Zimmer Holdings, Inc. Reports First Quarter 2013 Financial Results

WARSAW, Ind., April 25, 2013 /PRNewswire/ --

  • Net Sales of $1,139 million represent a decrease of 0.2% reported from the prior year period (an increase of 1.0% constant currency)
  • Diluted EPS for the first quarter were $1.28 reported, an increase of 9.4% over the prior year period, and $1.41 adjusted, an increase of 8.5% over the prior year period
  • Company reaffirms constant currency revenue and EPS guidance and updates reported revenue guidance for 2013

Zimmer Holdings, Inc. (NYSE: ZMH; SIX: ZMH) today reported financial results for the quarter ended March 31, 2013.  The Company reported first quarter net sales of $1,139 million, a decrease of 0.2% reported and an increase of 1.0% constant currency over the first quarter of 2012.  The first quarter of 2013 included two fewer billing days in a number of key markets, including the United States, compared with the prior year period.  Diluted earnings per share for the quarter were $1.28 reported and $1.41 adjusted, an increase of 8.5% adjusted over the prior year period.

"We achieved our financial commitments in the first quarter, including leveraged earnings per share growth," said David Dvorak, Zimmer President and CEO.  "During the quarter, we continued to deliver value to stockholders through the introduction of significant new product offerings across the portfolio, as well as through an increased dividend and share repurchases.  The foundational work completed in the quarter positions Zimmer for accelerated top-line growth for the balance of 2013."   

Net earnings for the first quarter were $218.6 million on a reported basis and $240.8 million on an adjusted basis, an increase of 4.1% adjusted over the prior year period.  Operating cash flow for the first quarter was $180.5 million

During the quarter, the Company utilized $392.0 million of cash to acquire 5.36 million shares.  At the end of the first quarter, $622.7 million of share repurchase authorization remained available under the current program, which expires on December 31, 2014.

Guidance
The Company reaffirmed its constant currency revenue guidance and its reported and adjusted EPS guidance for the full year 2013.  In addition, the Company updated its full-year reported revenue guidance for 2013.  The Company continues to expect full-year revenues for 2013 to increase between 2.5% and 4.5% on a constant currency basis from 2012.  The Company now estimates that foreign currency translation will decrease revenues by approximately 1.5% for the full year 2013, resulting in reported revenue growth between 1.0% and 3.0%.  Previously, the Company had estimated foreign currency translation would decrease revenues by approximately 0.5%.  The Company still projects full-year 2013 diluted earnings per share to be in a range of $5.05 to $5.25 on a reported basis and $5.65 to $5.85 on an adjusted basis.   

Conference Call
The Company will conduct its first quarter 2013 investor conference call today, April 25, 2013, at 8:00 a.m. Eastern Time.  The live audio webcast can be accessed via Zimmer's Investor Relations website at http://investor.zimmer.com.  It will be archived for replay following the conference.

Individuals who wish to dial into the conference call may do so at (888) 878-3901.  International callers should dial (706) 634-9520.  A digital recording will be available two hours after the completion of the conference call from April 25, 2013, to May 19, 2013.  To access the recording, US/Canada callers should dial (855) 859-2056 or (800) 585-8367, or for International callers, dial (404) 537-3406, and enter the conference ID 32277619.

Sales Table
The following table provides sales results by geographic segment and product category, as well as the percentage change compared to the prior year quarter on both a reported and constant currency basis.

