Zimmer Biomet Annual Report 2016

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FY2016 Annual Report · Zimmer Biomet

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ZIMMER BIOMET HOLDINGS, INC.

2016 Annual Report

Financial Highlights

(Dollars in millions except per share amounts)

Sales b y Geography

2012

62%

23%

15%

Americas

$2,476

Europe

Asia Pacific

1,178

818

Consolidated

$4,472

2013

$2,620

1,212

791

$4,623

2014

2015

2016

$2,594

$3,662

$4,803

1,269

810

1,418

918

1,730

1,151

$4,673

$5,998

$7,684

Sales b y Product Category

2012

2013

2014

2015

2016

24%

21%

36%

Knees

Hips

S.E.T.

Dental

Spine & CMF

Other

$1,815

1,342

730

238

209

138

$1,862

$1,895

$2,277

$2,752

1,331

1,326

847

239

202

142

863

243

207

139

1,533

1,215

336

404

233

1,868

1,645

428

662

329

Consolidated

$4,472

$4,623

$4,673

$5,998

$7,684

% Change 2015-2016

Constant
Reported Currency(1)

31%

22%

25%

28%

31%

25%

22%

28%

% Change 2015-2016

Constant
Reported Currency(1)

21%

22%

35%

27%

64%

41%

28%

22%

35%

28%

64%

41%

28%

Net Sales
Our diversiﬁed growth during 2016
shows that demand for our proven
musculoskeletal portfolio remains
strong. Zimmer Biomet recorded
net sales of $7.684 billion in 2016,
reﬂecting 28% revenue growth
over 2015. In 2016, we experienced
growth across our broad and
complementary musculoskeletal
portfolio highlighted by the
noteworthy, ongoing acceleration
of our S.E.T. category and Asia
Paciﬁc sales region.

Operating Proﬁt
As we deployed capital to expand
our musculoskeletal portfolio in
2016, we maintained a competi-
tive operating margin proﬁle. Our
global teams continue to honor
our longstanding commitments
to disciplined expense manage-
ment, process efficiency and
quality excellence. This inherently
lean cost structure was enhanced,
in part, by the delivery of $225
million of net EBIT operating
synergies in 2016.

28% Reported
2% Adjusted(2)

4
8
6
7

8
9
9

3
7
6

3
2
6

2
7
4

24% Adjusted(3)

77% Reported

3
9
4

9
6
0

7
0
4

5
3
0

9
2
5

7
3
0

3
7
4

6
2
8

3
9
9

7
6
4

Operating Cash Flow
We continued to beneﬁt from
our strong cash position in 2016,
supporting the ﬂexibility to fund
long-term growth drivers.
Importantly, we made signiﬁcant
investments in 2016 to enhance
our differentiated R&D pipeline,
launching 50 new clinical
solutions during the year. We also
completed a number of strategic
acquisitions in 2016 that we
expect to drive a strong return on
invested capital. In addition,
we continued to deleverage our
balance sheet and return value to
stockholders through our
dividend program.

92% Reported

2
3
6

2
5
1

1
6
0

3
6
9

0
5
8

Diluted Earnings Per Share
In 2016, we generated full-year
adjusted earnings per share
growth of 15.4%. We drove results
through focused execution and an
enduring commitment to
commercial and operational
excellence around the globe. Our
focus on long-term, sustainable
value creation means that we
strive for innovation in every
aspect of our global business.

6
9
7

0
9

15% Adjusted(3)

96% Reported

2
2

4
5

8
5

7
1

0
4

0
2

(1) “Constant Currency” refers to sales growth resulting from translating current and prior-period sales at the same predetermined foreign currency exchange rate. The translated results are then used to determine year-over-year percentage increases or

decreases that exclude the effect of changes in foreign currency exchange rates. See the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure on page 84.

(2) Adjusted net sales growth refers to growth on a constant currency, adjusted pro forma basis. Adjusted net sales refers to a comparison adjusted to reflect the impact of previously announced divestiture remedies in all periods and to exclude the contribution
to net sales from the acquisition of LDR Holding Corporation in July 2016. Pro forma net sales refers to a comparison that reflects the inclusion of Biomet net sales as if the merger occurred on January 1, 2015. This growth rate excludes the effects of foreign
currency exchange rates. See the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure on page 83.

(3) “Adjusted” refers to performance measures that exclude the effects of inventory step-up and other inventory and manufacturing related charges, certain claims, special items, intangible asset amortization, financing and other expenses/gains related to the
Biomet merger and other acquisitions, debt extinguishment charges, the tax effects of these items and certain tax adjustments. See the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures on page 84.

0.77

1.51

To Our Stockholders:

For 90 years, Zimmer Biomet has been at the forefront of musculoskeletal innovation with an expanding portfolio of
technologies, solutions and personalized services to address the needs of patients and healthcare professionals. As
we reﬂect on 2016, our accomplishments strengthen our conﬁdence in the unique value-creation opportunity we
offer in the dynamic global healthcare environment.

As we look to the future, we believe that we are well-positioned to deliver growth and drive stockholder value, and
we are committed to leading through quality, portfolio diversiﬁcation and innovation at every level of our global
business.

Highlights from 2016 include:

• Financial Performance: We delivered consolidated revenue and earnings growth relative to 2015, marked by
consistently noteworthy results from our Asia Paciﬁc region. Zimmer Biomet’s 2016 net sales totaled $7.684
billion, with adjusted diluted earnings per share of $7.96, an increase of 15.4 percent over adjusted diluted
earnings per share for the prior year. In 2016, we generated growth across our broad and complementary
musculoskeletal portfolio, most notably through our expanded specialized sales forces in our S.E.T.1 product
category.

• Portfolio Expansion and Innovative New Offerings: Zimmer Biomet continues to innovate across the full

spectrum of musculoskeletal care. We proudly introduced 50 new products from our research and development
pipeline in 2016, including technologies that expand and enhance our market-leading Knee and Hip portfolios.
In addition, we completed a number of strategic investments to strengthen our core offerings and expand our
presence in the marketplace. We also launched Zimmer Biomet Signature Solutions, a comprehensive offering of
clinical services and technologies designed to assist hospitals, ambulatory surgery centers and medical practices
to succeed in today’s value-based reimbursement environment.

• On-Target Delivery of Net Operating Synergies: Our competitive operating margin proﬁle, in addition to the
ﬂexibility we need to invest in our growth drivers, has been supported in part by the signiﬁcant cost savings we
have generated from delivering on the net operating synergies modeled into our 2015 merger. In 2016, we met
our net operating synergy target of $225 million.

Our Expanding Musculoskeletal Portfolio: Unlocking Diversiﬁed Growth

The year 2016 marked our ﬁrst full year of operating results as a combined company, during which we made
progress toward realizing the powerful commercial, operational and ﬁnancial synergies that formed the basis of our
landmark merger of Zimmer and Biomet in 2015. Our combination has allowed us to continue developing a core
expertise for innovative research and development across the continuum and episode of patient care.

For example, in 2016 we celebrated the 40th anniversary of the launch of the Oxford® Partial Knee System, the
most widely used and clinically-proven partial knee replacement system in the world. Every aspect of the Oxford
Partial Knee reﬂects our commitment to achieving optimal patient outcomes and satisfaction. The Oxford system
was designed to help with shorter hospital stays, fewer complications and a more rapid recovery. We have brought
that mindset into the design of our entire portfolio, in our efforts to meet the needs of the healthcare sector with
enhanced workﬂow efficiency and cost savings.

1 Sports Medicine, Surgical, Extremities, Trauma, Biologics and Foot & Ankle

Among the 50 new product introductions in 2016, Zimmer Biomet Signature Solutions best reﬂects our approach
to clinically and economically relevant innovation. As we have seen in recent years, world economies are adopting
public reforms that tie healthcare reimbursement to patient and health economics outcomes. To help healthcare
professionals and institutions with joint replacement service lines make a seamless transition to value-based
healthcare models, Zimmer Biomet Signature Solutions offers valuable analytic tools and state-of-the-art platforms
for engaging patients and providers at every stage of care delivery. We are currently expanding the release of
Zimmer Biomet Signature Solutions through collaborative partnerships with major healthcare institutions.

Additional commercial introductions during 2016 included:

• Launching the Vanguard® Individualized Design (ID) Knee Replacement. This ﬁrst-of-its-kind total knee

replacement enables surgeons to ﬁne-tune knee ligament balance with simpliﬁed soft tissue preservation, as well
as achieve a personalized ﬁt with knee bearing options in a range of thicknesses and geometries.

• Releasing the Comprehensive® Vault Reconstruction System, the ﬁrst commercially available patient-matched

glenoid replacement. This innovative and patient-speciﬁc implant was designed to expand the treatment options
for patients with severe glenoid deformities, and represents a key addition to our upper Extremities portfolio.

• Signiﬁcantly enhancing three successful Zimmer Biomet Hip systems, with the addition of the Echo® Bi-Metric®
Microplasty® Stem, G7® Dual Mobility Construct and Arcos® One-Piece Revision System. These 2016 releases
expanded the versatility of the Echo, G7 and Arcos systems that represent strong brands within our broad Hip
portfolio.

• Launching the redesigned OSS™ Orthopedic Salvage System, including updated implant components, Universal
Quick Connection instruments and new 3D printed implant components created with OsseoTi® Porous Metal
technology. The OSS system is the ﬁrst and only limb salvage system utilizing this proprietary porous metal
technology. In addition to supporting optimal outcomes, these important upgrades are designed to provide the
surgeon with an efficient and intuitive experience.

We are also committed to driving other long-term commercial projects in 2017 and beyond. These include the
ongoing expansion and enhancement of our industry-leading intelligent instrumentation options, which were
utilized in nearly 100,000 procedures worldwide in 2016.

Prudent M&A: Strengthening and Diversifying our Portfolio

Zimmer Biomet has a healthy balance sheet with strong free cash ﬂow, and we remain committed to achieving
our goal of generating $2 billion in annual free cash ﬂow by 2020.2 This ﬁnancial ﬂexibility enables the Company
to assess a broad range of potential M&A opportunities to drive value creation, while at the same time returning
value to stockholders. Since our merger in 2015, we have deployed approximately $1.5 billion in eight strategic
acquisitions, including transactions that have enhanced our core offerings, increased our portfolio diversiﬁcation
and introduced exciting new platform technologies.

Strategic transactions to enhance the portfolio in 2016 included:

• Expanding our Spine portfolio with the Mobi-C® Cervical Disc Prosthesis, through a combination with LDR
Holding Corporation to position Zimmer Biomet as a leader in cervical disc replacement. In addition to this
premier spinal platform, combining with LDR provides us with the scale, talent and portfolio of solutions needed
to become a leader in the nearly $10 billion global Spine market.

2 See the Note on Forward-Looking Non-GAAP Financial Measures on page 83.

• Strengthening our Sports Medicine capabilities with a portfolio of advanced soft tissue reconstruction

solutions for knee, shoulder and extremities procedures to address the $18 billion S.E.T. market through the
acquisition of Cayenne Medical.

• Furthering our strategy to offer the industry’s most comprehensive range of intelligent instrumentation
options with the acquisition of Medtech SA, developer of the ROSA® robotics platform for minimally
invasive brain, neurological and spinal procedures. In addition to leveraging this current robotics
technology, we now have the potential to identify and develop additional applications for the ROSA
platform across other anatomical sites.

• Integrating a comprehensive, at-home telerehabilitation platform into Zimmer Biomet Signature Solutions
that is designed to enhance patient compliance with physical therapy and improve the quality of recovery
through the acquisition of the RespondWell® Telerehabilitation Platform.

• Enhancing capabilities to further develop and market immunoassays and biomarker tests designed to

inform treatment decisions to improve patient outcomes and reduce complications with the acquisition
of CD Diagnostics, a company with which we have co-developed and marketed the Synovasure®
Periprosthetic Joint Infection (PJI) test since 2012, the ﬁrst and only test speciﬁcally designed and validated
for the diagnosis of PJI.

As we have undertaken these strategic investments, we are also focused on reducing our debt and returning
value to stockholders. We have delivered dividend growth to our stockholders with a compound annual growth
rate in the high single-digits range over the past four years. Additionally, we have made steady progress toward
solidifying our investment-grade credit rating, having paid down $1.5 billion in debt incurred in connection with
the Biomet acquisition. While we borrowed $750 million to ﬁnance the LDR acquisition in 2016, we are making
progress toward achieving our goal of a gross debt-to-adjusted EBITDA ratio of 2.5 by the end of 2018.3

Clinical Validation and our Commitment to Patients

The strength of our clinical evidence solidiﬁes our portfolio’s value proposition to healthcare providers and
the life-changing beneﬁts we offer patients. Recently, we had the privilege of announcing the results of a
seven-year study of the Mobi-C Cervical Disc Prosthesis, which demonstrated that the Mobi-C Cervical Disc
achieved statistically superior success rates and signiﬁcant advantages over traditional two-level anterior
cervical discectomy and fusion. This clinical validation has helped the Mobi-C Cervical Disc become the most
widely covered device for one- and two-level cervical disc replacement by U.S. commercial health insurers.
The Mobi-C Cervical Disc has now been used in more than 40,000 procedures worldwide.

Additionally, an analysis from the UK National Joint Registry showed Trabecular Metal™ Cups used in revision
hip surgery were 21 percent less likely to result in subsequent revision due to infection.4 We are pleased to
see that our Trabecular Metal acetabular devices have been recognized for their clinical beneﬁts and ability to
meet the long-term performance needs of hip implant patients.

This past year we were also proud to reinforce our commitment to patients by partnering with the Indo UK
Institutes of Health. Working together, we plan to develop orthopaedic centers to support better access to
high-quality, affordable musculoskeletal healthcare for approximately 400 million people in India over the
next two decades.

3 See the Note on Forward-Looking Non-GAAP Financial Measures on page 83.

4 Statistically signiﬁcant, p-value=0.036. According to NJR data from 2003 to 2015 where 9,573 Trabecular Metal and 30,452 non-Trabecular Metal
cups were used in revision THA and based on hazard ratios adjusted by patient gender, age group, and indications (OA/non-OA). NJR data shows a
higher percentage of TM cups were used with antibiotic bone cement compared to all other non-TM cementless cups.

Net Synergy Capture: Adding to our Longstanding Pledge to
Operational and Quality Excellence

We have established a strong track record of attractive operating margin performance by building a culture of
operational and quality excellence that complements our culture of innovation. Due to our lean cost structure, we
believe that we are positioned to continue fueling margin expansion through the acceleration of our top line sales
growth over the coming years. In concert with disciplined operating expense and working capital management,
we are committed to the ongoing optimization and harmonization of our global supply chain, manufacturing and
quality infrastructure. As a top priority, we are continuing to make important investments as we strive to establish a
best-in-class Quality Management System across our global network.

In the area of net operating synergies, our global teams continue to successfully drive our detailed plans for
unlocking cost savings as a combined company. In 2016, their efforts resulted in the successful delivery of $225
million in net EBIT synergies. We remain on-pace to deliver $350 million in net EBIT synergies by mid-2018.

On Track for the Future

This exciting year was marked by solid ﬁnancial performance, signiﬁcant portfolio expansion and strategic
investments to support long-term growth. In short, 2016 demonstrated the power and innovation of Zimmer
Biomet’s presence within musculoskeletal healthcare. We sincerely thank our global teams for rising to the
occasion. By drawing from the broadest and most differentiated product portfolio in our industry, our specialized
sales channels delivered top line growth. And as we expanded our musculoskeletal portfolio with groundbreaking
robotic technology and diversiﬁed offerings to address new markets, we were also addressing the need for value-
creation in healthcare with Zimmer Biomet Signature Solutions.

Our employees are an integral part of our success and we thank them for their dedication to Zimmer Biomet. It has
been our honor to serve the global healthcare community, working together to help millions of people to live better
lives with our musculoskeletal innovations. On behalf of our 18,000 employees around the globe, we thank you for
this opportunity and for your ongoing support of Zimmer Biomet.

Sincerely,

David C. Dvorak
President and
Chief Executive Ofﬁcer

Larry C. Glasscock
Chairman of the Board

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For year ended December 31, 2016
Commission file number 001-16407
ZIMMER BIOMET HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)
345 East Main Street Warsaw, Indiana

13-4151777
(IRS Employer Identification No.)
46580

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (574) 267-6131

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

Title of each class
Common Stock, $.01 par value
1.414% Notes due 2022
2.425% Notes due 2026

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í

No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘

No Í

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 Í

No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such
files). Yes Í

No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. Í

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check One):

Large accelerated filer Í Accelerated filer ‘

Non-accelerated filer ‘
(Do not check if a smaller reporting company)

Smaller reporting company ‘

Indicate by checkmark whether the registrant is a shell company (as defined Exchange Act Rule 12b-2). Yes ‘

No Í

The aggregate market value of shares held by non-affiliates was $23,998,830,521 (based on the closing price of these shares on the
New York Stock Exchange on June 30, 2016 and assuming solely for the purpose of this calculation that all directors and executive
officers of the registrant are “affiliates”). As of February 22, 2017, 201,101,794 shares of the registrant’s $.01 par value common
stock were outstanding.

Document

Portions of the Proxy Statement with respect to the 2017 Annual Meeting of Stockholders

Form 10-K

Part III

Documents Incorporated by Reference

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Cautionary Note About Forward-Looking Statements

This Annual Report on Form 10-K includes “forward-looking” statements within the meaning of federal securities laws.
Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts. They often
include words such as “may,” “will,” “can,” “should,” “would,” “could,” “anticipate,” “expect,” “plan,” “seek,” “believe,” “predict,”
“estimate,” “potential,” “project,” “assume,” “guide,” “target,” “forecast,” “intend,” “strategy,” “is confident that,” “future,”
“opportunity,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A
detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-
looking statements is included in the section titled “Risk Factors” (refer to Part I, Item 1A of this report). Readers of this report are
cautioned not to place undue reliance on these forward-looking statements. 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. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in
our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

TABLE OF CONTENTS

PART I

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Properties

Legal Proceedings

Mine Safety Disclosures

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.

Controls and Procedures

Item 9B.

Other Information

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions and Director Independence

Item 14.

Principal Accounting Fees and Services

PART IV

Item 15.

Exhibits, Financial Statement Schedules

Item 16.

10-K Summary

Page

Z I M M E R BI OM E T HOL D I NG S , I NC .

PART I

Item 1. Business

Overview

Zimmer Biomet is a global leader in musculoskeletal
healthcare. We design, manufacture and market orthopaedic
reconstructive products; sports medicine, biologics,
extremities and trauma products; office based technologies;
spine, craniomaxillofacial and thoracic products; dental
implants; and related surgical products. We collaborate with
healthcare professionals around the globe to advance the pace
of innovation. Our products and solutions help treat patients
suffering from disorders of, or injuries to, bones, joints or
supporting soft tissues. Together with healthcare
professionals, we help millions of people live better lives. In
this report, “Zimmer Biomet,” “we,” “us,” “our,” “the Company”
and similar words refer collectively to Zimmer Biomet
Holdings, Inc. and its subsidiaries. “Zimmer Biomet Holdings”
refers to the parent company only.

Zimmer Biomet Holdings was incorporated in Delaware in
2001. Our history dates to 1927, when Zimmer Manufacturing
Company, a predecessor, was founded in Warsaw, Indiana. On
August 6, 2001, we were spun off from our former parent and
became an independent public company.

On June 24, 2015 (the “Closing Date”), we acquired LVB
Acquisition, Inc. (“LVB”), the parent company of Biomet, Inc.
(“Biomet”), and LVB and Biomet became our wholly-owned
subsidiaries (sometimes hereinafter referred to as the “Biomet
merger” or the “merger”). In connection with the merger, we
changed our name from Zimmer Holdings, Inc. to Zimmer
Biomet Holdings, Inc. “Zimmer” used alone refers to the
business or information of us and our subsidiaries on a stand-
alone basis without inclusion of the business or information of
LVB or any of its subsidiaries.

Customers, Sales and Marketing

Our primary customers include orthopaedic surgeons,
neurosurgeons, oral surgeons, and other specialists, dentists,
hospitals, stocking distributors, healthcare dealers and, in their
capacity as agents, healthcare purchasing organizations or
buying groups. These customers range from large multinational
enterprises to independent clinicians and dentists.

We have operations throughout the world. We manage our
operations through three major geographic operating segments
and four product category operating segments. Our three
major geographic operating segments are the Americas, which
is comprised principally of the U.S. and includes other North,
Central and South American markets; EMEA, which is
comprised principally of Europe and includes the Middle East
and African markets; and Asia Pacific, which is comprised
primarily of Japan and includes other Asian and Pacific
markets. Our four product category operating segments, which
are individually not as significant as our geographic operating
segments, are as follows: 1) Americas Spine; 2) Office Based
Technologies; 3) Craniomaxillofacial and Thoracic (“CMF”);
and 4) Dental.

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

We market and sell products through three principal
channels: 1) direct to healthcare institutions, such as hospitals,
referred to as direct channel accounts; 2) through stocking
distributors and healthcare dealers; and 3) directly to dental
practices and dental laboratories. With direct channel
accounts, inventory is generally consigned to sales agents or
customers. With sales to stocking distributors, healthcare
dealers, dental practices and dental laboratories, title to
product passes upon shipment or upon implantation of the
product. Direct channel accounts represented approximately
80 percent of our net sales in 2016. No individual direct
channel account, stocking distributor, healthcare dealer, dental
practice or dental laboratory accounted for more than
1 percent of our net sales for 2016.

We stock inventory in our warehouse facilities and retain

title to consigned inventory in an effort to have sufficient
quantities available when products are needed for surgical
procedures. Safety stock levels are determined based on a
number of factors, including demand, manufacturing lead
times and quantities required to maintain service levels. We
also carry trade accounts receivable balances based on credit
terms that are generally consistent with local market practices.
We utilize a network of sales associates, sales managers

and support personnel, some of whom are employed or
contracted by independent distributors and sales agencies. We
invest a significant amount of time and expense in training
sales associates in how to use specific products and how to
best inform surgeons of product features and uses. Sales force
representatives must have strong technical selling skills and
medical education to provide technical support for surgeons.

In response to the different healthcare systems

throughout the world, our sales and marketing strategies and
organizational structures differ by region. We utilize a global
approach to sales force training, marketing and medical
education to provide consistent, high quality service.
Additionally, we keep current with key surgical developments
and other issues related to orthopaedic surgeons,
neurosurgeons, other specialists, dentists and oral surgeons
and the medical procedures they perform.

We allocate resources to achieve our operating profit goals

through seven operating segments. Our operating segments
are comprised of both geographic and product category
business units. We are organized through a combination of
geographic and product category operating segments for
various reasons, including the distribution channels through
which products are sold. Our product category operating
segments generally have distribution channels focused
specifically on those product categories, whereas our
geographic operating segments have distribution channels that
sell multiple product categories. The following is a summary of
our seven operating segments. See Note 18 to the consolidated
financial statements for more information regarding our
segments.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Americas. The Americas geographic operating segment

Office Based Technologies. Our Office Based

is our largest operating segment. The U.S. accounts for
93 percent of net sales in this region. The U.S. sales force
consists of a combination of employees and independent sales
agents, most of whom sell products exclusively for Zimmer
Biomet. The sales force in the U.S. receives a commission on
product sales and is responsible for many operating decisions
and costs.

In this region, we contract with group purchasing

organizations and managed care accounts and have promoted
unit growth by offering volume discounts to customer
healthcare institutions within a specified group. Generally, we
are designated as one of several preferred purchasing sources
for specified products, although members are not obligated to
purchase our products. Contracts with group purchasing
organizations generally have a term of three years, with
extensions as warranted.

In the Americas, we monitor and rank independent sales

agents and our direct sales force across a range of performance
metrics, including the achievement of sales targets and
maintenance of efficient levels of working capital.

EMEA. The EMEA geographic operating segment is our

second largest operating segment. France, Germany, Italy,
Spain and the United Kingdom collectively account for
57 percent of net sales in the region. This segment also includes
other key markets, including Switzerland, Benelux, Nordic,
Central and Eastern Europe, the Middle East and Africa. Our
sales force in this segment is comprised of direct sales
associates, commissioned agents, independent distributors and
sales support personnel. We emphasize the advantages of our
clinically proven, established designs and innovative solutions
and new and enhanced materials and surfaces. In most
European countries, healthcare is sponsored by the government
and therefore government budgets impact healthcare spending,
which can affect our sales in this segment.

Asia Pacific. The Asia Pacific geographic operating
segment includes key markets such as Japan, Australia, New
Zealand, Korea, China, Taiwan, India, Thailand, Singapore,
Hong Kong and Malaysia. Japan is the largest market within
this segment, accounting for 44 percent of the region’s sales. In
Japan and most countries in the Asia Pacific region, we
maintain a network of dealers, who act as order agents on
behalf of hospitals in the region, and sales associates, who
build and maintain relationships with orthopaedic surgeons
and neurosurgeons in their markets. The knowledge and skills
of these sales associates play a critical role in providing
service, product information and support to surgeons. We have
a research and development center in Beijing, China, which
focuses on products and technologies designed to meet the
unique needs of Asian patients and their healthcare providers.
Americas Spine. The Americas Spine product category
operating segment is comprised of our spine products division
in the Americas, primarily in the U.S. market, but also in other
North, Central and South American markets. The market
dynamics of the Americas Spine business are similar to those
described in the Americas geographic operating segment.
However, the Americas Spine business maintains a separate
sales force of employees and independent sales agents.

Technologies product category operating segment only sells to
U.S. customers. In this product category, we market our
products to doctors who prescribe them for use by patients.
The products are mostly provided directly by Zimmer Biomet
to patients and are paid for through patients’ insurance or by
patients themselves. Products are also sold through wholesale
channels on a limited basis.

CMF. Our CMF product category operating segment
competes across the world through a combination of direct and
independent sales agents. The U.S. sales force consists of a
combination of employees and independent sales agents.
Internationally, our primary customers are independent
stocking distributors who market our products to their
customers.

Dental. Our Dental product category operating segment

competes across the world. Our sales force is primarily
composed of employees who market our products to
customers. We sell directly to dental practices or dental
laboratories, or to independent stocking distributors depending
on the market.

Seasonality

Our business is seasonal in nature to some extent, as
many of our products are used in elective 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.

Distribution

We distribute our products both through large, centralized

warehouses and through smaller, market specific facilities,
depending on the needs of the market. We maintain large,
centralized warehouses in the U.S. and Europe to be able to
efficiently distribute our products to customers in those
regions. In addition to these centralized warehouses, we
maintain smaller distribution facilities within each of the
countries where we have a direct sales presence. In many
locations, our inventory is consigned to the healthcare
institution.

We generally ship our orders via expedited courier. We do
not consider our back orders of firm orders to be material to an
understanding of our business.

Products

Our products include orthopaedic reconstructive

products; sports medicine, biologics, extremities and trauma
products; office based technologies, spine and CMF products;
dental implants; and related surgical products.

KNEES

Total knee replacement surgeries typically include a
femoral component, a patella (knee cap), a tibial tray and an
articular surface (placed on the tibial tray). Knee replacement
surgeries include first-time, or primary, joint replacement
procedures and revision procedures for the replacement,

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repair or enhancement of an implant or component from a
previous procedure. There are also procedures for partial
reconstruction of the knee, which treat limited knee
degeneration and involve the replacement of only one side, or
compartment, of the knee with a unicompartmental knee
prosthesis. Our knee portfolio also includes early intervention
and joint preservation products, which seek to preserve the
joint by repairing or regenerating damaged tissues and by
treating osteoarthritis.

Our significant knee brands include the following:

(cid:129) Persona® The Personalized Knee System
(cid:129) NexGen® Complete Knee Solution
(cid:129) Vanguard® Knee System
(cid:129) Oxford® Partial Knee

HIPS

Total hip replacement surgeries replace both the head of
the femur and the socket portion of the pelvis (acetabulum) of
the natural hip. Hip procedures include first-time, or primary,
joint replacement as well as revision procedures. Hip implant
procedures involve the use of bone cement to attach or affix
the prosthetic components to the surrounding bone, or are
press-fit into bone, which means that they have a surface that
bone affixes to through either ongrowth or ingrowth
technologies.

Our significant hip brands include the following:

(cid:129) Zimmer® M/L Taper Hip Prosthesis
(cid:129) Taperloc® Hip System
(cid:129) Arcos® Modular Hip System
(cid:129) Continuum® Acetabular System
(cid:129) G7® Acetabular System

S.E.T.

Our S.E.T. product category includes surgical, sports

medicine, biologics, foot and ankle, extremities and trauma
products. Our surgical products are used to support various
surgical procedures. Our sports medicine products are
primarily for the repair of soft tissue injuries, most commonly
used in the knee and shoulder. Our biologics products are used
as early intervention for joint preservation or to support
surgical procedures. Our foot and ankle and extremities
products are designed to treat arthritic conditions and
fractures in the foot, ankle, shoulder, elbow and wrist. Our
trauma products are used to stabilize damaged or broken
bones and their surrounding tissues to support the body’s
natural healing process.

Our significant S.E.T. brands include the following:

(cid:129) Transposal® and Transposal Ultra® Fluid Waste

Management Systems

(cid:129) A.T.S.® Automatic Tourniquet Systems
(cid:129) JuggerKnot® Soft Anchor System
(cid:129) Gel-One®1 Cross-linked Hyaluronate
(cid:129) Trabecular MetalTM Reverse Shoulder System
(cid:129) Comprehensive® Shoulder
(cid:129) Zimmer® Natural Nail® System
(cid:129) DVR® Plating System

SPINE and CMF

Our spine products division designs, manufactures and
distributes medical devices and surgical instruments to deliver
comprehensive solutions for individuals with back or neck pain
caused by degenerative conditions, deformities or traumatic
injury of the spine. Our CMF division includes face and skull
reconstruction products as well as products that fixate and
stabilize the bones of the chest in order to facilitate healing or
reconstruction after open heart surgery, trauma or for
deformities of the chest.

Our significant spine and CMF brands include the

following:
(cid:129) Polaris™ Spinal System
(cid:129) Timberline® Lateral Fusion System
(cid:129) Mobi-C® Cervical Disc
(cid:129) SternaLock® Blu Closure System
(cid:129) SternaLock® Rigid Sternal Fixation

DENTAL

Our dental products division manufactures and/or

distributes: 1) dental reconstructive implants – for individuals
who are totally without teeth or are missing one or more teeth;
2) dental prosthetic products – aimed at providing a more
natural restoration to resemble the original teeth; and 3)
dental regenerative products – for soft tissue and bone
rehabilitation.

Our significant dental brands include the following:

(cid:129) Tapered Screw-Vent® Implant System
(cid:129) 3i T3® Implant
(cid:129) Puros® Allograft Products

OTHER

Our other product category primarily includes our bone
cement and office based technology products. Our significant
brands include the following:
(cid:129) PALACOS®2 Bone Cement
(cid:129) SpinalPak® Spinal Fusion Stimulator

Research and Development

We have extensive research and development activities to

develop new surgical techniques, materials, biologics and
product designs. The research and development teams work
closely with our strategic brand marketing function. The rapid
commercialization of innovative new materials, biologics
products, implant and instrument designs and surgical
techniques remains one of our core strategies and continues to
be an important driver of sales growth.

We are broadening our offerings in each of our product

categories and exploring new technologies with possible
applications in multiple areas. Our primary research and
development facility is located in Warsaw, Indiana. We have
other research and development personnel based in, among
other places, Canada, China, France, Switzerland and other
U.S. locations. As of December 31, 2016, we employed
approximately 2,000 research and development employees
worldwide.

1 Registered trademark of Seikagaku Corporation

2 Registered trademark of Heraeus Medical GmbH

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We expect to continue to identify innovative technologies,

which may include acquiring complementary products or
businesses, establishing technology licensing arrangements or
strategic alliances.

Government Regulation and Compliance

We are subject to government regulation in the countries
in which we conduct business. In the U.S., numerous laws and
regulations govern all the processes by which medical devices
are brought to market. These include, among others, the
Federal Food, Drug and Cosmetic Act and regulations issued
or promulgated thereunder. The U.S. Food and Drug
Administration (“FDA”) has enacted regulations that control
all aspects of the development, manufacture, advertising,
promotion and postmarket surveillance of medical products,
including medical devices. In addition, the FDA controls the
access of products to market through processes designed to
ensure that only products that are safe and effective are made
available to the public.

Most of our new products fall into an FDA classification

that requires the submission of a Premarket Notification
(510(k)) to the FDA. This process requires us to demonstrate
that the device to be marketed is at least as safe and effective
as, that is, substantially equivalent to, a legally marketed
device. We must submit information that supports our
substantial equivalency claims. Before we can market the new
device, we must receive an order from the FDA finding
substantial equivalence and clearing the new device for
commercial distribution in the U.S.

Other devices we develop and market are in a category

(class) for which the FDA has implemented stringent clinical
investigation and Premarket Approval (“PMA”) requirements.
The PMA process requires us to provide clinical and laboratory
data that establishes that the new medical device is safe and
effective. The FDA will approve the new device for commercial
distribution if it determines that the data and information in
the PMA application constitute valid scientific evidence and
that there is reasonable assurance that the device is safe and
effective for its intended use(s).

All of our devices marketed in the U.S. have been cleared

or approved by the FDA, with the exception of some devices
which are exempt or were in commercial distribution prior to
May 28, 1976. The FDA has grandfathered these devices, so
new FDA submissions are not required.

Both before and after a product is commercially released,

we have ongoing responsibilities under FDA regulations. The
FDA reviews design and manufacturing practices, labeling and
record keeping, and manufacturers’ required reports of
adverse experiences and other information to identify potential
problems with marketed medical devices. We are also subject
to periodic inspection by the FDA for compliance with its
Quality System Regulation (21 CFR Part 820) (“QSR”), among
other FDA requirements, such as restrictions on advertising
and promotion. Our manufacturing operations, and those of
our third-party manufacturers, are required to comply with the
QSR, which addresses a company’s responsibility for product
design, testing and manufacturing quality assurance and the

maintenance of records and documentation. The QSR requires
that each manufacturer establish a quality system by which the
manufacturer monitors the manufacturing process and
maintains records that show compliance with FDA regulations
and the manufacturer’s written specifications and procedures
relating to the devices. QSR compliance is necessary to receive
and maintain FDA clearance or approval to market new and
existing products. The FDA makes announced and
unannounced periodic and on-going inspections of medical
device manufacturers to determine compliance with the QSR.
If in connection with these inspections the FDA believes the
manufacturer has failed to comply with applicable regulations
and/or procedures, it may issue inspectional observations on
Form 483 that would necessitate prompt corrective action. If
FDA inspectional observations are not addressed and/or
corrective action is not taken in a timely manner and to the
FDA’s satisfaction, the FDA may issue a warning letter (which
would similarly necessitate prompt corrective action) and/or
proceed directly to other forms of enforcement action,
including the imposition of operating restrictions, including a
ceasing of operations, on one or more facilities, enjoining and
restraining certain violations of applicable law pertaining to
medical devices and assessing civil or criminal penalties
against our officers, employees or us. The FDA could also issue
a corporate warning letter, a recidivist warning letter or a
consent decree of permanent injunction. The FDA may also
recommend prosecution to the U.S. Department of Justice
(“DOJ”). Any adverse regulatory action, depending on its
magnitude, may restrict us from effectively manufacturing,
marketing and selling our products and could have a material
adverse effect on our business, financial condition and results
of operations. For information regarding certain warning
letters and FDA Form 483 inspectional observations that we
are addressing, see Note 20 to the consolidated financial
statements.

The FDA, in cooperation with U.S. Customs and Border
Protection (“CBP”), administers controls over the import of
medical devices into the U.S. The CBP imposes its own
regulatory requirements on the import of our products,
including inspection and possible sanctions for noncompliance.
We are also subject to foreign trade controls administered by
certain U.S. government agencies, including the Bureau of
Industry and Security within the Commerce Department and
the Office of Foreign Assets Control within the Treasury
Department (“OFAC”).

There are also requirements of state, local and foreign
governments that we must comply with in the manufacture
and marketing of our products.

In many of the foreign countries in which we market our
products, we are subject to local regulations affecting, among
other things, design and product standards, packaging
requirements and labeling requirements. Many of the
regulations applicable to our devices and products in these
countries are similar to those of the FDA. The member
countries of the European Union have adopted the European
Medical Device Directive, which creates a single set of medical
device regulations for products marketed in all member
countries. Compliance with the Medical Device Directive and

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certification to a quality system (e.g., ISO 13485 certification)
enable the manufacturer to place a CE mark on its products.
To obtain authorization to affix the CE mark to a product, a
recognized European Notified Body must assess a
manufacturer’s quality system and the product’s conformity to
the requirements of the Medical Device Directive. We are
subject to inspection by the Notified Bodies for compliance
with these requirements. In addition, many countries,
including Canada and Japan, have very specific additional
regulatory requirements for quality assurance and
manufacturing with which we must comply.

Further, we are subject to other federal, state and foreign

laws concerning healthcare fraud and abuse, including false
claims and anti-kickback laws, as well as the U.S. Physician
Payments Sunshine Act and similar state and foreign
healthcare professional payment transparency laws. These
laws are administered by, among others, the DOJ, the Office of
Inspector General of the Department of Health and Human
Services (“OIG-HHS”), state attorneys general and various
foreign government agencies. Many of these agencies have
increased their enforcement activities with respect to medical
device manufacturers in recent years. Violations of these laws
are punishable by criminal and/or civil sanctions, including, in
some instances, fines, imprisonment and, within the U.S.,
exclusion from participation in government healthcare
programs, including Medicare, Medicaid and Veterans
Administration health programs.

Our operations in foreign countries are subject to the

extraterritorial application of the U.S. Foreign Corrupt
Practices Act (“FCPA”). Our global operations are also subject
to foreign anti-corruption laws, such as the UK Bribery Act,
among others. As part of our global compliance program, we
seek to address anti-corruption risks proactively. On
January 12, 2017, we resolved previously-disclosed FCPA
matters involving Biomet and certain of its subsidiaries. As
part of that settlement, we entered into a Deferred Prosecution
Agreement (“DPA”) with the DOJ. For information regarding
the DPA, see Note 20 to the consolidated financial statements.

