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Zimmer Holdings, Inc. Reports Third Quarter 2012 Financial Results

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WARSAW, Ind., Oct. 25, 2012 /PRNewswire/ --

  • Net Sales of $1,026 million for the third quarter represent a decrease of 0.6% reported (an increase of 2.5% constant currency) from the prior year period
  • Diluted EPS for the third quarter were $1.02 reported, an increase of 1.0% over the prior year period, and $1.15 adjusted, an increase of 10.6% over the prior year period
  • Company updates full-year sales and EPS guidance

Zimmer Holdings, Inc. (NYSE and SIX: ZMH) today reported financial results for the quarter ended September 30, 2012.  The Company reported third quarter net sales of $1,026 million, a decrease of 0.6% reported and an increase of 2.5% constant currency over the third quarter of 2011.  Diluted earnings per share for the quarter were $1.02 reported and $1.15 adjusted, an increase of 10.6% adjusted over the prior year period.

"Zimmer's third quarter performance was highlighted by strong operating margins, as well as above-market sales growth in our Europe, Middle East and Africa business," said David Dvorak, Zimmer President and CEO.  "Our focus continues to be creating value for our stockholders.  We will achieve that goal through the successful commercialization of innovative new products across the portfolio, ongoing progress in our operational excellence programs, and disciplined capital deployment."

Net earnings for the third quarter were $178.1 million on a reported basis and $202.1 million on an adjusted basis, an increase of 2.5% adjusted over the prior year period.  Operating cash flow for the third quarter was $345.0 million

During the quarter, the Company utilized $97.6 million of cash to acquire 1.56 million shares.  As of September 30, 2012, $1,154.3 million of share repurchase authorization remained available under the current program, which expires on December 31, 2014.

At the conclusion of the third quarter, Zimmer finalized the acquisition of Dornoch Medical Systems, Inc.  This acquisition enhances Zimmer's surgical products portfolio through the addition of medical waste fluid management and disposal technology.

Guidance
The Company updated its revenue and EPS guidance for full-year 2012.  Full-year revenues for 2012 are expected to increase approximately 2% on a constant currency basis from 2011.  Previously, the Company had estimated full-year revenues would increase between approximately 2.5% and 3.5% constant currency.  The Company now estimates that foreign currency translation will decrease revenues by approximately 2% for the full year 2012, resulting in flat revenue growth on a reported basis.  Previously, the Company had estimated foreign currency translation would decrease revenues between approximately 2.0% and 2.5%.  Full-year 2012 diluted earnings per share are projected to be in a range of $4.75 to $4.80 on a reported basis and $5.25 to $5.30 on an adjusted basis.  Prior guidance for full-year 2012 reported and adjusted diluted earnings per share was $4.75 to $4.85 and $5.25 to $5.35, respectively.

Conference Call
The Company will conduct its third quarter 2012 investor conference call today, October 25, 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 October 25, 2012 to November 8, 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 39798003.

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 nine months on both a reported and constant currency basis.

 

NET SALES - THREE MONTHS ENDED SEPTEMBER 30, 2012


(in millions, unaudited)

































Constant




Net


Reported


Currency




Sales


 % Growth


% Growth

Geographic Segments











   Americas

$

584



-

%


-

%


   Europe


246



(3)



8



   Asia Pacific


196



-



2



       Total


1,026



(1)



3


Product Categories











Reconstructive











   Americas


420



(1)



(1)



   Europe


191



(4)



6



   Asia Pacific


145



(1)



1



       Total


756



(2)



2
















Knees












   Americas


244



(4)



(4)




   Europe


88



(2)



9




   Asia Pacific


75



2



4




       Total


407



(2)



1
















Hips












   Americas


146



2



2




   Europe


96



(8)



3




   Asia Pacific


67



(4)



(2)




       Total


309



(2)



2
















Extremities


40



10



12















Dental


55



(1)



3















Trauma


74



8



11















Spine


50



(10)



(7)















Surgical and other


91



9



11














NET SALES - NINE MONTHS ENDED SEPTEMBER 30, 2012


(in millions, unaudited)

