NET SALES - THREE MONTHS ENDED MARCH 31, 2013


(in millions, unaudited)

































Constant




Net


Reported


Currency




Sales


 % Growth


% Growth

Geographic Segments











   Americas

$

635



-

%


-

%


   Europe


307



2



2



   Asia Pacific


197



(4)



3



       Total


1,139



-



1


Product Categories











Reconstructive











   Americas


465



(1)



(1)



   Europe


242



1



1



   Asia Pacific


143



(7)



-



       Total


850



(2)



(1)
















Knees












   Americas


275



(2)



(2)




   Europe


123



4



3




   Asia Pacific


73



(1)



4




       Total


471



(1)



-
















Hips












   Americas


152



(1)



(1)




   Europe


112



(2)



(2)




   Asia Pacific


67



(12)



(5)




       Total


331



(4)



(2)
















Extremities


48



7



7















Dental


60



(1)



(1)















Trauma


82



9



11















Spine


47



(10)



(10)















Surgical and other


100



14



17


























Certain product sales have been reclassified from the Surgical and other category to Knees.  Prior year amounts have been reclassified to conform to the 2013 presentation.  Further information is available at www.investor.zimmer.com.

 

About the Company

Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer designs, develops, manufactures and markets orthopaedic reconstructive, spinal and trauma devices, dental implants, and related surgical products.  Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries.  Zimmer's 2012 sales were approximately $4.5 billion.  The Company is supported by the efforts of more than 8,500 employees worldwide.

Website Information

We routinely post important information for investors on our website, www.zimmer.com, in the "Investor Relations" section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Note on Non-GAAP Financial Measures

As used in this press release, the term "adjusted" refers to operating performance measures that exclude inventory step-up and other inventory charges and special items.  Included in special items are acquisition and integration costs and asset impairment charges related to prior acquisitions as well as employee termination benefits, consulting and professional fees, certain litigation matters, dedicated personnel expenses, certain contract terminations and asset impairment charges connected with global restructuring and operational excellence initiatives. The term "constant currency" refers to any financial measure that excludes the effect of changes in foreign currency exchange rates.  Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure are included in this press release.

Zimmer Safe Harbor Statement

This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 based on current expectations, estimates, forecasts and projections about the orthopaedics industry, management's beliefs and assumptions made by management. Forward-looking statements may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "assumes," "guides," "targets," "forecasts," and "seeks" or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to, the success of our quality and operational improvement initiatives; price and product competition; changes in customer demand for our products and services caused by demographic changes or other factors; the impact of healthcare reform measures, including the impact of the new U.S. excise tax on medical devices, 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; our ability to obtain and maintain adequate intellectual property protection; our ability to successfully integrate acquired businesses; our ability to form and implement alliances; 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 (FDA) and foreign government regulators, such as more stringent requirements for regulatory clearance of our products; our ability to remediate matters identified in any inspectional observations or warning letters issued by the FDA; changes in tax obligations arising from tax reform measures or examinations by tax authorities; product liability and intellectual property litigation losses; our ability to retain the independent agents and distributors who market our products; our dependence on a limited number of suppliers for key raw materials and outsourced activities; changes in general industry and market conditions, including domestic and international growth rates and general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations; and the impact of the ongoing financial crisis on countries in the Euro zone on our ability to collect accounts receivable in affected countries. For a further list and description of such risks and uncertainties, see our periodic reports filed with the U.S. Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be set forth in our periodic reports. Readers of this document are cautioned not to place undue reliance on these forward-looking statements, since, while we believe the assumptions on which the forward-looking statements are based are reasonable, 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 document.

 ZIMMER HOLDINGS, INC. 

 CONSOLIDATED STATEMENTS OF EARNINGS 

 FOR THE THREE MONTHS ENDED MARCH 31, 2013 and 2012 

 (in millions, except per share amounts, unaudited) 







2013


2012


 Net Sales 

$     1,138.9


$     1,140.7


 Cost of products sold 

292.9


288.7


 Gross Profit 

846.0


852.0







 Research and development 

53.5


59.6


 Selling, general and administrative 

460.8


463.3


 Special items 

33.5


33.5


      Operating expenses 

547.8


556.4







 Operating Profit 

298.2


295.6


 Interest income 

3.7


3.1


 Interest expense 

(18.2)


(17.6)


 Earnings before income taxes  

283.7


281.1


 Provision for income taxes 

65.7


72.2


 Net earnings 

218.0


208.9


 Less:  Net loss attributable to noncontrolling interest 

(0.6)


(0.7)


 Net Earnings of Zimmer Holdings, Inc. 