Our facilities and operations are also subject to complex

federal, state, local and foreign environmental and
occupational safety laws and regulations, including those
relating to discharges of substances in the air, water and land,
the handling, storage and disposal of wastes and the clean-up
of properties contaminated by pollutants. We do not expect
that the ongoing costs of compliance with these environmental
requirements will have a material impact on our consolidated
earnings, capital expenditures or competitive position.
In addition, we are subject to federal, state and

international data privacy and security laws and regulations
that govern the collection, use, disclosure and protection of
health-related and other personal information. Certain of our
affiliates are subject to privacy and security regulations
promulgated under the Health Insurance Portability and
Accountability Act of 1996 and the Health Information
Technology for Economic and Clinical Health Act (collectively,
“HIPAA”). The FDA also has issued guidance to which we may
be subject concerning data security for medical devices.

International data protection laws, including the European

Union (“EU”) Data Protection Directive and member state
implementing legislation, may also apply to some of our
operations. The EU Data Protection Directive imposes strict
obligations and restrictions on the ability to collect, analyze
and transfer EU personal data. Moreover, the General Data
Protection Regulation, an EU-wide regulation that will be fully
enforceable by May 25, 2018, will introduce new data
protection requirements in the EU and substantial fines for
violations of the data protection rules.

Failure to comply with U.S. and international data
protection laws and regulations could result in government
enforcement actions (which could include civil and/or criminal
penalties), private litigation and/or adverse publicity and could
negatively affect our operating results and business.

Competition

The orthopaedics and broader musculoskeletal care
industry is highly competitive. In the global markets for our
knees, hips, and S.E.T. products, our major competitors
include: the DePuy Synthes Companies of Johnson & Johnson;
Stryker Corporation; and Smith & Nephew plc. There are
smaller competitors in these product categories as well who
have success by focusing on smaller subsegments of the
industry.

In the spine and CMF categories, we compete globally
primarily with the spinal and biologic business of Medtronic
plc, the DePuy Synthes Companies, Stryker Corporation,
NuVasive, Inc. and Globus Medical, Inc.

In the dental implant category, we compete primarily with
Nobel Biocare Holding AG (part of the Danaher Corporation),
Straumann Holding AG and Dentsply International.

Competition within the industry is primarily based on

pricing, technology, innovation, quality, reputation and
customer service. A key factor in our continuing success in the
future will be our ability to develop new products and improve
existing products and technologies.

Manufacturing and Raw Materials

We manufacture our products at various sites. We also

strategically outsource some manufacturing to qualified
suppliers who are highly capable of producing components.
The manufacturing operations at our facilities are
designed to incorporate the cellular concept for production
and to implement tenets of a manufacturing philosophy
focused on continuous improvement efforts in product quality,
lead time reduction and capacity optimization. Our continuous
improvement efforts are driven by Lean and Six Sigma
methodologies. In addition, at certain of our manufacturing
facilities, many of the employees are cross-trained to perform a
broad array of operations.

We generally target operating our manufacturing facilities
at optimal levels of total capacity. We continually evaluate the
potential to in-source and outsource production as part of our
manufacturing strategy to provide value to our stakeholders.
We have improved our manufacturing processes to

harmonize and optimize our quality systems and to protect our

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profitability and offset the impact of inflationary costs. We
have, for example, employed computer-assisted robots and
multi-axis grinders to precision polish medical devices;
automated certain manufacturing and inspection processes,
including on-machine inspection and process
controls; purchased state-of-the-art equipment; in-sourced
core products and processes; and negotiated cost reductions
from third-party suppliers.

We use a diverse and broad range of raw materials in the

manufacturing of our products. We purchase all of our raw
materials and select components used in manufacturing our
products from external suppliers. In addition, we purchase
some supplies from single sources for reasons of quality
assurance, sole source availability, cost effectiveness or
constraints resulting from regulatory requirements. We work
closely with our suppliers to assure continuity of supply while
maintaining high quality and reliability. To date, we have not
experienced any significant difficulty in locating and obtaining
the materials necessary to fulfill our production schedules.

Intellectual Property

Patents and other proprietary rights are important to the

continued success of our business. We also rely upon trade
secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain our

EXECUTIVE OFFICERS

competitive position. We protect our proprietary rights
through a variety of methods, including confidentiality
agreements and proprietary information agreements with
vendors, employees, consultants and others who may have
access to proprietary information. We own or control through
licensing arrangements over 8,000 issued patents and patent
applications throughout the world that relate to aspects of the
technology incorporated in many of our products.

Employees

As of December 31, 2016, we employed approximately

18,500 employees worldwide, including approximately
2,000 employees dedicated to research and
development. Approximately 8,700 employees are located
within the U.S. and approximately 9,800 employees are
located outside of the U.S., primarily throughout Europe and
in Japan. We have approximately 7,800 employees dedicated
to manufacturing our products worldwide. The Warsaw,
Indiana production facilities employ approximately 2,600
employees in the aggregate.

We have production employees represented by a labor

union in each of Dover, Ohio and Bridgend, South Wales. We
have other employees in Europe who are represented by
Works Councils. We believe that our relationship with our
employees is satisfactory.

The following table sets forth certain information with respect to our executive officers as of February 19, 2017.

Name

David C. Dvorak

Daniel P. Florin

Tony W. Collins

Robert D. Delp

Adam R. Johnson

Katarzyna Mazur-Hofsaess, M.D., Ph.D.

David A. Nolan Jr.

Chad F. Phipps

Daniel E. Williamson

Sang Yi

Age

Position

President and Chief Executive Officer

Senior Vice President and Chief Financial Officer

Vice President, Corporate Controller and Chief Accounting Officer

President, Americas

Group President, Spine, Dental, CMF and Thoracic

President, Europe, Middle East and Africa

Group President, Biologics, Extremities, Sports Medicine, Surgical,
Trauma, Foot and Ankle, Office Based Technologies and Zimmer Biomet
Signature Solutions

Senior Vice President, General Counsel and Secretary

Group President, Joint Reconstruction

President, Asia Pacific

Mr. Dvorak was appointed President, Chief Executive Officer
and a member of the Board of Directors in May 2007. He
championed Zimmer’s acquisition of Biomet, positioning the
combined Zimmer Biomet as a global leader in musculoskeletal
healthcare. Prior to his appointment as President and Chief
Executive Officer, Mr. Dvorak served as Group President,
Global Businesses and Chief Legal Officer from December
2005. From October 2003 to December 2005, he served as
Executive Vice President, Corporate Services, Chief Counsel
and Secretary, as well as Chief Compliance Officer. Mr. Dvorak
joined the Company (then Zimmer) as Senior Vice President,

Corporate Affairs and General Counsel in December 2001,
shortly following the Company’s spin-off from its former
parent.

Mr. Florin was appointed Senior Vice President and Chief
Financial Officer effective June 2015. He served as Senior Vice
President and Chief Financial Officer of Biomet from June
2007 to June 2015. Prior to joining Biomet, Mr. Florin served
as Vice President and Corporate Controller of Boston
Scientific Corporation from 2001 through May 2007. Before
being appointed Corporate Controller in 2001, Mr. Florin
served in financial leadership positions within Boston

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Scientific Corporation and its various business units. Prior to
joining Boston Scientific Corporation, Mr. Florin worked for
C.R. Bard from October 1990 through June 1995.

Mr. Collins was appointed Vice President, Corporate Controller
and Chief Accounting Officer effective June 2015. Prior to that,
Mr. Collins served as Vice President, Finance for the Global
Reconstructive Division and Global Operations organization.
He joined the Company (then Zimmer) in 2010 as Vice
President, Finance for the Global Reconstructive Division and
U.S. Commercial organization. Before joining Zimmer,
Mr. Collins held the position of Vice President, Finance and
served as the chief financial officer of the Commercial segment
of Oshkosh Corporation from 2007 to 2010. From 1997 to 2007,
he was employed at Guidant Corporation and Boston Scientific
Corporation, where he held a number of positions of increasing
responsibility, including Finance Director and chief financial
officer of the Guidant Japan organization, Global Director of
Operations Finance and Director of Strategic Planning.

Mr. Delp was appointed President, Americas effective January
2017. He is responsible for the Company’s sales and
management of the direct and indirect sales channels in the
Americas region, including the United States, Canada and
Latin America. He served as Vice President, U.S. Sales from
June 2015 until assuming his current role. Mr. Delp previously
served in commercial Vice President roles with Biomet from
October 2007 until June 2015. Prior to those appointments,
Mr. Delp held numerous positions within the musculoskeletal
healthcare field, where he began his career in 1995.

Mr. Johnson was appointed Group President with responsibility
for the Company’s Spine, Dental, Craniomaxillofacial and
Thoracic businesses effective June 2015. He served as Senior
Vice President, Biomet, and President, Biomet Microfixation,
Bone Healing and Spine from June 2012 to June 2015. Before
that, he served as President, Biomet Microfixation from 2007
to 2012 and Vice President, Global Marketing, Biomet
Microfixation from 2006 to 2007. Prior to that, Mr. Johnson
served as Director of Global Marketing for Regeneration
Technologies, Inc. (now known as RTI Surgical, Inc.). He also
worked for Biomet for five years previously, starting his career
with Biomet in 1999.

Dr. Mazur-Hofsaess was appointed President, EMEA in April
2013. Dr. Mazur-Hofsaess joined the Company (then Zimmer)
in February 2010 as Senior Vice President, EMEA
Reconstructive. She has more than 20 years’ experience within
the pharmaceutical, diagnostics and medical device sectors.
Prior to joining Zimmer, Dr. Mazur-Hofsaess served in various
management positions at Abbott Laboratories beginning in
2001, most recently as Vice President, Diagnostics – Europe.

Mr. Nolan was appointed Group President effective June 2015.
He has responsibility for the Company’s Biologics, Extremities,
Sports Medicine, Surgical, Trauma, Foot and Ankle, Office
Based Technologies and Zimmer Biomet Signature Solutions
businesses. He joined the Company (then Zimmer) in
November 2012 as Senior Vice President, Sales. From January
2014 to June 2015, he served as Senior Vice President, Sales

and Advanced Solutions. Prior to joining Zimmer, Mr. Nolan
served as President, Biomet Sports Medicine, Extremities and
Trauma from 2011 to 2012 and as President, Biomet Sports
Medicine from 2001 to 2011. He joined Biomet in 1996.

Mr. Phipps was appointed Senior Vice President, General
Counsel and Secretary in May 2007. He has global
responsibility for the Company’s Legal Affairs and he serves as
Secretary to the Board of Directors. Mr. Phipps also oversees
the Company’s Government Affairs, Corporate Communication
and Public Relations activities. Previously, Mr. Phipps served
as Associate General Counsel and Corporate Secretary from
December 2005 to May 2007. He joined the Company (then
Zimmer) in September 2003 as Associate Counsel and
Assistant Secretary. Prior to joining Zimmer, he served as Vice
President and General Counsel of L&N Sales and Marketing,
Inc. in Pennsylvania and he practiced law with the firm of
Morgan, Lewis & Bockius in Philadelphia, focusing on
corporate and securities law, mergers and acquisitions and
financial transactions.

Mr. Williamson was appointed Group President, Joint
Reconstruction with responsibility for the Company’s Knee,
Hip, Bone Cement, Patient-Matched Implants and Personalized
Solutions businesses effective June 2015. He served as Senior
Vice President, Biomet and President, Global Reconstructive
Joints from February 2014 to June 2015. Prior to that,
Mr. Williamson served as Biomet’s Vice President and General
Manager, Global Bone Cement and Biomaterials Research from
September 2011 to February 2014, and as Corporate Vice
President, Global Biologics and Biomaterials from May 2006 to
September 2011. Mr. Williamson previously served as Biomet’s
Vice President, Business Development from December 2003 to
May 2006. He began his career with Biomet in 1990 as a
Product Development Engineer.

Mr. Yi was appointed President, Asia Pacific effective June
2015. He is responsible for the sales, marketing and
distribution of products in the Asia Pacific region. Mr. Yi joined
the Company (then Zimmer) in March 2013 as Senior Vice
President, Asia Pacific. Before joining Zimmer, he served as
Vice President and General Manager of St. Jude Medical for
Asia Pacific and Australia from 2005 to 2013. Prior to that,
Mr. Yi held several leadership positions over a ten-year period
with Boston Scientific Corporation, ultimately serving as Vice
President for North Asia.

AVAILABLE INFORMATION

Our Internet address is www.zimmerbiomet.com. We
routinely post important information for investors on our
website in the “Investor Relations” section, which may be
accessed from our homepage at www.zimmerbiomet.com or
directly at http://investor.zimmerbiomet.com. 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, Securities and Exchange
Commission (“SEC”) filings, public conference calls,

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presentations and webcasts. Our goal is to maintain the
Investor Relations website as a portal through which investors
can easily find or navigate to pertinent information about us,
free of charge, including:
(cid:129) our Annual Reports on Form 10-K, Quarterly Reports on

Form 10-Q, Current Reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as
amended (“Exchange Act”), as soon as reasonably
practicable after we electronically file that material with or
furnish it to the SEC;

development, information technology, communications,
purchasing, accounting, marketing, administration and other
systems and processes;

(cid:129) harmonizing and optimizing quality systems and operations;
(cid:129) diversion of financial and management resources from

existing operations;

(cid:129) unforeseen difficulties related to entering geographic

regions where we do not have prior experience;

(cid:129) potential loss of key employees;
(cid:129) unforeseen liabilities associated with businesses acquired;

and

(cid:129) announcements of investor conferences and events at which

(cid:129) inability to generate sufficient revenue or realize sufficient

our executives talk about our products and competitive
strategies, as well as archives of these events;
(cid:129) press releases on quarterly earnings, product

announcements, legal developments and other material
news that we may post from time to time;

(cid:129) corporate governance information including our Corporate
Governance Guidelines, Code of Business Conduct and
Ethics, Code of Ethics for Chief Executive Officer and
Senior Financial Officers, information concerning our Board
of Directors and its committees, including the charters of the
Audit Committee, Compensation and Management
Development Committee, Corporate Governance Committee
and Research, Innovation and Technology Committee, and
other governance-related policies;

(cid:129) stockholder services information, including ways to contact
our transfer agent and information on how to sign up for
direct deposit of dividends or enroll in our dividend
reinvestment plan; and

(cid:129) opportunities to sign up for email alerts and RSS feeds to

have information provided in real time.

The information available on our website is not

incorporated by reference in, or a part of, this or any other
report we file with or furnish to the SEC.

Item 1A. Risk Factors

Risk factors which could cause actual results to differ
from our expectations and which could negatively impact
our financial condition and results of operations are
discussed below and elsewhere in this report. Additional
risks and uncertainties not presently known to us or that
are currently not believed to be significant to our business
may also affect our actual results and could harm our
business, financial condition and results of operations. If
any of the risks or uncertainties described below or any
additional risks and uncertainties actually occur, our
business, results of operations and financial condition
could be materially and adversely affected.

We may not be able to effectively integrate
acquired businesses into our operations or achieve
expected cost savings or profitability from our
acquisitions.

Our acquisitions involve numerous risks, including:
(cid:129) unforeseen difficulties in integrating personnel and sales
forces, operations, manufacturing, logistics, research and

cost savings to offset acquisition or investment costs.

As a result, if we fail to evaluate and execute acquisitions

properly, we might not achieve the anticipated benefits of such
acquisitions and we may incur costs in excess of what we
anticipate. These risks would likely be greater in the case of
larger acquisitions.

We incurred substantial additional indebtedness in
connection with the Biomet and LDR mergers and may
not be able to meet all of our debt obligations.

We incurred substantial additional indebtedness in
connection with the Biomet and LDR Holding Corporation
(“LDR”) mergers. At December 31, 2016, our total
indebtedness was $11.2 billion, as compared to $1.4 billion at
December 31, 2014. We funded the cash portion of the Biomet
merger consideration, the pay-off of certain indebtedness of
Biomet and the payment of transaction-related expenses
through a combination of available cash-on-hand and proceeds
from debt financings, including proceeds from a $7.65 billion
issuance of senior unsecured notes in March 2015 and
borrowings of $3.0 billion under a five-year term loan in June
2015. In addition, in September 2016, we borrowed
$750 million under a three-year unsecured term loan facility
and utilized these funds to repay outstanding borrowings
under our revolving facility incurred in connection with the
acquisition of LDR. Also, in December 2016, we issued
€1.0 billion aggregate principal amount of Euro-denominated
senior notes and used the proceeds to repay a portion of the
U.S. dollar-denominated senior notes issued in connection with
the Biomet merger. As of December 31, 2016, our debt service
obligations, comprised of principal and interest (excluding
capital leases and equipment notes), during the next 12
months are expected to be $891.1 million. As a result of the
increase in our debt, demands on our cash resources have
increased. The increased level of debt could, among other
things:
(cid:129) require us to dedicate a large portion of our cash flow from
operations to the servicing and repayment of our debt,
thereby reducing funds available for working capital, capital
expenditures, research and development expenditures and
other general corporate requirements;

(cid:129) limit our ability to obtain additional financing to fund future

working capital, capital expenditures, research and
development expenditures and other general corporate
requirements;

(cid:129) limit our flexibility in planning for, or reacting to, changes in

our business and the industry in which we operate;

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(cid:129) restrict our ability to make strategic acquisitions or
dispositions or to exploit business opportunities;

(cid:129) place us at a competitive disadvantage compared to our

competitors that have less debt;

(cid:129) adversely affect our credit rating, with the result that the
cost of servicing our indebtedness might increase and our
ability to obtain surety bonds could be impaired;

(cid:129) adversely affect the market price of our common stock; and
(cid:129) limit our ability to apply proceeds from a future offering or

asset sale to purposes other than the servicing and
repayment of debt.

If we fail to comply with healthcare fraud and abuse

or data privacy and security laws and regulations, we
could face substantial penalties and our business,
operations and financial condition could be adversely
affected.

Our industry is subject to various federal, state and

foreign laws and regulations pertaining to healthcare fraud and
abuse, including the federal False Claims Act, the federal Anti-
Kickback Statute, the federal Stark law, the federal Physician
Payments Sunshine Act and similar state and foreign laws. In
addition, we are subject to various federal and foreign laws
concerning anti-corruption and anti-bribery matters, sales to
countries or persons subject to economic sanctions and other
matters affecting our international operations. Violations of
these laws are punishable by criminal and/or civil sanctions,
including, in some instances, fines, imprisonment and, within
the U.S., exclusion from participation in government
healthcare programs, including Medicare, Medicaid and
Veterans Administration health programs. These laws are
administered by, among others, the DOJ, the OIG-HHS, the
SEC, the OFAC, the Bureau of Industry and Security of the
U.S. Department of Commerce and state attorneys general.

We are also subject to federal, state and international data

privacy and security laws and regulations that govern the
collection, use, disclosure and protection of health-related and
other personal information. Certain of our affiliates are subject
to privacy and security regulations promulgated under HIPAA.
The FDA also has issued guidance to which we may be subject
concerning data security for medical devices.

International data protection laws, including the EU Data

Protection Directive and member state implementing
legislation, may also apply to some of our operations and
restrict our ability to collect, analyze and transfer EU personal
data. Moreover, the General Data Protection Regulation, an
EU-wide regulation that will be fully enforceable by May 25,
2018, will introduce new data protection requirements in the
EU and substantial fines for violations of the data protection
rules.

The interpretation and enforcement of the laws and
regulations described above are uncertain and subject to
change.

If we fail to comply with the terms of the DPA that
we entered into in January 2017, we may be subject to
criminal prosecution and/or exclusion from federal
healthcare programs.

On January 12, 2017, we resolved previously-disclosed
FCPA matters involving Biomet and certain of its subsidiaries.

As part of the settlement, we entered into a DPA with the DOJ.
A copy of the DPA is incorporated by reference as an exhibit to
this report.

If we do not comply with the terms of the DPA, we could

be subject to prosecution for violating the internal controls
provisions of the FCPA and the conduct of Biomet and its
subsidiaries described in the DPA, which conduct pre-dated
our acquisition of Biomet, as well as any new or continuing
violations. We could also be subject to exclusion by OIG-HHS
from participation in federal healthcare programs, including
Medicaid and Medicare. Any of these events could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.

We are subject to various governmental regulations
relating to the manufacturing, labeling and marketing of
our products, non-compliance with which could
adversely affect our business, financial condition and
results of operations.

The medical devices we design, develop, manufacture and

market are subject to rigorous regulation by the FDA and
numerous other federal, state and foreign governmental
authorities. The process of obtaining regulatory approvals to
market a medical device can be costly and time consuming and
approvals might not be granted for future products on a timely
basis, if at all. Delays in receipt of, or failure to obtain,
approvals for future products could result in delayed
realization of product revenues or in substantial additional
costs.

Both before and after a product is commercially released,

we have ongoing responsibilities under FDA regulations.
Compliance with the FDA’s requirements, including the QSR,
recordkeeping regulations, labeling and promotional
requirements and adverse event reporting regulations, is
subject to continual review and is monitored rigorously
through periodic inspections by the FDA, which may result in
observations on Form 483, and in some cases warning letters,
that require corrective action, or other forms of enforcement.
If the FDA were to conclude that we are not in compliance
with applicable laws or regulations, or that any of our medical
devices are ineffective or pose an unreasonable health risk, the
FDA could ban such medical devices, detain or seize
adulterated or misbranded medical devices, order a recall,
repair, replacement, or refund of payment of such devices,
refuse to grant pending premarket approval applications,
refuse to provide certificates to foreign governments for
exports, and/or require us to notify healthcare professionals
and others that the devices present unreasonable risks of
substantial harm to the public health. The FDA may also
impose operating restrictions including a ceasing of operations,
on one or more facilities, enjoin and restrain certain violations
of applicable law pertaining to medical devices and assess civil
or criminal penalties against our officers, employees or us. The
FDA could also issue a corporate warning letter, a recidivist
warning letter or a consent decree of permanent injunction.
The FDA may also recommend prosecution to the DOJ. Any
adverse regulatory action, depending on its magnitude, may
restrict us from effectively manufacturing, marketing and

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selling our products and could have a material adverse effect
on our business, financial condition and results of operations.
In 2012, we received a warning letter from the FDA citing

concerns relating to certain processes pertaining to products
manufactured at our Ponce, Puerto Rico manufacturing
facility. In June 2015, Biomet received a warning letter from
the FDA that requested additional information to allow the
FDA to evaluate the adequacy of Biomet’s responses to certain
Form 483 observations issued following an inspection of
Biomet’s Zhejiang, China manufacturing facility in January
2015. In May 2016, we received a warning letter from the FDA
related to observed non-conformities with current good
manufacturing practice requirements of the QSR at our facility
in Montreal, Quebec, Canada. As of December 31, 2016, these
warning letters remained pending. Until the violations are
corrected, we may become subject to additional regulatory
action by the FDA as described above, the FDA may refuse to
grant premarket approval applications and/or the FDA may
refuse to grant export certificates, any of which could have a
material adverse effect on our business, financial condition and
results of operations. Additional information regarding these
and other FDA regulatory matters can be found in Note 20 to
the consolidated financial statements.

Our products and operations are also often subject to the
rules of industrial standards bodies, such as the International
Standards Organization. If we fail to adequately address any of
these regulations, our business could be harmed.

Interruption of our manufacturing operations could

adversely affect our business, financial condition and
results of operations.

We have manufacturing sites all over the world. In some

instances, however, the manufacturing of certain of our
product lines is concentrated in one or more of our plants.
Damage to one or more of our facilities from weather or
natural disaster-related events, or issues in our manufacturing
arising from failure to follow specific internal protocols and
procedures, compliance concerns relating to the QSR and
Good Manufacturing Practice requirements, equipment
breakdown or malfunction or other factors could adversely
affect our ability to manufacture our products. In the event of
an interruption in manufacturing, we may be unable to move
quickly to alternate means of producing affected products or to
meet customer demand. In the event of a significant
interruption, for example, as a result of a failure to follow
regulatory protocols and procedures, we may experience
lengthy delays in resuming production of affected products
due primarily to the need for regulatory approvals. As a result,
we may experience loss of market share, which we may be
unable to recapture, and harm to our reputation, which could
adversely affect our business, financial condition and results of
operations.

Our success depends on our ability to effectively
develop and market our products against those of our
competitors.

We operate in a highly competitive environment. Our
present or future products could be rendered obsolete or
uneconomical by technological advances by one or more of our
present or future competitors or by other therapies, including

biological therapies. To remain competitive, we must continue
to develop and acquire new products and technologies.
Competition is primarily on the basis of:
(cid:129) technology;
(cid:129) innovation;
(cid:129) quality;
(cid:129) reputation; and
(cid:129) customer service.

In markets outside of the U.S., other factors influence

competition as well, including:
(cid:129) local distribution systems;
(cid:129) complex regulatory environments; and
(cid:129) differing medical philosophies and product preferences.

Our competitors may:

(cid:129) have greater financial, marketing and other resources than

us;

(cid:129) respond more quickly to new or emerging technologies;
(cid:129) undertake more extensive marketing campaigns;
(cid:129) adopt more aggressive pricing policies; or
(cid:129) be more successful in attracting potential customers,

employees and strategic partners.

Any of these factors, alone or in combination, could cause

us to have difficulty maintaining or increasing sales of our
products.

If we fail to retain the independent agents and
distributors upon whom we rely heavily to market our
products, customers may not buy our products and our
revenue and profitability may decline.

Our marketing success in the U.S. and abroad depends

significantly upon our agents’ and distributors’ sales and
service expertise in the marketplace. Many of these agents
have developed professional relationships with existing and
potential customers because of the agents’ detailed knowledge
of products and instruments. A loss of a significant number of
our agents could have a material adverse effect on our
business and results of operations.

If we do not introduce new products in a timely
manner, our products may become obsolete over time,
customers may not buy our products and our revenue
and profitability may decline.

Demand for our products may change, in certain cases, in

ways we may not anticipate because of:
(cid:129) evolving customer needs;
(cid:129) changing demographics;
(cid:129) slowing industry growth rates;
(cid:129) declines in the musculoskeletal implant market;
(cid:129) the introduction of new products and technologies;
(cid:129) evolving surgical philosophies; and
(cid:129) evolving industry standards.

Without the timely introduction of new products and
enhancements, our products may become obsolete over time.
If that happens, our revenue and operating results would
suffer. The success of our new product offerings will depend
on several factors, including our ability to:
(cid:129) properly identify and anticipate customer needs;
(cid:129) commercialize new products in a timely manner;
(cid:129) manufacture and deliver instruments and products in

sufficient volumes on time;

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(cid:129) differentiate our offerings from competitors’ offerings;
(cid:129) achieve positive clinical outcomes for new products;
(cid:129) satisfy the increased demands by healthcare payors,

providers and patients for shorter hospital stays, faster post-
operative recovery and lower-cost procedures;

(cid:129) innovate and develop new materials, product designs and

surgical techniques; and

(cid:129) provide adequate medical education relating to new

products.

In addition, new materials, product designs and surgical
techniques that we develop may not be accepted quickly, in
some or all markets, because of, among other factors:
(cid:129) entrenched patterns of clinical practice;
(cid:129) the need for regulatory clearance; and
(cid:129) uncertainty with respect to third-party reimbursement.
Moreover, innovations generally require a substantial

investment in research and development before we can
determine their commercial viability and we may not have the
financial resources necessary to fund the production. In
addition, even if we are able to successfully develop
enhancements or new generations of our products, these
enhancements or new generations of products may not
produce revenue in excess of the costs of development and
they may be quickly rendered obsolete by changing customer
preferences or the introduction by our competitors of products
embodying new technologies or features.

If third-party payors decline to reimburse our
customers for our products or reduce reimbursement
levels, the demand for our products may decline and our
ability to sell our products profitably may be harmed.
We sell our products and services to hospitals, doctors,
dentists and other healthcare providers, all of which receive
reimbursement for the healthcare services provided to their
patients from third-party payors, such as domestic and
international government programs, private insurance plans
and managed care programs. These third-party payors may
deny reimbursement if they determine that a device used in a
procedure was not in accordance with cost-effective treatment
methods, as determined by the third-party payor, or was used
for an unapproved indication. Third-party payors may also
decline to reimburse for experimental procedures and devices.
In addition, third-party payors are increasingly attempting

to contain healthcare costs by limiting both coverage and the
level of reimbursement for medical products and services. If
third-party payors reduce reimbursement levels to hospitals
and other healthcare providers for our products, demand for
our products may decline, or we may experience increased
pressure to reduce the prices of our products, which could
have a material adverse effect on our sales and results of
operations.

We have also experienced downward pressure on product

pricing and other effects of healthcare reform in our
international markets. If key participants in government
healthcare systems reduce the reimbursement levels for our
products, our sales and results of operations may be adversely
affected.

The ongoing cost-containment efforts of healthcare

purchasing organizations may have a material adverse
effect on our results of operations.

Many customers for our products have formed group
purchasing organizations in an effort to contain costs. Group
purchasing organizations negotiate pricing arrangements with
medical supply manufacturers and distributors, and these
negotiated prices are made available to a group purchasing
organization’s affiliated hospitals and other members. If we are
not one of the providers selected by a group purchasing
organization, affiliated hospitals and other members may be
less likely to purchase our products, and, if the group
purchasing organization has negotiated a strict compliance
contract for another manufacturer’s products, we may be
precluded from making sales to members of the group
purchasing organization for the duration of the contractual
arrangement. Our failure to respond to the cost-containment
efforts of group purchasing organizations may cause us to lose
market share to our competitors and could have a material
adverse effect on our sales and results of operations.

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 nearly 40 percent of our net sales in 2016 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:
(cid:129) changes in foreign medical reimbursement policies and

programs;

(cid:129) unexpected changes in foreign regulatory requirements;
(cid:129) differing local product preferences and product

requirements;

(cid:129) fluctuations in foreign currency exchange rates;
(cid:129) diminished protection of intellectual property in some

countries outside of the U.S.;

(cid:129) trade protection measures and import or export

requirements that may prevent us from shipping products to
a particular market and may increase our operating costs;

(cid:129) foreign exchange controls that might prevent us from
repatriating cash earned in countries outside the U.S.;

(cid:129) complex data privacy requirements and labor relations laws;
(cid:129) extraterritorial effects of U.S. laws such as the FCPA;
(cid:129) effects of foreign anti-corruption laws, such as the UK

Bribery Act;

(cid:129) difficulty in staffing and managing foreign operations;
(cid:129) labor force instability;
(cid:129) potentially negative consequences from changes in tax laws;

and

(cid:129) political and economic instability.

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.

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Disruptions in the supply of the materials and
components used in manufacturing our products could
adversely affect our results of operations and financial
condition.

foreign earnings. Although we cannot predict whether or in
what form this proposed legislation will pass, if enacted it
could have a material adverse impact on our tax expense and
cash flow.

We purchase many of the materials and components used

We are subject to risks arising from currency

in manufacturing our products from third-party vendors and
we outsource some key manufacturing activities. Certain of
these materials and components and outsourced activities can
only be obtained from a single source or a limited number of
sources due to quality considerations, expertise, costs or
constraints resulting from regulatory requirements. In certain
cases, we may not be able to establish additional or
replacement vendors for such materials or components or
outsourced activities in a timely or cost effective manner,
largely as a result of FDA regulations that require validation of
materials and components prior to their use in our products
and the complex nature of our and many of our vendors’
manufacturing processes. A reduction or interruption in the
supply of materials or components used in manufacturing our
products; an inability to timely develop and validate alternative
sources if required; or a significant increase in the price of
such materials or components could adversely affect our
financial condition and results of operations.

Moreover, we are subject to the SEC’s rule regarding

disclosure of the use of certain minerals, known as “conflict
minerals” (tantalum, tin and tungsten (or their ores) and
gold), which are mined from the Democratic Republic of the
Congo and adjoining countries. This rule could adversely affect
the sourcing, availability and pricing of materials used in the
manufacture of our products, which could adversely affect our
manufacturing operations and our profitability. In addition, we
are incurring additional costs to comply with this rule,
including costs related to determining the source of any
relevant minerals and metals used in our products. We have a
complex supply chain and we may not be able to sufficiently
verify the origins of the minerals and metals used in our
products through our due diligence procedures. As a result, we
may face reputational challenges with our customers and other
stakeholders.

We may have additional tax liabilities.
We are subject to income taxes in the U.S. and many

foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes. In the
ordinary course of our business, there are many transactions
and calculations where the ultimate tax determination is
uncertain. We regularly are under audit by tax authorities.
Although we believe our tax estimates are reasonable, the final
determination of tax audits and any related litigation could be
materially different from our historical income tax provisions
and accruals. The results of an audit or litigation could have a
material effect on our financial statements in the period or
periods for which that determination is made.

We earn a significant amount of our operating income

from outside the U.S., and any repatriation of funds
representing earnings of foreign subsidiaries may significantly
impact our effective tax rates. In addition, there have been
proposals to change U.S. tax laws that would significantly
impact how U.S. multinational corporations are taxed on

exchange rate fluctuations, which can increase our
costs, cause our profitability to decline and expose us
to counterparty risks.

A substantial portion of our foreign revenues is generated

in Europe and Japan. The U.S. Dollar value of our foreign-
generated revenues varies with currency exchange rate
fluctuations. Significant increases in the value of the
U.S. Dollar relative to the Euro or the Japanese Yen, as well as
other currencies, could have a material adverse effect on our
results of operations. Although we address currency risk
management through regular operating and financing
activities, and, on a limited basis, through the use of derivative
financial instruments, those actions may not prove to be fully
effective.

Pending and future product liability claims and
litigation could adversely impact our financial condition
and results of operations and impair our reputation.

Our business exposes us to potential product liability risks
that are inherent in the design, manufacture and marketing of
medical devices. In the ordinary course of business, we are the
subject of product liability lawsuits alleging that component
failures, manufacturing flaws, design defects or inadequate
disclosure of product-related risks or product-related
information resulted in an unsafe condition or injury to
patients. As discussed further in Note 20 to the consolidated
financial statements, we are defending product liability
lawsuits relating to the Durom® Acetabular Component
(“Durom Cup”), certain products within the NexGen Knee
System, and the M2a-MagnumTM hip system. The majority of
the Durom Cup cases are pending in a federal Multidistrict
Litigation (“MDL”) in the District of New Jersey (In Re:
Zimmer Durom Hip Cup Products Liability Litigation); the
majority of the NexGen Knee System cases are pending in a
federal MDL in the Northern District of Illinois (In Re:
Zimmer NexGen Knee Implant Products Liability
Litigation); and the majority of the M2a-Magnum hip system
cases are pending in a federal MDL in the Northern District of
Indiana (In Re: Biomet M2a Magnum Hip Implant Products
Liability Litigation). We are also currently defending a
number of other product liability lawsuits and claims related to
various other products. Any product liability claim brought
against us, with or without merit, can be costly to defend.
Product liability lawsuits and claims, safety alerts or product
recalls, regardless of their ultimate outcome, could have a
material adverse effect on our business and reputation and on
our ability to attract and retain customers.

Although we maintain third-party product liability

insurance coverage, we have substantial self-insured retention
amounts that we must pay in full before obtaining any
insurance proceeds to satisfy a judgment or settlement.
Furthermore, even if any product liability loss is covered by
our insurance, it is possible that claims against us may exceed
the coverage limits of our insurance policies and we would

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have to pay the amount of any settlement or judgment that is
in excess of our policy limits. Product liability claims in excess
of applicable insurance could have a material adverse effect on
our business, financial condition and results of operations.

We are substantially dependent on patent and other

proprietary rights, and failing to protect such rights or
to be successful in litigation related to our rights or the
rights of others may result in our payment of significant
monetary damages and/or royalty payments, negatively
impact our ability to sell current or future products, or
prohibit us from enforcing our patent and other
proprietary rights against others.

Claims of intellectual property infringement and litigation

regarding patent and other intellectual property rights are
commonplace in our industry and are frequently time
consuming and costly. At any given time, we may be involved
as either plaintiff or defendant in a number of patent
infringement actions, the outcomes of which may not be
known for prolonged periods of time. While it is not possible to
predict the outcome of patent and other intellectual property
litigation, such litigation could result in our payment of
significant monetary damages and/or royalty payments,
negatively impact our ability to sell current or future products,
or prohibit us from enforcing our patent and proprietary rights
against others, which could have a material adverse effect on
our business and results of operations.

Patents and other proprietary rights are essential to our
business. We rely on a combination of patents, trade secrets
and non-disclosure and other agreements to protect our
proprietary intellectual property, and we will continue to do so.
While we intend to defend against any threats to our
intellectual property, these patents, trade secrets and other
agreements may not adequately protect our intellectual
property. Further, our currently pending or future patent
applications may not result in patents being issued to us,
patents issued to or licensed by us in the past or in the future
may be challenged or circumvented by competitors, and such
patents may be found invalid, unenforceable or insufficiently
broad to protect our technology or to provide us with any
competitive advantage. Third parties could obtain patents that
may require us to negotiate licenses to conduct our business,
and the required licenses may not be available on reasonable
terms or at all.

In addition, intellectual property rights may be unavailable

or of limited effect in some foreign countries. If we do not
obtain sufficient international protection for our intellectual
property, our competitiveness in international markets could
be impaired, which could limit our growth and revenue.

We also attempt to protect our trade secrets, proprietary

know-how and continuing technological innovation with
security measures, including the use of non-disclosure and
other agreements with our employees, consultants and
collaborators. We cannot be certain that these agreements will
not be breached, that we will have adequate remedies for any
breach, that others will not independently develop
substantially equivalent proprietary information, or that third
parties will not otherwise gain access to our trade secrets or
proprietary knowledge.

We are involved in legal proceedings that may

result in adverse outcomes.

In addition to intellectual property and product liability
claims and lawsuits, we are involved in various commercial and
securities litigation and claims and other legal proceedings that
arise from time to time in the ordinary course of our business.
For example, as discussed further in Note 20 to the
consolidated financial statements, we are defending a
purported class action lawsuit, Shah v. Zimmer Biomet
Holdings, Inc. et al., filed against us and certain of our officers
alleging violations of the securities laws related to our third
quarter 2016 performance and 2016 forecasts. Although we
believe we have substantial defenses in these matters,
litigation and other claims are subject to inherent uncertainties
and management’s view of these matters may change in the
future. Given the uncertain nature of legal proceedings
generally, we are not able in all cases to estimate the amount
or range of loss that could result from an unfavorable outcome.
We could in the future incur judgments or enter into
settlements of claims that could have a material adverse effect
on our results of operations in any particular period.

