Zimmer Biomet Annual Report 2019

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FY2019 Annual Report · Zimmer Biomet

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ZIMMER BIOMET HOLDINGS, INC., 345 EAST MAIN STREET, P.O. BOX 708, WARSAW, IN 46580, U.S.A.

ANNUAL REPORT

2019

ZIMMER BIOMET HOLDINGS, INC.

Financial Highlights (Dollars in millions except per share amounts)

Sales b y Geography

17%

16%

2015(1)

2016

2017

2018

2019

22%

23%

17%
16%

22%
23%

61%

61%
61%

Americas

$3,662

$4,787

$4,845

$4,837

$4,876

EMEA

Asia Pacific

1,418

918

1,730

1,151

1,745

1,213

1,802

1,294

1,747

1,359

Consolidated

$5,998

$7,668

$7,803

$7,933

$7,982

Sales b y Product Category

2015(1)

2016

2017

2018

2019

35%

35%
35%

Knees

Hips

S.E.T.

Spine & CMF

Dental

Other

$2,277

$2,751

$2,734

$2,774

$2,810

1,533

1,215

404

336

233

1,862

1,639

661

428

327

1,872

1,701

758

419

319

1,921

1,752

764

411

311

1,935

1,796

747

414

280

Consolidated

$5,998

$7,668

$7,803

$7,933

$7,982

5% 4%
5% 4%

23%

5% 4%
5% 4%

23%
9%
9%

24%

23%
23%

24%

24%
24%

% Change 2018-2019

Constant
Reported Currency(2)

(3%)

% Change 2018-2019

Constant
Reported Currency(2)

(2%)

(10%)

(1%)

(9%)

Net Sales

Operating Profit

Operating Cash Flow

Diluted Earnings (Loss) per Share

Zimmer Biomet recorded net
sales of $7.982 billion in 2019,
reflecting 1% revenue growth
over 2018. We reported increased
constant currency sales growth in
Knees and Hips, our two largest
product categories, as well as
S.E.T. Our Dental product
category sales also improved,
while our Spine & CMF sales
declined in 2019.

We generated an attractive
operating margin in 2019, primarily
due to volume/mix sales growth
and controlled spending, as well as
gains recognized related to our
hedging program.

Our strong cash flow generation
in 2019 allowed us to pay down debt.
Looking forward to 2020, we intend
to use available cash for reinvestment
in the business, debt repayment and
long term shareholder value
creation. If the right opportunities
arise, we may also use available cash
to pursue business development
opportunities.

Diluted earnings per share increased
from the prior year. Throughout 2019,
we invested in commercial and
operational execution, including a
number of innovative development
projects across our portfolio. We believe
these new products and technologies
represent opportunities for attractive
future return on investment.

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GRAPH KEY

Reported

Adjusted(3)

(1) Effective January 1, 2018 we adopted Accounting Standards Update 2014-09—Revenue from Contracts with Customers (Topic 606) and Accounting Standards Update 2017-07—Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. We adopted these new standards using the retrospective method, which resulted in restatement of the 2017 and 2016 periods. The 2015 period
was not restated.

(2) “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 91.

(3) “Adjusted” refers to performance measures that exclude the effects of inventory step-up; certain inventory and manufacturing-related charges, including charges to discontinue certain product lines; intangible asset
amortization; goodwill and intangible asset impairment, as applicable; quality remediation expenses; restructuring and other cost reduction initiatives; acquisition, integration and related expenses; certain litigation
gains and charges; expenses to establish initial compliance with the European Union Medical Device Regulation; other charges; any related effects on our income tax provision associated with these items; the effect of
Switzerland tax reform; the effect of U.S. tax reform; other certain tax adjustments; and, with respect to earnings per share information, provide for the effect of dilutive shares assuming net earnings in periods of a
reported net loss. See the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures on pages 88-90.

To Our Shareholders,

Zimmer Biomet made steady progress during 2019 toward re-shaping the future of our
organization. Over the last year, we’ve built a solid foundation that aligns with our long history
as a trusted leader in musculoskeletal healthcare and positions us to accelerate innovation,
execute on strategy for sustained growth and deliver value to all of our stakeholders.

Key Achievements in 2019

Overall, Zimmer Biomet delivered solid performance across our entire business, with
almost every region and business delivering their best constant currency growth since
the Zimmer-Biomet merger in 2015. Our 2019 sales reflected improved growth in many
areas of our business driven by supply stabilization and new product launches, along with
ongoing strong performance in our Asia Pacific business.

2019 net sales totaled $7.982 billion, an increase of 0.6 percent over the prior year on a
reported basis, and an increase of 2.2 percent over the prior year on a constant currency
basis. Diluted earnings per share for 2019 was $5.47. Adjusted diluted earnings per share
for the full year was $7.87, an increase of 3 percent from the prior year.

Operationally, we executed on our strategic plan to reshape Zimmer Biomet into a more
proactive and results-driven organization. Highlights of our accomplishments in 2019 include:

• Operational Efficiency: With each procedure, we strive to reinforce our commitment
to upholding the highest standards of patient safety and quality in our products and
services, combined with world-class integrity and ethical business practices. In 2019,
improvements in our supply chain allowed us to consistently meet demand and deliver
exceptional customer service. Having now achieved stability in this area, we will be
focused moving forward on opportunities to increase operational efficiency and remove
unnecessary complexity from our supply chain.

•

Innovative, Enabling Technologies and Solutions: Our new product strategy is
focused on providing a complete ecosystem of patient- and customer-centric solutions
that enable and optimize outcomes with our core orthopedic implant products. Key
launches in 2019 included the ROSA® Knee System for robotically-assisted surgeries
and the Persona® Revision Knee System. The ROSA Robotics platform, which was

already approved for neurosurgical procedures, brings together Zimmer Biomet's
robotics technology with our industry-leading knee implants to help surgeons
personalize surgical procedures for their patients.

In order to further build our product ecosystem, we are investing in additional robotics
and mini-robotics technology, along with innovations that support informatics and
operating room efficiency.

• Mission and Culture: Our company’s repositioning continues to be fundamentally

driven by our global team's focus on our One Zimmer Biomet corporate mission to
alleviate pain and improve the quality of life for people around the world. Since 2018,
we have hosted Mission Ceremonies across our global locations, meeting with more
than 90 percent of our team members, to ensure everyone in the organization has a
direct personal connection to our mission and considers themselves part of ONE team.
This mission-driven approach empowers every level of the organization to collaborate
and innovate with an emphasis on the future, while working with purpose to deliver on
our commitments and make an impact each day.

The progress of our team during the year was recognized with Zimmer Biomet being
named the 2019 Medtech Company of the Year by Medical Device and Diagnostic
Industry (MD+DI), along with several other awards that highlight our company as a leader
in the industry.

The Road Ahead: Multi-Year Strategic Plan

We are entering 2020 with a global challenge posed by COVID-19, but also with increased
confidence in our team, our core business and our long-term strategic plan to drive
sustainable growth and shareholder value. More so than ever before, Zimmer Biomet is
prepared to rise to that challenge in service of patients, healthcare providers and institutions
and the communities we serve.

We have made significant progress with our turnaround plan for the company the past two
years. We have established Zimmer Biomet as a best and preferred place to work for our
team members. We are a trusted partner to key stakeholders, including our customers,
patients, regulators, team members and shareholders. And, we continue to work toward
being a top quartile performer in terms of total shareholder returns.

I am proud of the entire Zimmer Biomet organization and the unyielding commitment to our
mission that I see every day. Together, we are driven by the critical role we play in healthcare
and the opportunity to positively impact millions of patients around the world. This
transformation has been a team effort and I would like to thank our Board of Directors, our
more than 23,000 team members and, you, our shareholders, for your support as we have
executed on our plan.

We have stabilized many parts of the business, made key investments in priority areas and
delivered solid financial performance. We enter 2020 with increased confidence in our business
and remain optimistic about our future. In 2020, we will be operating from a position of
strength as we work to grow our business, improve our performance and deliver value to all of
our stakeholders. We look forward to delivering on our mission in 2020 and beyond.

Sincerely,

Bryan C. Hanson
President and CEO, Zimmer Biomet

Leadership (As of March 20, 2020)

Board of Directors

Christopher B. Begley
Retired Executive Chairman and
Chief Executive Officer,
Hospira, Inc.

Betsy J. Bernard
Retired President, AT&T Corp.

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

Michael J. Farrell
Chief Executive Officer,
ResMed Inc.

Management Team

Larry C. Glasscock
Chairman of the Board of
Zimmer Biomet Holdings, Inc.
and Retired Chairman,
President and Chief Executive
Officer, Anthem, Inc.

Robert A. Hagemann
Retired Senior Vice President
and Chief Financial Officer,
Quest Diagnostics Incorporated

Bryan C. Hanson
President and Chief Executive
Officer, Zimmer Biomet
Holdings, Inc.

Arthur J. Higgins
President and
Chief Executive Officer,
Assertio Therapeutics, Inc.

Maria Teresa Hilado
Retired Executive Vice President
and Chief Financial Officer,
Allergan plc

Syed Jafry
Senior Vice President and
President, Regions,
Thermo Fisher Scientific, Inc.

Bryan Hanson
President and Chief Executive Officer

Didier Deltort
President, Europe, Middle East and Africa

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

Rachel Ellingson
Senior Vice President, Strategy

David Kunz
Senior Vice President, Global Quality
and Regulatory Affairs

Forward-Looking Statements

Keri Mattox
Senior Vice President, Investor Relations
and Chief Communications Officer

Carrie Nichol
Vice President, Controller and Chief
Accounting Officer

Chad Phipps
Senior Vice President, General
Counsel and Secretary

Pamela Puryear, PhD
Senior Vice President, Chief
Human Resources Officer

Zeeshan Tariq
Vice President and Chief
Information Officer

Ivan Tornos
Group President, Global Businesses
and Americas

Kenneth Tripp
Senior Vice President,
Global Operations and Logistics

Michael W. Michelson
Retired Senior Advisory Partner,
KKR Management LLC, the
general partner of KKR & Co. L.P.

Suketu Upadhyay
Executive Vice President and Chief
Financial Officer

Sang Yi
President, Asia Pacific

This 2019 Annual Report includes forward-looking statements that are subject to significant risks, uncertainties and changes in circumstances that could cause actual
results to differ materially from the forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” immediately following the cover page of
our Annual Report on Form 10-K included herein.

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, 2019
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, $0.01 par value
1.414% Notes due 2022
2.425% Notes due 2026
1.164% Notes due 2027

Trading Symbol(s)
ZBH
ZBH 22A
ZBH 26
ZBH 27

Name of each exchange on which registered
New York Stock Exchange
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 every Interactive Data File required to be submitted
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 such files). Yes Í No ‘

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.

Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ Emerging growth 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 in Rule 12b-2 of the Act). Yes ‘

No Í

The aggregate market value of shares held by non-affiliates was $24,106,325,697 (based on the closing price of these shares on the New
York Stock Exchange on June 28, 2019 and assuming solely for the purpose of this calculation that all directors and executive officers
of the registrant are “affiliates”). As of February 7, 2020, 206,403,646 shares of the registrant’s $.01 par value common stock were
outstanding.

Documents Incorporated by Reference

Document

Portions of the Proxy Statement with respect to the 2020 Annual Meeting of Stockholders

Form 10-K

Part III

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Cautionary Note Regarding Forward-Looking Statements

This Annual Report contains forward-looking statements within the meaning of federal securities laws, including, among

others, statements regarding sales and earnings guidance and any statements about our expectations, plans, strategies or
prospects. We generally use the words “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “assumes,”
“guides,” “targets,” “forecasts,” “sees,” “seeks,” “should,” “could,” “would,” “predicts,” “potential,” “strategy,” “future,”
“opportunity,” “work toward,” “intends,” “guidance,” “confidence,” “positioned,” “design,” “strive,” “continue,” “look forward to” 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
outcomes and results to differ materially from the forward-looking statements. These risks, uncertainties and changes in
circumstances include, but are not limited to: the possibility that the anticipated synergies and other benefits from mergers and
acquisitions will not be realized, or will not be realized within the expected time periods; the risks and uncertainties related to our
ability to successfully integrate the operations, products, employees and distributors of acquired companies; the risks and
uncertainties related to our ability to successfully execute our restructuring plans; the effect of the potential disruption of
management’s attention from ongoing business operations due to integration matters related to mergers and acquisitions; the effect
of mergers and acquisitions on our relationships with customers, suppliers and lenders and on our operating results and businesses
generally; compliance with the Deferred Prosecution Agreement (“DPA”) entered into in January 2017; the success of our quality
and operational excellence initiatives, including ongoing quality remediation efforts at our Warsaw North Campus facility;
challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international
businesses, including regulations of the U.S. Food and Drug Administration (“FDA”) and foreign government regulators, such as
more stringent requirements for regulatory clearance of products; the ability to remediate matters identified in any inspectional
observations or warning letters issued by the FDA, while continuing to satisfy the demand for our products; the outcome of
government investigations; competition; pricing pressures; changes in customer demand for our products and services caused by
demographic changes or other factors; the impact of healthcare reform measures; reductions in reimbursement levels by third-party
payors and cost containment efforts of healthcare purchasing organizations; dependence on new product development,
technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and
prices of raw materials and products; control of costs and expenses; the ability to obtain and maintain adequate intellectual
property protection; breaches or failures of our information technology systems or products, including by cyberattack, unauthorized
access or theft; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including
European Union rules on state aid, or examinations by tax authorities; product liability, intellectual property and commercial
litigation losses; the ability to retain the independent agents and distributors who market our products; dependence on a limited
number of suppliers for key raw materials and outsourced activities; the impact of substantial indebtedness on our ability to service
our debt obligations and/or refinance amounts outstanding under our debt obligations at maturity on terms favorable to us, or at all;
changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic
and international economic conditions, including interest rate and currency exchange rate fluctuations; and the impact of the
ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected
countries.

See also the section titled “Risk Factors” (refer to Part I, Item 1A of this report) for further discussion of certain risks and

uncertainties that could cause actual results and events to differ materially from the forward-looking statements. 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. Forward-looking statements speak only as of the date they are made, and we expressly
disclaim any intention or 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. This cautionary note is applicable to all forward-looking
statements contained in this report.

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

TABLE OF CONTENTS

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4. Mine Safety Disclosures

PART II

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

Securities

Item 6.

Selected Financial Data

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

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 Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Page

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

PART I

Item 1. Business

Overview

Zimmer Biomet is a global leader in musculoskeletal
healthcare. We design, manufacture and market orthopedic
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. In 2015, 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.

Customers, Sales and Marketing

Our primary customers include orthopedic 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 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
and some healthcare dealers, inventory is generally consigned
to sales agents or customers. With sales to stocking
distributors, some healthcare dealers, dental practices and
dental laboratories, title to product passes upon shipment.
Consignment sales represented approximately 80 percent of
our net sales in 2019. No individual customer accounted for
more than 1 percent of our net sales for 2019.

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.

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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 orthopedic surgeons,
neurosurgeons, other specialists, dentists and oral surgeons
and the medical and dental procedures they perform.

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

Americas. The Americas geographic operating segment

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.

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EMEA. The EMEA geographic operating segment is our

second largest operating segment. France, Germany, Italy,
Spain and the United Kingdom collectively account for
55 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 47 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 orthopedic 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.

Spine, less Asia Pacific (“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, our Spine business maintains a
separate sales force of employees and independent sales
agents.

Office Based Technologies. Our Office Based

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.

Craniomaxillofacial and Thoracic (“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. Additionally, with sales to
customers where title to product passes upon shipment, these
customers may purchase items in large quantities if incentives
are offered or if there are new product offerings in a market,
which could cause period-to-period differences in sales.

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 orthopedic reconstructive products;

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

KNEES

Total knee replacement surgeries typically include a
femoral component, a patella (knee cap), a tibial tray and an
articular surface (placed on the tibial tray). Knee replacement
surgeries include first-time, or primary, joint replacement
procedures and revision procedures for the replacement,
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. A developing trend in knee replacement surgeries
is the use of robotic technologies to assist a surgeon with
implant positioning. In 2019, we entered the robotic assistance
market with our ROSA® Knee System. In the future, we plan to
expand the use of our ROSA® Robot to other product
categories.

Our significant knee brands include the following:

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

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HIPS

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

Our significant hip brands include the following:

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

S.E.T.

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

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

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

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

SPINE and CMF

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

Our significant spine and CMF brands include the

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

1 Registered trademark of Seikagaku Corporation

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DENTAL

Our dental products division manufactures and/or

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

Our significant dental brands include the following:

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

OTHER

Our other product category primarily includes our bone

cement and office based technology products.

Research and Development

We have extensive research and development activities to
develop new surgical techniques, including robotic 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 certain 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, 2019, we employed
approximately 2,100 research and development employees
worldwide.

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

Our operations, products and customers are subject to
extensive government regulation by numerous government
agencies, both within and outside the U.S. Our global
regulatory environment is increasingly stringent, unpredictable
and complex. There is a global trend toward increased
regulatory activity related to medical products.

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 (“FDCA”) 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

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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 classified by FDA regulation as exempt from
premarket clearance and approval or were in commercial
distribution prior to May 28, 1976.

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 requirements for advertising
and promotion of our devices. 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 and
is also necessary for distributing in the U.S. certain devices
exempt from FDA clearance and approval requirements. 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 FDA-483 (“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 products,
seizure of products, and assessing civil or criminal penalties
against our officers, employees or us. The FDA could also issue
a corporate warning letter or a recidivist warning letter or
negotiate the entry of a consent decree of permanent
injunction with us. 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 Form 483
inspectional observations that we are addressing, see Note 20
to our 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. and can prevent the importation
of products the FDA deems to violate the FDCA or its
implementing regulations. 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”). In addition, exported medical products are subject
to the regulatory requirements of each country to which the
medical product is exported.

There are also requirements of state and local

governments that we must comply with in the manufacture
and marketing of our products.

In many of the countries in which our products are sold,

we are subject to supranational, national, regional and local
regulations affecting, among other things, the development,
design, manufacturing, product standards, packaging,
advertising, promotion, labeling, marketing and postmarket
surveillance of medical products, including medical devices.
The member countries of the European Union (the “EU”) have
adopted the European Medical Device Directive (the “MDD”),
which creates a single set of medical device regulations for
products marketed in all member countries. Compliance with
the MDD and 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 MDD. We are subject to inspection by
the Notified Bodies for compliance with these requirements. In
May 2017, a new EU Medical Device Regulation (“MDR”) was
published that will replace the MDD and will impose significant
additional premarket and postmarket requirements beginning
in May 2020. Under a corrigendum to the MDR finalized in

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December 2019, some low-risk medical devices being
up-classified as a result of the MDR, including low-risk
instruments, may now receive a four-year transitional period to
comply.

Our quality management system is based upon the

requirements of ISO 13485, the QSR, the MDD and other
applicable regulations for the markets in which we sell. Our
principal manufacturing sites are certified to ISO 13485 and
audited at regular intervals. Additionally, our principal sites are
certified under the Medical Device Single Audit Program
(“MDSAP”), which is a voluntary audit program developed by
regulatory authorities in five countries (i.e., Australia, Brazil,
Canada, Japan, and the United States) to assess compliance
with the quality management system regulatory requirements
of those countries. MDSAP audits are conducted by an
MDSAP-recognized auditing organization and can fulfill the
needs of the participating regulatory jurisdictions, replacing
standard surveillance audits by the regulatory authorities in
those countries.

Further, we are subject to other supranational, national,
regional, federal, state and local 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 products 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 20 to our
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, transfer, storage,
disposal and protection of health-related and other personal
information. The FDA has issued guidance to which we may be
subject concerning data security for medical devices. The FDA
and the Department of Homeland Security (“DHS”) have
issued urgent safety communications regarding cybersecurity
vulnerabilities of certain medical devices.

In addition, certain of our affiliates are subject to privacy,

security and breach notification 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”). HIPAA governs the
use, disclosure, and security of protected health information by
HIPAA “covered entities” and their “business associates.”
Covered entities are health plans, health care clearinghouses
and health care providers that engage in specific types of
electronic transactions. A business associate is any person or
entity (other than members of a covered entity’s workforce)
that performs a service on behalf of a covered entity involving
the use or disclosure of protected health information. The U.S.
Department of Health and Human Services (“HHS”) (through
the Office for Civil Rights) has direct enforcement authority
against covered entities and business associates with regard to
compliance with HIPAA regulations. On December 12, 2018,
the Office for Civil Rights of HHS issued a request for
information seeking input from the public on how the HIPAA
regulations could be modified to amend existing obligations
relating to the processing of protected health information. We
will monitor this process and assess the impact of changes to
the HIPAA regulations to our business.

In addition to the FDA guidance and HIPAA regulations

described above, a number of U.S. states have also enacted
data privacy and security laws and regulations that govern the
collection, use, disclosure, transfer, storage, disposal and
protection of personal information, such as social security
numbers, medical and financial information and other
information. These laws and regulations may be more
restrictive and not preempted by U.S. federal laws. For
example, several U.S. territories and all 50 states now have
data breach laws that require timely notification to individuals,
and at times regulators, the media or credit reporting agencies,
if a company has experienced the unauthorized access or
acquisition of personal information. Other state laws include
the California Consumer Privacy Act (“CCPA”), which was
signed into law on June 28, 2018 and largely took effect on
January 1, 2020. The CCPA, among other things, contains new
disclosure obligations for businesses that collect personal
information about California residents and affords those
individuals numerous rights relating to their personal
information that may affect our ability to use personal
information or share it with our business partners. Regulations
from the California Attorney General have not been finalized,
and it is expected that additional amendments to the CCPA
will be introduced. Meanwhile, a number of other states have
considered privacy laws like the CCPA, and in October 2019,
Nevada enacted a similar but generally less restrictive privacy

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law. We will continue to monitor and assess the impact of
these state laws, which may impose substantial penalties for
violations, impose significant costs for investigation and
compliance, allow private class-action litigation, and carry
significant potential liability for our business.

Outside of the U.S., data protection laws, including the EU
General Data Protection Regulation (the “GDPR”) and member
state implementing legislation, and the Brazil Lei Geral de
Proteção de Dados (the “LGPD”), also apply to some of our
operations in the countries in which we provide services to our
customers. Legal requirements in these countries relating to
the collection, storage, processing and transfer of personal
data continue to evolve. The GDPR, which became effective on
May 25, 2018, imposes, among other things, data protection
requirements that include strict obligations and restrictions on
the ability to collect, analyze and transfer EU personal data, a
requirement for prompt notice of data breaches to data
subjects and supervisory authorities in certain circumstances,
and possible substantial fines for any violations (including
possible fines for certain violations of up to the greater of
20 million Euros or 4% of total worldwide annual turnover of
the preceding financial year).

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 orthopedics 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
The Straumann Group, Dentsply Sirona Inc. and Nobel Biocare
Services AG (part of Envista Holdings Corporation).

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

Manufacturing and Raw Materials

We manufacture our products at various sites. We also

strategically outsource some manufacturing to qualified
suppliers who are highly capable of producing components.
The manufacturing operations at our facilities are
designed to incorporate the cellular concept for production
and to implement tenets of a manufacturing philosophy

focused on continuous improvement efforts in product quality,
lead time reduction and capacity optimization. Our continuous
improvement efforts are driven by Lean and Six Sigma
methodologies. In addition, at certain of our manufacturing
facilities, many of the employees are cross-trained to perform a
broad array of operations.

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

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.

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

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

Intellectual Property

Patents and other proprietary rights are important to the

continued success of our business. We also rely upon trade
secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain our
competitive position. We protect our proprietary rights
through a variety of methods, including confidentiality
agreements and proprietary information agreements with
suppliers, employees, consultants and others who may have
access to proprietary information. We own or control through
licensing arrangements over 9,000 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, 2019, we employed approximately

19,900 employees worldwide, including approximately
2,100 employees dedicated to research and
development. Approximately 9,500 employees are located
within the U.S. and approximately 10,400 employees are
located outside of the U.S., primarily throughout Europe and in
Japan. We have approximately 8,600 employees dedicated to
manufacturing our products worldwide. The Warsaw, Indiana
production facilities employ approximately 3,100 employees in
the aggregate.

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We have production employees represented by a labor
union in Dover, Ohio and Bridgend, South Wales. We have
other employees in Europe who are represented by Works

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Councils. We believe that our relationship with our employees
is satisfactory.

The following table sets forth certain information with respect to our executive officers as of February 14, 2020.

Name

Bryan Hanson
Didier Deltort
Carrie Nichol
Chad Phipps
Ivan Tornos
Suketu Upadhyay

Sang Yi

Age

Position

53
53
40
48
44
50

President and Chief Executive Officer
President, Europe, Middle East and Africa
Vice President, Controller and Chief Accounting Officer
Senior Vice President, General Counsel and Secretary
Group President, Global Businesses and Americas
Executive Vice President and Chief Financial Officer

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
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. Deltort was appointed President, Europe, Middle East

and Africa in August 2018. He is responsible for the marketing,
sales and distribution of products, services and solutions in the
European, Middle Eastern and African (“EMEA”) regions.
Prior to joining Zimmer Biomet, Mr. Deltort served as Senior
Vice President and General Manager, Global Healthcare
Solutions and Partnerships of Boston Scientific Corporation,
based in France from May 2016 until August 2018. Before
joining Boston Scientific Corporation, he spent 14 years with
GE Healthcare in positions of increasing responsibility in
Germany, Finland, Dubai and the United States, most recently
serving as Global Senior Vice President and General Manager
of the global Monitoring Solutions business as well as
Managing Director of GE Healthcare Finland. Prior to GE,
Mr. Deltort served at Philips, Hewlett-Packard and Marquette
Electronics in various international healthcare executive roles.

