Zimmer Biomet Annual Report 2017

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FY2017 Annual Report · Zimmer Biomet

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ANNUAL REPORT

2017

ZIMMER BIOMET HOLDINGS, INC.

Financial Highlights

(Dollars in millions except per share amounts)

Sales b y Geography

2013

2014

2015

2016

2017

62%

22%

16%

Americas

$2,620

$2,594

$3,662

$4,803

$4,866

Europe

Asia Pacific

1,212

791

Consolidated

$4,623

1,269

810

$4,673

1,418

918

1,730

1,151

1,745

1,213

$5,998

$7,684

$7,824

Sales b y Product Category

2013

2014

2015

2016

2017

% Change 2016-2017

Constant
Reported Currency(1)

—

% Change 2016-2017

Constant
Reported Currency(1)

$2,277

$2,752

$ 2,737

(1%)

Knees

Hips

S.E.T.

Dental

Spine & CMF

Other

$1,862

1,331

$1,895

1,326

847

239

202

142

863

243

207

139

1,533

1,215

336

404

233

1,868

1,645

428

662

329

1,879

1,709

419

760

321

Consolidated

$4,623

$4,673

$5,998

$7,684

$7,824

(2%)

15%

(3%)

14%

(3%)

Operating Proﬁt
We maintained an attractive
operating margin in 2017,
supported in part by our
longstanding commitment to
operational excellence and lean
expense management.

Operating Cash Flow
Our strong free cash ﬂow position
allowed us to deploy capital to
expand our musculoskeletal
portfolio in 2017, as well as
harmonize our quality systems.
Looking forward, we intend to
continue to allocate our free cash
ﬂow towards debt repayment in
2018, as well as return value to
shareholders through our
ongoing dividend program.

(2%) Adjusted(2)

(2%) Reported

4
2
8
7

4
8
6
7

3
7
4

5
3
4

(3%) Reported

2
3
6

2
8
5

1
6
0

3
6
9

0
5
8

6
2
8

8
0
8

3
9
4

9
6
0

9
2
5

7
3
0

3
9
9

7
6
4

Diluted Earnings per Share
Adjusted diluted earnings per
share increased by 1% over the
prior year. Throughout 2017, we
drove focus on our commercial
and operational execution,
including a number of commercial
development projects across our
portfolio. We believe these new
products and technologies
represent opportunities for
attractive future return on
investment, and will support our
ongoing performance in 2018
and beyond.

0
9

8.03

6
9
7

489% Reported

1% Adjusted(2)

0
9

2
2

4
5

0
4

0
2

0.77
15

1.51
16

(1) “Constant Currency” refers to changes in sales 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 88.

(2) “Adjusted” refers to performance measures that exclude the effect of inventory step-up and other inventory and manufacturing related charges, certain claims, special items, intangible asset amortization,
goodwill impairment, financing and other expenses/gains related to the Biomet merger and other acquisitions, debt extinguishment charges, the tax effects of these items, U.S. tax reform and certain tax
adjustments. See the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures on pages 85-87.

35%

24%

22%

10%

Net Sales
Zimmer Biomet recorded net sales
of $7.824 billion in 2017, reﬂecting
2% revenue growth over 2016. Our
growth included noteworthy sales
from our Asia Paciﬁc region and
S.E.T. category, which have been
engines of diversiﬁed growth in
recent years. The steady growth of
the musculoskeletal market has
continued to support strong
demand for our portfolio of trusted
clinical solutions.

2% Reported

8
9
9

3
7
6

3
2
6

To Our Shareholders:

I am honored to have recently been appointed President and Chief Executive Officer of Zimmer
Biomet, which has a long track record built over 90 years. In leading the Company, I am focused on
continuing this tradition of market leadership, building on almost a century of service to patients,
physicians, healthcare organizations, employees, communities and our investors.

I believe in Zimmer Biomet’s ability to deliver unique value because of our dedication to developing
innovative solutions that ease pain and improve the quality of life for patients around the world.
This key value proposition has been reinforced through my recent discussions with many of Zimmer
Biomet’s stakeholders. Notwithstanding the difficulties that we faced in 2017, the Company is
working from a strong foundation that includes the industry’s broadest portfolio, a robust product
pipeline, meaningful market share in key end markets and world-class sales teams.

Importantly, we are focused on developing a culture where Zimmer Biomet employees are engaged
and valued, deliver on our commitments to customers and act with a sense of urgency. Together,
we will work to improve the predictability and consistency of our top line growth, which is a
commitment to shareholders that I take very seriously.

2017 Key Highlights

Zimmer Biomet’s 2017 net sales totaled $7.824 billion, an increase of 1.8% over the prior year
on both a reported and constant currency basis, and an increase of 0.5% over the prior year on a
constant currency basis excluding approximately 130 basis points of contribution from the LDR
Holding Corporation acquisition. Diluted earnings per share for 2017 were $8.90. Adjusted diluted
earnings per share for 2017 were $8.03, an increase of 0.9% over the prior year. We beneﬁtted from
the consistently solid performance of our Asia Paciﬁc region, as well as steady contributions from
the diversiﬁed range of offerings within our S.E.T. product category and Craniomaxillofacial and
Thoracic business throughout the year.

Overall, 2017 was a challenging year for our top-line growth, owing to a number of factors.
Principally, we operated at reduced levels of inventory across several key brands within our Knee,
Hip and S.E.T. product portfolios. Lower-than-anticipated production of these high-demand
products impacted our ability to reduce backorders as the year progressed, and we continue to
actively address these matters.

In 2017, we announced a number of exciting new products that enhance our core large joint
business and expand our inﬂuence in a number of fast-growing segments within the broader
musculoskeletal market:

• In September, we released our Persona® Partial Knee commercially as a critical expansion of
our innovative and anatomically designed Persona Knee System. This new offering further
strengthens our leadership in this area, along with meeting the increasing patient demand for
alternatives to traditional total knee replacements.

• In June we introduced the X-PSI™ Knee System, the world’s ﬁrst FDA-cleared, CE-Marked surgical
planning system, allowing for patient-speciﬁc implant positioning utilizing standard of care X-ray
technology, as opposed to Magnetic Resonance Imaging (MRI) and Computerized Tomography
(CT) scans.

• In spinal technologies, we announced the official U.S. launch of our Vitality®+ and Vital™ Spinal

Fixation Systems in October. These two innovative systems offer a host of ergonomic and
intraoperative beneﬁts to surgeons and demonstrate our focus on the advancement of spinal
deformity correction. We also continued to expand our minimally invasive surgical portfolio with
the official U.S. launch of the Avenue® T TLIF Cage, which positions us as the ﬁrst company to offer
a suite of lumbar cages with integrated ﬁxation for every fusion approach.

• In February, we expanded the commercial reach of our S.E.T. product offerings with the release of
our clinically acclaimed Subchondroplasty® Procedure in the European Union and other countries
that recognize the CE Mark, as well as Canada, Singapore, Malaysia and Hong Kong. In addition,
we received numerous FDA clearances for products within our Upper Extremities portfolio in
2017, including the much-anticipated Sidus® Stem-Free shoulder, which became commercially
available in the U.S. during the ﬁrst quarter of 2018.

Looking to 2018: Immediate Priorities

Our strategy for 2018 has a deliberate emphasis on rebuilding revenue momentum, addressing
certain near-term challenges and setting the stage for enhanced value creation for our
shareholders. Our immediate priorities include:

• Completing Quality Remediation at the Warsaw North Campus: Quality excellence is our
highest priority as a company. It is an integral aspect of our commitment to the patients and
surgeons who rely on our products every day. In 2017, we undertook a broad program, with the
beneﬁt of input from world-class, independent experts, to enhance and harmonize our global
manufacturing network, including making focused investments in process improvements and
the addition of expert personnel in this area. We expect to continue this important work in 2018
as part of our drive to develop a best-in-class Quality Management System across our global
operations network.

As a key component of this broad effort, we have also undertaken a timely and comprehensive
quality remediation program at our Warsaw North Campus, and we remain on track to achieve a
number of key milestones at this facility. These efforts will continue and will be important for our
entire organization going forward.

• Optimizing Our Supply Chain to Rebuild Top-Line Momentum: We are working hard to rebuild
our top-line momentum, and we remain optimistic about the future opportunities for growth.
We continue to make progress increasing the production levels of various supply-constrained
products, and, as part of that effort, we initiated a dual-sourcing vendor strategy in the second
half of 2017, which we expect will provide additional capacity in 2018. Importantly, clearing
backorders and restoring safety stock levels of supply-constrained brands will allow our sales
forces to focus on their core competencies: serving the needs of our customers and generating
new business. We remain focused on supporting our world-class sales organization with greater
supply-readiness of the impacted brands. This critical work will position our sales forces to fully
return to commercial offense.

• New Product Introductions: We will focus on smoothly executing our commercial product

launches in an effort to provide a catalyst for sales growth and market share gains. We have a
number of exciting new product introductions planned for 2018, including further expansions
of our Persona Knee System with the launch of cementless and revision systems, as well as our
further penetration into the robotics market.

While I acknowledge that there is a great amount of work ahead, we are conﬁdent in our ability
to execute these immediate priorities, which will support our return to offense and enable us to
rebuild momentum.

Thank you for your ongoing support of Zimmer Biomet. We are not only building a stronger, more
innovative global business together, we are also raising the bar for healthcare and helping millions
of patients live better lives, every day.

Sincerely,
Sincerely

Bryan C. Hanson
President and Chief Executive Officer

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, 2017

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, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ Emerging growth company ‘

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘

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 $25,893,487,085 (based on the closing price of these shares on the New
York Stock Exchange on June 30, 2017 and assuming solely for the purpose of this calculation that all directors and executive officers
of the registrant are “affiliates”). As of February 15, 2018, 203,146,925 shares of the registrant’s $.01 par value common stock were
outstanding.

Document

Portions of the Proxy Statement with respect to the 2018 Annual Meeting of Stockholders

Form 10-K

Part III

Documents Incorporated by Reference

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N 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,
including, among others, statements about our expectations, plans, strategies or prospects. We generally use the words “may,”
“will,” “expect,” “believe,” “anticipate,” “plan,” “estimate,” “project,” “assume,” “guide,” “target,” “forecast,” “see,” “seek,” “can,”
“should,” “could,” “would,” “intend” “predict,” “potential,” “strategy,” “is confident that,” “future,” “opportunity,” “work toward,” and
similar expressions to identify forward-looking statements. All statements other than statements of historical or current fact are, or
may be deemed to be, forward-looking statements. Such statements are based upon the current beliefs, expectations and
assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could 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 rely on these forward-looking statements, since
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 B I O M E T H O L D I N G S , I N C .

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, China and Australia 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) Spine,
less Asia Pacific (“Spine”); 2) Office Based Technologies;
3) Craniomaxillofacial and Thoracic (“CMF”); and 4) Dental.

2 0 1 7 F O R M 1 0 - K A N 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
75 percent of our net sales in 2017. 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 2017.

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 17 to the consolidated
financial statements for more information regarding our
segments.

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N 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
94 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
56 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, China, Australia,
New Zealand, Korea, Taiwan, India, Thailand, Singapore,
Hong Kong and Malaysia. Japan is the largest market within
this segment, accounting for 45 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.

Spine. The Spine product category operating segment
includes all spine product results except those in Asia Pacific.
The U.S. accounts for the majority of sales in this operating
segment. The market dynamics of the Spine business are
similar to those described in the geographic operating
segments. However, the 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. accounts for the majority of
sales in this operating segment. 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 in the U.S. and in 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. Since

most of our sales occur at the time of an elective procedure,
we generally do not have firm orders.

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

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

procedures and revision procedures for the replacement,
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.

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 knee brands include the following:

Our significant spine and CMF brands include the

• Persona® The Personalized Knee System
• NexGen® Complete Knee Solution
• Vanguard® Knee System
• 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:

• Zimmer® M/L Taper Hip Prosthesis
• Taperloc® Hip System
• Arcos® Modular Hip System
• Continuum® Acetabular System
• 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:

• Transposal® and Transposal Ultra® Fluid Waste

Management Systems

• A.T.S.® Tourniquet Systems
• JuggerKnot® Soft Anchor System
• Gel-One®1 Cross-linked Hyaluronate
• Zimmer® Trabecular MetalTM Reverse Shoulder System
• Comprehensive® Shoulder
• Zimmer® Natural Nail® System
• A.L.P.S.® Plating System

following:
• Polaris™ Spinal System
• Timberline® Lateral Fusion System
• Mobi-C® Cervical Disc
• SternaLock® Blu Closure System
• 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:

• Tapered Screw-Vent® Implant System
• 3i T3® Implant

OTHER

Our other product category primarily includes our bone
cement and office based technology products. Our significant
brands include the following:
• PALACOS®2 Bone Cement
• 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, 2017, we employed
approximately 1,900 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 our products 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 medical device

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 conducts 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 19 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 products in these countries are
similar to those of the FDA. The member countries of the
European Union (the “EU”) 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 May 2017, a new EU Medical
Device Regulation was published that will impose significant
additional premarket and postmarket requirements. The
regulation has a three-year implementation period, and after
that time all products marketed in the EU will require
certification according to these new 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 United Kingdom
(“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 19 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 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 Sirona Inc.

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.

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secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain our
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, 2017, we employed approximately

18,200 employees worldwide, including approximately
1,900 employees dedicated to research and
development. Approximately 8,500 employees are located
within the U.S. and approximately 9,700 employees are
located outside of the U.S., primarily throughout Europe and
in Japan. We have approximately 7,900 employees dedicated
to manufacturing our products worldwide. The Warsaw,
Indiana production facilities employ approximately 2,700
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.

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.

In most of our manufacturing network, we have improved

our manufacturing processes to harmonize and optimize our
quality systems and to protect our 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. Our
Warsaw North Campus facility is in the process of
implementing many of these manufacturing process
improvements. These process improvements are an integral
part of our quality remediation plans.

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

EXECUTIVE OFFICERS

The following table sets forth certain information with respect to our executive officers as of February 19, 2018.

Name

Bryan C. Hanson

Aure Bruneau

Tony W. Collins

Robert D. Delp

Daniel P. Florin

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

Group President, Spine, CMF, Thoracic and Surgery Assisting Technology

Vice President, Corporate Controller and Chief Accounting Officer

President, Americas

Executive Vice President and Chief Financial Officer

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. Hanson was appointed President and Chief Executive
Officer and a member of the Board of Directors in December
2017. Previously, Mr. Hanson served as Executive Vice

President and President, Minimally Invasive Therapies Group
of Medtronic plc from January 2015 until joining Zimmer
Biomet. Prior to that, he was Senior Vice President and Group

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President, Covidien of Covidien plc from October 2014 to
January 2015; Senior Vice President and Group President,
Medical Devices and United States of Covidien from October
2013 to September 2014; Senior Vice President and Group
President of Covidien for the Surgical Solutions business from
July 2011 to October 2013; and President of Covidien’s Energy-
based Devices business from July 2006 to June 2011.
Mr. Hanson held several other positions of increasing
responsibility in sales, marketing and general management
with Covidien from October 1992 to July 2006.

Mr. Bruneau was appointed Group President with responsibility
for the Company’s, Spine, Craniomaxillofacial, Thoracic and
Surgery Assisting Technology businesses in December 2017.
Prior to that, Mr. Bruneau served as Vice President and
General Manager with global responsibility for the Company’s
Craniomaxillofacial and Thoracic businesses beginning in June
2015. He also led the integration of the Robotics business until
assuming his current role. Previously, Mr. Bruneau served in
Vice President roles of increasing responsibility in marketing,
business development and general management at Biomet
from September 2008 until June 2015. Prior to joining Biomet,
Mr. Bruneau held numerous positions with Sofamor Danek
Group and Medtronic over a 12-year period.

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 in 2010 as Vice President, Finance for
the Global Reconstructive Division and U.S. Commercial
organization. Previously, 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. Florin was appointed Executive Vice President and Chief
Financial Officer in February 2018. Prior to that appointment,
he served as Senior Vice President and Chief Financial Officer
from June 2015 to February 2018. In addition, he served as
Interim Chief Executive Officer from July 2017 to December
2017. Prior to the Biomet merger, Mr. Florin served as Senior
Vice President and Chief Financial Officer of Biomet from June
2007 to June 2015. Before joining Biomet, he served as Vice

President and Corporate Controller of Boston Scientific
Corporation from 2001 through May 2007. Prior to that,
Mr. Florin served in financial leadership positions within
Boston Scientific Corporation and its various business units.
Before joining Boston Scientific Corporation, Mr. Florin
worked for C.R. Bard from October 1990 through June 1995.

Dr. Mazur-Hofsaess was appointed President, Europe, Middle
East and Africa (EMEA) in April 2013. She is responsible for
the sales, marketing and distribution of products in the EMEA
region. Dr. Mazur-Hofsaess joined the Company in February
2010 as Senior Vice President, EMEA Sales and Marketing and
was appointed President, EMEA Reconstructive in February
2012. She has more than 20 years’ experience within the
pharmaceutical, diagnostics and medical device sectors. Prior
to joining the Company, 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 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 the Company, 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 in
September 2003 as Associate Counsel and Assistant Secretary.
Prior to joining the Company, 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. Prior to the Biomet
merger, 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

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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 in March 2013 as Senior Vice President, Asia
Pacific. Previously, 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,
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:
• 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;

• announcements of investor conferences and events at which

our executives talk about our products and competitive
strategies, as well as archives of these events;
• press releases on quarterly earnings, product

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

• 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 Quality, Regulatory and Technology Committee, and
other governance-related policies;

• 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

• 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

We operate in a rapidly changing economic and
technological environment that presents numerous risks,
many of which are driven by factors that we cannot control
or predict. Our business, financial condition and results of
operations may be impacted by a number of factors. In
addition to the factors discussed elsewhere in this report,
the following risks and uncertainties could materially
harm our business, financial condition or results of
operations, including causing our actual results to differ
materially from those projected in any forward-looking
statements. The following list of significant risk factors is
not all-inclusive or necessarily in order of importance.
Additional risks and uncertainties not presently known to
us, or that we currently deem immaterial, also may
materially adversely affect us in future periods. You
should carefully consider these risks and uncertainties
before investing in our securities.

We may experience a disruption of our business
activities due to the transition to a new Chief Executive
Officer.

