Zimmer Holdings, Inc. Reports Second Quarter 2012 Financial Results

WARSAW, Ind., July 26, 2012 /PRNewswire/ --

  • Net Sales of $1,125 million for the second quarter represent a decrease of 1.1% reported (1.8% increase, constant currency) from the prior year period
  • Diluted EPS for the second quarter were $1.22 reported, an increase of 15.1% over the prior year period, and $1.34 adjusted, an increase of 10.7% over the prior year period
  • Company updates reported revenue guidance and narrows constant currency revenue and EPS guidance for 2012

Zimmer Holdings, Inc. (NYSE and SIX: ZMH) today reported financial results for the quarter ended June 30, 2012.  The Company reported second quarter net sales of $1,125 million, a decrease of 1.1% reported and an increase of 1.8% constant currency over the second quarter of 2011.  Diluted earnings per share for the quarter were $1.22 reported and $1.34 adjusted, an increase of 10.7% adjusted over the prior year period.

"In the quarter, Zimmer improved operating margins and delivered double-digit growth in adjusted earnings per share.  This performance was driven by the ongoing benefits of our commercial and operational excellence programs and disciplined use of capital," said David Dvorak, Zimmer President and CEO.  "Moving through 2012, we expect to accelerate revenue growth through ongoing new product introductions and to continue to drive improved leverage in operating margins."

Net earnings for the second quarter were $214.5 million on a reported basis and $235.6 million on an adjusted basis, an increase of 1.4% adjusted over the prior year period.  Operating cash flow for the second quarter was $231.5 million

During the quarter the Company returned $138.2 million to stockholders in the form of cash dividends of $31.7 million and repurchases of 1.67 million shares for $106.5 million.  At the end of the second quarter, $1,251.9 million of share repurchase authorization remained available under the current program, which expires on December 31, 2014.

Guidance
The Company updated its full-year reported revenue guidance and narrowed its constant currency revenue and EPS guidance for full-year 2012.  Full-year revenues are expected to increase between 2.5% and 3.5% on a constant currency basis from 2011.  The Company now estimates that foreign currency translation will decrease revenues between 2.0% and 2.5% for the full year 2012, resulting in reported revenue growth between 0% and 1.5%.  Previously, the Company had estimated foreign currency translation would decrease revenues by approximately 1.5% to 2.0%. 

Full-year 2012 diluted earnings per share are projected to be in a range of $4.75 to $4.85 on a reported basis and $5.25 to $5.35 on an adjusted basis.  Prior guidance for full-year 2012 reported and adjusted diluted earnings per share was $4.70 to $4.90 and $5.20 to $5.40, respectively.  

Conference Call
The Company will conduct its second quarter 2012 investor conference call today, July 26, 2012, 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 July 26, 2012, to August 9, 2012.  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 95075993.

Sales Tables
The following tables provide sales results by geographic segment and product category, as well as the percentage change compared to the prior year quarter and six months on both a reported and constant currency basis.

NET SALES - THREE MONTHS ENDED JUNE 30, 2012


(in millions, unaudited)

































Constant




Net



Reported


Currency




Sales



 % Growth


% Growth

Geographic Segments











   Americas

$

614



1

%


1

%


   Europe


305



(6)



3



   Asia Pacific


206



1



2



       Total


1,125



(1)



2


Product Categories











Reconstructive











   Americas


449



-



-



   Europe


240



(6)



3



   Asia Pacific


154



2



3



       Total


843



(2)



2
















Knees












   Americas


265



(1)



-




   Europe


117



(9)



-




   Asia Pacific


79



4



6




       Total


461



(2)



1
















Hips












   Americas


152



-



1




   Europe


116



(5)



4




   Asia Pacific


72



1



1




       Total


340



(1)



2
















Extremities


42



4



6















Dental


62



(8)



(5)















Trauma


74



7



9















Spine


52



(7)



(4)















Surgical and other


94



7



8


























NET SALES - SIX MONTHS ENDED JUNE 30, 2012


(in millions, unaudited)
























Constant




Net



Reported


Currency




Sales



 % Growth


% Growth

Geographic Segments











   Americas

$

1,249



1

%


1

%


   Europe


606



(3)



4



   Asia Pacific


411



5



4



       Total


2,266



1



2


Product Categories











Reconstructive











   Americas


916



-



-



   Europe


480



(3)



3



   Asia Pacific


307



6



5



       Total


1,703



-



2
















Knees












   Americas


543



-



-




   Europe


235



(4)



2




   Asia Pacific


153



7



6




       Total


931



-



2
















Hips












   Americas


306



-



-




   Europe


230



(3)



4




   Asia Pacific


149



6



4




       Total


685



-



2
















Extremities


87



4



6






-









Dental


122



(6)