We are increasingly dependent on sophisticated
information technology and if we fail to effectively
maintain or protect our information systems or data,
including from data breaches, our business could be
adversely affected.

We are increasingly dependent on sophisticated

information technology for our products and infrastructure. As
a result of technology initiatives, recently enacted regulations,
changes in our system platforms and integration of new
business acquisitions, including the Biomet merger, we have
been consolidating and integrating the number of systems we
operate and have upgraded and expanded our information
systems capabilities. We also have outsourced elements of our
operations to third parties, and, as a result, we manage a
number of third-party vendors who may or could have access
to our confidential information. Our information systems, and
those of third-party vendors with whom we contract, require
an ongoing commitment of significant resources to maintain,
protect and enhance existing systems and develop new
systems to keep pace with continuing changes in information
technology, evolving systems and regulatory standards and the
increasing need to protect patient and customer information.
In addition, given their size and complexity, these systems
could be vulnerable to service interruptions or to security
breaches from inadvertent or intentional actions by our
employees, third-party vendors and/or business partners, or
from cyber-attacks by malicious third parties attempting to
gain unauthorized access to our products, systems or
confidential information (including, but not limited to,
intellectual property, proprietary business information and
personal information). Cyber-attacks, such as those involving
the deployment of malware, are increasing in their frequency,
sophistication and intensity and have become increasingly
difficult to detect. If we fail to maintain or protect our
information systems and data integrity effectively, we could:
(cid:129) lose existing customers;
(cid:129) have difficulty attracting new customers;

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

(cid:129) have problems in determining product cost estimates and

establishing appropriate pricing;

(cid:129) have difficulty preventing, detecting, and controlling fraud;
(cid:129) have disputes with customers, physicians, and other

healthcare professionals;

(cid:129) have regulatory sanctions or penalties imposed;
(cid:129) incur increased operating expenses;
(cid:129) incur expenses or lose revenues as a result of a data privacy

breach; or

(cid:129) suffer other adverse consequences.

While we have invested heavily in the protection of our
data and information technology, there can be no assurance
that our activities related to consolidating the number of
systems we operate, upgrading and expanding our information
systems capabilities, protecting and enhancing our systems
and implementing new systems will be successful. Despite our
efforts, we cannot assure you that cyber-attacks or data
breaches will not occur or that systems issues will not arise in
the future. Any significant breakdown, intrusion, breach,
interruption, corruption or destruction of these systems could
have a material adverse effect on our business and reputation.
We have determined that a material weakness
exists in our internal control over financial reporting
which could, if not remediated, result in a material
misstatement in our financial statements.

We are responsible for establishing and maintaining

adequate internal control over financial reporting, as defined in
Rule 13a-15(e) and 13a-15(f) under the Exchange Act. As
discussed in Management’s Report on Internal Control over
Financial Reporting appearing under item 7A of this report, we
identified a material weakness in our internal control over
financial reporting as of December 31, 2016 related to
management’s controls over accounting for income taxes. A
material weakness is defined as a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. As a result of
this material weakness, our management concluded that our
internal control over financial reporting was not effective, and
our disclosure controls and procedures were not effective as of
December 31, 2016. We are actively engaged in developing and
implementing a remediation plan designed to address this
material weakness. However, we cannot provide any assurance
that these remediation efforts will be successful or that our
internal control over financial reporting will be effective as a
result of these efforts. If the remedial measures are insufficient
to address the material weakness or if additional material
weaknesses in internal control over financial reporting are
discovered or occur in the future, our consolidated financial
statements may contain material misstatements and we could
be required to restate our financial results.

Future material impairments in the carrying value

of our intangible assets, including goodwill, would
negatively affect our operating results.

Our assets include intangible assets, primarily goodwill. At

December 31, 2016, we had $10.5 billion in goodwill. The
goodwill results from our acquisition activity, including the

Biomet merger, and represents the excess of the consideration
transferred over the fair value of the net assets acquired. We
assess at least annually whether events or changes in
circumstances indicate that the carrying value of our intangible
assets may not be recoverable. If the operating performance at
one or more of our business units falls significantly below
current levels, if competing or alternative technologies emerge,
or if market conditions or future cash flow estimates for one or
more of our businesses decline, we could be required, under
current U.S. accounting rules, to record a non-cash charge to
operating earnings for the amount of the impairment. Any
write-off of a material portion of our unamortized intangible
assets would negatively affect our results of operations.

Recent developments relating to the United
Kingdom’s referendum vote in favor of leaving the
European Union could adversely affect us.

The United Kingdom (UK) held a referendum on June 23,

2016 in which voters approved the UK’s voluntary exit from
the European Union (EU), commonly referred to as “Brexit”.
The announcement of Brexit caused significant volatility in
global stock markets and currency exchange rate fluctuations
that resulted in the strengthening of the U.S. dollar relative to
other foreign currencies in which we conduct business. The
effects of Brexit are expected to be far-reaching. Brexit and
the perceptions as to its impact may adversely affect business
activity and economic conditions in Europe and globally and
could continue to contribute to instability in global financial
and foreign exchange markets. Brexit could also have the
effect of disrupting the free movement of goods, services and
people between the UK and the EU; however, the full effects of
Brexit are uncertain and will depend on any agreements the
UK may make to retain access to EU markets. Brexit could also
lead to legal uncertainty and potentially divergent national
laws and regulations as the UK determines which EU laws to
replace or replicate. Also, as a result of Brexit, other European
countries may seek to conduct referenda with respect to their
continuing membership with the EU. Given these possibilities
and others we may not anticipate, as well as the lack of
comparable precedent, the full extent to which our business,
results of operations and financial condition could be adversely
affected by Brexit is uncertain.

Anti-takeover provisions in our organizational
documents could delay or prevent a change of control.

Certain provisions of our Restated Certificate of
Incorporation, our Restated By-Laws and the Delaware
General Corporation Law may have an anti-takeover effect and
may delay, defer or prevent a merger, acquisition, tender offer,
takeover attempt or other change of control transaction that a
stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price
for the shares held by our stockholders.

These provisions provide for, among other things:
(cid:129) the ability of our board of directors to issue one or more

series of preferred stock without further stockholder action;
(cid:129) advance notice for nominations of directors by stockholders
and for stockholders to include matters to be considered at
our annual meetings;

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

(cid:129) certain limitations on convening special stockholder

meetings; and

(cid:129) the prohibition on engaging in a “business combination” with
an “interested stockholder” for three years after the time at
which a person became an interested stockholder unless
certain conditions are met, as set forth in Section 203 of the
Delaware General Corporation Law.

These anti-takeover provisions could make it more

difficult for a third party to acquire us, even if the third party’s
offer may be considered beneficial by many of our
stockholders. As a result, our stockholders may be limited in
their ability to obtain a premium for their shares.

Our Restated By-Laws designate certain Delaware

courts as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our
stockholders, which could limit our stockholders’ ability
to obtain a favorable judicial forum for disputes with us
or our directors, officers or other employees.

Our Restated By-Laws provide that, unless we consent in

writing to the selection of an alternative forum, a state court
located within the State of Delaware (or, if no state court
located in the State of Delaware has jurisdiction, the federal
district court for the District of Delaware) will be the sole and
exclusive forum for any stockholder (including any beneficial
owner) to bring (i) any derivative action or proceeding brought
on our behalf, (ii) any action asserting a claim of breach of
fiduciary duty owed by any of our directors, officers or other
employees to us or our stockholders, (iii) any action asserting
a claim against us or any of our directors, officers or other
employees arising pursuant to any provision of the Delaware
General Corporation Law or our Restated Certificate of
Incorporation or our Restated By-Laws, as either may be
amended from time to time, or (iv) any action asserting a claim
against us or any of our directors, officers or other employees
governed by the internal affairs doctrine. Any person or entity
purchasing or otherwise acquiring any interest in shares of our
common stock is deemed to have received notice of and
consented to the foregoing provisions. This choice of forum
provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage
such lawsuits against us and our directors, officers and
employees. Alternatively, if a court were to find this choice of
forum provision inapplicable to, or unenforceable in respect of,
one or more of the specified types of actions or proceedings,
we may incur additional costs associated with resolving such
matters in other jurisdictions, which could adversely affect our
business, financial condition or results of operations.

Item 1B. Unresolved Staff Comments

Not Applicable.

Z I M M E R BI OM E T HOL D I NG S , I NC .

Item 2. Properties

The following are our principal properties:

Location

Use

Warsaw, Indiana

Research & Development, Manufacturing, Warehousing, Marketing &
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Headquarters & The Zimmer Institute . . . . . . . . . . . . . . . . . . . .
Warsaw, Indiana
Manufacturing & Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warsaw, Indiana
Business Unit Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broomfield, Colorado
Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . . . . . . . . .
Jacksonville, Florida
Palm Beach Gardens, Florida
Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . . . . . . . . .
Palm Beach Gardens, Florida Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southaven, Mississippi
Office, Research & Development, Manufacturing, Warehousing & The
Parsippany, New Jersey
Zimmer Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . . . . . . . . .
Offices & Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offices & Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offices, Manufacturing & Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regional Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regional Headquarters, Offices, Research & Development &
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dover, Ohio
Austin, Texas
Beijing, China
Changzhou, China
Jinhua, China
Valence, France
Berlin, Germany
Eschbach, Germany
Galway, Ireland
Shannon, Ireland
Hazeldonk, The Netherlands
Ponce, Puerto Rico
Singapore
Bridgend, South Wales
Bridgend, South Wales
Valencia, Spain
Valencia, Spain
Winterthur, Switzerland

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Owned / Leased

Square Feet

Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased

Leased
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased

1,900,000
115,000
195,000
65,000
85,000
190,000
50,000
190,000

240,000
140,000
120,000
95,000
75,000
135,000
120,000
50,000
100,000
115,000
125,000
195,000
225,000
30,000
185,000
100,000
70,000
10,000

Leased

485,000

In addition to the above, we maintain sales and administrative offices and warehouse and distribution facilities in more than 40

countries around the world. We believe that all of the facilities and equipment are in good condition, well maintained and able to
operate at present levels. We believe the current facilities, including manufacturing, warehousing, research and development and
office space, provide sufficient capacity to meet ongoing demands.

Item 3. Legal Proceedings

Information pertaining to legal proceedings in which we are involved can be found in Note 20 to our consolidated financial

statements included in Part II, Item 8 of this report and is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not Applicable.

Z I M M E R BI OM E T HOL D I NG S , I NC .

PART II

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Our common stock is traded on the New York Stock Exchange and the SIX Swiss Exchange under the symbol “ZBH.” The high

and low sales prices for our common stock on the New York Stock Exchange and the dividends declared for the calendar quarters
of fiscal years 2016 and 2015 are as follows:

QUARTERLY HIGH-LOW SHARE PRICES AND DECLARED DIVIDENDS

Year Ended December 31, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year Ended December 31, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

Declared
Dividends

$107.22
$123.43
$133.19
$133.21

$ 88.27
$105.53
$119.22
$ 95.63

$121.84
$119.10
$111.35
$108.99

$111.06
$ 97.48
$ 90.92
$ 88.77

$0.24
$0.24
$0.24
$0.24

$0.22
$0.22
$0.22
$0.22

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. As further discussed in Item 7 of this
report, our debt facilities restrict the payment of dividends under certain circumstances.

As of February 23, 2017, there were approximately 24,000 registered holders of record of our common stock. A substantially
greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks,
brokers and other financial institutions. On February 24, 2017, the closing price of our common stock, as reported on the New York
Stock Exchange, was $116.92 per share.

The information required by this Item concerning equity compensation plans is incorporated herein by reference to Item 12 of

this report.

Z I M M E R BI OM E T HOL D I NG S , I NC .

Item 6. Selected Financial Data

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

The financial information for each of the past five years ended December 31 is set forth below (in millions, except per share

amounts):

STATEMENT OF EARNINGS DATA
Net sales
Net earnings of Zimmer Biomet Holdings, Inc.
Earnings per common share

Basic
Diluted

Dividends declared per share of common stock
Average common shares outstanding

Basic
Diluted

BALANCE SHEET DATA
Total assets
Long-term debt
Other long-term obligations
Stockholders’ equity

2016

2015 (1)

2014

2013

2012

$ 7,683.9
305.9

$ 5,997.8
147.0

$4,673.3
720.3

$4,623.4
780.4

$4,471.7
734.0

1.53
1.51
0.96

0.78
0.77
0.88

4.26
4.20
0.88

4.60
4.54
0.80

4.20
4.17
0.54

200.0
202.4

187.4
189.8

169.0
171.7

169.6
171.8

174.9
176.0

$26,684.4
10,665.8
3,967.2
9,669.9

$27,160.6
11,497.4
4,155.9
9,889.4

$9,658.0
1,425.5
656.8
6,551.7

$9,595.0
1,672.3
583.6
6,310.6

$8,995.6
1,720.8
568.2
5,848.0

(1) Includes the results of Biomet starting on June 24, 2015 and Biomet balance sheet data as of December 31, 2015.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in
conjunction with the consolidated financial statements and the
corresponding notes included elsewhere in this Annual Report
on Form 10-K. 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. Certain amounts in the
2015 and 2014 consolidated financial statements have been
reclassified to conform to the 2016 presentation.

On June 24, 2015, we completed our merger with Biomet
and its results of operations have been included in our results
starting on that date. The Biomet merger was a
transformational event for us and has had significant effects on
all aspects of our business. Accordingly, our sales and
expenses increased significantly in the years ended
December 31, 2016 and 2015 when compared to prior years.

In portions of this discussion and analysis, we also present

sales information on an unaudited, pro forma basis for the
years ended December 31, 2015 and 2014. This pro forma
information includes Zimmer and Biomet sales in those periods
as if the merger occurred on January 1, 2014. Accordingly, the
pro forma net sales information for periods prior to the Closing
Date includes the net sales of Biomet, but does not include the
impact of the divestiture of certain product line rights and
assets. We believe this pro forma analysis is beneficial for
investors because it represents how the merged companies
may have performed on a combined basis in 2015 and 2014.

EXECUTIVE LEVEL OVERVIEW

2016 Results

In 2016, we made strategic internal and external

investments to further broaden and diversify our
musculoskeletal portfolio, including the acquisitions of LDR,
which provided us with an immediate position in the growing
cervical disc replacement market; Cayenne Medical, Inc.
(“Cayenne Medical”), a sports medicine company;
Compression Therapy Concepts, Inc. (“CTC”), a provider of
non-invasive products for the prevention of deep vein
thrombosis; CD Diagnostics, Inc. (“CD Diagnostics”), a medical
diagnostic testing company; and MedTech SA (“MedTech”), a
designer and manufacturer of robotic equipment for brain and
spine surgeries. These commercial additions have both
enhanced our core offerings and expanded our presence
across the full continuum and episode of care.

We have also continued to make progress in our

commercial and operational integration of Biomet across all
geographies and functions. Despite this progress, sales in 2016
were below our expectations due in part to some temporary
disruption in product supply in certain Knee, Hip, Upper
Extremities, Sports Medicine and Trauma product lines in the
second half of 2016 related to several factors, including
implementation of operational and quality process
enhancements that resulted in various shipment delays, and

manufacturing forecasting constraints related to continued
integration of our supply chain. In the second half of 2016, we
saw increased demand for certain Knee, Hip and Upper
Extremities products, particularly related to cross-selling
various offerings across the combined Zimmer Biomet
portfolio. The increased demand temporarily impacted our
ability to effectively respond to this shifting product mix. In
response, we accelerated work to enhance certain aspects of
our supply chain infrastructure as we harmonize and optimize
our sourcing, manufacturing and quality management systems.
We are in the process of deploying new demand planning and
production planning tools. We made progress on these
enhancements in late 2016 and anticipate continued progress
towards the replenishment of safety stocks on key cross-sell
products throughout the first half of 2017.

Our 2016 results have been significantly impacted by the

inclusion of Biomet sales and expenses for the entire year,
including sales growth of 28.1 percent. On an unaudited pro
forma basis, sales increased by 2.2 percent driven by volume/
mix growth across all our regions in most of our product
categories, including growth from our 2016 acquisitions, offset
by the negative effects of changes in foreign currency
exchange rates and continued, but stable, pricing pressure in
all of our geographic regions.

Our net earnings increased in 2016 compared to 2015. The
primary drivers of the improved earnings performance were the
inclusion of Biomet earnings for the entire year and the absence
in 2016 of significant expenses incurred in 2015 in connection
with completing the Biomet merger. As a result of the merger, we
recognized significant expenses in 2015 due to the acceleration of
unvested LVB stock options and LVB stock-based awards,
retention bonuses paid to Biomet employees and third-party
sales agents who remained with Biomet through the Closing
Date, severance expense, a loss related to a call premium on
Biomet debt we redeemed, third party fees, and other acquisition
and integration charges. While we did incur similar expenses in
2016 related to acquisitions, they were less significant.

2017 Outlook

We estimate our sales growth in 2017 over 2016 will be in

a range of 2.2 to 3.2 percent. This estimate assumes foreign
currency exchange rates will decrease sales by approximately
1.5 percent, continued pricing pressure will decrease sales by
approximately 2 percent and the inclusion of LDR sales for the
full year will increase sales by approximately 1.2 percent. As
noted previously, we expect to make substantial progress in
remediating supply constraints during the first half of this year
as we prioritize production for key cross-sell brands, clear our
back orders, and restore safety stocks.

Additionally, as part of our effort to implement certain

regulatory compliance enhancements, we are making
operational and quality process improvements in certain of our
major production facilities. As such, affected products may
experience temporary and occasional distribution delays while

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

we implement and validate these enhanced processes and
generate the necessary supporting records. We believe that
continued progress towards restoring full supply expected
during the second quarter will enable our commercial teams to
service existing customers and also resume executing against
the full potential of our broad and diverse portfolio. As such,
we expect volume/mix sales growth to improve as we progress
through 2017.

Turning to cost of products sold, in 2016 we recognized
significant expenses related to stepping up acquired Biomet
inventory to fair value and for excess and obsolete inventory
charges from our decision to discontinue certain products.
Without these significant expenses, we expect cost of
products sold will decrease in 2017. Additionally, due to the
two year moratorium on the U.S. medical device excise tax,
costs of products sold will decrease. However, we believe we
will experience unfavorable effects on costs of products sold
as a percentage of sales from declining selling prices, as well
as from lower hedge gains expected to be recognized in 2017
when compared to 2016.

As it relates to other expenses, our intangible asset
amortization expense is expected to increase as we recognize
a full year of intangible asset amortization from the LDR
merger and other 2016 acquisitions. We expect research and
development (“R&D”) expense for the year to be

Net Sales by Geography

approximately 4.5 percent of sales. Selling, general and
administrative (“SG&A”) expense is expected to approximate
37.5 percent of sales, which is an improvement from 2016 as
we expect to realize synergies from our acquisitions and
leverage sales growth. We estimate special items expense will
continue to be significant as we continue our integration
activities as well as harmonize and optimize our supply chain
and manufacturing and quality systems. However, we expect
special items expense will be less in 2017 compared to 2016.
We expect interest expense will decrease in 2017 compared to
2016 due to lower debt levels from planned debt repayments.

RESULTS OF OPERATIONS

We analyze sales by three geographies, the Americas,

EMEA and Asia Pacific, and by the following product
categories: Knees, Hips, S.E.T., Dental, Spine & CMF 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
towards achieving operating profit goals. We analyze sales by
geography because the underlying market trends in any
particular geography tend to be similar across product
categories and because we primarily sell the same products in
all geographies.

The following tables present net sales by geography and the components of the percentage changes (dollars in millions):

Americas

EMEA

Asia Pacific

Total

Americas

EMEA

Asia Pacific

Total

Year Ended December 31,

2016

2015

% Inc

Volume/
Mix

Foreign
Exchange

Price

$4,802.2

$3,662.4

31.1%

33.4% (2.1)% (0.2)%

1,730.4

1,151.3

1,417.8

917.6

22.0

25.5

26.1

24.5

(0.7)

(2.5)

(3.4)

3.5

$7,683.9

$5,997.8

28.1

30.3

(1.8)

(0.4)

Year Ended December 31,

2015

2014

% Inc

Volume/
Mix

Foreign
Exchange

Price

$3,662.4

$2,594.2

41.2%

44.3% (2.3)% (0.8)%

1,417.8

1,269.5

917.6

809.6

11.7

13.3

27.9

26.0

(1.1)

(15.1)

(2.2)

(10.5)

$5,997.8

$4,673.3

28.3

36.7

(2.0)

(6.4)

“Foreign Exchange” used in the tables in this report represents the effect of changes in foreign currency exchange rates on

sales.

The following tables present our 2016 net sales, and our 2015 and 2014 pro forma net sales, by geography and the components

of the percentage changes (dollars in millions):

Americas

EMEA

Asia Pacific

Total

Year Ended December 31,

Pro Forma

2016

2015 % Inc/(Dec)

Volume/
Mix

Divestiture
Impact

Foreign
Exchange

Price

$4,802.2

$4,685.2

2.5%

5.2% (1.6)% (0.9)% (0.2)%

1,730.4

1,151.3

1,767.9

1,064.7

$7,683.9

$7,517.8

(2.1)

8.1

2.2

1.9

8.0

(0.6)

(2.1)

(0.8)

(0.7)

(2.6)

2.9

4.9

(1.5)

(0.9)

(0.3)

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Americas

EMEA

Asia Pacific

Total

Year Ended December 31,

Pro Forma
2015

Pro Forma
2014

Volume/
Mix

Divestiture
Impact

Foreign
Exchange

Price

% (Dec)

$4,685.2

$4,748.6

(1.3)% 1.6% (1.5)% (0.9)% (0.5)%

1,767.9

2,072.6

(14.7)

1,064.7

1,144.1

(6.9)

1.6

5.6

(1.0)

(1.9)

(0.5)

–

(14.8)

(10.6)

$7,517.8

$7,965.3

(5.6)

2.3

(1.5)

(0.7)

(5.7)

Net Sales by Product Category

The following tables present net sales by product category and the components of the percentage changes (dollars in millions):

Knees

Hips

S.E.T.

Dental

Spine & CMF

Other

Total

Knees

Hips

S.E.T.

Dental

Spine & CMF

Other

Total

Year Ended December 31,

2016

2015

% Inc

Volume/
Mix

Foreign
Exchange

Price

$2,751.9

$2,276.8

20.9% 23.6% (2.0)% (0.7)%

1,867.9

1,533.0

1,645.4

1,214.6

427.9

662.0

328.8

335.7

404.4

233.3

21.8

35.5

27.5

63.7

40.9

24.6

37.0

25.7

66.7

43.2

(2.6)

(1.4)

2.1

(2.9)

(1.8)

(0.2)

(0.1)

(0.3)

(0.1)

(0.5)

$7,683.9

$5,997.8

28.1

30.3

(1.8)

(0.4)

Year Ended December 31,

2015

2014

% Inc

Volume/
Mix

Foreign
Exchange

Price

$2,276.8

$1,895.2

20.1%

28.8% (2.4)% (6.3)%

1,533.0

1,326.4

1,214.6

335.7

404.4

233.3

863.2

242.8

207.2

138.5

15.6

40.7

38.3

95.2

68.4

25.8

46.8

45.1

(2.4)

(0.7)

(1.1)

101.2

(1.6)

73.5

(1.8)

(7.8)

(5.4)

(5.7)

(4.4)

(3.3)

$5,997.8

$4,673.3

28.3

36.7

(2.0)

(6.4)

The following tables present our 2016 net sales, and our 2015 and 2014 pro forma net sales, by product category and the

components of the percentage changes (dollars in millions):

Knees
Hips
S.E.T.
Dental
Spine & CMF
Other

Total

Knees
Hips
S.E.T.
Dental
Spine & CMF
Other

Total

Year Ended December 31,

2016

$2,751.9
1,867.9
1,645.4
427.9
662.0
328.8

Pro Forma
2015

$2,735.9
1,842.6
1,571.8
454.8
583.5
329.2

% Inc/(Dec)

Volume/
Mix

Divestiture
Impact

Foreign
Exchange

Price

0.6%
1.4
4.7
(5.9)
13.5
(0.1)

4.2% (1.6)% (1.4)% (0.6)%
3.7
6.2
(7.2)
15.5
7.6

(0.2)
–
(0.2)
–
(0.3)

(2.1)
(1.1)
1.5
(2.0)
(1.2)

–
(0.4)
–
–
(6.2)

$7,683.9

$7,517.8

2.2

4.9

(1.5)

(0.9)

(0.3)

Year Ended December 31,

Pro Forma
2015

Pro Forma
2014

Volume/
Mix

Divestiture
Impact

Foreign
Exchange

Price

% (Dec)

$2,735.9
1,842.6
1,571.8
454.8
583.5
329.2

$2,888.9
1,984.3
1,619.1
500.4
604.1
368.5

(5.3)% 3.7% (1.9)% (1.1)% (6.0)%
(7.1)
(2.9)
(9.1)
(3.4)
(10.7)

(7.2)
(4.9)
(5.7)
(2.8)
(3.2)

(2.1)
(0.7)
0.1
(0.7)
(1.2)

2.2
3.0
(3.5)
0.1
(1.5)

–
(0.3)
–
–
(4.8)

$7,517.8

$7,965.3

(5.6)

2.3

(1.5)

(0.7)

(5.7)

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

The following table presents net sales by product category by geography for our Knees and Hips product categories, which

represent our most significant product categories (dollars in millions):

Knees

Americas
EMEA
Asia Pacific

Total

Hips

Americas
EMEA
Asia Pacific

Total

Year Ended December 31,

2016

2015

2014

2016 vs. 2015
% Inc

2015 vs. 2014
% Inc

$1,687.7
637.8
426.4

$1,391.5
535.2
350.1

$1,086.8
498.6
309.8

21.3%
19.2
21.8

$2,751.9

$2,276.8

$1,895.2

20.9

$ 987.5
522.4
358.0

$ 789.7
455.2
288.1

$ 607.8
448.9
269.7

$1,867.9

$1,533.0

$1,326.4

25.0
14.8
24.3

21.8

28.0%
7.3
13.0

20.1

29.9
1.4
6.8

15.6

The following table presents our 2016 net sales, and our 2015 and 2014 pro forma net sales, by product category by geography

for our Knees and Hips product categories, which represent our most significant product categories (dollars in millions):

Knees

Americas
EMEA
Asia Pacific

Total

Hips

Americas
EMEA
Asia Pacific

Total

As previously discussed, sales increased significantly in

2016 when compared to prior years due to the inclusion of
Biomet sales for the entire year. Therefore, we analyze sales
on a pro forma basis because it represents how the Zimmer
and Biomet underlying businesses may have performed. Sales
discussion in this management discussion and analysis focuses
on sales trends on a pro forma basis since that is how we
analyze our business.

Demand (Volume/Mix) Trends

Increased volume and changes in the mix of product sales

contributed 4.9 percentage points of year-over-year sales
growth during 2016 on a pro forma basis. Volume/mix growth
was driven by recent product introductions, sales in key
emerging markets, an aging population and 2016 acquisitions
(including LDR, which contributed 1.1 percentage points of
growth).

We believe long-term indicators point toward sustained

growth driven by an aging global population, growth in
emerging markets, obesity, proven clinical benefits, new
material technologies, advances in surgical techniques and
more active lifestyles, among other factors. In addition,
demand for clinically proven premium products and patient

Year Ended December 31,

Pro Forma
2015

Pro Forma
2014

2016 vs. 2015
% Inc/(Dec)

2015 vs. 2014
% Inc/(Dec)

2016

$1,687.7
637.8
426.4

$1,684.6
649.5
401.8

$1,708.4
752.3
428.2

0.2%
(1.8)
6.1

$2,751.9

$2,735.9

$2,888.9

0.6

(1.4)%

(13.7)
(6.2)

(5.3)

$ 987.5
522.4
358.0

$ 980.3
537.2
325.1

$ 998.4
625.9
360.0

$1,867.9

$1,842.6

$1,984.3

0.7
(2.8)
10.1

1.4

(1.8)
(14.2)
(9.7)

(7.1)

specific devices are expected to continue to positively affect
sales growth in markets that recognize the value of these
advanced technologies.

Pricing Trends

Global selling prices had a negative effect of 1.5
percentage points on year-over-year sales during 2016 on a
pro forma basis. The negative 1.5 percent effect on year-over-
year sales was consistent with the range experienced over the
past several years. 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.

Foreign Currency Exchange Rates

In 2016, changes in foreign currency exchange rates had a

negative effect of 0.3 percentage points on year-over-year
sales on a pro forma basis. We address currency risk through
regular operating and financing activities and through the use
of forward contracts and foreign currency options solely to
manage foreign currency volatility and risk. Changes in foreign
currency exchange rates affect sales growth, but due to
offsetting gains/losses on hedge contracts and options, which

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

are recorded in cost of products sold, the effect on net
earnings in the near term is reduced.

** Excludes the effect of changes in foreign currency exchange rates on
sales growth

Sales by Product Category

Knees

On a pro forma basis, Knee sales experienced steady
volume/mix growth in 2016 compared to 2015, primarily driven
by recent product introductions, such as Persona The
Personalized Knee System, cross-sell opportunities, and strong
performance in our Asia Pacific operating segment. Volume/
mix growth was partially offset by continued pricing pressure
and the divestiture of certain product line rights and assets.

Hips

On a pro forma basis, Hips sales experienced steady
volume/mix growth in 2016 compared to 2015, primarily driven
by recent product introductions, such as the G7 Acetabular
System, and strong performance in our Asia Pacific operating
segment. Volume/mix growth was partially offset by continued
pricing pressure.

S.E.T.

On a pro forma basis, our S.E.T. sales have continued

positive volume/mix trends in 2016 compared to 2015,
primarily driven by a growing emphasis on sales force
specialization, strong performance by key brands and 2016
acquisitions. This product category’s sub-categories all
experienced growth in 2016 despite continued pricing
pressure.

Dental

On a pro forma basis, dental sales have continued to
decline. In the second half of 2015, we experienced a supply
disruption related to a voluntary field action in response to a
packaging issue which we were not able to remediate until
2016, which affected our sales. Looking forward, we must
improve our commercial execution to get back to market
growth rates.

Spine & CMF

On a pro forma basis, Spine and CMF sales increased in

2016 compared to 2015 due to the LDR merger and continued
strong performance of our CMF products.

The following table presents estimated* 2016 global
market size and market share information (dollars in billions):

Zimmer
Biomet
Market
Share

Zimmer
Biomet
Market
Position

Global Market
% Growth**

36%

Global
Market
Size

$ 7.7

6.2

15.2

4.2

10.5

Knees

Hips

S.E.T.

Dental

Spine & CMF

* Estimates are not precise and are based on competitor annual filings, Wall
Street equity research and Company estimates

Expenses as a Percent of Net Sales

Year Ended December 31,

2016

2015

2014

2016 vs. 2015
Inc/(Dec)

2015 vs. 2014
Inc/(Dec)

31.0% 30.0% 26.6%

7.4

5.6

2.0

4.8

4.5

4.0

38.2
–
8.0
10.7

38.1
0.1
13.9
7.8

37.5
0.5
7.3
22.2

1.0

1.8

0.3

0.1
(0.1)
(5.9)
2.9

3.4

3.6

0.5

0.6
(0.4)
6.6
(14.4)

Cost of products sold,
excluding intangible
asset amortization

Intangible asset
amortization

Research and

development
Selling, general and
administrative

Certain claims
Special items
Operating Profit

Cost of Products Sold and Intangible Asset Amortization

The following table sets forth the factors that contributed

to the gross margin changes in each of 2016 and 2015
compared to the prior year:

Prior year gross margin
Lower average selling prices
Average cost per unit
Excess and obsolete inventory
Discontinued products and other certain excess

and obsolete inventory charges

Certain inventory and manufacturing related

charges related to quality

Foreign currency hedges
Inventory step-up
U.S. medical device excise tax
Intangible asset amortization
Other

Current year gross margin

Year Ended December 31,

2016

2015

64.4%
(0.6)
(0.7)
0.4

(1.0)

–
(0.9)
1.2
0.3
(1.6)
0.1

71.4%
(0.6)
1.3
(0.8)

–

0.2
1.3
(5.1)
–
(3.5)
0.2

61.6%

64.4%

The decrease in gross margin percentage in 2016
compared to 2015 was primarily due to increased intangible
asset amortization from the 2016 acquisitions, excess and
obsolete inventory charges for certain product lines we intend
to discontinue, lower average selling prices and lower hedge
gains in 2016 from our foreign currency hedging program
compared to 2015. Under the hedging program, for derivatives
which qualify as hedges of future cash flows, the effective
portion of changes in fair value is temporarily recorded in
other comprehensive income and then recognized in cost of
products sold when the hedged items affect earnings. These
unfavorable items were partially offset by lower inventory
step-up charges from the Biomet merger and lower expense
from the U.S. medical device excise tax, in each case in 2016
compared to 2015.

In 2015, we experienced a decrease in gross margin
percentage compared to 2014 primarily due to increased
inventory step-up charges and intangible asset amortization
from the Biomet merger.

Z I M M E R BI OM E T HOL D I NG S , I NC .

Operating Expenses

R&D expenses and R&D as a percentage of sales have
increased over the last three years, driven primarily by the
Biomet merger and 2016 acquisitions. The combination of our
R&D functions subsequent to the merger allow us to allocate a
greater portion of the combined R&D spending towards
innovation efforts to address unmet clinical needs and create
new market adjacencies. Additionally, most of our R&D
activities occur in the U.S., so expenses do not decrease
proportionally to changes in net sales when there are
significant changes in foreign currency exchange rates, which
contributes to an increase in R&D as a percentage of sales. We
expect R&D spending in 2017 to stay consistent and be
approximately 4.5 percent of sales.

SG&A expenses and SG&A as a percentage of sales have

increased over the last three years, driven primarily by the
Biomet merger and 2016 acquisitions. We expect that SG&A as
a percentage of sales will continue to be higher than prior to
these mergers and acquisitions until we can realize synergy
benefits of the transactions and further leverage sales growth.
In 2017, we expect to make additional progress in our synergy
programs with SG&A as a percentage of sales estimated to be
approximately 37.5 percent of sales.

“Certain claims” expense is for estimated liabilities to
Durom Cup patients undergoing revision surgeries. Since 2008,
we have recognized $479.4 million for these claims. For more
information regarding these claims, see Note 20 to the
consolidated financial statements.

We recognize expenses resulting directly from our

business combinations, employee termination benefits, certain
R&D agreements, certain contract terminations, consulting and
professional fees and asset impairment or loss on disposal
charges connected with global restructuring, quality and
operational excellence initiatives, and other items as “Special
items” in our consolidated statement of earnings. We
recognized significant expenses in 2015 due to Biomet merger-
related expenses, such as the acceleration of unvested LVB
stock options and LVB stock-based awards, retention bonuses
paid to Biomet employees and third-party sales agents who
remained with Biomet through the Closing Date, severance
expense and contract terminations. Expenses declined in 2016
due to the absence of certain of these expenses. See Note 2 to
the consolidated financial statements for more information
regarding “Special items” charges.

Other Expense, Interest Income, Interest Expense, and
Income Taxes

In 2016, other expense, net, primarily included a
$53.3 million loss on debt extinguishment. It also included
losses on the sale of certain assets and the net expense related
to remeasuring monetary assets and liabilities denominated in a
foreign currency other than an entity’s functional currency,
offset by foreign currency forward exchange contracts we enter
into to mitigate any gain or loss. In 2015, other expense, net,
included a $22.0 million loss on debt extinguishment, debt
issuance costs that we recognized for a bridge credit agreement

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

that we entered into in May 2014 in connection with the Biomet
merger, the net expense related to remeasuring monetary
assets and liabilities, partially offset by a gain related to selling
certain product line rights and assets. In 2014, other expense,
net, only included debt issuance costs that we recognized for
the bridge credit agreement and the net expense related to
remeasuring monetary assets and liabilities.

Net interest expense has increased due to the issuance of
the debt in connection with the LDR merger in July 2016 and
Biomet merger in March 2015.

Our effective tax rate (“ETR”) on earnings before income
taxes for the years ended December 31, 2016, 2015 and 2014
was 23.8 percent, 4.6 percent and 23.4 percent, respectively.
We have incurred significant expenses associated with the
Biomet merger and other acquisitions which were generally
recognized in higher income tax jurisdictions. Accordingly, this
reduced our ETR as our earnings were lower in these higher
income tax jurisdictions. Additionally, other discrete
adjustments have occurred that have significantly affected our
ETR. In 2016, we recognized $40.6 million of tax benefits from
the favorable resolution of certain tax matters with taxing
authorities. These benefits were partially offset by
$27.6 million of additional tax provisions related to finalizing
the tax accounts of the Biomet merger. The low 2015 tax rate
resulted from operating losses in the U.S. caused by significant
expenses incurred in connection with the merger. Our ETR in
future periods could potentially be impacted by changes in our
mix of pre-tax earnings; changes in tax rates, tax laws or their
interpretation, including the European Union rules on state
aid; 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

Similar to our consolidated results, our segment operating

profit has been significantly impacted by the addition of
Biomet sales and expenses to these segments. In the Americas,
operating profit as a percentage of sales increased due to
synergies from the Biomet merger and a two year moratorium
on the U.S. medical device excise tax for the calendar years of
2016 and 2017. Under the applicable accounting rules that we
applied to the U.S. medical device excise tax, we still had a
portion of the tax paid prior to the moratorium included in the
cost of inventory and continued to recognize expense, albeit at
a lower level than in 2015, related to the tax through the fourth
quarter of 2016. In 2017, we intend to invest the savings from
the medical device excise tax moratorium into our business in
areas such as R&D, sales force specialization and medical
training and education.

In EMEA, operating profit as a percentage of sales
declined due to the increased expenses related to the Biomet
merger, lower average selling prices and a reduced impact of
hedge gains. In EMEA, even though our integration plans are
on schedule, it will take longer to realize the full synergies of
the merger compared to other segments due to the multiple

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

countries in which we operate and the complexities in those
countries.

In Asia Pacific, operating profit as a percentage of sales

declined due to the increased expenses related to the Biomet
merger, lower average selling prices and a reduced impact of
hedge gains.