Ms. Nichol was appointed Vice President, Controller and

Chief Accounting Officer in October 2019. Prior to joining
Zimmer Biomet, Ms. Nichol served as Senior Vice President,
Controller and Chief Accounting Officer of Endo International
plc (“Endo International”) from April 2018 to September 2019.
Ms. Nichol joined Endo International in March 2015 as
Director of Consolidations and Financial Systems and was
promoted to Assistant Controller in September 2015. Prior to

her tenure at Endo International, Ms. Nichol served as Senior
Vice President and Controller of Haas Group Inc. (now part of
Wesco Aircraft Holdings, Inc.), where she led the global
accounting and finance teams from June 2011 until
March 2015. Prior to her employment with Haas Group Inc.,
Ms. Nichol was with IKON Office Solutions (now part of Ricoh
Company, Ltd.) for a total of five years from June 2008 until
June 2011 and from June 2003 until July 2005, having served
most recently as the Director of Financial Reporting and
Corporate Accounting with responsibility for all public filings
and technical and corporate accounting. From December 2005
until June 2008, Ms. Nichol was with Advanced Metallurgical
Group NV serving as Assistant Controller. Ms. Nichol began
her career in public accounting with KPMG.

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 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. Tornos joined Zimmer Biomet in November 2018 as
Group President, Orthopedics, and in December 2019 was
appointed Group President, Global Businesses and Americas.
Prior to joining Zimmer Biomet, Mr. Tornos served as
Worldwide President of the Global Urology, Medical and
Critical Care Divisions of Becton, Dickinson and Company
(“BD”) (and previously, C. R. Bard, Inc. (“Bard”)) from
June 2017 until October 2018. From June 2017 until BD’s
acquisition of Bard in December 2017, Mr. Tornos also
continued to serve as President, EMEA of Bard, a position to
which he was appointed in September 2013. Mr. Tornos joined
Bard in August 2011 and, prior to his appointment as

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President, EMEA, served as Vice President and General
Manager with leadership responsibility for Bard’s business in
Southern Europe, Central Europe and the Emerging Markets
Region of the Middle East and Africa. Before joining Bard,
Mr. Tornos served as Vice President and General Manager of
the Americas Pharmaceutical and Medical/Imaging Segments
of Covidien International from April 2009 to August 2011.
Before that, he served as International Vice President,
Business Development and Strategy with Baxter International
Inc. from July 2008 to April 2009 and, prior to that, Mr. Tornos
spent 11 years with Johnson & Johnson in positions of
increasing responsibility.

Mr. Upadhyay was appointed Executive Vice President and

Chief Financial Officer in July 2019. Prior to joining Zimmer
Biomet, Mr. Upadhyay served as Senior Vice President, Global
Financial Operations at Bristol-Myers Squibb from
November 2016 until June 2019. Before joining Bristol-Myers
Squibb, he served as Executive Vice President and Chief
Financial Officer of Endo International from September 2013
to November 2016. Prior to his tenure at Endo International,
Mr. Upadhyay served as Interim Chief Financial Officer as well
as Senior Vice President of Finance, Corporate Controller and
Principal Accounting Officer of BD. Prior to his role as BD’s
Interim Chief Financial Officer and Corporate Controller,
Mr. Upadhyay was the Senior Vice President of Global
Financial Planning and Analysis and also held the role of
Vice President and Chief Financial Officer of BD’s international
business. Before joining BD in 2010, Mr. Upadhyay held a
number of leadership roles across AstraZeneca and Johnson &
Johnson. Mr. Upadhyay spent the early part of his career in
public accounting with KPMG.

Mr. Yi was appointed President, Asia Pacific in June 2015.

He is responsible for the sales, marketing and distribution of
products, services and solutions 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 https://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:
(cid:129) our Annual Reports on Form 10-K, Quarterly Reports on

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

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

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

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

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

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

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

have information provided in real time.

The information available on our website is not

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

Item 1A. Risk Factors

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.

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.

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On January 12, 2017, we resolved previously-disclosed
FCPA matters involving Biomet and certain of its subsidiaries.
As part of the settlement, we entered into a DPA with the DOJ.
A copy of the DPA is incorporated by reference as an exhibit to
this report.

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

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

(cid:129) unforeseen difficulties related to entering geographic

regions where we do not have prior experience;

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

acquired, including any unknown vulnerabilities in acquired
technology or compromises of acquired data; and

(cid:129) 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.

Interruption of our manufacturing operations could

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

Our restructuring program may not be successful or

We have manufacturing sites all over the world. In some

we may not fully realize the expected cost savings and/
or operating efficiencies from our restructuring
initiatives.

In December 2019, our Board of Directors approved, and
we initiated, a new global restructuring program that includes
a restructuring of key businesses to better align our resources
with our growth strategies, achieve operating efficiencies that
we expect to reduce costs, simplify our organizational
structure, accelerate decision-making and allow us to invest in
higher priority growth opportunities. Restructuring initiatives
involve complex plans and actions that may include, or result
in, workforce reductions, global plant closures and/or
consolidations, product portfolio rationalizations and asset
impairments. Additionally, as a result of restructuring
initiatives, we may experience a loss of continuity, loss of
accumulated knowledge and/or inefficiencies during
transitional periods. Restructuring initiatives present
significant risks that may impair our ability to achieve
anticipated operating enhancements and/or cost reductions, or
otherwise harm our business, including higher than anticipated
costs in implementing our restructuring program, as well as
management distraction. For more information on our
restructuring program, see Note 4 to our consolidated financial
statements. If we fail to achieve some or all of the expected
benefits of restructuring, it could have a material adverse
effect on our competitive position, 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:
(cid:129) 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;

(cid:129) difficulties harmonizing and optimizing quality systems and

operations;

(cid:129) diversion of financial and management resources from

existing operations;

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, vulnerabilities in our
technology, cyber-attacks against our information systems
(such as ransomware attacks), 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.

Disruptions in the supply of the materials and
components used in manufacturing our products or the
sterilization of our products by third-party suppliers
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 suppliers 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 suppliers 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 suppliers’
manufacturing processes. A reduction or interruption in the

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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.

In addition, many of our products require sterilization
prior to sale and we utilize a mix of internal resources and
contract sterilizers to perform this service. To the extent we or
our contract sterilizers are unable to sterilize our products,
whether due to capacity, availability of materials for
sterilization, regulatory or other constraints, including federal
and state regulations on the use of ethylene oxide, we may be
unable to transition to other contract sterilizers, sterilizer
locations or sterilization methods in a timely or cost effective
manner or at all, which could have a material impact on our
results of operations and financial condition.

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 costly and complex laws and
governmental regulations relating to the development,
design, product standards, packaging, advertising,
promotion, postmarket surveillance, manufacturing,
labeling and marketing of our products, non-compliance
with which could adversely affect our business,
financial condition and results of operations.

Our global regulatory environment is increasingly

stringent, unpredictable and complex. The products we design,
develop, manufacture and market are subject to rigorous
regulation by the FDA and numerous other supranational,
national, federal, regional, state and local governmental
authorities. The process of obtaining regulatory approvals and
clearances 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.

Both before and after a product is commercially released,

we have ongoing responsibilities under FDA regulations and
other supranational, national, federal, regional, state and local
requirements globally. Compliance with these requirements,
including the QSR, recordkeeping regulations, labeling and
promotional requirements and adverse event reporting
regulations, is subject to continual review and is monitored

rigorously through periodic inspections by the FDA 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 at one or more facilities, enjoin and
restrain certain violations of applicable law pertaining to our
products, seizure of 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 or
a recidivist warning letter or negotiate the entry of a consent
decree of permanent injunction with us, 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 August 2018, we received a warning letter from the
FDA related to observed non-conformities with current good
manufacturing practice requirements of the QSR at our
Warsaw North Campus manufacturing facility. As of
February 14, 2020, these warning letters remained pending.
Until the violations are corrected, we may become subject to
additional regulatory action by the FDA as described above,
the FDA may refuse to grant premarket approval applications
and/or the FDA may refuse to grant export certificates, any of
which could have a material adverse effect on our business,
financial condition and results of operations. Additional
information regarding these and other FDA regulatory matters
can be found in Note 20 to our consolidated financial
statements.

Governmental regulations outside the U.S. continue to
become increasingly stringent and complex. In the EU, for
example, the MDR will become effective in May 2020 and will
include significant additional premarket and post-market
requirements. Complying with the requirements of this
regulation requires us to incur significant expense.
Additionally, the availability of EU notified body services
certified to the new requirements is limited, which may delay
the marketing approval for some of our products under the
MDR. Any such delays, or any failure to meet the requirements
of the new regulation, could adversely impact our business in
the EU and other regions that tie their product registrations to
the EU requirements.

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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.

The sales, marketing and pricing of products and
relationships that medical products companies have with
healthcare providers are under increased scrutiny around the
world. Our industry is subject to various laws and regulations
pertaining to healthcare fraud and abuse, including the False
Claims Act, the Anti-Kickback Statute, the Stark law, the
Physician Payments Sunshine Act, the Food, Drug, and
Cosmetic Act and similar laws and regulations in the U.S. and
around the world. In addition, we are subject to various laws
concerning anti-corruption and anti-bribery matters (including
the FCPA), 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, transfer, storage, disposal and
protection of health-related and other personal information.
The FDA has issued guidance to which we may be subject
concerning data security for medical devices. The FDA and the
DHS have also issued urgent safety communications regarding
cybersecurity vulnerabilities of certain medical devices, which
vulnerabilities may apply to some of our current or future
devices.

In addition, certain of our affiliates are subject to privacy,

security and breach notification regulations promulgated under
HIPAA. HIPAA governs the use, disclosure, and security of
protected health information by HIPAA “covered entities” and
their “business associates.” Covered entities are health plans,
health care clearinghouses and health care providers that
engage in specific types of electronic transactions. A business
associate is any person or entity (other than members of a
covered entity’s workforce) that performs a service on behalf
of a covered entity involving the use or disclosure of protected
health information. HHS (through the Office for Civil Rights)
has direct enforcement authority against covered entities and
business associates with regard to compliance with HIPAA
regulations. On December 12, 2018, the Office for Civil Rights
of HHS issued a request for information seeking input from the
public on how the HIPAA regulations could be modified to
amend existing obligations relating to the processing of
protected health information. We will monitor this process and

assess the impact of changes to the HIPAA regulations to our
business.

In addition to the FDA guidance and HIPAA regulations

described above, a number of U.S. states have also enacted
data privacy and security laws and regulations that govern the
collection, use, disclosure, transfer, storage, disposal, and
protection of personal information, such as social security
numbers, medical and financial information and other
information. These laws and regulations may be more
restrictive and not preempted by U.S. federal laws. For
example, several U.S. territories and all 50 states now have
data breach laws that require timely notification to individuals,
and at times regulators, the media or credit reporting agencies,
if a company has experienced the unauthorized access or
acquisition of personal information. Other state laws include
the CCPA, which was signed into law on June 28, 2018 and
largely took effect on January 1, 2020. The CCPA, among other
things, contains new disclosure obligations for businesses that
collect personal information about California residents and
affords those individuals numerous rights relating to their
personal information that may affect our ability to use personal
information or share it with our business partners. Regulations
from the California Attorney General have not been finalized,
and it is expected that additional amendments to the CCPA
will be introduced. Meanwhile, over fifteen other states have
considered privacy laws like the CCPA, and in October 2019,
Nevada enacted a similar but generally less restrictive privacy
law. We will continue to monitor and assess the impact of
these state laws, which may impose substantial penalties for
violations, impose significant costs for investigations and
compliance, allow private class-action litigation and carry
significant potential liability for our business.

Outside of the U.S., data protection laws, including the

GDPR and LGPD, also apply to some of our operations in the
countries in which we provide services to our customers. Legal
requirements in these countries relating to the collection,
storage, processing and transfer of personal data continue to
evolve. The GDPR imposes, among other things, data
protection requirements that include strict obligations and
restrictions on the ability to collect, analyze and transfer EU
personal data, a requirement for prompt notice of data
breaches to data subjects and supervisory authorities in
certain circumstances, and possible substantial fines for any
violations (including possible fines for certain violations of up
to the greater of 20 million Euros or 4% of total worldwide
annual turnover of the preceding financial year). Governmental
authorities around the world have enacted similar types of
legislative and regulatory requirements concerning data
protection, and additional governments are considering similar
legal frameworks.

The interpretation and enforcement of the laws and
regulations described above are uncertain and subject to
change, and may require substantial costs to monitor and
implement compliance with any additional requirements.
Failure to comply with U.S. and international data protection
laws and regulations could result in government enforcement
actions (which could include substantial civil and/or criminal
penalties), private litigation and/or adverse publicity and could

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have a material adverse impact on our business, financial
condition or results of operations.

We incurred substantial additional indebtedness in
connection with previous mergers and acquisitions and
may not be able to meet all of our debt obligations, and
the phase-out, replacement or unavailability of LIBOR
and/or other interest rate benchmarks could adversely
affect our indebtedness.

We incurred substantial additional indebtedness in
connection with previous mergers and acquisitions. At
December 31, 2019, our total indebtedness was $8.2 billion, as
compared to $1.4 billion at December 31, 2014. As of
December 31, 2019, our debt service obligations, comprised of
principal and interest (excluding leases and equipment notes),
during the next 12 months are expected to be $1.7 billion. As a
result of the increase in our debt, demands on our cash
resources have increased. The increased level of debt could,
among other things:
(cid:129) require us to dedicate a large portion of our cash flow from
operations to the servicing and repayment of our debt,
thereby reducing funds available for working capital, capital
expenditures, research and development expenditures and
other general corporate requirements;

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

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

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

our business and the industry in which we operate;
(cid:129) restrict our ability to make strategic acquisitions or
dispositions or to exploit business opportunities;

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

competitors that have less debt;

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

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

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

In addition, the interest rates applicable to certain of our

debt obligations are based on a fluctuating rate of interest
determined by reference to the London Interbank Offered Rate
(“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and/or
Tokyo Interbank Offered Rate (“TIBOR”). Any increase in
interest rates applicable to our debt obligations would increase
our cost of borrowing and could adversely affect our financial
position, results of operations or cash flows. Further, in
July 2017, the U.K.’s Financial Conduct Authority, which
regulates LIBOR, announced that it intends to stop persuading
or compelling banks to submit rates for the calculation of
LIBOR after 2021. In response to concerns regarding the
future of LIBOR, the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York
convened the Alternative Reference Rates Committee
(“ARRC”) to identify alternatives to LIBOR. The ARRC has
recommended a benchmark replacement waterfall to assist
issuers in continued capital market entry while safeguarding

against LIBOR’s discontinuation. The initial steps in the
ARRC’s recommended provision reference variations of the
Secured Overnight Financing Rate (“SOFR”). At this time, it is
not possible to predict whether SOFR will attain market
traction as a LIBOR replacement. Additionally, it is uncertain if
LIBOR will cease to exist after calendar year 2021, or whether
additional reforms to LIBOR may be enacted, or whether
alternative reference rates will gain market acceptance as a
replacement for LIBOR. Further, other central banks have
convened working groups to determine replacements or
reforms of other interest rate benchmarks, such as EURIBOR,
and it is expected, although not known, that a transition away
from the use of certain of these other interest rate benchmarks
will occur over the course of the next few years and alternative
reference rates will be established.

Certain of our debt obligations that are based on LIBOR

will mature before the end of 2021. However, the revolving
credit agreement that we entered into on November 1, 2019
(the “2019 Credit Agreement”) has an initial maturity date of
November 1, 2024. In anticipation of LIBOR’s phase out, the
2019 Credit Agreement provides for alternative base rates as
well as a transition mechanism for selecting a benchmark
replacement rate for LIBOR, with such benchmark
replacement rate to be mutually agreed with the general
administrative agent and our lenders. There can be no
assurance that we will be able to reach an agreement with our
lenders on any such replacement benchmark before
experiencing adverse effects due to changes in interest rates, if
at all. We will continue to monitor the situation and address
the potential reference rate changes in future debt obligations
that we may incur. Accordingly, the potential effect of the
phase-out, replacement or unavailability of LIBOR, or the
unavailability of any other interest rate benchmark such as
EURIBOR or TIBOR, on our cost of capital cannot yet be
determined. Further, the use of an alternative base rate or a
benchmark replacement rate as a basis for calculating interest
with respect to any outstanding variable rate indebtedness
could lead to an increase in the interest we pay and a
corresponding increase in our costs of capital or otherwise
have a material adverse impact on our business, financial
condition or results of operations.

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, we have been consolidating and
integrating the number of systems we operate and have
upgraded and expanded our information systems capabilities.
In addition, some of our products and services incorporate
software or information technology that collects data regarding
patients and patient therapy, and some products or software
we provide to customers connect to our systems for
maintenance and other purposes. We also have outsourced

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elements of our operations to third parties, and, as a result, we
manage a number of third-party suppliers who may or could
have access to our confidential information, including, but not
limited to, intellectual property, proprietary business
information and personal information of patients, employees
and customers (collectively “Confidential Information”).

Our information systems, and those of third-party

suppliers 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 suppliers and/or business partners, or from
cyber-attacks by malicious third parties attempting to gain
unauthorized access to our products, systems or Confidential
Information.

Like other large multi-national corporations, we have

experienced instances of successful phishing attacks on our
email systems and expect to be subject to similar attacks in the
future. We also are subject to other cyber-attacks, including
state-sponsored cyber-attacks, industrial espionage, insider
threats, computer denial-of-service attacks, computer viruses,
ransomware and other malware, payment fraud or other cyber
incidents. Our incident response efforts, business continuity
procedures and disaster recovery planning may not be
sufficient for all eventualities. If we fail to maintain or protect
our information systems and data integrity effectively, we
could:
(cid:129) lose existing customers;
(cid:129) have difficulty attracting new customers;
(cid:129) have problems in determining product cost estimates and

establishing appropriate pricing;

incidents; however, cyber-attacks are becoming more
sophisticated, frequent and adaptive. Therefore, despite our
efforts, we cannot assure 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 and
improve existing products and technologies. Competition is
primarily on the basis of:
(cid:129) technology;
(cid:129) innovation;
(cid:129) quality;
(cid:129) reputation;
(cid:129) customer service; and
(cid:129) pricing.

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

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

Our competitors may:

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

us;

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

(cid:129) suffer outages or disruptions in our operations or supply

employees and strategic partners.

chain;

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

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

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

healthcare professionals;

(cid:129) have regulatory sanctions or penalties imposed;
(cid:129) incur increased operating expenses;
(cid:129) be subject to issues with product functionality that may

result in a loss of data, risk to patient safety, field actions
and/or product recalls;

(cid:129) incur expenses or lose revenues as a result of a data privacy

breach; or

(cid:129) suffer other adverse consequences.

While we have invested heavily in the protection of our
data and information technology, there can be no assurance
that our activities related to consolidating the number of
systems we operate, upgrading and expanding our information
systems capabilities, protecting and enhancing our systems
and implementing new systems will be successful. We will
continue to dedicate significant resources to protect against
unauthorized access to our systems and work with government
authorities to detect and reduce the risk of future cyber

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.

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

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

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

sufficient volumes on time;

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

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

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

surgical techniques; and

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

products.

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

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

If third-party payors decline to reimburse our
customers for our products or reduce reimbursement
levels, the demand for our products may decline and our
ability to sell our products profitably may be harmed.
We sell our products and services to hospitals, doctors,
dentists and other healthcare providers, all of which receive
reimbursement for the healthcare services provided to their
patients from third-party payors, such as domestic and
international government programs, private insurance plans
and managed care programs. These third-party payors may
deny reimbursement if they determine that a product or
service 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 products.

In addition, third-party payors are increasingly attempting

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

We have also experienced downward pressure on product

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

The ongoing cost-containment efforts of healthcare

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

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

We conduct a significant amount of our sales
activity outside of the U.S., which subjects us to
additional business risks and may cause our
profitability to decline due to increased costs.

We sell our products in more than 100 countries and
derived approximately 40 percent of our net sales in 2019 from
outside the U.S. We intend to continue to pursue growth
opportunities in sales internationally, including in emerging
markets, which could expose us to additional risks associated
with international sales and operations. Our international
operations are, and will continue to be, subject to a number of
risks and potential costs, including:
(cid:129) changes in foreign medical reimbursement policies and

programs;

(cid:129) changes in foreign regulatory requirements, such as more

stringent requirements for regulatory clearance of products;

(cid:129) differing local product preferences and product

requirements;

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

countries outside of the U.S.;

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(cid:129) trade protection measures, import or export requirements,

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

new or increased tariffs, trade embargoes and sanctions and
other trade barriers, which may prevent us from shipping
products to a particular market and may increase our
operating costs;

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

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

Bribery Act;

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

and

(cid:129) political, social and economic instability and uncertainty,

including sovereign debt issues.

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 have significant global sales and operations and
face risks related to health epidemics that could impact
our sales and operating results.

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. Our tax
expense and cash flow could be impacted in the event of
adverse future regulatory guidance provided by the U.S.
Treasury clarifying certain aspects of the 2017 Tax Act or
other changes to the U.S. corporate income tax system.

Other changes in the tax laws of the jurisdictions where

we do business, including an increase in tax rates or an
adverse change in the treatment of an item of income or
expense, could result in a material increase in our tax expense.
For example, changes in the tax laws of foreign jurisdictions
could arise as a result of the “base erosion and profit shifting”
project undertaken by the Organisation for Economic
Co-operation and Development (“OECD”). The OECD, which
represents a coalition of member countries, has recommended
changes to numerous long-standing tax principles. These
changes, as adopted by countries, could increase tax
uncertainty and may adversely affect our provision for income
taxes.

Our business could be adversely affected by the effects of

We are subject to risks arising from currency

a widespread outbreak of contagious disease, including the
recent outbreak of respiratory illness caused by a novel
coronavirus first identified in Wuhan, Hubei Province, China.
Any outbreak of contagious diseases, and other adverse public
health developments, could have a material adverse effect on
our business operations. These could include disruptions or
restrictions on our ability to travel or to distribute our
products, as well as temporary closures of our facilities or the
facilities of our suppliers or customers, the deferral of elective
procedures in impacted countries or the temporary suspension
of operations by us or our suppliers or customers. Any
disruption of our operations, or those of our suppliers or
customers, would likely impact our sales and operating results.
In addition, a significant outbreak of contagious diseases in the
human population could result in a widespread health crisis
that could adversely affect the economies and financial
markets of many countries, resulting in an economic downturn
that could affect demand for our products and likely impact
our operating results.

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 are regularly 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.

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, the Japanese Yen, the Swiss
Franc or 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 or may create additional financial obligations for us.
Further, if the counterparties to the derivative financial
instrument transactions fail to honor their obligations due to
financial distress or otherwise, we would be exposed to
potential losses or the inability to recover anticipated gains
from those transactions.

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

Our business exposes us to potential product liability risks
that are inherent in the design, manufacture and marketing of
medical devices. In the ordinary course of business, we are the
subject of product liability lawsuits alleging that component
failures, manufacturing flaws, design defects or inadequate
disclosure of product-related risks or product-related
information resulted in an unsafe condition or injury to
patients. As discussed further in Note 20 to our consolidated
financial statements, we are defending product liability
lawsuits relating to the Durom® Acetabular Component
(“Durom Cup”), certain products within the M/L Taper and

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M/L Taper with Kinectiv® Technology hip stems and Versys®
Femoral Head implants, and the M2a-MagnumTM hip system.
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.

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.

others will not independently develop substantially equivalent
proprietary information.

In addition, intellectual property laws differ in various
jurisdictions in which we operate and are subject to change at
any time, which could further restrict our ability to protect our
intellectual property and proprietary rights. In particular, a
portion of our revenues is derived from jurisdictions where
adequately protecting intellectual property rights may prove
more challenging or impossible. We may also not be able to
detect unauthorized uses or take timely and effective steps to
remedy unauthorized conduct. To prevent or respond to
unauthorized uses of our intellectual property, we might be
required to engage in costly and time-consuming litigation or
other proceedings and we may not ultimately prevail. Any
failure to establish, maintain or protect our intellectual
property or proprietary rights could have a material adverse
effect on our business, financial condition, or results of
operations.

Claims of intellectual property infringement and litigation

We are involved in legal proceedings that may

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. As discussed further in
Note 20 to our consolidated financial statements, in 2015 we
paid a compensatory damages award of approximately
$90 million and in March 2019 we paid approximately
$168 million related to an award of treble damages and
attorneys’ fees in a patent infringement lawsuit.

Our success depends in part on our proprietary

technology, processes, methodologies and information. We rely
on a combination of patent, copyright, trademark, trade secret
and other intellectual property laws and nondisclosure, license,
assignment and confidentiality arrangements to establish,
maintain and protect our proprietary rights, as well as the
intellectual property rights of third parties whose assets we
license. However, the steps we have taken to protect our
intellectual property rights, and the rights of those from whom
we license intellectual property, may not be adequate to
prevent unauthorized use, misappropriation or theft of 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. We also cannot be certain that

result in adverse outcomes.

In addition to intellectual property and product liability
claims and lawsuits, we are involved in various commercial and
securities litigation and claims and other legal proceedings that
arise from time to time in the ordinary course of our business.
For example, as discussed further in Note 20 to our
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. There have also been four shareholder derivative
actions filed purportedly on our behalf against certain of our
current and former directors and officers and certain former
stockholders of ours who sold shares of our common stock in
secondary public offerings in 2016, alleging breaches of
fiduciary duties and insider trading, based on substantially the
same factual allegations as Shah. Although we believe there
are 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.