(4)















Trauma


149



7



9















Spine


106



(7)



(5)















Surgical and other


186



8



9














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 2011 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, the provision for certain Durom® Acetabular Component product claims, special items and certain tax adjustments.  Included in special items are acquisition and integration costs 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 transformation 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, our compliance with the Corporate Integrity Agreement through September 2012; the success of our quality and operational improvement initiatives; the outcome of the investigation by the U.S. government into Foreign Corrupt Practices Act matters announced in October 2007; price and product competition; changes in customer demand for our products and services caused by demographic changes or other factors; 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 and foreign government regulators, such as more stringent requirements for regulatory clearance of our products; changes in tax obligations arising from tax reform measures or examinations by tax authorities; product liability and intellectual property litigation losses; the impact of health care reform measures in the U.S. including the impact of the new excise tax on medical devices, reductions in reimbursement levels from third-party payors and cost-containment efforts of health care purchasing organizations; the impact of the ongoing financial crisis on countries in the Euro zone on our ability to collect accounts receivable in affected countries; our ability to retain the independent agents and distributors who market our products; and 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. 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 JUNE 30, 2012 and 2011 

 (in millions, except per share amounts, unaudited) 









2012


2011


% Inc/(Dec)

 Net Sales 

$  1,125.0


$  1,137.4


(1)

%

 Cost of products sold 

281.9


287.9


(2)


 Gross Profit 

843.1


849.5


(1)









 Research and development 

57.2


56.9


1


 Selling, general and administrative 

453.3


470.0


(4)


 Certain claims 

-


50.0


(100)


 Special items 

30.7


13.5


127


      Operating expenses 

541.2


590.4


(8)









 Operating Profit 

301.9


259.1


17


 Interest income 

3.8


3.3


13


 Interest expense 

(18.1)


(13.1)


38


 Earnings before income taxes  

287.6


249.3


15


 Provision for income taxes 

73.6


45.5


62


 Net earnings 

214.0


203.8


5


 Less:  Net loss attributable to noncontrolling interest 

(0.5)


-


100


 Net Earnings of Zimmer Holdings, Inc. 

$     214.5


$     203.8


5









 Earnings Per Common Share 







     Basic 

$       1.22


$       1.06


15


     Diluted 

$       1.22


$       1.06


15









 Weighted Average Common Shares Outstanding 







     Basic 

175.2


191.5




     Diluted 

176.2


192.7











 Cash dividends declared per common share 

$      0.18


-


100
















 Certain amounts in the 2011 consolidated statement of earnings have been reclassified to conform 

 to the 2012 presentation. 
















 ZIMMER HOLDINGS, INC. 

 CONSOLIDATED STATEMENTS OF EARNINGS 

 FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2011 

 (in millions, except per share amounts, unaudited) 









2012


2011


% Inc/(Dec)


 Net Sales 

$  2,265.7


$  2,253.0


1

%

 Cost of products sold 

570.6


566.9


1


 Gross Profit 

1,695.1


1,686.1


1









 Research and development 

116.8


112.5


4


 Selling, general and administrative 

916.6


928.3


(1)


 Certain claims 

-


50.0


(100)


 Special items 

64.2


39.0


65


      Operating expenses 

1,097.6


1,129.8


(3)









 Operating Profit 

597.5


556.3


7


 Interest income 

6.9


5.3


29


 Interest expense 

(35.7)


(26.1)


37


 Earnings before income taxes  

568.7


535.5


6


 Provision for income taxes 

145.8


122.8


19


 Net earnings 

422.9


412.7


2


 Less:  Net loss attributable to noncontrolling interest 

(1.2)


-


100


 Net Earnings of Zimmer Holdings, Inc. 

$     424.1


$     412.7


3









 Earnings Per Common Share 







       Basic 

$       2.41


$       2.15


12


       Diluted 

$       2.39


$       2.14


12









 Weighted Average Common Shares Outstanding 







     Basic 

176.3


192.1




     Diluted 

177.3


193.3











 Cash dividends declared per common share 

$       0.18


-


100
















 Certain amounts in the 2011 consolidated statement of earnings have been reclassified to conform 

 to the 2012 presentation. 







 

 ZIMMER HOLDINGS, INC. 