Constant




Net


Reported


Currency




Sales


 % Growth


% Growth

Geographic Segments











   Americas

$

1,832



1

%


1

%


   Europe


852



(3)



5



   Asia Pacific


607



3



3



       Total


3,291



-



2


Product Categories











Reconstructive











   Americas


1,336



-



-



   Europe


670



(3)



4



   Asia Pacific


453



4



4



       Total


2,459



-



2
















Knees












   Americas


787



(1)



(1)




   Europe


323



(3)



4




   Asia Pacific


229



5



6




       Total


1,339



(1)



1
















Hips












   Americas


451



1



1




   Europe


326



(4)



4




   Asia Pacific


216



3



2




       Total


993



-



2
















Extremities


127



6



8






-









Dental


176



(4)



(2)















Trauma


224



7



9















Spine


155



(8)



(6)















Surgical and other


277



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, 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; 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; 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 SEPTEMBER 30, 2012 and 2011 

 (in millions, except per share amounts, unaudited) 









2012


2011


% Inc/(Dec)

 Net Sales 

$     1,025.5


$     1,031.5


(1)

%

 Cost of products sold 

255.7


251.9


2


 Gross Profit 

769.8


779.6


(1)









 Research and development 

53.5


61.0


(12)


 Selling, general and administrative 

430.0


444.0


(3)


 Special items 

36.9


8.0


366


      Operating expenses 

520.4


513.0


1









 Operating Profit 

249.4


266.6


(6)


 Interest income 

3.8


1.3


203


 Interest expense 

(18.3)


(13.0)


40


 Earnings before income taxes  

234.9


254.9


(8)


 Provision for income taxes 

57.2


63.7


(10)


 Net earnings 

177.7


191.2


(7)


 Less:  Net loss attributable to noncontrolling interest 

(0.4)


(0.3)


15


 Net Earnings of Zimmer Holdings, Inc. 

$        178.1


$        191.5


(7)









 Earnings Per Common Share 







     Basic 

$          1.02


$          1.02


-


     Diluted 

$          1.02


$          1.01


1









 Weighted Average Common Shares Outstanding 







     Basic 

174.1


187.7




     Diluted 

175.3


188.8











 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 NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 

 (in millions, except per share amounts, unaudited) 









2012


2011


% Inc/(Dec)

 Net Sales 

$     3,291.2


$     3,284.5


0

%

 Cost of products sold 

826.3


818.8


1


 Gross Profit 

2,464.9


2,465.7


(0)









 Research and development 

170.3


173.5


(2)


 Selling, general and administrative 

1,346.6


1,372.3


(2)


 Certain claims 

-


50.0


(100)


 Special items 

101.1


47.0


115


      Operating expenses 

1,618.0


1,642.8


(2)









 Operating Profit 

846.9


822.9


3


 Interest income 

10.7


6.6


62


 Interest expense 

(54.0)


(39.1)


38


 Earnings before income taxes  

803.6


790.4


2


 Provision for income taxes 

203.0


186.5


9


 Net earnings 

600.6


603.9


(1)


 Less:  Net loss attributable to noncontrolling interest 

(1.6)


(0.3)


397


 Net Earnings of Zimmer Holdings, Inc. 

$        602.2


$        604.2


(0)









 Earnings Per Common Share 







       Basic 

$          3.43


$          3.17


8


       Diluted 

$          3.41


$          3.15


8









 Weighted Average Common Shares Outstanding 







     Basic 

175.6


190.6




     Diluted 

176.7


191.8











 Cash dividends declared per common share 

$          0.36


-


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) 






 September 30, 

 December 31, 





2012

2011

 Assets 






 Current Assets: 






   Cash and cash equivalents 




$               801.5

$               768.3

   Short-term investments 




687.4

455.5

   Receivables, net 




874.9

838.8

   Inventories 




994.1

929.8

   Other current assets 




274.0

284.2

       Total current assets 




3,631.9

3,276.6







 Property, plant and equipment, net 



1,185.6

1,207.3

 Goodwill 




2,648.6

2,626.0

 Intangible assets, net 




760.5

798.5

 Other assets 




557.5

606.9

 Total Assets 




$            8,784.1

$            8,515.3







 Liabilities and Stockholders' Equity 











 Current liabilities 




$               755.2

$               723.8

 Short-term debt 




0.3

143.3

 Other long-term liabilities 




463.6

557.4

 Long-term debt 




1,734.1

1,576.0

 Stockholders' equity 




5,830.9

5,514.8

 Total Liabilities and Stockholders' Equity 


$            8,784.1

$            8,515.3







 