Non-GAAP Operating Performance Measures

We use financial measures that differ from financial
measures determined in accordance with GAAP to evaluate
our operating performance. These non-GAAP financial
measures exclude the impact of inventory step-up; certain
inventory and manufacturing-related charges connected to
discontinuing certain product lines, quality enhancement and
remediation efforts; intangible asset amortization; “Special
items;” “Certain claims;” financing and other expenses/gains
related to the Biomet merger and other acquisitions; debt
extinguishment; the interest expense incurred on the senior
notes issued in connection with the Biomet merger during the
period prior to the consummation of the Biomet merger; any
related effects on our income tax provision associated with
these items and other certain tax adjustments. Other certain
tax adjustments primarily include internal restructuring
transactions to integrate Biomet operations and facilitate
access to offshore earnings, resolution of certain matters with
taxing authorities, adjustments to deferred tax liabilities
recognized as part of acquisition-related accounting, the
resolution of unrecognized tax positions established through
goodwill as part of acquisition accounting that had not
previously been recognized in the earnings of the acquired
company and any tax item that would otherwise be distortive
to the expected future tax rate. We use these non-GAAP
financial measures internally to evaluate the performance of
the business and believe they are useful measures that provide
meaningful supplemental information to investors to consider
when evaluating our performance. We believe these measures
offer the ability to make period-to-period comparisons that are
not impacted by certain items that can cause dramatic changes
in reported operating results, to perform trend analysis, to
better identify operating trends that may otherwise be masked
or distorted by these types of items and to provide additional
transparency of certain items. In addition, certain of these
non-GAAP financial measures are used as performance metrics
in our incentive compensation programs.

Our non-GAAP adjusted net earnings used for internal
management purposes for the years ended December 31, 2016,
2015 and 2014 were $1,610.8 million, $1,310.5 million, and
$1,098.0 million, respectively, and our non-GAAP adjusted
diluted earnings per share were $7.96, $6.90, and $6.40,
respectively.

The following are reconciliations from our GAAP net
earnings and diluted earnings per share to our non-GAAP
adjusted net earnings and non-GAAP adjusted diluted earnings
per share used for internal management purposes (in millions,
except per share amounts).

Year ended December 31,

2016

2015

2014

Net Earnings of Zimmer Biomet

Holdings, Inc.

$ 305.9

$ 147.0

$ 720.3

Inventory step-up and other

inventory and manufacturing
related charges

Certain claims
Intangible asset amortization
Special items

Biomet merger-related
Other special items

Merger-related and other expense in

other (expense) income, net

Debt extinguishment cost
Interest expense on Biomet merger

financing

Taxes on above items(1)

Biomet merger-related measurement

period tax adjustments(2)

Other certain tax adjustments(3)

469.1
–
565.9

487.3
124.5

3.6
53.3

348.8
7.7
337.4

619.1
212.7

1.0
22.0

36.3
21.5
92.5

61.9
279.2

39.6
–

–
(449.0)

70.0
(487.6)

–
(153.3)

52.7

(2.5)

–

32.4

–

Adjusted Net Earnings

$1,610.8

$1,310.5

$1,098.0

(1) The tax effect for the U.S. jurisdiction is calculated based on an effective
rate considering federal and state taxes, as well as permanent items. For
jurisdictions outside the U.S., the tax effect is calculated based upon the
statutory rates where the items were incurred.
(2) The 2016 period includes negative effects from finalizing the tax
accounts for the Biomet merger. Under the applicable U.S. GAAP rules,
these measurement period adjustments are recognized on a prospective
basis in the period of change.
(3) Other certain tax adjustments primarily include internal restructuring
transactions to integrate Biomet operations and facilitate access to offshore
earnings, partially offset by resolution of certain matters with taxing
authorities and adjustments to deferred tax liabilities recognized as part of
acquisition-related accounting.

Diluted EPS
Inventory step-up and other inventory and

manufacturing related charges

Certain claims
Intangible asset amortization
Special items

Biomet merger-related
Other special items

Merger-related and other expense in other

(expense) income, net

Debt extinguishment cost
Interest expense on Biomet merger

financing

Taxes on above items(1)
Biomet merger-related measurement

period tax adjustments(2)

Other certain tax adjustments(3)

Year ended December 31,

2016

2015

2014

$ 1.51

$ 0.77

$ 4.20

2.32
–
2.80

2.40
0.62

0.02

0.26

1.84
0.04
1.78

3.26
1.12

0.21
0.13
0.54

0.36
1.63

–

0.23

0.12

–

–
(2.22)

0.37
(2.57)

–
(0.90)

0.26

–

(0.01)

0.17

–

Adjusted Diluted EPS

$ 7.96

$ 6.90

$ 6.40

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities increased to

$1,632.2 million in 2016 compared to $849.8 million and
$1,060.5 million in 2015 and 2014, respectively. The increased
operating cash flows in 2016 were primarily from the inclusion
of Biomet cash flows for the entire year. We also sold
$103.1 million of our accounts receivable in certain countries
in 2016, which improved operating cash flows. Conversely, in
2015 we had various significant cash outflows, including a
$97.6 million loss on our forward starting interest rate swaps
we settled and expenses related to completing the Biomet
merger. In 2017, we expect operating cash flows to be in a
range of $1,750.0 million to $1,900.0 million.

Cash flows used in investing activities were

$1,691.5 million in 2016 compared to $7,557.9 million and
$469.4 million in 2015 and 2014, respectively. Instrument and
property, plant and equipment additions increased due to the
Biomet merger as we continue to invest in the combined
company product portfolio and optimize our manufacturing
and logistics network. Purchases and sales of investments in
debt securities declined because as investments matured, we
used the cash to pay off debt and repurchase shares of our
common stock. In the 2016 period, we also invested in the
Cayenne, CTC, LDR, CD Diagnostics and MedTech acquisitions
and other various assets. In 2017, we expect to spend
approximately $330.0 million on instruments and
$170.0 million on property, plant and equipment to support the
ongoing business.

Cash flows used in financing activities were $743.2 million

in 2016. This reflected approximately $1,010.0 million of net
principal repayments on the senior notes and term loan we
issued in 2015 for the Biomet merger. We also borrowed
$750.0 million in 2016 for the LDR merger.

In February, May, July and December 2016, our Board of

Directors declared cash dividends 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. As further discussed below, our debt
facilities restrict the payment of dividends in certain
circumstances.

In February 2016, our Board of Directors authorized a new
$1.0 billion share repurchase program effective March 1, 2016,
with no expiration date. The previous program expired on
February 29, 2016. As of December 31, 2016, all $1.0 billion
remained authorized for repurchase under the program.

We will continue to exercise disciplined capital allocation
designed to drive stockholder value creation. We intend to use
available cash for reinvestment in the business, debt
repayment, dividends and opportunistic share repurchases. If
the right opportunities arise, we may also use available cash to
pursue business development opportunities.

In order to achieve operational synergies, we expect cash

outlays related to our integration plans to be approximately
$310.0 million in 2017. These cash outlays are necessary to
achieve our integration goals of net annual pre-tax operating
profit synergies of $350.0 million by mid-2018.

As discussed in Note 16 to our consolidated financial
statements, the Internal Revenue Service (“IRS”) has issued
proposed adjustments for years 2005 through 2009 reallocating
profits between certain of our U.S. and foreign subsidiaries. We
have disputed these proposed adjustments and continue to
pursue resolution with the IRS. 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 20 to our consolidated financial
statements, as of December 31, 2016, a short-term liability of
$75.0 million and long-term liability of $218.6 million related to
Durom Cup product liability claims was recorded on our
consolidated balance sheet. We expect to continue paying
these claims over the next few years. We expect to be
reimbursed a portion of these payments for product liability
claims from insurance carriers. As of December 31, 2016, we
have received a portion of the insurance proceeds we estimate
we will recover. We have a long-term receivable of
$95.3 million remaining for future expected reimbursements
from our insurance carriers. We also had a short-term liability
of $57.4 million related to Biomet metal-on-metal hip implant
claims.

At December 31, 2016, we had twelve tranches of senior

notes outstanding as follows (dollars in millions):

Principal

Interest
Rate

$ 500.0

1.450%

1,150.0

2.000

500.0

4.625

1,500.0

2.700

300.0

3.375

750.0

3.150

2,000.0

3.550

253.4

4.250

317.8

5.750

395.4

4.450

527.4* 1.414

527.4* 2.425

Maturity Date

April 1, 2017

April 1, 2018

November 30, 2019

April 1, 2020

November 30, 2021

April 1, 2022

April 1, 2025

August 15, 2035

November 30, 2039

August 15, 2045

December 13, 2022

December 13, 2026

* Euro denominated debt securities

We also had three term loans with total principal of

$2,549.6 million outstanding as of December 31, 2016.

We have a five-year unsecured multicurrency revolving

facility of $1.5 billion (the “Multicurrency Revolving Facility”)

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

that will mature on September 30, 2021. There were no
outstanding borrowings on this facility as of December 31,
2016. We also have other available uncommitted credit
facilities totaling $47.1 million.

For additional information on our debt, see Note 12 to our

consolidated financial statements.

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 December 31, 2016, $408.6 million of our cash and
cash equivalents were held in jurisdictions outside of the U.S.
Of this amount, $77.8 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.

In light of our commitments under various credit facilities,
as well as our expectation for continued business development,
we have plans to repatriate a significant portion of our offshore
earnings to the U.S. In particular, as a result of the Biomet
merger, we have unremitted foreign earnings of
$3,658.7 million, which we plan to repatriate to the U.S. in
future periods. We have estimated a long-term deferred tax
liability of $1,190.7 million for the estimated tax impact of this
repatriation.

Management believes that cash flows from operations and

available borrowings under the Multicurrency Revolving
Facility are sufficient to meet our working capital, capital
expenditure and debt service needs, as well as to return cash
to stockholders in the form of dividends and share
repurchases. Should additional investment opportunities arise,
we believe that our earnings, balance sheet and cash flows will
allow us to obtain additional capital, if necessary.

CONTRACTUAL OBLIGATIONS

We have entered into contracts with various third parties

in the normal course of business that will require future
payments. The following table illustrates our contractual
obligations (in millions):

Contractual
Obligations

Total

2017

2018
and
2019

2020
and
2021

2022
and
Thereafter

Long-term debt

$11,275.8

$ 575.6

$2,891.3

$3,037.5

$4,771.4

Interest

payments

Operating leases

Purchase

obligations

Other long-term

liabilities

Total contractual
obligations

2,501.4

331.8

315.5

69.5

578.2

106.3

374.0

1,233.7

67.3

88.7

315.3

140.9

132.5

41.9

–

368.3

–

172.3

108.3

87.7

$14,792.6

$1,101.5

$3,880.6

$3,629.0

$6,181.5

$82.2 million of the other long-term liabilities on our
balance sheet as of December 31, 2016 are liabilities related to

defined benefit pension plans. Defined benefit plan liabilities
are based upon the underfunded status of the respective plans;
they are not based upon future contributions. Due to
uncertainties regarding future plan asset performance,
changes in interest rates and our intentions with respect to
voluntary contributions, we are unable to reasonably estimate
future contributions beyond 2016. Therefore, this table does
not include any amounts related to future contributions to our
plans. See Note 15 to our consolidated financial statements for
further information on our defined benefit plans.

Also included in other long-term liabilities on our balance

sheet are liabilities related to unrecognized tax benefits and
corresponding interest and penalties thereon. Due to the
uncertainties inherent in these liabilities, such as the ultimate
timing and resolution of tax audits, we are unable to
reasonably estimate the amount or period in which potential
tax payments related to these positions will be made.
Therefore, this table does not include any obligations related
to unrecognized tax benefits. We have also excluded long-term
deferred tax liabilities from this table, as they do not represent
liabilities that will be settled in cash. See Note 16 to our
consolidated financial statements for further information on
these tax-related accounts.

We have entered into various agreements 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, to maintain exclusive rights to
distribute a product. Since there is uncertainty on the timing
or whether such payments will have to be made, we have not
included them in this table. These payments could range from
$0 to $57 million.

CRITICAL ACCOUNTING ESTIMATES

Our financial results are affected by the selection and
application of accounting policies and methods. Significant
accounting policies which require management’s judgment are
discussed below.

Excess Inventory and Instruments – We must determine

as of each balance sheet date how much, if any, of our
inventory may ultimately prove to be unsaleable or unsaleable
at our carrying cost. Similarly, we must also determine if
instruments on hand will be put to productive use or remain
undeployed as a result of excess supply. Accordingly,
inventory and instruments are written down to their net
realizable value. To determine the appropriate net realizable
value, we evaluate current stock levels in relation to historical
and expected patterns of demand for all of our products and
instrument systems and components. The basis for the
determination is generally the same for all inventory and
instrument items and categories except for work-in-process
inventory, which is recorded at cost. Obsolete or discontinued
items are generally destroyed and completely written off.
Management evaluates the need for changes to inventory and
instruments net realizable values based on market conditions,
competitive offerings and other factors on a regular basis.

Income Taxes – Our income tax expense, deferred tax
assets and liabilities and reserves for unrecognized tax benefits

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

reflect management’s best assessment of estimated future
taxes to be paid. We are subject to income taxes in the U.S.
and numerous foreign jurisdictions. Significant judgments and
estimates are required in determining the consolidated income
tax expense.

the fair value of goodwill and intangible assets, most notably
estimated future cash flows generated by these assets. As
such, these fair value measurements use significant
unobservable inputs. Changes to these assumptions could
require us to record impairment charges on these assets.

We estimate income tax expense and income tax liabilities

We have seven reporting units with goodwill assigned to

and assets by taxable jurisdiction. Realization of deferred tax
assets in each taxable jurisdiction is dependent on our ability
to generate future taxable income sufficient to realize the
benefits. We evaluate deferred tax assets on an ongoing basis
and provide valuation allowances unless we determine it is
“more likely than not” that the deferred tax benefit will be
realized. Federal income taxes are provided on the portion of
the income of foreign subsidiaries that is expected to be
remitted to the U.S.

The calculation of our tax liabilities involves dealing with

uncertainties in the application of complex tax laws and
regulations in a multitude of jurisdictions across our global
operations. We are subject to regulatory review or audit in
virtually all of those jurisdictions and those reviews and audits
may require extended periods of time to resolve. We record
our income tax provisions based on our knowledge of all
relevant facts and circumstances, including existing tax laws,
our experience with previous settlement agreements, the
status of current examinations and our understanding of how
the tax authorities view certain relevant industry and
commercial matters.

We recognize tax liabilities in accordance with the

Financial Accounting Standards Board’s (“FASB”) guidance on
income taxes and we adjust these liabilities when our judgment
changes as a result of the evaluation of new information not
previously available. Due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment
that is materially different from our current estimate of the tax
liabilities. These differences will be reflected as increases or
decreases to income tax expense in the period in which they
are determined.

Commitments and Contingencies – Accruals for product
liability and other claims are established with the assistance of
internal and external legal counsel based on current
information and historical settlement information for claims,
related legal fees and for claims incurred but not reported. We
use an actuarial model to assist management in determining an
appropriate level of accruals for product liability claims.
Historical patterns of claim loss development over time are
statistically analyzed to arrive at factors which are then applied
to loss estimates in the actuarial model.

In addition to our general product liability, we have
recorded provisions totaling $479.4 million related to the
Durom Cup. See Note 20 to our consolidated financial
statements for further discussion of the Durom Cup litigation.
Goodwill and Intangible Assets – We evaluate the
carrying value of goodwill and indefinite life intangible assets
annually, or whenever events or circumstances indicate the
carrying value may not be recoverable. We evaluate the
carrying value of finite life intangible assets whenever events
or circumstances indicate the carrying value may not be
recoverable. Significant assumptions are required to estimate

them. In our 2016 impairment test, our EMEA reporting unit’s
estimated fair value only exceeded the carrying value of its net
assets by 8 percent, or approximately $240 million. The
goodwill balance of the EMEA reporting unit at the time of the
impairment test was $1,326.0 million. This reporting unit’s
estimated fair value continues to be lower than in past years
due to the weakening of the Euro against the U.S. Dollar. We
estimated the fair value of this reporting unit by using a
combination of income and market approaches. Fair value
under the income approach was determined by discounting to
present value the estimated future cash flows of the reporting
unit. Fair value under the market approach utilized the
guideline public company methodology, which uses valuation
indicators determined from other businesses that are similar to
the reporting unit. In estimating the future cash flows of the
reporting unit, we utilized a combination of market and
company-specific inputs that a market participant would use in
assessing the fair value of the reporting unit. The primary
market input was revenue growth rates. These rates were
based on historical trends and estimated future growth drivers
such as an aging population, obesity and more active lifestyles.
Significant company-specific inputs included assumptions
regarding how the reporting unit could leverage operating
expenses as revenue grows and the impact any new products
will have on revenues. Discount rates used to determine the
present value of the estimated future cash flows considered
the weighted average cost of capital of other comparable
companies and the country risk of our reporting unit. Under
the guideline public company methodology, we took into
consideration differences between the reporting unit and the
comparable companies.

The EMEA reporting unit remains sensitive to changes in

market conditions. If estimated cash flows for this reporting
unit decrease, we may be required to record impairment
charges in the future. The cash flows used in our annual
impairment test are estimates and therefore involve
uncertainty. Factors that could result in our actual cash flows
being lower than our current estimates include: 1) decreased
revenues caused by unforeseen changes in these areas of the
healthcare market, our inability to generate new product
revenue from our research and development activities, or
macroeconomic factors that may affect consumers’ ability to
pay for these products and 2) our inability to achieve the
estimated operating margins for these reporting units’
forecasts due to unforeseen factors. Additionally, changes in
the broader economic environment could cause changes to our
estimated discount rates or comparable company valuation
indicators, which may impact our estimated fair values.

For our other six reporting units, their estimated fair value

exceeded their carrying value by more than 15 percent.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements for

information on how recent accounting pronouncements have
affected or may affect our financial position, results of
operations or cash flows.

Item 7A. Quantitative and Qualitative Disclosures

About Market Risk

MARKET RISK

We are exposed to certain market risks as part of our
ongoing business operations, including risks from changes in
foreign currency exchange rates, interest rates and commodity
prices that could affect our financial condition, results of
operations and cash flows. We manage our exposure to these
and other market risks through regular operating and financing
activities and through the use of derivative financial
instruments. We use derivative financial instruments solely as
risk management tools and not for speculative investment
purposes.

FOREIGN CURRENCY EXCHANGE RISK

We operate on a global basis and are exposed to the risk

that our financial condition, results of operations and cash
flows could be adversely affected by changes in foreign
currency exchange rates. We are primarily exposed to foreign
currency exchange rate risk with respect to transactions and
net assets denominated in Euros, Swiss Francs, Japanese Yen,
British Pounds, Canadian Dollars, Australian Dollars, Korean
Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan
Dollars, South African Rand, Russian Rubles, Indian Rupees,
Turkish Lira, Polish Zloty, Danish Krone, and Norwegian
Krone. We manage the foreign currency exposure centrally, on
a combined basis, which allows us to net exposures and to take
advantage of any natural offsets. To reduce the uncertainty of
foreign currency exchange rate movements on transactions
denominated in foreign currencies, we enter into derivative
financial instruments in the form of foreign currency exchange
forward contracts and options with major financial institutions.
These forward contracts and options are designed to hedge
anticipated foreign currency transactions, primarily
intercompany sale and purchase transactions, for periods
consistent with commitments. Realized and unrealized gains
and losses on these contracts and options that qualify as cash
flow hedges are temporarily recorded in other comprehensive
income, then recognized in cost of products sold when the
hedged item affects net earnings.

For contracts outstanding at December 31, 2016, we had
obligations to purchase U.S. Dollars and sell Euros, Japanese
Yen, British Pounds, Canadian Dollars, Australian Dollars,
Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan
Dollars, South African Rand, Russian Rubles, Indian Rupees,
Turkish Lira, Polish Zloty, Danish Krone, and Norwegian Krone
and purchase Swiss Francs and sell U.S. Dollars at set maturity

dates ranging from January 2017 through June 2019. The
notional amounts of outstanding forward contracts entered
into with third parties to purchase U.S. Dollars at
December 31, 2016 were $1,512.6 million. The notional
amounts of outstanding forward contracts entered into with
third parties to purchase Swiss Francs at December 31, 2016
were $315.7 million. The weighted average contract rates
outstanding at December 31, 2016 were Euro:USD 1.15,
USD:Swiss Franc 0.94, USD:Japanese Yen 108.35, British
Pound:USD 1.52, USD:Canadian Dollar 1.29, Australian
Dollar:USD 0.74, USD:Korean Won 1,153, USD:Swedish Krona
8.27, USD:Czech Koruna 23.65, USD:Thai Baht 36.05,
USD:Taiwan Dollar 32.14, USD:South African Rand 15.56,
USD:Russian Ruble 69.92, USD:Indian Ruppee 71.77,
USD:Turkish Lira 3.20, USD:Polish Zloty 3.91, USD:Danish
Krone 6.56, and USD:Norwegian Krone 8.31.

We maintain written policies and procedures governing
our risk management activities. Our policy requires that critical
terms of hedging instruments be the same as hedged
forecasted transactions. On this basis, with respect to cash
flow hedges, changes in cash flows attributable to hedged
transactions are generally expected to be completely offset by
changes in the fair value of hedge instruments. As part of our
risk management program, we also perform sensitivity analyses
to assess potential changes in revenue, operating results, cash
flows and financial position relating to hypothetical movements
in currency exchange rates. A sensitivity analysis of changes in
the fair value of foreign currency exchange forward contracts
outstanding at December 31, 2016 indicated that, if the
U.S. Dollar uniformly changed in value by 10 percent relative
to the various currencies, with no change in the interest
differentials, the fair value of those contracts would increase or
decrease earnings before income taxes in periods through June
2018, depending on the direction of the change, by the
following average approximate amounts (in millions):

Currency

Euro
Swiss Franc
Japanese Yen
British Pound
Canadian Dollar
Australian Dollar
Korean Won
Swedish Krona
Czech Koruna
Thai Baht
Taiwan Dollars
South African Rand
Russian Rubles
Indian Rupees
Turkish Lira
Polish Zloty
Danish Krone
Norwegian Krone

Average
Amount

$51.9
32.7
39.6
6.6
15.1
18.7
3.1
2.6
0.7
0.6
3.3
0.5
1.1
1.5
0.5
0.7
3.6
1.9

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Any change in the fair value of foreign currency exchange

forward contracts as a result of a fluctuation in a currency
exchange rate is expected to be largely offset by a change in
the value of the hedged transaction. Consequently, foreign
currency exchange contracts would not subject us to material
risk due to exchange rate movements because gains and losses
on these contracts offset gains and losses on the assets,
liabilities and transactions being hedged.

average fixed interest rate for all of the outstanding interest
rate swap agreements is approximately 0.82 percent through
September 30, 2019.

The interest rate swap agreements are intended to

manage our exposure to interest rate movements by
converting variable-rate debt into fixed-rate debt. The
objective of the instruments is to limit exposure to interest
rate movements.

We had net assets, excluding goodwill, in legal entities

For details about these and other financial instruments,

with non-U.S. Dollar functional currencies of $2,935.8 million
at December 31, 2016, primarily in Euros, Japanese Yen and
Australian Dollars.

We enter into foreign currency forward exchange
contracts with terms of one month to manage currency
exposures for monetary assets and liabilities denominated in a
currency other than an entity’s functional currency. As a
result, foreign currency remeasurement gains/losses
recognized in earnings are generally offset with gains/losses on
the foreign currency forward exchange contracts in the same
reporting period.

For details about these and other financial instruments,

including fair value methodologies, see Note 14 to our
consolidated financial statements.

COMMODITY PRICE RISK

We purchase raw material commodities such as cobalt
chrome, titanium, tantalum, polymer and sterile packaging. We
enter into supply contracts generally with terms of 12 to 24
months, where available, on these commodities to alleviate the
effect of market fluctuation in prices. As part of our risk
management program, we perform sensitivity analyses related
to potential commodity price changes. A 10 percent price
change across all these commodities would not have a material
effect on our consolidated financial position, results of
operations or cash flows.

INTEREST RATE RISK

In the normal course of business, we are exposed to
market risk from changes in interest rates that could affect our
results of operations and financial condition. We manage our
exposure to interest rate risks through our regular operations
and financing activities.

We invest our cash and cash equivalents primarily in
highly-rated corporate commercial paper and bank deposits.
The primary investment objective is to ensure capital
preservation. Currently, we do not use derivative financial
instruments in our investment portfolio.

We are exposed to interest rate risk on our debt

obligations and our cash and cash equivalents.

We have multiple variable-to-fixed interest rate swap
agreements that we have designated as cash flow hedges of the
variable interest rate obligations on our Term Loan B. The total
notional amount is $375.0 million. The interest rate swaps
minimize the exposure to changes in the LIBOR interest rates
while the variable-rate debt is outstanding. The weighted

including fair value methodologies, see Note 14 to our
consolidated financial statements.

Based upon our overall interest rate exposure as of
December 31, 2016, a change of 10 percent in interest rates,
assuming the principal amount outstanding remains constant,
would not have a material effect on net interest expense. This
analysis does not consider the effect of the change in the level
of overall economic activity that could exist in such an
environment.

CREDIT RISK

Financial instruments, which potentially subject us to

concentrations of credit risk, are primarily cash and cash
equivalents, derivative instruments, counterparty transactions
and accounts receivable.

We place our investments in highly-rated financial
institutions or highly-rated debt securities and limit the
amount of credit exposure to any one entity. We believe we do
not have any significant credit risk on our cash and cash
equivalents.

We are exposed to credit loss if the financial institutions

or counterparties issuing the debt security fail to perform.
However, this loss is limited to the amounts, if any, by which
the obligations of the counterparty to the financial instrument
contract exceed our obligation. We also minimize exposure to
credit risk by dealing with a diversified group of major financial
institutions. We manage credit risk by monitoring the financial
condition of our counterparties using standard credit
guidelines. We do not anticipate any nonperformance by any of
the counterparties.

Our concentrations of credit risks with respect to trade

accounts receivable is 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.

Our ability to collect accounts receivable in some

countries depends in part upon the financial stability of these
hospital and healthcare sectors and the respective countries’
national economic and healthcare systems. Most notably, in
Europe healthcare is typically sponsored by the government.
Since we sell products to public hospitals in those countries,
we are indirectly exposed to government budget constraints.

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The ongoing financial uncertainties in the Euro zone impact
the indirect credit exposure we have to those governments
through their public hospitals. As of December 31, 2016, in
Greece, Italy, Portugal and Spain, countries that have been
widely recognized as presenting the highest risk, our gross
short-term and long-term trade accounts receivable combined
were $193.8 million. With allowances for doubtful accounts of
$16.6 million recorded in those countries, the net balance was
$177.2 million, representing 12 percent of our total
consolidated short-term and long-term trade accounts
receivable balance, net. Italy and Spain accounted for
$159.7 million of that net amount. We are actively monitoring
the situations in these countries. We maintain contact with
customers in these countries on a regular basis. We continue to

receive payments, albeit at a slower rate than in the past. We
believe our allowance for doubtful accounts is adequate in
these countries, as ultimately we believe the governments in
these countries will be able to pay. To the extent the
respective governments’ ability to fund their public hospital
programs deteriorates, we may have to record significant bad
debt expenses in the future.

While we are exposed to risks from the broader healthcare

industry in Europe and around the world, there is no
significant net exposure due to any individual customer.
Exposure to credit risk is controlled through credit approvals,
credit limits and monitoring procedures, and we believe that
reserves for losses are adequate.

Z I M M E R BI OM E T HOL D I NG S , I NC .

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Management’s Report on Internal Control Over Financial Reporting

The management of Zimmer Biomet Holdings, Inc. is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:

(cid:129) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions

of the assets of the Company;

(cid:129) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and

(cid:129) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the

Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis.

Based on their assessment, management concluded that the Company did not maintain effective controls over its accounting

for income taxes. Specifically, the Company did not maintain the appropriate complement of resources in its tax department
commensurate with the increased volume and complexity of accounting for income taxes subsequent to the Biomet merger. This
material weakness did not result in a material misstatement to the Company’s financial statements or disclosures, but did result in
out-of-period adjustments in the Company’s provision for income taxes and deferred tax liabilities that were individually and in
aggregate immaterial. Additionally, this control deficiency could result in misstatements of income tax related accounts and
disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or
detected. Accordingly, the Company’s management has determined that this control deficiency constitutes a material weakness.

Because of this material weakness, management concluded that the Company did not maintain effective internal control over

financial reporting as of December 31, 2016.

The Company’s independent registered public accounting firm has audited the effectiveness of the Company’s internal control

over financial reporting as of December 31, 2016, as stated in its report which appears in Item 8 of this Annual Report on
Form 10-K.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Item 8. Financial Statements and Supplementary Data

Zimmer Biomet Holdings, Inc.
Index to Consolidated Financial Statements

Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Balance Sheets as of December 31, 2016 and 2015

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

Page

Z I M M E R BI OM E T HOL D I NG S , I NC .

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Zimmer Biomet Holdings, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all
material respects, the financial position of Zimmer Biomet Holdings, Inc. and its subsidiaries as of December 31, 2016 and 2015, and
the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in
all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) because a material weakness in internal control over financial reporting related to a lack of an appropriate
complement of resources in the Company’s tax department existed as of that date. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material
weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under item
7A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the
December 31, 2016 consolidated financial statements and our opinion regarding the effectiveness of the Company’s internal control
over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report
referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and
on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
March 1, 2017

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

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CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts)

Net Sales
Cost of products sold, excluding intangible asset amortization
Intangible asset amortization
Research and development
Selling, general and administrative
Certain claims (Note 20)
Special items (Note 2)

Operating expenses

Operating Profit
Other expense, net
Interest income
Interest expense

Earnings before income taxes
Provision for income taxes

Net earnings
Less: Net loss attributable to noncontrolling interest

Net Earnings of Zimmer Biomet Holdings, Inc.

Earnings Per Common Share – Basic
Earnings Per Common Share – Diluted
Weighted Average Common Shares Outstanding

Basic
Diluted

Cash Dividends Declared Per Common Share

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

For the Years Ended December 31,

2016

2015

2014

$7,683.9
2,381.8
565.9
365.6
2,932.9
–
611.8

$5,997.8
1,800.6
337.4
268.8
2,284.2
7.7
831.8

$4,673.3
1,242.8
92.5
187.4
1,750.7
21.5
341.1

6,858.0

5,530.5

3,636.0

825.9
(71.3)
2.9
(357.9)

399.6
95.0

304.6
(1.3)

467.3
(36.9)
9.4
(286.6)

153.2
7.0

146.2
(0.8)

1,037.3
(46.7)
11.9
(63.1)

939.4
220.2

719.2
(1.1)

$ 305.9

$ 147.0

$ 720.3

$
$

1.53
1.51

200.0
202.4
0.96

$
$

0.78
0.77

187.4
189.8
0.88

$
$

4.26
4.20

169.0
171.7
0.88

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)

Net Earnings

Other Comprehensive Income (Loss):

Foreign currency cumulative translation adjustments, net of tax

Unrealized cash flow hedge gains, net of tax

Reclassification adjustments on cash flow hedges, net of tax

Unrealized gains/(losses) on securities, net of tax

Reclassification adjustments on securities, net of tax

Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax

Total Other Comprehensive (Loss)

Comprehensive Income (Loss)

Comprehensive Loss Attributable to Noncontrolling Interest

For the Years Ended December 31,

2016

2015

2014

$ 304.6

$ 146.2

$ 719.2

(130.0)

(305.2)

(223.1)

28.3

52.7

55.9

(25.8)

(93.0)

(18.9)

0.5

–

(0.2)

–

(0.5)

(0.4)

22.0

(21.4)

(75.8)

(105.0)

(367.1)

(262.8)

199.6

(220.9)

456.4

(0.5)

(0.3)

(1.0)

Comprehensive Income (Loss) Attributable to Zimmer Biomet Holdings, Inc.

$ 200.1

$(220.6) $ 457.4

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

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

CONSOLIDATED BALANCE SHEETS
(in millions)

ASSETS

Current Assets:

Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets

Total Current Assets

Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets

Total Assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Income taxes payable
Other current liabilities
Current portion of long-term debt

Total Current Liabilities

Deferred income taxes

Other long-term liabilities

Long-term debt

Total Liabilities

Commitments and Contingencies (Note 20)
Stockholders’ Equity:

Common stock, $0.01 par value, one billion shares authorized,

304.7 million (302.7 million in 2015) issued

Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, 104.1 million shares (100.0 million shares in 2015)

Total Zimmer Biomet Holdings, Inc. stockholders’ equity

Noncontrolling interest

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

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

As of December 31,

2016

2015

634.1
–
1,604.4
1,959.4
465.7

4,663.6
2,037.9
10,643.9
8,785.4
553.6

$ 1,459.3
164.6
1,446.5
2,254.1
529.2

5,853.7
2,062.6
9,934.2
8,746.3
563.8

$26,684.4

$27,160.6

364.5
183.5
1,257.9
575.6

2,381.5

3,030.9

936.3

284.8
147.2
1,185.9
–

1,617.9

3,150.2

1,005.7

10,665.8

11,497.4

17,014.5

17,271.2

3.1
8,368.5
8,467.1
(434.0)
(6,735.8)

3.0
8,195.3
8,347.7
(329.0)
(6,329.1)

9,668.9
1.0

9,887.9
1.5

9,669.9

9,889.4

$26,684.4

$27,160.6

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)

Zimmer Biomet Holdings, Inc. Stockholders

Common Shares

Number

Amount

Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Shares

Number

Amount

Noncontrolling
Interest

Balance January 1, 2014
Net earnings
Other comprehensive income
Cash dividends declared
Stock compensation plans
Share repurchases

Balance December 31, 2014
Net earnings
Other comprehensive loss
Cash dividends declared
Stock compensation plans
Share repurchases
Biomet merger consideration

Balance December 31, 2015
Net earnings
Other comprehensive loss
Cash dividends declared
Stock compensation plans
Share repurchases

264.3
–
–
–
4.1
–

268.4
–
–
–
1.6
–
32.7

302.7
–
–
–
2.0
–

$2.6
–
–
–
0.1
–

$4,000.6
–
–
–
330.1
–

$7,789.4
720.3
–
(148.6)
1.0
–

$ 300.9
–
(262.8)
–
–
–

(94.5) $(5,785.7)
–
–
–
2.5
(400.5)

–
–
–
–
(4.2)

2.7
–
–
–
–
–
0.3

3.0
–
–
–
0.1
–

4,330.7
–
–
–
142.2
–
3,722.4

8,195.3
–
–
–
173.2
–

8,362.1
147.0
–
(164.4)
3.0
–
–

8,347.7
305.9
–
(191.9)
5.4
–

38.1
–
(367.1)
–
–
–
–

(329.0)
–
(105.0)
–
–
–

(98.7)
–
–
–
0.1
(1.4)
–

(100.0)
–
–
–
0.1
(4.2)

(6,183.7)
–
–
–
4.6
(150.0)
–

(6,329.1)
–
–
–
8.8
(415.5)

$ 2.8
(1.1)
0.1
–
–
–

1.8
(0.8)
0.5
–
–
–
–

1.5
(1.3)
0.8
–
–
–

Total
Stockholders’
Equity

$6,310.6
719.2
(262.7)
(148.6)
333.7
(400.5)

6,551.7
146.2
(366.6)
(164.4)
149.8
(150.0)
3,722.7

9,889.4
304.6
(104.2)
(191.9)
187.5
(415.5)

Balance December 31, 2016

304.7

$3.1

$8,368.5

$8,467.1

$(434.0)

(104.1) $(6,735.8)

$ 1.0

$9,669.9

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

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

Cash flows provided by (used in) operating activities:

Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization
Biomet merger consideration compensation expense
Intangible asset impairment
Share-based compensation
Excess income tax benefit from stock option exercises
Inventory step-up
Gain on divestiture of assets
Debt extinguishment
Deferred income tax provision
Changes in operating assets and liabilities, net of acquired assets and liabilities

Income taxes
Receivables
Inventories
Accounts payable and accrued liabilities
Other assets and liabilities

Net cash provided by operating activities

Cash flows provided by (used in) investing activities:

Additions to instruments
Additions to other property, plant and equipment
Purchases of investments
Sales of investments
Proceeds from divestiture of assets
Biomet acquisition, net of acquired cash
LDR acquisition, net of acquired cash
Business combination investments, net of acquired cash
Investments in other assets

Net cash used in investing activities

Cash flows provided by (used in) financing activities:

Proceeds from (payments on) senior notes
Proceeds from term loan
Redemption of senior notes
Payments on term loan
Net proceeds (payments) under revolving credit facilities
Dividends paid to stockholders
Proceeds from employee stock compensation plans
Restricted stock withholdings
Excess income tax benefit from stock option exercises
Debt issuance costs
Repurchase of common stock

Net cash (used in) provided by financing activities

Effect of exchange rates on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of period

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

For the Years Ended December 31,

2016

2015

2014

304.6

146.2

719.2

1,039.3
–
30.0
57.3
–
323.3
–
53.3
(153.2)

(10.9)
(137.8)
76.4
28.7
21.2

712.4
90.4
–
46.4
(11.8)
317.8
(19.0)
22.0
(164.0)

244.7
(56.1)
(205.4)
(252.0)
(21.8)

375.8
–
–
49.4
(11.1)
5.4
–
–
(90.5)

(13.2)
(40.4)
(164.6)
116.1
114.4

1,632.2

849.8

1,060.5

(345.5)
(184.7)
(1.5)
286.2
–
–
(1,021.1)
(421.9)
(3.0)

(266.4)
(167.7)
(214.8)
802.9
69.9
(7,760.1)
–
–
(21.7)

(197.4)
(144.9)
(1,350.9)
1,282.2
–
–
–
(54.3)
(4.1)

(1,691.5)

(7,557.9)

(469.4)

1,073.5
750.0
(1,250.0)
(800.0)
(33.1)
(188.4)
136.6
(6.3)
–
(10.0)
(415.5)

7,628.2
3,000.0
(2,762.0)
(500.0)
0.1
(157.1)
105.2
(11.1)
11.8
(58.4)
(150.0)

(743.2)

7,106.7

(22.7)

(22.6)

(250.0)
–
–
–
2.3
(145.5)
284.7
(7.7)
11.1
(64.1)
(400.9)

(570.1)

(18.3)

(825.2)
1,459.3

376.0
1,083.3

2.7
1,080.6

634.1

$ 1,459.3

$ 1,083.3

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business

We design, manufacture and market orthopaedic

reconstructive products; sports medicine, biologics,
extremities and trauma products; office based technologies;
spine, craniomaxillofacial and thoracic products; dental
implants; and related surgical products. We collaborate with
healthcare professionals around the globe to advance the pace
of innovation. Our products and solutions help treat patients
suffering from disorders of, or injuries to, bones, joints or
supporting soft tissues. Together with healthcare
professionals, we help millions of people live better lives.