Effective as of December 19, 2017, our Board of Directors

appointed Bryan C. Hanson as President and Chief Executive
Officer and a member of the Board of Directors. Recently hired
executives may view the business differently than prior
members of management, and over time may make changes to
our strategic focus, operations, business plans, existing
personnel and their responsibilities. We can give no assurances
that we will be able to properly manage any such shift in focus,
or that any changes to our business would ultimately prove
successful. In addition, leadership transitions and management
changes can be inherently difficult to manage and may cause
uncertainty or a disruption to our business or may increase the
likelihood of turnover in key officers and employees. Our
success depends in part on having a successful leadership
team. If we cannot effectively manage leadership transitions
and management changes, it could make it more difficult to
successfully operate our business and pursue our business
goals. We can give no assurances that we will be able to retain
the services of any of our current executives or other key
employees. If we do not succeed in attracting well-qualified
employees, retaining and motivating existing employees or
integrating new executives and employees, our business could
be materially and adversely affected.

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 merger in 2015 and the LDR
Holding Corporation (“LDR”) merger in 2016. At December 31,
2017, our total indebtedness was $10.1 billion, as compared to
$1.4 billion at December 31, 2014. We funded the cash portion

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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
(“U.S. Term Loan A”) 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. Further, in September 2017, we borrowed
21.3 billion Japanese Yen under a five-year term loan and
utilized these funds to pay down a portion of U.S. Term Loan
A. As of December 31, 2017, our debt service obligations,
comprised of principal and interest (excluding capital leases
and equipment notes), during the next 12 months are
expected to be $1,522.4 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:
• 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;

• limit our ability to obtain additional financing to fund future

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

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 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:
• unforeseen difficulties in integrating personnel and sales
forces, operations, manufacturing, logistics, research and
development, information technology, communications,
purchasing, accounting, marketing, administration and other
systems and processes;

• difficulties harmonizing and optimizing quality systems and

operations;

• diversion of financial and management resources from

existing operations;

• unforeseen difficulties related to entering geographic

regions where we do not have prior experience;

• potential loss of key employees;
• unforeseen liabilities associated with businesses acquired;

and

• inability to generate sufficient revenue or realize sufficient

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.

• limit our flexibility in planning for, or reacting to, changes in

Interruption of our manufacturing operations could

our business and the industry in which we operate;
• restrict our ability to make strategic acquisitions or
dispositions or to exploit business opportunities;

• place us at a competitive disadvantage compared to our

competitors that have less debt;

• 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;

• adversely affect the market price of our common stock; and
• 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 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

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, such as the recent hurricanes
that affected our employees and operations at our Guaynabo,
Puerto Rico and Ponce, Puerto Rico manufacturing facilities,
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.

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

We purchase many of the materials and components used

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
business, 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 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 products 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 these products 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.

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 and other regulators, which may result
in observations (such as on Form 483), and in some cases
warning letters, that require corrective action, or other forms
of enforcement. If the FDA or another regulator were to
conclude that we are not in compliance with applicable laws or
regulations, or that any of our products are ineffective or pose
an unreasonable health risk, they could ban such products,
detain or seize adulterated or misbranded products, order a
recall, repair, replacement, or refund of payment of such
products, refuse to grant pending premarket approval
applications, refuse to provide certificates for exports, and/or
require us to notify healthcare professionals and others that
the products present unreasonable risks of substantial harm to
the public health. The FDA or other regulators 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 our products
and assess civil or criminal penalties against our officers,
employees or us. The FDA or other regulators could also issue
a corporate warning letter, a recidivist warning letter, a
consent decree of permanent injunction, and/or recommend
prosecution. 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.

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 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, 2017, 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 19 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.

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.

Both before and after a product is commercially released,

Our industry is subject to various federal, state and

we have ongoing responsibilities under FDA regulations and
other local, state and foreign requirements. Compliance with
these requirements, including the QSR, recordkeeping

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

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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. 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.

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:
• lose existing customers;
• have difficulty attracting new customers;
• have problems in determining product cost estimates and

establishing appropriate pricing;

• have difficulty preventing, detecting, and controlling fraud;
• have disputes with customers, physicians, and other

healthcare professionals;

• have regulatory sanctions or penalties imposed;
• incur increased operating expenses;
• incur expenses or lose revenues as a result of a data privacy

breach; or

• 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.
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:
• pricing;
• technology;
• innovation;
• quality;
• reputation; and
• customer service.

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

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

Z I M M E R B I O M E T H O L D I N G S , I N C .

Our competitors may:

• have greater financial, marketing and other resources than

us;

• respond more quickly to new or emerging technologies;
• undertake more extensive marketing campaigns;
• adopt more aggressive pricing policies; or
• 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:
• evolving customer needs;
• changing demographics;
• slowing industry growth rates;
• declines in the musculoskeletal implant market;
• the introduction of new products and technologies;
• evolving surgical philosophies; and
• 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:
• properly identify and anticipate customer needs;
• commercialize new products in a timely manner;
• manufacture and deliver instruments and products in

sufficient volumes on time;

• differentiate our offerings from competitors’ offerings;
• achieve positive clinical outcomes for new products;
• satisfy the increased demands by healthcare payors,

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

• innovate and develop new materials, product designs and

surgical techniques; and

• 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:
• entrenched patterns of clinical practice;

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• the need for regulatory clearance; and
• 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

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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 approximately 40 percent of our net sales in 2017 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:
• changes in foreign medical reimbursement policies and

programs;

• unexpected changes in foreign regulatory requirements;
• differing local product preferences and product

requirements;

• fluctuations in foreign currency exchange rates;
• diminished protection of intellectual property in some

countries outside of the U.S.;

• 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;

• foreign exchange controls that might prevent us from
repatriating cash earned in countries outside the U.S.;

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

Bribery Act;

• difficulty in staffing and managing foreign operations;
• labor force instability;
• potentially negative consequences from changes in tax laws;

and

• 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.

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.

The Tax Cuts and Jobs Act of 2017 was signed into law on

December 22, 2017 (the “2017 Tax Act”), with significant
changes to the U.S. corporate income tax system, including a
federal corporate income tax rate reduction from 35 percent to
21 percent, limitations on the deductibility of interest expense,
and the transition of U.S. international taxation from a
worldwide tax system to a territorial tax system. The U.S.
Treasury has provided limited guidance on aspects of the 2017
Tax Act, and we anticipate further guidance will be provided in
the future. On December 22, 2017, the SEC issued Staff
Accounting Bulletin No. 118 (“SAB 118”), expressing its views
on the application of Financial Accounting Standards Board
Accounting Standards Codification Topic 740, Income Taxes,
in the reporting period that includes December 22, 2017. For
the financial statements that include the reporting period in
which the 2017 Tax Act was enacted, SAB 118 provides a
provisional approach to reflect the income tax effects of the
2017 Tax Act. The actual effects of the 2017 Tax Act and the
final amounts recorded may differ materially from our current
estimates of provisional amounts included in this Annual
Report on Form 10-K. Further, our tax expense and cash flow
could be materially impacted as we finalize the financial
accounting for the 2017 Tax Act, and incorporate future
regulatory guidance provided by the U.S. Treasury.

We are subject to risks arising from currency

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 19 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

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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 pay for defense costs, or 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 have to pay the amount of any
defense costs, 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 19 to the
consolidated financial statements, we are defending a
purported class action lawsuit, Shah v. Zimmer Biomet
Holdings, Inc. et al., filed against us, certain of our current
and former officers, certain current and former members of
our Board of Directors, and certain former stockholders of ours
who sold shares of our common stock in secondary public
offerings in 2016, alleging that we and other defendants
violated federal securities laws by making materially false and/
or misleading statements and/or omissions about our
compliance with FDA regulations and our ability to continue to
accelerate our organic revenue growth rate in the second half
of 2016. 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.

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, 2017, we had $10.7 billion in goodwill. The
goodwill results from our acquisition activity, including the
Biomet and LDR mergers, 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

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

changes in circumstances indicate that the carrying value of
our intangible assets may not be recoverable. As discussed
further in Note 9 to the consolidated financial statements, we
recorded goodwill impairment charges of $304.7 million in
2017. 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 to record additional
goodwill impairment charges. Any write-off of a material
portion of our unamortized intangible assets would negatively
affect our results of operations.

We identified a material weakness in our internal

control over financial reporting as of December 31,
2016. While the particular material weakness has been
remediated as of December 31, 2017, additional
material weaknesses or relapses of this material
weakness could result in a material misstatement in our
financial statements.

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:
• the ability of our board of directors to issue one or more

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

We are responsible for establishing and maintaining

• certain limitations on convening special stockholder

adequate internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As
discussed in Part II, Item 9A 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. During 2017,
we executed our remediation plans to address the material
weakness. However, if the remedial measures are not adhered
to or if additional material weaknesses or significant
deficiencies 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.

Developments relating to the UK’s referendum vote

in favor of leaving the EU could adversely affect us.

The UK held a referendum in June 2016 in which voters

approved the UK’s voluntary exit from the EU, commonly
referred to as “Brexit”. 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 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

meetings; and

• 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

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

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 B I O M E T H O L D I N G S , I N C .

Item 2. Properties

The following are our principal properties:

Location

Use

Warsaw, Indiana

Research & Development, Manufacturing, Warehousing, Marketing &
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warsaw, Indiana
Corporate Headquarters & The Zimmer Biomet Institute . . . . . . . . . . . . . .
Warsaw, Indiana
Manufacturing & Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Westminster, Colorado
Spine Business Unit Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMF Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . . . . .
Jacksonville, Florida
Palm Beach Gardens, Florida Dental Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . . .
Palm Beach Gardens, Florida Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southaven, Mississippi
Office, Research & Development, Manufacturing, Warehousing & The
Parsippany, New Jersey
Zimmer Biomet Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surgical Business Unit Headquarters & Manufacturing . . . . . . . . . . . . . . . .
Surgical 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
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 7 F O R M 1 0 - K A N 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
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased

1,900,000
115,000
170,000
105,000
85,000
190,000
45,000
190,000

235,000
140,000
60,000
90,000
95,000
75,000
135,000
120,000
50,000
100,000
125,000
125,000
295,000
225,000
30,000
185,000
100,000
70,000
10,000

Leased

420,000

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 19 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 B I O M E T H O L D I N G S , I N C .

PART II

2 0 1 7 F O R M 1 0 - K A N 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 2017 and 2016 are as follows:

QUARTERLY HIGH-LOW SHARE PRICES AND DECLARED DIVIDENDS

Year Ended December 31, 2017:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

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

High

Low

Declared
Dividends

$122.11
$129.39
$132.61
$124.46

$103.33
$116.54
$110.13
$108.72

$107.22
$123.43
$133.19
$133.21

$ 88.27
$105.53
$119.22
$ 95.63

$0.24
$0.24
$0.24
$0.24

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 Note 11 to the
consolidated financial statements, our debt facilities restrict the payment of dividends under certain circumstances.

As of February 16, 2018, there were approximately 22,000 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 16, 2018, the closing price of our common stock, as reported on the New York Stock
Exchange, was $120.48 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 B I O M E T H O L D I N G S , I N C .

Item 6. Selected Financial Data

2 0 1 7 F O R M 1 0 - K A N 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

2017

2016

2015 (1)

2014

2013

$ 7,824.1
1,813.8

$ 7,683.9
305.9

$ 5,997.8
147.0

$4,673.3
720.3

$4,623.4
780.4

8.98
8.90
0.96

1.53
1.51
0.96

0.78
0.77
0.88

4.26
4.20
0.88

4.60
4.54
0.80

201.9
203.7

200.0
202.4

187.4
189.8

169.0
171.7

169.6
171.8

$25,964.5
8,917.5
2,291.3
11,735.5

$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

(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 B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N 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 2016 and 2015 consolidated financial
statements have been reclassified to conform to the 2017
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 have increased significantly since the merger date
compared to prior periods.

EXECUTIVE LEVEL OVERVIEW

2017 Results

Net sales increased by 1.8 percent in 2017 compared to

2016 primarily due to the acquisition of LDR Holding
Corporation in the third quarter of 2016 and solid performance
from our Asia Pacific operating segment. In 2017, we
experienced challenges across our Knees, Hips and S.E.T.
product categories as a result of production delays from our
Warsaw North Campus facility. The production shortfall
directly impacted our ability to fully meet case demand.
Throughout 2017, we worked to improve our production levels
at this facility, but we continued to experience insufficient
inventory levels across some brands within our Knee, Hip and
S.E.T. product categories which impacted our ability to
increase revenue.

will conclude during the first quarter and the implementation
of those strategies will likely have an impact on our results in
2018. In the meantime, we have identified several immediate
opportunities to improve our operational execution and
address certain near-term challenges. We will continue to
work toward completing our quality remediation efforts at our
Warsaw North Campus facility and continue to invest in
best-in-class quality management systems. We will remain
focused on fully restoring the supply of certain key brands
within our Knee, Hip and S.E.T. product categories. We also
have several key product launches planned in 2018 that we
believe will be a catalyst for our future performance.

There are a few known items that are expected to impact

our 2018 results. Increased manufacturing costs related to
quality remediation at our Warsaw North Campus facility in
2017 will be recognized in 2018 as we sell that inventory. We
expect ongoing benefits from the reduction of the U.S.
corporate tax rate, but we plan to reinvest those savings into
the business to drive sales growth. Additionally, due to
underperformance against our operating plans in 2017, we
expect expenses from our performance-based compensation
programs to increase if we are able to achieve our plans in
2018. We also expect our special items expense to decrease as
we complete our Biomet integration plans and substantially
complete our quality remediation at our Warsaw North
Campus facility.

U.S. Tax Reform

2017 Tax Act: The 2017 Tax Act includes a broad range of

provisions, many of which significantly differ from those
contained in previous U.S. tax law. Changes in tax law are
accounted for in the period of enactment. As such, our 2017
consolidated financial statements reflect the immediate tax
effect of the 2017 Tax Act.

Our net earnings increased significantly in 2017 compared

The 2017 Tax Act contains several key provisions

to 2016 primarily due to a $1,272.4 million income tax benefit
we recorded related to the 2017 Tax Act. Additionally, net
earnings increased in 2017 compared to 2016 due to a
decrease in inventory step-up expense, lower Biomet
integration-related expenses, lower performance-based
compensation expense as a result of not achieving our 2017
operating plans and the recognition of $111.3 million of tax
benefit as a result of lower tax rates unrelated to the impact of
the 2017 Tax Act. Partially offsetting these favorable items
were $304.7 million of goodwill impairment charges on our
Spine and Office Based Technologies reporting units and
higher spending on quality remediation at our Warsaw North
Campus facility.

2018 Outlook

In December 2017, we announced the appointment of a

new Chief Executive Officer (“CEO”). Our new CEO has
begun an in-depth review of our business and formulating
strategies to improve our performance. His initial review likely

including, among other things:
• a one-time tax on the mandatory deemed repatriation of

post-1986 unremitted foreign earnings and profits, referred
to as the toll charge;

• a reduction in the corporate income tax rate from

35 percent to 21 percent for tax years beginning after
December 31, 2017;

• the introduction of a new U.S. tax on certain off-shore

earnings referred to as global intangible low-taxed income
(“GILTI”) at an effective tax rate of 10.5 percent for tax
years beginning after December 31, 2017 (increasing to
13.125 percent for tax years beginning after December 31,
2025), with a partial offset by foreign tax credits; and

• the introduction of a territorial tax system beginning in 2018
by providing a 100 percent dividend received deduction on
certain qualified dividends from foreign subsidiaries.

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

During the fourth quarter of 2017, we recorded an income

tax benefit of $1,272.4 million, which was comprised of the
following:
• income tax benefit of $715.0 million related to the one-time
deemed repatriation of foreign earnings. This is composed
of a $1,181.0 million benefit from the removal of a deferred
tax liability we had recorded for the repatriation of foreign
earnings prior to the 2017 Tax Act offset by $466.0 million
for the toll charge recognized under the 2017 Tax Act. In
accordance with the 2017 Tax Act, we expect to elect to pay
the toll charge in installments over eight years. As of
December 31, 2017, we have recorded current and
non-current income tax liabilities related to the toll charge
of $82.0 million and $384.0 million, respectively.

• an income tax benefit of $557.4 million, primarily related to
the remeasurement of our deferred tax assets and liabilities
at the enacted corporate income tax rate of 21 percent.

The net benefit recorded was based on currently available

information and interpretations made in applying the
provisions of the 2017 Tax Act as of the time of filing this
Annual Report on Form 10-K. We further refined our
estimates related to the impact of the 2017 Tax Act
subsequent to the issuance of our earnings release for the
fourth quarter of 2017. In accordance with authoritative
guidance issued by the SEC, the income tax effect for certain
aspects of the 2017 Tax Act represent provisional amounts for
which our accounting is incomplete, but with respect to which
a reasonable estimate could be determined and recorded
during the fourth quarter of 2017. The actual effects of the
2017 Tax Act and final amounts recorded may differ materially
from our current estimate of provisional amounts due to,
among other things, further interpretive guidance that may be

Net Sales by Geography

issued by U.S. tax authorities or regulatory bodies, including
the SEC and the Financial Accounting Standards Board
(“FASB”). We will continue to analyze the 2017 Tax Act and
any additional guidance that may be issued so we can finalize
the full effects of applying the new legislation on our financial
statements in the measurement period, which ends in the
fourth quarter of 2018. See Note 15 to our consolidated
financial statements for additional details related to the 2017
Tax Act.

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.

As previously disclosed, sales increased significantly in
2016 when compared to prior years due to the inclusion of
Biomet sales for the entire year. Therefore, we analyze 2015
sales on a pro forma basis because it represents how the
Zimmer and Biomet underlying businesses may have
performed on a combined basis. Pro forma sales assume the
Biomet merger occurred on January 1, 2014 and therefore
include the net sales of Biomet in 2015 prior to the closing of
the merger.

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,

2017

2016

% Inc

Volume/
Mix

Foreign
Exchange

Price

$4,865.6

$4,802.2

1.3%

3.7% (2.5)% 0.1%

1,745.2

1,730.4

1,213.3

1,151.3

$7,824.1

$7,683.9

0.9

5.4

1.8

2.1

9.4

(1.9)

(3.1)

0.7

(0.9)

4.3

(2.5)

–

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

1,417.8

1,151.3

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)

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

sales.

