NET SALES – THREE MONTHS ENDED MARCH 31, 2020

(in millions, unaudited)

Constant

Net

Currency

Sales

% Change

% Change

Geographic Results

Americas

$

1,101

(7.8)

%

(7.7)

%

EMEA

398

(14.2)

(11.7)

Asia Pacific

285

(10.4)

(9.5)

Total

$

1,784

(9.7)

%

(8.9)

%

Product Categories

Knees

Americas

$

380

(7.1)

%

(7.0)

%

EMEA

153

(13.1)

(10.3)

Asia Pacific

97

(11.4)

(9.7)

Total

630

(9.3)

(8.3)

Hips

Americas

233

(5.9)

(5.8)

EMEA

111

(16.4)

(13.9)

Asia Pacific

89

(14.0)

(13.5)

Total

433

(10.5)

(9.7)

S.E.T *

333

(6.5)

(5.8)

Dental, Spine & CMFT**

252

(12.4)

(11.8)

Other

136

(11.6)

(11.0)

Total

$

1,784

(9.7)

%

(8.9)

%

* Sports Medicine, Extremities and Trauma

** Craniomaxillofacial and Thoracic

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, except per share amounts, unaudited)

2020

2019

Net Sales

$

1,783.8

$

1,975.5

Cost of products sold, excluding intangible asset amortization

487.1

553.4

Intangible asset amortization

147.6

143.4

Research and development

98.4

101.7

Selling, general and administrative

828.9

796.4

Goodwill impairment

612.0

–

Restructuring and other cost reduction initiatives

45.0

4.7

Quality remediation

16.4

19.7

Acquisition, integration and related

4.4

6.0

Operating expenses

2,239.8

1,625.3

Operating (Loss) Profit

(456.0)

350.2

Other income (expense), net

3.0

(0.5)

Interest expense, net

(50.9)

(58.0)

(Loss) earnings before income taxes

(503.9)

291.7

Provision for income taxes

5.2

45.5

Net (Loss) Earnings

(509.1)

246.2

Less: Net (loss) earnings attributable to noncontrolling interest

(0.6)

0.1

Net (Loss) Earnings of Zimmer Biomet Holdings, Inc.

$

(508.5)

$

246.1

(Loss) Earnings Per Common Share

Basic

$

(2.46)

$

1.20

Diluted

$

(2.46)

$

1.20

Weighted Average Common Shares Outstanding

Basic

206.5

204.4

Diluted

206.5

205.8

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, unaudited)

March 31,

December 31,

2020

2019

Assets

Cash and cash equivalents

$

2,433.6

$

617.9

Receivables, net

1,039.1

1,363.9

Inventories

2,463.2

2,385.0

Other current assets

435.0

357.1

Total current assets

6,370.9

4,723.9

Property, plant and equipment, net

2,065.5

2,077.4

Goodwill

8,951.2

9,599.7

Intangible assets, net

7,077.7

7,257.6

Other assets

1,047.6

980.1

Total Assets

$

25,512.9

$

24,638.7

Liabilities and Stockholders’ Equity

Current liabilities

$

1,829.6

$

1,941.5

Current portion of long-term debt

1,950.0

1,500.0

Other long-term liabilities

2,126.4

2,083.0

Long-term debt

7,724.2

6,721.4

Stockholders’ equity

11,882.7

12,392.8

Total Liabilities and Stockholders’ Equity

$

25,512.9

$

24,638.7

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

2020

2019

Cash flows provided by (used in) operating activities

Net (loss) earnings

$

(509.1)

$

246.2

Depreciation and amortization

253.0

247.7

Share-based compensation

16.5

20.3

Goodwill impairment

612.0

–

Changes in operating assets and liabilities, net of acquired assets and
liabilities

Income taxes

(45.4)

24.5

Receivables

289.7

50.7

Inventories

(96.0)

(50.7)

Accounts payable and accrued expenses

(95.8)

(231.4)

Other assets and liabilities

26.0

(23.7)

Net cash provided by operating activities ⁽¹⁾

450.9

283.6

Cash flows provided by (used in) investing activities

Additions to instruments

(85.7)

(63.7)

Additions to other property, plant and equipment

(40.2)

(37.8)

Net investment hedge settlements

16.3

10.5

Investments in other assets

(11.6)

(14.5)

Net cash used in investing activities

(121.2)

(105.5)