Goodwill and intangible assets represent a significant

portion of our assets. At December 31, 2019, we had
$9.6 billion in goodwill and $7.3 billion of intangible assets. The

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goodwill results from our acquisition activity and represents
the excess of the consideration transferred over the fair value
of the net assets acquired. We assess at least annually whether
events or changes in circumstances indicate that the carrying
value of our intangible assets may not be recoverable. As
discussed further in Note 10 to our consolidated financial
statements, we recorded goodwill impairment charges of
$975.9 million in 2018. If the operating performance at one or
more of our reporting units falls significantly below current
levels, if competing or alternative technologies emerge, if
market conditions or future cash flow estimates for one or
more of our businesses decline, or as a result of restructuring
initiatives pursuant to which we reorganize our reporting units,
we could be required to record additional goodwill impairment
charges. Any write-off of a material portion of our goodwill or
unamortized intangible assets would negatively affect our
results of operations.

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

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

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

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

(cid:129) certain limitations on convening special stockholder

Developments relating to the UK’s exit from the EU

meetings; and

could adversely affect us.

The UK held a referendum in June 2016 in which voters

chose to leave the EU, commonly referred to as “Brexit”.
Following a protracted period of negotiation, the UK ceased to
be a member of the EU on January 31, 2020, after the
ratification and approval of a withdrawal agreement by the EU
and the UK. The withdrawal agreement provides for a
transition period until December 31, 2020 (the “Transition
Period”), during which the terms of the future trading
relationship between the EU and the UK will be negotiated.
Throughout the Transition Period, the legal and regulatory
framework as between the UK and the EU will remain the
same.

Brexit and the perceptions as to its potential impact have

and may continue to adversely affect business activity and
economic conditions in Europe and globally and could
contribute to instability in global financial and foreign
exchange markets both during and after the Transition Period.
Brexit could also have the effect of disrupting the free
movement of goods, services and people between the UK and
the EU through the imposition of tariffs, custom inspections,
and/or migration restrictions. The future relationship for
medical products regulation and trade between the UK and the
EU is currently uncertain and any adjustments we make to our
business and operations as a result of Brexit could result in
significant expense and take significant time to complete.
Brexit could also result in the UK or the EU significantly
altering its regulations affecting the clearance and approval of
medical products. In addition, as a result of Brexit, other
European countries may seek to conduct referenda with
respect to their continuing membership with the EU. If there is
no agreed upon long-term trading arrangement by the end of
the Transition Period (a so-called “hard Brexit”), it would
likely have a significant adverse impact on labor and trade and
create significant short-term currency volatility.

Given these possibilities and others we may not anticipate,

as well as the lack of comparable precedent, the full extent to
which we will be affected by Brexit is uncertain. Any of the
potential negative effects of Brexit could adversely affect our
business, results of operations and financial condition.

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

These anti-takeover provisions could make it more

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

Our Restated By-Laws designate certain Delaware

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

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

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

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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.

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Item 2. Properties

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

We own or lease approximately 340 different facilities around the world, of which approximately half are in the U.S. Our
corporate headquarters is in Warsaw, Indiana. Warsaw, Indiana is also home to our most significant manufacturing, research and
development (“R&D”), and other business activities for our Knees, Hips and S.E.T. product categories. Our Spine, CMF, Office
Based Technologies and Dental product categories also have business unit headquarters located in the U.S. that are the primary
facilities for these product categories’ manufacturing, R&D and other business activities. Internationally, our EMEA regional
headquarters is in Switzerland and our Asia Pacific regional headquarters is in Singapore.

We have approximately 30 manufacturing locations in the U.S. and internationally. Our most significant locations outside of the

U.S. are in Switzerland, Ireland, the U.K., China, and Puerto Rico. We primarily own our manufacturing facilities in the U.S.;
internationally, we occupy both owned and leased manufacturing facilities.

We maintain sales and administrative offices and warehouse and distribution facilities in more than 40 countries around the

world. These local market facilities are primarily leased due to common businesses practices and to allow us to be more adaptable
to changing needs in the market.

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 the Netherlands to be able to
efficiently distribute our products to customers in the U.S. and EMEA.

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, R&D and office space, provide sufficient capacity to meet
ongoing demands.

Item 3. Legal Proceedings

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

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

Item 4. Mine Safety Disclosures

Not Applicable.

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

PART II

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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

Equity Securities

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

February 7, 2020, there were approximately 17,900 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.

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.

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

this report.

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

Item 6. Selected Financial Data

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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

amounts):

STATEMENT OF EARNINGS DATA
Net sales
Net earnings (loss) of Zimmer Biomet Holdings, Inc.
Earnings (loss) 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

2019

2018

2017

2016

2015 (1)(2)

$ 7,982.2
1,131.6

$ 7,932.9
(379.2)

$ 7,803.3
1,813.8

$ 7,668.4
305.9

$ 5,997.8
147.0

5.52
5.47
0.96

(1.86) $
(1.86)
0.96

8.98
8.90
0.96

1.53
1.51
0.96

205.1
206.7

203.5
203.5

201.9
203.7

200.0
202.4

0.78
0.77
0.88

187.4
189.8

$24,638.7
6,721.4
2,083.0
12,392.8

$24,126.8
8,413.7
2,015.7
11,276.1

$26,014.0
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

(1) Effective January 1, 2018 we adopted Accounting Standards Update 2014-09 – Revenue from Contracts with Customers (Topic 606). We adopted
this new standard using the retrospective method, which resulted in us restating the 2017 and 2016 periods. The 2015 period has not been restated.
(2) On June 24, 2015 we acquired LVB Acquisition, Inc. Accordingly, the results of this significant acquisition have only been reflected in 2015
starting on that date.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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

The following discussion and analysis should be read in
conjunction with the consolidated financial statements and the
corresponding notes included elsewhere in this Annual Report
on Form 10-K. Certain percentages presented in this
discussion and analysis are calculated from the underlying
whole-dollar amounts and therefore may not recalculate from
the rounded numbers used for disclosure purposes. Certain
amounts in the 2018 and 2017 consolidated financial
statements have been reclassified to conform to the 2019
presentation. The following discussion, analysis and
comparisons generally focus on the operating results for the
years ended December 31, 2019 and 2018. Discussion, analysis
and comparisons of the years ended December 31, 2018 and
2017 that are not included in this Form 10-K can be found in
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in Part II, Item 7 of the Company’s
Annual Report on Form 10-K for the year ended December 31,
2018.

EXECUTIVE LEVEL OVERVIEW

2019 Financial Highlights

In 2019, our net sales increased by 0.6 percent compared

to 2018. We estimate changes in volume/mix of our products
and pricing had a positive effect of 2.2 percent on our 2019
sales while changes in foreign currency exchange rates had a
negative effect of 1.6 percent. Notably, our sales growth was
higher in the second half of the year compared to the first half
of the year primarily due to various product launches in our
Knees product category, which drove improved commercial
execution. The improved second half performance was
present in all of our product categories and geographic
regions. Additionally, the negative impact of changes in
foreign currency exchange rates was less in the second half of
2019 compared to the first half.

Our net earnings increased by more than $1.5 billion in
2019 from 2018. We had significant goodwill and intangible
asset impairments and litigation-related charges in 2018,
which contributed to a net loss that year. In 2019, expenses
related to quality remediation, as well as acquisition and
integration, declined due to the continued progress in

Net Sales by Geography

completing those projects. Higher sales, lower interest
expense and the recognition of a deferred tax benefit related
to Switzerland tax reform resulted in the significant increase
in earnings in 2019 compared to 2018.

2020 Outlook

We believe that the improved sales performance in the
second half of 2019 will continue into 2020. We estimate sales
growth in 2020 compared to 2019 will be in a range of
2.5 percent to 3.5 percent. We anticipate the impact from
changes in foreign currency exchange rates will be minimal for
2020. We expect to be able to leverage the sales growth into
higher operating profits. Additionally, we expect reductions in
quality remediation costs, as well as other various project
costs, as we complete these initiatives. We have recently
initiated restructuring activities designed to reduce our
operating costs in the long-term. These activities are expected
to result in expenses of approximately $350 million to
$400 million through the end of 2023, with slightly more than
half of that expected to be incurred in 2020. Further, we
expect interest expense, net, will continue to decline in 2020
due to lower average outstanding debt balances.

Our 2020 outlook does not consider any impacts from the

recent outbreak of the coronavirus. While there could be a
near-term effect on our operating results, it is difficult to
assess or predict how material the impact will be and what
long-term effects the outbreak may have.

RESULTS OF OPERATIONS

We analyze sales by three geographies, the Americas,

EMEA and Asia Pacific, and by the following product
categories: Knees, Hips, S.E.T., Dental, Spine & CMF and
Other. This sales analysis differs from our reportable operating
segments, which are based upon our senior management
organizational structure and how we allocate resources
towards achieving operating profit goals. We analyze sales by
geography because the underlying market trends in any
particular geography tend to be similar across product
categories and because we primarily sell the same products in
all geographies.

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

Americas

EMEA

Asia Pacific

Total

Year Ended December 31,

2019

2018 % Inc/(Dec)

Volume/
Mix

Foreign
Exchange

Price

$4,875.8

$4,837.2

0.8%

4.0% (3.0)% (0.2)%

1,746.9

1,801.9

(3.1)

1,359.5

1,293.8

$7,982.2

$7,932.9

5.1

0.6

4.3

9.1

(2.1)

(2.2)

(5.3)

(1.8)

4.9

(2.7)

(1.6)

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Americas

EMEA

Asia Pacific

Total

Year Ended December 31,

2018

2017 % Inc/(Dec)

Volume/
Mix

Foreign
Exchange

Price

$4,837.2

$4,844.8

(0.2)% 2.3% (2.4)% (0.1)%

1,801.9

1,745.2

1,293.8

1,213.3

$7,932.9

$7,803.3

3.2

6.6

1.7

9.2

(1.6)

(3.5)

3.1

0.9

3.2

(2.4)

0.9

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

sales.

Net Sales by Product Category

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

Knees

Hips

S.E.T.

Spine & CMF

Dental

Other

Total

Knees

Hips

S.E.T.

Spine & CMF

Dental

Other

Total

Year Ended December 31,

2019

2018 % Inc/(Dec)

Volume/
Mix

Foreign
Exchange

Price

$2,810.1

$2,773.7

1.3%

6.2% (3.0)% (1.9)%

1,935.1

1,921.4

1,795.7

1,751.8

747.3

414.0

280.0

763.9

411.2

310.9

0.7

2.5

(2.2)

0.7

5.5

5.4

1.4

3.2

(3.0)

(1.6)

(2.6)

(0.9)

(9.9)

(2.1)

(6.5)

(1.8)

(1.3)

(1.0)

(1.6)

(1.3)

$7,982.2

$7,932.9

0.6

4.9

(2.7)

(1.6)

Year Ended December 31,

2018

2017 % Inc/(Dec)

Volume/
Mix

Foreign
Exchange

Price

$2,773.7

$2,734.0

1.5%

3.6% (2.9)% 0.8%

1,921.4

1,871.8

1,751.8

1,701.8

763.9

411.2

310.9

757.9

418.6

319.2

2.6

2.9

0.8

(1.8)

(2.6)

4.3

3.9

2.1

(2.8)

(1.8)

(1.7)

(1.5)

(1.7)

(1.5)

1.1

0.8

0.4

1.4

0.6

$7,932.9

$7,803.3

1.7

3.2

(2.4)

0.9

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,

2019

2018

2017

2019 vs. 2018
% Inc/(Dec)

2018 vs. 2017
% Inc/(Dec)

$1,676.6
654.1
479.4

$1,642.7
672.3
458.7

$1,656.5
644.4
433.1

2.1%
(2.7)
4.5

$2,810.1

$2,773.7

$2,734.0

1.3

$1,016.3
499.8
419.0

$ 996.3
519.9
405.2

$ 968.9
518.4
384.5

2.0%
(3.9)
3.4

$1,935.1

$1,921.4

$1,871.8

0.7

(0.8)%
4.4
5.9

1.5

2.8%
0.3
5.4

2.6

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

Demand (Volume/Mix) Trends

Spine & CMF

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Increased volume and changes in the mix of product sales

Spine and CMF sales decreased by 2.2 percent in 2019

had a positive effect of 4.9 percent on year-over-year sales
during 2019. Volume/mix growth was driven by recent product
introductions, particularly in our Knees product category, sales
in key emerging markets and market growth. Market growth
has generally been influenced by an aging global population,
obesity, new technologies, advances in surgical techniques and
more active lifestyles, among other factors.

Pricing Trends

Global selling prices had a negative effect of 2.7 percent

on year-over-year sales during 2019. 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.

Foreign Currency Exchange Rates

In 2019, changes in foreign currency exchange rates had a
negative effect of 1.6 percent on year-over-year sales. If foreign
currency exchange rates remain at levels consistent with
recent rates, we estimate they will have a minimal effect on
sales in 2020 for the full year. However, we estimate sales will
be negatively affected by foreign currency exchange rates in
the first half of the year, but that impact will be offset by
positive effects in the second half of the year.

Sales by Product Category

Knees

Knee sales increased by 1.3 percent in 2019 compared to
2018. Various product launches resulted in improved volume/
mix growth in the knee product category, which was partially
offset by price declines and changes in foreign currency
exchange rates. Knee sales growth was principally driven by
increased demand for Persona® The Personalized Knee
System, the Oxford® Partial Knee and the ROSA® Knee
System.

Hips

Hip sales increased by 0.7 percent in 2019 compared to

2018. Volume/mix growth in this product category was
partially offset by price declines and changes in foreign
currency exchange rates. Hip sales growth was primarily
attributable to increased utilization of our Taperloc® Complete
Hip System and G7® Acetabular System.

S.E.T.

S.E.T. sales increased by 2.5 percent in 2019 compared to
2018 primarily due to supply stability, salesforce specialization
and new product launches, partially offset by price declines
and changes in foreign currency exchange rates.

compared to 2018 primarily due to ongoing sales channel
consolidation in our Spine division, price declines and changes
in foreign currency exchange rates. Demand for our thoracic
products continued to positively contribute to sales.

Dental

Dental sales increased by 0.7 percent in 2019 compared to

2018. Volume/mix growth in our Dental product category
improved primarily due to investment of resources in priority
areas, as well as other operational improvements.

The following table presents estimated* 2019 global

market information (dollars in billions):

Global
Market
Size

Global Market
% Growth**

$ 8

Low-Single Digit

Mid-Single Digit

Low-Single Digit

Mid-Single Digit

Zimmer
Biomet
Market
Position

Knees

Hips

S.E.T.

Spine & CMF

Dental

* 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

Expenses as a Percent of Net Sales

Year Ended December 31,

2019

2018

2017

2019 vs. 2018
Inc/(Dec)

2018 vs. 2017
Inc/(Dec)

28.2% 28.6% 27.3%

(0.4)%

1.3%

7.3

7.5

7.7

(0.2)

5.6

4.9

4.7

0.7

41.9

42.6

39.8

(0.7)

0.9

1.0

12.3

1.9

4.2

2.3

(11.4)

(0.9)

0.2

2.8

8.1

(0.4)

0.6

0.4

0.2

14.2

1.3

0.4

3.4

10.2

(1.1)

13.8

(2.1)

(9.8)

Cost of products sold,
excluding intangible
asset amortization

Intangible asset
amortization

Research and

development

Selling, general and
administrative

Goodwill and intangible
asset impairment

Quality remediation

Restructuring and other

cost reduction
initiatives

Acquisition, integration

and related

Operating Profit

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Cost of Products Sold and Intangible Asset Amortization

We calculate gross profit as net sales minus cost of
products sold and intangible asset amortization. Our gross
margin percentage is gross profit divided by net sales. The
following table sets forth the factors that contributed to the
gross margin changes in each of 2019 and 2018 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

Royalties

Impact of foreign currency hedges

Inventory step-up

U.S. medical device excise tax

Intangible asset amortization

Year Ended December 31,

2019

2018

63.9%

64.9%

(0.7)

(0.4)

0.1

–

0.4

0.8

–

0.2

(0.6)

0.8

(1.0)

(0.1)

–

(0.4)

0.4

(0.3)

0.2

Current year gross margin

64.5%

63.9%

The increase in gross margin percentage in 2019
compared to 2018 was primarily due to the effect of our
hedging program, lower royalty expense, a refund related to
U.S. medical device excise taxes and lower intangible asset
amortization. We incurred hedge gains of $38.4 million in 2019
compared to hedge losses of $26.2 million in 2018. For
derivatives which qualify as hedges of future cash flows, the
effective portion of changes in fair value is temporarily
recorded in other comprehensive income and then recognized
in cost of products sold when the hedged items affect earnings.
The refund of a portion of the U.S. medical device excise tax
was the result of a change in the methodology we used to
calculate the constructive sales price upon which the taxes
were paid. On July 1, 2019 the IRS approved and agreed to our
change in methodology. The reduction in royalty expense was
partially the result of an agreement we entered into on April 1,
2019. Under the agreement, we paid $192.5 million to buy out
certain licensing arrangements from an unrelated third party.
This new agreement and the related payment replace the
variable royalty payments that otherwise would have been due
under the terms of previous licensing arrangements through
2029. The payment was recorded as an intangible asset and
will be amortized through 2029. Intangible asset amortization
expense declined in 2019 due to certain intangible assets from
past acquisitions being fully amortized, partially offset by
additional amortization from the agreement to buy out certain
licensing arrangements we entered into on April 1, 2019. These
favorable items were partially offset by lower average selling
prices and higher manufacturing costs.

Operating Expenses

R&D expenses as a percentage of net sales increased in

2019 compared to 2018 primarily due to increased investment

in our Knee product pipeline, costs associated with the EU
MDR and patent licenses acquired for use in R&D activities
that were expensed immediately.

Selling, general and administrative (“SG&A”) expenses
and SG&A expenses as a percentage of sales decreased in 2019
compared to 2018 primarily due to lower litigation-related
charges. In 2018, we recognized a $168 million litigation charge
for a patent infringement lawsuit. The lower litigation-related
charges were partially offset by higher selling costs due to
higher sales, investments in preparation for new product
launches, and higher expenses from legal entity, distribution
and manufacturing optimization, including distributor contract
terminations.

In 2019, we recognized a $70.1 million in-process research

and development (“IPR&D”) intangible asset impairment on
certain IPR&D projects that we terminated. In 2018, we
recognized goodwill impairment charges of $975.9 million
primarily related to our EMEA and Spine reporting units.

Our quality remediation expenses continued to decline in

2019 due to the natural regression of completing our
remediation milestones. Similarly, acquisition, integration and
related expenses declined mainly due to the completion of
certain integration efforts.

In December 2019, our Board of Directors approved, and

we initiated, a new global restructuring program with an
overall objective of reducing costs to allow us to invest in
higher priority growth opportunities. We recognized expenses
of $50.0 million in 2019 primarily related to severance
associated with this program as well as expenses incurred
related to a supply chain optimization initiative. The 2018 cost
reduction expenses only included expenses related to the
supply chain optimization initiative.

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

Our other expense, net, primarily relates to certain
components of pension expense, investment gains and losses
and remeasurement gains and losses related to monetary
assets and liabilities denominated in a foreign currency other
than an entity’s functional currency, partially offset by the
impact of foreign currency forward exchange contracts we
entered into to mitigate any gain or loss. The decline in other
expense, net in 2019 was driven by higher pension-related
gains.

Interest expense, net, declined in 2019 compared to 2018
primarily due to continued debt repayments and gains related
to our cross-currency interest rate swaps.

Our effective tax rate (“ETR”) on earnings (loss) before

income taxes was negative 24.9 percent (a tax benefit was
recognized on earnings before income taxes) and negative
39.9 percent (a tax provision was recognized on a loss before
income taxes) for the years ended December 31, 2019 and
2018, respectively. In 2019, we recognized an overall tax
benefit in the year due to a $315.0 million benefit from
Switzerland’s Federal Act on Tax Reform and AHV Financing
(“TRAF”) in addition to the tax impact of certain restructuring
transactions in Switzerland. The TRAF is effective January 1,
2020 and includes the abolishment of various favorable federal

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

and cantonal tax regimes. The TRAF provides transitional
relief measures for companies that are losing the tax benefit of
a ruling, including a “step-up” for amortizable goodwill, equal
to the amount of future tax benefit they would have received
under their existing ruling, subject to certain limitations.

In 2018, our negative ETR was primarily due to goodwill

impairment that resulted in us having a net loss before income
taxes with no associated tax benefit recognized for this
charge. In 2018, we also recognized an additional $8.3 million
of income tax provision as we completed our estimate of the
effects of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”).

Absent discrete tax events, we expect our future ETR will

be lower than the U.S. corporate income tax rate of
21.0 percent due to our mix of earnings between U.S. and
foreign locations, which have lower corporate income tax
rates. 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

(dollars in millions)

Americas

EMEA

Asia Pacific

Net Sales

Operating Profit

Operating Profit as a
Percentage of Net Sales

Year Ended December 31,

2019

2018

2017

2019

2018

2017

2019

2018

2017

$3,978.1

$3,932.6

$3,928.9

$2,163.2

$2,084.4

$2,126.8

54.4% 53.0% 54.1%

1,538.6

1,576.1

1,523.4

1,297.0

1,236.9

1,158.3

477.1

458.9

479.3

435.3

478.1

417.6

31.0

35.4

30.4

35.2

31.4

36.1

In the Americas, operating profit as a percentage of net
sales increased in 2019 compared to 2018. The increase was
primarily due to improved sales volume/mix and controlled
spending. In EMEA, operating profit as a percentage of net
sales increased in 2019 compared to 2018. The increase was
primarily due to higher sales volume/mix and gains recognized
related to our hedging program. In Asia Pacific, operating
profit as a percentage of net sales increased in 2019 compared
to 2018 primarily due to volume/mix net sales growth and
gains recognized related to our hedging program.

Non-GAAP Operating Performance Measures

We use financial measures that differ from financial
measures determined in accordance with U.S. Generally
Accepted Accounting Principles (“GAAP”) to evaluate our
operating performance. These non-GAAP financial measures
exclude, as applicable, the impact of inventory step-up; certain
inventory and manufacturing-related charges including
charges to discontinue certain product lines; intangible asset
amortization; goodwill and intangible asset impairment; quality
remediation expenses; restructuring and other cost reduction
initiatives; acquisition, integration and related expenses;
certain litigation gains and charges; expenses to comply with
the EU MDR; other charges; any related effects on our income
tax provision associated with these items; the effect of
Switzerland tax reform; the effect of the 2017 Tax Act; other
certain tax adjustments; and, with respect to earnings per
share information, provide for the effect of dilutive shares

assuming net earnings in a period of a reported net loss. We
use these non-GAAP financial measures internally to evaluate
the performance of the business. Additionally, we believe
these non-GAAP measures provide meaningful incremental
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
income but that do not impact the fundamentals of our
operations. The non-GAAP measures enable the evaluation of
operating results and trend analysis by allowing a reader to
better identify operating trends that may otherwise be masked
or distorted by these types of items that are excluded from the
non-GAAP measures. In addition, adjusted diluted earnings
per share is used as a performance metric in our incentive
compensation programs.