 CONDENSED CONSOLIDATED BALANCE SHEETS 

 (in millions, unaudited) 






 June 30, 

 December 31, 





2012

2011

 Assets 






 Current Assets: 






   Cash and cash equivalents 




$               651.0

$               768.3

   Short-term investments 




684.9

455.5

   Receivables, net 




906.7

838.8

   Inventories 




956.0

929.8

   Other current assets 




279.7

284.2

       Total current assets 




3,478.3

3,276.6







 Property, plant and equipment, net 



1,176.8

1,207.3

 Goodwill 




2,609.5

2,626.0

 Intangible assets, net 




776.9

798.5

 Other assets 




575.0

606.9

 Total Assets 




$            8,616.5

$            8,515.3







 Liabilities and Stockholders' Equity 











 Current liabilities 




$               679.7

$               723.8

 Short-term debt 




3.4

143.3

 Other long-term liabilities 




494.7

557.4

 Long-term debt 




1,726.5

1,576.0

 Stockholders' equity 




5,712.2

5,514.8

 Total Liabilities and Stockholders' Equity 


$            8,616.5

$            8,515.3







 

 ZIMMER HOLDINGS, INC. 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2011 

 (in millions, unaudited) 













2012

2011








 Cash flows provided by (used in) operating activities 





 Net earnings 




$      422.9

$       412.7


 Depreciation and amortization 




190.2

174.7


 Share-based compensation 




27.8

31.7


 Income tax benefits from employee stock compensation plans 


7.3

9.5


 Excess income tax benefits from employee stock compensation plans 


(1.4)

(3.6)


 Inventory step-up 




2.0

7.8


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




     Income taxes 




10.6

(11.5)


     Receivables 




(86.9)

(76.0)


     Inventories 




(29.7)

(21.8)


     Accounts payable and accrued expenses 



(15.7)

(42.2)


     Other assets and liabilities 




(88.2)

(48.1)


 Net cash provided by operating activities 



438.9

433.2








 Cash flows provided by (used in) investing activities 





 Additions to instruments 




(68.3)

(85.2)


 Additions to other property, plant and equipment 


(44.3)

(34.0)


 Purchases of investments 




(537.5)

(186.7)


 Sales of investments 




422.7

169.8


 Investments in other assets 




(54.7)

(26.4)


 Net cash used in investing activities 



(282.1)

(162.5)








 Cash flows provided by (used in) financing activities 





 Net proceeds under revolving credit facilities 



(145.7)

0.2


 Proceeds from term loans 




147.3

-


 Dividends paid to stockholders 



(31.7)

-


 Proceeds from employee stock compensation plans 


18.0

29.1


 Excess income tax benefits from employee stock compensation plans 


1.4

3.6


 Debt issuance costs 




(3.3)

-


 Repurchase of common stock 




(248.1)

(357.2)


 Net cash used in financing activities 



(262.1)

(324.3)








 Effect of exchange rates on cash and cash equivalents 


(12.0)

8.8









 Increase (decrease) in cash and cash equivalents 


(117.3)

(44.8)

 Cash and cash equivalents, beginning of period 



768.3

668.9

 Cash and cash equivalents, end of period 



$      651.0

$       624.1






















 ZIMMER HOLDINGS, INC. 

 NET SALES BY GEOGRAPHIC SEGMENT 

 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 and 2011 

 (in millions, unaudited) 



 Three Months Ended June 30, 


 Six Months Ended June 30, 








2012

2011

% Inc/(Dec)


2012

2011

% Inc/(Dec)












 Americas 

$   614.3

$   608.6

1

%

$1,248.7

$1,238.3

1

%

 Europe 

305.2

324.7

(6)


606.0

623.9

(3)


 Asia Pacific 

205.5

204.1

1


411.0

390.8

5


 Total 

$1,125.0

$1,137.4

(1)


$2,265.7

$2,253.0

1
































 ZIMMER HOLDINGS, INC. 

 NET SALES BY PRODUCT CATEGORY 

 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 and 2011 

 (in millions, unaudited) 



Three Months Ended June 30, 


Six Months Ended June 30, 








2012

2011

% Inc/(Dec)


2012

2011

% Inc/(Dec)












 Reconstructive 










 Knees 

$   460.7

$   470.9

(2)

%

$    931.3

$   933.1

-

%


 Hips 

340.0

345.0

(1)


684.5

682.3

-



 Extremities 

42.5

40.7

4


87.3

83.6

4




843.2

856.6

(2)


1,703.1

1,699.0

-












 Dental 

61.5

67.1

(8)


121.7

129.5

(6)


 Trauma 

73.9

69.1

7


149.4

139.2

7


 Spine 

52.4

56.4

(7)


105.6

113.3

(7)


 Surgical and other 

94.0

88.2

7


185.9

172.0

8


 Total 

$1,125.0

$1,137.4

(1)


$2,265.7

$2,253.0

1












 

ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Three Months Ended




June 30, 2012







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










   Americas

1

%


-

%


1

%


   Europe

(6)



(9)



3



   Asia Pacific

1



(1)



2



       Total

(1)