On June 24, 2015 (the “Closing Date”), pursuant to an

agreement and plan of merger dated April 24, 2014, we
acquired LVB Acquisition, Inc. (“LVB”), the parent company of
Biomet, Inc. (“Biomet”), and LVB and Biomet became our
wholly-owned subsidiaries (sometimes hereinafter referred to
as the “Biomet merger” or the “merger”). For more information
on the merger, see Note 3. In connection with the merger, we
changed our name from Zimmer Holdings, Inc. to Zimmer
Biomet Holdings, Inc.

The words “Zimmer Biomet,” “we,” “us,” “our,” “the
Company” and similar words refer to Zimmer Biomet Holdings,
Inc. and its subsidiaries. “Zimmer Biomet Holdings” refers to
the parent company only. “Zimmer” used alone refers to the
business or information of us and our subsidiaries on a stand-
alone basis without inclusion of the business or information of
LVB or any of its subsidiaries.

Significant Accounting Policies

Basis of Presentation – The consolidated financial
statements include the accounts of Zimmer Biomet Holdings
and its subsidiaries in which it holds a controlling financial
interest. All significant intercompany accounts and
transactions are eliminated. Certain amounts in the 2015 and
2014 consolidated financial statements have been reclassified
to conform to the 2016 presentation.

Use of Estimates – The consolidated financial statements

are prepared in conformity with accounting principles
generally accepted in the U.S. which require 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. Actual results could differ from those
estimates.

Foreign Currency Translation – The financial

statements of our foreign subsidiaries are translated into U.S.
Dollars using period-end exchange rates for assets and
liabilities and average exchange rates for operating results.
Unrealized translation gains and losses are included in
accumulated other comprehensive income in stockholders’
equity. When a transaction is denominated in a currency other
than the subsidiary’s functional currency, we recognize a
transaction gain or loss when the transaction is settled.

Foreign currency transaction gains and losses included in net
earnings for the years ended December 31, 2016, 2015 and
2014 were not significant.

Revenue Recognition – We sell product through three
principal channels: 1) direct to healthcare institutions, referred
to as direct channel accounts; 2) through stocking distributors
and healthcare dealers; and 3) directly to dental practices and
dental laboratories. The direct channel accounts represented
approximately 80 percent of our net sales in 2016. Through
this channel, inventory is generally consigned to sales agents
or customers so that products are available when needed for
surgical procedures. No revenue is recognized upon the
placement of inventory into consignment as we retain title and
maintain the inventory on our balance sheet. Upon
implantation, we issue an invoice and revenue is recognized.
Pricing for products is generally predetermined by contracts
with customers, agents acting on behalf of customer groups or
by government regulatory bodies, depending on the market.
Price discounts under group purchasing contracts are
generally linked to volume of implant purchases by customer
healthcare institutions within a specified group. At negotiated
thresholds within a contract buying period, price discounts
may increase.

Sales to stocking distributors, healthcare dealers, dental

practices and dental laboratories accounted for approximately
20 percent of our net sales in 2016. With these types of sales,
revenue is recognized when title to product passes, either
upon shipment of the product or in some cases upon
implantation of the product. Product is generally sold at
contractually fixed prices for specified periods. Payment terms
vary by customer, but are typically less than 90 days.
If sales incentives are earned by a customer for

purchasing a specified amount of our product, we estimate
whether such incentives will be achieved and, if so, recognize
these incentives as a reduction in revenue in the same period
the underlying revenue transaction is recognized. Occasionally,
products are returned and, accordingly, we maintain an
estimated sales return reserve that is recorded as a reduction
in revenue. Product returns were not significant for the years
ended December 31, 2016, 2015 and 2014.

Taxes collected from customers and remitted to
governmental authorities are presented on a net basis and
excluded from revenues.

Shipping and Handling – Amounts billed to customers

for shipping and handling of products are reflected in net sales
and are not significant. Expenses incurred related to shipping
and handling of products are reflected in selling, general and
administrative expenses and were $231.7 million,
$214.2 million and $181.9 million for the years ended
December 31, 2016, 2015 and 2014, respectively.

Research and Development – We expense all research

and development (“R&D”) costs as incurred except when
there is alternative future use for the R&D. R&D costs include
salaries, prototypes, depreciation of equipment used in R&D,
consultant fees and service fees paid to collaborative partners.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Where contingent milestone payments are due to third parties
under R&D arrangements, the milestone payment obligations
are expensed when the milestone results are achieved.

Litigation – We record a liability for contingent losses,

including future legal costs, settlements and judgments, when
we consider it is probable that a liability has been incurred and
the amount of the loss can be reasonably estimated.

Special Items – We recognize expenses resulting directly

from our business combinations, employee termination
benefits, certain R&D agreements, certain contract
terminations, consulting and professional fees and asset
impairment or loss on disposal charges connected with global
restructuring, quality and operational excellence initiatives,
and other items as “Special items” in our consolidated
statement of earnings. “Special items” included (in millions):

For the Years Ended December 31,

2016

2015

2014

Biomet-related

Merger consideration compensation

expense

Retention plans

–

Consulting and professional fees

220.4

Employee termination benefits

Dedicated project personnel

Relocated facilities

Certain litigation matters

Contract terminations

Information technology integration

Intangible asset impairment

Loss/impairment on assets

Other

50.8

79.8

19.1

2.5

39.9

14.3

30.0

13.0

17.5

$ 90.4

73.0

167.4

101.0

62.3

5.6

–

95.0

5.2

–

19.2

–

61.5

–

0.4

–

Total Biomet-related

487.3

619.1

61.9

Other

Consulting and professional fees

Employee termination benefits

Dedicated project personnel

Relocated facilities

Certain litigation matters

Contract terminations

Information technology integration

Intangible asset impairment

Loss/impairment on assets

LDR merger consideration
compensation expense

Contingent consideration adjustments

Certain R&D agreements

Distributor acquisitions

Other

Total Other

Special items

33.0

7.0

17.3

0.2

30.8

2.9

1.3

1.1

–

24.1

–

114.8

115.2

1.9

31.8

–

31.2

–

1.8

–

3.8

–

2.4

–

0.9

50.4

0.7

70.0

1.8

–

24.0

6.0

–

0.6

4.5

0.6

4.5

6.8

25.0

124.5

212.7

279.2

$611.8

$831.8

$341.1

Pursuant to the Biomet merger agreement, all outstanding

LVB stock options and LVB stock-based awards vested
immediately prior to the effective time of the merger, and
holders of these options and awards received a portion of the
aggregate merger consideration. Some of these options and
awards were already vested under the terms of LVB’s equity
incentive plans. We accounted for the fair value of the
consideration we paid in exchange for previously vested
options and awards as consideration to complete the merger.
As part of the merger agreement terms, all previously unvested
options and awards vested immediately prior to the effective
time of the merger. Under LVB’s equity incentive plans,
unvested options and awards would have otherwise been
forfeited. We have concluded that the discretionary
accelerated vesting of these unvested options and awards was
for the economic benefit of the combined company, and,
therefore, we classified the fair value of the merger
consideration we paid to holders of such unvested options and
awards of $90.4 million as compensation expense in 2015.
Under similar terms, a portion of LDR Holding Corporation
(“LDR”) stock options and LDR stock-based awards vested
immediately before the LDR merger and we recognized
compensation expense of $24.1 million in 2016.

Pursuant to the LVB merger agreement, retention plans

were established for certain Biomet employees and third-party
sales agents. Retention payments were earned by employees
and third-party sales agents who remained with Biomet
through the Closing Date. We recognized $73.0 million of
expense resulting from these retention plans in 2015.

Consulting and professional fees relate to third-party
integration consulting performed in a variety of areas such as
tax, compliance, logistics and human resources for our
business combinations and merger with Biomet; legal fees
related to the consummation of mergers and acquisitions and
certain litigation and compliance matters; third-party
consulting and professional fees and contract labor related to
our quality and operational excellence initiatives; third-party
fees related to severance and termination benefits matters; and
third-party consulting fees related to certain information
system integrations.

After the closing date of the Biomet merger, we started to
implement our integration plans to drive operational synergies.
Our Biomet integration plans are expected to run through
2018. Part of these integration plans included termination of
employees and certain contracts. Expenses attributable to
these integration plans that were recognized in the years
ended December 31, 2016 and 2015 as part of “Special items”
related to employee termination benefits and contract
termination expense associated with agreements with
independent agents, distributors, suppliers and lessors. We
expect to incur a total of $170 million for employee
termination benefits and $140 million for contract termination
expense. As of December 31, 2016, we have incurred a
cumulative total of $151.8 million for employee termination
benefits and $134.9 million for contract termination expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accordingly, our integration plans with respect to employee
termination benefits and contract termination expenses are
substantially complete. The following table summarizes the
liabilities related to these integration plans (in millions):

Employee
Termination
Benefits

Contract
Terminations

Total

Balance, December 31, 2015

$ 46.8

$ 56.0

$ 102.8

Additions

Cash payments

Foreign currency exchange rate

changes

50.8

39.9

90.7

(58.4)

(60.6)

(119.0)

(1.1)

(0.2)

(1.3)

Balance, December 31, 2016

$ 38.1

$ 35.1

$ 73.2

We have also recognized other employee termination
benefits related to LDR, other acquisitions and our operational
excellence initiatives.

Dedicated project personnel expenses include the salary,

benefits, travel expenses and other costs directly associated
with employees who are 100 percent dedicated to our quality
and operational excellence initiatives or integration of acquired
businesses.

Relocated facilities expenses are the moving costs and the

lease expenses incurred during the relocation period in
connection with relocating certain facilities.

Certain litigation matters relate to net expenses

recognized during the year for the estimated or actual
settlement of certain pending litigation and similar claims,
including matters where we recognized income from a
settlement on more favorable terms than our previous
estimate, or we reduced our estimate of a previously recorded
contingent liability. These litigation matters have included
royalty disputes, patent litigation matters, product liability
litigation matters and commercial litigation matters.
Contract termination costs relate to terminated
agreements in connection with the integration of acquired
companies and changes to our distribution model as part of
business restructuring and operational excellence initiatives.
The terminated contracts primarily relate to sales agents and
distribution agreements.

Information technology integration costs are
non-capitalizable costs incurred related to integrating
information technology platforms of acquired companies or
other significant software implementations as part of our
quality and operational excellence initiatives.

As part of the Biomet merger, we recognized

$209.0 million of intangible assets for in-process research and
development (“IPR&D”) projects. During 2016, we recorded an
impairment loss of $30.0 million related to these IPR&D
intangible assets. The impairment was primarily due to the
termination of certain IPR&D projects.

Loss/impairment on disposal of assets relates to assets

that we have sold or intend to sell, or for which the economic
useful life of the asset has been significantly reduced due to

integration or our quality and operational excellence
initiatives.

Contingent consideration adjustments represent the

changes in the fair value of contingent consideration
obligations to be paid to the prior owners of acquired
businesses.

Certain R&D agreements relate to agreements with
upfront payments to obtain intellectual property to be used in
R&D projects that have no alternative future use in other
projects.

Over the past few years we have acquired a number of
U.S. and foreign-based distributors. We have incurred various
costs related to the consummation and integration of those
businesses.

Cash and Cash Equivalents – We consider all highly
liquid investments with an original maturity of three months or
less to be cash equivalents. The carrying amounts reported in
the balance sheet for cash and cash equivalents are valued at
cost, which approximates their fair value.

Investments – We invest our excess cash and cash
equivalents in debt securities. Our investments include
corporate debt securities, U.S. government and agency debt
securities, foreign government debt securities, commercial
paper and certificates of deposit, and are classified and
accounted for as available-for-sale. Available-for-sale debt
securities are recorded at fair value on our consolidated
balance sheet. Investments with a contractual maturity of less
than one year are classified as short-term investments on our
consolidated balance sheet, or in other non-current assets if
the contractual maturity is greater than one year. Changes in
fair value for available-for-sale securities are recorded, net of
taxes, as a component of accumulated other comprehensive
loss on our consolidated balance sheet. We review our
investments for other-than-temporary impairment at each
reporting period. If an unrealized loss for any investment is
considered to be other-than-temporary, the loss will be
recognized in the consolidated statement of earnings in the
period the determination is made. See Note 7 for more
information regarding our investments.

Accounts Receivable – Accounts receivable consists of

trade and other miscellaneous receivables. We grant credit to
customers in the normal course of business and maintain an
allowance for doubtful accounts for potential credit losses. We
determine the allowance for doubtful accounts by geographic
market and take into consideration historical credit
experience, creditworthiness of the customer and other
pertinent information. We make concerted efforts to collect all
accounts receivable, but sometimes we have to write-off the
account against the allowance when we determine the account
is uncollectible. The allowance for doubtful accounts was
$51.6 million and $34.1 million as of December 31, 2016 and
2015, respectively.

Inventories – Inventories are stated at the lower of cost

or market, with cost determined on a first-in first-out basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, Plant and Equipment – Property, plant and
equipment is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based
on estimated useful lives of ten to forty years for buildings and
improvements and three to eight years for machinery and
equipment. Maintenance and repairs are expensed as incurred.
We review property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. An
impairment loss would be recognized when estimated future
undiscounted cash flows relating to the asset are less than its
carrying amount. An impairment loss is measured as the
amount by which the carrying amount of an asset exceeds its
fair value.

Software Costs – We capitalize certain computer software

and software development costs incurred in connection with
developing or obtaining computer software for internal use
when both the preliminary project stage is completed and it is
probable that the software will be used as intended.
Capitalized software costs generally include external direct
costs of materials and services utilized in developing or
obtaining computer software and compensation and related
benefits for employees who are directly associated with the
software project. Capitalized software costs are included in
property, plant and equipment on our balance sheet and
amortized on a straight-line or weighted average estimated
user basis when the software is ready for its intended use over
the estimated useful lives of the software, which approximate
three to fifteen years.

Instruments – Instruments are hand-held devices used by

surgeons during total joint replacement and other surgical
procedures. Instruments are recognized as long-lived assets
and are included in property, plant and equipment.
Undeployed instruments are carried at cost or realizable value.
Instruments in the field are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method based on average estimated useful lives, determined
principally in reference to associated product life cycles,
primarily five years. We review instruments for impairment
whenever events or changes in circumstances indicate that the
carrying value of an instrument may not be recoverable.
Depreciation of instruments is recognized as selling, general
and administrative expense.

Goodwill – Goodwill is not amortized but is subject to

annual impairment tests. Goodwill has been assigned to
reporting units. We perform annual impairment tests by either
comparing a reporting unit’s estimated fair value to its carrying
amount or doing a qualitative assessment of a reporting unit’s
fair value from the last quantitative assessment to determine if
there is potential impairment. We may do a qualitative
assessment when the results of the previous quantitative test
indicated the reporting unit’s estimated fair value was
significantly in excess of the carrying value of its net assets
and we do not believe there have been significant changes in
the reporting unit’s operations that would significantly

decrease its estimated fair value or significantly increase its
net assets. If a quantitative assessment is performed, the fair
value of the reporting unit and the implied fair value of
goodwill are determined based upon a discounted cash flow
analysis and/or use of a market approach by looking at market
values of comparable companies. Significant assumptions are
incorporated into our discounted cash flow analyses such as
estimated growth rates and risk-adjusted discount rates. We
perform this test in the fourth quarter of the year or whenever
events or changes in circumstances indicate that the carrying
value of the reporting unit’s assets may not be recoverable. If
the fair value of the reporting unit is less than its carrying
value, an impairment loss is recorded to the extent that the
implied fair value of the reporting unit goodwill is less than the
carrying value of the reporting unit goodwill. See Note 10 for
more information regarding goodwill.

Intangible Assets – Intangible assets are initially

measured at their fair value. We have determined the fair value
of our intangible assets either by the fair value of the
consideration exchanged for the intangible asset or the
estimated after-tax discounted cash flows expected to be
generated from the intangible asset. Intangible assets with an
indefinite life, including certain trademarks and trade names,
are not amortized. Indefinite life intangible assets are assessed
annually to determine whether events and circumstances
continue to support an indefinite life. Intangible assets with a
finite life, including core and developed technology, certain
trademarks and trade names, customer-related intangibles,
intellectual property rights and patents and licenses are
amortized on a straight-line basis over their estimated useful
life, ranging from less than one year to 20 years. Intangible
assets with a finite life are tested for impairment whenever
events or circumstances indicate that the carrying amount may
not be recoverable. Intangible assets with an indefinite life are
tested for impairment annually or whenever events or
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized if the carrying
amount exceeds the estimated fair value of the asset. The
amount of the impairment loss to be recorded would be
determined based upon the excess of the asset’s carrying value
over its fair value. The fair values of indefinite lived intangible
assets are determined based upon a discounted cash flow
analysis using the relief from royalty method or a qualitative
assessment may be performed for any changes to the asset’s
fair value from the last quantitative assessment. The relief
from royalty method estimates the cost savings associated with
owning, rather than licensing, assets. Significant assumptions
are incorporated into these discounted cash flow analyses such
as estimated growth rates, royalty rates and risk-adjusted
discount rates. We may do a qualitative assessment when the
results of the previous quantitative test indicated that the
asset’s fair value was significantly in excess of its carrying
value.

In determining the useful lives of intangible assets, we

consider the expected use of the assets and the effects of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

obsolescence, demand, competition, anticipated technological
advances, changes in surgical techniques, market influences
and other economic factors. For technology-based intangible
assets, we consider the expected life cycles of products, absent
unforeseen technological advances, which incorporate the
corresponding technology. Trademarks and trade names that
do not have a wasting characteristic (i.e., there are no legal,
regulatory, contractual, competitive, economic or other factors
which limit the useful life) are assigned an indefinite life.
Trademarks and trade names that are related to products
expected to be phased out are assigned lives consistent with
the period in which the products bearing each brand are
expected to be sold. For customer relationship intangible
assets, we assign useful lives based upon historical levels of
customer attrition. Intellectual property rights are assigned
useful lives that approximate the contractual life of any related
patent or the period for which we maintain exclusivity over the
intellectual property.

Income Taxes – We account for income taxes under the
asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the
financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences
between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized
in income in the period the new tax rate is enacted.

We reduce our deferred tax assets by a valuation
allowance if it is more likely than not that we will not realize
some portion or all of the deferred tax assets. In making such
determination, we consider all available positive and negative
evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax
planning strategies and recent financial operations. In the
event we were to determine that we would be able to realize
our deferred income tax assets in the future in excess of their
net recorded amount, we would make an adjustment to the
valuation allowance which would reduce the provision for
income taxes. Federal income taxes are provided on the
portion of the income of foreign subsidiaries that is expected
to be remitted to the U.S.

We operate on a global basis and are subject to numerous

and complex tax laws and regulations. Our income tax filings
are regularly under audit in multiple federal, state and foreign
jurisdictions. Income tax audits may require an extended
period of time to reach resolution and may result in significant
income tax adjustments when interpretation of tax laws or
allocation of company profits is disputed. Because income tax
adjustments in certain jurisdictions can be significant, we
record accruals representing management’s best estimate of
the probable resolution of these matters. To the extent
additional information becomes available, such accruals are
adjusted to reflect the revised estimated probable outcome.

Derivative Financial Instruments – We measure all
derivative instruments at fair value and report them on our
consolidated balance sheet as assets or liabilities. We maintain
written policies and procedures that permit, under appropriate
circumstances and subject to proper authorization, the use of
derivative financial instruments solely for risk management
purposes. The use of derivative financial instruments for
trading or speculative purposes is prohibited by our policy. See
Note 14 for more information regarding our derivative and
hedging activities.

Other Comprehensive Income (Loss) – Other
comprehensive income (loss) (“OCI”) refers to revenues,
expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income
but are excluded from net earnings as these amounts are
recorded directly as an adjustment to stockholders’ equity. Our
OCI is comprised of foreign currency translation adjustments,
unrealized gains and losses on cash flow hedges, unrealized
gains and losses on available-for-sale securities and
amortization of prior service costs and unrecognized gains and
losses in actuarial assumptions.

Treasury Stock – We account for repurchases of common

stock under the cost method and present treasury stock as a
reduction of stockholders’ equity. We reissue common stock
held in treasury only for limited purposes.

Noncontrolling Interest – We have an investment in
another company in which we have a controlling financial
interest, but not 100 percent of the equity. Further information
related to the noncontrolling interests of that investment has
not been provided as it is not significant to our consolidated
financial statements.

Accounting Pronouncements – In April 2015, the FASB

issued Accounting Standard Update (“ASU”) 2015-03 –
Simplifying the Presentation of Debt Issuance Costs. This ASU
requires debt issuance costs to be presented in the balance
sheet as a direct deduction from the carrying value of the
associated debt liability, consistent with the presentation of a
debt discount. This ASU does not affect the measurement and
recognition of debt issuance costs in our statement of earnings.
We adopted ASU 2015-03 in 2016 on a retrospective basis.
Accordingly, we reclassified the debt issuance costs on our
December 31, 2015 consolidated balance sheet, which
decreased long-term debt by $58.9 million, other current
assets by $9.2 million and other assets by $49.7 million.
In March 2016, the FASB issued ASU 2016-09 –

Improvements to Employee Share-Based Payment Accounting.
This ASU simplifies several aspects of the accounting for
employee share-based payments, including the accounting for
employer tax withholding on share-based compensation,
forfeitures and the financial statement presentation of excess
tax benefits and deficiencies. The ASU also clarifies the
statement of cash flows presentation for certain components of
share-based awards.

We elected to early adopt ASU 2016-09 in 2016. As a
result of the adoption, we are required to recognize excess tax

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benefits in our provision for income taxes, rather than paid-in
capital. The ASU required prospective application of this
provision and therefore 2015 and 2014 have not been restated.
Additionally, ASU 2016-09 requires us to amend the
presentation of employee shared-based payment-related items
in our statement of cash flows as follows: (i) excess tax
benefits are presented as an operating activity (such cash
flows were previously included in cash flows from financing
activities), and (ii) cash paid for employee taxes on withheld
shares from equity awards is presented as a financing activity
(such cash flows were previously included in cash flows from
operating activities). We elected to apply the change in cash
flow classification for excess tax benefits on a prospective
basis. Further, we applied the change in cash flow
classification for cash paid for withheld shares on a
retrospective basis, as required.

We also elected to continue to estimate the number of

forfeitures related to share-based payments, rather than
account for forfeitures as they occur.

We recognized excess tax benefits of $13.3 million in our
provision for income taxes rather than paid-in capital for the
year ended December 31, 2016. The retrospective application
of cash paid for withheld shares resulted in an $11.1 million
and $7.7 million reclassification of these cash outflows from
net cash provided by operating activities to net cash (used in)
provided by financing activities on our consolidated statement
of cash flows for the years ended December 31, 2015 and 2014,
respectively.

In August 2016 the FASB issued ASU 2016-15 –

Classification of Certain Cash Receipts and Cash Payments.
This ASU provided guidance on eight issues which were not
specifically addressed under previous GAAP. The only issue of
significance to us provided guidance that cash payments for
debt prepayment or debt extinguishment costs should be
classified as cash outflows from financing activities. We early
adopted this ASU in 2016, and as a result, classified
$38.5 million of early tender debt premium costs as cash
outflows from financing activities. The ASU required a
retrospective transition method, which resulted in a
reclassification of $22.0 million of debt extinguishment cash
outflows from net cash provided by operating activities to net
cash (used in) provided by financing activities in the year
ended December 31, 2015.

In May 2014, the FASB issued ASU 2014-09 – Revenue

from Contracts with Customers (Topic 606). This ASU
provides a five-step model for revenue recognition that all
industries will apply to recognize revenue when a customer
obtains control of a good or service. The ASU will be effective
for us beginning January 1, 2018. Entities are permitted to
apply the standard and related amendments either
retrospectively to each prior reporting period presented or
retrospectively with the cumulative effect of initially applying
the ASU recognized at the date of initial application.

During the fourth quarter of 2016, we commenced an
initial evaluation of the new standard and a related assessment

and review of a representative sample of existing revenue
contracts with our customers. We are currently unable to
estimate the impact, if any, of the new standard on the timing
and pattern of our revenue recognition. It is likely we will be
required to provide additional disclosures in the notes to the
consolidated financial statements upon adoption. We have not
yet determined the effect of the ASU on our internal control
over financial reporting or other changes in business practices
and processes but will do so in the design and implementation
phase to occur over the next year. We continue to evaluate the
available adoption methods. Our evaluation of ASU 2014-09 is
ongoing and not complete.

In February 2016, the FASB issued ASU 2016-02 – Leases.
This ASU requires lessees to recognize right-of-use assets and
lease liabilities on the balance sheet. This ASU will be effective
for us beginning January 1, 2019. Early adoption is permitted.
The ASU must be adopted using a modified retrospective
transition approach at the beginning of the earliest
comparative period in the consolidated financial statements.
We own most of our manufacturing facilities, but lease various
office space throughout the world. We are currently evaluating
the impact this ASU will have on our consolidated financial
statements.

In October 2016, the FASB issued ASU 2016-16 – Intra-
Entity Asset Transfers of Assets Other than Inventory. The
ASU changes the accounting for the tax effects of intra-entity
asset transfers/sales. Under current GAAP, the tax effects of
intra-entity asset transfers/sales are deferred until the
transferred asset is sold to a third party or otherwise recovered
through use. Under the new guidance, the tax expense from
the sale of the asset in the seller’s tax jurisdiction is recognized
when the transfer occurs, even though the pre-tax effects of
that transaction are eliminated in consolidation. Any deferred
tax asset that arises in the buyer’s jurisdiction would also be
recognized at the time of the transfer. The new guidance does
not apply to intra-entity transfers/sales of inventory. In the
past, we have transferred intellectual property intra-entity
which, under current GAAP, resulted in deferring the tax
impact on the selling entity. We are still assessing the impact
this ASU may have on us. The ASU will be effective for us on
January 1, 2018, with early adoption permitted. The modified
retrospective approach will be required for transition to the
new guidance, with a cumulative-effect adjustment recorded in
retained earnings as of the beginning of the period of adoption
for intra-entity transfers/sales executed prior to that date.

There are no other recently issued accounting
pronouncements that we have not yet adopted that are
expected to have a material effect on our financial position,
results of operations or cash flows.

Business Combinations

Biomet Merger

We completed our merger with LVB, the parent company
of Biomet, on June 24, 2015. We paid $12,030.3 million in cash

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and stock and assumed Biomet’s senior notes. The total
amount of merger consideration utilized for the acquisition
method of accounting, as reduced by the merger consideration
paid to holders of unvested LVB stock options and LVB stock-
based awards of $90.4 million, was $11,939.9 million.

In the three month period ended June 30, 2016, we
finalized our valuation of the assets acquired and liabilities
assumed in the Biomet merger. The measurement period
adjustments in 2016 primarily related to refinements to
intangible assets for certain less significant brands, the
finalization of tax accounts, including the allocation of acquired
intangible assets and goodwill on a jurisdictional basis, and
finalizing the estimation of certain contingent liabilities. All
other adjustments were not significant. Under GAAP,
measurement period adjustments are recognized on a
prospective basis in the period of change, instead of restating
prior periods. With respect to intangible asset amortization
expense, the adjustments resulted in a decrease of $6.7 million
in the year ended December 31, 2016, which related to the
year ended December 31, 2015 on a retrospective basis. With
respect to inventory fair value, an adjustment was made which
decreased cost of products sold, excluding intangible asset
amortization, by $4.6 million in the year ended December 31,
2016, which related to the year ended December 31, 2015 on a
retrospective basis. Through the finalization of tax accounts,
we recognized an increase in our provision for income taxes of
$52.7 million in the year ended December 31, 2016, which
related to the year ended December 31, 2015 on a
retrospective basis.

The following table summarizes the estimated fair values

of the assets acquired and liabilities assumed at the closing
date of the Biomet merger (in millions):

Cash
Accounts receivable, net
Inventory
Other current assets
Property, plant and equipment
Intangible assets not subject to amortization:

Trademarks and trade names
In-process research and development (IPR&D)

Intangible assets subject to amortization:

Technology
Customer relationships
Trademarks and trade names

Other assets
Goodwill

Total assets acquired

Current liabilities
Long-term debt
Deferred taxes
Other long-term liabilities

Total liabilities assumed

Net assets acquired

Final Values

494.8
527.9
1,224.1
25.4
775.3

479.0
209.0

2,332.1
4,961.0
360.0
42.6
7,433.2

18,864.4

584.0
2,740.0
3,497.6
102.9

6,924.5

$11,939.9

This table does not reflect $139.9 million of net

adjustments to the assets acquired and liabilities assumed that
were recognized after the measurement period. We have
evaluated the effect of these out-of-period adjustments and
concluded for both quantitative and qualitative reasons that
these adjustments were not material to any of the periods
affected.

The following table sets forth unaudited pro forma
financial information derived from (i) the audited financial
statements of Zimmer for the years ended December 31, 2015
and 2014; and (ii) the unaudited financial statements of LVB
for the period January 1, 2015 to June 23, 2015 and for the
year ended December 31, 2014. The pro forma financial
information has been adjusted to give effect to the merger as if
it had occurred on January 1, 2014.

Pro Forma Financial Information
(Unaudited)

Net Sales

Net Earnings

Year Ended December 31,

2015

2014

(in millions)

$7,517.7

$ 330.2

$7,965.2

$ 320.3

These unaudited pro forma results have been prepared for

comparative purposes only and include adjustments such as
inventory step-up, amortization of acquired intangible assets
and interest expense on debt incurred to finance the merger.
Material, nonrecurring pro forma adjustments directly
attributable to the Biomet merger include:
(cid:129) The $90.4 million of merger compensation expense for

unvested LVB stock options and LVB stock-based awards
was removed from net earnings for the year ended
December 31, 2015 and recognized as an expense in the year
ended December 31, 2014.

(cid:129) The $73.0 million of retention plan expense was removed from

net earnings for the year ended December 31, 2015 and
recognized as an expense in the year ended December 31, 2014.

(cid:129) Transaction costs of $17.7 million were removed from net

earnings for the year ended December 31, 2015 and recognized
as an expense in the year ended December 31, 2014.

LDR Merger

On July 13, 2016, we completed our merger with LDR. We

paid cash of $1,138.0 million. The total amount of merger
consideration utilized for the acquisition method of accounting,
as reduced by the merger consideration paid to holders of
unvested LDR stock options and LDR stock-based awards of
$24.1 million, was $1,113.9 million.

The addition of LDR provides us with an immediate

position in the growing cervical disc replacement (“CDR”)
market. The combination positions us to accelerate the growth
of our Spine business through the incremental revenues
associated with entry into the CDR market and cross-portfolio
selling opportunities to both Zimmer Biomet and LDR

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

customer bases. The goodwill is generated from the
operational synergies and cross-selling opportunities we
expect to achieve from our combined operations. None of the
goodwill is expected to be deductible for tax purposes.

The purchase price allocation as of December 31, 2016 is
preliminary. The primary tasks to be completed related to our
purchase price accounting are finalizing tax accounts,

including, but not limited to, the allocation of acquired
intangible assets and goodwill on a jurisdictional basis. There
may be differences between the preliminary estimates of fair
value and the final acquisition accounting, which differences
could be material. The final estimates of fair value are
expected to be completed as soon as possible, but no later
than July 13, 2017.

The following table summarizes the preliminary estimates of fair value of the assets acquired and liabilities assumed in the LDR

merger (in millions):

Cash

Accounts receivable, net

Inventory

Other current assets

Property, plant and equipment

Intangible assets not subject to amortization:

In-process research and development (IPR&D)

Intangible assets subject to amortization:

Technology

Customer relationships

Trademarks and trade names

Other assets

Goodwill

Total assets acquired

Current liabilities

Long-term debt

Deferred taxes

Other long-term liabilities

Total liabilities assumed

Net assets acquired

The weighted average amortization period selected for

trademarks and trade names, technology and customer
relationship intangible assets was 18 years, 18 years and 20
years, respectively.

We have not included pro forma information and certain
other information under GAAP for the LDR merger because it
did not have a material impact on our financial position or
results of operations.

Other 2016 Acquisitions

In 2016, we made a number of individually immaterial
acquisitions of companies including Cayenne Medical, Inc.
(“Cayenne Medical”), a sports medicine company,
Compression Therapy Concepts, Inc. (“CTC”), a provider of
non-invasive products for the prevention of deep vein
thrombosis, CD Diagnostics, Inc. (“CD Diagnostics”), a
medical diagnostic testing company, and MedTech SA
(“MedTech”), a designer and manufacturer of robotic
equipment for brain and spine surgeries. The total aggregate
cash consideration was $441.7 million. These acquisitions were

July 13, 2016
(initial)

Adjustments

July 13, 2016
(as adjusted)

92.8

31.2

86.5

5.6

24.7

2.0

431.0

132.0

77.0

17.4

–

13.1

–

21.0

(14.0)

(6.0)

59.4

527.1

(44.7)

1,427.3

53.3

0.5

259.1

0.5

313.4

28.8

22.6

–

6.4

(0.2)

28.8

92.8

31.2

99.6

5.6

24.7

2.0

452.0

118.0

71.0

76.8

482.4

1,456.1

75.9

0.5

265.5

0.3

342.2

$1,113.9

–

$1,113.9

completed primarily to expand our product offerings. We have
assigned a preliminary fair value of $61.6 million for
settlement of preexisting relationships and additional
payments related to these acquisitions that are contingent on
the respective acquired companies’ product sales, commercial
milestones and certain cost savings. The estimated fair value
of the aggregate contingent payment liabilities was calculated
based on the probability of achieving the specified sales
growth, cost savings and commercial milestones and
discounting to present value the estimated payments. The
goodwill is generated from the operational synergies and
cross-selling opportunities we expect to achieve from the
technologies acquired. None of the goodwill related to these
acquisitions is expected to be deductible for tax purposes.

The purchase price allocations as of December 31, 2016

are preliminary. The primary tasks to be completed related to
our purchase price accounting are refinements to certain
intangible assets, finalizing tax accounts, including, but not
limited to, the allocation of acquired intangible assets and
goodwill on a jurisdictional basis, and finalizing the estimated

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Plan”) and the TeamShare Stock Option Plan (“TeamShare
Plan”). No further awards have been granted under the 2006
Plan or under the TeamShare Plan since May 2009, and shares
remaining available for grant under those plans have been
merged into the 2009 Plan. Vested stock options previously
granted under the 2006 Plan and the TeamShare Plan
remained outstanding as of December 31, 2016. We have
reserved the maximum number of shares of common stock
available for award under the terms of each of these plans. We
have registered 61.6 million shares of common stock and
expect to register an additional 10.0 million shares of common
stock under these plans. The 2009 Plan provides for the grant
of nonqualified stock options and incentive stock options,
long-term performance awards in the form of performance
shares or units, restricted stock, RSUs and stock appreciation
rights. The Compensation and Management Development
Committee of the Board of Directors determines the grant
date for annual grants under our equity compensation plans.
The date for annual grants under the 2009 Plan to our
executive officers is expected to occur in the first quarter of
each year following the earnings announcements for the
previous quarter and full year. The Stock Plan for
Non-Employee Directors provides for awards of stock options,
restricted stock and RSUs to non-employee directors. It has
been our practice to issue shares of common stock upon
exercise of stock options from previously unissued shares,
except in limited circumstances where they are issued from
treasury stock. The total number of awards which may be
granted in a given year and/or over the life of the plan under
each of our equity compensation plans is limited. At
December 31, 2016, an aggregate of 13.1 million shares were
available for future grants and awards under these plans.

Stock options granted to date under our plans vest over
four years and have a maximum contractual life of 10 years. As
established under our equity compensation plans, vesting may
accelerate upon retirement after the first anniversary date of
the award if certain criteria are met. We recognize expense
related to stock options on a straight-line basis over the
requisite service period, less awards expected to be forfeited
using estimated forfeiture rates. Due to the accelerated
retirement provisions, the requisite service period of our stock
options range from one to four years. Stock options are
granted with an exercise price equal to the market price of our
common stock on the date of grant, except in limited
circumstances where local law may dictate otherwise.

fair values of contingent liabilities. There may be differences
between the preliminary estimates of fair value and the final
acquisition accounting. The final estimates of fair value are
expected to be completed as soon as possible, but no later
than one year after the respective acquisition dates.

The following table summarizes the aggregate preliminary

estimates of fair value of the assets acquired and liabilities
assumed related to the Cayenne Medical, CTC, CD
Diagnostics, MedTech, and other immaterial acquisitions that
occurred during 2016 (in millions):

Current assets

Property, plant and equipment

Intangible assets

Goodwill

Other assets

Total assets acquired

Current liabilities

Long-term liabilities

Total liabilities assumed

Net assets acquired

$ 64.2

3.9

211.3

340.0

7.9

627.3

13.6

110.4

124.0

$503.3

The weighted average amortization period selected for

the intangible assets is 9.9 years.

We have not included pro forma information and certain
other information under GAAP for these acquisitions because
they did not have a material impact on our financial position or
results of operations.