 ZIMMER HOLDINGS, INC. 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 

 (in millions, unaudited) 













2012

2011








 Cash flows provided by (used in) operating activities 





 Net earnings 




$        600.6

$        603.9


 Depreciation and amortization 




272.9

265.6


 Share-based compensation 




41.7

46.1


 Income tax benefits from employee stock compensation plans 


10.0

10.6


 Excess income tax benefits from employee stock compensation plans 


(2.3)

(4.0)


 Inventory step-up 




2.5

9.6


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




     Income taxes 




29.7

6.8


     Receivables 




(34.2)

(39.7)


     Inventories 




(53.3)

(27.7)


     Accounts payable and accrued expenses 



4.0

(41.3)


     Other assets and liabilities 




(87.7)

(46.1)


 Net cash provided by operating activities 



783.9

783.8








 Cash flows provided by (used in) investing activities 





 Additions to instruments 




(104.7)

(128.9)


 Additions to other property, plant and equipment 


(71.4)

(67.8)


 Purchases of investments 




(801.7)

(403.8)


 Sales of investments 




667.1

225.0


 Investments in other assets 




(56.8)

(35.6)


 Net cash used in investing activities 



(367.5)

(411.1)








 Cash flows provided by (used in) financing activities 





 Net proceeds under revolving credit facilities 



(149.9)

375.2


 Proceeds from term loans 




147.3

-


 Dividends paid to stockholders 



(63.2)

-


 Proceeds from employee stock compensation plans 


34.1

34.0


 Excess income tax benefits from employee stock compensation plans 


2.3

4.0


 Debt issuance costs 




(3.3)

-


 Repurchase of common stock 




(345.7)

(906.5)


 Net cash used in financing activities 



(378.4)

(493.3)








 Effect of exchange rates on cash and cash equivalents 


(4.8)

4.7









 Increase (decrease) in cash and cash equivalents 


33.2

(115.9)

 Cash and cash equivalents, beginning of period 



768.3

668.9

 Cash and cash equivalents, end of period 



$        801.5

$        553.0















 ZIMMER HOLDINGS, INC. 

 NET SALES BY GEOGRAPHIC SEGMENT 

 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 

 (in millions, unaudited) 



 Three Months Ended September 30, 


 Nine Months Ended September 30, 








2012

2011

% Inc/(Dec)


2012

2011

% Inc/(Dec)












 Americas 

$      583.5

$      582.1

-

%

$   1,832.2

$   1,820.4

1

%

 Europe 

245.6

252.5

(3)


851.6

876.4

(3)


 Asia Pacific 

196.4

196.9

-


607.4

587.7

3


 Total 

$   1,025.5

$   1,031.5

(1)


$   3,291.2

$   3,284.5

-
































 ZIMMER HOLDINGS, INC. 

 NET SALES BY PRODUCT CATEGORY 

 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 

 (in millions, unaudited) 



 Three Months Ended September 30, 


 Nine Months Ended September 30, 








2012

2011

% Inc/(Dec)


2012

2011

% Inc/(Dec)












 Reconstructive 










 Knees 

$      407.4

$      416.7

(2)

%

$   1,338.7

$   1,349.8

(1)

%


 Hips 

308.5

315.6

(2)


993.0

997.9

-



 Extremities 

39.7

36.0

10


127.0

119.6

6




755.6

768.3

(2)


2,458.7

2,467.3

-












 Dental 

54.7

55.1

(1)


176.4

184.6

(4)


 Trauma 

74.5

69.3

8


223.9

208.5

7


 Spine 

49.8

55.2

(10)


155.4

168.5

(8)


 Surgical and other 

90.9

83.6

9


276.8

255.6

8


 Total 

$   1,025.5

$   1,031.5

(1)