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

The following table presents our 2016 net sales, and our 2015 pro forma net sales, by geography and the components of the

percentage changes (dollars in millions):

Americas

EMEA

Asia Pacific

Total

Net Sales by Product Category

Year Ended December 31,

Pro Forma

2016

2015 % Inc/(Dec)

Volume/
Mix

Price

Divestiture
Impact

Foreign
Exchange

$4,802.2

$4,685.2

2.5%

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

1,730.4

1,767.9

(2.1)

1,151.3

1,064.7

$7,683.9

$7,517.8

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)

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,

2017

2016 % Inc/(Dec)

Volume/
Mix

Foreign
Exchange

Price

$2,737.1

$2,752.6

(0.6)% 2.2% (2.8)%

1,879.1

1,867.9

1,709.1

1,644.4

418.6

759.5

320.7

427.9

662.0

329.1

0.6

3.9

(2.2)

14.7

(2.5)

3.6

6.0

(3.0)

(2.0)

(0.3)

(2.3)

15.8

(1.4)

(0.9)

(1.7)

–%

–

(0.1)

0.4

0.3

0.1

$7,824.1

$7,683.9

1.8

4.3

(2.5)

–

Year Ended December 31,

2016

2015

% Inc

Volume/
Mix

Foreign
Exchange

Price

$2,752.6

$2,276.8

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

1,867.9

1,533.0

1,644.4

1,214.6

427.9

662.0

329.1

335.7

404.4

233.3

21.8

35.4

27.5

63.7

41.1

24.6

36.9

25.7

66.7

43.4

(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)

The following table presents our 2016 net sales, and our 2015 pro forma net sales, by product category and the components of

the percentage changes (dollars in millions):

Year Ended December 31,

2016

$2,752.6
1,867.9
1,644.4
427.9
662.0
329.1

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
4.6
(5.9)
13.5
–

4.2% (1.6)% (1.4)% (0.6)%
3.7
6.1
(7.2)
15.5
7.7

(0.2)
–
(0.2)
–
(0.3)

–
(0.4)
–
–
(6.2)

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

$7,683.9

$7,517.8

2.2

4.9

(1.5)

(0.9)

(0.3)

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

Total

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N 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,

2017

2016

2015

2017 vs. 2016
% Inc/(Dec)

2016 vs. 2015
% Inc

$1,660.2
644.2
432.7

$1,688.6
637.8
426.2

$1,391.5
535.2
350.1

(1.7)%
1.0
1.5

$2,737.1

$2,752.6

$2,276.8

(0.6)

$ 975.6
518.6
384.9

$ 987.5
522.4
358.0

$ 789.7
455.2
288.1

(1.2)%
(0.7)
7.5

$1,879.1

$1,867.9

$1,533.0

0.6

21.4%
19.2
21.7

20.9

25.0%
14.8
24.3

21.8

The following table presents our 2017 and 2016 net sales, and our 2015 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

Year Ended December 31,

2017

2016

Pro Forma
2015

2017 vs. 2016
% Inc/(Dec)

2016 vs. 2015
% Inc/(Dec)

$1,660.2
644.2
432.7

$1,688.6
637.8
426.2

$1,684.6
649.5
401.8

(1.7)%
1.0
1.5

$2,737.1

$2,752.6

$2,735.9

(0.6)

$ 975.6
518.6
384.9

$ 987.5
522.4
358.0

$ 980.3
537.2
325.1

(1.2)%
(0.7)
7.5

$1,879.1

$1,867.9

$1,842.6

0.6

0.2%
(1.8)
6.1

0.6

0.7%
(2.8)
10.1

1.4

Demand (Volume/Mix) Trends

Foreign Currency Exchange Rates

Increased volume and changes in the mix of product sales

In 2017, changes in foreign currency exchange rates had a

contributed 4.3 percentage points of year-over-year sales
growth during 2017. Volume/mix growth was driven by
acquisitions in 2016, recent product introductions, sales in key
emerging markets and an aging population.

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
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 2.5 percentage

points on year-over-year sales during 2017. In the majority of
countries in which we operate, we continue to experience pricing
pressure from governmental healthcare cost containment efforts
and from local hospitals and health systems.

minimal effect on sales. 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
are recorded in cost of products sold, the effect on net earnings
in the near term is reduced. If foreign currency exchange rates
remain at levels consistent with the end of 2017, this will have a
favorable effect on sales in 2018 due to the weakening of the
U.S. Dollar versus the Euro and other currencies.

Sales by Product Category

Knees

Knee sales declined in 2017 compared to 2016 after
growing in recent years due to the previously mentioned
supply issues, a price reduction mandate in India and
continued pricing pressure. Knee sales volume/mix growth
was led by Persona® The Personalized Knee System and the
Oxford® Partial Knee.

Z I M M E R B I O M E T H O L D I N G S , I N C .

Hips

Expenses as a Percent of Net Sales

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

Hips sales continued to experience year-over-year sales
growth driven by volume/mix growth primarily resulting from
strong performance in our Asia Pacific operating segment.
Volume/mix growth was partially offset by the previously
mentioned supply issues and continued pricing pressure. Hip
sales volume/mix growth was led by our Taperloc® Hip System,
Arcos® Modular Hip System and G7® Acetabular System.

S.E.T.

Our S.E.T. sales have continued to increase driven
primarily by a growing emphasis on sales force specialization,
strong performance by key brands and 2016 acquisitions,
partially offset by the previously mentioned supply issues and
continued pricing pressure.

Dental

Dental sales continued to decline. In 2017, the decline was

driven by the restructuring of our dental organization in
certain European markets.

Spine & CMF

Spine and CMF sales continued to increase, due to the full

year impact of the LDR acquisition and continued strong
performance of our Thoracic products. However, sales were
lower than expected due to sales force integration issues and
additional complexities of merging the Zimmer, Biomet and
LDR supply chains.

The following table presents estimated* 2017 global
market size and market share information (dollars in billions):

Global
Market
Size

Global Market
% Growth**

Zimmer
Biomet
Market
Share

Zimmer
Biomet
Market
Position

$ 7.7

2-3%

36%

6.0

15.7

4.7

10.1

1-2

4-5

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

Cost of products sold,
excluding intangible
asset amortization

Intangible asset
amortization

Research and

development

Selling, general and
administrative

Goodwill impairment

Special items

Year Ended December 31,

2017

2016

2015

2017 vs. 2016
Inc/(Dec)

2016 vs. 2015
Inc/(Dec)

27.3% 31.0% 30.0% (3.7)%

1.0%

7.7

7.4

5.6

0.3

4.7

4.8

4.5

(0.1)

38.0

38.2

38.1

(0.2)

3.9

8.1

–

8.0

14.0

3.9

0.1

1.8

0.3

0.1

–

(6.0)

2.9

Operating Profit

10.3

10.7

7.8

(0.4)

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 2017 and 2016
compared to the prior year:

Prior year gross margin

Lower average selling prices

Average cost per unit

Excess and obsolete inventory

Discontinued products inventory charges

Foreign currency hedges

Inventory step-up

U.S. medical device excise tax

Intangible asset amortization

Other

Year Ended December 31,

2017

2016

61.6%

64.4%

(0.6)

(0.1)

–

1.0

(1.1)

3.8

0.7

(0.3)

–

(0.6)

(0.7)

0.4

(1.0)

(0.9)

1.2

0.3

(1.6)

0.1

Current year gross margin

65.0%

61.6%

The increase in gross margin percentage in 2017

compared to 2016 was primarily due to a decrease in inventory
step-up charges. The reduction in inventory step-up charges
resulted from the Biomet inventory that was stepped-up to fair
value having been fully recognized by June 30, 2016. In 2016,
we recognized significant excess and obsolete inventory
charges for certain product lines we intend to discontinue, but
did not recognize significant charges in 2017, resulting in
improvement to our gross margin percentage. Additional
favorability was driven by lower medical device excise tax
expense due to the two year moratorium on the U.S. medical
device excise tax and a favorable resolution on past excise
taxes that were paid. Under the applicable accounting rules
that we apply to the U.S. medical device excise tax, we had a
portion of the tax paid prior to the moratorium included in the
cost of inventory and recognized expense through the fourth
quarter of 2016. In January 2018, the moratorium on this tax
was extended through December 31, 2019. These favorable
items were partially offset by lower hedge gains of $5.1 million

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

in 2017 compared to $87.7 million in 2016 and the effect of
lower average selling prices.

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 from our foreign currency hedging program in 2016
compared to 2015. 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.

Operating Expenses

After taking into consideration an increase in expenses

related to the Biomet merger and other 2016 acquisitions,
research and development (“R&D”) spending has remained
generally consistent as a percentage of sales, as we continue to
invest in new technologies to address unmet clinical needs.
After taking into consideration an increase in expenses

related to the Biomet merger and other 2016 acquisitions,
selling, general and administrative (“SG&A”) expenses as a
percentage of sales have remained generally consistent. In
2017, we recognized increased freight costs due to expedited
product shipments and increased investments in our
specialized sales forces. These increases were partially offset
by continued savings in various SG&A expense categories
stemming from our synergies initiatives and lower
performance-based compensation expense as a result of not
achieving our 2017 operating plans.

In 2017, we recognized goodwill impairment charges
related to our Spine and Office Based Technologies reporting
units. For more information regarding these charges, see Note
9 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 statements 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. In 2017,
Biomet-related integration expenses continued to decline, but
we have incurred additional costs related to quality
remediation at our Warsaw North Campus facility. 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 2017, other expense, net, primarily included the net
expense related to remeasuring monetary assets and liabilities
denominated in a foreign currency other than an entity’s
functional currency, partially offset by foreign currency
forward exchange contracts we enter into to mitigate any gain
or loss. 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 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.

Net interest expense decreased in 2017 compared to 2016

primarily due to our issuance of Euro notes in the fourth
quarter of 2016 and lower average outstanding debt balances
due to debt repayments. We used the proceeds of these Euro
notes, which have a lower interest rate than most of our other
debt, to repay certain senior notes with higher interest rates.
In 2016, net interest expense increased compared to 2015 due
to the issuance of the debt in connection with the LDR
acquisition in July 2016 and the Biomet merger in March 2015.
Our effective tax rate (“ETR”) on earnings before income

taxes was negative 290.3 percent, positive 23.8 percent and
positive 4.6 percent for the years ended December 31, 2017,
2016 and 2015, respectively. We have incurred significant
expenses associated with the Biomet merger and other
acquisitions, which were generally recognized in higher income
tax jurisdictions. Accordingly, our ETR was reduced, as our
earnings were lower in these higher income tax jurisdictions.
Additionally, other discrete adjustments have occurred that
have significantly affected our ETR. The 2017 ETR was driven
by the provisional income tax benefit we recorded of
$1,272.4 million from the 2017 Tax Act, as well as
$111.3 million of tax benefit we recorded from lower tax rates
unrelated to the impact of the 2017 Tax Act. In 2016, we
recognized $40.6 million of tax benefit from the favorable
resolution of certain tax matters with taxing authorities, which
was partially offset by $27.6 million of additional tax provision
related to finalizing the tax accounts related to the Biomet
merger. The 2015 tax rate resulted from operating losses in the
U.S. caused by significant expenses incurred in connection
with the Biomet merger.

Our future ETR is expected to be favorably impacted by

the 2017 Tax Act as a result of a reduction in the U.S.
corporate income tax rate from 35 percent to 21 percent
partially offset by a new U.S. tax on certain off-shore earnings,
referred to as GILTI, at an effective tax rate of 10.5 percent for
tax years beginning after December 31, 2017 (increasing to
13.125 percent for tax years beginning after December 31,

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

2025), with a partial offset from foreign tax credits. See Note
15 to our consolidated financial statements for further details
related to the 2017 Tax Act. Our ETR in future periods could
also 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 and operating profit as a percentage of sales in
2017 were similar to 2016. The Americas segment was
unfavorably impacted in 2017 compared to 2016 by price
declines, higher contribution of sales from products with lower
gross profit margins and higher freight costs. These
unfavorable impacts were offset by lower U.S. medical device
excise tax expense and continued savings from our SG&A
synergies initiatives. In EMEA, operating profit and operating
profit as a percentage of sales decreased in 2017 compared to
2016, primarily due to price declines and a reduced impact of
hedge gains. In Asia Pacific, operating profit and operating
profit as a percentage of sales decreased in 2017 compared to
2016 due to price declines 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;” goodwill impairment; financing and other expenses/
gains related to the Biomet merger and other acquisitions; debt
extinguishment costs; 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; the effect of the 2017 Tax Act;
and other certain tax adjustments. Other certain tax
adjustments include internal restructuring transactions that
provide us access to cash in a tax efficient manner, resolution
of certain matters with taxing authorities, favorable tax rate
changes, 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 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, 2017,
2016 and 2015 were $1,636.4 million, $1,610.8 million, and
$1,310.5 million, respectively, and our non-GAAP adjusted
diluted earnings per share were $8.03, $7.96, and $6.90,
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,

2017

2016

2015

Net Earnings of Zimmer Biomet

Holdings, Inc.

$ 1,813.8

$ 305.9

$ 147.0

Inventory step-up and other

inventory and manufacturing
related charges

Intangible asset amortization
Goodwill impairment
Special items

Biomet merger-related
Other special items

Merger-related and other expense

in other expense, net
Debt extinguishment cost
Interest expense on Biomet merger

financing

Taxes on above items(1)
Biomet merger-related

measurement period tax
adjustments(2)
U.S. tax reform(3)
Other certain tax adjustments(4)

84.6
603.9
304.7

248.0
385.1

2.6
–

469.1
565.9
–

487.3
124.5

3.6
53.3

348.8
337.4
–

619.1
220.4

1.0
22.0

–
(421.5)

–
(449.0)

70.0
(487.6)

–
(1,272.4)
(112.4)

52.7
–
(2.5)

–
–
32.4

Adjusted Net Earnings

$ 1,636.4

$1,610.8

$1,310.5

(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) The 2017 Tax Act resulted in a net favorable provisional adjustment due
to the reduction of deferred tax liabilities for unremitted earnings and
revaluation of deferred tax liabilities to a 21 percent rate, which was
partially offset by provisional tax charges related to the toll charge
provision of the 2017 Tax Act.
(4) In 2017, other certain tax adjustments related to tax benefits from lower
tax rates unrelated to the impact of the 2017 Tax Act, net favorable
resolutions of various tax matters and net favorable adjustments from
internal restructuring transactions. The 2016 adjustment primarily related
to a favorable adjustment to certain deferred tax liabilities recognized as

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

part of acquisition-related accounting and favorable resolution of certain
tax matters with taxing authorities offset by internal restructuring
transactions that provide us access to offshore funds in a tax efficient
manner. The 2015 amount related primarily to adjustments to deferred tax
liabilities recognized as part of acquisition-related accounting and other
integration related items.

Diluted EPS
Inventory step-up and other inventory and

manufacturing related charges

Intangible asset amortization
Goodwill impairment
Special items

Biomet merger-related
Other special items

Merger-related and other expense in other

expense, net

Debt extinguishment cost
Interest expense on Biomet merger

financing

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

period tax adjustments(2)

U.S. tax reform(3)

Year ended December 31,

2017

2016

2015

$ 8.90

$ 1.51

$ 0.77

0.42
2.96
1.49

1.22
1.89

0.01

–

2.32
2.80
–

2.40
0.62

0.02

0.26

1.84
1.78
–

3.26
1.16

–

0.12

–
(2.06)

–
(2.22)

0.37
(2.57)

–
(6.25)

0.26
–

–
–

Other certain tax adjustments(4)

(0.55)

(0.01)

0.17

Adjusted Diluted EPS

$ 8.03

$ 7.96

$ 6.90

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities were
$1,582.3 million in 2017 compared to $1,632.2 million and
$849.8 million in 2016 and 2015, respectively. The decline in
operating cash flows in 2017 compared to 2016 was driven by
additional investments in inventory, additional expenses for
quality remediation and $30.5 million in penalties paid to
resolve previously-disclosed FCPA matters involving Biomet
and certain of its subsidiaries as discussed in Note 19 to our
consolidated financial statements included in Item 8 of this
report. These unfavorable items were partially offset by an

estimated $174 million of incremental cash flows from our sale
of accounts receivable in certain countries. The increased
operating cash flows in 2016 compared to 2015 were primarily
from the inclusion of Biomet cash flows for the entire year.
Operating cash flows also increased by an estimated
$103.1 million due to our sales of accounts receivable in
certain countries in 2016. 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.

Cash flows used in investing activities were $510.8 million

in 2017 compared to $1,691.5 million and $7,557.9 million in
2016 and 2015, respectively. Instrument and property, plant
and equipment additions reflected ongoing investments in our
product portfolio and optimization of our manufacturing and
logistics network. The 2015 and 2016 periods included cash
outflows for the Biomet merger and LDR and other business
acquisitions. Additionally, the 2017 period reflects no investing
activity related to available-for-sale debt securities because as
investments matured we used the cash to pay off debt.
Cash flows used in financing activities were

$1,210.5 million in 2017. Our primary use of available cash in
2017 was for debt repayment. We borrowed amounts under a
new Japan Term Loan B and used the borrowings to pay down
a portion of our U.S. Term Loan A. Overall, we had
approximately $1,250 million of net principal repayments on
our senior notes and term loans in 2017. Additionally in 2017,
we had net cash inflows of $103.5 million on factoring
programs that had not been remitted. Since our factoring
programs started at the end of 2016, we did not have similar
cash flows in prior periods. 2015 and 2016 financing cash flows
reflected borrowings necessary to complete the Biomet merger
and LDR acquisition.

In February, May, July and December 2017, 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 in Note 11 to the
consolidated financial statements, our debt facilities restrict
the payment of dividends in certain circumstances.

In February 2016, our Board of Directors authorized a
$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, 2017, 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.

As discussed in Note 15 to our consolidated financial
statements, the Internal Revenue Service (“IRS”) has issued
proposed adjustments for years 2005 through 2012 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

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for resolution of the disputed tax issues is uncertain, future
payments may be significant to our operating cash flows.
As discussed in Note 19 to our consolidated financial
statements, as of December 31, 2017, a short-term liability of
$78.0 million and long-term liability of $121.4 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 maintain insurance
for product liability claims, subject to self-insurance retention
requirements. We have recovered insurance proceeds from
certain of our insurance carriers for Durom Cup-related claims.
While we may recover additional insurance proceeds in the
future for Durom Cup-related claims, we do not have a
receivable recorded on our consolidated balance sheet as of
December 31, 2017 for any possible future insurance
recoveries for these claims. We also had a short-term liability
of $36.0 million recorded on our consolidated balance sheet as
of December 31, 2017 related to Biomet metal-on-metal hip
implant claims.