Our non-GAAP adjusted net earnings used for internal

management purposes for the years ended December 31,
2019, 2018 and 2017 were $1,626.4 million, $1,565.4 million
and $1,636.4 million, respectively, and our non-GAAP adjusted
diluted earnings per share were $7.87, $7.64 and $8.03,
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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

earnings per share used for internal management purposes
(in millions, except per share amounts):

Net Earnings (Loss) of Zimmer

Biomet Holdings, Inc.
Inventory step-up and other

inventory and

manufacturing related charges(1)
Intangible asset amortization(2)
Goodwill and intangible asset

impairment(3)

Quality remediation(4)
Restructuring and other cost
reduction initiatives(5)
Acquisition, integration and

related(6)
Litigation(7)
Litigation settlement gain(8)
European Union Medical Device

Regulation(9)
Other charges(10)
Taxes on above items(11)
U.S. tax reform(12)
Switzerland tax reform(13)
Other certain tax adjustments(14)

Year ended December 31,

2019

2018

2017

$1,131.6

$ (379.2) $ 1,813.8

53.9
584.3

70.1
87.6

50.0

12.2
65.0
(23.5)

30.9
119.2
(226.2)
–
(315.0)
(13.7)

32.5
595.9

979.7
165.4

70.8
603.9

331.5
195.1

34.2

17.6

99.5
186.0
–

3.7
82.8
(239.6)
8.3
–
(3.8)

262.2
104.0
–

–
43.8
(421.5)
(1,272.4)
–
(112.4)

Adjusted Net Earnings

$1,626.4

$1,565.4

$ 1,636.4

Diluted Earnings (Loss) per share
Inventory step-up and other

inventory and

manufacturing related charges(1)
Intangible asset amortization(2)
Goodwill and intangible asset

impairment(3)

Quality remediation(4)
Restructuring and other cost
reduction initiatives(5)
Acquisition, integration and

related(6)
Litigation(7)
Litigation settlement gain(8)
European Union Medical Device

Regulation(9)
Other charges(10)
Taxes on above items(11)
U.S. tax reform(12)
Switzerland tax reform(13)
Other certain tax adjustments(14)
Effect of dilutive shares assuming

net earnings(15)

5.47

$ (1.86) $

8.90

0.26
2.83

0.34
0.42

0.24

0.06
0.31
(0.11)

0.15
0.58
(1.09)
–
(1.52)
(0.07)

0.16
2.93

4.81
0.81

0.17

0.49
0.91
–

0.02
0.41
(1.18)
0.04
–
(0.02)

0.35
2.96

1.63
0.96

0.09

1.28
0.51
–

–
0.22
(2.07)
(6.25)
–
(0.55)

–

(0.05)

–

Adjusted Diluted EPS

7.87

7.64

8.03

(1) Inventory step-up and other inventory and manufacturing-related
charges relate to inventory step-up expense, excess and obsolete inventory
charges on certain product lines we intend to discontinue and other
inventory and manufacturing-related charges. The year ended
December 31, 2019 included a $20.8 million charge incurred to terminate a
raw material supply agreement. Inventory step-up expense represents the
incremental expense of inventory sold recognized at its fair value after
business combination accounting is applied versus the expense that would
have been recognized if sold at its cost to manufacture. Since only the
inventory that existed at the business combination date was stepped-up to
fair value, we believe excluding the incremental expense provides investors
useful information as to what our costs may have been if we had not been
required to increase the inventory’s book value to fair value. The excess and
obsolete inventory charges on certain product lines are driven by

acquisitions where there are competing product lines and we have plans to
discontinue one of the competing product lines.
(2) We exclude intangible asset amortization from our non-GAAP financial
measures because we internally assess our performance against our peers
without this amortization. Due to various levels of acquisitions among our
peers, intangible asset amortization can vary significantly from company to
company.
(3) In 2019 and 2018, we recognized $70.1 and $3.8 million, respectively, of
intangible asset impairments from merger-related IPR&D intangible assets.
Also in 2018, we recognized a goodwill impairment charge of $975.9 million.
The impairment was comprised of $401.2 million in our Spine reporting
unit, $567.0 million in our EMEA reporting unit and $7.7 million in an
insignificant reporting unit. In 2017, we recognized $18.8 million and
$8.0 million of intangible asset impairment from merger-related IPR&D and
trademark intangible assets, respectively. Also in 2017, we recognized
goodwill impairment charges of $32.7 million and $272.0 million on our
Office Based Technologies and Spine reporting units, respectively.
(4) We are addressing inspectional observations on Form 483 and a Warning
Letter issued by the U.S. Food and Drug Administration (“FDA”) following
its previous inspections of our Warsaw North Campus facility, among other
matters. This quality remediation has required us to devote significant
financial resources and is for a discrete period of time. The majority of the
expenses are related to consultants who are helping us to update previous
documents and redesign certain processes.
(5) In December 2019, our Board of Directors approved, and we initiated, a
new global restructuring program with an overall objective of reducing costs
to allow us to invest in higher priority growth opportunities. In 2019, the
expenses were primarily related to severance and our supply chain
optimization initiative. The 2018 and 2017 expenses were related to our
supply chain optimization initiative.
(6) The acquisition, integration and related gains and expenses we have
excluded from our non-GAAP financial measures resulted from various
acquisitions. The acquisition, integration and related gains and expenses
include the following types of gains and expenses:
(cid:129) Consulting and professional fees related to third-party integration consulting
performed in a variety of areas, such as tax, compliance, logistics and human
resources, and legal fees related to the consummation of mergers and
acquisitions.

(cid:129) Employee termination benefits related to terminating employees with

overlapping responsibilities in various areas of our business.

(cid:129) Dedicated project personnel expenses which include the salary, benefits, travel

expenses and other costs directly associated with employees who are
100 percent dedicated to our integration of acquired businesses and employees
who have been notified of termination, but are continuing to work on
transferring their responsibilities.

(cid:129) Contract termination expenses related to terminated contracts, primarily with

sales agents and distribution agreements.

(cid:129) Other various expenses to relocate facilities, integrate information technology,
losses incurred on assets resulting from the applicable acquisition, and other
various expenses.

(7) We are involved in routine patent litigation, product liability litigation,
commercial litigation and other various litigation matters. We review
litigation matters from both a qualitative and quantitative perspective to
determine if excluding the losses or gains will provide our investors with
useful incremental information. Litigation matters can vary in their
characteristics, frequency and significance to our operating results. The
litigation charges and gains excluded from our non-GAAP financial
measures in the periods presented relate to product liability matters where
we have received numerous claims on specific products, patent litigation
and commercial litigation related to a common matter in multiple
jurisdictions. In regards to the product liability matters, due to the
complexities involved and claims filed in multiple districts, the expenses
associated with these matters are significant to our operating results. Once
the litigation matter has been excluded from our non-GAAP financial
measures in a particular period, any additional expenses or gains from
changes in estimates are also excluded, even if they are not significant, to
ensure consistency in our non-GAAP financial measures from
period-to-period.
(8) In the first quarter of 2019, we settled a patent infringement lawsuit out
of court, and the other party agreed to pay us an upfront, lump-sum amount
for a non-exclusive license to the patent.
(9) The EU MDR imposes significant additional premarket and postmarket
requirements. The new regulations provide a transition period until
May 2020 for currently-approved medical devices to meet the additional
requirements. For certain devices, this transition period can be extended
until May 2024. We are excluding from our non-GAAP financial measures
the incremental costs incurred to establish initial compliance with the

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regulations related to our currently-approved medical devices. The
incremental costs primarily include third-party consulting necessary to
supplement our internal resources.
(10) We have incurred other various expenses from specific events or
projects that we consider highly variable or that have a significant impact to
our operating results that we have excluded from our non-GAAP measures.
These include costs related to legal entity, distribution and manufacturing
optimization, including contract terminations, as well as our costs of
complying with our Deferred Prosecution Agreement (“DPA”) with the U.S.
government related to certain Foreign Corrupt Practices Act matters
involving Biomet and certain of its subsidiaries. Under the DPA, which has a
three-year term, we are subject to oversight by an independent compliance
monitor, which monitorship commenced in August 2017. The excluded
costs include the fees paid to the independent compliance monitor and to
external legal counsel assisting in the matter.
(11) Represents the tax effects on the previously specified items. 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.
(12) 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. In 2018, we finalized our estimates of the
effects of the 2017 Tax Act based upon final guidance issued by U.S. tax
authorities.
(13) We recognized a tax benefit related to TRAF in addition to an impact
from certain restructuring transactions in Switzerland.
(14) Other certain tax adjustments relate to various discrete tax period
adjustments, including changes in statutory tax rates, adjustments from
internal restructuring transactions that provide us access to offshore funds
in a tax efficient manner and resolutions of various tax matters.
(15) Diluted share count used in Adjusted Diluted EPS (in millions):

Diluted shares

Dilutive shares assuming net earnings

Adjusted diluted shares

LIQUIDITY AND CAPITAL RESOURCES

Year ended
December 31, 2018

203.5

1.5

205.0

Cash flows provided by operating activities were
$1,585.8 million in 2019 compared to $1,747.4 million and
$1,582.3 million in 2018 and 2017, respectively. The decrease
in operating cash flows in 2019 compared to 2018 was
primarily due to a payment of approximately $168 million on a
patent infringement lawsuit. Additionally, in 2018 we
expanded our sale of accounts receivable in certain countries
which provided additional cash inflows, compared to 2019
when we sold fewer receivables at the end of the year which
had a negative effect on operating cash flows.

Cash flows used in investing activities were $729.3 million
in 2019 compared to $416.6 million and $510.8 million in 2018
and 2017, respectively. In 2019, we paid $197.6 million to buy
out certain licensing arrangements from unrelated third
parties. Instrument and property, plant and equipment
additions reflected ongoing investments in our product
portfolio and optimization of our manufacturing and logistics
network, including investments in instruments in 2019 to
support new product launches.

Cash flows used in financing activities were $779.9 million
in 2019. Our primary use of available cash in 2019 was for debt
repayment. We received net proceeds of $549.2 million from

the issuance of additional Euro-denominated senior notes
which we used to repay $500.0 million of senior notes that
became due on November 30, 2019. In January 2019, we
borrowed an additional $200.0 million under a U.S. term loan
(“U.S. Term Loan C”) and used those proceeds, along with
cash on hand, to repay the remaining $225.0 million
outstanding under the U.S. term loan (“U.S. Term Loan B”)
provided for under our 2016 credit agreement. During 2019 we
also repaid the $735.0 million outstanding balance under U.S.
Term Loan C, with the remainder of the proceeds from the
Euro-denominated senior notes issuance and cash from
operations. Overall, we had approximately $710 million of net
principal repayments on our senior notes and term loans in
2019. In 2018, we received net proceeds of $749.5 million from
the issuance of additional senior notes and borrowed
$400.0 million from our $1.5 billion multicurrency revolving
facility provided for under our 2016 credit agreement (the
“2016 Multicurrency Revolving Facility”) to repay
$1,150.0 million of senior notes that became due on April 2,
2018. We subsequently repaid the $400.0 million of 2016
Multicurrency Revolving Facility borrowings in 2018. Also in
2018, we borrowed $675.0 million under U.S. Term Loan C and
used the cash proceeds along with cash generated from
operations throughout the year to repay an aggregate of
$835.0 million on U.S. Term Loan A, $450.0 million on U.S.
Term Loan B, and we subsequently repaid $140.0 million on
U.S. Term Loan C. Overall, we had approximately
$1,150 million of net principal repayments on our senior notes
and term loans in 2018.

In February, May, August and December 2019, 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.

In February 2016, our Board of Directors authorized a
$1.0 billion share repurchase program effective March 1, 2016,
with no expiration date. As of December 31, 2019, 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 debt repayment, reinvestment in the
business and payment of dividends. If the right opportunities
arise, we may also use available cash to pursue business
development opportunities.

As discussed in Note 4 to our consolidated financial

statements, in December 2019, our Board of Directors
approved, and we initiated, a new global restructuring program
with an objective of reducing costs to allow us to further invest
in higher priority growth opportunities. The restructuring
program is expected to result in total pre-tax restructuring
charges of approximately $350 million to $400 million, with
slightly more than half of that expected to be incurred in 2020.
We expect to reduce gross annual pre-tax operating expenses
by approximately $200 million to $300 million by the end of
2023 as program benefits are realized.

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As discussed in Note 16 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
for resolution of the disputed tax issues is uncertain, future
payments may be significant to our operating cash flows.
As discussed in Note 20 to our consolidated financial

statements, as of December 31, 2019, we have an estimated
liability of $59.9 million related to Durom Cup product liability
claims and a liability of $50.1 million related to Biomet
metal-on-metal hip implant claims on our consolidated balance
sheet. We expect to continue paying these claims over the next
few years.

At December 31, 2019, our outstanding debt consisted of

senior notes and term loans as follows (dollars in millions):

Type

Principal

Currency

Interest
Rate

Maturity Date

any one entity. We invest only in high-quality financial
instruments in accordance with our internal investment policy.

As of December 31, 2019, $373.4 million of our cash and
cash equivalents were held in jurisdictions outside of the U.S.
Of this amount, $102.1 million is denominated in U.S. Dollars
and, therefore, bears no foreign currency translation risk. The
balance of these assets is denominated in currencies of the
various countries where we operate. In the future, we intend to
repatriate at least $5.0 billion of unremitted earnings, of which
the additional tax related to remitting earnings is deemed
immaterial.

Management believes that cash flows from operations and

available borrowings under the 2019 Multicurrency Revolving
Facility are sufficient to meet our working capital, capital
expenditure and debt service needs, as well as 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.

Notes $1,500.0

U.S. Dollar

2.700%

April 1, 2020

CONTRACTUAL OBLIGATIONS

Euro

1.414 December 13, 2022

Contractual
Obligations

Total

2020

2021
and
2022

2023 and
2024

2025 and
Thereafter

Notes

Term

Notes

450.0

300.0

750.0

U.S. Dollar Floating

March 19, 2021

U.S. Dollar

3.375 November 30, 2021

U.S. Dollar

3.150

April 1, 2022

106.9 Japanese Yen

0.635 September 27, 2022

194.7 Japanese Yen

0.635 September 27, 2022

561.3

300.0

U.S. Dollar

2,000.0

U.S. Dollar

3.700

3.550

March 19, 2023

April 1, 2025

561.3

253.4

317.8

395.4

Euro

2.425 December 13, 2026

1.164 November 15, 2027

U.S. Dollar

4.250

August 15, 2035

U.S. Dollar

5.750 November 30, 2039

U.S. Dollar

4.450

August 15, 2045

We have a five-year unsecured multicurrency revolving

facility of $1.5 billion (the “2019 Multicurrency Revolving
Facility”) that will mature on November 1, 2024. There were
no outstanding borrowings under this facility as of
December 31, 2019. The 2019 Multicurrency Revolving Facility
replaced the 2016 Multicurrency Revolving Facility, effective
November 1, 2019. We also had other available uncommitted
credit facilities totaling $45.3 million as of December 31, 2019.
We have $1.5 billion principal amount of notes due April 1,

2020. We believe we can satisfy this debt obligation with cash
generated from our operations, by issuing new debt, and/or by
borrowing on our 2019 Multicurrency Revolving Facility. We
believe that our earnings, balance sheet and cash flows will
allow us to obtain additional capital, if necessary, to satisfy this
debt obligation.

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

consolidated financial statements.

We place our cash and cash equivalents in highly-rated
financial institutions and limit the amount of credit exposure to

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 and certain other commitments (in millions):

Long-term debt

$ 8,252.1

$1,500.0

$2,362.9

$300.0

$4,089.2

Interest

payments

Operating leases

Purchase

obligations

Toll charge tax

liability

Other long-term

liabilities

Total contractual
obligations

1,602.8

307.3

173.0

70.5

306.0

279.4

99.4

63.3

844.4

74.1

599.6

319.8

203.3

76.1

0.4

234.9

227.2

–

12.4

136.6

85.9

146.6

19.3

61.3

$11,223.9

$2,063.3

$3,130.6

$874.7

$5,155.3

$118.6 million of the other long-term liabilities on our
balance sheet as of December 31, 2019 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 2020. Therefore, this table does
not include any amounts related to future contributions to our
plans. See Note 15 to our consolidated financial statements for
further information on our defined benefit plans.

Under the 2017 Tax Act, we have a $234.9 million toll

charge liability for the one-time deemed repatriation of
unremitted foreign earnings. This amount was recorded in

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non-current income tax liabilities on our consolidated balance
sheet as of December 31, 2019. We have elected 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
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 16 to our consolidated
financial statements for further information on these
tax-related accounts.

We have entered into various agreements that may result
in future payments dependent upon various events such as the
achievement of certain product R&D milestones, sales
milestones, or, at our discretion, 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 $60 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
Financial Accounting Standards Board (“FASB”) guidance on
income taxes and we adjust these liabilities when our judgment
changes as a result of the evaluation of new information not
previously available. Due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment
that is materially different from our current estimate of the tax
liabilities. These differences will be reflected as increases or
decreases to income tax expense in the period in which they
are determined.

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

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 and risk-
adjusted discount rates. As such, these fair value
measurements use significant unobservable inputs. Changes to
these assumptions could require us to record impairment
charges on these assets.

In our annual impairment test in the fourth quarter of
2019, we estimated the fair value of our EMEA and Dental
reporting units only exceeded their carrying values by less
than 5 percent. 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 units. Significant
assumptions are incorporated into the income approach, such

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2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

as estimated growth rates and risk-adjusted discount rates.
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
EMEA and Dental reporting units. As of December 31, 2019,
the remaining goodwill on the EMEA and Dental reporting
units were $749.8 million and $397.7 million, respectively.
Future impairment in the EMEA and Dental reporting

units could occur if the estimates used in the income and
market approaches change. If our estimates of profitability in
the reporting unit decline, the fair value estimate under the
income approach will decline. Additionally, changes in the
broader economic environment could cause changes to our
estimated discount rates, foreign currency exchange rates
used to translate cash flows and comparable company
valuation indicators, which may impact our estimated fair
values.

We have three other reporting units that have goodwill

assigned to them. The fair value of each of these three
reporting units is sufficiently in excess of its carrying value
which leads us to believe only a significant, unforeseen event
could cause impairment to any of these reporting units.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements for

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

Item 7A. Quantitative and Qualitative Disclosures

About Market Risk

MARKET RISK

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

FOREIGN CURRENCY EXCHANGE RISK

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

that our financial condition, results of operations and cash
flows could be adversely affected by changes in foreign
currency exchange rates. We are primarily exposed to foreign
currency exchange rate risk with respect to transactions and
net assets denominated in Euros, Swiss Francs, Japanese Yen,
British Pounds, Canadian Dollars, Australian Dollars, Korean
Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan
Dollars, South African Rand, Russian Rubles, Indian Rupees,
Turkish Lira, Polish Zloty, Danish Krone, and Norwegian

Krone. We manage the foreign currency exposure centrally, on
a combined basis, which allows us to net exposures and to take
advantage of any natural offsets. To reduce the uncertainty of
foreign currency exchange rate movements on transactions
denominated in foreign currencies, we enter into derivative
financial instruments in the form of foreign currency exchange
forward contracts with major financial institutions. These
forward contracts 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 that qualify as cash flow hedges are
temporarily recorded in accumulated other comprehensive
income, then recognized in cost of products sold when the
hedged item affects net earnings.

For contracts outstanding at December 31, 2019, 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 2020 through June 2022. The
notional amounts of outstanding forward contracts entered
into with third parties to purchase U.S. Dollars at
December 31, 2019 were $1,496.3 million. The notional
amounts of outstanding forward contracts entered into with
third parties to purchase Swiss Francs at December 31, 2019
were $276.0 million. The weighted average contract rates
outstanding at December 31, 2019 were Euro:USD 1.21,
USD:Swiss Franc 0.94, USD:Japanese Yen 104.34, British
Pound:USD 1.37, USD:Canadian Dollar 1.30, Australian
Dollar:USD 0.73, USD:Korean Won 1,138, USD:Swedish Krona
8.80, USD:Czech Koruna 22.11, USD:Thai Baht 31.17,
USD:Taiwan Dollar 29.60, USD:South African Rand 15.40,
USD:Russian Ruble 68.81, USD:Indian Ruppee 74.26,
USD:Polish Zloty 3.72, USD:Danish Krone 6.15, and
USD:Norwegian Krone 8.36.

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 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, 2019 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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

June 2022, depending on the direction of the change, by the
following average approximate amounts (in millions):

change across all these commodities would not have a material
effect on our consolidated financial position, results of
operations or cash flows.

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
Polish Zloty
Danish Krone
Norwegian Krone

Average
Amount

$43.5
28.5
54.0
1.6
14.3
13.3
2.6
2.4
1.7
0.9
4.1
1.1
2.3
0.8
3.4
3.0
1.8

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.

The majority of our debt is fixed-rate debt and therefore is

not exposed to changes in interest rates. Based upon our
overall interest rate exposure as of December 31, 2019, a
change of 10 percent in interest rates, assuming the principal
amount outstanding remains constant, would not have a
material effect on interest expense, net. This analysis does not
consider the effect of the change in the level of overall
economic activity that could exist in such an environment.

Any change in the fair value of foreign currency exchange

CREDIT RISK

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 and intangible

assets, in legal entities with non-U.S. Dollar functional
currencies of $1,193.5 million at December 31, 2019, primarily
in Euros, Japanese Yen and Australian Dollars.

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

For details about these and other financial instruments,

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

COMMODITY PRICE RISK

We purchase raw material commodities such as cobalt
chrome, titanium, tantalum, polymer and sterile packaging. We
enter into supply contracts generally with terms of 12 to 24
months, where available, on these commodities to alleviate the
effect of market fluctuation in prices. As part of our risk
management program, we perform sensitivity analyses related
to potential commodity price changes. A 10 percent price

Financial instruments, which potentially subject us to

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

We place our cash and cash equivalents and enter into
derivative transactions with highly-rated financial institutions
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 or derivative instruments.

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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

While we are exposed to risks from the broader healthcare

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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Item 8. Financial Statements and Supplementary Data

Zimmer Biomet Holdings, Inc.
Index to Consolidated Financial Statements

Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

Page

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

2 0 1 9 F O R M 1 0 - K AN 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 (the
“Company) as of December 31, 2019 and 2018, 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, 2019, including the related notes
and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2019 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019 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, 2019, 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.

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

Critical Audit Matters

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial

statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment – EMEA and Dental Reporting Units

As described in Notes 2 and 10 to the consolidated financial statements, the Company’s consolidated goodwill balance was
$9,599.7 million as of December 31, 2019, and the goodwill associated with the EMEA reporting unit and the Dental reporting unit
was $749.8 million and $397.7 million, respectively. Management conducts an impairment test in the fourth quarter of each year or
whenever events or changes in circumstances indicate that the carrying value of the reporting unit’s assets may not be recoverable.
Potential impairment of a reporting unit is identified by comparing the reporting unit’s estimated fair value to its carrying amount.
The Company estimated the fair value of the Dental and EMEA reporting units based on income and market approaches. As
disclosed by management, 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 other businesses that are similar to the EMEA and Dental reporting units. Significant
assumptions are incorporated into the discounted cash flow analysis such as estimated growth rates and risk-adjusted discount
rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment

of the EMEA and Dental reporting units is a critical audit matter are there was significant judgment by management when
developing the fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity,
and effort in performing procedures and in evaluating management’s discounted cash flow analysis and significant assumptions,
including estimated growth rates and risk-adjusted discount rates. In addition, the audit effort involved the use of professionals with
specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall

opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These
procedures also included, among others, (i) testing management’s process for developing the fair value estimate, (ii) evaluating the
appropriateness of management’s fair value approaches, (iii) testing the completeness, accuracy and relevance of the underlying
data used in the approaches, and (iv) evaluating significant assumptions used by management in the discounted cash flow analysis,
including the revenue growth rates and the risk-adjusted discount rate. Evaluating management’s assumptions related to revenue
growth rates involved evaluating whether the assumptions used by management were reasonable considering the past performance
of the reporting units, the consistency with external data from other sources, and whether these assumptions were consistent with
evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the
evaluation of the Company’s discounted cash flow analysis and certain significant assumptions, including the risk-adjusted discount
rate.

Tax Liabilities for Unrecognized Tax Benefits

As described in Notes 2 and 16 to the consolidated financial statements, the Company has recorded tax liabilities for
unrecognized tax benefits of $741.8 million as of December 31, 2019. The calculation of the Company’s estimated tax liabilities
involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the
Company’s global operations. The Company’s 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.

The principal considerations for our determination that performing procedures relating to tax liabilities for unrecognized tax

benefits is a critical audit matter are that there was significant judgment by management when determining the tax liabilities,
including a high degree of estimation uncertainty relative to the numerous and complex tax laws and regulations, frequency of
income tax audits, and potential for significant adjustments as a result of such audits. This in turn led to a high degree of auditor
judgment, subjectivity, and effort in performing procedures to evaluate the timely identification and accurate measurement of tax
liabilities for unrecognized tax benefits. Also, the evaluation of audit evidence available to support the estimates is complex and
required significant auditor judgment as the nature of the evidence is often highly subjective, and the audit effort involved the use
of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence
obtained.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
identification, accurate measurement, and recognition of tax liabilities for unrecognized tax benefits, including controls addressing
completeness of the tax liabilities. These procedures also included, among others, (i) testing certain information used in the
calculation of tax liabilities for unrecognized tax benefits by jurisdiction on a sample basis, (ii) assessing the completeness of the
Company’s identification of tax liabilities for unrecognized tax benefits and possible outcomes for each unrecognized tax benefit,
and (iii) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill
and knowledge were used to assist in the evaluation of the Company’s interpretation and application of relevant tax laws and
regulations in various jurisdictions and assessing the reasonableness of the Company’s tax positions.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 21, 2020

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

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

2 0 1 9 F O R M 1 0 - K AN 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 and intangible asset impairment
Quality remediation
Restructuring and other cost reduction initiatives
Acquisition, integration and related

Operating expenses

Operating Profit
Other expense, net
Interest expense, net

Earnings (loss) before income taxes
(Benefit) provision for income taxes

Net Earnings (Loss)
Less: Net loss attributable to noncontrolling interest

Net Earnings (Loss) of Zimmer Biomet Holdings, Inc.