$        218.6


$        209.6







 Earnings Per Common Share 





     Basic 

$          1.30


$          1.18


     Diluted 

$          1.28


$          1.17







 Weighted Average Common Shares Outstanding 





     Basic 

168.7


177.4


     Diluted 

170.7


178.5







 Cash dividends declared per common share 

$          0.20


$             -


 

 ZIMMER HOLDINGS, INC. 

 CONDENSED CONSOLIDATED BALANCE SHEETS 

 (in millions, unaudited) 






 March 31, 

 December 31, 





2013

2012

 Assets 






 Current Assets: 






   Cash and cash equivalents 




$               657.0

$               884.3

   Short-term investments 




544.2

671.6

   Receivables, net 




912.5

884.6

   Inventories 




1,039.1

995.3

   Other current assets 




311.2

272.9

       Total current assets 




3,464.0

3,708.7







 Property, plant and equipment, net 



1,219.5

1,210.7

 Goodwill 




2,534.8

2,571.8

 Intangible assets, net 




722.7

740.7

 Other assets 




803.6

780.5

 Total Assets 




$            8,744.6

$            9,012.4







 Liabilities and Stockholders' Equity 











 Current liabilities 




$               763.3

$               765.9

 Short-term debt 




-

100.1

 Other long-term liabilities 




566.1

559.3

 Long-term debt 




1,702.8

1,720.8

 Stockholders' equity 




5,712.4

5,866.3

 Total Liabilities and Stockholders' Equity 


$            8,744.6

$            9,012.4

 

 ZIMMER HOLDINGS, INC. 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 FOR THE THREE MONTHS ENDED MARCH 31, 2013 and 2012 

 (in millions, unaudited) 













2013

2012








 Cash flows provided by (used in) operating activities 





 Net earnings 




$        218.0

$        208.9


 Depreciation and amortization 




85.1

96.8


 Share-based compensation 




14.0

12.8


 Income tax benefits from employee stock compensation plans 


13.6

6.2


 Excess income tax benefits from employee stock compensation plans 


(3.5)

(1.2)


 Inventory step-up 




0.8

1.0


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




     Income taxes 




17.6

47.8


     Receivables 




(44.2)

(54.2)


     Inventories 




(59.7)

(6.0)


     Accounts payable and accrued expenses 



(31.3)

(29.9)


     Other assets and liabilities 




(29.9)

(74.8)


 Net cash provided by operating activities 



180.5

207.4








 Cash flows provided by (used in) investing activities 





 Additions to instruments 




(57.5)

(28.8)


 Additions to other property, plant and equipment 


(17.9)

(19.5)


 Purchases of investments 




(94.8)

(255.6)


 Sales of investments 




232.0

174.6


 Investments in other assets 




(8.8)

(34.9)


 Net cash provided by (used in) investing activities 


53.0

(164.2)








 Cash flows provided by (used in) financing activities 





 Net (payments) proceeds under revolving credit facilities 


(100.1)

1.0


 Dividends paid to stockholders 



(30.9)

-


 Proceeds from employee stock compensation plans 


67.0

10.3


 Excess income tax benefits from employee stock compensation plans 


3.5

1.2


 Repurchase of common stock 




(392.0)

(141.6)


 Net cash used in financing activities 



(452.5)

(129.1)








 Effect of exchange rates on cash and cash equivalents 


(8.3)

(8.4)









 Decrease in cash and cash equivalents 



(227.3)

(94.3)

 Cash and cash equivalents, beginning of period 



884.3

768.3

 Cash and cash equivalents, end of period 



$        657.0

$        674.0

 

 ZIMMER HOLDINGS, INC. 

