)
Unrealized cash flow hedge gains, net of tax			13.7				39.9
Reclassification adjustments on hedges, net of tax			(4.3	)			(0.5	)
Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax			0.9				0.8
Total Other Comprehensive Income			11.6				21.1
Comprehensive Income			84.8				214.1
Comprehensive income (loss) attributable to the noncontrolling interest			0.2				(0.4	)
Comprehensive (loss) income attributable to discontinued operations			(58.8	)			4.7
Comprehensive Income Attributable to
Zimmer Biomet Holdings, Inc.		$	25.8			$	219.2

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts, unaudited)

		March 31,				December 31,
		2022				2021
ASSETS
Current Assets:
Cash and cash equivalents		$	435.8			$	378.1
Accounts receivable, less allowance for credit losses			1,254.2				1,259.6
Inventories			2,132.1				2,148.0
Prepaid expenses and other current assets			694.7				597.7
Current assets of discontinued operations			-				501.6
Total Current Assets			4,516.8				4,885.0
Property, plant and equipment, net			1,825.9				1,836.6
Goodwill			8,895.9				8,919.4
Intangible assets, net			5,391.5				5,533.6
Other assets			987.4				1,005.0
Noncurrent assets of discontinued operations			-				1,276.8
Total Assets		$	21,617.5			$	23,456.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	322.0			$	306.5
Income taxes payable			34.5				62.0
Salaries, wages and benefits			184.5				317.6
Other current liabilities			1,118.6				999.5
Current portion of long-term debt			1,014.5				1,605.1
Current liabilities of discontinued operations			-				177.2
Total Current Liabilities			2,674.1				3,467.9
Deferred income taxes, net			490.1				558.5
Long-term income tax payable			593.1				583.0
Other long-term liabilities			552.5				548.5
Long-term debt			5,286.3				5,463.7
Noncurrent liabilities of discontinued operations			-				168.4
Total Liabilities			9,596.1				10,790.0
Commitments and Contingencies (Note 15)
Stockholders' Equity:
Zimmer Biomet Holdings, Inc. Stockholders' Equity:
Common stock, $0.01 par value, one billion shares authorized, 313.4 million shares in 2022 (312.8 million in 2021) issued			3.1				3.1
Paid-in capital			9,385.7				9,314.8
Retained earnings			9,503.1				10,292.2
Accumulated other comprehensive loss			(158.9	)			(231.6	)
Treasury stock, 103.8 million shares in 2022 (103.8 million shares in 2021)			(6,717.5	)			(6,717.8	)
Total Zimmer Biomet Holdings, Inc. stockholders' equity			12,015.5				12,660.7
Noncontrolling interest			5.9				5.7
Total Stockholders' Equity			12,021.4				12,666.4
Total Liabilities and Stockholders' Equity		$	21,617.5			$	23,456.4

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZIMMER BIOMET HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except per share amounts, unaudited)

		Zimmer Biomet Holdings, Inc. Stockholders
																		Accumulated

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The following discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements and corresponding notes included elsewhere in this Form 10-Q. Certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and, therefore, may not recalculate from the rounded numbers used for disclosure purposes.

On March 1, 2022, we completed the spinoff of our spine and dental businesses into ZimVie. The historical results of our spine and dental businesses have been reflected as discontinued operations in our condensed consolidated financial statements through the date of the spinoff and in the prior year period. In addition, as of December 31, 2021, the assets and liabilities associated with these businesses are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheet. See Note 2 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report for additional information. The discussions in the following discussion and analysis are presented on a continuing operations basis.

Executive Level Overview

Impact of the COVID-19 Global Pandemic

Our results continue to be impacted by the COVID-19 global pandemic. The vast majority of our net sales are derived from products used in elective surgical procedures that have typically declined during surges of the virus as governments and healthcare systems take actions in an effort to prevent the spread and provide sufficient hospital beds and other resources for COVID-19 patients. Additionally, we believe that staffing shortages at hospitals have contributed, and continue to contribute, to the deferral of elective surgical procedures. In the three-month period ended March 31, 2022, the Omicron variant resulted in fewer elective surgical procedures earlier in the quarter, but then procedures approached pre-pandemic levels as the surge began to subside later in the quarter.