Earnings (Loss) Per Common Share – Basic
Earnings (Loss) Per Common Share – Diluted
Weighted Average Common Shares Outstanding

Basic
Diluted

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

For the Years Ended December 31,

2019

2018

2017

$7,982.2
2,252.6
584.3
449.3
3,343.8
70.1
82.4
50.0
12.2

$7,932.9
2,271.9
595.9
391.7
3,379.3
979.7
146.9
34.2
99.5

$ 7,803.3
2,132.9
603.9
369.9
3,104.7
331.5
181.3
17.6
262.2

6,844.7

7,899.1

7,004.0

1,137.5
(4.8)
(226.9)

905.8
(225.7)

1,131.5
(0.1)

33.8
(15.6)
(289.3)

(271.1)
108.2

(379.3)
(0.1)

799.3
(9.4)
(325.3)

464.6
(1,348.8)

1,813.4
(0.4)

$1,131.6

$ (379.2) $ 1,813.8

$
$

5.52
5.47

$ (1.86) $
$ (1.86) $

8.98
8.90

205.1
206.7

203.5
203.5

201.9
203.7

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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

Net Earnings (Loss)

Other Comprehensive (Loss) Income:

Foreign currency cumulative translation adjustments, net of tax

Unrealized cash flow hedge gains/(losses), net of tax

Reclassification adjustments on cash flow hedges, net of tax

For the Years Ended December 31,

2019

2018

2017

$1,131.5

$(379.3) $1,813.4

(1.5)

(135.4)

445.0

30.6

(35.1)

68.2

23.6

(95.0)

(3.8)

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

(48.5)

(17.7)

4.6

Total Other Comprehensive (Loss) Income

Comprehensive Income (Loss)

Comprehensive Loss Attributable to Noncontrolling Interest

(54.5)

(61.3)

350.8

1,077.0

(440.6)

2,164.2

(0.1)

(1.3)

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

$1,077.1

$(440.5) $2,165.5

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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)

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 20)
Stockholders’ Equity:

Common stock, $0.01 par value, one billion shares authorized,
309.9 million (307.9 million in 2018) issued
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, 103.9 million shares (103.9 million shares in 2018)

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,

2019

2018

617.9
1,363.9
2,385.0
357.1

4,723.9
2,077.4
9,599.7
7,257.6
980.1

542.8
1,275.8
2,256.5
352.3

4,427.4
2,015.4
9,594.4
7,684.6
405.0

$24,638.7

$24,126.8

400.9
126.7
1,413.9
1,500.0

362.6
142.4
1,391.3
525.0

3,441.5

2,421.3

840.1

685.1

557.8

999.5

666.2

350.0

6,721.4

8,413.7

12,245.9

12,850.7

3.1
8,920.1
10,427.3
(241.9)
(6,720.5)

3.1
8,686.1
9,491.2
(187.4)
(6,721.7)

12,388.1
4.7

11,271.3
4.8

12,392.8

11,276.1

$24,638.7

$24,126.8

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

2 0 1 9 F O R M 1 0 - K AN 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
(Loss) Income

Treasury Shares

Number

Amount

Noncontrolling
Interest

Total
Stockholders’
Equity

304.7
–
–

$3.1
–
–

$8,368.5
–
–

$ 8,467.1
1,813.8
–

$(434.0)
–
350.8

(104.1) $(6,735.8)
–
–

–
–

$ 1.0
(0.4)
(0.9)

$ 9,669.9
1,813.4
349.9

–

–
1.8

306.5
–
–

–

–
1.4

307.9
–
–

–
2.0

–

–
–

3.1
–
–

–

–
–

3.1
–
–

–
–

–

(194.1)

–
146.4

8,514.9
–
–

(77.8)
13.8

10,022.8
(379.2)
–

–

–
–

–

–
0.2

–

–
14.0

–

–
–

(194.1)

(77.8)
174.2

(83.2)
–
(61.3)

(103.9)
–
–

(6,721.8)
–
–

(0.3)
(0.1)
–

11,735.5
(379.3)
(61.3)

–

–
171.2

8,686.1
–
–

(195.5)

–

42.9

(42.9)

–
–

–
0.2

9,491.2
1,131.6
–

–

–
–

–

–
0.1

(187.4)
–
(54.5)

(103.9)
–
–

(6,721.7)
–
–

–

5.2
–

4.8
(0.1)
–

(195.5)

–

5.2
171.5

11,276.1
1,131.5
(54.5)

–
234.0

(197.2)
1.7

–
–

–
1.2

–
–

(197.2)
236.9

Balance January 1, 2017
Net earnings
Other comprehensive income
Cash dividends declared
($0.96 per share)

Retrospective adoption of new

accounting standard
Stock compensation plans

Balance December 31, 2017
Net loss
Other comprehensive loss
Cash dividends declared
($0.96 per share)

Adoption of new accounting

standard

Sale of shares in a subsidiary
without loss of control
Stock compensation plans

Balance December 31, 2018
Net earnings
Other comprehensive loss
Cash dividends declared
($0.96 per share)

Stock compensation plans

Balance December 31, 2019

309.9

$3.1

$8,920.1

$10,427.3

$(241.9)

(103.9) $(6,720.5)

$ 4.7

$12,392.8

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

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

2 0 1 9 F O R M 1 0 - K AN 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 (loss)

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

Depreciation and amortization

Share-based compensation

Goodwill and intangible asset impairment

Inventory step-up

Deferred income tax benefit (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

Net investment hedge settlements

Acquisition of intellectual property rights

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 loans

Payments on term loans

Net payments on other debt

Dividends paid to stockholders

Proceeds from employee stock compensation plans

Net cash flows from unremitted collections from factoring programs

Business combination contingent consideration payments

Other financing activities

Net cash used in financing activities

Effect of exchange rates on cash and cash equivalents

Increase (decrease) 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,

2019

2018

2017

$1,131.5

$ (379.3) $ 1,813.4

1,006.1

1,040.5

1,062.7

84.3

70.1

–

65.5

979.7

–

53.7

331.5

32.8

(538.7)

13.4

(1,776.0)

111.4
(93.8)
(125.2)
(42.0)
(17.9)

(150.8)
213.6
(199.5)
155.9
8.4

150.2
161.7
(120.1)
(133.3)
5.7

1,585.8

1,747.4

1,582.3

(315.9)

(276.3)

(337.0)

(207.1)

(162.7)

(156.0)

48.1

(197.6)

(37.1)

(19.7)

69.2

–

(15.3)

(31.5)

–

(4.0)

(13.8)

(729.3)

(416.6)

(510.8)

549.2

–

749.5

400.0

–

400.0

(400.0)

(500.0)

(1,150.0)

(500.0)

200.0

675.0

192.7

(960.0)

(1,425.0)

(940.0)

(5.3)

(3.9)

(0.9)

(196.7)

(195.2)

(193.6)

158.2

(12.2)

(2.9)

(10.2)

107.9

(36.7)

(19.8)

(4.0)

145.5

103.5

(9.1)

(8.6)

(779.9)

(1,302.2)

(1,210.5)

(1.5)

(10.2)

29.3

75.1
542.8

18.4
524.4

(109.7)
634.1

$ 617.9

542.8

524.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business

We design, manufacture and market orthopedic
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. In 2015, we completed our merger
with LVB Acquisition, Inc., the parent company of Biomet, Inc.
(“Biomet”) (which merger is sometimes referred to herein as
the “Biomet 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.

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 loss (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.

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 (“SG&A”) expenses and were $292.7 million,
$290.2 million and $263.6 million for the years ended
December 31, 2019, 2018 and 2017, respectively.

Research and Development – We expense all research

and development (“R&D”) costs as incurred except when
there is an 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, we expense the
milestone payment obligations when it is probable that the
milestone results will be 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.

Quality remediation – We use the financial statement

line item “Quality remediation” to recognize expenses related
to addressing inspectional observations on Form 483 and a
warning letter issued by the FDA following its inspections of
our Warsaw North Campus facility, among other matters. See
Note 20 for additional information about the Form 483 and
warning letter. The majority of these expenses are related to
consultants who are helping us to update previous documents
and redesign certain processes.

Restructuring and other cost reduction initiatives – A

restructuring is defined as a program that is planned and
controlled by management, and materially changes either the
scope of a business undertaken by an entity, or the manner in
which that business is conducted. Restructuring charges
include (i) termination benefits related to employee
terminations, (ii) contract termination costs and (iii) other
related costs associated with exit or disposal activities.

In December 2019, our Board of Directors approved, and

we initiated, a new global restructuring program with an
objective of reducing costs to allow us to further invest in
higher priority growth opportunities. We have reclassified
$34.2 million and $17.6 million in the years ended
December 31, 2018 and 2017, respectively, from the
“Acquisition, integration and related” line item to the
“Restructuring and other cost reduction initiatives” line item,
which amounts were primarily attributable to project costs
related to our supply chain optimization initiative.

Acquisition, integration and related – We use the

financial statement line item, “Acquisition, integration and
related” to recognize expenses resulting from the
consummation of business mergers and acquisitions and the
related integration of those businesses. Acquisition, integration
and related gains and expenses are primarily composed of:
(cid:129) Consulting and professional fees related to third-party

integration consulting performed in a variety of areas, such
as tax, compliance, logistics and human resources, and legal
fees related to the consummation of mergers and
acquisitions.

(cid:129) Employee termination benefits related to terminating

employees with overlapping responsibilities in various areas
of our business.

(cid:129) Dedicated project personnel expenses which include the
salary, benefits, travel expenses and other costs directly
associated with employees who are 100 percent dedicated to
our integration of acquired businesses and employees who

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

have been notified of termination, but are continuing to
work on transferring their responsibilities.

(cid:129) Contract termination expenses related to terminated
contracts, primarily with sales agents and distribution
agreements.

(cid:129) Other various expenses to relocate facilities, integrate

information technology, losses incurred on assets resulting
from the applicable acquisition, and other various expenses.
We have reclassified $34.2 million and $17.6 million in the

years ended December 31, 2018 and 2017, respectively, from
the “Acquisition, integration and related” line item to the
“Restructuring and other cost reduction initiatives” line item,
which amounts were primarily attributable to project costs
related to our supply chain optimization initiative.

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
$65.0 million and $65.7 million as of December 31, 2019 and
2018, respectively.

We also have receivables purchase arrangements with

unrelated third parties to transfer portions of our trade
accounts receivable balance. Funds received from the transfers
are recorded as an increase to cash and a reduction to
accounts receivable outstanding in our 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 SG&A expense. Net expenses include any resulting gains or
losses from the sales of receivables, credit insurance and
factoring fees. Any collections that we make that are
unremitted to the third parties are recognized on our
consolidated balance sheets under other current liabilities and
in our consolidated statements of cash flows in financing
activities.

Inventories – Inventories are stated at the lower of cost

and net realizable value, 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
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 that have been deployed to be used in surgeries
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 SG&A 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 10 for more information regarding goodwill.

Intangible Assets – Intangible assets are initially

measured at their fair value. We have determined the fair value
of our intangible assets either by the fair value of the
consideration exchanged for the intangible asset or the
estimated after-tax discounted cash flows expected to be
generated from the intangible asset. Intangible assets with an
indefinite life, including certain trademarks and trade names
and in-process research and development (“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 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 or contractual life, which
may range 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
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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

purposes. The use of derivative financial instruments for
trading or speculative purposes is prohibited by our policy. See
Note 14 for more information regarding our derivative and
hedging activities.

Accumulated Other Comprehensive (Loss) Income –
Accumulated other comprehensive income (loss) (“AOCI”)
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 AOCI is comprised of foreign
currency translation adjustments, including unrealized gains
and losses on net investments hedges, unrealized gains and
losses on cash flow hedges 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 investments in other

companies in which we have a controlling financial interest,
but not 100 percent of the equity. Further information related
to the noncontrolling interests of those investments have not
been provided as it is not significant to our consolidated
financial statements.

Accounting Pronouncements Recently Adopted

In February 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standard Update (“ASU”)
2016-02 – Leases (Topic 842). This ASU requires lessees to
recognize right-of-use assets and lease liabilities on the balance
sheet. This ASU was effective for us as of January 1, 2019. This
ASU required a modified retrospective transition method that
could either be applied at the earliest comparative period in
the financial statements or the period of adoption. We elected
to use the period of adoption (January 1, 2019) transition
method and therefore did not recast prior periods. This ASU
allowed for certain practical expedients to make the adoption
of the ASU less burdensome. We elected the practical
expedients upon transition which permitted us to not reassess
lease identification, classification, and initial direct costs under
the new standard for leases that commenced prior to the
effective date. We also elected not to recognize a right-of-use
asset nor a lease liability for leases with an initial term of
twelve months or less. Finally, we elected not to separate
non-lease components from the leased components in the
valuation of our right-of-use asset and lease liability for all
asset classes.

On January 1, 2019, we recognized a right-of-use asset of

$274.7 million in other assets and lease liabilities of
$62.2 million and $221.2 million in other current liabilities and
other long-term liabilities, respectively. No cumulative
adjustment to retained earnings was required upon
adoption. We do not have any significant finance leases. See

Note 19 for additional information.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326). The new guidance
describes the current expected credit loss (“CECL”) model
which requires an estimate of expected impairment on
financial instruments over the lifetime of the assets at each
reporting date. Financial instruments in scope of the guidance
include financial assets measured at amortized cost. Current
accounting guidance requires recognition of impairment when
it is probable the loss has been incurred. Under the CECL
model, lifetime expected credit losses are measured and
recognized at each reporting date based on historical
experience, current conditions and forecasted information.
The standard is effective for interim and annual periods after
December 15, 2019. Adoption of this standard requires a
modified retrospective transition method, which will result in a
cumulative-effect adjustment to retained earnings in the
period of adoption. We will adopt this standard as of January 1,
2020. The standard will primarily impact our trade receivables.
We are currently evaluating the impact the standard will have
on our consolidated financial statements, but at this time we
do not expect it to be significant.

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.

Revenue Recognition

We recognize revenue when our performance obligations
under the terms of a contract with our customer are satisfied.
This happens when we transfer control of our products to the
customer, which generally occurs upon implantation or when
title passes upon shipment. Revenue is measured as the
amount of consideration we expect to receive in exchange for
transferring our product. Taxes collected from customers and
remitted to governmental authorities are excluded from
revenues.

We sell products 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. In direct channel accounts and with some
healthcare dealers, 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 the
ability to control the inventory. Upon implantation, we issue an
invoice and revenue is recognized. Consignment sales
represented approximately 80 percent of our net sales in 2019.
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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. Payment terms vary by customer, but are
typically less than 90 days.

With sales to stocking distributors, some healthcare
dealers, dental practices and dental laboratories, revenue is
generally recognized when control of our product passes to the
customer, which is typically upon shipment of the product. We
estimate sales recognized in this manner represented
approximately 20 percent of our net sales in 2019. These
customers may purchase items in large quantities if incentives
are offered or if there are new product offerings in a market,
which could cause period-to-period differences in sales. It is
our accounting policy to account for shipping and handling
activities as a fulfillment cost rather than as an additional
promised service. We have contracts with these customers or
orders may be placed from available price lists. Payment terms
vary by customer, but are typically less than 90 days.

We offer standard warranties to our customers that our

products are not defective. These standard warranties are not
considered separate performance obligations. In limited
circumstances, we offer extended warranties that are separate
performance obligations. We have very few contracts that have
multiple performance obligations. Since we do not have
significant multiple element arrangements and essentially all of
our sales are recognized upon implantation of a product or
when title passes, very little judgment is required to allocate
the transaction price of a contract or determine when control
has passed to a customer. Our costs to obtain contracts consist
primarily of sales commissions to employees or third party
agents that are earned when control of our product passes to
the customer. Therefore, sales commissions are expensed as
part of SG&A expenses at the same time revenue is
recognized. Accordingly, we do not have significant contract
assets, liabilities or future performance obligations.

We offer volume-based discounts, rebates, prompt pay

discounts, right of return and other various incentives which
we account for under the variable consideration model. If sales
incentives may be earned by a customer for purchasing a
specified amount of our product, we estimate whether such
incentives will be achieved and recognize these incentives as a
reduction in revenue in the same period the underlying
revenue transaction is recognized. We primarily use the
expected value method to estimate incentives. Under the
expected value method, we consider the historical experience
of similar programs as well as review sales trends on a
customer-by-customer basis to estimate what levels of
incentives will be earned. Occasionally, products are returned
and, accordingly, we maintain an estimated refund liability
based upon the expected value method that is recorded as a
reduction in revenue.

We analyze sales by three geographies, the Americas;

Europe, Middle East and Africa (“EMEA”); and Asia Pacific;

and by the following product categories: Knees; Hips; Surgical,
Sports Medicine, Biologics, Foot and Ankle, Extremities and
Trauma (“S.E.T.”); Spine & Craniomaxillofacial and Thoracic
(“CMF”); Dental; and Other. As discussed in Note 18, we have
seven operating segments that are based upon geography and
product categories. The geographic segments include sales of
all product categories exclusive of the specific product
category operating segments. The geographic operating
segments are the Americas, EMEA and Asia Pacific. These
three operating segments are our reporting segments. The
product category operating segments are Spine, less Asia
Pacific; Office Based Technologies; CMF; and Dental. The
product operating segments do not constitute a reporting
segment because they are, individually and on a combined
basis, insignificant to our consolidated results.

Our sales analysis differs from our reporting operating

segments because the underlying market trends in any
particular geography tend to be similar across product
categories, we primarily sell the same products in all
geographies and the product category operating segments are
not individually significant to our consolidated results.

Net sales by geography are as follows (in millions):

Americas

EMEA

Asia Pacific

Total

For the Years Ended December 31,

2019

2018

2017

$4,875.8

$4,837.2

$4,844.8

1,746.9

1,801.9

1,745.2

1,359.5

1,293.8

1,213.3

$7,982.2

$7,932.9

$7,803.3

Net sales by product category are as follows (in millions):

For the Years Ended December 31,

2019

2018

2017

$2,810.1

$2,773.7

$2,734.0

1,935.1

1,921.4

1,871.8

1,795.7

1,751.8

1,701.8

747.3

414.0

280.0

763.9

411.2

310.9

757.9

418.6

319.2

$7,982.2

$7,932.9

$7,803.3

Knees

Hips

S.E.T

Spine & CMF

Dental

Other

Total

Restructuring

In December 2019, our Board of Directors approved, and

we initiated, a new global restructuring program (the “2019
Restructuring Plan”) with an objective of reducing costs to
allow us to further invest in higher priority growth
opportunities. The 2019 Restructuring Plan is expected to
result in total pre-tax restructuring charges of approximately
$350 million to $400 million and reduce gross annual pre-tax

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

operating expenses by approximately $200 million to
$300 million by the end of 2023 as program benefits are
realized. The pre-tax restructuring charges will consist of
employee termination benefits; contract terminations for
facilities and sales agents; and other charges, such as
consulting fees, project management and relocation costs. The
restructuring charges incurred in 2019 primarily relate to
employee termination benefits, consulting and project
management. The following table summarizes the liabilities
recognized related to the 2019 Restructuring Plan (in
millions):

Balance, December 31, 2018

Additions

Cash payments

Employee
Termination
Benefits

Other

Total

–

23.2

–

13.1

36.3

–

(9.0)

Balance, December 31, 2019

$23.2

$ 4.1

$27.3

We do not include restructuring charges in the operating

profit of our reportable segments.

In our consolidated statement of earnings, we report

restructuring charges in our “Restructuring and other cost
reduction initiatives” financial statement line item. We report
the expenses for other cost reduction initiatives with
restructuring expenses because these activities both have the
goal of reducing costs across the organization. However, since
the cost reduction initiative expenses are not considered
restructuring, they have been excluded from the amounts
presented in this note.

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):

Total expense, pre-tax
Tax benefit related to awards

Total expense, net of tax

For
the Years Ended December 31,

2019

$84.3
21.8

$62.5

2018

$65.5
14.6

$50.9

2017

$53.7
12.5

$41.2

We had two equity compensation plans in effect at
December 31, 2019: the 2009 Stock Incentive Plan (“2009
Plan”) and the Stock Plan for Non-Employee Directors. We
have reserved the maximum number of shares of common
stock available for awards 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, 2019, an aggregate of
7.8 million shares were available for future grants and awards
under these plans.

Stock Options

Stock options granted to date under our plans vest over
two or 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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of stock option activity for the year ended December 31, 2019 is as follows (options in thousands):

Outstanding at January 1, 2019

Options granted

Options exercised

Options forfeited

Options expired

Outstanding at December 31, 2019

Vested or expected to vest as of December 31, 2019

Exercisable at December 31, 2019

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

The following table presents information regarding the

weighted average fair value of stock options granted, the
assumptions used to determine fair value, 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,

2019

2018

2017

0.8%

22.1% 22.1% 21.6%

2.4%

2.7%

2.0%

5.5

5.2

5.3

Weighted average fair value of options

granted

$28.68

$26.66

$26.09

Intrinsic value of options exercised

(in millions)

$ 76.8

$ 46.6

$ 67.6

Tax benefit of options exercised

(in millions)

$ 15.8

$ 6.8

$ 27.7

As of December 31, 2019, there was $48.6 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 2.5 years.

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life

Intrinsic
Value
(in millions)

Stock
Options

7,763

$100.29

1,488

123.76

(1,633)

85.97

(303)

117.28

(30)

115.12

7,285

$107.53

7,057

$107.10

3,890

$ 97.15

6.6

5.1

$307.1

$300.5

$204.3

RSUs

We have awarded RSUs to certain of our employees. The
terms of the awards have been from five months to four years.
Some of the awards have only service conditions while some
have performance and market conditions in addition to service
conditions. 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 five months to four
years.

A summary of nonvested RSU activity for the year ended

December 31, 2019 is as follows (RSUs in thousands):

Outstanding at January 1, 2019

Granted

Vested

Forfeited

Weighted Average
Grant Date
Fair Value

$112.81

132.69

108.35

114.61

RSUs

1,347

508

(210)

(417)

Outstanding at December 31, 2019

1,228

118.11

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 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, 2019, we estimate that approximately 777,336
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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that we expect to vest, the unrecognized share-based payment
expense as of December 31, 2019 was $47.8 million and is
expected to be recognized over a weighted-average period of
2.1 years. The fair value of RSUs that vested during the years
ended December 31, 2019, 2018 and 2017 based upon our
stock price on the date of vesting was $26.3 million,
$18.7 million, and $31.2 million, respectively.

Inventories

Inventories consisted of the following (in millions):

Finished goods

Work in progress

Raw materials

Inventories

As of December 31,

2019

2018

$1,875.4

$1,797.7

231.0

278.6

230.4

228.4

$2,385.0

$2,256.5

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, 2019, 2018 and 2017 were $221.4 million,
$226.1 million and $128.4 million, respectively.

Property, Plant and Equipment

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, 2019 of $450 million combined. 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. As a result, our risk of loss is 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 $21.8 million and
$33.0 million as of December 31, 2019 and 2018, respectively.
In Europe, we sell to a third party and have no continuing

involvement or significant risk with the factored accounts
receivable.

Funds received from the transfers are recorded as an

increase to cash and a reduction of accounts receivable
outstanding in the consolidated balance sheets. We report the
cash flows attributable to the sale of the 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 SG&A expense.
Net expenses included any resulting gains or losses from the
sales of receivables, credit insurance and factoring fees.

Property, plant and equipment consisted of the following

For the years ended December 31, 2019, 2018 and 2017,

(in millions):

Land

Building and equipment

Capitalized software costs

Instruments

Construction in progress

Accumulated depreciation

As of December 31,

2019

2018

27.6

28.0

2,007.0

1,885.6

482.4

425.8

3,250.5

2,950.5

149.3

147.2

5,916.8

5,437.1

(3,839.4)

(3,421.7)

Property, plant and equipment, net

$ 2,077.4

$ 2,015.4

Depreciation expense was $421.8 million, $442.6 million

and $454.1 million for the years ended December 31, 2019,
2018 and 2017, respectively.

We had $39.8 million and $49.3 million of property, plant

and equipment included in accounts payable as of
December 31, 2019 and 2018, respectively.

Transfers of Financial Assets

We have receivables purchase arrangements with

unrelated third parties to liquidate portions of our trade
accounts receivable balance. The receivables relate to
products sold to customers and are short-term in nature. The
factorings were treated as sales of our accounts receivable.

we sold receivables having an aggregate face value of
$3,116.2 million, $2,706.4 million and $1,456.9 million to
third parties in exchange for cash proceeds of $3,113.9 million,
$2,704.9 million and $1,455.6 million, respectively. Expenses
recognized on these sales during the years ended
December 31, 2019, 2018 and 2017 were not significant. For
the years ended December 31, 2019, 2018 and 2017 under the
U.S. and Japan programs, we collected $2,857.4 million,
$2,273.5 million and $1,031.2 million, respectively, from our
customers and remitted that amount to the third party, and we
effectively repurchased $184.6 million, $208.9 million and
$96.3 million, respectively, of previously sold accounts
receivable from the third party due to the programs’ revolving
nature. At December 31, 2019 and 2018, we had collected
$54.6 million and $66.8 million, respectively, that were
unremitted to the third party, which are reflected in our
consolidated balance sheets under other current liabilities.
The initial collection of cash from customers and its
remittance to the third party is reflected in net cash provided
by/(used in) financing activities in our consolidated
statements of cash flows.

At December 31, 2019 and 2018, the outstanding principal

amount of receivables that has been derecognized under the
U.S. and Japan revolving arrangements combined amounted to
$270.2 million and $365.9 million, respectively.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements of Assets and Liabilities

We value our foreign currency forward contracts 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, foreign
currency exchange rates and the terms of our swaps, and we
perform ongoing assessments of counterparty credit risk.

The following financial assets and liabilities are recorded

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

As of December 31, 2019

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)

Recorded
Balance

$39.1

60.5

$99.6

$ 0.6

–

$39.1

60.5

$99.6

$ 0.6

–

As of December 31, 2018

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)

Recorded
Balance

$45.7

17.9

$63.6

$ 0.5

2.5

$ 3.0

–

$45.7

17.9

$63.6

$ 0.5

2.5

$ 3.0

–

Description

Assets

Derivatives, current and

long-term

Foreign currency forward

contracts

Interest rate swaps

Total Assets

Liabilities

Derivatives, current and long-

term

Foreign currency forward

contracts

Total Liabilities

Description

Assets

Derivatives, current and long-

term

Foreign currency forward

contracts

Interest rate swaps

Total Assets

Liabilities

Derivatives, current and long-

term

Foreign currency forward

contracts

Interest rate swaps

Total Liabilities

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Goodwill and Other Intangible Assets

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

Balance at January 1, 2018

Goodwill

Accumulated impairment losses

Currency translation

Impairment

Balance at December 31, 2018

Goodwill

Accumulated impairment losses

Other acquisitions

Currency translation

Balance at December 31, 2019

Goodwill

Accumulated impairment losses

Immaterial
Product Category
Operating
Segments

Asia
Pacific

Total

Americas

EMEA

$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

(12.4)

(57.6)

–

(567.0)

6.7

–

(34.8)

(408.9)

(98.1)

(975.9)

7,712.4

1,322.2

507.2

1,706.2

11,248.0

–

(567.0)

–

(1,086.6)

(1,653.6)

7,712.4

755.2

507.2

619.6

9,594.4

–

(12.6)

(5.4)

–

0.2

25.0

(1.9)

25.0

(19.7)

7,699.8

1,316.8

507.4

1,729.3

11,253.3

–

(567.0)

–

(1,086.6)

(1,653.6)

$7,699.8

$ 749.8

$507.4

642.7

$ 9,599.7

We have five reporting units with goodwill assigned to

them. We perform our annual test of goodwill impairment in
the fourth quarter of every year. In 2019, we performed a
qualitative test on our Americas and Asia Pacific reporting
units and concluded it was more likely than not the fair value
of these reporting units exceeded their carrying value. We
estimated the fair value of our EMEA, Dental and CMF
reporting units using the income and market approaches. The
estimated fair value of our EMEA and Dental reporting units
only exceeded their carrying values by less than 5 percent.
The estimated fair value of our CMF reporting unit exceeded
its carrying value by more than 25 percent.