Share-Based Compensation

Our share-based payments primarily consist of stock
options and restricted stock units (“RSUs”). Share-based
compensation expense was as follows (in millions):

For
the Years Ended December 31,

2016

2015

2014

57.3
(31.5)

46.4
(14.5)

49.4
(15.5)

$ 25.8

$ 31.9

$ 33.9

Total expense, pre-tax
Tax benefit related to awards

Total expense, net of tax

Stock Options

We had two equity compensation plans in effect at
December 31, 2016: the 2009 Stock Incentive Plan (“2009
Plan”) and the Stock Plan for Non-Employee Directors. The
2009 Plan succeeded the 2006 Stock Incentive Plan (“2006

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of stock option activity for the year ended December 31, 2016 is as follows (options in thousands):

Outstanding at January 1, 2016

Options granted

Options exercised

Options forfeited

Options expired

Outstanding at December 31, 2016

Vested or expected to vest as of December 31, 2016

Exercisable at December 31, 2016

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life

Intrinsic
Value
(in millions)

Stock
Options

7,931

$ 78.73

2,109

105.97

(1,786)

73.37

(312)

104.58

(41)

83.00

7,901

$ 86.21

7,377

$ 84.90

4,316

$ 72.23

6.2

6.0

4.1

$149.6

$148.4

$136.6

We use a Black-Scholes option-pricing model to
determine the fair value of our stock options. Expected
volatility was derived from a combination of historical volatility
and implied volatility because the traded options that were
actively traded around the grant date of our stock options did
not have maturities of over one year. The expected term of the
stock options has been derived from historical employee
exercise behavior. The risk-free interest rate was determined
using the implied yield currently available for zero-coupon
U.S. government issues with a remaining term approximating
the expected life of the options. The dividend yield was
determined by using an estimated annual dividend and
dividing it by the market price of our stock on the grant date.

The following table presents information regarding the

weighted average fair value of stock options granted, the
assumptions used to determine fair value, and the intrinsic
value of options exercised in the indicated year:

RSUs

We have awarded RSUs to certain of our employees. The
terms of the awards have been two to four years. Some of the
awards have only service conditions while some have
performance and market conditions in addition to service
conditions. The service condition-only awards vest ratably on
the anniversary date of the award. The awards that have
performance and market conditions vest all at once on the
third anniversary date. Future service conditions may be
waived if an employee retires after the first anniversary date of
the award, but performance and market conditions continue to
apply. Accordingly, the requisite service period used for share-
based payment expense on our RSUs range from one to four
years.

A summary of nonvested RSU activity for the year ended

December 31, 2016 is as follows (RSUs in thousands):

Dividend yield

Volatility

Risk-free interest rate

Expected life (years)

Weighted average fair value of options

For the Years Ended December 31,

2016

2015

2014

0.9%

0.8%

0.9%

21.9% 22.2% 25.2%

1.4%

1.7%

1.8%

5.3

5.5

Outstanding at January 1, 2016

Granted

Vested

Forfeited

Weighted Average
Grant Date
Fair Value

$ 91.64

107.90

77.79

88.49

RSUs

1,300

623

(236)

(293)

granted

$21.30

$22.30

$22.59

Outstanding at December 31, 2016

1,394

102.04

Intrinsic value of options exercised

(in millions)

$ 73.0

$ 49.4

$ 99.6

For the RSUs with service conditions only, the fair value

As of December 31, 2016, there was $53.0 million of

unrecognized share-based payment expense related to
nonvested stock options granted under our plans. That
expense is expected to be recognized over a weighted average
period of 2.9 years.

of the awards was determined based upon the fair market
value of our common stock on the date of grant. For the RSUs
with market conditions, a Monte Carlo valuation technique was
used to simulate the market conditions of the awards. The
outcome of the simulation was used to determine the fair
value of the awards.

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2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We are required to estimate the number of RSUs that will

vest and recognize share-based payment expense on a
straight-line basis over the requisite service period. As of
December 31, 2016, we estimate that approximately 1,044,000
outstanding RSUs will vest. If our estimate were to change in
the future, the cumulative effect of the change in estimate will
be recorded in that period. Based upon the number of RSUs
that we expect to vest, the unrecognized share-based payment
expense as of December 31, 2016 was $49.4 million and is
expected to be recognized over a weighted-average period of
2.5 years. The fair value of RSUs vesting during the years
ended December 31, 2016, 2015 and 2014 based upon our
stock price on the date of vesting was $25.5 million,
$40.6 million, and $29.3 million, respectively.

Inventories

Inventories consisted of the following (in millions):

Amounts charged to the consolidated statement of
earnings for excess and obsolete inventory in the years ended
December 31, 2016, 2015 and 2014 were $195.4 million,
$118.4 million, and $51.8 million, respectively. The increase in
the 2016 period primarily resulted from our decision to
discontinue certain products.

Property, Plant and Equipment

Property, plant and equipment consisted of the following

(in millions):

Land

Building and equipment

Capitalized software costs

Instruments

As of December 31,

Construction in progress

2016

2015

$1,556.9

$1,827.9

Accumulated depreciation

As of December 31,

2016

2015

37.0

39.6

1,789.9

1,789.3

397.2

330.1

2,347.6

2,160.5

99.8

108.4

4,671.5

4,427.9

(2,633.6)

(2,365.3)

Finished goods

Work in progress

Raw materials

Inventories

Finished goods inventory as of December 31, 2016 and
2015 includes $35.3 million and $284.4 million, respectively, to
step-up acquired inventory to fair value.

141.7

260.8

146.1

280.1

$1,959.4

$2,254.1

Property, plant and equipment, net

$ 2,037.9

$ 2,062.6

Depreciation expense was $466.7 million, $375.0 million,

and $268.6 million for the years ended December 31, 2016,
2015 and 2014, respectively.

Investments

Information regarding our investments is as follows (in millions):

As of December 31, 2015
Corporate debt securities
U.S. government and agency debt securities
Commercial paper
Certificates of deposit

Total short and long-term investments

In 2016, we either sold or allowed our investments to

mature and did not reinvest the cash.

Transfers of Financial Assets

In 2016, we executed receivables purchase arrangements

to liquidate portions of our accounts receivable balance with
unrelated third parties for factoring of specific accounts
receivable. The factorings were treated as sales of our
accounts receivable in accordance with FASB ASC 860,
Transfers and Servicing.

Proceeds from the transfers reflect either the face value

of the account or the face value less factoring fees. Interest

Gross Unrealized

Amortized
Cost

Gains

Losses

Fair
value

$245.7
21.6
4.2
2.0

$0.1
–
–
–

$(0.4) $245.4
21.5
4.2
2.0

(0.1)
–
–

$273.5

$0.1

$(0.5) $273.1

charged on the transferred account balance and factoring fees
are recorded as a charge to interest expense in our
consolidated statements of earnings in the period the
expenses are incurred. We act as the collection agent on
behalf of the third party for portions of the arrangements, but
have no significant retained interests or servicing liabilities
related to the accounts receivable sold. In order to mitigate
credit risk related to portions of our factoring of accounts
receivable, we purchased credit insurance for the factored
accounts receivable. The result is our risk of loss being limited
to the factored accounts receivable not covered by the
insurance, which we do not believe to be significant.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Funds received from the transfers are recorded as an

increase to cash and a reduction to accounts receivable
outstanding in the consolidated balance sheets. We report the
cash flows attributable to the sale of receivables to third
parties and the cash receipts from collections made on behalf
of and paid to third parties as trade accounts receivables in
cash flows from operating activities in our consolidated
statements of cash flows.

In the year ended December 31, 2016, the Company
factored approximately $103.1 million of accounts receivable
pursuant to the arrangements. For the year ended
December 31, 2016, the Company incurred minimal expenses
related to the factoring.

Fair Value Measurements of Assets and Liabilities

The following financial assets and liabilities are recorded

at fair value on a recurring basis (in millions):

As of December 31, 2016

Fair Value Measurements
at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Recorded
Balance

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Description

Assets

Derivatives, current and

long-term

Foreign currency

forward contracts

Interest rate swaps

$65.3

4.0

$69.3

Liabilities

Derivatives, current and

long-term

Foreign currency

forward contracts

$ 0.3

Contingent payments

related to acquisitions

62.8

$63.1

$–

–

$–

–

$–

$65.3

4.0

$69.3

–

$ 0.3

–

62.8

$ 0.3

$62.8

As of December 31, 2015

Fair Value Measurements
at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Recorded
Balance

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Description

Assets

Available-for-sale securities

Corporate debt securities $245.4

$–

$245.4

$–

U.S. government and

agency debt securities

21.5

Commercial paper

Certificates of deposit

4.2

2.0

Total available-for-sale

securities

273.1

Derivatives, current and

long-term

Foreign currency

forward contracts

Interest rate swaps

96.9

26.8

–

21.5

4.2

2.0

273.1

96.9

26.8

–

$396.8

$–

$396.8

$–

Liabilities

Derivatives, current and

long-term

Foreign currency

forward contracts

1.6

$ 1.6

–

$–

1.6

$ 1.6

–

$–

We value our available-for-sale securities using a market

approach based on broker prices for identical assets in
over-the-counter markets and we perform ongoing
assessments of counterparty credit risk.

We value our foreign currency forward contracts and

foreign currency options using a market approach based on
foreign currency exchange rates obtained from active markets
and we perform ongoing assessments of counterparty credit
risk.

We value our interest rate swaps using a market approach
based on publicly available market yield curves and the terms
of our swaps and we perform ongoing assessments of
counterparty credit risk.

Contingent payments related to acquisitions consist of
commercial milestone, cost savings and sales-based payments,
and are valued using discounted cash flow techniques. The fair
value of commercial milestone payments reflects
management’s expectations of probability of payment, and
increases as the probability of payment increases or
expectation of timing of payments is accelerated. The fair
value of cost savings and sales-based payments is based upon
probability-weighted future cost savings and revenue
estimates, and increases as cost savings and revenue estimates

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2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

increase, probability weighting of higher cost savings and
revenue scenarios increase or expectation of timing of
payment is accelerated. The majority of these contingent
payments are related to acquisitions that have occurred in
2016 for which the acquisition method of accounting is

10. Goodwill and Other Intangible Assets

preliminary. Therefore, we recognized minimal gains and
losses related to these contingent payments in our
consolidated statement of earnings for the year ended
December 31, 2016.

The following table summarizes the changes in the carrying amount of goodwill (in millions):

Immaterial
Product Category
Operating
Segments

Asia
Pacific

Total

Americas

EMEA

$ 931.1

$1,157.3

$148.2

$ 650.6

$ 2,887.2

–

(373.0)

931.1

1,157.3

6,445.2

225.6

148.2

408.1

277.6

495.0

2,514.2

7,573.9

(48.3)

(91.9)

(7.4)

(6.3)

(153.9)

7,328.0

1,291.0

548.9

1,139.3

10,307.2

–

(373.0)

7,328.0

1,291.0

548.9

31.9

–

284.8

(8.0)

(61.3)

–

34.3

–

(10.2)

(53.6)

(0.3)

766.3

(8.3)

482.4

20.9

(2.9)

9,934.2

(45.7)

482.4

340.0

(67.0)

7,634.5

1,263.7

487.3

1,631.4

11,016.9

–

(373.0)

$7,634.5

$1,263.7

$487.3

$1,258.4

$10,643.9

Balance at January 1, 2015

Goodwill

Accumulated impairment losses

Biomet Merger

Currency translation

Balance at December 31, 2015

Goodwill

Accumulated impairment losses

Biomet purchase accounting adjustments

LDR purchase accounting

Other acquisitions

Currency translation

Balance at December 31, 2016

Goodwill

Accumulated impairment losses

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2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of identifiable intangible assets were as follows (in millions):

As of December 31, 2016:

Intangible assets subject to amortization:

Gross carrying amount

Accumulated amortization

Intangible assets not subject to amortization:

Gross carrying amount

Intellectual
Property
Rights

Trademarks
and Trade
Names

Customer
Relationships

Technology

IPR&D

Other

Total

$3,599.4

$ 181.6

$ 626.1

$5,303.5

(806.8)

(172.3)

(80.8)

(566.0)

–

$135.7

$ 9,846.3

(70.4)

(1,696.3)

–

475.1

–

160.3

–

635.4

Total identifiable intangible assets

$2,792.6

9.3

$1,020.4

$4,737.5

$160.3

$ 65.3

$ 8,785.4

As of December 31, 2015:

Intangible assets subject to amortization:

Gross carrying amount

Accumulated amortization

Intangible assets not subject to amortization:

Gross carrying amount

$3,161.6

$ 181.0

$ 583.3

$5,133.0

(591.9)

(164.8)

(50.9)

(269.6)

–

$101.8

$ 9,160.7

(64.8)

(1,142.0)

–

479.0

–

248.6

–

727.6

Total identifiable intangible assets

$2,569.7

$ 16.2

$1,011.4

$4,863.4

$248.6

$ 37.0

$ 8,746.3

Estimated annual amortization expense based upon
intangible assets recognized as of December 31, 2016 for the
years ending December 31, 2017 through 2021 is (in millions):

For the Years Ending December 31,

2017

2018

2019

2020

2021

$587.4

568.2

554.0

552.3

546.8

11. Other Current and Long-term Liabilities

Other current and long-term liabilities consisted of the

following (in millions):

12. Debt

Our debt consisted of the following (in millions):

As of December 31,

2016

2015

Current portion of long-term debt

1.450% Senior Notes due 2017

500.0

U.S. Term Loan B

Other short-term debt

75.0

0.6

Total short-term debt

575.6

–

Long-term debt

1.450% Senior Notes due 2017

2.000% Senior Notes due 2018
4.625% Senior Notes due 2019

As of December 31,

2.700% Senior Notes due 2020

2016

2015

Other current liabilities:

License and service agreements

$ 168.0

$ 144.1

Certain claims accrual (Note 20)

Salaries, wages and benefits

Accrued liabilities

75.0

225.8

789.1

50.0

265.9

725.9

Total other current liabilities

$1,257.9

$1,185.9

Other long-term liabilities:

Certain claims accrual (Note 20)

Other long-term liabilities

218.6

717.7

264.6

741.1

3.375% Senior Notes due 2021

3.150% Senior Notes due 2022

3.550% Senior Notes due 2025

4.250% Senior Notes due 2035

5.750% Senior Notes due 2039

4.450% Senior Notes due 2045

1.414% Euro Notes due 2022

2.425% Euro Notes due 2026

U.S. Term Loan A

U.S. Term Loan B

Japan Term Loan

Other long-term debt

Debt discount and issuance costs

Total other long-term liabilities

$ 936.3

$1,005.7

Adjustment related to interest rate swaps

–

500.0

1,150.0
500.0

1,500.0

300.0

750.0

1,150.0
500.0

1,500.0

300.0

750.0

2,000.0

253.4

317.8

395.4

527.4

500.0

1,250.0

–

1,700.0

2,500.0

675.0

99.6

4.2

(65.8)

31.4

–

96.8

4.6

(80.8)

26.8

Total long-term debt

$10,665.8

$11,497.4

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2016, our total debt consisted of
$7.67 billion aggregate principal amount of our U.S dollar-
denominated senior notes (“senior notes”), $1.7 billion
outstanding under a U.S. term loan (“U.S. Term Loan A”),
$750 million outstanding under a U.S. term loan (“U.S. Term
Loan B”), $1.1 billion aggregate principal amount of our Euro-
denominated senior notes (“Euro notes”), an 11.7 billion
Japanese Yen term loan agreement (“Japan Term Loan”) that
will mature on May 31, 2018, and other debt and fair value
adjustments totaling $36.2 million, partially offset by debt
discount and issuance costs of $65.8 million.

On December 13, 2016, we completed the offering of
€500 million aggregate principal amount of our 1.414% Euro
notes due December 13, 2022 and €500 million aggregate
principal amount of our 2.425% Euro notes due December 13,
2026. Interest is payable on each series of Euro notes on
December 13 of each year until maturity. We received net
proceeds of $1,073.5 million. These proceeds were used to
repay the following portions of the Merger Notes:
$246.6 million of the 4.250% Senior Notes due 2035,
$182.2 million of the 5.750% Senior Notes due 2039, and
$854.6 million of the 4.450% Senior Notes due 2045.

As a result, we recorded a loss on the extinguishment of

debt in the amount of $53.3 million in our consolidated
statement of earnings for the year ended December 31, 2016 in
other expense, net. The components of this loss were
$66.4 million from portions of the pre-issuance hedge losses
related to the Senior Notes due 2045 and $20.3 million from
portions of the original debt issuance costs and debt discount
offset by the gain of $33.4 million, calculated as the difference
between the net carrying amount of the debt of $1,283.4
million and the reacquisition price of $1,250.0 million.

On September 30, 2016, we entered into a revolving credit
and term loan agreement (the “2016 Credit Agreement”) and a
first amendment to our credit agreement entered into on
May 29, 2014 (the “2014 Credit Agreement”). The 2016 Credit
Agreement contains the U.S. Term Loan B, which is a three-
year unsecured term loan facility of $750.0 million, and a five-
year unsecured multicurrency revolving facility of $1.5 billion
(the “Multicurrency Revolving Facility”). The Multicurrency
Revolving Facility replaced the previous multicurrency
revolving facility under the 2014 Credit Agreement. On
September 30, 2016, we borrowed $750.0 million under the
U.S. Term Loan B and utilized those borrowings to repay
outstanding borrowings under the previous multicurrency
revolving facility incurred in connection with the acquisition of
LDR. The previous multicurrency revolving facility was
terminated effective September 30, 2016. The 2014 Credit
Agreement also provided for the U.S. Term Loan A, which is a
5-year unsecured term loan facility in the original principal
amount of $3.0 billion, which term loan facility remains in
effect.

The Multicurrency Revolving Facility will mature on
September 30, 2021, with two available one-year extensions at
our discretion. Borrowings under the Multicurrency Revolving

Facility will be used for general corporate purposes.
Borrowings under the 2014 and 2016 Credit Agreements bear
interest at floating rates based upon indices determined by the
currency of the borrowing, or at an alternate base rate, in each
case, plus an applicable margin determined by reference to our
senior unsecured long-term credit rating, or, in the case of
borrowings under the Multicurrency Revolving Facility only, at
a fixed rate determined through a competitive bid process. We
pay a facility fee on the aggregate amount of the Multicurrency
Revolving Facility at a rate determined by reference to our
senior unsecured long-term credit rating.

The 2016 Credit Agreement and 2014 Credit Agreement,

as amended, contain customary affirmative and negative
covenants and events of default for unsecured financing
arrangements, including, among other things, limitations on
consolidations, mergers and sales of assets. Financial
covenants under the 2016 and 2014 Credit Agreements include
a consolidated indebtedness to consolidated EBITDA ratio of
no greater than 5.0 to 1.0 through June 30, 2017, and no
greater than 4.5 to 1.0 thereafter. If our credit rating falls
below investment grade, additional restrictions would result,
including restrictions on investments and payment of
dividends. We were in compliance with all covenants under the
2016 and 2014 Credit Agreements as of December 31, 2016.
On June 24, 2015, we borrowed $3.0 billion under U.S.
Term Loan A to fund a portion of the Biomet merger. Under
the terms of U.S. Term Loan A, starting September 30, 2015,
principal payments are due as follows: $75.0 million on a
quarterly basis during the first three years, $112.5 million on a
quarterly basis during the fourth year, and $412.5 million on a
quarterly basis during the fifth year. We have paid $1.3 billion
in principal under U.S. Term Loan A, resulting in $1.7 billion in
outstanding borrowings as of December 31, 2016. The interest
rate at December 31, 2016 was 2.1 percent on Term Loan A.
On September 30, 2016, we borrowed $750.0 million

under U.S. Term Loan B to repay borrowings under the
previous multicurrency revolving facility incurred to fund a
portion of the LDR merger. Under the terms of U.S. Term Loan
B, starting September 30, 2017, principal payments are due as
follows: $75.0 million on each of the first two anniversaries of
the U.S. Term Loan B effective date, with the remaining
balance due on the U.S. Term Loan B maturity date of
September 30, 2019.

Borrowings under the Multicurrency Revolving Facility
may be used for general corporate purposes. There were no
borrowings outstanding under the Multicurrency Revolving
Facility as of December 31, 2016.

Of the total $7.67 billion aggregate principal amount of

senior notes outstanding at December 31, 2016, we issued
$6.55 billion of this amount in March 2015 (the “Merger
Notes”), the proceeds of which were used to finance a portion
of the cash consideration payable in the Biomet merger, pay
merger related fees and expenses and pay a portion of
Biomet’s funded debt. The Merger Notes consist of the
following seven tranches: the 1.450% Senior Notes due 2017,

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the 2.000% Senior Notes due 2018, the 2.700% Senior Notes
due 2020, the 3.150% Senior Notes due 2022, the 3.550%
Senior Notes due 2025, the 4.250% Senior Notes due 2035 and
the 4.450% Senior Notes due 2045.

We may, at our option, redeem our senior notes, in whole

or in part, at any time upon payment of the principal, any
applicable make-whole premium, and accrued and unpaid
interest to the date of redemption. In addition, the Merger
Notes and the 3.375% Senior Notes due 2021 may be
redeemed at our option without any make-whole premium at
specified dates ranging from one month to six months in
advance of the scheduled maturity date.

Between the Closing Date and June 30, 2015, we repaid the
Biomet senior notes we assumed in the merger. The fair value of
the principal amount plus interest was $2,798.6 million. These
senior notes required us to pay a call premium in excess of the
fair value of the notes when they were repaid. As a result, we
recognized $22.0 million in non-operating other expense in 2015
related to this call premium.

The estimated fair value of our senior notes as of
December 31, 2016, based on quoted prices for the specific
securities from transactions in over-the-counter markets
(Level 2), was $8,722.5 million. The estimated fair value of the
Japan Term Loan as of December 31, 2016, based upon
publicly available market yield curves and the terms of the
debt (Level 2), was $99.2 million. The carrying value of U.S.
Term Loan A and U.S. Term Loan B approximate fair value as
they bear interest at short-term variable market rates.

We have entered into interest rate swap agreements
which we designated as fair value hedges of underlying fixed-
rate obligations on our senior notes due 2019 and 2021. In
August 2016, we settled these instruments for $36.9 million. In
September 2016, we entered into various variable-to-fixed
interest rate swap agreements that were accounted for as cash
flow hedges of Term Loan B. See Note 14 for additional
information regarding the interest rate swap agreements.

We also have available uncommitted credit facilities

totaling $47.1 million.

At December 31, 2016 and 2015, the weighted average
interest rate for our long-term borrowings was 2.8 percent and
2.9 percent, respectively. We paid $363.1 million, $207.1 million,
and $67.5 million in interest during 2016, 2015, and 2014,
respectively.

13. Accumulated Other Comprehensive (Loss) Income

OCI refers to certain gains and losses that under GAAP

are included in comprehensive income but are excluded from
net earnings as these amounts are initially recorded as an
adjustment to stockholders’ equity. Amounts in OCI may be
reclassified to net earnings upon the occurrence of certain
events.

Our OCI is comprised of foreign currency translation
adjustments, unrealized gains and losses on cash flow hedges,
unrealized gains and losses on available-for-sale securities, and
amortization of prior service costs and unrecognized gains and
losses in actuarial assumptions on our defined benefit plans.
Foreign currency translation adjustments are reclassified to
net earnings upon sale or upon a complete or substantially
complete liquidation of an investment in a foreign entity.
Unrealized gains and losses on cash flow hedges are
reclassified to net earnings when the hedged item affects net
earnings. Unrealized gains and losses on available-for-sale
securities are reclassified to net earnings if we sell the security
before maturity or if the unrealized loss is considered to be
other-than-temporary. Amounts related to defined benefit
plans that are in OCI are reclassified over the service periods
of employees in the plan. The reclassification amounts are
allocated to all employees in the plans and, therefore, the
reclassified amounts may become part of inventory to the
extent they are considered direct labor costs. See Note 15 for
more information on our defined benefit plans.

The following table shows the changes in the components of OCI, net of tax (in millions):

Balance December 31, 2015
OCI before reclassifications
Reclassifications

Balance December 31, 2016

Foreign
Currency
Translation

Cash
Flow
Hedges

Unrealized
Gains (Losses)
on Securities

Defined
Benefit
Plan
Items

$(193.4) $ 29.8
28.3
(25.8)

(130.0)
–

$(0.6) $(164.8)
12.1
9.9

0.5
–

$(323.4) $ 32.3

$(0.1) $(142.8)

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table shows the reclassification adjustments from OCI (in millions):

Component of OCI

Cash flow hedges

Foreign exchange forward contracts
Forward starting interest rate swaps
Forward starting interest rate swaps

Investments

Realized gains on securities

Defined benefit plans
Prior service cost
Unrecognized actuarial (loss)

Total reclassifications

Amount of Gain / (Loss)
Reclassified from OCI

For the Years Ended December 31,

2016

2015

2014

Location on Statement of Earnings

$ 87.7
(66.4)
(1.7)

$122.3
–
(1.3)

19.6
(6.2)

121.0
28.0

$ 33.3
–
–

33.3
14.4

$ 25.8

$ 93.0

$ 18.9

–

–
–

–

–
–

–

$ 0.4

0.4
–

$ 0.4

$ 7.8
(22.9)

$ 5.6
(20.1)

$ 3.9
(11.1)

(15.1)
(5.2)

(14.5)
(5.3)

(7.2)
(3.0)

$ (9.9)

$ (9.2)

$ (4.2)

$ 15.9

$ 83.8

$ 15.1

Cost of products sold
Other expense
Interest expense

Total before tax
Provision for income taxes

Net of tax

Interest income

Total before tax
Provision for income taxes

Net of tax

*
*

Total before tax
Provision for income taxes

Net of tax

* These OCI components are included in the computation of net periodic pension expense (see Note 15).

The following table shows the tax effects on each component of OCI recognized in our consolidated statements of

comprehensive income (loss) (in millions):

For the Years Ended December 31,

Before Tax

2016

2015

2014

2016

Tax

2015

Net of Tax

2014

2016

2015

2014

Foreign currency cumulative translation adjustments
Unrealized cash flow hedge gains
Reclassification adjustments on foreign currency hedges
Reclassification adjustments on securities
Unrealized gains/(losses) on securities
Adjustments to prior service cost and unrecognized

$(128.2) $(305.2) $(223.1) $ 1.8
1.4
6.2
–
–

59.1
(121.0)
–
(0.2)

60.5
(33.3)
(0.4)
(0.5)

29.7
(19.6)
–
0.5

–
6.4
(28.0)
–
–

–
4.6
(14.4)
–
–

$(130.0) $(305.2) $(223.1)
55.9
(18.9)
(0.4)
(0.5)

52.7
(93.0)
–
(0.2)

28.3
(25.8)
–
0.5

actuarial assumptions

27.3

(25.0)

(104.8)

5.3

(3.6)

(29.0)

22.0

(21.4)

(75.8)

Total Other Comprehensive (Loss) Income

$ (90.3) $(392.3) $(301.6) $14.7

$(25.2) $(38.8) $(105.0) $(367.1) $(262.8)

14. Derivative Instruments and Hedging Activities

Interest Rate Risk

We are exposed to certain market risks relating to our

ongoing business operations, including foreign currency
exchange rate risk, commodity price risk, interest rate risk and
credit risk. We manage our exposure to these and other
market risks through regular operating and financing
activities. Currently, the only risks that we manage through
the use of derivative instruments are interest rate risk and
foreign currency exchange rate risk.

Derivatives Designated as Fair Value Hedges

In prior years, we entered into various fixed-to-variable

interest rate swap agreements that were accounted for as fair
value hedges of a portion of the Senior Notes due 2019 and all
of the Senior Notes due 2021. In August 2016, we received
cash for these interest rate swap assets by terminating the
hedging instruments with the counterparties. The asset value,
including accrued interest through the date of termination,
was $36.9 million and the amount being amortized as a
reduction of interest expense over the remaining terms of the
hedged debt instruments was $34.3 million, of which the
unamortized balance as of December 31, 2016 was
$31.4 million.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Designated as Cash Flow Hedges

In 2014, we entered into forward starting interest rate

swaps that were designated as cash flow hedges of the thirty
year tranche of senior notes (the 4.450% Senior Notes due
2045) we expected to issue in 2015. The forward starting
interest rate swaps mitigated the risk of changes in interest
rates prior to the completion of the Merger Notes offering. The
total notional amounts of the forward starting interest rate
swaps were $1 billion and settled in March 2015 at a loss of
$97.6 million. This loss will be recognized using the effective
interest rate method over the maturity period of the 4.450%
Senior Notes due 2045. With the issuance of the Euro notes,
we extinguished a portion of the 4.450% Senior Notes due
2045 and recognized $66.4 million as part of our debt
extinguishment loss. The remaining loss to be recognized at
December 31, 2016 was $28.2 million.

In September 2016, we entered into various

variable-to-fixed interest rate swap agreements with a notional
amount of $375 million that were accounted for as cash flow
hedges of Term Loan B. The interest rate swaps minimize the
exposure to changes in the LIBOR interest rates while the
variable-rate debt is outstanding. The weighted average fixed
interest rate for all of the outstanding interest rate swap
agreements is approximately 0.82 percent through
September 30, 2019.

Foreign Currency Exchange Rate Risk

We operate on a global basis and are exposed to the risk

that our financial condition, results of operations and cash
flows could be adversely affected by changes in foreign
currency exchange rates. To reduce the potential effects of
foreign currency exchange rate movements on net earnings,
we enter into derivative financial instruments in the form of
foreign currency exchange forward contracts with major
financial institutions. We also designated our Euro notes and
other foreign currency exchange forward contracts as net
investment hedges of investments in foreign subsidiaries. We
are primarily exposed to foreign currency exchange rate risk
with respect to transactions and net assets denominated in
Euros, Swiss Francs, Japanese Yen, British Pounds, Canadian
Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech
Koruna, Thai Baht, Taiwan Dollars, South African Rand,
Russian Rubles, Indian Rupees, Turkish Lira, Polish Zloty,
Danish Krone, and Norwegian Krone. We do not use derivative
financial instruments for trading or speculative purposes.

Derivatives Designated as Net Investment Hedges

We are exposed to the impact of foreign exchange rate
fluctuations in the investments in our wholly-owned foreign
subsidiaries that are denominated in currencies other than the
U.S. dollar. In order to mitigate the volatility in foreign
exchange rates, we issued Euro notes in December 2016, as
discussed in Note 12, and designated 100 percent of the Euro
notes to hedge our net investment in certain wholly-owned

foreign subsidiaries that have a functional currency of Euro. All
changes in the fair value of the hedging instrument designated
as a net investment hedge are recorded as a component of
accumulated other comprehensive loss in the consolidated
balance sheet.

We also entered into a foreign currency exchange forward

contract in anticipation of the Euro notes issuance and
designated it as a net investment hedge.

In the year ended December 31, 2016, we recognized a

foreign exchange gain of $18.8 million in OCI on our net
investment hedges. We recognized no ineffectiveness from our
net investment hedges for the year ended December 31, 2016.

Derivatives Designated as Cash Flow Hedges

Our revenues are generated in various currencies
throughout the world. However, a significant amount of our
inventory is produced in U.S. Dollars. Therefore, movements in
foreign currency exchange rates may have different
proportional effects on our revenues compared to our cost of
products sold. To minimize the effects of foreign currency
exchange rate movements on cash flows, we hedge
intercompany sales of inventory expected to occur within the
next 30 months with foreign currency exchange forward
contracts and options. We designate these derivative
instruments as cash flow hedges.

We perform quarterly assessments of hedge effectiveness

by verifying and documenting the critical terms of the hedge
instrument and that forecasted transactions have not changed
significantly. We also assess on a quarterly basis whether there
have been adverse developments regarding the risk of a
counterparty default. For derivatives which qualify as hedges
of future cash flows, the effective portion of changes in fair
value is temporarily recorded in other comprehensive income
and then recognized in cost of products sold when the hedged
item affects net earnings. The ineffective portion of a
derivative’s change in fair value, if any, is immediately reported
in cost of products sold. On our consolidated statement of cash
flows, the settlements of these cash flow hedges are
recognized in operating cash flows.

For foreign currency exchange forward contracts and
options outstanding at December 31, 2016, we had obligations
to purchase U.S. Dollars and sell Euros, Japanese Yen, British
Pounds, Canadian Dollars, Australian Dollars, Korean Won,
Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars,
South African Rand, Russian Rubles, Indian Rupees, Turkish
Lira, Polish Zloty, Danish Krone, and Norwegian Krone and
obligations to purchase Swiss Francs and sell U.S. Dollars.
These derivatives mature at dates ranging from January 2017
through June 2019. As of December 31, 2016, the notional
amounts of outstanding forward contracts and options entered
into with third parties to purchase U.S. Dollars were
$1,512.6 million. As of December 31, 2016, the notional
amounts of outstanding forward contracts and options entered
into with third parties to purchase Swiss Francs were
$315.7 million.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency forward exchange
contracts with terms of one month to manage currency
exposures for monetary assets and liabilities denominated in a
currency other than an entity’s functional currency. As a
result, any foreign currency re-measurement gains/losses
recognized in earnings are generally offset with gains/losses on

the foreign currency forward exchange contracts in the same
reporting period. These contracts are settled on the last day of
each reporting period. Therefore, there is no outstanding
balance related to these contracts recorded on the balance
sheet as of the end of the reporting period. The notional
amounts of these contracts are typically in a range of
$1.75 billion to $2.25 billion per quarter.

Income Statement Presentation

Derivatives Designated as Fair Value Hedges

Derivative instruments designated as fair value hedges had the following effects on our consolidated statements of earnings (in

millions):

Derivative Instrument

Interest rate swaps

Gain / (Loss) on Instrument

Gain / (Loss) on Hedged Item

Year Ended December 31,

Location on Statement of Earnings

2016

2015

2014

2016

2015

2014

Interest expense

$7.5

$2.8

$14.7

$(7.5)

$(2.8) $(14.7)

We had no ineffective fair value hedging instruments nor any amounts excluded from the assessment of hedge effectiveness

during the years ended December 31, 2016, 2015 and 2014.

Derivatives Designated as Cash Flow Hedges

Derivative instruments designated as cash flow hedges had the following effects, before taxes, on OCI and net earnings on our

consolidated statements of earnings, consolidated statements of comprehensive income and consolidated balance sheets (in
millions):

Amount of Gain / (Loss)
Recognized in OCI

Year Ended December 31,

Amount of Gain / (Loss)
Reclassified from OCI

Year Ended December 31,

Derivative Instrument

2016

2015

2014

Location on Statement of Earnings

2016

2015

2014

Foreign exchange forward contracts

$25.7

$ 97.4

$119.8

Cost of products sold

$ 87.7

$122.3

$33.3

Interest rate swaps

Forward starting interest rate swaps

4.0

–

(38.3)

(59.3)

–

$29.7

$ 59.1

$ 60.5

Interest expense

–

Interest expense

(1.7)

(1.3)

Other expense, net

(66.4)

–

$ 19.6

$121.0

$33.3

The net amount recognized in earnings during the years ended December 31, 2016, 2015 and 2014 due to ineffectiveness and

amounts excluded from the assessment of hedge effectiveness were not significant.

The fair value of outstanding derivative instruments designated as cash flow hedges and recorded on the balance sheet at

December 31, 2016, together with settled derivatives where the hedged item has not yet affected earnings, was a net unrealized
gain of $32.2 million, or $28.2 million after taxes, which is deferred in accumulated other comprehensive income. Of the net
unrealized gain, $34.4 million, or $28.0 million after taxes, is expected to be reclassified to earnings in cost of products sold and a
loss of $0.5 million, or $0.3 million after taxes, is expected to be reclassified to earnings in interest expense over the next twelve
months.

Derivatives Not Designated as Hedging Instruments

The following gains from these derivative instruments were recognized on our consolidated statements of earnings (in

millions):

Derivative Instrument

Foreign exchange forward contracts

Location on

Year Ended December 31,

Statement of Earnings

2016

2015

2014

Other expense, net

$2.5

$28.8

$15.3

This impact does not include any offsetting gains/losses recognized in earnings as a result of foreign currency remeasurement

of monetary assets and liabilities denominated in a currency other than an entity’s functional currency.

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2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheet Presentation

As of December 31, 2016 and December 31, 2015, all derivative instruments designated as fair value hedges and cash flow

hedges are recorded at fair value on the balance sheet. On our consolidated balance sheets, we recognize individual forward
contracts and options with the same counterparty on a net asset/liability basis if we have a master netting agreement with the
counterparty. Under these master netting agreements, we are able to settle derivative instrument assets and liabilities with the
same counterparty in a single transaction, instead of settling each derivative instrument separately. We have master netting
agreements with all of our counterparties.

The fair value of derivative instruments on a gross basis is as follows (in millions):

Asset Derivatives

Foreign exchange forward contracts

Interest rate swaps

Total asset derivatives

Liability Derivatives

Foreign exchange forward contracts

Forward starting interest rate swaps

Foreign exchange forward contracts

Total liability derivatives

As of December 31, 2016

As of December 31, 2015

Balance Sheet Location

Fair
Value

Balance Sheet Location

Fair
Value

Other current assets

$57.9

Other current assets

$100.5

Other assets

34.9

4.0

$96.8

Other assets

19.8

26.8

$147.1

Other current liabilities

$20.9

Other current liabilities

$ 16.7

Other current liabilities

Other long-term liabilities

–

6.9

$27.8

Other current liabilities

Other long-term liabilities

–

8.3

$ 25.0

The table below presents the effects of our master netting agreements on our consolidated balance sheets (in millions):

Description

Asset Derivatives

Cash flow hedges

Liability Derivatives

Cash flow hedges

As of December 31, 2016

As of December 31, 2015

Location

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Other current assets

$57.9

$20.6

Other assets

34.9

6.8

$37.3

28.1

$100.5

$16.3

19.8

7.1

$84.2

12.7

Other current liabilities

Other long-term liabilities

20.9

6.9

20.6

6.8

0.3

0.1

16.7

8.3

16.3

7.1

0.4

1.2

The following net investment hedge gains were recognized on our consolidated statements of comprehensive income (in

millions):

Derivative Instrument

Euro Notes

Foreign exchange forward contracts

15. Retirement Benefit Plans

Amount of Gain / (Loss)
Recognized in OCI

Year Ended December 31,

2016

2015

2014

$ 9.4

9.4

$18.8

$–

–

$–

–

$–

We have defined benefit pension plans covering certain U.S. and Puerto Rico employees. The employees who are not

participating in the defined benefit plans receive additional benefits under our defined contribution plans. Plan benefits are
primarily based on years of credited service and the participant’s average eligible compensation. In addition to the U.S. and Puerto
Rico defined benefit pension plans, we sponsor various foreign pension arrangements, including retirement and termination benefit
plans required by local law or coordinated with government sponsored plans.