Results for the Three-Month Period ended March 31, 2022

Our net sales increased by 3.9 percent in the three-month period ended March 31, 2022 when compared to the same prior year period. We saw the return of elective surgical procedures across most markets when compared to the prior year period being negatively affected by a surge of the COVID-19 virus in early 2021 and before vaccines were widely available. Our net sales growth was tempered by a negative 2.9 percent effect from changes in foreign currency exchange rates on year-over-year sales. Our net earnings were $14.2 million in the three-month period ended March 31, 2022, compared to $198.1 million in the same prior year period. The decline in net earnings in the three-month period ended March 31, 2022 was primarily due to losses from discontinued operations from costs related to the ZimVie spinoff, an unrealized investment loss due to a decline in the value of our investment in ZimVie, higher litigation-related charges, higher restructuring charges, and higher spending in research and development (“R&D”), travel, medical training and education and other areas as certain activities started to return to pre-pandemic levels.

2022 Outlook

We believe that COVID-19 and staffing shortages will continue to negatively affect net sales, but to a lesser degree than what we experienced in 2021. However, if foreign currency exchange rates stay at recent levels, we estimate net sales will be negatively affected by approximately 3.5%. For expenses, we expect that supply chain and inflation pressures will result in higher expenses. However, we anticipate these higher expenses will be partially offset by savings from our restructuring programs.

Results of Operations

We review sales by two geographies, the United States and International, and by the following product categories: Knees; Hips; S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic); and Other. This sales analysis differs from our reportable operating segments, which are based upon our senior management organizational structure and how we allocate resources toward achieving operating profit goals. We review sales by these geographies because the underlying market trends in any particular geography tend to be similar across product categories, because we primarily sell the same products in all geographies and many of our competitors publicly report in this manner. Our business is seasonal in nature to some extent, as many of our products are used in elective surgical procedures, which typically decline during the summer months and can increase at the end of the year once annual deductibles have been met on health insurance plans. This seasonal pattern was disrupted in 2020 and 2021 due to COVID-19 as our net sales were influenced by the infection levels and precautions taken to prevent the spread in a particular location. It is uncertain if this seasonal pattern will return in 2022.

Net Sales by Geography

The following table presents our net sales by geography and the percentage changes (dollars in millions):

		Three Months Ended
		March 31,
		2022				2021				% Inc
United States		$	941.2			$	889.2				5.8		%
International			722.0				712.2				1.4
Total		$	1,663.2			$	1,601.4				3.9

Net Sales by Product Category

The following table presents our net sales by product category and the percentage changes (dollars in millions):

		Three Months Ended
		March 31,
		2022				2021				% Inc / (Dec)
Knees		$	662.8			$	614.3				7.9		%
Hips			451.0				447.0				0.9
S.E.T.			416.8				417.6				(0.2	)
Other			132.6				122.5				8.2
Total		$	1,663.2			$	1,601.4				3.9

The following table presents our net sales by geography for our Knees and Hips product categories, which represent our most significant product categories (dollars in millions):

		Three Months Ended March 31,
		2022				2021				% Inc / (Dec)
Knees
United States		$	379.5			$	339.6				11.7		%
International			283.3				274.7				3.1
Total		$	662.8			$	614.3				7.9
Hips
United States		$	224.6			$	217.4				3.3		%
International			226.4				229.6				(1.4	)
Total		$	451.0			$	447.0				0.9

Demand (Volume and Mix) Trends

Changes in volume and mix of product sales had a positive effect of 8.4 percent on year-over-year sales during the three-month period ended March 31, 2022. We saw recovery of elective surgical procedures, most notably in the U.S. and Europe, driving volume growth. Asia Pacific net sales volumes were negatively affected by preventative measures taken in China to prevent the spread of COVID-19.