We will continue to monitor the fair value of our EMEA
and Dental reporting units as well as our other three reporting
units in our interim and annual reporting periods. If our
estimated cash flows for these reporting units decrease, we
may have to record 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, foreign currency exchange rates used to
translate cash flows and comparable company valuation
indicators, which may impact our estimated fair values.

As indicated in Note 18, our operating segments may
change in 2020 which, under the applicable accounting rules,
could cause us to change our reporting units to which goodwill
is assigned and/or could cause the assets and related cash
flows assigned to a reporting unit to change. A change in
reporting units may lead us to perform interim impairment
tests on the new reporting units. We may have long-lived
assets that currently have a carrying value that is greater than
their fair value, but are not impaired because the impairment
test for long-lived assets compares the carrying value to
undiscounted cash flows. If the carrying value of assets that
are reallocated to a new reporting unit is greater than their
estimated fair value (as measured by their discounted cash
flows), we may need to record an impairment charge with
respect to that reporting unit.

During the year ended December 31, 2018, we recorded

goodwill impairment charges related to our Spine reporting
unit, our EMEA reporting unit and an insignificant reporting
unit of $401.2 million, $567.0 million and $7.7 million,
respectively. During the year ended December 31, 2017, we
recorded goodwill impairment charges related to our Office
Based Technologies and Spine reporting units of $32.7 million
and $272.0 million, respectively.

For more information on how the fair values of these
reporting units were determined in the prior periods and the
factors that led to impairment, please see our Annual Reports
on Form 10-K for the years ended December 31, 2018 and
2017.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31, 2019:

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

$ 3,634.0

$ 378.3

$ 659.9

$ 5,375.0

(1,487.6)

(191.9)

(207.6)

(1,489.4)

–

$165.4

$10,212.6

(95.3)

(3,471.8)

–

454.9

–

61.9

–

516.8

Total identifiable intangible assets

$ 2,146.4

$ 186.4

$ 907.2

$ 3,885.6

$ 61.9

$ 70.1

$ 7,257.6

As of December 31, 2018:

Intangible assets subject to amortization:

Gross carrying amount

Accumulated amortization

Intangible assets not subject to amortization:

Gross carrying amount

$ 3,638.5

$ 180.7

$ 664.2

$ 5,384.4

(1,282.7)

(177.6)

(169.3)

(1,194.5)

–

$128.3

$ 9,996.1

(80.0)

(2,904.1)

–

457.1

–

135.5

–

592.6

Total identifiable intangible assets

$ 2,355.8

3.1

$ 952.0

$ 4,189.9

$135.5

$ 48.3

$ 7,684.6

In 2019, we entered into an agreement and paid

For the Years Ending December 31,

$192.5 million to buy out certain licensing arrangements from
an unrelated third party. This new agreement and the related
payment replaced the variable royalty payments that
otherwise would have been due under the terms of previous
licensing arrangements through 2029. Under the new
agreement, we maintain the rights to the counterparty’s
intellectual property provided under the previous licensing
arrangements. The $192.5 million payment was recognized as
an intangible asset and will be amortized through 2029, which
represents the useful life of the intellectual property.

We recognized intangible asset impairment charges of
$70.1 million, $3.8 million and $26.8 million in the years ended
December 31, 2019, 2018 and 2017, respectively, in “Goodwill
and intangible asset impairment” on our consolidated
statements of earnings. The impairment charges were
primarily related to the abandonment of IPR&D projects that
were recognized as part of the Biomet merger purchase
accounting.

Estimated annual amortization expense based upon
intangible assets recognized as of December 31, 2019 for the
years ending December 31, 2020 through 2024 is (in millions):

2020

2021

2022

2023

2024

$576.9

562.8

556.3

551.6

543.4

11. Other Current Liabilities

Other current liabilities consisted of the following (in

millions):

As of December 31,

2019

2018

Other current liabilities:

License and service agreements

$ 179.3

$ 181.8

Salaries, wages and benefits

Litigation and product liability

Accrued liabilities

314.1

142.4

778.1

260.3

278.6

670.6

Total other current liabilities

$1,413.9

$1,391.3

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Debt

Our debt consisted of the following (in millions):

Current portion of long-term debt
4.625% Senior Notes due 2019
2.700% Senior Notes due 2020
U.S. Term Loan B

Total short-term debt

Long-term debt

2.700% Senior Notes due 2020
Floating Rate Notes due 2021
3.375% Senior Notes due 2021
3.150% Senior Notes due 2022
3.700% Senior Notes due 2023
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
1.164% Euro Notes due 2027
U.S. Term Loan B
U.S. Term Loan C
Japan Term Loan A
Japan Term Loan B
Debt discount and issuance costs
Adjustment related to interest rate swaps

As of December 31,

2019

2018

–
1,500.0
–

$ 500.0
–
25.0

$1,500.0

$ 525.0

–
450.0
300.0
750.0
300.0
2,000.0
253.4
317.8
395.4
561.3
561.3
561.3
–
–
106.9
194.7
(37.1)
6.4

$1,500.0
450.0
300.0
750.0
300.0
2,000.0
253.4
317.8
395.4
571.6
571.6
–
200.0
535.0
105.3
191.7
(42.7)
14.6

Total long-term debt

$6,721.4

$8,413.7

At December 31, 2019, our total current and non-current
debt of $8.2 billion consisted of $8.0 billion aggregate principal
amount of senior notes, which included $1.7 billion of Euro-
denominated senior notes (“Euro notes”), 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 $6.4 million,
partially offset by debt discount and issuance costs of
$37.1 million.

On November 15, 2019, we completed the offering of
€500 million aggregate principal amount of our 1.164% Euro
notes due November 15, 2027. Interest is payable on the
1.164% Euro notes on November 15 of each year until
maturity. We received net proceeds of approximately
$549.2 million from this offering, which were primarily used to
repay the $500 million principal amount 4.625% Senior Notes
due 2019 at maturity, and the remainder of which were used to
repay a portion of a U.S. term loan (“U.S. Term Loan C”).

On November 1, 2019, we entered into a revolving credit
agreement (the “2019 Credit Agreement”), which contains a
five-year unsecured multicurrency revolving facility of

$1.5 billion (the “2019 Multicurrency Revolving Facility”),
which replaced the previous $1.5 billion multicurrency
revolving credit facility (the “2016 Multicurrency Revolving
Facility”) and a U.S. term loan (“U.S. Term Loan B”) under our
credit agreement executed in September 2016 (as amended,
the “2016 Credit Agreement”). As of the date we entered into
the 2019 Credit Agreement, there were no borrowings
outstanding under the 2016 Multicurrency Revolving Facility
or U.S. Term Loan B. The 2019 Credit Agreement will mature
on November 1, 2024, with two one-year extensions
exercisable at our discretion and subject to required lender
consent. As of December 31, 2019, there were no outstanding
borrowings under the 2019 Multicurrency Revolving Facility.

On December 14, 2018, we entered into a credit

agreement (the “2018 Credit Agreement”) that provides for
U.S. Term Loan C, which is a two-year unsecured multi-draw
term loan facility for the Company in the principal amount of
$900.0 million, with a maturity date of December 14, 2020, and
borrowed $675.0 million under that facility. In January 2019,
we borrowed an additional $200.0 million under U.S. Term
Loan C and used those proceeds, along with cash on hand, to
repay the remaining $225.0 million outstanding under U.S.
Term Loan B issued under the 2016 Credit Agreement. Under
the applicable accounting rules, since $200.0 million of U.S.
Term Loan B was refinanced on a long-term basis before the
issuance of our consolidated financial statements, we classified
the refinanced portion of U.S. Term Loan B as long-term as of
December 31, 2018.

We have repaid $735.0 million and $140.0 million in

principal under U.S. Term Loan C during the years ended
December 31, 2019 and 2018, respectively, primarily with cash
from operations. As of December 31, 2019, we had no
borrowings outstanding under U.S. Term Loan C, and since
there are no more advances available under the 2018 Credit
Agreement, the 2018 Credit Agreement and U.S. Term Loan C
have terminated by their terms.

On March 19, 2018, we completed the offering of

$450.0 million aggregate principal amount of our floating rate
senior notes due March 19, 2021 and $300.0 million aggregate
principal amount of our 3.700% senior notes due March 19,
2023. Interest on the floating rate senior notes is equal to
three-month LIBOR plus 0.750% and is payable quarterly,
commencing on June 19, 2018, until maturity. Interest is
payable on the 3.700% senior notes semi-annually,
commencing on September 19, 2018, until maturity. We
received net proceeds of $749.5 million from this offering.
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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Borrowings under the 2019 Credit Agreement generally

bear interest at floating rates. We pay a facility fee on the
aggregate amount of the 2019 Multicurrency Revolving
Facility. The 2019 Credit Agreement contains 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. We were in compliance with all covenants under the
2019 Credit Agreement as of December 31, 2019.

These interest rate swaps were terminated concurrently with
the repayment of the remaining balance of U.S. Term Loan B
in 2019. In 2018 and 2019, we entered into cross-currency
interest rate swaps that we designated as net investment
hedges. The excluded component of these net investment
hedges is recorded in interest expense, net. See Note 14 for
additional information regarding our interest rate swap
agreements.

We also have available uncommitted credit facilities

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

totaling $45.3 million as of December 31, 2019.

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, except that the Floating
Rate Notes due 2021 do not have any applicable make-whole
premium. In addition, we may redeem, at our option, the
3.375% Senior Notes due 2021, the 3.150% Senior Notes due
2022, the 1.414% Euro notes due 2022, the 3.700% Senior
Notes due 2023, the 3.550% Senior Notes due 2025, the
2.425% Euro notes due 2026, the 1.164% Euro notes due
2027, 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, 2019, based on quoted prices for the specific
securities from transactions in over-the-counter markets
(Level 2), was $8,261.2 million. The estimated fair value of
Japan Term Loan A and Japan Term Loan B, in the aggregate,
as of December 31, 2019, based upon publicly available market
yield curves and the terms of the debt (Level 2), was
$300.1 million.

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.

At December 31, 2019 and 2018, the weighted average

interest rate for our borrowings was 2.9 percent and
3.1 percent, respectively. We paid $226.9 million,
$282.8 million, and $317.5 million in interest during 2019,
2018, and 2017, respectively.

13. Accumulated Other Comprehensive Income

AOCI 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 AOCI may be
reclassified to net earnings upon the occurrence of certain
events.

Our AOCI is comprised of foreign currency translation
adjustments, unrealized gains and losses on cash flow hedges,
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. Amounts related to defined benefit plans that are in
AOCI are reclassified over the service periods of employees in
the plan. See Note 15 for more information on our defined
benefit plans.

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

Foreign
Currency
Translation

Cash
Flow
Hedges

Defined
Benefit
Plan Items

Total
AOCI

$(31.3)
(1.5)
–

$ 20.9
30.6
(35.1)

$(177.0) $(187.4)
(24.4)
(30.1)

(53.5)
5.0

$(32.8)

$ 16.4

$(225.5) $(241.9)

Balance December 31, 2018
AOCI before reclassifications
Reclassifications to statements of earnings

Balance December 31, 2019

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Component of AOCI

Cash flow hedges

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

Defined benefit plans
Prior service cost
Curtailment gain
Unrecognized actuarial loss

Total reclassifications

Amount of Gain / (Loss)
Reclassified from AOCI

For the Years Ended December 31,

2019

2018

2017

Location on Statements of Earnings

$ 38.4
2.8
(0.6)

40.6
5.5

$(26.2)
–
(0.6)

(26.8)
(3.2)

$ 5.1
–
(0.5)

4.6
0.8

$ 35.1

$(23.6)

$ 3.8

$ 7.3
7.2
(21.8)

(7.3)
(2.3)

$ 9.9
–
(26.2)

(16.3)
(4.3)

$ 10.3
–
(22.1)

(11.8)
(4.5)

$ (5.0)

$(12.0)

$ (7.3)

$ 30.1

$(35.6)

$ (3.5)

Cost of products sold
Interest expense, net
Interest expense, net

Total before tax
(Benefit) provision for income taxes

Net of tax

Other expense, net
Other expense, net
Other expense, net

Total before tax
(Benefit) provision for income taxes

Net of tax

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

comprehensive income (loss) (in millions):

For the Years Ended December 31,

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

Before Tax

2019

2018

2017

2019

$ 12.1
34.6
(40.6)

$(148.7) $ 396.8
(116.0)
(4.6)

81.1
26.8

$13.6
4.0
(5.5)

Tax

2018

Net of Tax

2017

2019

2018

2017

$(13.3) $(48.2) $ (1.5) $(135.4) $445.0
(95.0)
30.6
(3.8)
(35.1)

(21.0)
(0.8)

68.2
23.6

12.9
3.2

assumptions

(56.4)

(22.7)

6.6

(7.9)

(5.0)

2.0

(48.5)

(17.7)

4.6

Total Other Comprehensive (Loss) Income

$(50.3) $ (63.5) $ 282.8

$ 4.2

$ (2.2) $(68.0) $(54.5) $ (61.3) $350.8

14. 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 our 4.625% Senior Notes due in 2019 and all of our 3.375% 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 4.625%
Senior Notes were repaid at maturity in 2019. The remaining unamortized balance related to the 3.375% Senior Notes as of
December 31, 2019 was $6.4 million, which will be recognized using the effective interest rate method over the remaining maturity
period of the 3.375% Senior Notes. As of December 31, 2019 and 2018, the following amounts were recorded on our consolidated
balance sheets related to cumulative basis adjustments for fair value hedges (in millions):

Balance Sheet Line Item

Long-term debt

Carrying Amount of the Hedged Liabilities

Cumulative Amount of Fair Value Hedging
Adjustment Included in the Carrying Amount
of the Hedged Liabilities

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

$306.2

$564.4

$6.4

$14.6

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Designated as Cash Flow Hedges

In 2014, we entered into forward starting interest rate
swaps that were designated as cash flow hedges of our 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, and the remaining loss to be
recognized at December 31, 2019 was $26.5 million, which will
be recognized using the effective interest rate method over the
remaining maturity period of the hedged notes.
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 U.S. Term Loan B. The interest rate swaps
minimized the exposure to changes in the LIBOR interest rates
while the variable-rate debt was outstanding. In the first
quarter of 2019, we terminated these interest rate swaps
concurrently with the repayment of the remaining balance of
U.S Term Loan B, and we recognized proceeds and interest
income of $2.8 million related to the termination.

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 and
November 2019, as discussed in Note 12, and designated
100 percent of the Euro notes to hedge our net investment in
certain wholly-owned foreign subsidiaries that have a
functional currency of Euro. All changes in the fair value of the
hedging instrument designated as a net investment hedge are

recorded as a component of AOCI in our consolidated balance
sheets.

At December 31, 2019, we had receive-fixed-rate,

pay-fixed-rate cross-currency interest rate swaps with notional
amounts outstanding of Euro 1,450 million, Japanese Yen
7 billion and Swiss Franc 50 million. These transactions further
hedge our net investment in certain wholly-owned foreign
subsidiaries that have a functional currency of Euro,
Japanese Yen and Swiss Franc. All changes in the fair value of
a derivative instrument designated as a net investment hedge
are recorded as a component of AOCI in the consolidated
balance sheets. The portion of this change related to the
excluded component will be amortized into earnings over the
life of the derivative while the remainder will be recorded in
AOCI until the hedged net investment is sold or substantially
eliminated. We recognize the excluded component in interest
expense, net on our consolidated statements of earnings. The
net cash received related to the receive-fixed-rate, pay-fixed-
rate component of the cross-currency interest rate swaps is
reflected in investing cash flows in our consolidated
statements of cash flows.

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 confirming 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 gains and losses are
temporarily recorded in AOCI and then recognized in cost of
products sold when the hedged item affects net earnings. On
our consolidated statements 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, 2019, 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, 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 2020 through June 2022.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2019, the notional amounts of outstanding
forward contracts entered into with third parties to purchase
U.S. Dollars were $1,496.3 million. As of December 31, 2019,
the notional amounts of outstanding forward contracts entered
into with third parties to purchase Swiss Francs were
$276.0 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. The net amount of these offsetting gains/
losses is recorded in other expense, net. 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.

Income Statement Presentation

Derivatives Designated as Cash Flow Hedges

Derivative instruments designated as cash flow hedges had the following effects, before taxes, on AOCI 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 AOCI

Years Ended December 31,

Amount of Gain / (Loss)
Reclassified from AOCI

Years Ended December 31,

Derivative Instrument

2019

2018

2017

Location on Statement of Earnings

2019

2018

2017

Foreign exchange forward contracts

$34.6

$82.8

$(116.5)

Cost of products sold

$38.4

$(26.2) $ 5.1

Interest rate swaps

Forward starting interest rate swaps

–

(1.7)

–

0.5

–

$34.6

$81.1

$(116.0)

Interest expense, net

2.8

–

Interest expense, net

(0.6)

(0.5)

$40.6

$(26.8) $ 4.6

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

sheet at December 31, 2019, together with settled derivatives where the hedged item has not yet affected earnings, was a net
unrealized gain of $17.4 million, or $16.4 million after taxes, which is deferred in AOCI. A gain of $38.4 million, or $33.1 million after
taxes, is expected to be reclassified to earnings in cost of products sold and a loss of $0.6 million, or $0.5 million after taxes, is
expected to be reclassified to earnings in interest expense, net over the next twelve months.

The following table presents the effects of fair value, cash flow and net investment hedge accounting on our consolidated

statements of earnings (in millions):

Total amounts of income and expense line items presented in the

statements of earnings in which the effects of fair value, cash flow and
net investment hedges are recorded
The effects of fair value, cash flow and net investment hedging:

Gain on fair value hedging relationships

Discontinued interest rate swaps

Gain (loss) on cash flow hedging relationships

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

Gain on net investment hedging relationships

Cross-currency interest rate swaps

Location and Amount of Gain/(Loss) Recognized in Income on Fair Value,
Cash Flow and Net Investment Hedging Relationships
Years Ended December 31,

2019

2018

2017

Cost of
Products
Sold

Interest
Expense,
Net

Cost of
Products
Sold

Interest
Expense,
Net

Cost of
Products
Sold

Interest
Expense,
Net

$2,252.6

$(226.9) $2,271.9

$(289.3) $2,132.9

$(325.3)

–

8.2

–

8.5

–
–
38.4

(0.6)
2.8
–

–
–
(26.2)

(0.6)
–
–

–

52.2

–

25.5

–

–
–
5.1

–

8.3

(0.5)
–
–

–

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Not Designated as Hedging Instruments

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,

Statements of Earnings

2019

2018

2017

Other expense, net

$(11.0)

$24.7

$(62.3)

These gains/(losses) do not reflect losses of $3.4 million and $41.2 million in 2019 and 2018, respectively, and gains of
$45.5 million in 2017 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, 2019 and 2018, all derivative instruments designated as fair value hedges and cash flow hedges are
recorded at fair value on our consolidated balance sheets. 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.

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

Asset Derivatives

Foreign exchange forward contracts

Interest rate swaps

Cross-currency interest rate swaps

Total asset derivatives

Liability Derivatives

Foreign exchange forward contracts

Cross-currency interest rate swaps

Total liability derivatives

As of December 31, 2019

As of December 31, 2018

Balance Sheet Location

Fair
Value

Balance Sheet Location

Fair
Value

Other current assets

$ 41.8

Other current assets

$37.9

Other assets

9.8

–

Other assets

60.5

$112.1

Other assets

20.9

2.8

15.1

$76.7

Other current liabilities

$ 7.9

Other current liabilities

$ 9.9

Other long-term liabilities

5.2

–

$ 13.1

Other long-term liabilities

3.7

2.5

$16.1

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

As of December 31, 2019

As of December 31, 2018

Location

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Gross
Amount

Offset

Net Amount
in Balance
Sheet

Other current assets

$41.8

$7.9

$33.9

$37.9

$9.6

Other assets

9.8

4.6

5.2

20.9

3.5

Other current liabilities

Other long-term liabilities

7.9

5.2

7.9

4.6

–

0.6

9.9

3.7

9.6

3.5

$28.3

17.4

0.3

0.2

Description

Asset Derivatives

Cash flow hedges

Liability Derivatives

Cash flow hedges

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

(loss) (in millions):

Derivative Instrument

Euro Notes

Cross-currency interest rate swaps

15. Retirement Benefit Plans

Amount of Gain / (Loss)
Recognized in AOCI

Years Ended December 31,

2019

2018

2017

$10.7

$ 57.6

$(146.0)

47.9

62.8

–

$58.6

$120.4

$(146.0)

We have defined benefit pension plans covering certain U.S. and Puerto Rico employees. Plan benefits are primarily based on
years of credited service and the participant’s average eligible compensation. The U.S. and Puerto Rico plans are frozen; meaning
there are no new participants that can join the plan and participants in the plan do not accrue additional years of service or
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.

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

2019

2018

2017

2019

2018

2017

$ 7.1

$ 8.0

$ 8.7

$ 19.0

$ 20.0

$ 17.7

16.2

14.2

14.0

9.0

8.1

8.4

(32.4)

(32.9)

(32.4)

(13.4)

(14.0)

(12.2)

(7.2)

0.8

(3.4)

19.3

–

1.2

(5.7)

23.7

–

0.4

(5.9)

17.9

–

0.2

–

1.1

(3.9)

(4.2)

(4.4)

2.5

4.2

$ 0.4

$ 8.5

$ 2.7

$ 13.2

$ 12.6

$ 14.8

In our consolidated statements of earnings, service cost is reported in the same location as other compensation costs arising

from services rendered by the pertinent employees while the other components of net pension expense are reported in other
expense, net.

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

2019

2018

2017

2019

2018

2017

4.38% 3.79% 4.33% 1.44% 1.18% 1.38%
3.29% 3.29% 3.29% 2.50% 2.09% 2.20%
7.75% 7.75% 7.75% 2.14% 2.19% 2.30%

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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Projected benefit obligation – beginning of year
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
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

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2019

2018

2019

2018

$396.0
7.1
16.2
3.6
–
(16.9)
68.2
–
(2.2)
–

$420.7
8.0
14.2
–
–
(20.3)
(21.1)
–
(5.5)
–

$631.1
19.0
9.0
–
20.6
(36.5)
77.8
(0.3)
–
19.7

$623.6
20.0
8.1
2.2
18.1
(36.9)
6.0
(0.3)
–
(9.7)

$472.0

$396.0

$740.4

$631.1

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2019

2018

2019

2018

$388.5
73.5
2.0
–
(2.2)
(16.9)
–
–

$433.6
(25.7)
6.4
–
(5.5)
(20.3)
–
–

$585.8
57.8
20.1
20.6
–
(36.5)
(0.3)
17.7

$574.9
7.5
31.7
18.1
–
(36.9)
(0.3)
(9.2)

$444.9

$388.5

$665.2

$585.8

$(27.1) $ (7.5) $(75.2) $(45.3)

For the Years Ended December 31,

U.S. and Puerto Rico

Foreign

2019

2018

2019

2018

–
(0.2)
(26.9)

–
(0.2)
(7.3)

$ 17.6
(1.1)
(91.7)

$ 15.3
(0.8)
(59.8)

$(27.1) $(7.5) $(75.2) $(45.3)

We estimate the following amounts recorded as part of AOCI will be recognized as part of our net pension expense during 2020

(in millions):

Unrecognized prior service cost

Unrecognized actuarial loss

U.S. and
Puerto Rico

$0.3

6.7

$7.0

Foreign

$(4.2)

4.0

$(0.2)

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2019

2018

2017

2019

2018

2017

3.40% 4.38% 3.78% 0.74% 1.41% 1.27%

3.29% 3.29% 3.29% 2.45% 2.13% 2.19%

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

2019

2018

2019

2018

$472.0

$396.0

$698.2

$451.4

444.9

388.5

619.1

394.4

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

As of December 31,

U.S. and Puerto Rico

Foreign

2019

2018

2019

2018

$472.0

$392.0

$721.5

$618.0

472.0
444.9

47.1
41.6

674.0
612.9

434.8
388.8

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,

2020
2021
2022
2023
2024
2025-2029

U.S. and
Puerto Rico

$ 20.2
21.5
22.4
23.4
23.8
126.1

Foreign

$ 27.5
29.7
28.3
29.5
29.6
158.9

The U.S. and Puerto Rico defined benefit retirement plans’ overall investment strategy is to balance total returns by

emphasizing long-term growth of capital while mitigating 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 0 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 investment strategy and objectives of the plans. Our benefits committee generally meets quarterly to
review performance.