At December 31, 2017, we had eleven tranches of senior

notes outstanding as follows (dollars in millions):

Principal

Interest
Rate

$1,150.0

2.000%

500.0

1,500.0

300.0

750.0

4.625

2.700

3.375

3.150

600.4* 1.414

2,000.0

3.550

600.4* 2.425

253.4

317.8

395.4

4.250

5.750

4.450

Maturity Date

April 1, 2018

November 30, 2019

April 1, 2020

November 30, 2021

April 1, 2022

December 13, 2022

April 1, 2025

December 13, 2026

August 15, 2035

November 30, 2039

August 15, 2045

* Euro denominated debt securities

We also had four term loans with total principal of
$1,801.1 million outstanding as of December 31, 2017.

We have a five-year unsecured multicurrency revolving

facility of $1.5 billion (the “Multicurrency Revolving Facility”)
that will mature on September 30, 2021. There were no
outstanding borrowings on this facility as of December 31,
2017. We also have other available uncommitted credit
facilities totaling $58.4 million.

For additional information on our debt, see Note 11 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, 2017, $382.2 million of our cash and
cash equivalents were held in jurisdictions outside of the U.S.
Of this amount, $81.9 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. We intend to repatriate at
least $3.6 billion of unremitted earnings in future years.

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

2018

2019
and
2020

2021
and
2022

2023
and
Thereafter

Long-term debt

$10,172.3

$1,225.0

$3,439.1

$1,941.2

$3,567.0

Interest

payments

Operating leases

Purchase

obligations

Toll charge tax

liability

Other long-term

liabilities

Total contractual
obligations

2,208.4

311.3

297.4

66.7

487.9

100.0

332.0

1,091.1

62.7

81.9

265.1

152.3

75.2

4.9

32.7

466.0

82.0

61.4

261.2

372.8

–

256.5

33.7

82.6

$13,795.9

$1,823.4

$4,420.1

$2,435.9

$5,116.5

$67.1 million of the other long-term liabilities on our
balance sheet as of December 31, 2017 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 2017. Therefore, this table does
not include any amounts related to future contributions to our
plans. See Note 14 to our consolidated financial statements for
further information on our defined benefit plans.

Under the 2017 Tax Act, we recorded a $466.0 million

income tax expense related to the toll charge liability for the
one-time deemed repatriation of unremitted foreign earnings.
This amount is recorded in current and non-current income
tax liabilities on our consolidated balance sheets as of
December 31, 2017. We expect to elect to pay the toll charge
in installments over eight years.

Also included in long-term liabilities on our consolidated

balance sheets 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

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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. See Note 15 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, maintenance of 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 $61 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 the net
realizable values of inventory and instruments 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
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.

We estimate income tax expense and income tax liabilities

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.

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 FASB’s
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 $489.7 million related to the
Durom Cup. See Note 19 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
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 have six reporting units with goodwill assigned to
them. In the fourth quarter of 2017, we determined our Spine,
less Asia Pacific (“Spine”) reporting unit’s carrying value was
in excess of its estimated fair value. Fair value was determined
using 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 our Spine
reporting unit. As a result, we recorded a goodwill impairment
charge for the Spine reporting unit of $272.0 million in 2017.
As of December 31, 2017, $421.5 million of goodwill remains
for this reporting unit.

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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, 2017, 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 2018 through June 2020. The
notional amounts of outstanding forward contracts entered
into with third parties to purchase U.S. Dollars at
December 31, 2017 were $1,735.9 million. The notional
amounts of outstanding forward contracts entered into with
third parties to purchase Swiss Francs at December 31, 2017
were $291.3 million. The weighted average contract rates
outstanding at December 31, 2017 were Euro:USD 1.17,
USD:Swiss Franc 0.94, USD:Japanese Yen 106.74, British
Pound:USD 1.39, USD:Canadian Dollar 1.30, Australian
Dollar:USD 0.75, USD:Korean Won 1,137, USD:Swedish Krona
8.36, USD:Czech Koruna 23.01, USD:Thai Baht 34.82,
USD:Taiwan Dollar 30.86, USD:South African Rand 14.26,
USD:Russian Ruble 63.05, USD:Indian Ruppee 69.12,
USD:Turkish Lira 3.96, USD:Polish Zloty 3.80, USD:Danish
Krone 6.42, and USD:Norwegian Krone 8.19.

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, 2017 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

Also, in the third quarter of 2017, we recognized a
goodwill impairment charge of $32.7 million on our Office
Based Technologies reporting unit using a market approach.
The $32.7 million impairment represented the entire goodwill
balance of the reporting unit and, therefore, no goodwill
remains.

See Note 9 to our consolidated financial statements for
further discussion and the factors that contributed to these
impairment charges and the factors that could lead to further
impairment.

For our other five reporting units that have goodwill

assigned to them, their estimated fair value exceeded their
carrying value by more than 10 percent. We estimated the fair
value of those reporting units using the income and market
approaches. If we do not achieve our forecasted operating
results or if market valuation indicators decline, we could be
required to recognize additional goodwill impairment charges
in the future.

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

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2020, 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

$59.5
29.8
47.7
4.7
16.3
19.3
3.2
2.4
1.5
0.8
3.8
0.9
1.6
1.3
0.1
2.9
3.9
2.0

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.

We had net assets, excluding goodwill, in legal entities

with non-U.S. Dollar functional currencies of $2,839.5 million
at December 31, 2017, primarily in Euros, Japanese Yen and
Australian Dollars.

For details about these and other financial instruments,

including fair value methodologies, see Note 13 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 U.S. 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
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.

For details about these and other financial instruments,

including fair value methodologies, see Note 13 to our
consolidated financial statements.

Based upon our overall interest rate exposure as of
December 31, 2017, 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

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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. 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.

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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, 2017, 2016 and 2015

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015

Notes to Consolidated Financial Statements

Page

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2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Zimmer Biomet Holdings, Inc. and its subsidiaries as of
December 31, 2017 and 2016 and the related consolidated statements of earnings, comprehensive income (loss), stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and the
financial statement schedule of valuation and qualifying accounts for each of the three years in the period ended December 31,
2017 appearing under Item 15(a)(2), (collectively referred to as the “consolidated financial statements”). We also have audited the
Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, 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 Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the

audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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.

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.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 27, 2018

We have served as the Company’s auditor since 2000.

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2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

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
Goodwill impairment
Special items (Note 2)

Operating expenses

Operating Profit
Other expense, net
Interest income
Interest expense

Earnings before income taxes
(Benefit) 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,

2017

2016

2015

$ 7,824.1
2,132.9
603.9
367.4
2,973.9
304.7
633.1

$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
–
839.5

7,015.9

6,858.0

5,530.5

808.2
(18.3)
2.2
(327.5)

464.6
(1,348.8)

1,813.4
(0.4)

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)

$ 1,813.8

$ 305.9

$ 147.0

$
$

8.98
8.90

201.9
203.7
0.96

$
$

1.53
1.51

200.0
202.4
0.96

$
$

0.78
0.77

187.4
189.8
0.88

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

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 (losses)/gains, net of tax

Reclassification adjustments on cash flow hedges, net of tax

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

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

Total Other Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive Loss Attributable to Noncontrolling Interest

For the Years Ended December 31,

2017

2016

2015

$1,813.4

$ 304.6

$ 146.2

445.0

(130.0)

(305.2)

(95.0)

28.3

52.7

(3.8)

(25.8)

(93.0)

–

4.6

0.5

22.0

(0.2)

(21.4)

350.8

(105.0)

(367.1)

2,164.2

199.6

(220.9)

(1.3)

(0.5)

(0.3)

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

$2,165.5

$ 200.1

$(220.6)

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

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

CONSOLIDATED BALANCE SHEETS
(in millions)

ASSETS

Current Assets:

Cash and cash equivalents
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, net

Long-term income tax payable

Other long-term liabilities

Long-term debt

Total Liabilities

Commitments and Contingencies (Note 19)
Stockholders’ Equity:

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

306.5 million (304.7 million in 2016) issued

Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, 103.9 million shares (104.1 million shares in 2016)

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,

2017

2016

524.4
1,494.6
2,081.8
414.5

634.1
1,604.4
1,959.4
465.7

4,515.3
2,038.6
10,668.4
8,353.4
388.8

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

$25,964.5

$26,684.4

330.2
165.2
1,299.8
1,225.0

3,020.2

1,101.5

744.0

445.8

364.5
183.5
1,257.9
575.6

2,381.5

3,030.9

473.7

462.6

8,917.5

10,665.8

14,229.0

17,014.5

3.1
8,514.9
10,022.8
(83.2)
(6,721.8)

11,735.8
(0.3)

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

9,668.9
1.0

11,735.5

9,669.9

$25,964.5

$26,684.4

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

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, 2015
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

Balance December 31, 2016
Net earnings
Other comprehensive income
Cash dividends declared
Retrospective adoption of new

accounting standard
Stock compensation plans

268.4
–
–
–
1.6
–
32.7

302.7
–
–
–
2.0
–

304.7
–
–
–

–
1.8

$2.7
–
–
–
–
–
0.3

3.0
–
–
–
0.1
–

3.1
–
–
–

–
–

$4,330.7
–
–
–
142.2
–
3,722.4

$ 8,362.1
147.0
–
(164.4)
3.0
–
–

8,195.3
–
–
–
173.2
–

8,368.5
–
–
–

–
146.4

8,347.7
305.9
–
(191.9)
5.4
–

8,467.1
1,813.8
–
(194.1)

(77.8)
13.8

$ 38.1
–
(367.1)
–
–
–
–

(329.0)
–
(105.0)
–
–
–

(434.0)
–
350.8
–

(98.7) $(6,183.7)
–
–
–
4.6
(150.0)
–

–
–
–
0.1
(1.4)
–

(100.0)
–
–
–
0.1
(4.2)

(104.1)
–
–
–

(6,329.1)
–
–
–
8.8
(415.5)

(6,735.8)
–
–
–

–
–

–
0.2

–
14.0

$ 1.8
(0.8)
0.5
–
–
–
–

1.5
(1.3)
0.8
–
–
–

1.0
(0.4)
(0.9)
–

–
–

Total
Stockholders’
Equity

$ 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)

9,669.9
1,813.4
349.9
(194.1)

(77.8)
174.2

Balance December 31, 2017

306.5

$3.1

$8,514.9

$10,022.8

$ (83.2)

(103.9) $(6,721.8)

$(0.3) $11,735.5

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

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

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
Share-based compensation
Goodwill and intangible asset impairment
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 senior notes
Proceeds from multicurrency revolving facility
Payments on multicurrency revolving facility
Redemption of senior notes
Proceeds from term loan
Payments on term loan
Net (payments) proceeds on other debt
Dividends paid to stockholders
Proceeds from employee stock compensation plans
Unremitted collections from factoring programs
Business combination contingent consideration payments
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,

2017

2016

2015

$ 1,813.4

304.6

146.2

1,062.7
–
53.7
331.5
–
32.8
–
–
(1,776.0)

150.2
176.5
(122.8)
(148.2)
8.5

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

(10.9)
(137.8)
76.4
28.7
21.2

1,582.3

1,632.2

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)

849.8

(337.0)
(156.0)
–
–
–
–
–
(4.0)
(13.8)

(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)

(510.8)

(1,691.5)

(7,557.9)

–
400.0
(400.0)
(500.0)
192.7
(940.0)
(0.9)
(193.6)
145.5
103.5
(9.1)
(8.3)
–
(0.3)
–

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

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

(1,210.5)

(743.2)

7,106.7

29.3

(22.7)

(22.6)

(109.7)
634.1

(825.2)
1,459.3

376.0
1,083.3

524.4

634.1

$ 1,459.3

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N 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.
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 Acquisition, Inc. (“LVB”) or any of its subsidiaries,
including Biomet, Inc. (“Biomet”), all of which we acquired in
June 2015 (sometimes hereinafter referred to as the “Biomet
merger” or the “merger”).

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
2016 consolidated financial statements have been reclassified
to conform to the 2017 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, 2017, 2016 and
2015 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 75 percent of our net sales in 2017. 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
25 percent of our net sales in 2017. 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, 2017, 2016 and 2015.

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 $263.6 million,
$231.7 million and $214.2 million for the years ended
December 31, 2017, 2016 and 2015, 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.
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.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Special Items – We recognize expenses resulting directly

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

Biomet-related

Merger consideration compensation

expense

Retention plans

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

Other

For the Years Ended December 31,

2017

2016

2015

–

81.5

12.1

50.6

7.7

15.5

5.2

5.9

26.8

9.8

32.9

220.4

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

Total Biomet-related

248.0

487.3

619.1

Other

Consulting and professional fees

218.1

Employee termination benefits

Dedicated project personnel

Relocated facilities

Certain litigation matters

Certain claims (Note 19)

Contract terminations

Information technology integration

Intangible asset impairment

Loss/impairment on assets

LDR merger consideration
compensation expense

Contingent consideration adjustments

Certain R&D agreements

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

1.9

31.8

–

31.2

7.7

–

1.8

–

3.8

–

2.4

–

6.8

25.0

3.5

45.6

6.3

78.2

10.3

3.9

2.9

–

(4.5)

2.5

18.3

385.1

124.5

220.4

$633.1

$611.8

$839.5

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 Biomet 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 include expenditures
related to third-party integration consulting performed in a
variety of areas such as tax, compliance, logistics and human
resources for our business combinations including our merger
with Biomet; legal fees related to the consummation of
mergers and acquisitions and certain litigation and compliance
matters; other consulting and professional fees and contract
labor related to our quality enhancement and remediation
efforts and operational excellence initiatives; third-party fees
related to severance and termination benefits matters; costs of
complying with our deferred prosecution agreement with the
U.S. Department of Justice; and 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. Part of these integration plans included termination
of employees and certain contracts with independent agents,
distributors, suppliers and lessors. Our integration plans are
expected to last through mid-2018 and we expect to incur
approximately a total of $170 million for employee termination
benefits and $140 million for contract termination expense in
that time period. As of December 31, 2017, we had incurred a
cumulative total of $163.9 million for employee termination
benefits and $140.1 million for contract termination expense.
Accordingly, our integration plans with respect to employee
termination benefits and contract termination expenses are

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

substantially complete. The following table summarizes the
liabilities related to these integration plans (in millions):

Employee
Termination
Benefits

Contract
Terminations

Total

Balance, December 31, 2016

$ 38.1

$ 35.1

$ 73.2

an indefinite life. During 2017, we reclassified one of these
trademarks to a finite life asset which resulted in an
impairment of $8.0 million.

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.

Additions

Cash payments

Foreign currency exchange rate

changes

12.1

5.2

17.3

Contingent consideration adjustments represent the

(36.7)

(10.4)

(47.1)

1.3

0.4

1.7

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

Balance, December 31, 2017

$ 14.8

$ 30.3

$ 45.1

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
integration of acquired businesses, employees who have been
notified of termination, but are continuing to work on
transferring their responsibilities and employees working on
our quality enhancement and remediation efforts and
operational excellence initiatives.

Relocated facilities expenses are the moving costs, lease
expenses and other facility costs 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 2017 and 2016, we
recorded impairment losses of $18.8 million and $30.0 million,
respectively, related to these IPR&D intangible assets. The
impairments were primarily due to the termination of certain
IPR&D projects. We also recognized $479.0 million of
intangible assets for trademarks that we designated as having

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.
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.

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
$60.2 million and $51.6 million as of December 31, 2017 and
2016, respectively.

Inventories – Inventories are stated at the lower of cost

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

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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 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 in the amount that the
carrying value of the business unit exceeds the fair value. See
Note 9 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

and IPR&D projects, 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
twenty 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
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

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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.

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 13 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 January 2017, the

Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2017-04 – Simplifying
the Test for Goodwill Impairment. This ASU requires goodwill
impairment to be measured as the amount by which a
reporting unit’s carrying value exceeds its fair value, not to
exceed the carrying amount of goodwill. Under previous
guidance, if the carrying amount of a reporting unit’s net assets
were greater than its fair value, impairment was measured as
the excess of the carrying amount of the reporting unit’s
goodwill over its implied fair value. The determination of a
reporting unit’s implied goodwill generally required significant
estimates to fair value its net assets. Therefore, this ASU
simplifies goodwill impairment testing by eliminating the need
to estimate the fair value of a reporting unit’s net assets. The
impact of this ASU is dependent on the specific facts and
circumstances of future impairments and is applied
prospectively on testing that occurs subsequent to
adoption. We elected to early adopt this ASU in 2017. As a
result, the new ASU was used to determine the goodwill
impairment charge on our Office Based Technologies and
Spine, less Asia Pacific reporting units that were recognized in
2017. See Note 9 for additional details regarding this goodwill
impairment charge.

In October 2016, the FASB issued ASU 2016-16 – Intra-
Entity Asset Transfers of Assets Other than Inventory. This
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. We early
adopted this standard effective January 1, 2017. The modified
retrospective approach is required for transition, which resulted
in us recognizing a cumulative-effect adjustment in Retained
earnings as of January 1, 2017 for intra-entity transfers/sales we
had executed prior to that date. The January 1, 2017
cumulative effect adjustment resulted in a $77.8 million
decrease to Retained earnings, a $3.9 million decrease to
Prepaid expenses and other current assets, a $22.4 million
decrease in Other assets, a $2.0 million decrease to Income
taxes payable, and a $53.5 million increase to Deferred income
taxes, net. The adoption of this ASU resulted in additional tax
benefit of $5.9 million to our provision for income taxes in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

year ended December 31, 2017 compared to what it would have
been under the previous accounting rules.

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. This 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.

We have completed our assessment of this ASU. Based
upon our assessment, there will not be a material change to the
timing of our revenue recognition. However, we will be
required to reclassify certain immaterial costs from selling,
general and administrative (“SG&A”) expense to net sales,
which will result in a reduction of net sales, but have no impact
on operating profit. We will adopt this new standard using the
retrospective method, which will result in us restating prior
reporting periods presented.