Pricing Trends

Global selling prices had a negative effect of 1.6 percent on year-over-year sales during the three-month period ended March 31, 2022. The majority of countries in which we operate continue to experience pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems. Additionally, pricing was negatively affected in China by a nationwide volume-based procurement (“VBP”) process being implemented.

Foreign Currency Exchange Rates

For the three-month period ended March 31, 2022, changes in foreign currency exchange rates had a negative effect of 2.9 percent on year-over-year sales. If foreign currency exchange rates remain at levels consistent with recent rates, we estimate there will be a negative impact of approximately 3.5 percent on full-year 2022 sales.

Geography

The 5.8 percent net sales growth in the U.S. was driven by recovery in surgical procedures as COVID-19 cases subsided, especially in knees. Internationally, net sales grew by 1.4 percent, despite a negative impact of 6.7 percent due to changes in foreign currency exchange rates. We experienced net sales growth in EMEA of 13.6 percent in the quarter due to our most significant markets in that region recovering from COVID-19 surges, but this was offset by a decline of 13.1 percent in Asia Pacific. The decline in Asia Pacific net sales was primarily due to China experiencing lockdowns in the 2022 period due to COVID-19 as well as the negative effects of the VBP implementation.

Product Categories

Knees and Hips net sales grew 7.9 percent and 0.9 percent, respectively, when compared to the same prior year period due to the recovery in elective surgical procedures and new product introductions. Knees and Hips net sales were negatively affected 3.1 percent and 3.6 percent, respectively, by changes in foreign currency exchange rates. S.E.T. net sales declines were due to the negative effects of changes in foreign currency exchange rates and some declines in certain product subcategories.

Expenses as a Percentage of Net Sales

		Three Months Ended
		March 31,										% Inc /
		2022					2021					(Dec)
Cost of products sold, excluding intangible asset amortization			30.1		%			27.2		%			2.9		%
Intangible asset amortization			7.9					8.3					(0.4	)
Research and development			5.8					5.1					0.7
Selling, general and administrative			41.2					41.0					0.2
Restructuring and other cost reduction initiatives			2.6					1.3					1.3
Quality remediation			0.4					0.6					(0.2	)
Acquisition, integration, divestiture and related			0.1					0.2					(0.1	)
Operating profit			11.9					16.2					(4.3	)

The increase in cost of products sold as a percentage of net sales for the three-month period ended March 31, 2022 compared to the same prior year period was primarily due to higher excess and obsolete inventory charges, inflationary cost pressures and lower average selling prices.

Intangible asset amortization expense was similar in both amount and as a percentage of net sales in the three-month period ended March 31, 2022 when compared to the same prior year period.

R&D expenses increased in both amount and as a percentage of net sales in the three-month period ended March 31, 2022 compared to the same prior year period. The increases in the three-month period ended March 31, 2022 were primarily due to reengaging in R&D projects in the current year period compared to early 2021 when COVID-19 caused delays in project spending.

Selling, general and administrative (“SG&A”) expenses increased in both amount and as a percentage of sales in the three-month period ended March 31, 2022 when compared to the same prior year period. The increase in the three-month period ended March 31, 2022 was primarily due to higher litigation-related charges of $33.2 million in the 2022 period compared to $10.7 million in the 2021 period, increased bad debt charges caused by the Russia/Ukraine conflict, and higher travel and medical training and education costs in the 2022 period as certain activities have resumed.

As a result of the invasion of Ukraine by Russia, economic sanctions and export controls were imposed by much of the world on Russian financial institutions and businesses. Our operations in Russia consist primarily of local commercial activities, including sales and customer support. We do not have direct operations in Ukraine. Our net sales in Russia and Ukraine for the year ended December 31, 2021 and three-month period ended March 31, 2022 were less than 1 percent of our consolidated net sales. Therefore, the ongoing conflict and economic sanctions are not expected to have a significant effect on our results of operations or financial position. The bad debt charges for expected credit losses in Russia and Ukraine resulted in a significant portion of our accounts receivable from customers in these countries being impaired. In addition to accounts receivable, we also have inventory and instruments that could require impairment if our business in Russia deteriorates more than our current expectations; however, any such amounts are not expected to be material. See Part II, Item 1A “Risk Factors” for additional risks related to this conflict.