Cash flows provided by (used in) financing activities

Proceeds from senior notes

1,497.1

–

Proceeds from term loans

–

200.0

Payments on term loans

–

(310.0)

Dividends paid to stockholders

(49.5)

(49.0)

Proceeds from employee stock compensation plans

54.5

44.4

Net cash flows from unremitted collections from factoring programs

12.4

(16.4)

Business combination contingent consideration payments

(3.5)

–

Debt issuance costs

(12.2)

–

Other financing activities

(6.0)

(4.2)

Net cash provided by (used in) financing activities

1,492.8

(135.2)

Effect of exchange rates on cash and cash equivalents

(6.8)

1.1

Increase in cash and cash equivalents

1,815.7

44.0

Cash and cash equivalents, beginning of period

617.9

542.8

Cash and cash equivalents, end of period

$

2,433.6

$

586.8

⁽¹⁾  2019 reflects approximately $168 million paid related to a patent litigation matter

ZIMMER BIOMET HOLDINGS, INC.

NET SALES BY GEOGRAPHY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended
March 31,

2020

2019

% (Dec)

Volume
/ Mix

Price

Foreign
Exchange

Americas

$

1,101.3

$

1,194.1

(7.8)

%

(5.0)

%

(2.7)

%

(0.1)

%

EMEA

398.1

463.9

(14.2)

(9.5)

(2.2)

(2.5)

Asia Pacific

284.4

317.5

(10.4)

(8.4)

(1.1)

(0.9)

Total

$

1,783.8

$

1,975.5

(9.7)

%

(6.6)

%

(2.3)

%

(0.8)

%

ZIMMER BIOMET HOLDINGS, INC.

NET SALES BY PRODUCT CATEGORY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended
March 31,

2020

2019

% (Dec)

Volume
/ Mix

Price

Foreign
Exchange

Knees

$

629.8

$

694.1

(9.3)

%

(5.9)

%

(2.4)

%

(1.0)

%

Hips

432.6

483.4

(10.5)

(6.7)

(3.0)

(0.8)

S.E.T

333.6

356.8

(6.5)

(4.1)

(1.7)

(0.7)

Dental, Spine & CMFT

251.7

287.3

(12.4)

(9.9)

(1.9)

(0.6)

Other

136.1

153.9

(11.6)

(8.6)

(2.4)

(0.6)

Total

$

1,783.8

$

1,975.5

(9.7)

%

(6.6)

%

(2.3)

%

(0.8)

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF REPORTED NET SALES % CHANGE TO

CONSTANT CURRENCY % CHANGE

(unaudited)

For the Three Months Ended

March 31, 2020

Foreign

Constant

Exchange

Currency

% Change

Impact

% Change

Geographic Results

Americas

(7.8)

%

(0.1)

%

(7.7)

%

EMEA

(14.2)

(2.5)

(11.7)

Asia Pacific

(10.4)

(0.9)

(9.5)

Total

(9.7)

%

(0.8)

%

(8.9)

%

Product Categories

Knees

Americas

(7.1)

%

(0.1)

%

(7.0)

%

EMEA

(13.1)

(2.8)

(10.3)

Asia Pacific

(11.4)

(1.7)

(9.7)

Total

(9.3)

(1.0)

(8.3)

Hips

Americas

(5.9)

(0.1)

(5.8)

EMEA

(16.4)

(2.5)

(13.9)

Asia Pacific

(14.0)

(0.5)

(13.5)

Total

(10.5)

(0.8)

(9.7)

S.E.T

(6.5)

(0.7)

(5.8)

Dental, Spine & CMFT

(12.4)

(0.6)

(11.8)

Other

(11.6)

(0.6)

(11.0)

Total

(9.7)

%

(0.8)

%

(8.9)

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, except per share amounts, unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2020

Cost of
products
sold,
excluding
intangible
asset
amortization

Intangible
asset
amortization

Research
and
development

Selling,
general and
administrative

Goodwill
impairment

Restructuring
and other
cost
reduction
initiatives

Quality
remediation

Acquisition,
integration
and related

Other
income
(expense),
net

Provision
for
income
taxes

Net
(Loss)
Earnings
of
Zimmer
Biomet
Holdings,
Inc.