$   3,291.2

$   3,284.5

-












 

 

ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Three Months Ended




September 30, 2012







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










   Americas

-

%


-

%


-

%


   Europe

(3)



(11)



8



   Asia Pacific

-



(2)



2



       Total

(1)



(4)



3


Product Categories










Reconstructive










   Americas

(1)



-



(1)



   Europe

(4)



(10)



6



   Asia Pacific

(1)



(2)



1



       Total

(2)



(4)



2















Knees











   Americas

(4)



-



(4)




   Europe

(2)



(11)



9




   Asia Pacific

2



(2)



4




       Total

(2)



(3)



1















Hips











   Americas

2



-



2




   Europe

(8)



(11)



3




   Asia Pacific

(4)



(2)



(2)




       Total

(2)



(4)



2















Extremities

10



(2)



12














Dental

(1)



(4)



3














Trauma

8



(3)



11














Spine

(10)



(3)



(7)














Surgical and other

9



(2)



11













ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Nine Months Ended




September 30, 2012







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










   Americas

1

%


-

%


1

%


   Europe

(3)



(8)



5



   Asia Pacific

3



-



3



       Total

-



(2)



2


Product Categories










Reconstructive










   Americas

-



-



-



   Europe

(3)



(7)



4



   Asia Pacific

4



-



4



       Total

-



(2)



2















Knees











   Americas

(1)



-



(1)




   Europe

(3)



(7)



4




   Asia Pacific

5



(1)



6




       Total

(1)



(2)



1















Hips











   Americas

1



-



1




   Europe

(4)



(8)



4




   Asia Pacific

3



1



2




       Total

-



(2)



2















Extremities

6



(2)



8














Dental

(4)



(2)



(2)














Trauma

7



(2)



9














Spine

(8)



(2)



(6)














Surgical and other

8



(1)



9













 ZIMMER HOLDINGS, INC. 

 Reconciliation of Net Earnings and Adjusted Net Earnings 

 For the Three Months Ended September 30, 2012 and 2011 

 (in millions, unaudited) 








 Three Months 



 Ended September 30, 



2012


2011






 Net Earnings of Zimmer Holdings, Inc. 

$       178.1


$       191.5

 Inventory step-up 

0.5


1.8

 Special items 


36.9


8.0

 Taxes on inventory step-up and special items* 

(13.4)


(4.1)

 Adjusted Net Earnings 

$       202.1


$       197.2






 * 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 Nine Months Ended September 30, 2012 and 2011 

 (in millions, unaudited) 








 Nine Months 



 Ended September 30, 



2012


2011






 Net Earnings of Zimmer Holdings, Inc. 

$       602.2


$       604.2

 Inventory step-up 

2.5


9.6

 Certain claims 


-


50.0

 Special items 


101.1


47.0

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




    and tax adjustments related to resolution of certain tax matters* 

(36.8)


(50.2)

 Adjusted Net Earnings 

$       669.0


$       660.6






 * 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 September 30, 2012 and 2011 

 (unaudited) 






 Three Months 


 Ended September 30,  


2012


2011





 Diluted EPS 

$          1.02


$          1.01

 Inventory step-up 

-


0.01

 Special items 

0.21


0.04

 Taxes on inventory step-up and special items* 

(0.08)


(0.02)

 Adjusted Diluted EPS 

$          1.15


$          1.04





 * 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 Nine Months Ended September 30, 2012 and 2011 

 (unaudited) 






 Nine Months 


 Ended September 30,  


2012


2011





 Diluted EPS 

$          3.41


$          3.15

 Inventory step-up 

0.01


0.05

 Certain claims 

-


0.26

 Special items 

0.58


0.24

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




    and tax adjustments related to resolution of certain tax matters* 

(0.21)


(0.26)

 Adjusted Diluted EPS 

$          3.79


$          3.44





 * 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


4.80

 Inventory step-up 

0.01


0.01

 Special items 

0.77


0.77

 Taxes on inventory step-up and special items* 

(0.28)


(0.28)

 Adjusted Diluted EPS 

$           5.25


$            5.30









 * 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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