In March 2017, the FASB issued ASU 2017-07 – Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. This ASU requires us to report
the service cost component of pensions in the same location as
other compensation costs arising from services rendered by
the pertinent employees during the period. We will be required
to report the other components of net benefit costs in Other
Income (Expense) in the statement of earnings. This ASU will
be effective for us beginning January 1, 2018. The ASU must
be applied retrospectively for the presentation of the service
cost component and the other components of net periodic
pension cost in the statement of earnings and prospectively, on
and after the effective date, for the capitalization of the service
cost component of net periodic pension cost in assets. See
Note 14 for further information on the components of our net
benefit cost.

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.
Based on current guidance, this 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 and other less significant assets
throughout the world. We have formed our project team and
have begun a process to collect the necessary information to
implement this ASU. We will continue evaluating our leases
and the related impact this ASU will have on our consolidated
financial statements throughout 2018.

In August 2017, the FASB issued ASU 2017-12 – Targeted
Improvements to Accounting for Hedging Activities. This ASU
amends the hedge accounting guidance to simplify the
application of hedge accounting, makes more financial and

nonfinancial hedging strategies eligible for hedge accounting
treatment, changes how companies assess effectiveness and
updates presentation and disclosure requirements. We are
currently evaluating the impact this ASU will have on our
consolidated financial statements; however, based on our
current hedging portfolio, we do not anticipate that this ASU
will have a significant impact on our financial position, results
of operations or cash flows. This ASU will be effective for us
January 1, 2019, with early adoption permitted. After adoption,
we may explore new hedging opportunities that are eligible for
hedge accounting treatment under the new standard.
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
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.

The following table sets forth unaudited pro forma
financial information derived from (i) the audited financial
statements of Zimmer for the year ended December 31, 2015;
and (ii) the unaudited financial statements of LVB for the
period January 1, 2015 to June 23, 2015. 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

(in millions)

$7,517.8

$ 330.2

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:
• 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.

• The $73.0 million of retention plan expense was removed

from net earnings for the year ended December 31, 2015 and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Acquisitions

During the year ended December 31, 2016, we completed

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
completed primarily to expand our product offerings. We have
assigned a fair value of $58.0 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 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
payments. The goodwill was generated from the operational
synergies and cross-selling opportunities we expected to
achieve from the technologies acquired. None of the goodwill
related to these acquisitions is deductible for tax purposes.
The following table summarizes the aggregate final
estimated fair value as of the respective closing dates of the
assets acquired and liabilities assumed related to the Cayenne
Medical, CTC, CD Diagnostics, MedTech, and other immaterial
acquisitions that occurred during the year ended December 31,
2016 (in millions):

Final Values

92.8

30.5

97.0

5.6

24.7

2.0

447.0

122.0

74.0

73.8

507.2

Current assets

Property, plant and equipment

Intangible assets

Goodwill

Other assets

Total assets acquired

Current liabilities

Long-term liabilities

Total liabilities assumed

$ 66.4

4.5

172.9

337.1

38.2

619.1

20.0

99.4

119.4

$499.7

1,476.6

Net assets acquired

122.5

0.5

236.7

3.0

362.7

$1,113.9

We have not included pro forma information and certain

other information under GAAP for the Cayenne Medical, CTC,
CD Diagnostics, or MedTech acquisitions because, individually
and in aggregate, they did not have a material impact on our
financial position or results of operations.

recognized as an expense in the year ended December 31,
2014.

• 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 Acquisition

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 provided us with an immediate

position in the growing cervical disc replacement (“CDR”)
market. The combination positioned 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
customer bases. The goodwill was generated from the
operational synergies and cross-selling opportunities we
expected to achieve from our combined operations. None of
the goodwill is deductible for tax purposes.

The following table summarizes the final estimated fair

value of the assets acquired and liabilities assumed at the
closing date of 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

We have not included pro forma information and certain

other information under GAAP for the LDR acquisition
because it did not have a material impact on our financial
position or results of operations.

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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,

2017

2016

2015

$53.7
12.5

$41.2

$57.3
31.5

$25.8

$46.4
14.5

$31.9

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, 2017: 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
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, 2017. 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 71.6 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, 2017, an aggregate of
11.8 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.

A summary of stock option activity for the year ended December 31, 2017 is as follows (options in thousands):

Outstanding at January 1, 2017

Options granted

Options exercised

Options forfeited

Options expired

Outstanding at December 31, 2017

Vested or expected to vest as of December 31, 2017

Exercisable at December 31, 2017

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

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life

Intrinsic
Value
(in millions)

Stock
Options

7,901

$ 86.21

1,663

121.52

(1,730)

79.41

(532)

113.54

(45)

96.27

7,257

$ 93.83

6,742

$ 92.36

4,107

$ 79.67

6.3

6.2

4.6

$197.0

$192.8

$168.6

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents information regarding the

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

Dividend yield

Volatility

Risk-free interest rate

Expected life (years)

For the Years Ended December 31,

2017

2016

2015

0.8%

0.9%

0.8%

21.6% 21.9% 22.2%

2.0%

1.4%

1.7%

5.3

Weighted average fair value of options

granted

$26.09

$21.30

$22.30

Intrinsic value of options exercised

(in millions)

$ 67.6

$ 73.0

$ 49.4

the market conditions of the awards. The outcome of the
simulation was used to determine the fair value of the awards.

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,
2017, we estimate that approximately 776,600 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, 2017 was $54.2 million and is
expected to be recognized over a weighted-average period of
2.6 years. The fair value of RSUs vesting during the years
ended December 31, 2017, 2016 and 2015 based upon our
stock price on the date of vesting was $31.2 million,
$25.5 million, and $40.6 million, respectively.

Tax benefit of options exercised

(in millions)

$ 27.7

$ 30.1

$ 81.4

Inventories

As of December 31, 2017, there was $56.9 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 2.7 years.

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, 2017 is as follows (RSUs in thousands):

Outstanding at January 1, 2017

Granted

Vested

Forfeited

Weighted Average
Grant Date
Fair Value

$102.04

115.77

97.12

107.02

RSUs

1,394

586

(256)

(363)

Outstanding at December 31, 2017

1,361

107.56

For the RSUs with service conditions only, the fair value 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

Inventories consisted of the following (in millions):

Finished goods

Work in progress

Raw materials

Inventories

As of December 31,

2017

2016

$1,632.2

$1,556.9

200.0

249.6

141.7

260.8

$2,081.8

$1,959.4

Amounts charged to the consolidated statements of
earnings for excess and obsolete inventory, including certain
product lines we intend to discontinue, in the years ended
December 31, 2017, 2016 and 2015 were $128.4 million,
$195.4 million and $118.4 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

Construction in progress

Accumulated depreciation

As of December 31,

2017

2016

29.0

37.0

1,838.5

1,789.9

421.6

397.2

2,683.9

2,347.6

110.7

99.8

5,083.7

4,671.5

(3,045.1)

(2,633.6)

Property, plant and equipment, net

$ 2,038.6

$ 2,037.9

Depreciation expense was $454.1 million, $466.7 million

and $375.0 million for the years ended December 31, 2017,
2016 and 2015, respectively.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Transfers of Financial Assets

Fair Value Measurements of Assets and Liabilities

In Europe, we sell to a third party and have no continuing

Derivatives, current and

In the fourth quarter of 2016, we executed receivables
purchase arrangements to liquidate portions of our trade accounts
receivable balance with unrelated third parties. The receivables
relate to products sold to customers and are short-term in
nature. The factorings were treated as sales of our accounts
receivable. Proceeds from the transfers reflect either the face value
of the accounts receivable or the face value less factoring fees.
In the U.S. and Japan, our programs are executed on a

revolving basis with a maximum funding limit as of
December 31, 2017 of $350 million. We act as the collection
agent on behalf of the third party, but have no significant
retained interests or servicing liabilities related to the accounts
receivable sold. In order to mitigate credit risk, 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. Additionally, we have
provided guarantees for the factored accounts receivable. The
maximum exposures to loss associated with these
arrangements were $22.9 million and $5.2 million as of
December 31, 2017 and 2016, respectively.

involvement or significant risk with the factored accounts
receivable.

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 in cash flows from operating activities in our
consolidated statements of cash flows. Net expenses resulting
from the sales of receivables are recognized in selling, general
and administrative expense. Net expenses include any
resulting gains or losses from the sales of receivables, credit
insurance and factoring fees.

For the years ended December 31, 2017 and 2016, we sold

receivables having an aggregate face value of $1,456.9 million
and $103.1 million to third parties in exchange for cash
proceeds of $1,455.6 million and $103.1 million,
respectively. Expenses recognized on these sales during the
years ended December 31, 2017 and 2016, were not
significant. For the year ended December 31, 2017, under the
U.S. and Japan programs, we collected $1,031.2 million from
our customers and remitted that amount to the third party,
and we effectively repurchased $96.3 million of previously sold
accounts receivable from the third party due to the programs’
revolving nature. At December 31, 2017, we collected
$103.5 million that was unremitted to the third party, which is
reflected in our balance sheet under other current liabilities.
We estimate the incremental operating cash inflows related to
all of our programs were approximately $174 million and
$103 million for the years ended December 31, 2017 and 2016.
At December 31, 2017, the outstanding principal amount
of receivables that has been derecognized under the U.S. and
Japan revolving arrangements amounted to $197.0 million and
$64.2 million, respectively.

The following financial assets and liabilities are recorded

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

As of December 31, 2017

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

Liabilities

$ 1.6

4.5

$ 6.1

long-term

Foreign currency

forward contracts

$50.9

Contingent payments

related to acquisitions

41.0

$91.9

–

$ 1.6

4.5

$ 6.1

–

$50.9

–

41.0

$50.9

$41.0

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)

$65.3

4.0

$69.3

–

$65.3

4.0

$69.3

–

$ 0.3

–

62.8

$ 0.3

$62.8

Description

Assets

Derivatives, current and

long-term

Foreign currency

forward contracts

Interest rate swaps

Liabilities

Derivatives, current and

long-term

Foreign currency

forward contracts

$ 0.3

Contingent payments

related to acquisitions

62.8

$63.1

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Goodwill and Other Intangible Assets

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
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 occurred in 2016. We
recognized $4.5 million of income related to contingent
payments due to changes in estimates for the year ended
December 31, 2017. We also paid $13.7 million in contingent
payments and made a fair value adjustment of $3.6 million to
the preliminary estimate of contingent consideration that
reduced the contingent payment liability for the year ended
December 31, 2017.

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

Balance at January 1, 2016

Goodwill

Accumulated impairment losses

Biomet purchase accounting adjustments

LDR purchase accounting

Other acquisitions

Currency translation

Balance at December 31, 2016

Goodwill

Accumulated impairment losses

LDR purchase accounting

Other acquisitions

Currency translation

Impairment

Balance at December 31, 2017

Goodwill

Accumulated impairment losses

Immaterial
Product Category
Operating
Segments

Asia
Pacific

Total

Americas

EMEA

$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

–

(0.5)

90.8

–

(33.2)

149.3

–

13.2

–

24.5

27.6

57.5

(304.7)

24.5

(6.1)

310.8

(304.7)

7,724.8

1,379.8

500.5

1,741.0

11,346.1

–

(677.7)

$7,724.8

$1,379.8

$500.5

$1,063.3

$10,668.4

During the year ended December 31, 2017, we recorded

goodwill impairment charges related to our Office Based
Technologies and Spine, less Asia Pacific (“Spine”) reporting
units of $32.7 million and $272.0 million, respectively.

In the third quarter of 2017, we performed a goodwill

impairment test on our Office Based Technologies reporting
unit due to continued revenue declines. As a result, we
recognized a $32.7 million impairment charge. The

$32.7 million impairment represented the entire goodwill balance
of the reporting unit and therefore no goodwill remains. This
reporting unit was acquired as part of the Biomet merger in 2015
and therefore its assets and liabilities were recognized at their
estimated fair values at the merger date. Since the merger date
valuation, operating performance has been lower than
expected due to integration issues, management turnover and
poor execution of its operating plans.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We estimated the fair value of the Office Based

In estimating the future cash flows of the reporting unit,

Technologies reporting unit using a market approach. GAAP
defines fair value as “the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.” We
used market indicators based upon the reporting unit’s
operating performance to estimate what price would be paid
for the assets in an orderly transaction.

We performed our annual goodwill impairment test in the

fourth quarter of 2017. In our annual impairment test, we
determined our Spine reporting unit’s carrying value was in
excess of its estimated fair value. As discussed in Note 2, we
elected to early adopt ASU 2017-04 in the third quarter of
2017. This resulted in an impairment charge of $272.0 million,
representing the amount by which the reporting unit’s
carrying value exceeded its estimated fair value. This
reporting unit includes goodwill from Zimmer as well as
additional goodwill from both the Biomet and LDR mergers.
The forecasts used to recognize the goodwill related to the
spine product categories of Biomet and LDR assumed cross
sale opportunities of the combined businesses, including the
proprietary Mobi-C Cervical Disc acquired with LDR, would
enable the reporting unit to grow faster than the overall spine
market. The primary drivers of impairment were lower than
expected sales due to sales force integration issues and
additional complexities of combining the Zimmer, Biomet and
LDR spine product supply chains. As a result, it will take
longer than originally anticipated to realize the benefits of the
mergers of the Biomet and LDR spine product categories.

We estimated the fair value of the Spine reporting unit
based on 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
from publicly traded companies that are similar to our Spine
reporting unit and considers differences between our
reporting unit and the comparable companies.

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 upon historical
trends and estimated future growth drivers such as an aging
global 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 of our
differentiated products or new products will have on revenues.
Under the guideline public company methodology, we

took into consideration specific risk differences between our
reporting unit and the comparable companies, such as recent
financial performance, size risks and product portfolios, among
other considerations.

We have five other reporting units with goodwill assigned

to them. The estimated fair values of these reporting units
exceeded their carrying value by more than 10 percent. We
estimated the fair value of those reporting units using the
income and market approaches.

We will continue to monitor the fair value of our Spine

reporting unit as well as our other five reporting units in our
interim and annual reporting periods. If our estimated cash
flows for these reporting units decrease, we may have to
record further impairment charges in the future. Factors that
could result in our cash flows being lower than our current
estimates include: 1) decreased revenues caused by
unforeseen changes in the healthcare market, or our inability
to generate new product revenue from our research and
development activities, and 2) our inability to achieve the
estimated operating margins in our 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.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N 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, 2017:

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

$ 3,669.8

$ 180.7

$ 671.1

$5,409.5

(1,061.4)

(176.1)

(132.1)

(890.4)

–

$160.0

$10,091.1

(84.1)

(2,344.1)

–

460.0

–

146.4

606.4

Total identifiable intangible assets

$ 2,608.4

4.6

$ 999.0

$4,519.1

$146.4

$ 75.9

$ 8,353.4

As of December 31, 2016:

Intangible assets subject to amortization:

Gross carrying amount

Accumulated amortization

Intangible assets not subject to amortization:

Gross carrying amount

$ 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

Estimated annual amortization expense based upon
intangible assets recognized as of December 31, 2017 for the
years ending December 31, 2018 through 2022 is (in millions):

For the Years Ending December 31,

11. Debt

Our debt consisted of the following (in millions):

2018

2019

2020

2021

2022

10. Other Current and Long-term Liabilities

$595.0

575.4

572.2

563.9

557.4

Current portion of long-term debt
1.450% Senior Notes due 2017
U.S. Term Loan B
2.000% Senior Notes due 2018
Other short-term debt

Total short-term debt

Long-term debt

Other current and long-term liabilities consisted of the

following (in millions):

As of December 31,

2017

2016

Other current liabilities:

License and service agreements

$ 171.4

$ 168.0

Certain claims accrual (Note 19)

Salaries, wages and benefits

Accrued liabilities

78.0

255.2

795.2

75.0

225.8

789.1

Total other current liabilities

$1,299.8

$1,257.9

Other long-term liabilities:

Certain claims accrual (Note 19)

Other long-term liabilities

121.4

324.4

218.6

244.0

Total other long-term liabilities

$ 445.8

$ 462.6

2.000% Senior Notes due 2018
4.625% Senior Notes due 2019
2.700% Senior Notes due 2020
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 A
Japan Term Loan B
Other long-term debt
Debt discount and issuance costs
Adjustment related to interest rate swaps

As of December 31,

2017

2016

–
75.0
1,150.0
–

500.0
75.0
–
0.6

$1,225.0

575.6

–
500.0
1,500.0
300.0
750.0
2,000.0
253.4
317.8
395.4
600.4
600.4
835.0
600.0
103.2
187.9
4.1
(53.2)
23.1

$ 1,150.0
500.0
1,500.0
300.0
750.0
2,000.0
253.4
317.8
395.4
527.4
527.4
1,700.0
675.0
99.6
–
4.2
(65.8)
31.4

Total long-term debt

$8,917.5

$10,665.8

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2017, our total debt consisted of

$8.4 billion aggregate principal amount of senior notes, which
included $1.2 billion of Euro-denominated senior notes (“Euro
notes”), $835.0 million outstanding under a U.S. term loan
(“U.S. Term Loan A”) that will mature on June 24, 2020,
$675.0 million outstanding under a U.S. term loan (“U.S. Term
Loan B”) that will mature on September 30, 2019, an
11.7 billion Japanese Yen term loan agreement (“Japan Term
Loan A”) and a 21.3 billion Japanese Yen term loan agreement
(“Japan Term Loan B”) that each will mature on
September 27, 2022, and other debt and fair value adjustments
totaling $27.2 million, partially offset by debt discount and
issuance costs of $53.2 million.

On September 22, 2017, we entered into a term loan
agreement for the Japan Term Loan B, and an amended and
restated term loan agreement, which amended and restated
the Japan Term Loan A loan agreement dated as of May 24,
2012, as amended as of October 31, 2014. As described above,
the term loans under both of these agreements will mature on
September 27, 2022. Each of these term loans bears interest at
a fixed rate of 0.635 percent per annum.

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.

In 2016, we also entered into U.S. Term Loan B and

borrowed $750.0 million thereunder to repay outstanding
borrowings under a previous multicurrency revolving facility
incurred in connection with the acquisition of LDR.

In 2015, we issued senior notes and borrowed $3.0 billion

under U.S. Term Loan A 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.

In 2016 and 2015, we used a portion of the funds received

from the above-described note issuances and borrowings to
repay other outstanding debt. The repayments resulted in debt
extinguishment charges of $53.3 million and $22.0 million in
2016 and 2015, respectively, recorded as part of other
expense, net.