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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our U.S. and Puerto Rico pension plan

assets by asset category was as follows (in millions):

As of December 31, 2019

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

$ 4.7

282.5

income securities

157.7

$4.7

–

282.5

157.7

Total

$444.9

$4.7

$440.2

As of December 31, 2018

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

$ 3.1

231.7

income securities

153.7

$3.1

–

231.7

153.7

Total

$388.5

$3.1

$385.4

The fair value of our foreign pension plan assets was as

follows (in millions):

As of December 31, 2019

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

As of December 31, 2018

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

$ 14.6

–

Equity securities

138.6

109.3

29.3

Fixed income
securities

Other types of
investments

Real estate

226.9

96.8

108.9

–

226.9

96.8

–

108.9

Total

$585.8

$123.9

$353.0

$108.9

As of December 31, 2019 and 2018, our defined benefit

pension plans’ assets did not hold any direct investment in
Zimmer Biomet Holdings common stock.

Equity securities are valued using a market approach,

based on quoted prices for the specific security from
transactions in active exchange markets (Level 1), or in some
cases where we are invested in mutual or collective funds,
based upon the net asset value per unit of the fund which is
determined from quoted market prices of the underlying
securities in the fund’s portfolio (Level 2). Fixed income
securities are valued using a market approach, based upon
quoted prices for the specific security or from institutional bid
evaluations. Real estate is valued by discounting to present
value the cash flows expected to be generated by the specific
properties.

The following table provides a reconciliation of the
beginning and ending balances of our foreign pension plan
assets measured at fair value that used significant
unobservable inputs (Level 3) (in millions):

Cash and cash
equivalents

$ 31.8

–

Equity securities

140.9

116.0

24.9

Fixed income
securities

Other types of
investments

Real estate

245.2

123.6

123.7

–

245.2

123.6

–

123.7

Beginning Balance

Gain on assets sold
Change in fair value of assets
Net purchases and sales
Translation gain

Ending Balance

–

December 31, 2019

$108.9
0.2
6.9
4.8
2.9

$123.7

We expect that we will have minimal legally required
funding requirements in 2020 for the qualified U.S. and Puerto
Rico defined benefit retirement plans, and we do not expect to
voluntarily contribute to these plans during 2020.
Contributions to foreign defined benefit plans are estimated to
be $19.6 million in 2020. We do not expect the assets in any of
our plans to be returned to us in the next year.

Total

$665.2

$147.8

$393.7

$123.7

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $52.6 million, $48.9 million and $47.9 million related
to these plans for the years ended December 31, 2019, 2018
and 2017, respectively.

16.

Income Taxes

A public referendum held in Switzerland passed the

Federal Act on Tax Reform and AHV Financing (“TRAF”),
effective January 1, 2020 and includes the abolishment of
various favorable federal and cantonal tax regimes. Swiss Tax
Reform provides transitional relief measures for companies
that are losing the tax benefit of a ruling, including a “step-up”
for amortizable goodwill, equal to the amount of future tax
benefit they would have received under their existing ruling,
subject to certain limitations. Certain provisions of the TRAF
were enacted in the third quarter of 2019, resulting in us
recognizing a provisional net tax benefit of $263.8 million. In
the fourth quarter of 2019, we recognized an additional
$51.2 million related to TRAF as well as the tax impact of
certain restructuring transactions in Switzerland.

the 2017 Tax Act, and consideration of proposed regulations
and other guidance issued during 2018, we recorded additional
income tax expense of $8.3 million. The additional $8.3 million
of tax expense consists of an adjustment to the toll charge or
transition tax provision of $11.3 million and a benefit of
$3.0 million related to the remeasurement of our deferred tax
assets and liabilities.

The 2017 Tax Act created a provision known as GILTI that

imposes a U.S. tax on certain earnings of foreign subsidiaries
that are subject to foreign tax below a certain threshold. The
Company has made an accounting policy election to reflect
GILTI taxes, if any, as a current income tax expense in the
period incurred.

The components of earnings (loss) before income taxes

consisted of the following (in millions):

For the Years Ended December 31,

2019

2018

2017

United States operations

$ (125.9) $(382.8) $(114.0)

Foreign operations

1,031.7

111.7

578.6

Total

$ 905.8

$(271.1) $ 464.6

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

taxes paid consisted of the following (in millions):

The 2017 Tax Act was enacted on December 22, 2017 and

Current:

contained several key provisions including, among other
things:
(cid:129) 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;

(cid:129) a reduction in the corporate income tax rate from 35 percent

to 21 percent for tax years beginning after December 31, 2017;
(cid:129) 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

(cid:129) 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.

In March 2018, the FASB issued ASU 2018-05, “Income

Taxes – Amendments to SEC Paragraphs Pursuant to SEC
Staff Accounting Bulletin No. 118.” The guidance provided for
a provisional one-year measurement period for entities to
finalize their accounting for certain tax effects related to the
2017 Tax Act. In 2017, we recorded a $1,272.4 million income
tax benefit related to provisional amounts for which the
accounting had not been finalized. In 2018, we completed our
calculation of the post-1986 E&P and related foreign taxes of
our foreign subsidiaries, as well as the classification of the E&P
as cash or non-cash and the finalization of all provisional items.
Based on the completed calculations related to the effects of

Federal

State

Foreign

Deferred:

Federal

State

Foreign

$ 65.5

$(46.2) $

438.5

9.8

24.4

2.4

237.7

116.6

(13.7)

313.0

94.8

427.2

(90.2)

37.9

(1,728.5)

(4.2)

(8.8)

(444.3)

(15.7)

(95.5)

48.0

(538.7)

13.4

(1,776.0)

(Benefit) provision for income taxes

$(225.7) $108.2

$(1,348.8)

Net income taxes paid

$ 192.5

$237.1

266.9

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The components of deferred taxes consisted of the

our effective tax rate is as follows:

following (in millions):

For the Years Ended December 31,

2019

2018

2017

U.S. statutory income tax rate

21.0%

35.0%

Deferred tax assets:

State taxes, net of federal deduction

0.8

(2.5)

1.8

Inventory

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 benefit relating to foreign derived

intangible income and U.S.
manufacturer’s deduction

R&D tax credit

Share-based compensation

Net uncertain tax positions, including

interest and penalties

U.S. tax reform

Switzerland tax reform and certain

restructuring transactions

Other

(10.2)

1.5

0.4

–

0.6

54.3

(4.9)

1.7

(32.0)

0.8

2.7

(75.2)

22.5

(12.2)

(24.0)

(4.5)

(1.2)

(0.4)

(0.2)

6.0

0.1

(1.7)

(1.2)

(2.6)

1.9

0.1

(25.5)

(17.0)

(3.1)

(273.8)

(34.8)

(0.1)

–

0.6

–

(0.8)

Net operating loss carryover

Tax credit carryover

Capital loss carryover

Product liability and litigation

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

Other

Total deferred tax liabilities

As of December 31,

2019

2018

$ 295.6

$ 271.5

514.4

374.3

33.8

8.3

40.4

45.5

28.6

24.6

79.0

29.2

7.9

92.6

35.3

27.3

15.2

48.8

1,070.2

902.1

(546.1)

(390.9)

524.1

511.2

77.6

94.4

772.3

42.9

1,301.3

14.1

892.8

1,409.8

Effective income tax rate

(24.9)% (39.9)% (290.3)%

Total net deferred income taxes

$ (368.7) $ (898.6)

Our operations in Puerto Rico benefit from various tax
incentive grants. These grants expire between fiscal years 2026
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.

Net operating loss carryovers are available to reduce

future federal, state and foreign taxable earnings. At
December 31, 2019, $391.6 million of these net operating loss
carryovers expire within a period of 1 to 20 years and
$122.8 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
$493.4 million and $348.9 million at December 31, 2019 and
2018, respectively.

Deferred tax assets related to tax credit carryovers are
available to offset future federal and state tax liabilities. At
December 31, 2019, $33.8 million of these tax credit carryovers
generally expire within a period of 1 to 16 years. Valuation
allowances for certain tax credit carryovers have been
established in the amount of $32.3 million and $25.2 million at
December 31, 2019 and 2018, respectively.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred tax assets related to capital loss carryovers are
also available to reduce future federal and foreign capital gains.
At December 31, 2019, $1.8 million of these capital loss
carryovers expire within a period of 1 year to 3 years and
$6.5 million of these capital loss carryovers have an indefinite
life. Valuation allowances for certain capital loss carryovers
have been established in the amount of $8.3 million and
$7.9 million at December 31, 2019 and 2018, respectively. The
remaining valuation allowances booked against deferred tax
assets of $12.1 million and $8.9 million at December 31, 2019
and 2018, respectively, relate primarily to accrued liabilities
and intangible assets that management believes, more likely
than not, will not be realized.

We intend to repatriate at least $5.0 billion of unremitted

earnings, of which the additional tax related to remitting
earnings is deemed immaterial as a portion of these earnings
has already been taxed as toll tax or GILTI and is not subject
to further U.S. federal tax. Portions of the additional tax would
also be offset by allowable foreign tax credits. Of the
$5.0 billion amount, we have an estimated $2.2 billion of cash
and intercompany notes available to repatriate and the
remainder is invested in the operations of our foreign entities.
The remaining amounts earned overseas are expected to be
permanently reinvested outside of the United States. If the
Company decides at a later date to repatriate these earnings to
the U.S., the Company would be required to provide for the net
tax effects on these amounts. The Company estimates that the
total tax effect of this repatriation would not be significant
under current enacted tax laws and regulations and at current
currency exchange rates.

The following is a tabular reconciliation of the total

amounts of unrecognized tax benefits (in millions):

For the Years Ended December 31,

2019

2018

2017

Balance at January 1

$685.5

$626.8

$ 649.3

Increases related to business

combinations

Increases related to prior periods

–

24.7

4.5

34.6

70.2

172.8

Decreases related to prior periods

(35.6)

(14.4)

(262.2)

Increases related to current period

133.2

41.9

24.8

Decreases related to settlements with

taxing authorities

(60.2)

(3.8)

(21.7)

Decreases related to lapse of statute of

limitations

(5.8)

(4.1)

(6.4)

Balance at December 31

$741.8

$685.5

$ 626.8

December 31, 2019, had a recognized liability for interest and
penalties of $109.2 million, which does not include any
increase related to business combinations.

During 2018, we accrued interest and penalties of
$18.5 million, and as of December 31, 2018, had a recognized
liability for interest and penalties of $94.2 million, which does
not include any increases related to business combinations.
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 $3.0 million of increase 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 $290 million decrease to a $30 million increase.

Our U.S. Federal income tax returns have been audited by
the IRS through 2012 and are currently under audit by the IRS
for years 2013-2015. The IRS has proposed adjustments for
years 2005-2012, primarily related to 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 as we pursue resolution
through petitions with the U.S. Tax Court for years 2005-2009
and the administrative process with the IRS Independent
Office of Appeals for years 2010-2012.

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 2011

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

$599.2

$549.1

$ 499.6

or later.

We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense. During 2019,
we accrued interest and penalties of $15.0 million, and as of

17. Capital Stock and Earnings per Share

We are authorized to issue 250.0 million shares of
preferred stock, none of which were issued or outstanding as
of December 31, 2019.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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,

2019

2018

2017

Weighted average shares outstanding for

basic net earnings per share

205.1

203.5

201.9

Effect of dilutive stock options and other

equity awards

1.6

–

1.8

Weighted average shares outstanding for

diluted net earnings per share

206.7

203.5

203.7

For the years ended December 31, 2019 and 2017, an
average of 0.9 million and 1.0 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. Since we incurred a net loss in the
year ended December 31, 2018, no dilutive stock options or
other equity awards were included as diluted shares.

18. Segment Data

We design, manufacture and market orthopedic
reconstructive products; sports medicine, biologics,
extremities and trauma products; spine, craniomaxillofacial
and thoracic products (“CMF”); office based technologies;
dental implants; and related surgical products. Our chief
operating decision maker (“CODM”) allocates 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, our

CODM evaluates performance based upon segment operating
profit exclusive of operating expenses pertaining to inventory
step-up and other inventory and manufacturing-related
charges, intangible asset amortization, goodwill and intangible
asset impairment, quality remediation, restructuring and other
cost reduction initiatives, acquisition, integration and related,
litigation, litigation settlement gain, certain EU Medical Device
Regulation expenses, other charges, 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.

Our CODM does not review asset information by operating

segment. Instead, our CODM reviews cash flow and other
financial ratios by operating segment.

These seven operating segments are the basis for our
reportable segment information provided below. The four
product category operating segments are individually
insignificant to our consolidated results and therefore do not
constitute a reporting segment either individually or combined.
For presentation purposes, these product category operating
segments have been aggregated. Certain insignificant prior
period reportable segment financial information has been
reclassified to conform to the current presentation.

As discussed in Note 4, in 2019 we initiated a

restructuring program. As of December 31, 2019, our operating
segments have not changed. However, it is likely in 2020 there
will be changes in either our operating segments or the
composition of operating profit in our current operating
segments. We cannot determine at this time what the impact
of those changes may be.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

For the Year Ended December 31, 2019

Net sales

Depreciation and amortization

Segment operating profit

Inventory and manufacturing-related charges

Intangible asset amortization

Intangible asset impairment

Quality remediation

Restructuring and other cost reduction initiatives

Acquisition, integration and related

Litigation

Litigation settlement gain

European Union Medical Device Regulation

Other charges

Operating profit

For the Year Ended December 31, 2018

Net sales

Depreciation and amortization

Segment operating profit

Inventory and manufacturing-related charges

Intangible asset amortization

Goodwill and intangible asset impairment

Quality remediation

Restructuring and other cost reduction initiatives

Acquisition, integration and related

Litigation

European Union Medical Device Regulation

Other charges

Operating profit

For the Year Ended December 31, 2017

Net sales
Depreciation and amortization

Segment operating profit

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

Intangible asset amortization

Goodwill and intangible asset impairment

Quality remediation

Restructuring and other cost reduction initiatives

Acquisition, integration and related

Litigation

Other charges

Operating profit

Americas

EMEA

Asia
Pacific

Immaterial
Product
Category
Operating
Segments

Global
Operations
and
Corporate
Functions

Total

$3,978.1

$1,538.6

$1,297.0

$1,168.5

–

$7,982.2

109.3

2,163.2

71.0

477.1

65.2

458.9

45.5

715.1

1,006.1

208.2

(1,124.1)

2,183.3

(53.9)

(584.3)

(70.1)

(82.4)

(50.0)

(12.2)

(65.0)

23.5

(30.9)

(120.5)

1,137.5

$3,932.6

$1,576.1

$1,236.9

$1,187.3

–

$7,932.9

120.4

2,084.4

70.3

479.3

66.6

435.3

45.0

206.6

738.2

1,040.5

(995.3)

2,210.3

(32.5)

(595.9)

(979.7)

(165.4)

(34.2)

(99.5)

(186.0)

(3.7)

(79.6)

33.8

$3,928.9
127.6

$1,523.4
71.7

$1,158.3
60.2

$1,192.7
45.7

–
757.5

$7,803.3
1,062.7

2,126.8

478.1

417.6

262.9

(859.8)

2,425.6
(70.8)

(603.9)

(331.5)

(195.1)

(17.6)

(262.2)

(104.0)

(41.2)

799.3

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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):

United States

Other countries

As of December 31,

2019

2018

$1,295.0

$1,235.1

782.4

780.3

Property, plant and equipment, net

$2,077.4

$2,015.4

U.S. sales were $4,592.1 million, $4,560.0 million, and
$4,582.2 million for the years ended December 31, 2019, 2018
and 2017, 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.

are unsecured. We have determined our incremental
borrowing rate by using our credit rating to estimate our
unsecured borrowing rate and applying reasonable
assumptions to reduce the unsecured rate for a risk
adjustment effect from collateral.

We adopted ASU 2016-02 – Leases (Topic 842) effective

January 1, 2019. Since we adopted the new standard using the
period of adoption transition method (see Note 2 for additional
information regarding the new standard), we are not required
to present 2018 and 2017 comparative disclosures under the
new standard. However, we are required to present the
required annual disclosures under the previous GAAP lease
accounting standard.

Information on our leases is as follows ($ in millions):

For the Years Ended December 31,

2019

2018

2017

$76.0

$72.2

$87.2

19. Leases

Lease cost

We own most of our manufacturing facilities, but lease

various office space, vehicles and other less significant assets
throughout the world. Our contracts contain a lease if they
convey a right to control the use of an identified asset, either
explicitly or implicitly, in exchange for consideration. Our lease
contracts are a necessary part of our business, but we do not
believe they are significant to our overall operations. We do not
have any significant finance leases. Additionally, we do not
have significant leases: where we are considered a lessor;
where we sublease our assets; with an initial term of twelve
months or less; with related parties; with residual value
guarantees; that impose restrictions or covenants on us; or that
have not yet commenced, but create significant rights and
obligations against us.

Our real estate leases generally have terms of between 5
to 10 years and contain lease extension options that can vary
from month-to-month extensions to up to 5 year extensions.
We include extension options in our lease term if we are
reasonably certain to exercise that option. In determining
whether an extension is reasonably certain, we consider the
uniqueness of the property for our needs, the availability of
similar properties, whether the extension period payments
remain the same or may change due to market rates or fixed
price increases in the contract, and other economic factors.
Our vehicle leases generally have terms of between 3 to 5 years
and contain lease extension options on a month-to-month
basis. Our vehicle leases are generally not reasonably certain to
be extended.

Under GAAP, we are required to discount our lease
liabilities to present value using the rate implicit in the lease,
or our incremental borrowing rate for a similar term as the
lease term if the implicit rate is not readily available. We
generally do not have adequate information to know the
implicit rate in a lease and therefore use our incremental
borrowing rate. Under GAAP, the incremental borrowing rate
must be on a collateralized basis, but our debt arrangements

Cash paid for leases recognized in

operating cash flows

Right-of-use assets obtained in exchange

for new lease liabilities

$73.6

$55.0

Right-of-use assets recognized in Other assets

Lease liabilities recognized in Other current liabilities

Lease liabilities recognized in Other long-term

liabilities

Weighted-average remaining lease term

Weighted-average discount rate

As of
December 31, 2019

266.7

64.2

215.5

6.3 years

2.7%

Our variable lease costs are not significant.
Our future minimum lease payments as of December 31,

2019 were (in millions):

For the Years Ending December 31,

2020

2021

2022

2023

2024

Thereafter

Total

Less imputed interest

Total

$ 70.5

57.4

42.0

34.3

29.0

74.1

307.3

27.6

$279.7

20. Commitments and Contingencies

On a quarterly and annual basis, we review relevant
information with respect to loss contingencies and update our
accruals, disclosures and estimates of reasonably possible
losses or ranges of loss based on such reviews. We establish
liabilities for loss contingencies when it is probable that a loss

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has been incurred and the amount of the loss can be
reasonably estimated. For matters where a loss is believed to
be reasonably possible, but not probable, no accrual has been
made.

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 the majority of these claims and
others are still pending. The majority of the pending U.S.
lawsuits are currently in a federal Multidistrict Litigation
(“MDL”) in the District of New Jersey (In Re: Zimmer Durom
Hip Cup Products Liability Litigation). Litigation activity in
the MDL is stayed pending finalization of 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 Germany, Netherlands and Italy.

Since 2008, we have recognized net expense of
$443.0 million for Durom Cup-related claims. In the years
ended December 31, 2019 and 2018, we lowered our estimate
of the number of Durom Cup-related claims we expect to settle
and, as a result, we recognized gains of $9.5 million and
$37.2 million, respectively, in selling, general and
administrative expense. We recognized $10.3 million in
expense for Durom Cup-related claims in 2017.

Our estimate as of December 31, 2019 of the remaining
liability for all Durom Cup-related claims is $59.9 million. We
expect to pay the majority of the Durom Cup-related claims
within the next few years.

Our understanding of clinical outcomes with the Durom
Cup and other large diameter hip cups continues to evolve. We
rely on significant estimates in determining the provisions for
Durom Cup-related claims, including our estimate of the
number of claims that we will receive and the average amount
we will pay per claim. The actual number of claims and the
actual amount we pay per claim may differ from our
estimates. Among other factors, since our understanding of the
clinical outcomes is still evolving, we cannot reasonably
estimate the possible loss or range of loss that may result from
Durom Cup-related claims in excess of the losses we have
accrued. Although we are vigorously defending these lawsuits,
their ultimate resolution is uncertain.

Zimmer M/L Taper, M/L Taper with Kinectiv

Technology, and Versys Femoral Head-related claims: We
are a defendant in a number of product liability lawsuits
relating to our M/L Taper and M/L Taper with Kinectiv
Technology hip stems, and Versys Femoral Head implants. The

plaintiffs seek damages for personal injury, alleging that
defects in the products lead to corrosion at the head/stem
junction resulting in, among other things, pain, inflammation
and revision surgery. The majority of the cases are
consolidated in an MDL created on October 3, 2018 in the U.S.
District Court for the Southern District of New York (In Re:
Zimmer M/L Taper Hip Prosthesis or M/L Taper Hip
Prosthesis with Kinectiv Technology and Versys Femoral
Head Products Liability Litigation). Other related cases are
pending in various state and federal courts. Additional lawsuits
are likely to be filed. 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, most of which involve the
M2a-Magnum hip system. Cases are currently consolidated in
an MDL in the U.S. District Court for the Northern District of
Indiana (In Re: Biomet M2a Magnum Hip Implant Product
Liability Litigation) and in various state, federal and foreign
courts, with the majority of domestic state court cases pending
in Indiana and Florida.

On February 3, 2014, Biomet announced the settlement of

the MDL. Lawsuits filed in the MDL by April 15, 2014 were
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, or are in the process of being remanded to
their originating jurisdictions. 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, 2019 of the remaining liability for all Biomet
metal-on-metal hip implant claims is $50.1 million. 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 then-current line of European Cements
and to compensate Heraeus for any damages incurred.

Germany: 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

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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, which it first increased to
€125.9 million and with a filing in June 2019 further increased
to €146.7 million plus statutory interest. As of December 31,
2019, these two proceedings remained pending in front of the
Darmstadt court. In September 2017, Heraeus filed an
enforcement action in the Darmstadt court against Biomet
Europe, requesting that a fine be imposed against Biomet
Europe for failure to disclose the amount of the European
Cements which Biomet Orthopaedics Switzerland had ordered
to be manufactured in Germany (e.g., for the Chinese
market). In June 2018, the Darmstadt court dismissed
Heraeus’ request. Heraeus appealed the decision. 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. On June 29, 2018, the court in Freiberg,
Germany dismissed Heraeus’ request for an injunction
prohibiting the marketing of the European Cements under
their current names on the grounds that the same request had
already been decided upon by the Frankfurt Decision which
became final and binding. Heraeus has appealed this decision
to the Court of Appeals in Karlsruhe, Germany. The appeals
hearing occurred in December 2019.

United States: On September 8, 2014, Heraeus filed a

complaint against a Biomet supplier, Esschem, Inc.
(“Esschem”), in the U.S. District Court for the Eastern District
of Pennsylvania. The lawsuit contained allegations that focused
on two copolymer compounds that Esschem sold to Biomet,
which Biomet incorporated 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 Uniform 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. On February 21, 2018, Heraeus filed a notice of
appeal to the U.S. Court of Appeals for the Third Circuit, which
heard oral argument on the appeal on October 23, 2018. On
June 21, 2019, the Third Circuit partially reversed the decision
of the U.S. District Court for the Eastern District of
Pennsylvania granting Esschem summary judgment and
remanded the case back to the lower court. On July 5, 2019,
Esschem filed a petition in the Third Circuit for rehearing en
banc and a motion in the alternative to certify a question of
state law to the Supreme Court of Pennsylvania, which was
denied on August 1, 2019.

On December 7, 2017, Heraeus filed a complaint against

Zimmer Biomet Holdings, Inc. and Biomet, Inc. in the U.S.
District Court for the Eastern District of Pennsylvania alleging
a single claim of trade secret misappropriation under the
Pennsylvania Uniform Trade Secrets Act based on the same
factual allegations as the Esschem litigation. On March 5, 2018,
Heraeus filed an amended complaint adding a second claim of
trade secret misappropriation under Pennsylvania common
law. Heraeus seeks to enjoin the Zimmer Biomet parties from
future use of the allegedly misappropriated trade secrets and
recovery of unspecified damages for alleged past use. On
April 18, 2018, the Zimmer Biomet parties filed a motion to
dismiss both claims. On March 8, 2019, the court stayed the
case pending the Third Circuit’s decision in the Esschem case
described above. In September 2019, the Zimmer Biomet
parties filed a motion to stay the proceedings pending (1) the
court’s decision on Esschem’s motion for summary judgment in
the Esschem case described above and (2) the outcome of the
U.S. International Trade Commission complaint filed by
Heraeus asserting similar claims, described below under
“Regulatory Matters, Government Investigations and Other
Matters.” The Zimmer Biomet parties’ motion remained
pending as of December 31, 2019.

Other European Countries: 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. On
October 2, 2018, the Belgian Court of Appeal of Mons issued a
judgment in favor of Heraeus relating to its request for past
damages caused by the alleged misappropriation of its trade
secrets, and an injunction preventing future sales of certain
European Cements in Belgium (the “Belgian Decision”). We
appealed this judgment to the Belgian Supreme Court. The
Belgian Supreme Court dismissed our appeal in October 2019
and this decision is final. Heraeus filed a suit in Belgium
concerning the continued sale of the European Cements with
certain changed materials. Like its suit in Germany, Heraeus

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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. On May 7,
2019, the Liège Commercial Court issued a judgment that
Zimmer Biomet failed to inform its hospital and surgeon
customers of the changes made to the composition of the
cement with certain changed materials and ordered, as a sole
remedy, that Zimmer Biomet send letters to those customers,
which we have done. We and Heraeus have each filed an
appeal to the judgment.