In December of 2021 and 2019, we initiated restructuring programs. The December 2021 restructuring program is intended to reorganize our operations due to the spinoff of ZimVie with an objective of reducing costs. The December 2019 restructuring program has an objective of reducing costs to allow us to invest in higher priority growth opportunities. We recognized expenses of

$43.9 million and $21.3 million in the three-month periods ended March 31, 2022 and 2021, respectively, primarily related to employee termination benefits, sales agent contract terminations, and consulting and project management expenses associated with these programs. The expenses were higher in the 2022 period due to additional expenses from the December 2021 restructuring program that had just been initiated. For more information regarding these charges, see Note 5 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.

We continue to incur quality remediation expenses to complete our remediation milestones that address inspectional observations on Form 483 and a Warning Letter issued by the FDA at our Warsaw North Campus facility, among other matters.

Acquisition, integration, divestiture and related expenses declined slightly in the three-month period ended March 31, 2022 when compared to the same prior year period.

Other (Expense) Income, Net, Interest Expense, Net, and Income Taxes

In the three-month period ended March 31, 2022 we incurred a loss of $56.1 million in our other (expense) income, net financial statement line item compared to a gain of $7.7 million in the same prior year period. The loss was primarily due to a $51.0 million loss on our investment in ZimVie.

Interest expense, net, decreased in the three-month period ended March 31, 2022 when compared to the same prior year period. The decline was primarily from using debt that we issued in the fourth quarter of 2021, along with cash on hand, to repurchase portions of outstanding notes with higher interest rates. Additionally, interest expense, net was lower due to additional debt paydown.

In the three-month period ended March 31, 2022, our effective tax rate (“ETR”) was 27.8 percent compared to 9.8 percent in the three-month period ended March 31, 2021. The 27.8 percent ETR in the three-month period ended March 31, 2022 was driven by the loss on our investment in ZimVie which is not deductible for tax purposes. The 9.8 percent ETR in the three-month period ended March 31, 2021 was the result of favorable discrete adjustments from the filing of Swiss tax returns and an excess tax benefit related to stock-based compensation. Absent discrete tax events, we expect our future ETR will be lower than the U.S. corporate income tax rate of 21.0 percent due to our mix of earnings between U.S. and foreign locations, which have lower corporate income tax rates. Our ETR in future periods could also potentially be impacted by: changes in our mix of pre-tax earnings; changes in tax rates, tax laws or their interpretation; the outcome of various federal, state and foreign audits; and the expiration of certain statutes of limitations. Currently, we cannot reasonably estimate the impact of these items on our financial results.

Segment Operating Profit

																		Operating Profit as a
		Net Sales								Operating Profit								Percentage of Net Sales
		Three Months Ended								Three Months Ended								Three Months Ended
		March 31,								March 31,								March 31,
(dollars in millions)		2022				2021				2022				2021				2022				2021
Americas		$	1,004.3			$	946.1			$	389.1			$	379.7				38.7		%		40.1		%
EMEA			379.9				334.4				78.3				75.3				20.6				22.5
Asia Pacific			279.0				320.9				82.9				114.6				29.7				35.7

All of our operating segments’ operating profit as a percentage of net sales declined in the three-month period ended March 31, 2022, when compared to the same prior year period. In the Americas, the decline was driven by higher excess and obsolete inventory charges, investments in R&D and the resumption of various activities. In our EMEA operating segment, the decline was primarily due to bad debt expense as a result of the Russia/Ukraine conflict. In our Asia Pacific operating segment, the decline was driven by lower net sales coupled with fixed costs that do not decrease in proportion to net sales.

Liquidity and Capital Resources

As of March 31, 2022, we had $435.8 million in cash and cash equivalents. In addition, we had $1.0 billion available to borrow under our 2021 364-Day Credit Agreement that matures on August 19, 2022, and $1.4 billion available under our 2021 Five-Year Revolving Facility that matures on August 20, 2026. The terms of the 2021 364-Day Credit Agreement and the 2021 Five-Year Revolving Facility are described further in Note 8 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.