 NET SALES BY GEOGRAPHIC SEGMENT 

 FOR THE THREE MONTHS ENDED MARCH 31, 2013 and 2012 

 (in millions, unaudited) 



 Three Months Ended March 31, 







2013

2012

% Inc/(Dec)








 Americas 

$           634.7

$           634.4

-

%

 Europe 

307.5

300.8

2


 Asia Pacific 

196.7

205.5

(4)


 Total 

$        1,138.9

$        1,140.7

-




















 ZIMMER HOLDINGS, INC. 

 NET SALES BY PRODUCT CATEGORY 

 FOR THE THREE MONTHS ENDED MARCH 31, 2013 and 2012 

 (in millions, unaudited) 



 Three Months Ended March 31, 







2013

2012

% Inc/(Dec)








 Reconstructive 






 Knees 

$           471.0

$           474.6

(1)

%


 Hips 

330.8

344.5

(4)



 Extremities 

47.8

44.8

7




849.6

863.9

(2)








 Dental 

59.7

60.2

(1)


 Trauma 

82.0

75.5

9


 Spine 

47.7

53.2

(10)


 Surgical and other 

99.9

87.9

14


 Total 

$        1,138.9

$        1,140.7

-


 

ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Three Months Ended




March 31, 2013







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










   Americas

-

%


-

%


-

%


   Europe

2



-



2



   Asia Pacific

(4)



(7)



3



       Total

-



(1)



1


Product Categories










Reconstructive










   Americas

(1)



-



(1)



   Europe

1



-



1



   Asia Pacific

(7)



(7)



-



       Total

(2)



(1)



(1)















Knees











   Americas

(2)



-



(2)




   Europe

4



1



3




   Asia Pacific

(1)



(5)



4




       Total

(1)



(1)



-















Hips











   Americas

(1)



-



(1)




   Europe

(2)



-



(2)




   Asia Pacific

(12)



(7)



(5)




       Total

(4)



(2)



(2)















Extremities

7



-



7














Dental

(1)



-



(1)














Trauma

9



(2)



11














Spine

(10)



-



(10)














Surgical and other

14



(3)



17


 

 ZIMMER HOLDINGS, INC. 

 Reconciliation of Net Earnings and Adjusted Net Earnings 

 For the Three Months Ended March 31, 2013 and 2012 

 (in millions, unaudited) 








 Three Months 



 Ended March 31, 



2013


2012






 Net Earnings of Zimmer Holdings, Inc. 

$       218.6


$       209.6

 Inventory step-up and other inventory charges 

2.2


1.0

 Special items 


33.5


33.5

 Taxes on above items* 

(13.5)


(12.8)

 Adjusted Net Earnings 

$       240.8


$       231.3






 * The tax effect is calculated based upon the statutory rates for the jurisdictions where the items 

    were incurred. 



















 ZIMMER HOLDINGS, INC. 

 Reconciliation of Diluted EPS and Adjusted Diluted EPS 

 For the Three Months Ended March 31, 2013 and 2012 

 (unaudited) 








 Three Months 



 Ended March 31,  



2013


2012






 Diluted EPS 


$         1.28


$         1.17

 Inventory step-up and other inventory charges 

0.01


0.01

 Special items 


0.20


0.19

 Taxes on above items* 

(0.08)


(0.07)

 Adjusted Diluted EPS 


$         1.41


$         1.30






 * The tax effect is calculated based upon the statutory rates for the jurisdictions where the items 

    were incurred. 




 

 ZIMMER HOLDINGS, INC. 

 Reconciliation of 2013 Projected Diluted EPS  

 and Projected Adjusted Diluted EPS 

 (unaudited) 









 Projected Year Ended December 31, 2013: 

Low


High





 Diluted EPS 

5.05


5.25

 Inventory step-up, other inventory charges and special items 

0.82


0.82

 Taxes on above items 

(0.22)


(0.22)

 Adjusted Diluted EPS 

$           5.65


$            5.85









 * The tax effect is calculated based upon the statutory rates for the jurisdictions where the items 

     are projected to be incurred. 




SOURCE Zimmer Holdings, Inc.



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