We have a revolving credit and term loan agreement (the
“2016 Credit Agreement”) and a first amendment to our credit
agreement executed in 2014 (the “2014 Credit Agreement”).
The 2016 Credit Agreement contains the U.S. Term Loan B
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 and will mature on September 30, 2021, with two
available one-year extensions at our discretion. The 2014
Credit Agreement also provided for the U.S. Term Loan A,
which remains in effect.

Borrowings under the 2014 and 2016 Credit Agreements

generally 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, 2017. As
of December 31, 2017, there were no borrowings outstanding
under the Multicurrency Revolving Facility.

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 $2.165 billion in principal under U.S. Term Loan A,
resulting in $835.0 million in outstanding borrowings as of
December 31, 2017. The interest rate at December 31, 2017
was 2.9 percent on U.S. Term Loan A.

Under the terms of U.S. Term Loan B, future principal

payments are due as follows: $75.0 million on September 30,
2018, with the remaining balance due on the U.S. Term Loan B
maturity date of September 30, 2019. We have paid
$75.0 million in principal under U.S. Term Loan B, resulting in
$675.0 million outstanding on the U.S. Term Loan B as of
December 31, 2017. The interest rate at December 31, 2017
was 2.6 percent on U.S. Term Loan B.

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, we may redeem,
at our option, the 2.700% Senior Notes due 2020, the 3.375%
Senior Notes due 2021, 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 without any make-
whole premium at specified dates ranging from one month to
six months in advance of the scheduled maturity date.
The estimated fair value of our senior notes as of
December 31, 2017, based on quoted prices for the specific
securities from transactions in over-the-counter markets
(Level 2), was $8,489.8 million. The estimated fair value of

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Japan Term Loan A and Japan Term Loan B, in the aggregate,
as of December 31, 2017, based upon publicly available market
yield curves and the terms of the debt (Level 2), was
$290.0 million. The carrying values 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 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. These fair
value hedges were settled in 2016. In 2016, we entered into
various variable-to-fixed interest rate swap agreements that
were accounted for as cash flow hedges of U.S. Term Loan B.
See Note 13 for additional information regarding the interest
rate swap agreements.

We also have available uncommitted credit facilities

totaling $58.4 million.

At December 31, 2017 and 2016, the weighted average

interest rate for our borrowings was 2.9 percent and
2.8 percent, respectively. We paid $317.5 million,
$363.1 million, and $207.1 million in interest during 2017,
2016, and 2015, respectively.

12. 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 14 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, 2016
OCI before reclassifications
Reclassifications

Balance December 31, 2017

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

Foreign
Currency
Translation

Cash
Flow
Hedges

Defined
Benefit
Plan
Items

$(323.5) $ 32.3
(95.0)
(3.8)

445.0
–

$(142.8)
(2.7)
7.3

$ 121.5

$(66.5) $(138.2)

Component of OCI

Cash flow hedges

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

Defined benefit plans
Prior service cost
Unrecognized actuarial (loss)

Total reclassifications

Amount of Gain / (Loss)
Reclassified from OCI

For the Years Ended December 31,

2017

2016

2015

Location on Statement of Earnings

$ 5.1
–
(0.5)

$ 87.7
(66.4)
(1.7)

$122.3
–
(1.3)

4.6
0.8

19.6
(6.2)

121.0
28.0

$ 3.8

$ 25.8

$ 93.0

$ 10.3
(22.1)

$ 7.8
(22.9)

$ 5.6
(20.1)

(11.8)
(4.5)

(15.1)
(5.2)

(14.5)
(5.3)

$ (7.3)

$ (9.9)

$ (9.2)

$ (3.5)

$ 15.9

$ 83.8

Cost of products sold
Other expense
Interest expense

Total before tax
Provision (benefit) for income taxes

Net of tax

*
*

Total before tax
Benefit for income taxes

Net of tax

* These OCI components are included in the computation of net periodic pension expense (see Note 14).

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2017

2016

2015

2017

Tax

2016

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

$ 396.8
(116.0)
(4.6)
–

$(128.2) $(305.2) $(48.2) $ 1.8
1.4
6.2
–

59.1
(121.0)
(0.2)

(21.0)
(0.8)
–

29.7
(19.6)
0.5

Net of Tax

2015

2017

2016

2015

–
6.4
(28.0)
–

$445.0
(95.0)
(3.8)
–

$(130.0) $(305.2)
52.7
(93.0)
(0.2)

28.3
(25.8)
0.5

actuarial assumptions

6.6

27.3

(25.0)

2.0

5.3

(3.6)

4.6

22.0

(21.4)

Total Other Comprehensive Income (Loss)

$ 282.8

$ (90.3) $(392.3) $(68.0) $14.7

$(25.2) $350.8

$(105.0) $(367.1)

13. Derivative Instruments and Hedging Activities

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.

Interest 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 remaining unamortized
balance as of December 31, 2017 was $23.1 million, which will be
recognized using the effective interest rate method over the
remaining maturity period of the hedged notes.

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 notes offering. The
interest rate swaps were settled at a loss of $97.6 million in
2015. This loss will be recognized using the effective interest
rate method over the remaining maturity period of the hedged
notes. With the issuance of the Euro notes in December 2016,
we extinguished a portion of the 4.450% Senior Notes due
2045 and recognized $66.4 million of the previously settled
loss as part of our debt extinguishment cost. The remaining
loss to be recognized at December 31, 2017 was $27.7 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 11, 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.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 years ended December 31, 2017 and 2016, we
recognized a foreign exchange loss of $146.0 million and a
foreign exchange gain of $18.8 million, respectively, in OCI on
our net investment hedges. We recognized no ineffectiveness
from our net investment hedges for the years ended
December 31, 2017 and 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. 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

Income Statement Presentation

Derivatives Designated as Fair Value Hedges

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
outstanding at December 31, 2017, 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 2018
through June 2020. As of December 31, 2017, the notional
amounts of outstanding forward contracts entered into with
third parties to purchase U.S. Dollars were $1,735.9 million. As
of December 31, 2017, the notional amounts of outstanding
forward contracts entered into with third parties to purchase
Swiss Francs were $291.3 million.

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
$1.5 billion to $2.0 billion per quarter.

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

Years Ended December 31,

Location on Statement of Earnings

2017

Interest expense

$–

2016

$7.5

2015

$2.8

2017

2016

2015

$–

$(7.5)

$(2.8)

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

during the years ended December 31, 2017, 2016 and 2015.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 (loss) and consolidated balance sheets (in
millions):

Amount of Gain / (Loss)
Recognized in OCI

Years Ended December 31,

Amount of Gain / (Loss)
Reclassified from OCI

Years Ended December 31,

Derivative Instrument

2017

2016

2015

Location on Statement of Earnings

2017

2016

2015

Foreign exchange forward contracts

$(116.5) $25.7

$ 97.4

Cost of products sold

$ 5.1

$ 87.7

$122.3

Interest rate swaps

Forward starting interest rate swaps

0.5

4.0

–

(38.3)

–

Interest expense

–

Interest expense

(0.5)

(1.7)

(1.3)

Other expense, net

–

(66.4)

–

$(116.0) $29.7

$ 59.1

$ 4.6

$ 19.6

$121.0

The net amount recognized in earnings during the years ended December 31, 2017, 2016 and 2015 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, 2017, together with settled derivatives where the hedged item has not yet affected earnings, was a net unrealized loss
of $84.4 million, or $66.5 million after taxes, which is deferred in accumulated other comprehensive income. Of the net unrealized
loss, $37.2 million, or $31.5 million after taxes, is expected to be reclassified to earnings in cost of products sold and a loss of
$0.6 million, or $0.4 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/(losses) from these derivative instruments were recognized on our consolidated statements of earnings (in

millions):

Derivative Instrument

Foreign exchange forward contracts

Location on

Years Ended December 31,

Statement of Earnings

2017

2016

2015

Other expense, net

$(62.3)

$2.5

$28.8

These gains/(losses) do not reflect offsetting gains of $45.5 million in 2017 and offsetting losses of $15.5 million and

$42.2 million in 2016 and 2015, respectively, recognized in Other expense, net as a result of foreign currency re-measurement of
monetary assets and liabilities denominated in a currency other than an entity’s functional currency.

Balance Sheet Presentation

As of December 31, 2017 and December 31, 2016, 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 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.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31, 2017

As of December 31, 2016

Balance Sheet Location

Fair
Value

Balance Sheet Location

Fair
Value

Other current assets

$14.5

Other current assets

$57.9

Other assets

4.8

4.5

$23.8

Other assets

34.9

4.0

$96.8

Foreign exchange forward contracts

Forward starting interest rate swaps

Other current liabilities

$45.8

Other current liabilities

–

Foreign exchange forward contracts

Other long-term liabilities

22.8

Total liability derivatives

$68.6

Other current liabilities

$20.9

Other current liabilities

Other long-term liabilities

–

6.9

$27.8

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, 2017

As of December 31, 2016

Location

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Other current assets

$14.5

$13.4

$ 1.1

$57.9

$20.6

Other assets

4.8

4.3

0.5

34.9

6.8

$37.3

28.1

Other current liabilities

Other long-term liabilities

45.8

22.8

13.4

4.3

32.4

18.5

20.9

6.9

20.6

6.8

0.3

0.1

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

millions):

Derivative Instrument

Euro Notes

Foreign exchange forward contracts

14. Retirement Benefit Plans

Amount of Gain / (Loss)
Recognized in OCI

Years Ended December 31,

2017

2016

2015

$(146.0) $ 9.4

–

9.4

$(146.0) $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 B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N 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

2017

2016

2015

2017

2016

2015

$ 8.7

$ 9.6

$ 11.8

$ 17.7

$ 19.0

$ 18.9

14.0

13.8

15.8

8.4

10.0

8.8

(32.4)

(32.2)

(31.8)

(12.2)

(13.7)

(13.9)

–

0.4

–

2.6

–

1.1

(0.5)

–

(5.9)

(3.7)

(4.4)

(1.9)

17.9

16.5

17.4

4.2

6.4

2.7

$ 2.7

$ 4.4

$ 9.5

$ 14.8

$ 19.3

$ 14.6

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

2017

2016

2015

2017

2016

2015

4.33% 4.32% 4.56% 1.38% 1.41% 1.94%

3.29% 3.29% 3.29% 2.20% 2.08% 2.00%

7.75% 7.75% 7.75% 2.30% 2.40% 3.05%

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 B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N 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):

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2017

2016

2017

2016

$376.9

$375.1

$568.6

8.7

14.0

–

9.6

13.8

–

17.7

8.4

0.6

19.0

10.0

(23.4)

17.0

23.6

(14.9)

(14.3)

(34.5)

(31.6)

36.9

(1.6)

15.6

–

(0.9)

(5.7)

(0.2)

(0.8)

46.7

(0.2)

–

31.2

(44.1)

$420.7

$376.9

$623.6

$568.6

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2017

2016

2017

2016

$389.4

$374.1

$507.0

$505.6

58.2

29.5

1.8

–

5.8

–

(0.9)

(5.7)

–

42.7

16.5

17.0

–

34.1

15.9

23.6

–

(14.9)

(14.3)

(34.5)

(31.6)

–

(0.2)

26.4

(40.4)

$433.6

$389.4

$574.9

$507.0

$ 12.9

$ 12.5

$(48.7) $(61.6)

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2017

2016

2017

2016

$22.8

$ 24.0

$ 14.9

$ 10.2

(5.6)

(0.4)

(0.8)

(0.7)

(4.3)

(11.1)

(62.8)

(71.1)

$12.9

$ 12.5

$(48.7) $(61.6)

Projected benefit obligation – beginning of year

Service cost

Interest cost

Plan amendments

Employee contributions

Benefits paid

Actuarial loss (gain)

Expenses paid

Settlement

Translation gain (loss)

Projected benefit obligation – end of year

Plan assets at fair market value – beginning of year

Actual return on plan assets

Employer contributions

Employee contributions

Settlements

Plan amendments

Benefits paid

Expenses paid

Translation gain (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

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N 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 2018 (in millions):

Unrecognized prior service cost

Unrecognized actuarial loss

U.S. and
Puerto Rico

Foreign

$ (5.7)

$ (4.2)

22.1

2.6

$16.4

$(1.6)

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

2017

2016

2015

2017

2016

2015

3.78% 4.32% 4.36% 1.27% 1.41% 1.86%

3.29% 3.29% 3.29% 2.19% 2.08% 2.02%

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

2017

2016

2017

2016

$55.1

$51.3

$598.8

$545.7

45.2

39.8

544.2

480.2

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,

2018

2019

2020

2021

2022

2023-2027

U.S. and
Puerto Rico

Foreign

$ 22.5

$ 23.4

18.0

19.2

20.2

21.7

25.2

24.6

25.0

27.0

119.6

133.7

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

As of December 31,

U.S. and Puerto Rico

Foreign

2017

2016

2017

2016

$412.1

$364.8

$609.1

$556.4

54.7

45.2

32.0

21.8

417.4

375.5

530.1

475.3

risk. We have established target ranges of assets held by the
plans of 30 to 65 percent for equity securities, 30 to 50 percent
for debt securities and 5 to 15 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

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

investment strategy and objectives of the plans. Our benefits
committee generally meets quarterly to review performance.

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, 2017

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

Intermediate fixed

$ 1.3

287.1

income securities

145.2

$1.3

–

287.1

145.2

As of December 31, 2017

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

$ 31.8

Equity securities

161.6

157.6

–

4.0

Fixed income
securities

Other types of
investments

Real estate

219.5

60.4

101.6

–

219.5

60.4

10.6

91.0

Total

$574.9

$189.4

$294.5

$91.0

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

$ 37.8

Equity securities

144.7

141.3

–

3.4

Total

$433.6

$1.3

$432.3

As of December 31, 2016

Fixed income
securities

Other types of
investments

203.1

33.5

87.9

–

203.1

33.5

9.2

Fair Value Measurements at Reporting Date Using:

Real estate

78.7

–

Asset Category

Total

Cash and cash
equivalents

Equity securities

Intermediate fixed

$ 2.7

247.3

income securities

139.4

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$2.7

–

247.3

139.4

Total

$389.4

$2.7

$386.7

Total

$507.0

$179.1

$249.2

$78.7

As of December 31, 2017 and 2016, 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.

–

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 gain

Ending Balance

December 31, 2017

$78.7
0.3
3.8
5.2
3.0

$91.0

We expect that we will have no legally required minimum
funding requirements in 2018 for the qualified U.S. and Puerto
Rico defined benefit retirement plans, nor do we expect to
voluntarily contribute to these plans during 2018.
Contributions to foreign defined benefit plans are estimated to
be $17.0 million in 2018 . 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 $47.9 million,
$42.5 million and $40.2 million related to these plans for the
years ended December 31, 2017, 2016 and 2015, respectively.

15.

Income Taxes

2017 Tax Act: The President signed U.S. tax reform
legislation (“2017 Tax Act”) on December 22, 2017, which is
considered the enactment date. The 2017 Tax Act includes a
broad range of provisions, many of which significantly differ
from those contained in previous U.S. tax law. Changes in tax
law are accounted for in the period of enactment. As such, our
2017 consolidated financial statements reflect the immediate
tax effect of the 2017 Tax Act.

The 2017 Tax Act contains several key provisions

including, among other things:
• a one-time tax on the mandatory deemed repatriation of
post-1986 untaxed foreign earnings and profits (E&P),
referred to as the toll charge;

• a reduction in the corporate income tax rate from 35 percent
to 21 percent for tax years beginning after December 31,
2017;

• the introduction of a new U.S. tax on certain off-shore

earnings referred to as global intangible low-taxed income
(GILTI) at an effective tax rate of 10.5 percent for tax years
beginning after December 31, 2017 (increasing to
13.125 percent for tax years beginning after December 31,
2025), with a partial offset by foreign tax credits; and

• the introduction of a territorial tax system beginning in 2018
by providing a 100 percent dividend received deduction on
certain qualified dividends from foreign subsidiaries.

During the fourth quarter of 2017, we recorded an income

tax benefit of $1,272.4 million, which was comprised of the
following:
• income tax benefit of $715.0 million for the one-time

deemed repatriation of foreign earnings. This is composed of
a $1,181.0 million benefit from the removal of a deferred tax
liability we had recorded for the repatriation of foreign
earnings prior to the 2017 Tax Act offset by $466.0 million
for the toll charge recognized under the 2017 Tax Act. In
accordance with the 2017 Tax Act, we expect to elect to pay
the toll charge in installments over eight years. As of
December 31, 2017, we have recorded current and
non-current income tax liabilities related to the toll charge
of $82.0 million and $384.0 million, respectively.

• an income tax benefit of $557.4 million, primarily related to
the remeasurement of our deferred tax assets and liabilities
at the enacted corporate income tax rate of 21 percent.

The net benefit recorded was based on currently available

information and interpretations made in applying the
provisions of the 2017 Tax Act as of the time of filing this
Annual Report on Form 10-K. We further refined our estimates
related to the impact of the 2017 Tax Act subsequent to the
issuance of our earnings release for the fourth quarter of 2017.
In accordance with authoritative guidance issued by the SEC,
the income tax effect for certain aspects of the 2017 Tax Act
represent provisional amounts for which our accounting is
incomplete, but with respect to which a reasonable estimate
could be determined and recorded during the fourth quarter of
2017. The actual effects of the 2017 Tax Act and final amounts
recorded may differ materially from our current estimate of
provisional amounts due to, among other things, further
interpretive guidance that may be issued by U.S. tax
authorities or regulatory bodies, including the SEC and the
FASB. We will continue to analyze the 2017 Tax Act and any
additional guidance that may be issued so we can finalize the
full effects of applying the new legislation on our financial
statements in the measurement period, which ends in the
fourth quarter of 2018.

We continue to evaluate the impacts of the 2017 Tax Act

and consider the amounts recorded to be provisional. In
addition, we are still evaluating the GILTI provisions of the
2017 Tax Act and their impact, if any, on our consolidated
financial statements as of December 31, 2017. The FASB
allows companies to adopt an accounting policy to either
recognize deferred taxes for GILTI or treat such as a tax cost
in the year incurred. We have not yet determined which
accounting policy to adopt because determining the impact of
the GILTI provisions requires analysis of our existing legal
entity structure, the reversal of our U.S. GAAP and U.S. tax
basis differences in the assets and liabilities of our foreign
subsidiaries, and our ability to offset any tax with foreign tax
credits. As such, we did not record a deferred income tax

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

expense or benefit related to the GILTI provisions in our
consolidated statement of earnings for the year ended
December 31, 2017, and we plan to finalize this during the
measurement period.