On February 13, 2019, a Norwegian court of first instance

issued a judgment in favor of Heraeus on its claim for
misappropriation of trade secrets. The court awarded damages
of 19,500,000 NOK, or approximately $2.3 million, plus
attorneys’ fees, and issued an injunction, which is not final and
thus not currently being enforced, preventing Zimmer Biomet
Norway from marketing in Norway bone cements identified
with the current product names and bone cements making use
of the trade secrets which were acknowledged in the Frankfurt
Decision. We have appealed the Norwegian judgment to the
court of second instance.

On October 29, 2019, an Italian court of first instance

issued a judgment in favor of Heraeus on its claim of
misappropriation of trade secrets, but did not yet order an
award of damages. We intend to appeal the decision.

Heraeus is pursuing damages and injunctive relief in

France in an effort to prevent us from manufacturing,
marketing and selling the European Cements (the “France
Litigation”). The European Cements are manufactured at our
facility in Valence, France. On December 11, 2018, a hearing
was held in the France Litigation before the commercial court
in Romans-sur-Isère. On May 23, 2019, the commercial court
ruled in our favor. On July 12, 2019, Hereaus filed an appeal to
the court of second instance in Grenoble, France. Although we
are vigorously defending the France Litigation, the ultimate
outcome is uncertain. An adverse ruling in the France
Litigation could have a material adverse effect on our business,
financial condition and results of operations.

We have accrued an estimated loss relating to the
collective trade secret litigation, including estimated legal
costs to defend. Damages relating to the Frankfurt Decision
are subject to separate proceedings, and the Belgian court
appointed an expert to determine the amount of damages
related to the Belgian Decision. Thus, it is reasonably possible
that our estimate of the loss we may incur may change in the
future. Although we are vigorously defending these lawsuits,
their ultimate resolution is uncertain.

Stryker patent infringement lawsuit: On December 10,
2010, Stryker Corporation and related entities (“Stryker”) filed
suit against us in the U.S. District Court for the Western
District of Michigan, alleging that certain of our Pulsavac® Plus
Wound Debridement Products infringe three U.S. patents
assigned to Stryker. The case was tried beginning on
January 15, 2013, and on February 5, 2013, the jury found that
we infringed certain claims of the subject patents. The jury

awarded $70.0 million in monetary damages for lost
profits. The jury also found that we willfully infringed the
subject patents. We filed multiple post-trial motions, including
a motion seeking a new trial. On August 7, 2013, the trial court
issued a ruling denying all of our motions and awarded treble
damages and attorneys’ fees to Stryker. We filed a notice of
appeal to the Court of Appeals for the Federal Circuit to seek
reversal of both the jury’s verdict and the trial court’s rulings
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 lost profits 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 attorneys’ 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. Oral argument before the Federal
Circuit took place on December 3, 2018 and the Federal
Circuit affirmed the trial court’s ruling in full on December 10,
2018. We accrued an estimated loss of approximately
$168.0 million related to the award of treble damages and
attorneys’ fees in the three-month period ended December 31,
2018. On January 23, 2019, we filed a petition with the Federal
Circuit for a rehearing en banc. On March 19, 2019, the
petition for rehearing en banc was denied. In late March 2019,
we paid the outstanding judgment of approximately
$168.0 million. On June 17, 2019, we filed a petition for
certiorari seeking U.S. Supreme Court review of the Federal

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Circuit’s decision. On October 7, 2019, the U.S. Supreme Court
denied certiorari.

Putative Securities 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, one of our officers and two
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. We and our current and
former officers and Board members named as defendants are
sometimes hereinafter referred to as the “Zimmer Biomet
Defendant group”. The former stockholders of ours who sold
shares of our common stock in secondary public offerings in
2016 are sometimes hereinafter referred to as the “Private
Equity Fund Defendant group”. 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
generally alleges that the defendants violated federal securities
laws by making materially false and/or misleading statements
and/or omissions about our compliance with U.S. Food and
Drug Administration (“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, plaintiffs filed their
omnibus response to the motions to dismiss on March 13, 2018
and the defendants filed their respective reply briefs on
May 18, 2018. On September 27, 2018, the court denied the
Zimmer Biomet Defendant group’s motion to dismiss in its
entirety. The court granted the Private Equity Fund Defendant
group’s motion to dismiss, without prejudice. On October 9,
2018, the Zimmer Biomet Defendant group filed a motion (i) to
amend the court’s order on the motion to certify two issues for
interlocutory appeal, and (ii) to stay proceedings pending
appeal. On February 21, 2019, that motion was denied. On
April 11, 2019, the plaintiffs moved for class certification. On
June 20, 2019, the Zimmer Biomet Defendant group filed its
response. The plaintiffs’ motion remained pending as of
February 18, 2020. The plaintiffs seek unspecified damages
and interest, attorneys’ fees, costs, and other relief. Although
we believe this lawsuit is without merit, during a mediation in
December 2019, plaintiffs and defendants, along with Zimmer
Biomet’s insurers, reached a settlement in principle to resolve
the claims. We have made an accrual for the proposed
settlement that we expect to be fully covered by our insurers.

Shareholder Derivative Actions: On June 14, 2019 and

July 29, 2019, two shareholder derivative actions, Green v.
Begley et al. and Detectives Endowment Association
Annuity Fund v. Begley et al., were filed in the Court of
Chancery in the State of Delaware. On October 2, 2019 and
October 11, 2019, two additional shareholder derivative
actions, Karp v. Begley et al. and DiGaudio v. Begley et al.,
were filed in the U.S. District Court for the District of
Delaware. The plaintiff in each action seeks to maintain the
action purportedly on our behalf against certain of our current
and former directors and officers (the “individual defendants”)
and certain former stockholders of ours who sold shares of our
common stock in various secondary public offerings in 2016
(the “private equity fund defendants”). The plaintiff in each
action alleges, among other things, breaches of fiduciary duties
against the individual defendants and insider trading against
two individual defendants and the private equity fund
defendants, based on substantially the same factual allegations
as the putative federal securities class action referenced above
(Shah v. Zimmer Biomet Holdings, Inc. et al.). The plaintiffs
do not seek damages from us, but instead request damages on
our behalf from the defendants of an unspecified amount. The
plaintiffs also seek attorneys’ fees, costs and other relief.

Regulatory Matters, Government Investigations and Other Matters

U.S. International Trade Commission Investigation:

On March 5, 2019, Heraeus filed a complaint with the U.S.
International Trade Commission (“ITC”) against us and certain
of our subsidiaries. The complaint alleges that Biomet
misappropriated Heraeus’ trade secrets in the formulation and
manufacture of two bone cement products now sold by
Zimmer Biomet, both of which are imported from our Valence,
France facility. Heraeus requested that the ITC institute an
investigation and, after the investigation, issue a limited
exclusion order and cease and desist orders. On April 5, 2019,
the ITC ordered an investigation be instituted into whether we
have committed an “unfair act” in the importation, sale for
importation, or sale after importation of certain bone cement
products, and the investigation is ongoing. An evidentiary
hearing in front of an administrative law judge at the ITC was
held in January 2020 and an initial determination is expected
to issue by May 2020. We cannot currently predict the outcome
of this investigation. An adverse outcome in this ITC
proceeding could have a material adverse effect on our
business, financial condition and results of operations.

FDA warning letters: In August 2018, we 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) (“QSR”) at our legacy Biomet manufacturing facility
in Warsaw, Indiana (this facility is sometimes referred to in
this report as the “Warsaw North Campus”). In September
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

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

facility. 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 Warsaw and Ponce. As of December 31, 2019, the Warsaw
and Ponce 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 QSR deviations at these facilities are reasonably
related will not be approved until the violations have been
corrected. In addition to responding to the warning letters
described above, we are in the process of addressing various
FDA Form 483 inspectional observations at certain of our
manufacturing facilities, including new observations issued by
the FDA following an inspection of the Warsaw North Campus
in January 2020. 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
products, seizure of products and assessing civil or criminal
penalties against our officers, employees or us. The FDA could
also issue a corporate warning letter or a recidivist warning
letter or negotiate the entry of a consent decree of permanent
injunction with us. The FDA may also recommend prosecution
by 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.

Deferred Prosecution Agreement (“DPA”) relating to
U.S. Foreign Corrupt Practices Act (“FCPA”) matters: On
January 12, 2017, we resolved previously-disclosed FCPA
matters involving Biomet and certain of its subsidiaries. As
part of the settlement, (i) Biomet resolved matters with the
U.S. Securities and Exchange Commission (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
addition, we are subject to oversight by an independent
compliance monitor, who was appointed effective as of
August 7, 2017. The monitorship may remain in place until
August 7, 2020. 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 and monitorship 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 the Office
of Inspector General of the Department of Health and Human
Services (“OIG”) 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.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Quarterly Financial Information (Unaudited)

(in millions, except per share data)

Net sales
Gross profit
Net earnings (loss) of Zimmer
Biomet Holdings, Inc.
Earnings (loss) per common
share

Basic
Diluted

2019 Quarter Ended

2018 Quarter Ended

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

$1,975.5
1,278.7

$1,988.6
1,260.4

$1,892.4
1,210.1

$2,125.7
1,396.1

$2,017.6
1,291.0

$2,007.6
1,274.4

$1,836.7
1,160.1

$2,071.0
1,339.6

246.1

133.7

431.1

320.7

174.7

185.0

162.2

(901.1)

1.20
1.20

0.65
0.65

2.10
2.08

1.56
1.54

0.86
0.85

0.91
0.90

0.80
0.79

(4.42)
(4.42)

In the three month period ended December 31, 2019, we recognized a $51.2 million tax benefit related to TRAF as well as the

tax impact of certain restructuring transactions in Switzerland.

In the three month period ended December 31, 2018, we recorded goodwill impairment charges of $975.9 million.

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

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as
defined in Rules 13a-15(e) and 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, 2019, 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 Exchange Act, 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:
(cid:129) Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;

Item 9B. Other Information

(cid:129) 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

(cid:129) Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a
material effect on the financial statements.

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

The Company’s management assessed the effectiveness of

the Company’s internal control over financial reporting as of
December 31, 2019. 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, 2019, 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, 2019, as stated in its report
which appears in Item 8 of this Annual Report on Form 10-K.

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, 2019 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting. As previously reported, on January 1, 2019
we adopted ASU 2016-02 – Leases (Topic 842). This ASU
requires lessees to recognize right-of-use assets and lease
liabilities on the balance sheet. As a result, we added
additional internal controls to comply with the new standard
in the first quarter of 2019.

During the fourth quarter of 2019, 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. This
disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act.

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

PART III

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated by reference from our definitive Proxy Statement for the annual meeting of

stockholders to be held on May 8, 2020 (the “2020 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
https://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 2020 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 2020 Proxy Statement.

Item 13. Certain Relationships and Related Transactions and Director Independence

Information required by this item is incorporated by reference from our 2020 Proxy Statement.

Item 14. Principal Accountant Fees and Services

Information required by this item is incorporated by reference from our 2020 Proxy Statement.

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

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1.

Financial Statements

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

The following consolidated financial statements of Zimmer Biomet Holdings, Inc. and its subsidiaries are set forth in
Part II, Item 8.

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts (in millions):

Description

Allowance for Doubtful Accounts:

Year Ended December 31, 2017

Year Ended December 31, 2018

Year Ended December 31, 2019

Deferred Tax Asset Valuation Allowances:

Year Ended December 31, 2017

Year Ended December 31, 2018

Year Ended December 31, 2019

Balance at
Beginning
of Period

Additions
Charged
(Credited)
to Expense

Deductions /
Other Additions
to Reserve

Effects of
Foreign
Currency

Acquired
Allowances

Balance at
End of
Period

$ 51.6

$13.6

$ (5.1)

$ 0.1

60.2

65.7

10.7

5.5

(3.6)

(5.3)

(1.6)

(0.9)

–

$ 60.2

65.7

65.0

$ 88.3

$41.3

$(10.3)

$ 2.8

$18.5

$140.6

140.6

390.9

48.2

(6.6)

206.2(1)

165.7(1)

(4.1)

(3.9)

–

390.9

546.1

(1) Primarily relate to amounts generated by tax rate changes or current year activity which have offsetting changes to
the associated attribute and therefore there is no resulting impact on tax expense in the consolidated financial
statements.

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

INDEX TO EXHIBITS

Exhibit No

Description

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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. dated October 11, 2019 (incorporated by reference to Exhibit 3.1
to the Registrant’s Current Report on Form 8-K filed October 11, 2019)

Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on
Form 10-Q filed August 5, 2019)

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 5.750% Note due 2039 (incorporated by reference to Exhibit 4.4 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 2.700% 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)

Form of 1.414% Notes due 2022 (incorporated by reference to Exhibit 4.14 above)

Form of 2.425% Notes due 2026 (incorporated by reference to Exhibit 4.14 above)

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)

Fifth Supplemental Indenture, dated as of March 19, 2018, 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 March 19, 2018)

Form of Floating Rate Notes due 2021 (incorporated by reference to Exhibit 4.19 above)

Form of 3.700% Notes due 2023 (incorporated by reference to Exhibit 4.19 above)

Sixth Supplemental Indenture, dated as of November 15, 2019, 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 November 15, 2019)

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15

4.16

4.17

4.18

4.19

4.20

4.21

4.22

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

Exhibit No

Description

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

4.23

4.24

10.1*

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*

Form of 1.164% Notes due 2027 (incorporated by reference to Exhibit 4.22 above)

Agency Agreement, dated as of November 15, 2019, by and between Zimmer Biomet Holdings, Inc., as issuer, Elavon
Financial Services DAC, UK Branch, as paying agent, U.S. Bank National Association, as transfer agent and registrar,
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 on November 15, 2019)

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)

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)

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)

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)

Offer Letter by and between Zimmer Biomet Holdings, Inc. and Ivan Tornos dated as of October 11, 2018
(incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed February 26, 2019)

Form of Change in Control Severance Agreement with Suketu Upadhyay, Ivan Tornos and Carrie Nichol (incorporated
by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed February 26, 2019)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Suketu Upadhyay, Ivan Tornos and
Carrie Nichol (incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed
February 26, 2019)

Swiss Employment Agreement by and between Zimmer GmbH and Didier Deltort dated as of June 28, 2018
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed November 1, 2018)

Offer Letter by and between Zimmer Biomet Holdings, Inc. and Didier Deltort dated as of June 28, 2018 (incorporated
by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed November 1, 2018)

Change in Control Severance Agreement by and between Zimmer GmbH and Didier Deltort dated as of October 9,
2018 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed November 1, 2018)

Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Zimmer GmbH and Didier Deltort
dated as of June 28, 2018 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed
November 1, 2018)

Form of Change in Control Severance Agreement with Daniel P. Florin (incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q filed August 10, 2015)

Change in Control Severance Agreement with Sang Yi (incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q filed November 9, 2015)

Form of Change in Control Severance Agreement with Chad F. Phipps (incorporated by reference to Exhibit 10.13 to
the Registrant’s Annual Report on Form 10-K filed February 27, 2009)

Offer Letter between Zimmer Biomet Holdings, Inc. and Suketu Upadhyay dated June 13, 2019 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 19, 2019)

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

Exhibit No

Description

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

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 Sang Yi (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed November 9, 2015)

Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Chad F. Phipps (incorporated by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed June 26, 2015)

Restated Zimmer Biomet Holdings, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed August 6, 2018)

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 Physical Sub Plan (incorporated by reference to Exhibit 10.47 to the
Registrant’s Annual Report on Form 10-K filed February 26, 2019)

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 Nonqualified Stock Option Award Agreement (two-year vesting) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form
10-K filed February 27, 2018)

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 Performance-Based Restricted Stock Unit Award Agreement (2018) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q filed May 8, 2018)

Form of Performance-Based Restricted Stock Unit Award Agreement (2019) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form
10-K filed February 26, 2019)

Form of Performance-Based Restricted Stock Unit Award Agreement (2020) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan

Form of Restricted Stock Unit Award Agreement (four-year vesting) under the Zimmer Biomet Holdings, Inc. 2009
Stock Incentive Plan

Form of Restricted Stock Unit Award Agreement (two-year cliff vesting) under the Zimmer Biomet Holdings, Inc.
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed
August 6, 2018)

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)

10.21*

10.22*

10.23*

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*

10.40*

10.41*

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

Exhibit No

Description

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

10.42*

10.43*

10.44*

10.45*

10.46

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

31.1

31.2

101

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 Performance-Based Restricted Stock Unit Award Agreement (Upadhyay one-time award) under the Zimmer
Biomet Holdings, Inc. 2009 Stock Incentive Plan

Aircraft Time Sharing Agreement by and between Zimmer, Inc. and Bryan C. Hanson (incorporated by reference to
Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K filed February 27, 2018)

First Amendment to Aircraft Time Sharing Agreement by and between Zimmer, Inc. and Bryan C. Hanson
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed August 5, 2019)

Credit Agreement, dated as of November 1, 2019, among Zimmer Biomet Holdings, Inc., Zimmer Biomet G.K., Zimmer
Luxembourg II S.À.R.L., the other 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 party thereto (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed November 5, 2019)

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)

First Amendment, dated as of April 23, 2018, to the 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

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)

Credit Agreement, dated as of December 14, 2018, among Zimmer Biomet Holdings, Inc., Bank of America, N.A., as
Administrative Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed December 20, 2018)

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 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

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL
tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

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

Exhibit No

Description

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary

None

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

SIGNATURES

2 0 1 9 F O R M 1 0 - K AN N U A L R E P O R T

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

ZIMMER BIOMET HOLDINGS, INC.

By: /s/ Bryan Hanson
Bryan Hanson
President and Chief Executive Officer

Dated: February 21, 2020

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 Hanson

Bryan Hanson

/s/ Suketu Upadhyay

Suketu Upadhyay

/s/ Carrie Nichol

Carrie Nichol

/s/ Christopher Begley

Christopher Begley

/s/ Betsy Bernard

Betsy Bernard

/s/ Gail Boudreaux

Gail Boudreaux

/s/ Michael Farrell

Michael Farrell

/s/ Larry Glasscock

Larry Glasscock

/s/ Robert Hagemann

Robert Hagemann

/s/ Arthur Higgins

Arthur Higgins

Maria Teresa Hilado

/s/ Syed Jafry

Syed Jafry

/s/ Michael Michelson

Michael Michelson

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

February 21, 2020

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

February 21, 2020

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

February 21, 2020

Director

February 21, 2020

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

2 0 1 9 F O R M 1 0 - K AN 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, 2019, 2018, 2017, 2016 and 2015
(in millions, unaudited)

2019

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

$1,137.5

Inventory step-up and other inventory and manufacturing related charges(2) . . . . . . . . . . . . . .

Intangible asset amortization(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill and intangible asset impairment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quality remediation(2)

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

Restructuring and other cost reduction initiatives(2)

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

Acquisition, integration and related(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Litigation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Litigation settlement gain(2)

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

European Union Medical Device Regulation(2)

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

Other charges(2)

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

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

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

53.9

584.3

70.1

87.6

50.0

12.2

65.0

(23.5)

30.9

120.5

–

For the Years Ended December 31,

2018

33.8

32.5

595.9

979.7

165.4

34.2

99.5

186.0

—

3.7

79.6

–

2017

2016

2015(1)

$ 799.3

$ 821.1

$ 467.3

70.8

603.9

331.5

195.1

17.6

262.2

104.0

–

468.3

565.9

31.1

54.3

–

504.9

33.3

–

41.2

(11.0)

348.8

337.4

–

7.7

831.8

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

$2,188.5

$2,210.3

$2,425.6

$2,467.9

$1,993.0

(1)

In 2018, we reclassified expenses that were previously recognized in a financial statement line item labeled “Acquisition, quality remediation
and other” (and prior to that, labeled “Special items”) to the financial statement line items of “Research and development,” “Selling, general and
administrative,” “Goodwill and intangible asset impairment,” “Acquisition, integration and related” and “Quality remediation”. We reclassified
2017 and 2016 to conform to the current year presentation, however, 2015 was not reclassified. We made this change to provide additional
transparency and better reflect the nature of these expenses.

(2) Please refer to pages 30 and 31 of this annual report for detailed explanations of each adjustment.

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

2 0 1 9 F O R M 1 0 - K AN 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, 2019, 2018, 2017, 2016 and 2015
(in millions, unaudited)

For the Years Ended December 31,

2019

2018

2017

2016

2015(1)

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

14.2% 0.4% 10.2% 10.7% 7.8%

Inventory step-up and other inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and manufacturing related charges(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangible asset amortization(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill and intangible asset impairment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quality remediation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring and other cost reduction initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquisition, integration and related(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Litigation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.7

7.3

0.9

1.1

0.6

0.2

0.8

Litigation settlement gain(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.3)

European Union Medical Device Regulation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other charges(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

0.4

1.5

–

0.4

7.5

12.4

2.1

0.4

1.3

2.3

–

0.9

7.7

4.2

2.5

0.2

3.4

1.3

–

6.1

7.4

0.4

0.7

–

6.6

0.4

–

1.1

0.7

(0.1)

5.8

5.6

–

0.1

13.9

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

27.4% 27.9% 31.1% 32.2% 33.2%

(1)

(2) Please refer to pages 30 and 31 of this annual report for detailed explanations of each adjustment.

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

2 0 1 9 F O R M 1 0 - K AN 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, 2019, 2018, 2017, 2016 and 2015
(unaudited)

For the Years Ended December 31,

2019

2018

2017

2016

2015(1)

Diluted Earnings (Loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5.47

$(1.86) $ 8.90

$ 1.51

$ 0.77

Inventory step-up and other inventory and manufacturing related charges(2) . . . . . . . . . . . . . . . . . . . . . .

Intangible asset amortization(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill and intangible asset impairment(2)

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

Quality remediation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring and other cost reduction initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquisition, integration and related(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Litigation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.26

2.83

0.34

0.42

0.24

0.06

0.31

Litigation settlement gain(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.11)

European Union Medical Device Regulation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other charges(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

Debt extinguishment cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense on Biomet merger financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.15

0.58

–

0.16

2.93

4.81

0.81

0.17

0.49

0.91

–

0.02

0.41

–

0.35

2.96

1.63

0.96

0.09

1.28

0.51

–

2.32

2.80

0.15

0.27

–

2.49

0.16

–

0.22

(0.03)

1.84

1.78

–

0.26

–

0.04

4.38

0.12

0.37

Taxes on above items(2)

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

(1.09)

(1.18)

(2.07)

(2.22)

(2.57)

Biomet merger-related measurement period tax adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. tax reform(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–

0.26

0.04

(6.25)

Switzerland tax reform(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.52)

–

Other certain tax adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.07)

(0.02)

(0.55)

(0.01)

0.17

Effect of dilutive shares assuming net earnings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–

(0.05)

–

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

$ 7.87

$ 7.64

$ 8.03

$ 7.96

$ 6.90

(1)

(2) Please refer to pages 30 and 31 of this annual report for detailed explanations of each adjustment.

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

2 0 1 9 F O R M 1 0 - K AN 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, 2019
(unaudited)

For the Year Ended December 31, 2019

Reported
% Growth

Foreign
Exchange
Impact

Constant
Currency
% Growth

Geographic Segment

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

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

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

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

Product Category

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

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

S.E.T.

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

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

Dental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)

(2)

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

(10)

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

–%

(5)

(2)

(1)

(2)

(1)

(9)

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Financial Highlights (Dollars in millions except per share amounts)

Corporate Information (As of March 20, 2020)

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.

Independent Auditors
PricewaterhouseCoopers LLP
Chicago, IL, U.S.A.

Transfer Agent
Communications concerning stock transfer
requirements, loss of certificates and change of
address should be directed to Zimmer Biomet’s
Transfer Agent:

Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
+1-888-552-8493 (domestic)
+1-718-575-3336 (international)
Website: www.computershare.com

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

Keri Mattox
+1-215-275-2431
keri.mattox@zimmerbiomet.com

Cole Lannum
+1-508-409-9366
cole.lannum@zimmerbiomet.com

Dividend Reinvestment and Stock Purchase Plan

Computershare Trust Company, N.A. administers the Computershare CIP, a direct stock purchase and dividend reinvestment plan, which allows registered shareholders
to purchase additional shares of Zimmer Biomet common stock through the automatic reinvestment of dividends. The plan also allows registered shareholders to
purchase shares with optional cash investments of at least $25. The minimum initial investment for new investors is $10,000. Existing registered shareholders as well as
new investors may enroll in the plan online at www.computershare.com/investor, or by completing and submitting an enrollment form that may be obtained by
contacting Computershare at the address or telephone numbers shown above.

Stock Performance Graph

Comparison of Cumulative Total Return for years ended December 31

Assumes $100 was invested on
December 31, 2014 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

Zimmer Biomet Holdings, Inc.

S&P 500 Stock Index

S&P 500 Health Care Equipment Index

Baseline

$100

2015

$91

$101

$106

2016

$93

$114

$113

2017

$109

$138

$148

2018

$95

$132

$172

2019

$137

$174

$222

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.

This annual report is printed on paper that contains 10% post-consumer waste.

ZIMMER BIOMET HOLDINGS, INC., 345 EAST MAIN STREET, P.O. BOX 708, WARSAW, IN 46580, U.S.A.