(3)



2


Product Categories










Reconstructive










   Americas

-



-



-



   Europe

(6)



(9)



3



   Asia Pacific

2



(1)



3



       Total

(2)



(4)



2















Knees











   Americas

(1)



(1)



-




   Europe

(9)



(9)



-




   Asia Pacific

4



(2)



6




       Total

(2)



(3)



1















Hips











   Americas

-



(1)



1




   Europe

(5)



(9)



4




   Asia Pacific

1



-



1




       Total

(1)



(3)



2















Extremities

4



(2)



6














Dental

(8)



(3)



(5)














Trauma

7



(2)



9














Spine

(7)



(3)



(4)














Surgical and other

7



(1)



8



































ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)















For the Six Months Ended




June 30, 2012







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










   Americas

1

%


-

%


1

%


   Europe

(3)



(7)



4



   Asia Pacific

5



1



4



       Total

1



(1)



2


Product Categories










Reconstructive










   Americas

-



-



-



   Europe

(3)



(6)



3



   Asia Pacific

6



1



5



       Total

-



(2)



2















Knees











   Americas

-



-



-




   Europe

(4)



(6)



2




   Asia Pacific

7



1



6




       Total

-



(2)



2















Hips











   Americas

-



-



-




   Europe

(3)



(7)



4




   Asia Pacific

6



2



4




       Total

-



(2)



2















Extremities

4



(2)



6














Dental

(6)



(2)



(4)














Trauma

7



(2)



9














Spine

(7)



(2)



(5)














Surgical and other

8



(1)



9













 ZIMMER HOLDINGS, INC. 

 Reconciliation of Net Earnings and Adjusted Net Earnings 

 For the Three Months Ended June 30, 2012 and 2011 

 (in millions, unaudited) 








 Three Months 



 Ended June 30, 



2012


2011






 Net Earnings of Zimmer Holdings, Inc. 

$     214.5


$      203.8

 Inventory step-up 

1.0


3.4

 Certain Claims 


-


50.0

 Special items 


30.7


13.5

 Taxes on inventory step-up, certain claims and special items 




    and tax adjustments related to resolution of certain tax matters* 

(10.6)


(38.2)

 Adjusted Net Earnings 

$     235.6


$      232.5






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

    were incurred. 









 ZIMMER HOLDINGS, INC. 

 Reconciliation of Net Earnings and Adjusted Net Earnings 

 For the Six Months Ended June 30, 2012 and 2011 

 (in millions, unaudited) 








 Six Months 



 Ended June 30, 



2012


2011






 Net Earnings of Zimmer Holdings, Inc. 

$      424.1


$      412.7

 Inventory step-up 

2.0


7.8

 Certain claims 


-


50.0

 Special items 


64.2


39.0

 Taxes on inventory step-up, certain claims and special items 




    and tax adjustments related to resolution of certain tax matters* 

(23.4)


(46.1)

 Adjusted Net Earnings 

$     466.9


$     463.4






 * 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 June 30, 2012 and 2011 

 (unaudited) 






 Three Months 


 Ended June 30,  


2012


2011





 Diluted EPS 

$        1.22


$        1.06

 Inventory step-up 

0.01


0.02

 Certain claims 

-


0.26

 Special items 

0.17


0.07

 Taxes on inventory step-up, certain claims and special items 




    and tax adjustments related to resolution of certain tax matters* 

(0.06)


(0.20)

 Adjusted Diluted EPS 

$        1.34


$        1.21





 * 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 Six Months Ended June 30, 2012 and 2011 

 (unaudited) 






 Six Months 


 Ended June 30,  


2012


2011





 Diluted EPS 

$        2.39


$       2.14

 Inventory step-up 

0.01


0.04

 Certain claims 

-


0.26

 Special items 

0.36


0.20

 Taxes on inventory step-up, certain claims and special items 




    and tax adjustments related to resolution of certain tax matters* 

(0.13)


(0.24)

 Adjusted Diluted EPS 

$        2.63


$       2.40





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

    were incurred. 




 

 ZIMMER HOLDINGS, INC. 

 Reconciliation of 2012 Projected Diluted EPS  

 and Projected Adjusted Diluted EPS 

 (unaudited) 









 Projected Year Ended December 31, 2012: 

Low


High





 Diluted EPS 

4.75


4.85

 Inventory step-up 

0.01


0.01

 Special items 

0.65


0.65

 Taxes on inventory step-up and special items* 

(0.16)


(0.16)

 Adjusted Diluted EPS 

$           5.25


$            5.35









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

    have been or are projected to be incurred. 




 

SOURCE Zimmer Holdings, Inc.



RELATED LINKS
http://www.zimmer.com

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