We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our revolving credit facilities will be sufficient to meet our ongoing liquidity requirements for at least the next twelve months. At this time, we do

not anticipate needing to borrow further against our revolving credit facilities to fund our operations. However, due to the continued uncertainties related to the COVID-19 pandemic, it is possible our needs may change. Further, there can be no assurance that, if needed, we will be able to secure additional financing on terms favorable to us, if at all.

Sources of Liquidity

Cash flows provided by operating activities from continuing operations were $315.7 million in the three-month period ended March 31, 2022, compared to $223.5 million in the same prior year period. The increase in cash flows provided by operating activities from continuing operations was primarily from terminating our accounts receivable purchase programs in the U.S. and Japan in the fourth quarter of 2020, which resulted in lower collections in the 2021 period cash flows. Additionally, investments in inventory were less in the 2022 period than in the 2021 period.

Cash flows used in investing activities from continuing operations were $81.1 million in the three-month period ended March 31, 2022, compared to $108.1 million in the same prior year period. Instrument and property, plant and equipment additions reflected ongoing investments in our product portfolio and optimization of our manufacturing and logistics networks.

Cash flows used in financing activities from continuing operations were $122.4 million in the three-month period ended March 31, 2022, compared to $195.8 million in the same prior year period. At the ZimVie spinoff date, we received $540.6 million as partial consideration for the contribution of assets in connection with the separation. We used these proceeds, together with $100.0 million of borrowings on our 2021 Five-Year Revolving Facility and cash on hand to redeem the full $750.0 million on senior notes that were due April 1, 2022. In the 2021 period, we paid the remaining $200.0 million on our floating rate notes due 2021 which matured in the period.

We place our cash and cash equivalents in highly-rated financial institutions and limit the amount of credit exposure to any one entity. We invest only in high-quality financial instruments in accordance with our internal investment policy.

As of March 31, 2022, $319.5 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $46.2 million is denominated in U.S. Dollars and, therefore, bears no foreign currency translation risk. The balance of these assets is denominated in currencies of the various countries where we operate. We intend to repatriate $5.0 to $6.0 billion of unremitted earnings in future years.

Our concentrations of credit risks with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across a number of geographic areas and by frequent monitoring of the creditworthiness of the customers to whom credit is granted in the normal course of business. Substantially all of our trade receivables are concentrated in the public and private hospital and healthcare industry in the U.S. and internationally or with distributors or dealers who operate in international markets and, accordingly, are exposed to their respective business, economic and country-specific variables. We have continued to collect on outstanding receivables throughout the pandemic. However, we are closely monitoring the financial stability of our customers and the country-specific risks, including those customers in markets with hospitals sponsored by the government.

Material Cash Requirements from Known Contractual and Other Obligations

At March 31, 2022, we had outstanding debt of $6,300.8 million, of which $1,014.5 million was classified as current debt. Of our current debt, $271.9 million of Japanese Yen denominated term loans mature on September 27, 2022, $556.3 million of Euro denominated senior notes mature on December 13, 2022, $86.3 million of senior notes mature on March 19, 2023 and $100.0 million was outstanding on our 2021 Five-Year Revolving Facility that was borrowed on a short-term basis. We believe we can satisfy these debt obligations with cash generated from our operations, with cash received from selling a portion or all of our shares of ZimVie common stock, by issuing new debt, and/or by borrowing on our revolving credit facilities.

For additional information on our debt, including types of debt, maturity dates, interest rates, debt covenants and available revolving credit facilities, see Note 8 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.

In February 2022, our Board of Directors declared a quarterly cash dividend of $0.24 per share. We expect to continue paying cash dividends on a quarterly basis; however, future dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.

In February 2016, our Board of Directors authorized a new $1.0 billion share repurchase program effective March 1, 2016, with no expiration date. As of March 31, 2022, all $1.0 billion remained authorized.