We use a December 31 measurement date for our benefit plans.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Defined Benefit Plans

The components of net pension expense for our defined benefit retirement plans were as follows (in millions):

Service cost

Interest cost

Expected return on plan assets

Curtailment gain

Settlements

Amortization of prior service cost

Amortization of unrecognized actuarial loss

Net periodic benefit cost

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2014

2016

2015

2014

$ 9.6

$ 11.8

$ 10.9

$ 19.0

$ 18.9

$ 14.7

13.8

15.8

15.5

10.0

8.8

9.2

(32.2)

(31.8)

(30.8)

(13.7)

(13.9)

(11.0)

–

2.6

–

(0.5)

–

(5.9)

(3.7)

(2.6)

(1.9)

(1.3)

16.5

17.4

10.6

6.4

2.7

0.5

$ 4.4

$ 9.5

$ 3.6

$ 19.3

$ 14.6

$ 12.1

The weighted average actuarial assumptions used to determine net pension expense for our defined benefit retirement plans

were as follows:

Discount rate

Rate of compensation increase

Expected long-term rate of return on plan assets

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2014

2016

2015

2014

4.32% 4.56% 4.98% 1.41% 1.94% 2.46%

3.29% 3.29% 3.29% 2.08% 2.00% 1.48%

7.75% 7.75% 7.75% 2.40% 3.05% 2.88%

The expected long-term rate of return on plan assets is based on the historical and estimated future rates of return on the
different asset classes held in the plans. The expected long-term rate of return is the weighted average of the target asset allocation
of each individual asset class. We believe that historical asset results approximate expected market returns applicable to the
funding of a long-term benefit obligation.

Discount rates were determined for each of our defined benefit retirement plans at their measurement date to reflect the yield

of a portfolio of high quality bonds matched against the timing and amounts of projected future benefit payments. Beginning in
2016, we changed the method used to estimate the service and interest costs for pension and postretirement benefits. The new
method utilizes a full yield curve approach to estimate service and interest costs by applying specific spot rates along the yield
curve used to determine the benefit obligation of relevant projected cash outflows. Historically, we utilized a single weighted-
average discount rate applied to projected cash outflows. We made the change to provide a more precise measurement of service
and interest costs by aligning the timing of the plan’s liability cash flows to the corresponding spot rate on the yield curve. The
change did not impact the measurement of the plan’s obligations. We accounted for this change as a change in accounting estimate.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in projected benefit obligations and plan assets were (in millions):

Projected benefit obligation – beginning of year

Obligation assumed from Biomet

Service cost

Interest cost

Plan amendments

Employee contributions

Benefits paid

Actuarial (gain) loss

Expenses paid

Settlement

Translation gain

Projected benefit obligation – end of year

Plan assets at fair market value – beginning of year

Assets contributed by Biomet

Actual return on plan assets

Employer contributions

Employee contributions

Settlements

Plan amendments

Benefits paid

Expenses paid

Translation loss

Plan assets at fair market value – end of year

Funded status

Amounts recognized in consolidated balance sheet:

Prepaid pension

Short-term accrued benefit liability

Long-term accrued benefit liability

Net amount recognized

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2016

2015

$375.1

$386.6

$568.6

$423.7

–

9.6

13.8

–

159.4

–

11.8

15.8

19.0

10.0

(21.9)

(23.4)

–

23.6

16.9

18.9

8.8

–

(14.3)

(12.3)

(31.6)

(24.1)

(1.6)

(4.9)

46.7

(18.9)

–

(5.7)

–

(0.2)

–

(0.3)

(0.2)

(44.1)

(15.6)

$376.9

$375.1

$568.6

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2016

2015

$374.1

$402.2

$505.6

$385.4

–

129.4

29.5

(16.6)

5.8

–

(5.7)

–

0.8

–

34.1

15.9

23.6

–

(4.0)

14.8

16.9

–

(0.2)

(14.3)

(12.3)

(31.6)

(24.1)

–

(0.2)

(0.3)

(40.4)

(12.3)

$389.4

$374.1

$507.0

$505.6

$ 12.5

$ (1.0) $(61.6) $(63.0)

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2016

2015

$ 24.0

$ 14.6

$ 10.2

$ 16.5

(0.4)

(1.0)

(0.7)

(0.6)

(11.1)

(14.6)

(71.1)

(78.9)

$ 12.5

$ (1.0) $(61.6) $(63.0)

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We estimate the following amounts recorded as part of accumulated other comprehensive income will be recognized as part of

our net pension expense during 2017 (in millions):

Unrecognized prior service cost

Unrecognized actuarial loss

U.S. and
Puerto Rico

Foreign

$ (5.9)

$ (4.2)

16.4

3.8

$10.5

$(0.4)

The weighted average actuarial assumptions used to determine the projected benefit obligation for our defined benefit

retirement plans were as follows:

Discount rate

Rate of compensation increase

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2014

2016

2015

2014

4.32% 4.36% 4.10% 1.41% 1.86% 1.38%

3.29% 3.29% 3.29% 2.08% 2.02% 1.43%

Plans with projected benefit obligations in excess of plan assets were as follows (in millions):

Projected benefit obligation

Plan assets at fair market value

As of December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2016

2015

$51.3

$53.8

$545.7

$393.4

39.8

38.2

480.2

319.6

Total accumulated benefit obligations and plans with accumulated benefit obligations in excess of plan assets were as follows

(in millions):

Total accumulated benefit obligations

Plans with accumulated benefit obligations in excess of plan assets:

Accumulated benefit obligation

Plan assets at fair market value

The benefits expected to be paid out in each of the next

five years and for the five years combined thereafter are as
follows (in millions):

For the Years Ending December 31,

2017

2018

2019

2020

2021

2022-2026

U.S. and
Puerto Rico

Foreign

$ 15.7

$ 23.3

16.3

17.5

18.3

19.0

23.2

23.6

24.0

23.9

104.9

128.3

The U.S. and Puerto Rico defined benefit retirement
plans’ overall investment strategy is to maximize total returns
by emphasizing long-term growth of capital while mitigating
risk. We have established target ranges of assets held by the

As of December 31,

U.S. and Puerto Rico

Foreign

2016

2015

2016

2015

$364.8

$354.6

$556.4

$556.8

32.0

21.8

34.8

20.6

530.1

475.3

380.1

314.9

plans of 40 to 45 percent for equity securities, 30 to 35 percent
for debt securities and 20 to 25 percent in non-traditional
investments. The plans strive to have sufficiently diversified
assets so that adverse or unexpected results from one asset
class will not have an unduly detrimental impact on the entire
portfolio. We regularly review the investments in the plans and
we may rebalance them from time-to-time based upon the
target asset allocation of the plans.

For the U.S. and Puerto Rico plans, we maintain an
investment policy statement that guides the investment
allocation in the plans. The investment policy statement
describes the target asset allocation positions described above.
Our benefits committee, along with our investment advisor,
monitor compliance with and administer the investment policy
statement and the plans’ assets and oversee the general
investment strategy and objectives of the plans. Our benefits
committee generally meets quarterly to review performance

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and to ensure that the current investment allocation is within
the parameters of the investment policy statement.

The fair value of our foreign pension plan assets was as

follows (in millions):

The investment strategies of foreign based plans vary
according to the plan provisions and local laws. The majority of
the assets in foreign based plans are located in Switzerland-
based plans. These assets are held in trusts and are
commingled with the assets of other Swiss companies with
representatives of all the companies making the investment
decisions. The overall strategy is to maximize total returns
while avoiding risk. The trustees of the assets have established
target ranges of assets held by the plans of 30 to 50 percent in
debt securities, 20 to 37 percent in equity securities, 15 to
24 percent in real estate, 3 to 15 percent in cash funds and 0 to
12 percent in other funds.

The fair value of our U.S. and Puerto Rico pension plan

assets by asset category was as follows (in millions):

As of December 31, 2016

Fair Value Measurements at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Category

Total

Cash and cash
equivalents

Equity securities:

U.S. large-cap

U.S. small-cap

International

Real estate

Commodity-linked
mutual funds

Intermediate fixed

$ 2.7

$2.7

–

$–

87.4

34.4

111.1

14.4

–

87.4

34.4

111.1

14.4

–

139.4

–

income securities

139.4

Total

$389.4

$2.7

$386.7

$–

As of December 31, 2015

Fair Value Measurements at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Category

Total

Cash and cash equivalents
Equity securities:
U.S. large-cap
U.S. small-cap
International
Real estate

Commodity-linked mutual

funds

Intermediate fixed income

securities

Total

2.5

$2.5

–

$–

79.2
25.6
93.2
27.0

16.4

130.2

–
–
–
–

–

$374.1

$2.5

79.2
25.6
93.2
27.0

16.4

130.2

$371.6

–
–
–
–

–

$–

As of December 31, 2016

Fair Value Measurements at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Category

Total

Cash and cash equivalents
Equity securities:

Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financials
Information technology
Telecommunication

services

Utilities
Other

Fixed income securities:
Government bonds
Corporate bonds
Asset-backed securities
Other debt
Other types of
investments:
Mortgage loans
Insurance contracts
Other investments

Real estate

Total

$ 37.8

3.2
8.6
9.3
5.8
8.4
10.3
16.8
5.2

2.1
3.3
71.7

113.9
68.2
9.9
11.1

10.8
5.8
16.9
87.9

3.2
8.6
9.3
5.8
8.4
10.3
16.8
5.2

2.1
3.3
68.3

–
–
–
–

–

–
–
–
–
–
–
–
–

–
–
3.4

113.9
68.2
9.9
11.1

10.8
5.8
16.9
9.2

–

–
–
–
–
–
–
–
–

–
–
–

–
–
–
–

–
–
–
78.7

$507.0

$179.1

$249.2

$78.7

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2015

Fair Value Measurements at Reporting Date Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Category

Total

Cash and cash equivalents
Equity securities:

Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financials
Information technology
Telecommunication

services

Utilities
Other

Fixed income securities:
Government bonds
Corporate bonds
Asset-backed securities
Other debt
Other types of
investments:
Mortgage loans
Insurance contracts
Other investments

Real estate

Total

$ 34.0

4.7
6.7
8.2
6.3
8.5
8.6
17.4
5.7

2.0
3.3
80.7

104.0
74.5
14.8
11.3

9.8
5.8
14.7
84.6

4.7
6.7
8.2
6.3
8.5
8.6
17.4
5.7

2.0
3.3
40.6

–
–
–
–

–

–
–
–
–
–
–
–
–

–
–
40.1

104.0
74.5
14.8
11.3

9.8
5.8
14.7
10.7

–

–
–
–
–
–
–
–
–

–
–
–

–
–
–
–

–
–
–
73.9

We expect that we will have no legally required minimum
funding requirements in 2017 for the qualified U.S. and Puerto
Rico defined benefit retirement plans, nor do we expect to
voluntarily contribute to these plans during 2017.
Contributions to foreign defined benefit plans are estimated to
be $14.9 million in 2017. We do not expect the assets in any of
our plans to be returned to us in the next year.

Defined Contribution Plans

We also sponsor defined contribution plans for

substantially all of the U.S. and Puerto Rico employees and
certain employees in other countries. The benefits offered
under these plans are reflective of local customs and practices
in the countries concerned. We expensed $42.5 million,
$40.2 million and $32.8 million related to these plans for the
years ended December 31, 2016, 2015 and 2014, respectively.

16.

Income Taxes

The components of earnings before income taxes

consisted of the following (in millions):

For the Years Ended December 31,

2016

2015

2014

United States operations

$(251.8) $(246.2) $403.3

Foreign operations

651.4

399.4

536.1

$505.6

$146.0

$285.7

$73.9

Total

$ 399.6

$ 153.2

$939.4

The provision for income taxes and the income taxes paid

consisted of the following (in millions):

Current:

Federal

State

Foreign

Deferred:

Federal

State

Foreign

$ 134.2

$ 55.8

$178.2

12.4

101.6

248.2

18.9

96.3

171.0

16.5

116.0

310.7

(108.5)

(120.6)

(54.8)

2.3

(20.0)

(6.6)

(47.0)

(23.4)

(29.1)

(153.2)

(164.0)

(90.5)

Provision for income taxes

$ 95.0

7.0

$220.2

Income taxes paid

$ 269.6

$ 193.6

$340.1

As of December 31, 2016 and 2015, our defined benefit

pension plans’ assets did not hold any direct investment in
Zimmer Biomet Holdings common stock.

Equity securities are valued using a market approach,

based on quoted prices for the specific security from
transactions in active exchange markets (Level 1), or in some
cases where we are invested in mutual or collective funds,
based upon the net asset value per unit of the fund which is
determined from quoted market prices of the underlying
securities in the fund’s portfolio (Level 2). Fixed income
securities are valued using a market approach, based upon
quoted prices for the specific security or from institutional bid
evaluations. Real estate is valued by discounting to present
value the cash flows expected to be generated by the specific
properties.

The following table provides a reconciliation of the
beginning and ending balances of our foreign pension plan
assets measured at fair value that used significant
unobservable inputs (Level 3) (in millions):

Beginning Balance

Gains on assets sold
Change in fair value of assets
Net purchases and sales
Translation loss

Ending Balance

December 31, 2016

$73.9
0.1
2.7
5.0
(3.0)

$78.7

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the U.S. statutory income tax rate to

The components of deferred taxes consisted of the

our effective tax rate is as follows:

following (in millions):

For the Years Ended December 31,

2016

2015

2014

As of December 31,

2016

2015

U.S. statutory income tax rate

35.0% 35.0% 35.0%

Deferred tax assets:

State taxes, net of federal deduction

2.0

(1.7)

0.8

Inventory

260.3

159.7

Tax impact of foreign operations, including

Net operating loss carryover

foreign tax credits

Change in valuation allowance

Non-deductible expenses

Tax impact of certain significant

transactions

Tax benefit relating to U.S. manufacturer’s

deduction and export sales

R&D credit

Share based compensation

Net uncertain tax positions, including

interest and penalties

Other

(11.0)

(62.3)

(14.2)

–

0.9

(3.7)

2.4

–

1.6

21.6

1.4

(4.7)

(1.9)

(2.9)

4.2

0.6

(6.2)

(4.2)

1.1

22.9

(0.3)

(1.9)

(0.2)

0.2

2.2

0.1

Effective income tax rate

23.8%

4.6% 23.4%

Our operations in Puerto Rico and Switzerland benefit
from various tax incentive grants. These grants expire between
fiscal years 2019 and 2029.

Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Valuation allowances are
recorded to reduce deferred income tax assets when it is more
likely than not that an income tax benefit will not be realized.

Tax credit carryover

Capital loss carryover

Accrued liabilities

Share-based compensation

Accounts receivable

Other

Total deferred tax assets

Less: Valuation allowances

Total deferred tax assets after valuation

allowances

Deferred tax liabilities:

Fixed assets

Intangible assets

Unremitted earnings of foreign subsidiaries

Other

Total deferred tax liabilities

181.3

110.4

2.3

182.2

60.3

22.3

101.9

117.4

207.8

4.2

190.2

59.0

23.7

133.6

921.0

(88.3)

895.6

(72.7)

832.7

822.9

138.7

144.6

2,343.7

1,159.4

–

2,337.2

1,374.8

4.3

3,641.8

3,860.9

Total net deferred income taxes

$(2,809.1) $(3,038.0)

Net operating loss carryovers are available to reduce

future federal, state and foreign taxable earnings. At
December 31, 2016, $157.1 million of these net operating loss
carryovers generally expire within a period of 1 to 20 years and
$24.2 million of these net operating loss carryovers have an
indefinite life. Valuation allowances for net operating loss
carryovers have been established in the amount of
$70.8 million and $47.0 million at December 31, 2016 and 2015,
respectively.

Deferred tax assets related to tax credit carryovers are

available to offset future federal, state and foreign tax
liabilities. At December 31, 2016, the Company’s total tax
credit carryovers of $110.4 million generally expire within a
period of 1 to 10 years. Valuation allowances for certain tax
credit carryovers have been established in the amount of
$11.9 million and $14.4 million at December 31, 2016 and 2015,
respectively.

Deferred tax assets related to capital loss carryovers are

also available to reduce future federal capital gains. At
December 31, 2016, the Company’s capital loss carryovers of
$2.3 million generally expire within a period of 2 to 4 years.
Valuation allowances for certain capital loss carryovers have
been established in the amount of $0.2 million and $4.2 million
at December 31, 2016 and 2015, respectively. The remaining
valuation allowances booked against deferred tax assets of
$5.4 million and $7.1 million at December 31, 2016 and 2015,

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively, relate primarily to intangible assets and potential
capital losses that management believes, more likely than not,
will not be realized.

At December 31, 2016, we had an aggregate of
approximately $4,677.0 million of unremitted earnings of
foreign subsidiaries that have been, or are intended to be,
indefinitely reinvested for continued use in foreign operations.
If the total undistributed earnings of foreign subsidiaries were
remitted, a portion of the additional tax would be offset by the
allowable foreign tax credits. It is not practical for us to
determine the additional tax related to remitting these
earnings.

The following is a tabular reconciliation of the total

amounts of unrecognized tax benefits (in millions):

For the Years Ended December 31,

2016

2015

2014

Balance at January 1

$591.9

$321.7

$311.0

Increases related to business

combinations*

Increases related to prior periods

Decreases related to prior periods

Increases related to current period

Decreases related to settlements with

70.2

36.7

(94.7)

247.6

1.3

–

53.0

25.7

–

0.9

(3.8)

18.3

taxing authorities

(3.2)

(1.4)

(3.0)

Decreases related to lapse of statute of

limitations

(4.6)

(3.0)

(1.7)

Balance at December 31

$649.3

$591.9

$321.7

Amounts impacting effective tax rate, if
recognized balance at December 31*

$511.5

$443.7

$186.3

* Subject to change during measurement period of business combinations.

We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense. During 2016,
we accrued interest and penalties of $19.3 million, and as of
December 31, 2016, had a recognized liability for interest and
penalties of $110.8 million, which included a $8.6 million
increase from December 31, 2015 related to the Biomet
merger.

During 2015, we accrued interest and penalties of
$4.8 million, and as of December 31, 2015, had recognized a
liability for interest and penalties of $82.9 million, which
included an increase of $29.8 million from December 31, 2014
related to the Biomet merger. During 2014, we accrued

interest and penalties of $5.9 million, and as of December 31,
2014, had recognized a liability for interest and penalties of
$48.3 million.

We operate on a global basis and are subject to numerous

and complex tax laws and regulations. Additionally, tax laws
have and continue to undergo rapid changes in both
application and interpretation by various countries, including
state aid interpretations and the Organization for Economic
Cooperation and Development led initiatives. Our income tax
filings are subject to examinations by taxing authorities
throughout the world. Income tax audits may require an
extended period of time to reach resolution and may result in
significant income tax adjustments when interpretation of tax
laws or allocation of company profits is disputed.

Our U.S. Federal income tax returns have been audited
through 2009 and are currently under audit for years 2010-
2014. The IRS has proposed adjustments for years 2005-2009,
reallocating profits between certain of our U.S. and foreign
subsidiaries. We have disputed these adjustments and intend
to continue to vigorously defend our positions. For years 2005-
2007, we have filed a petition with the U.S. Tax Court. For
years 2008-2009, we are pursuing resolution through the IRS
Administrative Appeals Process. The U.S. federal income tax
returns of the acquired Biomet consolidated group have been
audited through fiscal year 2008.

State income tax returns are generally subject to
examination for a period of 3 to 5 years after filing of the
respective return. The state impact of any federal changes
generally remains subject to examination by various states for
a period of up to one year after formal notification to the
states. We have various state income tax return positions in
the process of examination, administrative appeals or
litigation.

In other major jurisdictions, open years are generally 2009

or later.

Although ultimate timing is uncertain, the net amount of
tax liability for unrecognized tax benefits may change within
the next twelve months due to changes in audit status,
expiration of statutes of limitations, settlements of tax
assessments and other events. Management’s best estimate of
such change is within the range of $300 million decrease to
$50 million increase.

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Capital Stock and Earnings per Share

We are authorized to issue 250.0 million shares of
preferred stock, none of which were issued or outstanding as
of December 31, 2016.

The numerator for both basic and diluted earnings per

share is net earnings available to common stockholders. The
denominator for basic earnings per share is the weighted
average number of common shares outstanding during the
period. The denominator for diluted earnings per share is
weighted average shares outstanding adjusted for the effect of
dilutive stock options and other equity awards. The following is
a reconciliation of weighted average shares for the basic and
diluted share computations (in millions):

For the Years Ended December 31,

2016

2015

2014

Weighted average shares outstanding for

basic net earnings per share

200.0

187.4

169.0

Effect of dilutive stock options and other

equity awards

2.4

2.7

Weighted average shares outstanding for

diluted net earnings per share

202.4

189.8

171.7

For the years ended December 31, 2016 and 2015, an
average of 0.9 million and 0.5 million options, respectively, to
purchase shares of common stock were not included in the
computation of diluted earnings per share as the exercise
prices of these options were greater than the average market
price of the common stock. In the year ended December 31,
2014, all outstanding options to purchase shares of common
stock were included in the computation of diluted earnings per
share as the exercise prices of all options were less than the
average market price of the common stock.

During 2016, we repurchased 4.2 million shares of our
common stock at an average price of $98.50 per share for a
total cash outlay of $415.5 million, including commissions.

18. Segment Data

We design, manufacture and market orthopaedic

reconstructive products; sports medicine, biologics,
extremities and trauma products; office based technologies;
spine, craniomaxillofacial and thoracic products (“CMF”);
dental implants; and related surgical products. We allocate
resources to achieve our operating profit goals through seven
operating segments. Our operating segments are comprised of
both geographic and product category business units. The

geographic operating segments are the Americas, which is
comprised principally of the U.S. and includes other North,
Central and South American markets; EMEA, which is
comprised principally of Europe and includes the Middle East
and African markets; and Asia Pacific, which is comprised
primarily of Japan and includes other Asian and Pacific
markets. The product category operating segments are
Americas Spine, Office Based Technologies, CMF and Dental.
The geographic operating segments include results from all of
our product categories except those in the product category
operating segments. The Office Based Technologies, CMF and
Dental product category operating segments reflect those
respective product category results from all regions, whereas
the Americas Spine operating segment only includes product
results from the Americas.

As it relates to the geographic operating segments,

management evaluates performance based upon segment
operating profit exclusive of operating expenses pertaining to
inventory step-up and certain other inventory and
manufacturing related charges, “Certain claims,” goodwill
impairment, intangible asset amortization, “Special items,” and
global operations and corporate functions. Global operations
and corporate functions include research, development
engineering, medical education, brand management, corporate
legal, finance and human resource functions, manufacturing
operations and logistics and share-based payment expense. As
it relates to each product category operating segment,
research, development engineering, medical education, brand
management and other various costs that are specific to the
product category operating segment’s operations are reflected
in its operating profit results. Due to these additional costs
included in the product category operating segments,
profitability metrics between the geographic operating
segments and product category operating segments are not
comparable. Intercompany transactions have been eliminated
from segment operating profit.

Management does not review asset information by
operating segment. Instead, management reviews cash flow
and other financial ratios by operating segment.

These seven operating segments are the basis for our
reportable segment information provided below. The four
product category operating segments are individually
insignificant to our consolidated results and therefore do not
constitute a reporting segment either individually or combined.
For presentation purposes, these product category operating
segments have been aggregated. Prior period reportable
segment financial information has been restated to conform to
the current period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net sales and other information by segment is as follows (in millions):

As of and for the Year Ended December 31, 2016

Net sales
Depreciation and amortization

Segment operating profit

Inventory step-up and certain other inventory and manufacturing related

charges

Intangible asset amortization

Certain claims

Special items

Biomet merger related
Other special items

Operating profit

Americas

EMEA

Asia
Pacific

Immaterial
Product
Category
Operating
Segments

Global
Operations
and
Corporate
Functions

Total

$3,947.6
135.6

$1,566.1
70.7

$1,092.2
51.6

$1,078.0
34.7

–
746.7

$7,683.9
1,039.3

2,134.4

503.3

440.8

249.1

(854.9)

2,472.7

(469.1)
(565.9)

–

(487.3)
(124.5)

825.9

As of and for the Year Ended December 31, 2015

Net sales

Depreciation and amortization

Segment operating profit

Inventory step-up and certain other inventory and manufacturing related

$3,109.4

$1,302.9

$ 881.6

$ 703.9

–

$5,997.8

110.0

1,633.5

62.4

449.0

37.9

422.2

21.0

481.1

712.4

162.2

(673.9)

1,993.0

charges

Intangible asset amortization

Certain claims

Special items

Biomet merger related
Other special items

Operating profit

(348.8)

(337.4)

(7.7)

(619.1)
(212.7)

467.3

As of and for the Year Ended December 31, 2014

Net sales
Depreciation and amortization

Segment operating profit

Inventory step-up and certain other inventory and manufacturing related

$2,320.2
70.5

$1,189.1
48.8

$ 789.2
30.2

$ 374.8
7.5

–
218.8

$4,673.3
375.8

1,215.4

407.8

371.0

76.4

(541.9)

1,528.7

(36.3)
(92.5)

(21.5)

(61.9)
(279.2)

1,037.3

charges

Intangible asset amortization

Certain claims

Special items

Biomet merger related
Other special items

Operating profit

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We conduct business in the following countries that hold

10 percent or more of our total consolidated Property, plant
and equipment, net (in millions):

has been incurred and the amount of the loss can be
reasonably estimated. For matters where a loss is believed to
be reasonably possible, but not probable, no accrual has been
made.

As of December 31,

2016

2015

Litigation

United States

Other countries

$1,181.3

$1,188.6

856.6

874.0

Property, plant and equipment, net

$2,037.9

$2,062.6

U.S. sales were $4,541.3 million, $3,447.2 million, and
$2,397.9 million for the years ended December 31, 2016, 2015
and 2014, respectively. Sales within any other individual
country were less than 10 percent of our consolidated sales in
each of those years. Sales are attributable to a country based
upon the customer’s country of domicile.

Net sales by product category are as follows (in millions):

For the Years Ended December 31,

2016

2015

2014

$2,751.9

$2,276.8

$1,895.2

1,867.9

1,533.0

1,326.4

1,645.4

1,214.6

427.9

662.0

328.8

335.7

404.4

233.3

863.2

242.8

207.2

138.5

$7,683.9

$5,997.8

$4,673.3

Knees

Hips

S.E.T

Dental

Spine & CMF

Other

Total

19. Leases

Total rent expense for the years ended December 31,

2016, 2015 and 2014 aggregated $74.0 million, $60.1 million,
and $48.4 million, respectively.

Future minimum rental commitments under

non-cancelable operating leases in effect as of December 31,
2016 were (in millions):

For the Years Ending December 31,

2017

2018

2019

2020

2021

Thereafter

$69.5

58.7

47.6

38.9

28.4

88.7

20. Commitments and Contingencies

On a quarterly and annual basis, we review relevant
information with respect to loss contingencies and update our
accruals, disclosures and estimates of reasonably possible
losses or ranges of loss based on such reviews. We establish
liabilities for loss contingencies when it is probable that a loss

Durom® Cup-related claims: On July 22, 2008, we
temporarily suspended marketing and distribution of the
Durom Cup in the U.S. Subsequently, a number of product
liability lawsuits were filed against us in various U.S. and
foreign jurisdictions. The plaintiffs seek damages for personal
injury, and they generally allege that the Durom Cup contains
defects that result in complications and premature revision of
the device. We have settled some of these claims and others
are still pending. The majority of the pending U.S. lawsuits are
currently in a federal Multidistrict Litigation (“MDL”) in the
District of New Jersey (In Re: Zimmer Durom Hip Cup
Products Liability Litigation). Multi-plaintiff state court
cases are pending in St. Clair County, Illinois (Santas, et al. v.
Zimmer, Inc., et al.) and Los Angeles County, California
(McAllister, et al. v. Zimmer, Inc., et al.). The initial trial in
Santas took place in November 2014, the initial trial in the
MDL took place in May 2015 and the initial trial in McAllister
took place in July 2015. As of December 31, 2016, all litigation
activity in the MDL, Santas and McAllister is stayed until
mid-2017 to allow participation in the U.S. Durom Cup
Settlement Program, an extrajudicial program created to
resolve actions and claims of eligible U.S. plaintiffs and
claimants. Other lawsuits are pending in various domestic and
foreign jurisdictions, and additional claims may be asserted in
the future. The majority of claims outside the U.S. are pending
in Canada, Germany and the U.K. A Canadian class settlement
was approved in late 2016. Trials have commenced in
Germany, and the majority of claims in the U.K. are
consolidated in a Group Litigation Order.

Since 2008, we have recognized expense of $479.4 million

for Durom Cup-related claims. Our estimate of our total
liability for these claims as of December 31, 2016 remains
consistent with our estimate as of December 31, 2015, and,
accordingly, we did not record any additional expense during
the year ended December 31, 2016. We recognized $7.7 million
and $21.5 million in expense for Durom Cup-related claims in
2015 and 2014, respectively.

We maintain insurance for product liability claims, subject

to self-insurance retention requirements. As of December 31,
2016, we have exhausted our self-insured retention under our
insurance program and have a claim for insurance proceeds for
ultimate losses which exceed the self-insured retention
amount, subject to a 20 percent co-payment requirement and a
cap. We believe our contracts with the insurance carriers are
enforceable for these claims and, therefore, it is probable that
we will recover some amount from our insurance carriers. We
have received a portion of the insurance proceeds we estimate
we will recover. We have a $95.3 million receivable in “Other
assets” remaining on our consolidated balance sheet as of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2016 for estimated insurance recoveries for
Durom Cup-related claims. As is customary in this process, our
insurance carriers have reserved all rights under their
respective policies and could still ultimately deny coverage for
some or all of our insurance claims.

Our estimate as of December 31, 2016 of the remaining
liability for all Durom Cup-related claims is $293.6 million, of
which $75.0 million is classified as short-term in “Other current
liabilities” and $218.6 million is classified as long-term in
“Other long-term liabilities” on our consolidated balance sheet.
We expect to pay the majority of the Durom Cup-related
claims within the next few years.

Our understanding of clinical outcomes with the Durom
Cup and other large diameter hip cups continues to evolve. We
rely on significant estimates in determining the provisions for
Durom Cup-related claims, including our estimate of the
number of claims that we will receive and the average amount
we will pay per claim. The actual number of claims and the
actual amount we pay per claim may differ from our estimates.
Among other factors, since our understanding of the clinical
outcomes is still evolving, we cannot reasonably estimate the
possible loss or range of loss that may result from Durom
Cup-related claims in excess of the losses we have accrued.

Margo and Daniel Polett v. Zimmer, Inc. et al.: On

August 20, 2008, Margo and Daniel Polett filed an action
against us and an unrelated third party, Public
Communications, Inc. (“PCI”), in the Court of Common Pleas,
Philadelphia, Pennsylvania seeking an unspecified amount of
damages for injuries and loss of consortium allegedly suffered
by Mrs. Polett and her spouse, respectively. The complaint
alleged that defendants were negligent in connection with
Mrs. Polett’s participation in a promotional video featuring one
of our knee products. The case was tried in November 2010
and the jury returned a verdict in favor of plaintiffs. The jury
awarded $27.6 million in compensatory damages and
apportioned fault 30 percent to plaintiffs, 34 percent to us and
36 percent to PCI. Under applicable law, we may be liable for
any portion of the damages apportioned to PCI that it does not
pay. On December 2, 2010, we and PCI filed a motion for post-
trial relief seeking a judgment notwithstanding the verdict, a
new trial or a remittitur. On June 10, 2011, the trial court
entered an order denying our motion for post-trial relief and
affirming the jury verdict in full and entered judgment for
$20.3 million against us and PCI. On June 29, 2011, we filed a
notice of appeal to the Superior Court of Pennsylvania and
posted a bond for the verdict amount plus interest. Oral
argument before the appellate court in Philadelphia,
Pennsylvania was held on March 13, 2012. On March 1, 2013,
the Superior Court of Pennsylvania vacated the $27.6 million
judgment and remanded the case for a new trial. On March 15,
2013, plaintiffs filed a motion for re-argument en banc, and on
March 28, 2013, we filed our response in opposition. On May 9,
2013, the Superior Court of Pennsylvania granted plaintiffs’
motion for re-argument en banc. Oral argument
(re-argument en banc) before the Superior Court of

Pennsylvania was held on October 16, 2013. On December 20,
2013, the Court issued its opinion again vacating the trial court
judgment and remanding the case for a new trial. On
January 21, 2014, plaintiffs filed a petition for allowance of
appeal in the Supreme Court of Pennsylvania, which was
granted on May 21, 2014. Oral argument before the Supreme
Court of Pennsylvania took place on October 8, 2014. On
October 27, 2015, the Supreme Court of Pennsylvania reversed
the order of the Superior Court of Pennsylvania and remanded
the case to that court to consider the question of whether the
trial court erred in refusing to remit the jury’s compensatory
damages award. On June 6, 2016, an en banc panel of the
Superior Court of Pennsylvania vacated the $27.6 million
verdict and remanded the case back to the trial court for
remittitur. On December 2, 2016, the trial court remitted the
verdict to $21.5 million. On December 5, 2016, we filed a
notice of appeal to the Superior Court of Pennsylvania.
Although we are defending this lawsuit vigorously, its ultimate
resolution is uncertain. In the future, we could be required to
record a charge that could have a material adverse effect on
our results of operations and cash flows.

NexGen® Knee System claims: Following a wide-spread

advertising campaign conducted by certain law firms beginning
in 2010, a number of product liability lawsuits have been filed
against us in various jurisdictions. The plaintiffs seek damages
for personal injury, alleging that certain products within the
NexGen Knee System suffer from defects that cause them to
loosen prematurely. The majority of the cases are currently
pending in a federal MDL in the Northern District of Illinois (In
Re: Zimmer NexGen Knee Implant Products Liability
Litigation). Other cases are pending in other state and federal
courts, and additional lawsuits may be filed. As of
December 31, 2016, discovery in these lawsuits was ongoing.
The initial bellwether trial took place in October 2015 and
resulted in a defense verdict. The next scheduled bellwether
trial, which was set to commence in November 2016, was
dismissed following the court’s grant of summary judgment in
our favor in October 2016. The second bellwether trial took
place in January 2017 and resulted in a defense verdict. We
have not accrued an estimated loss relating to these lawsuits
because we believe the plaintiffs’ allegations are not consistent
with the record of clinical success for these products. As a
result, we do not believe that it is probable that we have
incurred a liability, and we cannot reasonably estimate any loss
that might eventually be incurred. Although we are vigorously
defending these lawsuits, their ultimate resolution is uncertain.
Biomet metal-on-metal hip implant claims: Biomet is a
defendant in a number of product liability lawsuits relating to
metal-on-metal hip implants. The majority of these cases
involve the M2a-Magnum™ hip system. The majority of the
cases are currently consolidated in one federal MDL
proceeding in the U.S. District Court for the Northern District
of Indiana (In Re: Biomet M2a Magnum Hip Implant
Product Liability Litigation). Other cases are pending in
various state and foreign courts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On February 3, 2014, Biomet announced the settlement of

the MDL. Lawsuits filed in the MDL by April 15, 2014 may
participate in the settlement. Biomet continues to evaluate the
inventory of lawsuits in the MDL pursuant to the categories
and procedures set forth in the settlement agreement. The
final amount of payments under the settlement is uncertain.
The settlement does not affect certain other claims relating to
Biomet’s metal-on-metal hip products that are pending in
various state and foreign courts, or other claims that may be
filed in the future. Our estimate as of December 31, 2016 of the
remaining liability for all Biomet metal-on-metal hip implant
claims is $57.4 million.

Biomet has exhausted the self-insured retention in its
insurance program and has been reimbursed for claims related
to its metal-on-metal products up to its policy limits in the
program. Zimmer Biomet will be responsible for any amounts
by which the ultimate losses exceed the amount of Biomet’s
third-party insurance coverage. As of December 31, 2016,
Biomet had received all of the insurance proceeds it expects to
recover under the excess policies. Although we are vigorously
defending these lawsuits, their ultimate resolution is uncertain.
Heraeus trade secret misappropriation lawsuits: In

December 2008, Heraeus Kulzer GmbH (together with its
affiliates, “Heraeus”) initiated legal proceedings in Germany
against Biomet, Inc., Biomet Europe BV, certain other entities
and certain employees alleging that the defendants
misappropriated Heraeus trade secrets when developing
Biomet Europe’s Refobacin and Biomet Bone Cement line of
cements (“European Cements”). The lawsuit sought to
preclude the defendants from producing, marketing and
offering for sale their current line of European Cements and to
compensate Heraeus for any damages incurred (alleged at that
time to be in excess of €30.0 million).

On June 5, 2014, the German appeals court in Frankfurt

(i) enjoined Biomet, Inc., Biomet Europe BV and Biomet
Deutschland GmbH from manufacturing, selling or offering the
European Cements to the extent they contain certain raw
materials in particular specifications; (ii) held the defendants
jointly and severally liable to Heraeus for any damages from
the sale of European Cements since 2005; and (iii) ruled that
no further review may be sought (the “Frankfurt Decision”).
The Heraeus and Biomet parties both sought appeal against
the Frankfurt Decision. In a decision dated June 16, 2016, the
German Supreme Court dismissed the parties’ appeals without
reaching the merits, rendering that decision final. In December
2016, Heraeus filed papers to restart proceedings against
Biomet Orthopaedics Switzerland GmbH, seeking to require
that entity to relinquish its CE certificates for the European
Cements. In January 2017, Heraeus notified Biomet it had filed
a claim for damages in the amount of €121.9 million for sales in
Germany. As of the date of filing of this report, the Biomet
entities had not yet been served formally with that claim.

On September 8, 2014, Heraeus filed a complaint against a

Biomet supplier, Esschem, Inc. (“Esschem”), in the United
States District Court for the Eastern District of Pennsylvania.