Diluted
(loss)
earnings
per
common
share

As Reported

$

487.1

$

147.6

$

98.4

$

828.9

$

612.0

$

45.0

$

16.4

$

4.4

$

3.0

$

5.2

$

(508.5)

$

(2.46)

Inventory and
manufacturing-related
charges⁽¹⁾

(0.6)

–

–

–

–

–

–

–

–

2.2

(1.6)

(0.01)

Intangible asset
amortization⁽²⁾

–

(147.6)

–

–

–

–

–

–

–

30.1

117.5

0.57

Goodwill impairment⁽³⁾

–

–

–

–

(612.0)

–

–

–

–

–

612.0

2.96

Restructuring and
other cost reduction
initiatives⁽⁴⁾

–

–

–

–

–

(45.0)

–

–

–

11.4

33.6

0.16

Quality remediation⁽⁵⁾

0.5

–

–

–

–

–

(16.4)

–

–

3.6

12.3

0.06

Acquisition,
integration and
related⁽⁶⁾

–

–

–

–

–

–

–

(4.4)

–

0.9

3.5

0.02

Litigation⁽⁷⁾

–

–

–

(79.8)

–

–

–

–

–

18.0

61.8

0.30

European Union
Medical Device
Regulation⁽⁸⁾

–

–

(11.0)

–

–

–

–

–

–

2.2

8.8

0.04

Other charges⁽⁹⁾

–

–

–

(5.9)

–

–

–

–

0.7

1.8

4.8

0.02

Tax adjustments
relating to the impacts
of tax only
amortization in
Switzerland⁽¹⁰⁾

–

–

–

–

–

–

–

–

(16.9)

16.9

0.08

Other certain tax
adjustments⁽¹¹⁾

–

–

–

–

–

–

–

–

–

7.2

(7.2)

(0.03)

Effect of dilutive
shares assuming net
earnings⁽¹²⁾

–

–

–

–

–

–

–

–

(0.01)

As Adjusted

$

487.0

$

–

$

87.4

$

743.2

$

–

$

–

$

–

$

–

$

3.7

$

65.7

$

353.9

$

1.70

FOR THE THREE MONTHS ENDED MARCH 31, 2019

Cost of
products
sold,
excluding
intangible
asset
amortization

Intangible
asset
amortization

Research
and
development

Selling,
general and
administrative

Restructuring
and other
cost
reduction
initiatives

Quality
remediation

Acquisition,
integration
and related

Provision
for
income
taxes

Net Earnings
attributable to
noncontrolling
interest

Net
Earnings
of
Zimmer
Biomet
Holdings,
Inc.

Diluted
earnings
per
common
share

As Reported

$

553.4

$

143.4

$

101.7

$

796.4

$

4.7

$

19.7

$

6.0

$

45.5

$

0.1

$

246.1

$

1.20

Inventory and
manufacturing-r
elated charges⁽¹⁾

(2.0)

–

–

–

–

–

–

3.6

–

(1.6)

(0.01)

Intangible asset
amortization⁽²⁾

–

(143.4)

–

–

–

–

–

23.9

–

119.5

0.58

Restructuring and other
cost reduction initiatives⁽⁴⁾

–

–

–

–

(4.7)

–

–

1.1

–

3.6

0.02

Quality remediation⁽⁵⁾

–

–

–

–

–

(19.7)

–

4.2

–

15.5

0.08

Acquisition, integration and
related⁽⁶⁾

–

–

–

–

–

–

(6.0)

1.3

–

4.7

0.02

Litigation⁽⁷⁾

–

–

–

1.8

–

–

–

(2.7)

–

0.9

–

Litigation settlement gain⁽¹³⁾

–

–

–

23.5

–

–

–

(5.2)

–

(18.3)

(0.09)

European Union Medical
Device Regulation⁽⁸⁾

–

–

(1.6)

–

–

–

–

0.2

–

1.4

0.01

Other charges⁽⁹⁾

–

–

–

(22.7)

–

–

–

4.4

0.6

17.7

0.09

Other certain tax
adjustments⁽¹⁰⁾

–

–

–

–

–

–

–

5.3

–

(5.3)

(0.03)

As Adjusted

$

551.4

$

–

$

100.1

$

799.0

$

–

$

–

$

–

$

81.6

$

0.7

$

384.2

$

1.87

⁽¹⁾   

Inventory and manufacturing-related charges include excess and obsolete inventory charges on certain product lines we intend to discontinue and other inventory and manufacturing-related charges.

⁽²⁾     

We exclude intangible asset amortization from our non-GAAP financial measures because we internally assess our performance against our peers without this amortization.  Due to various levels of acquisitions among our peers, intangible asset amortization can vary significantly from company to company.