We recorded a provisional amount for the toll charge,
which represents our reasonable estimate of the liability due
for the one-time mandatory deemed repatriation of our post-
1986 untaxed foreign E&P. Determining the provisional toll
charge liability required a significant effort based on a number
of factors including:
• analyzing our accumulated untaxed foreign E&P since 1986,

including historical practices and assertions made in
determining such E&P;

The components of earnings before income taxes

consisted of the following (in millions):

For the Years Ended December 31,

2017

2016

2015

United States operations

$(114.0) $(251.8) $(246.2)

Foreign operations

578.6

651.4

399.4

Total

$ 464.6

$ 399.6

$ 153.2

The provision/(benefit) for income taxes and the income

taxes paid consisted of the following (in millions):

• determining the composition, including intercompany

Current:

receivables and payables of specified foreign corporations, of
our post-1986 untaxed foreign E&P that is held in cash or
liquid assets and other assets at several measurement dates,
as a different tax rate is applied to each when determining
the toll charge liability;

• assessing the potential impact of existing uncertain tax
positions in determining our accumulated undistributed
E&P; and

• assessing the impact of November 30 tax year end entities

which have measurement dates into 2018.

For the aforementioned factors, as well as the proximity of

the enactment of the 2017 Tax Act to our year-end, we had
limited time to understand the 2017 Tax Act and its various
interpretations (including any additional guidance issued
through the time of filing this Annual Report on Form 10-K), to
assess how to apply the new law to our specific facts and
circumstances and determine the toll charge. These factors
also contributed to the tax effects recorded being provisional
amounts. In addition, we made certain assumptions in
determining the provisional toll charge that may result in
adjustments when we finalize our analysis and accounting for
the 2017 Tax Act, which will include, but will not be limited to,
the following:
• finalizing our analysis of our post-1986 untaxed foreign E&P;
• finalizing the impact of November 30 tax year ends of certain

entities, including 2018 results;

• finalizing our analysis as to the amounts and nature of,
among other items, our intercompany transactions and
balances as of various dates to determine the appropriate
composition of our post-1986 untaxed E&P as either cash /
liquid assets or other assets; and

• finalizing our analysis of the impacts on our accounting of

the GILTI provisions of the 2017 Tax Act.

Federal

State

Foreign

Deferred:

Federal

State

Foreign

438.5

$ 134.2

$ 55.8

2.4

12.4

(13.7)

101.6

18.9

96.3

427.2

248.2

171.0

(1,728.5)

(108.5)

(120.6)

(95.5)

2.3

48.0

(47.0)

(20.0)

(23.4)

(1,776.0)

(153.2)

(164.0)

(Benefit) provision for income taxes

$(1,348.8) $ 95.0

7.0

Income taxes paid

266.9

$ 269.6

$ 193.6

A reconciliation of the U.S. statutory income tax rate to

our effective tax rate is as follows:

For the Years Ended December 31,

2017

2016

2015

U.S. statutory income tax rate

35.0% 35.0% 35.0%

State taxes, net of federal deduction

1.8

2.0

(1.7)

Tax impact of foreign operations, including
U.S. taxes on international income and
foreign tax credits

Change in valuation allowance

Non-deductible expenses

Goodwill impairment

Tax rate change

Tax impact of certain significant

transactions

Tax benefit relating to U.S. manufacturer’s

deduction

R&D tax credit

Share-based compensation

Net uncertain tax positions, including

interest and penalties

U.S. tax reform

Other

(32.0)

(11.0)

(62.3)

0.8

2.7

22.5

(24.0)

–

0.9

–

(3.7)

2.4

–

1.6

21.6

(1.7)

(1.2)

(2.6)

(4.7)

(1.9)

(2.9)

(17.0)

(273.8)

(0.8)

4.2

–

0.6

(6.2)

(4.2)

1.1

22.9

–

(0.3)

Effective income tax rate

(290.3)% 23.8%

4.6%

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.
As a result of the 2017 Tax Act, we recorded a provisional
income tax benefit of $1,738.4 million, primarily related to the
remeasurement of our deferred tax assets and liabilities at the
enacted corporate income tax rate of 21 percent and the
removal of the deferred tax liability for repatriation of foreign
earnings due to the toll charge provisions.

The components of deferred taxes consisted of the

following (in millions):

Deferred tax assets:

Inventory

Net operating loss carryover

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

As of December 31,

2017

2016

$ 246.8

260.3

165.1

163.8

6.9

102.5

26.8

17.3

84.9

181.3

110.4

2.3

182.2

60.3

22.3

101.9

814.1

(140.6)

921.0

(88.3)

673.5

832.7

85.6

138.7

1,423.0

–

18.2

2,343.7

1,159.4

–

Total deferred tax liabilities

1,526.8

3,641.8

Total net deferred income taxes

$ (853.3) $(2,809.1)

Net operating loss carryovers are available to reduce

future federal, state and foreign taxable earnings. At
December 31, 2017, $107.4 million of these net operating loss
carryovers generally expire within a period of 1 to 20 years and
$57.7 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
$105.0 million and $70.8 million at December 31, 2017 and
2016, respectively.

Deferred tax assets related to tax credit carryovers are

available to offset future federal, state and foreign tax

liabilities. At December 31, 2017, $163.7 million of these tax
credit carryovers generally expire within a period of 1 to 19
years and $0.1 million of these tax credit carryovers have an
indefinite life. Valuation allowances for certain tax credit
carryovers have been established in the amount of
$18.5 million and $11.9 million at December 31, 2017 and 2016,
respectively.

Deferred tax assets related to capital loss carryovers are
also available to reduce future federal and foreign capital gains.
At December 31, 2017, $2.7 million of these capital loss
carryovers generally expire within a period of 1 to 4 years and
$4.2 million of these capital loss carryovers have an indefinite
life. Valuation allowances for certain capital loss carryovers
have been established in the amount of $5.5 million and
$0.2 million at December 31, 2017 and 2016, respectively. The
remaining valuation allowances booked against deferred tax
assets of $11.6 million and $5.4 million at December 31, 2017
and 2016, respectively, relate primarily to accrued liabilities
and intangible assets that management believes, more likely
than not, will not be realized.

Many of our operations are conducted outside the United

States. Under the 2017 Tax Act, a company’s post-1986
previously untaxed foreign E&P are mandatorily deemed to be
repatriated and taxed, which is also referred to as the toll
charge. The toll charge is assessed regardless of whether or
not a company has cash in its foreign subsidiaries. In prior
years, we recorded U.S. deferred tax liabilities of
$1,159.4 million for certain offshore earnings that were
expected to be remitted to our domestic operations. These
deferred tax liabilities reduced the income tax expense
recorded in the fourth quarter of 2017 for the toll charge. We
intend to repatriate at least $3.6 billion of unremitted earnings,
in line with our prior year assertion. The remaining amounts
earned overseas were expected to be permanently reinvested
outside of the United States, and therefore, no accrual for U.S.
taxes was recorded. We continue to evaluate our assertions on
any remaining outside basis differences in our foreign
subsidiaries as of December 31, 2017 and have not completed
our analysis. In accordance with authoritative guidance issued
by the SEC, we expect to finalize our accounting related to the
toll charge and any remaining outside basis differences in our
foreign subsidiaries during later periods as we complete our
analysis, computations and assertions.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following is a tabular reconciliation of the total

amounts of unrecognized tax benefits (in millions):

For the Years Ended December 31,

2017

2016

2015

Balance at January 1

$ 649.3

$591.9

$321.7

Increases related to business

combinations

Increases related to prior periods

70.2

172.8

70.2

36.7

Decreases related to prior periods

(262.2)

(94.7)

247.6

1.3

–

Increases related to current period

24.8

53.0

25.7

Decreases related to settlements with

taxing authorities

(21.7)

(3.2)

(1.4)

Decreases related to lapse of statute of

limitations

(6.4)

(4.6)

(3.0)

2015. The IRS has proposed adjustments for years 2005-2012,
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.

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

Balance at December 31

$ 626.8

$649.3

$591.9

or later.

Amounts impacting effective tax rate, if
recognized balance at December 31

$ 499.6

$511.5

$443.7

16. Capital Stock and Earnings per Share

We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense. During 2017,
we released interest and penalties of $38.3 million, and as of
December 31, 2017, had a recognized liability for interest and
penalties of $75.7 million, which included an increase of
$3.0 million from December 31, 2016 related to business
combinations.

During 2016, we accrued interest and penalties of
$19.3 million, and as of December 31, 2016, had recognized a
liability for interest and penalties of $110.8 million, which
included an $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.

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. 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 a $115 million decrease to a $25 million increase.

Our U.S. Federal income tax returns have been audited
through 2009 and are currently under audit for years 2010-

We are authorized to issue 250.0 million shares of
preferred stock, none of which were issued or outstanding as
of December 31, 2017.

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,

2017

2016

2015

Weighted average shares outstanding for

basic net earnings per share

201.9

200.0

187.4

Effect of dilutive stock options and other

equity awards

1.8

2.4

Weighted average shares outstanding for

diluted net earnings per share

203.7

202.4

189.8

For the years ended December 31, 2017, 2016 and 2015,
an average of 1.0 million, 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.

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.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Segment Data

We design, manufacture and market orthopaedic

reconstructive products; sports medicine, biologics,
extremities and trauma products; spine, craniomaxillofacial
and thoracic products (“CMF”); office based technologies;
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, China and Australia and includes other
Asian and Pacific markets. The product category operating
segments are 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 Spine product category operating segment
includes all spine product results excluding those from Asia
Pacific.

As it relates to the geographic operating segments, we
evaluate 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 among the geographic operating segments
and product category operating segments are not
comparable. Intercompany transactions have been eliminated
from segment operating profit.

We do not review asset information by operating segment.

Instead, we review 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. In 2017, due to a
change in management responsibilities, the sales and
operating profit results of our spine business in EMEA were
combined with the previous Americas Spine operating
segment to form the product category operating segment,
Spine. Prior period reportable segment financial information
has been restated to conform to the current presentation.

Z I M M E R B I O M E T H O L D I N G S , I N C . A N D S U B S I D I A R I E S

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net sales and other information by segment is as follows (in millions):

For the Year Ended December 31, 2017

Net sales

Depreciation and amortization

Segment operating profit

Inventory step-up and certain other inventory and manufacturing related

charges

Intangible asset amortization

Goodwill impairment

Special items

Biomet merger related
Other special items

Operating profit

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

Special items

Biomet merger related
Other special items

Operating profit

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

charges

Intangible asset amortization

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

$3,951.1

$1,522.1

$1,158.3

$1,192.6

–

$7,824.1

127.5

2,126.8

68.5

481.7

58.2

420.8

45.6

762.9

1,062.7

272.9

(867.7)

2,434.5

(84.6)

(603.9)

(304.7)

(248.0)
(385.1)

808.2

$3,947.1

$1,508.9

$1,095.6

$1,132.3

–

$7,683.9

135.4

2,132.7

68.8

482.4

51.7

432.1

37.8

745.6

1,039.3

264.5

(839.0)

2,472.7

(469.1)

(565.9)

(487.3)
(124.5)

825.9

$3,107.8
109.9

$1,250.7
41.1

$ 881.6
37.9

$ 757.7
24.6

–
498.9

$5,997.8
712.4

1,633.6

423.6

422.2

179.2

(665.6)

1,993.0

(348.8)

(337.4)

(619.1)
(220.4)

467.3

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We conduct business in the following countries that hold

10 percent or more of our total consolidated Property, plant
and equipment, net (in millions):

reasonably estimated. For matters where a loss is believed to
be reasonably possible, but not probable, no accrual has been
made.

United States

Other countries

As of December 31,

2017

2016

$1,151.6

$1,181.3

887.0

856.6

Property, plant and equipment, net

$2,038.6

$2,037.9

U.S. sales were $4,603.1 million, $4,541.3 million, and
$3,447.2 million for the years ended December 31, 2017, 2016
and 2015, 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,

2017

2016

2015

$2,737.1

$2,752.6

$2,276.8

1,879.1

1,867.9

1,533.0

1,709.1

1,644.4

1,214.6

418.6

759.5

320.7

427.9

662.0

329.1

335.7

404.4

233.3

$7,824.1

$7,683.9

$5,997.8

Knees

Hips

S.E.T

Dental

Spine & CMF

Other

Total

18. Leases

Total rent expense for the years ended December 31,

2017, 2016 and 2015 aggregated $87.2 million, $74.0 million,
and $60.1 million, respectively.

Future minimum rental commitments under

non-cancelable operating leases in effect as of December 31,
2017 were (in millions):

For the Years Ending December 31,

2018

2019

2020

2021

2022

Thereafter

$66.7

54.2

45.8

35.8

26.9

81.9

19. 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
has been incurred and the amount of the loss can be

Litigation

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 an 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,
2017, litigation activity in the MDL, Santas and McAllister is
stayed 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, Netherlands, Italy and the UK. A Canadian
class settlement was approved in late 2016. Trials have
commenced in Germany, and the majority of claims in the UK
are consolidated in a Group Litigation Order.

Since 2008, we have recognized expense of $489.7 million

for Durom Cup-related claims. Our estimate of our total
liability for these claims as of December 31, 2017 remains
generally consistent with our estimate as of December 31,
2016. We recognized $10.3 million and $7.7 million in expense
for Durom Cup-related claims in 2017 and 2015, respectively,
with no expense recorded in 2016.

We maintain insurance for product liability claims, subject

to self-insurance retention requirements. We have recovered
insurance proceeds from certain of our insurance carriers for
Durom Cup-related claims. While we may recover additional
insurance proceeds in the future for Durom Cup-related
claims, we do not have a receivable recorded on our
consolidated balance sheet as of December 31, 2017 for any
possible future insurance recoveries for these claims.

Our estimate as of December 31, 2017 of the remaining
liability for all Durom Cup-related claims is $199.4 million, of
which $78.0 million is classified as short-term in “Other current
liabilities” and $121.4 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.
Although we are vigorously defending these lawsuits, their
ultimate resolution is uncertain.

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, which, after being molded to reduce
for plaintiffs’ comparative negligence, totals approximately
$15.8 million. On December 5, 2016, we filed a notice of appeal
to the Superior Court of Pennsylvania. Oral argument before
the Superior Court of Pennsylvania took place on
September 20, 2017, and on December 15, 2017, the Superior
Court of Pennsylvania issued its decision affirming the
$21.5 million remitted award. We subsequently filed a motion
for re-argument en banc on December 29, 2017, which motion
was denied without opinion on February 12, 2018. While we
are considering further appellate options, including appeal to
the Pennsylvania Supreme Court, we have recorded a charge
for the approximately $15.8 million remitted and molded
verdict, plus post-judgment interest from the date of verdict in
2010.

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, specifically the NexGen Flex Femoral
Components and MIS Stemmed Tibial Component, 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 various state courts, and additional lawsuits may be
filed. Thus far, all cases decided by the MDL court or a jury on
the merits have involved NexGen Flex Femoral Components,
which represent the majority of cases in the MDL. 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. The parties
attended a court-ordered mediation in January 2018. 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-MagnumTM 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.

On February 3, 2014, Biomet announced the settlement of

the MDL. Lawsuits filed in the MDL by April 15, 2014 were

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eligible to participate in the settlement. Those claims that did
not settle via the MDL settlement program have
re-commenced litigation in the MDL under a new case
management plan. 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, 2017 of the remaining liability for all Biomet
metal-on-metal hip implant claims is $36.0 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 is responsible for any amounts by
which the ultimate losses exceed the amount of Biomet’s third-
party insurance coverage. As of December 31, 2017, 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.

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. In September 2017,
Heraeus filed an enforcement action in the Frankfurt court
against Biomet Europe, requesting that a fine be imposed
against Biomet Europe for failure to prevent Biomet
Orthopaedics Switzerland from having bone cements for the
Chinese market manufactured in Germany. Also in September
2017, Heraeus filed suit against Zimmer Biomet Deutschland in
the court of first instance in Freiberg concerning the sale of
the European Cements with certain changed raw materials.

Heraeus seeks an injunction on the basis that the continued
use of the product names for the European Cements is
misleading for customers and thus an act of unfair competition.
As of December 31, 2017, these claims were still pending.

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 contained allegations that focused 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 alleged that
Biomet helped Esschem to develop these copolymers, using
Heraeus trade secrets that Biomet allegedly misappropriated.
The complaint asserted 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 sought to enjoin Esschem from supplying the
copolymers to any third party and actual damages. The complaint
also sought punitive damages, costs and attorneys’ fees. Although
Biomet was not a party to this lawsuit, Biomet 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. On June 6, 2017, the court entered an
order denying Heraeus’ motion to add Biomet as a party to the
lawsuit. On January 26, 2018, the court entered an order granting
Esschem’s motion for summary judgment and dismissed all of
Heraeus’ claims with prejudice.

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

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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
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 trial court’s award of treble damages, its finding
that this was an exceptional case and its award of attorneys’
fees. The case was remanded back to the trial court. Oral
argument on Stryker’s renewed consolidated motion for
enhanced damages and attorneys’ fees took place on June 28,
2017. On July 12, 2017, the trial court issued an order
reaffirming its award of treble damages, its finding that this
was an exceptional case and its award of attorney’s fees. On
July 24, 2017, we appealed the ruling to the Federal Circuit
and obtained a supersedeas bond staying enforcement of the
judgment pending appeal. 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, two of our officers and one of our now former
officers as defendants. On June 28, 2017, the plaintiffs filed a
corrected amended complaint, naming as defendants, in
addition to those previously named, current and former
members of our Board of Directors, one additional officer, and
the underwriters in connection with secondary offerings of our
common stock by certain selling stockholders in 2016. On
October 6, 2017, the plaintiffs voluntarily dismissed the

underwriters without prejudice. On October 8, 2017, the
plaintiffs filed a second amended complaint, naming as
defendants, in addition to those current and former officers and
Board members previously named, certain former stockholders
of ours who sold shares of our common stock in secondary
public offerings in 2016. The second amended complaint relates
to a putative class action on behalf of persons who purchased
our common stock between June 7, 2016 and November 7,
2016. The second amended complaint alleges that the
defendants violated federal securities laws by making materially
false and/or misleading statements and/or omissions about our
compliance with FDA regulations and our ability to continue to
accelerate our organic revenue growth rate in the second half of
2016. The defendants filed their respective motions to dismiss
on December 20, 2017. The plaintiffs seek unspecified damages
and interest, attorneys’ fees, costs and other relief. We believe
this lawsuit is without merit, and we and the individual
defendants are defending 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 May 2016, Zimmer received a warning letter from
the FDA related to observed non-conformities with current
good manufacturing practice requirements of the FDA’s
Quality System Regulation (21 CFR Part 820) 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 and Montreal. As of
December 31, 2017, these warning letters remained pending.
Until the violations cited in the pending warning letters 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 Quality System Regulation 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, at 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 our acquisition of Biomet.