As discussed in Note 5 to our interim condensed consolidated financial statements in Part I, Item 1 of this report, we have a 2021 Restructuring Plan and a 2019 Restructuring Plan. The 2021 Restructuring Plan is expected to result in total pre-tax restructuring

charges of approximately $240 million, of which approximately $60 million was incurred through March 31, 2022. We expect to reduce gross annual pre-tax operating expenses by approximately $210 million relative to the 2021 baseline expenses by the end of 2024 as program benefits under the 2021 Restructuring Plan are realized. The 2019 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $350 million to $400 million, of which approximately $235 million was incurred through March 31, 2022. We expect to reduce gross annual pre-tax operating expenses by approximately $200 million to $300 million relative to the 2019 baseline expenses by the end of 2023 as program benefits under the 2019 Restructuring Plan are realized.

As discussed in Note 12 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, the IRS has issued proposed adjustments for years 2010 through 2012, as well as proposed adjustments for years 2013 through 2015, reallocating profits between certain of our U.S. and foreign subsidiaries. We have disputed these proposed adjustments and intend to continue to vigorously defend our positions. Although the ultimate timing for resolution of the disputed tax issues is uncertain, future payments may be significant to our operating cash flows.

As discussed in Note 15 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, we are involved in various litigation matters. We estimate the total liabilities for all litigation matters was $423.0 million as of March 31, 2022. We expect to pay these liabilities over the next few years. Additionally, we have entered into development, distribution and other contractual arrangements that may result in future payments dependent upon various events such as the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. Since there is uncertainty on the timing or whether such payments will have to be made, they have not been recognized on our condensed consolidated balance sheets. These estimated payments could range from $0 to approximately $360 million.

Recent Accounting Pronouncements

Information pertaining to recent accounting pronouncements can be found in Note 3 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.

Critical Accounting Estimates

The preparation of our financial statements is affected by the selection and application of accounting policies and methods, and also requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. There were no changes in the three-month period ended March 31, 2022 to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cautionary Note Regarding Forward-Looking Statements and Factors That May Affect Future Results

This quarterly report contains certain statements that are forward-looking statements within the meaning of federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, the words “may,” “will,” “can,” “should,” “would,” “could,” “anticipate,” “expect,” “plan,” “seek,” “believe,” “are confident that,” “look forward to,” “predict,” “estimate,” “potential,” “project,” “target,” “forecast,” “see,” “intend,” “design,” “strive,” “strategy,” “future,” “opportunity,” “assume,” “guide,” “position,” “continue” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current beliefs, expectations and assumptions that are subject to significant risks, uncertainties and changes in circumstances that could cause actual results to differ materially from such forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to:

	•	the effects of the COVID-19 global pandemic and other adverse public health developments on the global economy, our business and operations and the business and operations of our suppliers and customers, including the deferral of elective surgical procedures and our ability to collect accounts receivable, the failure of vaccine rollouts and other strategies to mitigate or reverse the impacts of the COVID-19 pandemic, and the failure of elective surgical procedures to recover at the levels or on the timeline anticipated;

	•	the risks and uncertainties related to our ability to successfully execute our restructuring plans;

	•	our ability to attract, retain and develop the highly skilled employees we need to support our business;

	•	the success of our quality and operational excellence initiatives, including ongoing quality remediation efforts at our Warsaw North Campus facility;

	•	the ability to remediate matters identified in inspectional observations or warning letters issued by the FDA, while continuing to satisfy the demand for our products;

	•	the risks and uncertainties associated with the spinoff of ZimVie Inc., including, without limitation, the tax-free nature of the transaction, the tax-efficient nature of any subsequent disposal of any ZimVie Inc. common stock we retain, possible disruptions in our relationships with customers, suppliers and other business partners, and the possibility that the

		anticipated benefits and synergies of the transaction, strategic and competitive advantages, and future growth and other opportunities will not be realized within the expected time periods or at all;

	•	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;

	•	the ability to retain the employees, independent agents and distributors who market our products;