⁽³⁾     

In 2020, we recognized goodwill impairment charges of $470.0 million and $142.0 million related to our EMEA and Dental reporting units, respectively.

⁽⁴⁾      

In December 2019, our Board of Directors approved, and we initiated, a new global restructuring program that includes a reorganization of key businesses and an overall effort to reduce costs in order to accelerate decision-making and focus the organization on priorities to drive growth.  We have reclassified $4.7 million in the three month period ended March 31, 2019, from the “Acquisition, integration and related” financial statement line item to the “Restructuring and other cost reduction initiatives” financial statement line item, which amount was primarily attributable to project costs related to our supply chain optimization initiative.

⁽⁵⁾    

We are addressing inspectional observations on Form 483 and a Warning Letter issued by the U.S. Food and Drug Administration (“FDA”) following its previous inspections of our Warsaw North Campus facility, among other matters.  This quality remediation has required us to devote significant financial resources and is for a discrete period of time.  The majority of the expenses are related to consultants who are helping us to update previous documents and redesign certain processes.

⁽⁶⁾     

The acquisition, integration and related gains and expenses we have excluded from our non-GAAP financial measures resulted from various acquisitions.  The acquisition, integration and related gains and expenses include the following types of gains and expenses: 

• Consulting and professional fees related to third-party integration consulting performed in a variety of areas, such as tax, compliance, logistics and human resources, and legal fees related to the consummation of mergers and acquisitions.
• Employee termination benefits related to terminating employees with overlapping responsibilities in various areas of our business.
• Dedicated project personnel expenses which include the salary, benefits, travel expenses and other costs directly associated with employees who are 100 percent dedicated to our integration of acquired businesses and employees who have been notified of termination, but are continuing to work on transferring their responsibilities.
• Contract termination expenses related to terminated contracts, primarily with sales agents and distribution agreements.
• Other various expenses to relocate facilities, integrate information technology, losses incurred on assets resulting from the applicable acquisition, and other various expenses.
• Gains or expenses related to changes in the fair value of contingent consideration.

⁽⁷⁾ 

We are involved in routine patent litigation, product liability litigation, commercial litigation and other various litigation matters.  We review litigation matters from both a qualitative and quantitative perspective to determine if excluding the losses or gains will provide our investors with useful incremental information.  Litigation matters can vary in their characteristics, frequency and significance to our operating results.  The litigation charges and gains excluded from our non-GAAP financial measures in the periods presented relate to product liability matters where we have received numerous claims on specific products, patent litigation and commercial litigation related to a common matter in multiple jurisdictions.  In regards to the product liability matters, due to the complexities involved and claims filed in multiple districts, the expenses associated with these matters are significant to our operating results.  Once the litigation matter has been excluded from our non-GAAP financial measures in a particular period, any additional expenses or gains from changes in estimates are also excluded, even if they are not significant, to ensure consistency in our non-GAAP financial measures from period-to-period.

⁽⁸⁾      

The European Union Medical Device Regulation imposes significant additional premarket and postmarket requirements.  The new regulations provide a transition period until May 2021 for currently-approved medical devices to meet the additional requirements.  For certain devices, this transition period can be extended until May 2024.  We are excluding from our non-GAAP financial measures the incremental costs incurred to establish initial compliance with the regulations related to our currently-approved medical devices.  The incremental costs primarily include third-party consulting necessary to supplement our internal resources.

⁽⁹⁾ 

We have incurred other various expenses from specific events or projects that we consider highly variable or that have a significant impact to our operating results that we have excluded from our non-GAAP measures.  These include costs related to legal entity, distribution and manufacturing optimization, including contract terminations, as well as our costs of complying with our Deferred Prosecution Agreement (“DPA”) with the U.S. government related to certain Foreign Corrupt Practices Act matters involving Biomet and certain of its subsidiaries.  Under the DPA, which has a three-year term, we are subject to oversight by an independent compliance monitor, which monitorship commenced in August 2017.  The excluded costs include the fees paid to the independent compliance monitor and to external legal counsel assisting in the matter.

⁽¹⁰⁾ 

Represents tax adjustments relating to the impacts of tax only amortization resulting from Swiss Tax Reform as well as certain restructuring transactions in Switzerland.

⁽¹¹⁾  

Other certain tax adjustments relate to various discrete tax period adjustments.