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
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

20. Quarterly Financial Information (Unaudited)

(in millions, except per share data)

addition, we will be subject to oversight by an independent
compliance monitor for at least 12 months. The monitor, who
was appointed effective as of July 2017, will focus on legacy
Biomet operations as integrated into our operations. If we
remain in compliance with the DPA 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

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.

OIG subpoena: In June 2017, we received a subpoena

from the OIG. The subpoena requests that we produce a
variety of records primarily related to our healthcare
professional consulting arrangements (including in the areas
of medical education, product development, and clinical
research) for the period spanning January 1, 2010 to the
present. The subpoena does not indicate the nature of the
OIG’s investigation beyond reference to possible false or
otherwise improper claims submitted for payment. We are in
the process of responding to the subpoena. We cannot
currently predict the outcome of this investigation.

Net sales
Gross profit
Net earnings (loss) of Zimmer Biomet

Holdings, Inc.

Earnings (loss) per common share

Basic
Diluted

2017 Quarter Ended

2016 Quarter Ended

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

$1,977.3
1,312.4

$1,954.4
1,279.0

$1,818.1
1,164.5

$2,074.3
1,331.4

$1,904.0
1,136.8

$1,934.0
1,160.1

$1,832.8
1,189.2

$2,013.1
1,250.1

299.4

184.2

98.8

1,231.4

108.8

(31.3)

158.8

1.49
1.47

0.91
0.90

0.49
0.48

6.08
6.03

0.54
0.54

(0.16)
(0.16)

0.79
0.78

69.6

0.35
0.34

In the three month period ended December 31, 2017, we
recognized a $1,272.4 million income tax benefit related to the
2017 Tax Act. The benefit was partially offset by a $272.0 million
goodwill impairment charge related to our Spine reporting unit.
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.

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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 15d-15(e) 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 our disclosure controls and procedures as of
the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of December 31, 2017, the end of the
period covered by this report, our disclosure controls and
procedures were effective at a reasonable assurance level.

Management’s Annual 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
generally accepted accounting principles and includes those
policies and procedures that:
• Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;

• 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

• 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, 2017. 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).
Based on their assessment, management has concluded

that, as of December 31, 2017, the Company’s internal control
over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting

firm, PricewaterhouseCoopers LLP, has audited the
effectiveness of the Company’s internal control over financial
reporting as of December 31, 2017, as stated in its report
which appears in Item 8 of this Annual Report on Form 10-K.

Previously Identified Material Weakness in Internal Control Over
Financial Reporting

We previously identified and disclosed in our Form 10-K

for the year ended December 31, 2016, a material weakness in
our internal control over financial reporting related to
accounting for income taxes. A material weakness is 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. Specifically, we did not maintain the
appropriate complement of resources in our 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 our financial statements or disclosures, but
did result in out-of-period adjustments in our provision for
income taxes and deferred tax liabilities that were individually
and in aggregate immaterial. Additionally, this control
deficiency could have resulted in misstatements of income tax
related accounts and disclosures that would have resulted in a
material misstatement of the consolidated financial statements
that would not be prevented or detected.

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

Remediation of the Previously Disclosed Material Weakness

Our management, with oversight from our Audit
Committee, has implemented the following changes to our
internal control over financial reporting to remediate the
previously disclosed material weakness described above:
• enhanced and supplemented our tax function by increasing

the number of roles, hiring additional individuals, and
engaging outside service providers with an appropriate level
of knowledge and experience commensurate with the tax
accounting complexities of our organization; and

• restructured our internal reporting procedures to spread

execution over the broader resource base to enable
enhanced review processes by personnel with the
appropriate technical oversight and training.

During the quarters ended June 30 and September 30,
2017, we substantially completed the assessment of existing
controls and restructured these controls in our efforts to
remediate the previously identified material weakness. In

conjunction with our third-quarter financial close procedures,
the quarterly controls related to accounting for income taxes
were tested and evaluated for their operating effectiveness. In
the quarter ended December 31, 2017, we completed the
testing and evaluation of the operating effectiveness of all
controls related to accounting for income taxes, and based on
the results of our testing, the controls were determined to be
designed and operating effectively as of December 31, 2017.
Accordingly, we concluded that the previously reported
material weakness described above has been remediated as of
December 31, 2017.

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, 2017 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information

During the fourth quarter of 2017, the Audit Committee of our Board of Directors approved the engagement of

PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform certain non-audit services related to
certain tax matters. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act.

Because we are filing this Annual Report on Form 10-K within four business days after the triggering event, we are making the

following disclosure under this Item 9B instead of filing a Current Report on Form 8-K under Item 1.01, Entry into a Material
Definitive Agreement and Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers:

On February 27, 2018, a subsidiary of the Company entered into an aircraft time sharing agreement with Bryan C. Hanson,
President and Chief Executive Officer of the Company, with respect to Mr. Hanson’s non-business-related use of Company-provided
aircraft. The agreement was entered into in furtherance of the terms of the offer letter between the Company and Mr. Hanson,
which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 21, 2017. The aircraft time sharing
agreement requires Mr. Hanson to reimburse the Company for certain costs associated with designated use by him of Company-
provided aircraft in accordance with Federal Aviation Administration regulations. This description of the aircraft time sharing
agreement is qualified in its entirety by reference to the full text of the agreement, which is filed as Exhibit 10.40 to this report.

Z I M M E R B I O M E T H O L D I N G S , I N C .

PART III

2 0 1 7 F O R M 1 0 - K A N 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 15, 2018 (the “2018 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 2018 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 2018 Proxy Statement.

Item 13. Certain Relationships and Related Transactions and Director Independence

Information required by this item is incorporated by reference from our 2018 Proxy Statement.

Item 14. Principal Accounting Fees and Services

Information required by this item is incorporated by reference from of our 2018 Proxy Statement.

Z I M M E R B I O M E T H O L D I N G S , I N C .

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1.

Financial Statements

2 0 1 7 F O R M 1 0 - K A N 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, 2017, 2016 and 2015

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015

Notes to Consolidated Financial Statements

Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

Description

Allowance for Doubtful Accounts:

Year Ended December 31, 2015

Year Ended December 31, 2016

Year Ended December 31, 2017

Deferred Tax Asset Valuation Allowances:

Year Ended December 31, 2015

Year Ended December 31, 2016

Year Ended December 31, 2017

Balance at
Beginning
of Period

Additions
Charged
(Credited)
to Expense

Deductions
to Reserve

Effects of
Foreign
Currency

Acquired
Allowances

Balance at
End of
Period

$ 22.3

$ 13.5

$ (0.4) $(1.3)

34.1

51.6

22.3

13.6

(4.5)

(5.1)

(0.3)

0.1

–

$ 34.1

51.6

60.2

$122.8

$(53.7) $ (5.6) $(1.6)

$10.8

$ 72.7

72.7

88.3

24.8

41.3

(12.4)

(1.1)

(10.3)

2.8

4.3

18.5

88.3

140.6

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

Z I M M E R B I O M E T H O L D I N G S , I N C .

INDEX TO EXHIBITS

Exhibit No

Description†

2 0 1 7 F O R M 1 0 - K A N 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 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 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

10.1*

Z I M M E R B I O M E T H O L D I N G S , I N C .

Exhibit No

Description†

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

10.2*

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*

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)

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)

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)

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 27, 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 27, 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)

Offer Letter, dated as of December 18, 2017, by and between Zimmer Biomet Holdings, Inc. and Bryan C. Hanson
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 21, 2017)

Change in Control Severance Agreement with Bryan C. Hanson (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed December 21, 2017)

Form of Change in Control Severance Agreement with Aure Bruneau

Form of Change in Control Severance Agreement with Tony W. Collins, Daniel P. Florin, 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)

Form of Change in Control Severance Agreement with Robert D. Delp (incorporated by reference to Exhibit 10.10 to
the Registrant’s Annual Report on Form 10-K filed March 1, 2017)

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 27, 2009)

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)

Chief Executive Officer Confidentiality, Intellectual Property, Non-Competition and Non-Solicitation Agreement with
Bryan C. Hanson (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed
December 21, 2017)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Aure Bruneau

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Tony W. Collins, David A. Nolan, Jr.,
Chad F. Phipps and Daniel E. Williamson (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K filed June 26, 2015)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Robert D. Delp (incorporated by
reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed March 1, 2017)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Daniel P. Florin (incorporated by
reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed November 6, 2017)

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)

Z I M M E R B I O M E T H O L D I N G S , I N C .

Exhibit No

Description†

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

10.24*

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*

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)

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)

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)

Zimmer Biomet Holdings, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed January 19, 2018)

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 Agreement (four-year vesting) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan

Form of Performance-Based Restricted Stock Unit Award Agreement 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 Nonqualified Stock Option Award Agreement (Hanson one-time award) under the Zimmer Biomet Holdings,
Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on
Form 8-K filed December 21, 2017)

Form of Performance-Based Restricted Stock Unit Award Agreement (Hanson one-time award) under the Zimmer
Biomet Holdings, Inc. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Current
Report on Form 8-K filed December 21, 2017)

Form of Restricted Stock Unit Award Agreement (Hanson one-time award) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K
filed December 21, 2017)

Form of Restricted Stock Unit Award Agreement (Florin one-time award) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed July 11, 2017)

Form of Nonqualified Stock Option Award Agreement (two-year vesting) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan

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)

Form of Nonqualified Stock Option Award Agreement 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)

10.40*

Aircraft Time Sharing Agreement by and between Zimmer, Inc. and Bryan C. Hanson

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)

10.41

10.42

Z I M M E R B I O M E T H O L D I N G S , I N C .

Exhibit No

Description†

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

10.43

10.44

10.45

10.46

10.47

10.48

10.49

31.1

31.2

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)

Term Loan Agreement ¥21,300,000,000, dated as of September 22, 2017, between Zimmer Biomet G.K. and Sumitomo
Mitsui Banking Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed September 28, 2017)

Amended and Restated Term Loan Agreement ¥11,700,000,000, dated as of September 22, 2017, between Zimmer
Biomet G.K. and Sumitomo Mitsui Banking Corporation (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed September 28, 2017)

Amended and Restated Letter of Guarantee, dated as of September 22, 2017, made by Zimmer Biomet Holdings, Inc.
in favor of Sumitomo Mitsui Banking Corporation (incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K filed September 28, 2017)

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

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

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.

Item 16. 10-K Summary

None

Z I M M E R B I O M E T H O L D I N G S , I N C .

SIGNATURES

2 0 1 7 F O R M 1 0 - K A N 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/ Bryan C. Hanson
Bryan C. Hanson
President and Chief Executive Officer

Dated: February 27, 2018

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

DATE

/s/ Bryan C. Hanson

Bryan C. Hanson

/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/ Gail K. Boudreaux

Gail K. Boudreaux

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

President, Chief Executive Officer and Director (Principal
Executive Officer)

February 27, 2018

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

February 27, 2018

Vice President, Corporate Controller and Chief Accounting
Officer (Principal Accounting Officer)

February 27, 2018

Director

February 27, 2018

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, 2015, 2014 and 2013
(in millions, unaudited)

For the Years Ended December 31,

2017

2016

2015

2014

2013

Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 808.2

$ 825.9

$ 467.3

$1,037.3

$1,068.6

Inventory step-up and other inventory and manufacturing related charges . . . . . . . . . . .

Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certain claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Special items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84.6

603.9

10.3

304.7

622.8

469.1

565.9

–

348.8

337.4

7.7

–

36.3

92.5

21.5

–

88.7

78.5

47.0

–

611.8

831.8

341.1

210.3

Adjusted Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,434.5

$2,472.7

$1,993.0

$1,528.7

$1,493.1

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT MARGIN TO ADJUSTED OPERATING PROFIT MARGIN
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, 2015, 2014 and 2013
(in millions, unaudited)

Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.3% 10.7%

7.8% 22.2% 23.1%

Inventory step-up and other inventory and manufacturing related charges . . . . . . . . . . . . . . . . . . . . .

Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certain claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Special items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1

7.7

0.1

3.9

8.0

6.1

7.4

–

5.8

5.6

0.1

–

8.0

13.9

0.8

2.0

0.5

–

7.2

1.9

1.7

1.0

–

4.6

Adjusted Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31.1% 32.2% 33.2% 32.7% 32.3%

For the Years Ended December 31,

2017

2016

2015

2014

2013

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, 2015, 2014 and 2013
(unaudited)

For the Years Ended December 31,

2017

2016

2015

2014

2013

Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8.90

$ 1.51

$ 0.77

$ 4.20

$ 4.54

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.42

2.96

0.05

1.49

3.06

0.01

–

2.32

2.80

–

3.02

0.02

0.26

–

1.84

1.78

0.04

–

4.38

–

0.12

0.37

0.21

0.54

0.13

–

1.99

0.23

–

0.52

0.46

0.27

–

1.22

–

Taxes on above items(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2.06)

(2.22)

(2.57)

(0.90)

(0.79)

Biomet merger-related measurement period tax adjustments(2) . . . . . . . . . . . . . . . . . . . . .

U.S. tax reform(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other certain tax adjustments(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–

(6.25)

(0.55)

0.26

–

(0.01)

0.17

–

Adjusted Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8.03

$ 7.96

$ 6.90

$ 6.40

$ 6.22

(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) The 2017 Tax Act resulted in a net favorable provisional adjustment due to the reduction of deferred tax liabilites for unremitted earnings and

(4)

revaluation of deferred tax liabilities to a 21 percent rate, which was partially offset by provisional tax charges related to the toll charge
provision of the 2017 Tax Act.
In 2017, other certain tax adjustments related to tax benefits from lower tax rates unrelated to the impact of the 2017 Tax Act, net favorable
resolutions of various tax matters and net favorable adjustments from internal restructuring transactions. The 2016 adjustment primarily related
to a favorable adjustment to certain deferred tax liabilities recognized as part of acquisition-related accounting and favorable resolution of
certain tax matters with taxing authorities offset by internal restructuring transactions that provide us access to offshore funds in a tax efficient
manner. The 2015 amount related primarily to adjustments to deferred tax liabilities recognized as part of acquisition-related accounting and
other integration related items.

Z I M M E R B I O M E T H O L D I N G S , I N C .

2 0 1 7 F O R M 1 0 - K A N N U A L R E P O R T

ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF SALES GROWTH RATE TO CONSTANT CURRENCY SALES GROWTH RATE
FOR THE YEAR ENDED DECEMBER 31, 2017
(unaudited)

For the Year Ended December 31, 2017

Reported
% Growth

Foreign
Exchange
Impact

Constant
Currency
% Growth

Geographic Segment

Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Product Category

Knees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S.E.T. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dental

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Spine & CMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

(2)

(3)

–%

(1)

–

(1)

(3)

Corporate Information (As of March 20, 2018)
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

Bryan C. Hanson
President and Chief Executive Officer

Aure Bruneau
Group President, Spine, CMF, Thoracic and
Surgery Assisting Technology

Tony W. Collins
Vice President, Corporate Controller
and Chief Accounting Officer

Derek M. Davis
Vice President, Global Integration

Robert D. Delp
President, Americas

Shareholder 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.

Gail K. Boudreaux
President and Chief Executive Officer,
Anthem, Inc.

Bryan C. Hanson
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
President and Chief Executive Officer,
Depomed, Inc.

Michael W. Michelson
Senior Advisory Partner,
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

Daniel P. Florin
Executive Vice President and Chief
Financial Officer

Adrian Furey
Senior Vice President,
Global Operations and Logistics

Monica Kendrick
Vice President,
Corporate Communications

David J. Kunz
Senior Vice President, Global Quality
and Regulatory Affairs

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@astﬁnancial.com
Website: http://www.astﬁnancial.com

Coleman N. Lannum
Senior Vice President,
Investor Relations

Angela Main
Vice President, Global Chief Ethics and
Compliance Officer and Associate General
Counsel, Asia Paciﬁc

Pedro Malha
Vice President, Dental

Katarzyna Mazur-Hofsaess, M.D., Ph.D.
President, Europe, Middle East and Africa

David A. Nolan, Jr.
Group President, Biologics, Extremities,
Sports Medicine, Surgical, Trauma,
Foot and Ankle, Office Based Technologies
and Zimmer Biomet Signature Solutions

Investor Relations
Zimmer Biomet invites shareholders,
security analysts, portfolio managers and
other interested parties to contact:

Coleman N. Lannum
Senior Vice President,
Investor Relations
+1-574-371-9480
cole.lannum@zimmerbiomet.com

Barbara Goslee
Director, Investor Relations
+1-574-371-9449
barb.goslee@zimmerbiomet.com

Chad F. Phipps
Senior Vice President,
General Counsel
and Secretary

Zeeshan Tariq
Vice President and
Chief Information Officer

Daniel E. Williamson
Group President,
Joint Reconstruction

Sang Yi
President, Asia Paciﬁc

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
obtain Zimmer Biomet’s
ﬁnancial calendar, access SEC
ﬁlings, listen to earnings calls,
or to look up Zimmer Biomet
stock quotes, please visit
http://investor.zimmerbiomet.com.

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 shareholders to
purchase additional shares of Zimmer Biomet common stock through the automatic investment of dividends. The plan also allows registered shareholders 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, 2012 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

2013

$141

$133

$128

2014

$173

$151

$161

2015

$158

$153

$171

2016

$160

$171

$182

2017

$189

$209

$238

Zimmer Biomet Holdings, Inc., 345 East Main Street, P.O. Box 708, Warsaw, IN 46580, U.S.A.