	•	dependence on a limited number of suppliers for key raw materials and outsourced activities;

	•	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 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, suppliers and lenders and on our operating results and businesses generally;

	•	challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the FDA and foreign government regulators, such as more stringent requirements for regulatory clearance of 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 measures;

	•	reductions in reimbursement levels by third-party payors and cost containment efforts sponsored by government agencies, legislative bodies, the private sector and healthcare purchasing organizations, including the volume-based procurement in China;

	•	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;

	•	breaches or failures of our information technology systems or products, including by cyber-attack, 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 liability, intellectual property and commercial litigation losses;

	•	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;

	•	the domestic and international business impact of political, social and economic instability, tariffs, trade embargoes, sanctions, wars, disputes and other conflicts;

	•	the effects of inflation, including the effects of different rates of inflation in different countries, on our costs, especially of titanium used in our products, and the costs of our products;

	•	the effects of supply chain continuity disruptions;

	•	and the impact of the ongoing financial and political uncertainty on countries in EMEA relating to the Russian-Ukrainian crisis and otherwise, on the ability to collect accounts receivable in affected countries.

Our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q contain detailed discussions of these and other important factors under the heading “Risk Factors.” You should understand that it is not possible to predict or identify all factors that could cause actual results to differ materially from forward-looking statements. Consequently, you should not consider any list or discussion of such factors to be a complete set of all potential risks or uncertainties.

Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Readers of this report are cautioned not to rely on these forward-looking statements since there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.

| --- | --- |

There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2021.

| --- | --- |

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings | --- | --- |

Information pertaining to legal proceedings can be found in Note 15 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report and is incorporated herein by reference.

| --- | --- |

You should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) and the factors discussed below, which could materially affect our business, financial condition and results of operations. Except as set forth below, there have been no material changes in those risk factors. The risks described in our 2021 Form 10-K and below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations. In addition, the COVID-19 pandemic could exacerbate or trigger other risks discussed in our 2021 Form 10-K and below, any of which could materially affect our business, financial condition and results of operations.

The risk factor in our 2021 Form 10-K entitled “We conduct a significant amount of our sales activity outside of the U.S., which subjects us to additional business risks and may cause our profitability to decline due to increased costs” is replaced in its entirety by the following:

We conduct a significant amount of our sales activity outside of the U.S., which subjects us to additional business risks and may cause our profitability to decline due to increased costs.

We sell our products in more than 100 countries and derived approximately 40 percent of our net sales in 2021 from outside the U.S. We intend to continue to pursue growth opportunities in sales internationally, including in emerging markets, which could expose us to additional risks associated with international sales and operations. Our international operations are, and will continue to be, subject to a number of risks and potential costs, including:

	•	changes in foreign medical reimbursement policies and programs;

	•	changes in foreign regulatory requirements, such as more stringent requirements for regulatory clearance of products;

	•	differing local product preferences and product requirements;

	•	fluctuations in foreign currency exchange rates;

	•	the effects of inflation, including the effects of different rates of inflation in different countries, on our costs and the costs of our products;

	•	diminished protection of intellectual property in some countries outside of the U.S.;

	•	trade protection measures, import or export requirements, new or increased tariffs, trade embargoes and sanctions and other trade barriers, which may prevent us from shipping products to a particular market, restrict our access to certain sources of raw materials, increase our operating costs and disrupt our ability to collect payment for our products and services in particular markets;

	•	foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.;

	•	complex data privacy and cybersecurity requirements and labor relations laws;

	•	extraterritorial effects of U.S. laws such as the FCPA;

	•	effects of foreign anti-corruption laws, such as the UK Bribery Act;

	•	difficulty in staffing and managing foreign operations;

	•	labor force instability;

	•	potentially negative consequences from changes in tax laws; and

	•	political, social and economic instability and uncertainty, including wars, other conflict and sovereign debt issues.

Violations of foreign laws or regulations could result in fines, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation.