The lawsuit contains allegations that focus on two copolymer
compounds that Esschem sells to Biomet, which Biomet
incorporates into certain bone cement products that compete
with Heraeus’ bone cement products. The complaint alleges
that Biomet helped Esschem to develop these copolymers,
using Heraeus trade secrets that Biomet allegedly
misappropriated. The complaint asserts a claim under the
Pennsylvania Trade Secrets Act, as well as other various
common law tort claims, all based upon the same trade secret
misappropriation theory. Heraeus is seeking to enjoin Esschem
from supplying the copolymers to any third party and actual
damages in an unspecified amount. The complaint also seeks
punitive damages, costs and attorneys’ fees. If Esschem is
enjoined, Biomet may not be able to obtain the copolymers
from another supplier and as a result may not be able to
continue to manufacture the subject bone cement products.
Although Heraeus has not named Biomet as a party to this
lawsuit, Biomet has agreed, at Esschem’s request and subject
to certain limitations, to indemnify Esschem for any liability,
damages and legal costs related to this matter. On November 3,
2014, the court entered an order denying Heraeus’ motion for a
temporary restraining order. On June 30, 2016, the court
entered an order denying Heraeus’ request to give preclusive
effect to the factual findings in the Frankfurt Decision. A trial
is scheduled to commence on June 19, 2017.

Heraeus continues to pursue other related legal

proceedings in Europe seeking various forms of relief,
including injunctive relief and damages, against Biomet-related
entities relating to the European Cements.

We have accrued an estimated loss relating to the
Frankfurt Decision, but have not recognized any losses for
Heraeus-related lawsuits in other jurisdictions because we do
not believe it is probable that we have incurred a liability, and
we cannot reasonably estimate any loss that might eventually
be incurred. Damages relating to the Frankfurt Decision are
subject to separate proceedings and it is reasonably possible
that our estimate of the loss we may incur may change in the
future. Although we are vigorously defending these lawsuits,
their ultimate resolution is uncertain.

Stryker patent infringement lawsuit: On December 10,
2010, Stryker Corporation and related entities (“Stryker”) filed
suit against us in the U.S. District Court for the Western
District of Michigan, alleging that certain of our Pulsavac® Plus
Wound Debridement Products infringe three U.S. patents
assigned to Stryker. The case was tried beginning on
January 15, 2013, and on February 5, 2013, the jury found that
we infringed certain claims of the subject patents. The jury
awarded $70.0 million in monetary damages for lost profits.
The jury also found that we willfully infringed the subject
patents. We filed multiple post-trial motions, including a
motion seeking a new trial. On August 7, 2013, the trial court
issued a ruling denying all of our motions and awarded treble
damages and attorneys’ fees to Stryker. We filed a notice of
appeal to the Court of Appeals for the Federal Circuit to seek
reversal of both the jury’s verdict and the trial court’s rulings

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

on our post-trial motions. Oral argument before the Court of
Appeals for the Federal Circuit took place on September 8,
2014. On December 19, 2014, the Federal Circuit issued a
decision affirming the $70.0 million lost profits award but
reversed the willfulness finding, vacating the treble damages
award and vacating and remanding the attorneys’ fees award.
We accrued an estimated loss of $70.0 million related to this
matter in the three month period ended December 31, 2014.
On January 20, 2015, Stryker filed a motion with the Federal
Circuit for a rehearing en banc. On March 23, 2015, the
Federal Circuit denied Stryker’s petition. Stryker subsequently
filed a petition for certiorari to the U.S. Supreme Court. In July
2015, we paid the final award of $90.3 million, which includes
the original $70.0 million plus pre-and post-judgment interest
and damages for sales that occurred post-trial but prior to our
entry into a license agreement with Stryker. On October 19,
2015, the U.S. Supreme Court granted Stryker’s petition for
certiorari. Oral argument took place on February 23, 2016. On
June 13, 2016, the U.S. Supreme Court issued its decision,
vacating the judgment of the Federal Circuit and remanding
the case for further proceedings related to the willfulness
issue. On September 12, 2016, the Federal Circuit issued an
opinion affirming the jury’s willfulness finding and vacating and
remanding the District Court’s award of treble damages, its
finding that this was an exceptional case and its award of
attorneys’ fees. The case is now being remanded back to the
District Court. Oral argument on Stryker’s renewed
consolidated motion for enhanced damages and attorneys’ fees
is scheduled for June 28, 2017. Although we are defending this
lawsuit vigorously, the ultimate resolution of this matter is
uncertain. In the future, we could be required to record a
charge of up to $165.0 million that could have a material
adverse effect on our results of operations and cash flows.

Putative Class Action: On December 2, 2016, a complaint
was filed in the U.S. District Court for the Northern District of
Indiana (Shah v. Zimmer Biomet Holdings, Inc. et al.),
naming us and three of our officers as defendants. The
complaint relates to a putative class action on behalf of
persons who purchased our common stock between
September 7, 2016 and October 31, 2016. The complaint
alleges that the defendants violated federal securities laws by
making materially false and/or misleading statements and
failing to disclose that supply chain issues led to a decrease in
order fulfillment rates in the third quarter of 2016 and would
cause us to lower our revenue and earnings guidance for full-
year 2016. The plaintiff seeks unspecified damages and
interest, attorneys’ fees, costs and other relief. We believe this
lawsuit is without merit, and we and the individual defendants
intend to defend it vigorously.

Regulatory Matters, Government Investigations and Other Matters

FDA warning letters: In September 2012, Zimmer
received a warning letter from the FDA citing concerns
relating to certain processes pertaining to products
manufactured at our Ponce, Puerto Rico manufacturing

facility. In June 2015, Biomet received a warning letter from
the FDA that requested additional information to allow the
FDA to evaluate the adequacy of Biomet’s responses to certain
Form 483 observations issued following an inspection of
Biomet’s Zhejiang, China manufacturing facility in January
2015. In May 2016, Zimmer received a warning letter from the
FDA related to observed non-conformities with current good
manufacturing practice requirements of the QSR at our facility
in Montreal, Quebec, Canada. We have provided detailed
responses to the FDA as to our corrective actions and will
continue to work expeditiously to address the issues identified
by the FDA during inspections in Ponce, Zhejiang and
Montreal. As of December 31, 2016, these warning letters
remained pending. Until the violations are corrected, we may
be subject to additional regulatory action by the FDA, as
described more fully below. Additionally, requests for
Certificates to Foreign Governments related to products
manufactured at certain of our facilities may not be granted
and premarket approval applications for Class III devices to
which the QSR deviations at these facilities are reasonably
related will not be approved until the violations have been
corrected. In addition to responding to the warning letters
described above, we are in the process of addressing various
FDA Form 483 inspectional observations at certain of our
manufacturing facilities, including at both the legacy Zimmer
and the legacy Biomet manufacturing facilities in Warsaw,
Indiana. The ultimate outcome of these matters is presently
uncertain. Among other available regulatory actions, the FDA
may impose operating restrictions, including a ceasing of
operations, on one or more facilities, enjoining and restraining
certain violations of applicable law pertaining to medical
devices and assessing civil or criminal penalties against our
officers, employees or us. The FDA could also issue a
corporate warning letter, a recidivist warning letter or a
consent decree of permanent injunction. The FDA may also
recommend prosecution by the DOJ. Any adverse regulatory
action, depending on its magnitude, may restrict us from
effectively manufacturing, marketing and selling our products
and could have a material adverse effect on our business,
financial condition and results of operations.

DPA relating to FCPA matters: On January 12, 2017, we
resolved previously-disclosed FCPA matters involving Biomet
and certain of its subsidiaries. As part of the settlement,
Biomet resolved matters with the SEC through an
administrative cease-and-desist order (the “Order”); (ii) we
entered into a DPA with the DOJ; and (iii) JERDS Luxembourg
Holding S.à r.l. (“JERDS”), the direct parent company of
Biomet 3i Mexico SA de CV and an indirect, wholly-owned
subsidiary of Biomet, entered into a plea agreement (the “Plea
Agreement”) with the DOJ. The conduct underlying these
resolutions occurred prior to the Biomet merger.

Pursuant to the terms of the Order, Biomet resolved
claims with the SEC related to violations of the books and
records, internal controls and anti-bribery provisions of the
FCPA by disgorging profits to the U.S. government in an

Z I M M E R BI O M E T HO L D I N G S , I N C . A N D SU B S I D I A R I E S

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

aggregate amount of approximately $6.5 million, inclusive of
pre-judgment interest, and paying a civil penalty in the
amount of $6.5 million (collectively, the “Civil Settlement
Payments”). We also agreed to pay a criminal penalty of
approximately $17.5 million (together with the Civil
Settlement Payments, the “Settlement Payments”) to the U.S.
government pursuant to the terms of the DPA. We made the
Settlement Payments in January 2017 and, as previously
disclosed, had accrued, as of June 24, 2015, the closing date of
the Biomet merger, an amount sufficient to cover this matter.
Under the DPA, which has a term of three years, the DOJ
agreed to defer criminal prosecution of us in connection with
the charged violation of the internal controls provision of the
FCPA as long as we comply with the terms of the DPA. In
addition, we will be subject to oversight by an independent
compliance monitor for at least 12 months. The monitor will
focus on legacy Biomet operations as integrated into our
operations. If we remain in compliance with the DPA

21. Quarterly Financial Information (Unaudited)

(in millions, except per share data)

during its term, the charges against us will be dismissed with
prejudice. The term of the DPA may be extended for up to one
additional year at the DOJ’s discretion. In addition, under its
Plea Agreement with the DOJ, JERDS pleaded guilty on
January 13, 2017 to aiding and abetting a violation of the
books and records provision of the FCPA. In light of the DPA
we entered into, JERDS paid only a nominal assessment and
no criminal penalty.

If we do not comply with the terms of the DPA, we could

Net sales

Gross profit

Net earnings (loss) of Zimmer Biomet

Holdings, Inc.

Earnings (loss) per common share

Basic

Diluted

2016 Quarter Ended

2015 Quarter Ended

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

$1,904.0

$1,934.0

$1,832.8

$2,013.1

$1,134.4

$1,167.6

$1,762.2

$1,933.6

1,136.8

1,160.1

1,189.2

1,250.1

829.1

840.3

1,087.5

1,102.9

108.8

(31.3)

158.8

69.6

171.4

(173.6)

22.2

127.0

0.54

(0.16)

0.79

0.78

0.35

0.34

1.01

0.99

(1.00)

0.11

0.62

In the three month period ended September 30, 2016, we recognized $21.0 million of tax benefits and $12.2 million of pre-tax
operating expenses that were related to previous periods. The majority of the tax benefits were related to adjusting certain Biomet
purchase accounting values. In the three month period ended December 31, 2016, we recognized $13.0 million of tax provisions
that were related to previous periods. We have evaluated the effect of these out-of-period adjustments on the applicable interim
and annual periods of 2016 and prior years in which they should have been recognized, and concluded for both quantitative and
qualitative reasons that these adjustments were not material to any of the periods affected.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We

maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) and 13a-15(f) under the 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
Securities and Exchange Commission’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 the design and operation of our disclosure
controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that
as of December 31, 2016, the end of the period covered by this
report, our disclosure controls and procedures were not
effective due to the material weakness in our internal control
over financial reporting discussed in Management’s Report on
Internal Control Over Financial Reporting included in item 7A.

In light of this material weakness, the Company
performed additional analysis and other post-closing
procedures to ensure our consolidated financial statements
are prepared in accordance with generally accepted

Item 9B. Other Information

accounting principles. Accordingly, management concluded
that the financial statements included in this report fairly
present in all material respects our financial condition, results
of operations and cash flows for the periods presented.
Remediation Plan. Management has begun
implementing a remediation plan to address the control
deficiencies that led to the material weakness. The
remediation plan includes adding additional resources and
strengthening our income tax controls with improved
technical oversight and training. We believe these additional
resources will enhance our review procedures and will
effectively remediate the material weakness, but the material
weakness will not be considered remediated until the
applicable measures have been implemented for a sufficient
period of time and management has concluded, through
testing, that the enhanced control is operating effectively. As
we continue to evaluate and improve our internal control over
financial reporting, we may decide to take additional measures
to address this material weakness, which may require
additional implementation time. Further, we cannot provide
any assurance that our remediation efforts will be successful
or that our internal control over financial reporting will be
effective as a result of these efforts.

Changes in Internal Control Over Financial

Reporting. There were no changes in our internal control over
financial reporting that occurred during the quarter ended
December 31, 2016 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.

During the fourth quarter of 2016, the Audit Committee of our Board of Directors was not asked to, and did not, approve the

engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform any non-audit
services. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act.

Z I M M E R BI OM E T HOL D I NG S , I NC .

PART III

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated by reference from our definitive Proxy Statement for the annual meeting of

stockholders to be held on May 12, 2017 (the “2017 Proxy Statement”).

We have adopted the Zimmer Biomet Code of Ethics for Chief Executive Officer and Senior Financial Officers (the “finance

code of ethics”), a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
Corporate Controller, and other finance organization senior employees. The finance code of ethics is publicly available in the
Investor Relations section of our website, which may be accessed from our homepage at www.zimmerbiomet.com or directly at
http://investor.zimmerbiomet.com. If we make any substantive amendments to the finance code of ethics or grant any waiver,
including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief
Accounting Officer and Corporate Controller, we will disclose the nature of that amendment in the Investor Relations section of our
website.

Item 11. Executive Compensation

Information required by this item is incorporated by reference from our 2017 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Information required by this item is incorporated by reference from our 2017 Proxy Statement.

Item 13. Certain Relationships and Related Transactions and Director Independence

Information required by this item is incorporated by reference from our 2017 Proxy Statement.

Item 14. Principal Accounting Fees and Services

Information required by this item is incorporated by reference from of our 2017 Proxy Statement.

Z I M M E R BI OM E T HOL D I NG S , I NC .

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1.

Financial Statements

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

The following consolidated financial statements of Zimmer Biomet Holdings, Inc. and its subsidiaries are set forth in Part
II, Item 8.

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Balance Sheets as of December 31, 2016 and 2015

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

Other financial statement schedules are omitted because they are not applicable or the required information is shown in
the financial statements or the notes thereto.

3. Exhibits

A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes
such exhibits and is incorporated herein by reference.

Item 16. 10-K Summary

None

Z I M M E R BI OM E T HOL D I NG S , I NC .

SIGNATURES

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Pursuant to the requirements of Section 13 or 15(d) 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.

By: /s/ David C. Dvorak
David C. Dvorak
President and Chief Executive Officer

Dated: March 1, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE

TITLE

/s/ David C. Dvorak

David C. Dvorak

/s/ Daniel P. Florin

Daniel P. Florin

/s/ Tony W. Collins

Tony W. Collins

/s/ Christopher B. Begley

Christopher B. Begley

/s/ Betsy J. Bernard

Betsy J. Bernard

/s/ Paul M. Bisaro

Paul M. Bisaro

/s/ Gail K. Boudreaux

Gail K. Boudreaux

/s/ Michael J. Farrell

Michael J. Farrell

/s/ Larry C. Glasscock

Larry C. Glasscock

/s/ Robert A. Hagemann

Robert A. Hagemann

/s/ Arthur J. Higgins

Arthur J. Higgins

/s/ Michael W. Michelson

Michael W. Michelson

/s/ Cecil B. Pickett, Ph.D.

Cecil B. Pickett, Ph.D.

/s/ Jeffrey K. Rhodes

Jeffrey K. Rhodes

DATE

March 1, 2017

President, Chief Executive Officer and Director (Principal
Executive Officer)

Senior Vice President and Chief Financial Officer (Principal
Financial Officer)

March 1, 2017

Vice President, Corporate Controller and Chief Accounting
Officer (Principal Accounting Officer)

March 1, 2017

Director

March 1, 2017

Z I M M E R BI OM E T HOL D I NG S , I NC .

INDEX TO EXHIBITS

Exhibit No

Description†

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Agreement and Plan of Merger, dated as of June 6, 2016, by and among Zimmer Biomet Holdings, Inc., LH Merger
Sub, Inc. and LDR Holding Corporation (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report
on Form 8-K filed June 7, 2016)

Restated Certificate of Incorporation of Zimmer Biomet Holdings, Inc., dated June 24, 2015 (incorporated by
reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed June 26, 2015)

Restated By-Laws of Zimmer Biomet Holdings, Inc., effective June 24, 2015 (incorporated by reference to Exhibit 3.3
to the Registrant’s Current Report on Form 8-K filed June 26, 2015)

Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on
Form 10-Q filed August 10, 2015)

Indenture dated as of November 17, 2009 between Zimmer Holdings, Inc. (now known as Zimmer Biomet Holdings,
Inc.) and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed December 13, 2016)

First Supplemental Indenture to the Indenture dated as of November 17, 2009 between Zimmer Holdings, Inc. and
Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s
Current Report on Form 8-K filed November 17, 2009)

Form of 4.625% Note due 2019 (incorporated by reference to Exhibit 4.3 above)

Form of 5.750% Note due 2039 (incorporated by reference to Exhibit 4.3 above)

Second Supplemental Indenture dated as of November 10, 2011, to the Indenture dated as of November 17, 2009
between Zimmer Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to
Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed November 10, 2011)

Form of 3.375% Note due 2021 (incorporated by reference to Exhibit 4.6 above)

Third Supplemental Indenture, dated as of March 19, 2015, to the Indenture dated as of November 17, 2009 between
Zimmer Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed March 19, 2015)

Form of 1.450% Notes due 2017 (incorporated by reference to Exhibit 4.8 above)

Form of 2.000% Notes due 2018 (incorporated by reference to Exhibit 4.8 above)

Form of 2.700% Notes due 2020 (incorporated by reference to Exhibit 4.8 above)

Form of 3.150% Notes due 2022 (incorporated by reference to Exhibit 4.8 above)

Form of 3.550% Notes due 2025 (incorporated by reference to Exhibit 4.8 above)

Form of 4.250% Notes due 2035 (incorporated by reference to Exhibit 4.8 above)

Form of 4.450% Notes due 2045 (incorporated by reference to Exhibit 4.8 above)

Fourth Supplemental Indenture, dated as of December 13, 2016, between Zimmer Biomet Holdings, Inc. and Wells
Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed December 13, 2016)

Agency Agreement, dated as of December 13, 2016, by and among Zimmer Biomet Holdings, Inc., as issuer, Elavon
Financial Services DAC, UK Branch, as paying agent, Elavon Financial Services DAC, as registrar and transfer agent,
and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registrant’s
Current Report on Form 8-K filed December 13, 2016)

Amendment No. 1, dated as of January 4, 2017, to the Agency Agreement dated as of December 13, 2016, by and
among Zimmer Biomet Holdings, Inc., as issuer, Elavon Financial Services DAC, UK Branch, as paying agent, Elavon
Financial Services DAC, as original registrar and original transfer agent, U.S. Bank National Association, as successor
registrar and successor transfer agent, and Wells Fargo Bank, National Association, as Trustee (incorporated by
reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form 8-A filed January 4, 2017)

Form of 1.414% Notes due 2022 (incorporated by reference to Exhibit 4.16 above)

Form of 2.425% Notes due 2026 (incorporated by reference to Exhibit 4.16 above)

Zimmer Holdings, Inc. 2006 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed December 13, 2006)

Zimmer Biomet Holdings, Inc. Executive Performance Incentive Plan, as amended May 7, 2013 and further amended
as of June 24, 2015 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed
November 9, 2015)

2.1

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15

4.16

4.17

4.18

4.19

4.20

10.1*

10.2*

Z I M M E R BI OM E T HOL D I NG S , I NC .

Exhibit No

Description†

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

10.24*

Amendment to Zimmer Biomet Holdings, Inc. Executive Performance Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 7, 2016)

Restated Zimmer Biomet Holdings, Inc. Long Term Disability Income Plan for Highly Compensated Employees
(incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed January 7, 2016)

Change in Control Severance Agreement with David C. Dvorak (incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K filed February 28, 2009)

Change in Control Severance Agreement with Katarzyna Mazur-Hofsaess (incorporated by reference to Exhibit 10.3
to the Registrant’s Quarterly Report on Form 10-Q filed August 7, 2013)

Form of Change in Control Severance Agreement with Chad F. Phipps (incorporated by reference to Exhibit 10.13 to
the Registrant’s Annual Report on Form 10-K filed February 28, 2009)

Form of Change in Control Severance Agreement with Daniel P. Florin, Tony W. Collins, Adam R. Johnson, David A.
Nolan, Jr. and Daniel E. Williamson (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q filed August 10, 2015)

Change in Control Severance Agreement with Sang Yi (incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q filed November 9, 2015)

Form of Change in Control Severance Agreement with Robert D. Delp

Restated Benefit Equalization Plan of Zimmer Holdings, Inc. and Its Subsidiary or Affiliated Corporations
Participating in the Zimmer Holdings, Inc. Savings and Investment Program (incorporated by reference to Exhibit
10.16 to the Registrant’s Annual Report on Form 10-K filed February 28, 2009)

First Amendment to the Restated Benefit Equalization Plan of Zimmer Holdings, Inc. and its Subsidiary or Affiliated
Corporations Participating in the Zimmer Holdings, Inc. Savings and Investment Program (incorporated by reference
to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed January 7, 2016)

Restated Benefit Equalization Plan of Zimmer Holdings, Inc. and Its Subsidiary or Affiliated Corporations
Participating in the Zimmer Holdings, Inc. Retirement Income Plan or the Zimmer Puerto Rico Retirement Income
Plan (incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K filed February 28,
2009)

First Amendment to the Restated Benefit Equalization Plan of Zimmer Holdings, Inc. and its Subsidiary or Affiliated
Corporations Participating in the Zimmer Holdings, Inc. Retirement Income Plan or the Zimmer Puerto Rico
Retirement Income Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K
filed January 7, 2016)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with U.S.-Based Executive Officers
(incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed June 26, 2015)

Confidentiality, Non-Competition and Non-Solicitation Agreement with Katarzyna Mazur-Hofsaess (incorporated by
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed August 7, 2013)

Confidentiality, Non-Competition and Non-Solicitation Agreement with Sang Yi (incorporated by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q filed November 9, 2015)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Robert D. Delp

Zimmer Biomet Holdings, Inc. Amended Stock Plan for Non-Employee Directors, as amended May 5, 2015 and further
amended as of June 24, 2015 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form
10-Q filed November 9, 2015)

Form of Nonqualified Stock Option Award Letter under the Zimmer Biomet Holdings, Inc. Stock Plan for
Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
filed April 5, 2005)

Form of Restricted Stock Unit Award Letter under the Zimmer Biomet Holdings, Inc. Stock Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K filed
February 29, 2016)

Form of Nonqualified Stock Option Award Letter under the Zimmer Holdings, Inc. 2006 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed December 13, 2006)

Amended and Restated Zimmer Biomet Holdings, Inc. Deferred Compensation Plan for Non-Employee Directors, as
amended May 5, 2015 and further amended as of June 24, 2015 (incorporated by reference to Exhibit 10.6 to the
Registrant’s Quarterly Report on Form 10-Q filed November 9, 2015)

Zimmer Biomet Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K filed January 7, 2016)

Z I M M E R BI OM E T HOL D I NG S , I NC .

Exhibit No

Description†

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Zimmer Biomet Holdings, Inc. 2009 Stock Incentive Plan (As Amended on May 3, 2016) (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 9, 2016)

Form of Nonqualified Stock Option Award Letter under the Zimmer Biomet Holdings, Inc. 2009 Stock Incentive Plan
(incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K filed February 29, 2016)

Form of Restricted Stock Unit Award Letter (two-year vesting) under the Zimmer Biomet Holdings, Inc. 2009 Stock
Incentive Plan (incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K filed
February 23, 2015)

Form of Performance-Based Restricted Stock Unit Award Letter (three-year performance period) under the Zimmer
Biomet Holdings, Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 to the Registrant’s
Annual Report on Form 10-K filed February 29, 2016)

Form of Indemnification Agreement with Non-Employee Directors and Officers (incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed July 31, 2008)

Settlement Agreement between Zimmer Pte Ltd and Stephen Ooi Hong Liang dated February 5, 2016 (incorporated
by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed May 10, 2016)

Agreement by and between Stephen Ooi Hong Liang, Zimmer Pte Ltd and Zimmer, Inc. dated February 5, 2016
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed May 10, 2016)

Term Loan Agreement ¥11,700,000,000 dated as of May 24, 2012 (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed May 31, 2012)

Letter of Guarantee dated as of May 24, 2012 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed May 31, 2012)

First Amendment, dated October 31, 2014, to the ¥11,700,000,000 Term Loan Agreement dated as of May 24, 2012
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 5, 2014)

Credit Agreement, dated as of September 30, 2016, among Zimmer Biomet Holdings, Inc., Zimmer Biomet G.K.,
ZB Investment Luxembourg S.à r.l., the borrowing subsidiaries referred to therein, JPMorgan Chase Bank, N.A., as
General Administrative Agent, JPMorgan Chase Bank, N.A., Tokyo Branch, as Japanese Administrative Agent, J.P.
Morgan Europe Limited, as European Administrative Agent, and the lenders named therein (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 5, 2016)

Credit Agreement, dated as of May 29, 2014, among Zimmer Holdings, Inc., Zimmer K.K., Zimmer Investment
Luxembourg S.à r.l., the borrowing subsidiaries referred to therein, JPMorgan Chase Bank, N.A., as General
Administrative Agent, JPMorgan Chase Bank, N.A., Tokyo Branch, as Japanese Administrative Agent, J. P. Morgan
Europe Limited, as European Administrative Agent, and the lenders named therein (incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 4, 2014)

First Amendment, dated as of September 30, 2016, to the Credit Agreement dated as of May 29, 2014 among Zimmer
Biomet Holdings, Inc., Zimmer Biomet G.K., ZB Investment Luxembourg S.à r.l., the borrowing subsidiaries from time
to time party thereto, JPMorgan Chase Bank, N.A., as General Administrative Agent, JPMorgan Chase Bank, N.A.,
Tokyo Branch, as Japanese Administrative Agent, and J.P. Morgan Europe Limited, as European Administrative
Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed October 5, 2016)

Deferred Prosecution Agreement, dated as of January 12, 2017, between Zimmer Biomet Holdings, Inc. and the U.S.
Department of Justice, Criminal Division, Fraud Section (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed January 18, 2017)

Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934,
Making Findings and Imposing a Cease-and-Desist Order against Biomet, Inc., dated January 12, 2017 (incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed January 18, 2017)

Plea Agreement, dated as of January 12, 2017, between JERDS Luxembourg Holding S.à r.l. and the U.S. Department
of Justice, Criminal Division, Fraud Section (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K filed January 18, 2017)

List of Subsidiaries of Zimmer Biomet Holdings, Inc.

Consent of PricewaterhouseCoopers LLP

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

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

10.25*

10.26*

10.27*

10.28*

10.29*

10.30*

10.31*

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

31.1

31.2

Z I M M E R BI OM E T HOL D I NG S , I NC .

Exhibit No

Description†

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document

† Unless otherwise indicated, exhibits incorporated by reference herein were originally filed under SEC File No. 001-16407.

* Management contract or compensatory plan or arrangement.

SCHEDULE II

ZIMMER HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in millions)

Description

Allowance for Doubtful Accounts:

Year Ended December 31, 2014

Year Ended December 31, 2015

Year Ended December 31, 2016

Deferred Tax Asset Valuation Allowances:

Year Ended December 31, 2014

Year Ended December 31, 2015

Year Ended December 31, 2016

Balance at
Beginning
of Period

Additions
Charged
(Credited)
to Expense

Deductions
to Reserve

Effects of
Foreign
Currency

Acquired
Allowances

Balance
at End of
Period

$ 22.7

$ 2.0

$ (1.4) $(1.0)

22.3

34.1

13.5

22.3

(0.4)

(4.5)

(1.3)

(0.3)

–

$ 22.3

34.1

51.6

$ 42.7

$ 74.7

$ (9.2) $

–

$14.6

$122.8

122.8

(53.7)

(5.6)

72.7

24.8

(12.4)

(1.6)

(1.1)

10.8

4.3

72.7

88.3

Reconciliation of Reported Net Sales % Growth to Adjusted Net Sales % Growth for the Year Ended December 31, 2016 (unaudited)

Reported net sales % growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect from product divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect from full year of Biomet net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of LDR Holding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjusted net sales % growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28%
1
(26)
(1)

Note on Forward-Looking Non-GAAP Financial Measures

In the letter to stockholders that appears at the beginning of this Annual Report, we present our goals of generating $2 billion
in annual free cash flow by 2020 and achieving a gross debt-to-adjusted EBITDA ratio of 2.5 by the end of 2018. Free cash flow and
adjusted EBITDA, as well as the ratio of gross debt to adjusted EBITDA, are “non-GAAP financial measures” under U.S. Securities
and Exchange Commission rules. Non-GAAP financial measures supplement our GAAP disclosures and should not be considered as
a substitute for, or superior to, the most directly comparable GAAP financial measures. We define free cash flow as GAAP net cash
provided by operating activities less additions to instruments and additions to other property, plant and equipment. We define
adjusted EBITDA as GAAP net earnings less interest income plus interest expense, provision for income taxes, depreciation,
intangible asset amortization, inventory step-up and other inventory and manufacturing-related charges, merger-related other
expense and special items. We have not provided quantitative reconciliations of these forward-looking non-GAAP financial
measures to the most directly comparable forward-looking GAAP financial measures because, due to variability and difficulty in
making accurate forecasts and projections and/or certain information not being ascertainable or accessible, not all of the
information necessary for quantitative reconciliations of these forward-looking non-GAAP financial measures to the most directly
comparable GAAP financial measures is available to us without unreasonable efforts. Consequently, any attempt to disclose such
reconciliations would imply a degree of precision that could be confusing or misleading to investors. It is probable that these
forward-looking non-GAAP financial measures may be materially different from the corresponding GAAP financial measures.

Z I M M E R BI OM E T HOL D I NG S , I NC .

2 0 1 6 F O R M 1 0 - K AN N U A L R E P O R T

Reconciliation of Operating Profit to Adjusted Operating Profit for the Years Ended December 31, 2016, 2015, 2014, 2013 and 2012 (in millions, unaudited)

For the Years Ended December 31,

2016

2015

2014

2013

2012

Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory step-up and other inventory and manufacturing related charges . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 825.9
469.1
565.9
—
—
611.8

$ 467.3
348.8
337.4
7.7
—
831.8

$1,037.3
36.3
92.5
21.5
—
341.1

$1,068.6
88.7
78.5
47.0
—
210.3

$1,035.2
4.8
97.1
15.0
96.0
158.4

Adjusted Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,472.7

$1,993.0

$1,528.7

$1,493.1

$1,406.5

Reconciliation of Operating Profit Margin to Adjusted Operating Profit Margin for the Years Ended December 31, 2016, 2015, 2014, 2013 and 2012 (in millions,
unaudited)

For the Years Ended December 31,

2016

10.7%
6.1
7.4
—
—
8.0

2015

7.8%
5.8
5.6
0.1
—
13.9

2014

22.2%
0.8
2.0
0.5
—
7.2

2013

23.1%
1.9
1.7
1.0
—
4.6

2012

23.2%
0.1
2.2
0.3
2.1
3.6

Adjusted Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32.2%

33.2%

32.7%

32.3%

31.5%

Reconciliation of Diluted EPS to Adjusted Diluted EPS for the Years Ended December 31, 2016, 2015, 2014, 2013 and 2012 (unaudited)

Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory step-up and other inventory and manufacturing related charges . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger-related and other expense in other (expense) income, net . . . . . . . . . . . . . . . . . .
Debt extinguishment cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on Biomet merger financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on above items(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Biomet merger-related measurement period tax adjustments(2)
. . . . . . . . . . . . . . . . . . . .
Other certain tax adjustments(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Years Ended December 31,

2016

2015

2014

2013

2012

$ 1.51
2.32
2.80
—
—
3.02
0.02
0.26
—
(2.22)
0.26
(0.01)

$ 0.77
1.84
1.78
0.04
—
4.38
—
0.12
0.37
(2.57)
—
0.17

$ 4.20
0.21
0.54
0.13
—
1.99
0.23
—
—
(0.90)
—
—

$ 4.54
0.52
0.46
0.27
—
1.22
—
—
—
(0.79)
—
—

$ 4.17
0.03
0.55
0.09
0.54
0.90
—
—
—
(0.70)
—
—

Adjusted Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7.96

$ 6.90

$ 6.40

$ 6.22

$ 5.58

(1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items.

For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred.

(2) The 2016 period includes negative effects from finalizing the tax accounts for the Biomet merger. Under the applicable U.S. GAAP rules, these

measurement period adjustments are recognized on a prospective basis in the period of change.

(3) Other certain tax adjustments primarily include internal restructuring transactions to integrate Biomet operations and facilitate access to

offshore earnings, partially offset by resolution of certain matters with taxing authorities and adjustments to deferred tax liabilities recognized
as part of acquisition-related accounting.

Reconciliation of Sales Growth Rate to Constant Currency Sales Growth Rate for the Year Ended December 31, 2016 (unaudited)

Geographic Segment

Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Product Category

Knees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S.E.T. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dental
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spine & CMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31, 2016

Reported
% Growth

Foreign
Exchange
Impact

Constant
Currency
% Growth

31%
22
25
28

21
22
35
27
64
41
28

—%
(3)
3
—

(1)
—
—
(1)
—
—
—

31%
25
22
28

22
22
35
28
64
41
28

Corporate Information (As of March 1, 2017)

Board of Directors

Larry C. Glasscock
Chairman of the Board,
Zimmer Biomet Holdings, Inc.
Retired Chairman,
President and Chief Executive Officer,
Anthem, Inc.

Christopher B. Begley
Retired Executive Chairman
and Chief Executive Officer,
Hospira, Inc.

Betsy J. Bernard
Retired President,
AT&T Corp.

Management Team

David C. Dvorak
President and
Chief Executive Officer

Paul M. Bisaro
Former Executive Chairman,
Allergan plc

Gail K. Boudreaux
Chief Executive Officer and Founder,
GKB Global Health, LLC

David C. Dvorak
President and
Chief Executive Officer,
Zimmer Biomet Holdings, Inc.

Michael J. Farrell
Chief Executive Officer,
ResMed Inc.

Robert A. Hagemann
Retired Senior Vice President
and Chief Financial Officer,
Quest Diagnostics Incorporated

Arthur J. Higgins
Consultant,
Blackstone Healthcare Partners

Michael W. Michelson
Member
KKR Management LLC,
the general partner of
KKR & Co. L.P.

Cecil B. Pickett, Ph.D.
Retired President,
Research and Development,
Biogen Idec Inc.

Jeffrey K. Rhodes
Partner
TPG Capital, L.P.

William P. Fisher
Senior Vice President,
Global Human Resources

David J. Kunz
Vice President, Global Quality
and Regulatory Affairs

Chad F. Phipps
Senior Vice President,
General Counsel and Secretary

Tony W. Collins
Vice President, Corporate Controller
and Chief Accounting Officer

Daniel P. Florin
Senior Vice President,
Chief Financial Officer

Katarzyna Mazur-Hofsaess, M.D., Ph.D.
President,
Europe, Middle East and Africa

Daniel E. Williamson
Group President,
Joint Reconstruction

Derek M. Davis
Vice President,
Global Integration

Robert D. Delp
President,
Americas

Stockholder Information

Headquarters
Zimmer Biomet Holdings, Inc.
345 East Main Street
Warsaw, IN 46580, U.S.A.
+1-574-267-6131
www.zimmerbiomet.com

Stock Listing
Zimmer Biomet is listed on the
New York Stock Exchange
and the SIX Swiss Exchange
under the symbol ZBH.

Adrian Furey
Senior Vice President,
Global Operations and Logistics

Adam R. Johnson
Group President,
Spine, Dental, CMF and Thoracic

David A. Nolan, Jr.
Group President, Biologics, Extremities,
Sports Medicine, Surgical, Trauma,
Foot and Ankle, Office Based
Technologies and Zimmer Biomet
Signature Solutions

Sang Yi
President,
Asia Paciﬁc

Transfer Agent
Communications concerning
stock transfer requirements, loss
of certiﬁcates and change of address
should be directed to Zimmer Biomet’s
Transfer Agent:

American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
+1-888-552-8493 (domestic)
+1-718-921-8124 (international)
Email: zimmer@amstock.com
Website: http://www.amstock.com

Investor Relations
Zimmer Biomet invites stockholders,
security analysts, portfolio managers
and other interested parties to contact:

Robert J. Marshall Jr.
Vice President, Investor Relations
and Treasurer
+1-574-371-8042
robert.marshall@zimmerbiomet.com

Barbara Goslee
Director, Investor Relations
+1-574-371-9449
barb.goslee@zimmerbiomet.com

To obtain a free copy of Zimmer
Biomet’s annual report on form 10-K,
quarterly reports on form 10-Q, news
releases, earnings releases, proxy
statements, or to access SEC ﬁlings,
listen to earnings calls, or to look up
Zimmer Biomet stock quotes, please
visit http://investor.zimmerbiomet.com
or call +1-866-688-7656.

Independent Auditors
PricewaterhouseCoopers LLP
Chicago, IL, U.S.A.

Dividend Reinvestment and Stock Purchase Plan

American Stock Transfer & Trust Company, LLC administers the Investors Choice Dividend Reinvestment and Stock Purchase Plan, which allows registered stockholders to
purchase additional shares of Zimmer Biomet common stock through the automatic investment of dividends. The plan also allows registered stockholders to purchase
shares with optional cash investments of at least $25, either by check or by automatic deductions from checking or savings accounts. The maximum optional cash
investment is $10,000 per transaction. Please direct inquiries concerning the plan to: Zimmer Biomet Holdings, Inc., c/o American Stock Transfer & Trust Company, LLC,
P.O. Box 922, Wall Street Station, New York, NY 10269-0560, +1-888-552-8493 (domestic), +1-718-921-8124 (international)

Stock Performance Graph

Comparison of Cumulative Total Return for years ended December 31

Assumes $100 was invested on
December 31, 2011 in Zimmer Biomet
common stock and each index and that
dividends were reinvested. Returns over the
indicated period should not be considered
indicative of future returns.

$250

$200

$150

$100

This annual report is printed on paper that
contains 10% post-consumer waste.

Zimmer Biomet Holdings, Inc.

S&P 500 Stock Index

S&P 500 Health Care Equipment Index

Baseline

$100

2012

$126

$117

2013

$178

$155

$150

2014

$218

$176

$189

2015

$199

$178

$201

2016

$202

$200

$214

Zimmer Biomet Holdings, Inc., 345 East Main Street, P.O. Box 708, Warsaw, IN 46580, U.S.A.