⁽¹²⁾ 

Diluted share count used in Adjusted Diluted EPS:

Three Months Ended

Diluted shares

206.5

Dilutive shares assuming net earnings

1.7

Adjusted diluted shares

208.2

⁽¹³⁾   

In the first quarter of 2019, we settled a patent infringement lawsuit out of court,
and the other party agreed to pay us an upfront, lump-sum amount for a non-exclusive license to the patent.

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING

ACTIVITIES TO FREE CASH FLOW

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended March 31,

2020

2019

Net cash provided by operating activities

$

450.9

$

283.6

Additions to instruments

(85.7)

(63.7)

Additions to other property, plant and equipment

(40.2)

(37.8)

Free cash flow

$

325.0

$

182.1

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS

PROFIT & MARGIN

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended March 31,

2020

2019

Net Sales

$

1,783.8

$

1,975.5

Cost of products sold, excluding intangible asset amortization

487.1

553.4

Intangible asset amortization

147.6

143.4

Gross Profit

$

1,149.1

$

1,278.7

Inventory and manufacturing-related charges

0.6

2.0

Quality remediation

(0.5)

–

Intangible asset amortization

147.6

143.4

Adjusted gross profit

$

1,296.8

$

1,424.1

Gross margin

64.4

%

64.7

%

Inventory and manufacturing-related charges

–

0.1

Quality remediation

–

–

Intangible asset amortization

8.3

7.3

Adjusted gross margin

72.7

%

72.1

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended March 31,

2020

2019

Operating expenses

$

2,239.8

$

1,625.3

Cost of products sold, excluding intangible asset amortization

487.1

553.4

Intangible asset amortization

147.6

143.4

Goodwill impairment

612.0

–

Restructuring and other cost reduction initiatives

45.0

4.7

Quality remediation

16.4

19.7

Acquisition, integration and related

4.4

6.0

Litigation

79.8

(1.8)

Litigation settlement gain

–

(23.5)

European Union Medical Device Regulation

11.0

1.6

Other charges

5.9

22.7

Adjusted operating expenses

$

830.6

$

899.1

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF OPERATING PROFIT & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(in millions, unaudited)

Three Months Ended March 31,

2020

2019

Operating (loss) profit

$

(456.0)

$

350.2

Inventory and manufacturing-related charges

0.6

2.0

Intangible asset amortization

147.6

143.4

Goodwill impairment

612.0

–

Restructuring and other cost reduction initiatives

45.0

4.7

Quality remediation

15.9

19.7

Acquisition, integration and related

4.4

6.0

Litigation

79.8

(1.8)

Litigation settlement gain

–

(23.5)

European Union Medical Device Regulation

11.0

1.6

Other charges

5.9

22.7

Adjusted operating profit

$

466.2

$

525.0

Operating (loss) profit margin

(25.6)

%

17.7

%

Inventory and manufacturing-related charges

–

0.1

Intangible asset amortization

8.3

7.3

Goodwill impairment

34.3

–

Restructuring and other cost reduction initiatives

2.5

0.2

Quality remediation

0.9

1.0

Acquisition, integration and related

0.2

0.3

Litigation

4.5

(0.1)

Litigation settlement gain

–

(1.2)

European Union Medical Device Regulation

0.6

0.1

Other charges

0.4

1.2

Adjusted operating profit margin

26.1

%

26.6

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF EFFECTIVE TAX RATE TO ADJUSTED EFFECTIVE TAX RATE

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

(unaudited)

Three Months Ended March 31,

2020

2019

Effective tax rate

(1.0)

%

15.6

%

Tax effect of adjustments made to earnings
before taxes⁽¹⁾

18.7

0.1

Tax adjustments relating to the impacts of tax
only amortization in Switzerland

(3.4)

–

Other certain tax adjustments

1.4

1.8

Adjusted effective tax rate

15.7

%

17.5

%

⁽¹⁾ Includes inventory and manufacturing-related charges; intangible asset amortization; goodwill impairment;
restructuring and other cost reduction initiatives; quality remediation; acquisition, integration and related;
litigation; litigation settlement gain; European Union Medical Device Regulation; and other charges

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF DEBT TO NET DEBT

AS OF MARCH 31, 2020 and DECEMBER 31, 2019

(in millions, unaudited)

March 31, 2020

December 31, 2019

Debt, both current and long-term

$

9,674.2

$

8,221.4

Cash and cash equivalents

(2,433.6)

(617.9)

Net debt

$

7,240.6

$

7,603.5