Wars and other conflicts may increase certain of these risks and may adversely affect our business and financial performance. For example, the U.S. and other countries have imposed sanctions on Russia, certain of its businesses and certain individuals due to the invasion of Ukraine, and additional sanctions may continue to be imposed. Sanctions, and other related civil, political and economic effects of the Russia-Ukraine crisis, may have adverse impacts globally, including supply chain continuity disruption; inflationary pressures and increased costs of raw materials and inputs, especially titanium used in our products; manufacturing or shipping delays; increased shipping costs; and increased disruptions and delays on our ability to collect payment for our products and services in

particular markets. While Russia and Ukraine do not constitute material portions of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could adversely affect our result of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | --- | --- |

None

Item 3. Defaults Upon Senior Securities | --- | --- |

None

Item 4. Mine Safety Disclosures | --- | --- |

Not applicable

| --- | --- |

During the three-month period ended March 31, 2022, the Audit Committee of our Board of Directors approved the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform certain non-audit services. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act, as added by Section 202 of the Sarbanes-Oxley Act of 2002.

| --- | --- |

The following exhibits are filed or furnished as part of this report:

2.1		Separation and Distribution Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
3.1		Restated Certificate of Incorporation of Zimmer Biomet Holdings, Inc., dated May 17, 2021 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed May 20, 2021)
3.2		Restated By-Laws of Zimmer Biomet Holdings, Inc., effective May 17, 2021 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed May 20, 2021)
10.1		Amendment, effective as of January 1, 2022, to the Zimmer Biomet Holdings, Inc. Executive Severance Plan
10.2		Amended and Restated Zimmer Biomet Deferred Compensation Plan, effective as of January 1, 2022
10.3		Third Amendment and Limited Waiver, dated as of January 19, 2022, between Zimmer Biomet G.K. and Sumitomo Mitsui Banking Corporation, to the JP¥21,300,000,000 Term Loan Agreement dated as of September 22, 2017, as amended by the First Amendment and Limited Waiver dated as of February 25, 2020 and the Second Amendment dated as of April 28, 2020
10.4		Fourth Amendment and Limited Waiver, dated as of January 19, 2022, between Zimmer Biomet G.K. and Sumitomo Mitsui Banking Corporation, to the JP¥11,700,000,000 Amended and Restated Term Loan Agreement dated as of September 22, 2017, as amended by the First Amendment dated as of January 10, 2018, the Second Amendment and Limited Waiver dated as of February 25, 2020 and the Third Amendment dated as of April 28, 2020
10.5		Form of Nonqualified Stock Option Award Agreement (three-year vesting) under the Zimmer Biomet Holdings, Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed February 25, 2022)
10.6		Form of Performance-Based Restricted Stock Unit Award Agreement (2022) under the Zimmer Biomet Holdings, Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed February 25, 2022)
10.7		Form of Restricted Stock Unit Award Agreement (three-year vesting) under the Zimmer Biomet Holdings, Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K filed February 25, 2022)
10.8		Tax Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.9		Employee Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.10		Transition Services Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.11		Intellectual Property Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.12		Stockholder and Registration Rights Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.13		Transition Manufacturing and Supply Agreement, dated as of March 1, 2022, by and between Zimmer, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)

10.14		Reverse Transition Manufacturing and Supply Agreement, dated as of March 1, 2022, by and between Zimmer, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.15		Transitional Trademark License Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.16		Waiver, dated as of February 25, 2022, by and between Zimmer Biomet Holdings, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
10.17		Waiver, dated as of February 25, 2022, by and between Zimmer Biomet Holdings, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed March 1, 2022)
21		List of Subsidiaries of Zimmer Biomet Holdings, Inc.
31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ZIMMER BIOMET HOLDINGS, INC.
		(Registrant)
Date: May 5, 2022		By:		/s/ Suketu Upadhyay
				Suketu Upadhyay
				Executive Vice President and Chief Financial Officer
				(Principal Financial Officer)
Date: May 5, 2022		By:		/s/ Derek Davis
				Derek Davis
				Interim Controller and Chief Accounting Officer
				(Principal Accounting Officer)